UNITED STATES OF AMERICA, PETITIONER V. THOMAS M. GAUBERT

   No. 89-1793

   In The Supreme Court Of The United States

   October Term, 1990

   On Writ Of Certiorari To The United States Court Of Appeals For The
Fifth Circuit

   Brief For The Petitioner

        TABLE OF CONTENTS
   Question presented
   Opinions below
   Jurisdiction
   Statutory provision involved
   Statement
     1. Regulatory background
     2. Factual background
     3. Proceedings below
   Summary of argument
   Argument:
     The challenged actions of the federal regulatory officials all
     fit within the discretionary function exception to the FTCA
     A. The court of appeals erred in concluding that the
discretionary
        function exception does not apply to "operational" activities
     1. The discretionary function exception protects the judgments of
        federal officials that are grounded in social, economic, or
        political policy
     2. The "discretionary" actions of federal officials are immune
        from suit under the FTCA regardless of whether those actions
        are "operational"
     B. The challenged actions of the federal regulatory officials are
        typical of the "discretionary functions" that Congress
excepted
        from liability under the FTCA
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1a-20a) is reported
at 885 F.2d 1284.  The district court opinion (Pet. App. 21a-26a) is
unreported.

                             JURISDICTION

   The judgment of the court of appeals (Pet. App. 28a-29a) was
entered on October 17, 1989.  A petition for rehearing was denied on
January 5, 1990.  Pet. App. 30a.  On March 23 and April 27, 1990,
Justice White extended the time for filing a petition for a writ of
certiorari to and including May 17, 1990.  The petition was filed on
May 16, 1990, and was granted on June 18, 1990.  The jurisdiction of
this Court rests on 28 U.S.C. 1254(1).

                     STATUTORY PROVISION INVOLVED

   The relevant section of the Federal Tort Claims Act, 28 U.S.C.
2680(a), is reprinted in an appendix to this brief.

                          QUESTION PRESENTED

   Whether supervisory actions that were taken by federal regulators
of financial institutions, and that required the exercise of policy
discretion, fall within the "discretionary function" exception to the
Federal Tort Claims Act, 28 U.S.C. 2680(a), regardless of whether
those actions may be categorized as "operational" in nature.

                               STATEMENT

   This tort action arises out of regulatory activities undertaken by
officials of the Federal Home Loan Bank Board (FHLBB or the Board) and
the Federal Home Loan Bank-Dallas (FHLB-D), with respect to
Independent American Savings Association (IASA), a now-failed Texas
thrift institution.  Respondent Thomas Gaubert, a major shareholder
and former officer of IASA, brought this action under the Federal Tort
Claims Act (FTCA), 28 U.S.C. 1346(b), 2671-2680.  Respondent contends
that he suffered personal financial losses because of IASA's failure,
and he alleges that this failure was caused by negligence of federal
regulators in their supervision of IASA.  The sole issue presented for
review is whether the court of appeals correctly interpreted the
FTCA's discretionary function exception, 28 U.S.C. 2680(a).  /1/

   1. Regulatory Background

   The context within which the actions at issue took place is the
extensive statutory scheme for the federal regulation of financial
institutions.  As a state-chartered thrift institution whose accounts
were insured by the Federal Savings and Loan Insurance Corporation
(FSLIC), IASA was subject to federal regulation pursuant to Title IV
of the National Housing Act, 12 U.S.C. 1724-1730i (1988).  /2/

   These statutory powers were entrusted to a number of related
federal bodies, all under the overall supervision of the Board.  The
Board itself was an independent agency of the federal government, with
broad responsibilities for the regulation of both federally chartered
and state-chartered thrift institutions.  See 12 U.S.C. 1437 (1988).
FSLIC was a corporation that was established by Congress to provide
insurance for deposits in both state and federally chartered thrift
institutions and that operated under the direction of the Board.  12
U.S.C. 1725(a) (1988).  FSLIC operated in two separate and legally
distinct capacities -- as a federal regulator (charged with protecting
the insurance fund against undue risk by examining and regulating
insured institutions), and as a receiver of failed institutions.  The
Federal Home Loan Banks, including FHLB-D, were regional banks
established by the Board for the purpose of assisting member
institutions.  12 U.S.C. 1423 (1988).  The Board supervised the
activities of the various FHLBs, and was specifically empowered to
assign to the personnel of any FHLB most of the regulatory functions
of the Board itself, or of FSLIC.  12 U.S.C. 1437(a) (1988).  /3/

