As cGovernment-Regulatory-and-Criminal-Investigations.jpgitizens of a nation founded on the rule of law, we depend upon law enforcement and prosecutors to protect us from harm and from those who infringe our liberty.  In exchange for this protection, we permit these public servants to exercise authority and at times great power.  Thankfully, and it should go without saying, most law enforcement authorities honor the public’s trust by serving with integrity and by adhering to the highest of ethical standards.

But what is one to do on those rare occasions when prosecutors and law enforcement agents exceed and abuse their considerable power and authority?  Fortunately, victims of such overreaching have at least some opportunities for redress.  And a recent decision out of the Southern District of New York reflects one such attempt.

The backdrop of the case sounds like an episode of Billions: federal prosecutors in Manhattan target a hedge fund owner and allegedly rely on false statements to obtain a search warrant so they can—after tipping the media—conduct a highly-public raid that causes a hedge fund’s collapse.  But this actual legal drama continues to play out in New York, and as reported by Law360 and numerous others, the matter just took another interesting turn, as Judge William H. Pauley III allowed hedge fund owner David Ganek’s lawsuit against U.S. Attorney Preet Bharara and various federal prosecutors and FBI agents to continue.

Ganek’s lawsuit is known as a Bivens action.  In Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, the Supreme Court held that a victim of a Fourth Amendment violation by federal agents had a right to pursue damages from those agents despite any statute expressly conferring such a right.  See 403 U.S. 388, 397 (1971).  In so holding, the Court spoke directly to the government’s power and the attendant harm that such power can cause when abused:

Respondents seek to treat the relationship between a citizen and a federal agent unconstitutionally exercising his authority as no different from the relationship between two private citizens. In so doing, they ignore the fact that power, once granted, does not disappear like a magic gift when it is wrongfully used. An agent acting—albeit unconstitutionally—in the name of the United States possesses a far greater capacity for harm than an individual trespasser exercising no authority other than his own.  Id. at 391-92.

As such, when government abuse results in a clear violation of constitutional rights, the victims of that overreach may attempt to avail themselves of the rare occasion where government agents, under certain circumstances, may be unable to shield themselves via sovereign immunity.

These cases are few and far between.  This is appropriately so considering that the overwhelming majority of prosecutors and agents exercise sound judgment and appropriate discretion.  But courts have permitted such actions in cases like Bivens involving unlawful searches and seizures, as well as in cases involving violations of other crucial constitutional rights.  See, e.g., Davis v. Passman, 442 U.S. 228, 230 (1979) (Fifth Amendment violation based on discrimination in public employment); Carlson v. Green, 446 U.S. 14, 18 (1980) (Eighth Amendment violation by prison officials); Engel v. Buchan, 710 F.3d 698, 710 (7th Cir. 2013) (permitting claim for violation of due process related to Brady obligations).

Although Bivens actions are outliers, their continued viability is perhaps more important than ever.  This is an era of increasing enforcement by the government, whether it is the Justice Department’s newfound emphasis on individual prosecutions or any of the myriad investigations and actions brought by the assorted agencies covered by this blog.  This could potentially lead to an increase in governmental abuse of power and a curtailment of individual liberty.  It is a risk worth monitoring and defending against.

From Theory to Practice

Judge Pauley’s decision in David Ganek’s lawsuit against U.S. Attorney Bharara and other prosecutors and agents in the Southern District of New York—albeit at a preliminary stage of litigation—proves that Bivens actions still have potential currency.  It is important to note that this decision is simply a denial of Mr. Bharara’s and the other defendants’ motions to dismiss the lawsuit.  And at this stage, the Court had to accept all of Ganek’s allegations as true.  Ganek has a long road to travel to prove these allegations before there can be any finding of liability, and it is likely that at least several defendants will eventually be dismissed.

But it is a significant hurdle to have overcome and it is an intriguing case.  According to Ganek’s complaint, and as summarized in Judge Pauley’s opinion, the FBI in late 2010 executed coordinated raids on numerous hedge funds, including Ganek’s Level Global Investors, a successful fund that employed 60 people and managed $4 billion in assets.  As noted by the Court, “[t]hese raids sent shockwaves through Wall Street: investment bankers and traders were indicted, and multi-billion businesses—including Level Global—were shuttered.”  Order at 1.  These apparent triumphs by the government, however, have been undermined by more recent events.  Judge Pauley explains: “five years later, a different picture has emerged.  The Second Circuit rejected the Government’s theory of insider trading.  Criminal convictions were vacated, and indictments dismissed.  And in a nearly unprecedented role reversal, the SEC agreed to disgorge monies it collected in connection with consent judgments against various hedge funds, including Level Global.”  Id.

Within this shifting landscape, Ganek brought a civil action against government officials for violating his Fourth and Fifth Amendment constitutional rights.  “More specifically, Ganek alleges that the affidavit supporting the Government’s request for a search warrant of Level Global and his office contained deliberate misrepresentations that were later exposed by sworn trial testimony of an FBI agent and a government informant.” Id.

Ganek’s Complaint Adequately Pleaded a Violation of His Fourth Amendment Rights

In assessing Ganek’s complaint, the Court acknowledged that the defendants—all government officials—were entitled to qualified immunity if they could establish that Ganek failed to plausibly plead that the defendants personally violated his constitutional rights or that those rights were not clearly established at the time.

Although Judge Pauley dismissed certain claims, he found that Ganek adequately alleged that the defendants violated his Fourth Amendment rights because the warrant relied upon materially false statements and thus was not properly based on probable cause.  And while the Court seemed more skeptical of Ganek’s separate “failure to intercede” claim, which alleged that the defendants failed to intervene to prevent harm from occurring to him, the Court permitted it to proceed against all defendants, including supervisors like Mr. Bharara.  In that context, Judge Pauley observed that “[u]nquestionably, there are circumstances where government agents would be ethically and constitutionally obligated to correct misrepresentations in warrant applications,” and that “[c]ertainly, government attorneys are ethically obligated to limit the collateral damage resulting from government investigations.”  Order at 28.  These are important reminders of the heightened ethical standards we demand from agents and prosecutors.

The ruling of course only permits the litigation to continue to discovery, and the Court hinted at times that certain claims will face tougher obstacles at the summary judgment phase or beyond.  It may well be that the defendants will be vindicated, and so we caution against making too much of this case at present.  But the fact that such an action can survive dismissal at all proves that the theory of the Bivens suit is alive and that it continues to provide an important, even if rarely used, check on the abuse of government power.