   The regulatory powers of greatest relevance here are those provided
in 12 U.S.C. 1729 and 1730 (1988).  Section 1729(c), for example,
empowered the Board, under certain circumstances, to appoint FSLIC as
the conservator or receiver of an insured institution.  Section 1730
conferred a wide range of enforcement authority on FSLIC, in its
regulatory capacity, over state-chartered thrift institutions.  /4/
For example, Section 1730(b) provided for formal proceedings that
could result in the termination of FSLIC insurance.  Section 1730(e)
provided for proceedings in which FSLIC could issue orders requiring
an insured institution to cease and desist from engaging in any
practices found either to be in violation of a pertinent statute or
regulation, or to constitute an unsafe or unsound banking practice.
Section 1730(f) provided for expedited, temporary cease-and-desist
orders under certain circumstances.  Section 1730(g) provided for the
suspension or removal of any officer or director of an insured
institution on a number of grounds, including violations of a statute,
regulation, or fiduciary duty.  Pursuant to 12 U.S.C. 1730(m)(2),
FSLIC also had broad investigatory powers in aid of its regulatory
functions.

   Not all instances of misconduct or regulatory concern have been
handled by institution of such formal proceedings.  Like other federal
regulators, the Board and FSLIC have often engaged in more informal
methods of ensuring compliance with regulatory standards.  Regulators
may, for example, forbear from initiating formal enforcement
proceedings in exchange for assurances that regulated parties will
refrain from certain conduct or take specified corrective steps.
Federal agencies involved in the regulation of financial institutions
have turned to such approaches frequently, especially in light of the
growing case load confronting those agencies.  See generally United
States v. Philadelphia National Bank, 374 U.S. 321, 330 (1963);
Vartanian & Schley, Bank Officer and Director Liability -- Regulatory
Actions, 39 Bus. Law. 1021, 1027-1028 (1984).  In a policy statement,
FHLBB specifically addressed the use of such procedures, noting the
appropriateness in many instances of "informal supervisory guidance"
or negotiated "supervisory agreement(s)" in lieu of formal regulatory
steps.  See FHLBB Res. No. 82-381 (May 26, 1982).  /5/

   2. Factual Background /6/

   In 1983, respondent acquired a controlling interest in Citizens
Savings and Loan Association, a federally insured thrift institution
chartered by the State of Texas.  A new board of directors (of which
respondent was the chairman) changed the name of the institution to
Independent American Savings Association and embarked on a course of
substantial expansion.  J.A. 7-8;  Exh. J, at 58-59.  The actions on
which respondent's complaint is based began in early 1984.

   In May 1984, the FHLB-Des Moines requested the institution of an
investigation, pursuant to 12 U.S.C. 1730(m)(2), of certain operations
of Capitol Savings and Loan Association, an Iowa institution in which
respondent had had substantial dealings.  /7/ During that period, IASA
proposed to enter into two transactions that would greatly increase
the scope of its operations:  the purchase of Investex Savings
Association, a troubled Texas thrift institution;  and the purchase of
22 branch offices from United Savings Association, another Texas
thrift.  See Amended Compl. paras. 16-19, J.A. 9-10;  Exh. J, at
60-63.  /8/ Completion of those transactions required approval by
federal regulators.  See 12 U.S.C. 1730(q) (1988);  12 C.F.R. Pt. 574.

   In part because of concerns of possible misconduct by respondent
relating to the Iowa institution, federal officials had misgivings
about permitting this substantial expansion of IASA under respondent's
control.  See Exh. J, at 68.  Some officials also expressed concern as
to whether IASA, with the greatly increased assets and liabilities it
would have following the proposed transactions, would be adequately
capitalized.  Id. at 69.  In late 1984, FHLB-D and FHLBB staff
recommended the institution of formal proceedings to remove respondent
as an officer and director of IASA and prohibit his further
involvement with its management (pursuant to 12 U.S.C. 1730(g)(2)
(1988)), and the institution of a formal examination of IASA (pursuant
to 12 U.S.C. 1730(m)(2) (1988)).  /9/ Meanwhile, federal regulators
were engaged in negotiations with IASA and respondent concerning
possible ways of allaying these concerns and allowing the transactions
to go forward.  See Exh. J, at 69-74.  These negotiations resulted in
the execution in December 1984 of a written "neutralization agreement"
between respondent and the federal regulators.  See Amended Compl.
paras. 12-15, J.A. 9;  Exh. J, at 77-78.  The agreement provided that
respondent would resign from management positions at IASA and refrain
from any participation in the management of the institution, and
imposed limits on respondent's ability to vote or transfer his IASA
stock.  Exh. J, at 77-78.  The agreement also included a guarantee by
respondent of IASA's net worth, backed by his pledge of personal
assets.  See Amended Compl. para. 14, J.A. 9;  Exh. J, at 78.  Federal
regulators approved the proposed acquisitions noted above, Exh. J, at
78, and offered advice and assistance to IASA in carrying out these
transactions.  Amended Compl. para. 19, J.A. 10.

   During 1985, investigations continued, and in August 1985 the FHLBB
staff recommended the institution of proceedings, pursuant to 12
U.S.C. 1730(g)(2) (1988), permanently to bar respondent from
involvement with FSLIC-insured institutions.  See Exh. J, at 95-105;
Exh. C, at 31-32.  Discussions continued between respondent and
federal regulators in late 1985, resulting in a second agreement, set
forth in a letter from respondent to the FHLBB dated December 17,
1985.  Exh. D.  Under the terms of that agreement, respondent agreed
to remove himself permanently from IASA's management and not to serve
as an officer or director of any FSLIC-insured institution without
prior approval.  In return, FHLBB agreed to discontinue the
investigation it was conducting under 12 U.S.C. 1730(m)(2) (1988) and
to forbear from the institution of removal proceedings under 12 U.S.C.
1730(g)(2) (1988).

   Early in 1986, additional matters came to light that increased the
federal regulators' concerns regarding IASA's soundness.  In February
and March 1986, reports from a management consulting firm indicated
that IASA was in a precarious financial situation.  Exh. C, at 39.
The report cited numerous possible regulatory violations, as well as
unsafe and unsound practices.  Ibid.  FHLBB personnel commenced a
special examination of IASA on March 3, 1986, which also revealed
unsafe and unsound financial practices and other regulatory
violations.  Id. at 39-41.  In lieu of instituting formal proceedings
against IASA, the federal regulators entered into discussions with
IASA, as a result of which IASA officers and directors resigned and
were replaced by individuals approved by FHLB-D personnel.  See
Amended Compl. paras. 20-32, J.A. 10-13.  /10/ FHLB-D provided
indemnification of the new officers and directors in order to induce
them to take on these responsibilities.  Id. para. 32, J.A. 13;  Exh.
C, at 46.

   According to the reports mentioned above and others prepared by
accounting and consulting firms, IASA at this time faced substantial
difficulties -- including books that were not in condition to permit a
reliable audit, and the prospect of continuing financial losses.  See
Exh. C, at 47-48.  The new IASA officers and directors took various
steps aimed at dealing with this situation, such as making major
adjustments to IASA's financial statements and placing an IASA
subsidiary into bankruptcy.  Id. at 48-49.  During this time, federal
regulators continued to forbear from taking formal regulatory actions
against IASA, but consulted regularly with IASA personnel about their
efforts to deal with the situation.  See Amended Compl. paras. 33-37,
J.A. 13-16.  As alleged in the amended complaint, FHLB-D officials
frequently gave advice to IASA managers on a variety of topics.  Id.
para. 33, J.A. 14.  Specifically, the amended complaint charges that
FHLB-D personnel "arranged for" the hiring of a particular consultant
by IASA, urged IASA to convert to federally chartered status, gave
advice concerning the placement of subsidiaries into bankruptcy,
mediated salary disputes involving IASA officers, reviewed draft
litigation papers, and "intervened" in dealings between IASA and a
state regulatory body.  Id. para. 34, J.A. 14-16.

   Whether in spite of or (as respondent alleges) because of these
efforts, IASA's condition continued to decline.  In January 1987,
FHLBB began consideration of a recommendation that IASA be put into
receivership.  See Exh. C.  At about the same time, the IASA
shareholders declined to elect a slate of directors allegedly chosen
by federal regulators, and reinstated some of the individuals who had
earlier been on the board.  See Amended Compl. para. 40, J.A. 17;
Gaubert v. FHLBB, 863 F.2d 59, 61 (D.C. Cir. 1988).  Subsequently, the
State of Texas became conservator, there was another board change, and
ultimately in May 1987 the Texas Savings and Loan Department closed
IASA.  FHLBB thereupon promptly exercised its authority, pursuant to
12 U.S.C. 1729(c)(2) (1988), to appoint FSLIC as the receiver.  See
Gaubert v. Hendricks, 679 F. Supp. 622, 623 (N.D. Tex. 1988).

   3. Proceedings Below

   a. Following the denial of an administrative claim made under 28
U.S.C. 2675, respondent instituted this FTCA action in April 1988.
/11/ As amended, respondent's complaint contained allegations
regarding most of the matters discussed above, including the
neutralization agreement, Amended Compl. paras. 12-15, J.A. 9;  the
actions surrounding the approval of the Investex merger, id. paras.
16-19, J.A. 9-10;  the replacement of IASA's management, id. paras.
20-26, J.A. 10-11;  the installation of a new board of directors, id.
paras. 27-32, J.A. 12-13;  and the subsequent involvement of federal
regulators in IASA's "day-to-day operations," id. paras. 33-37, J.A.
13-16.  Respondent futher alleged that federal officials acted
negligently in carrying out these activities, id. paras. 44-58, J.A.
17-19, and that IASA's insolvency and other problems were caused by
such negligence, id. paras. 38-39, 49, 59, J.A. 16-17, 18, 19.

   The United States moved to dismiss on the ground that the
challenged actions were exempt from suit under the discretionary
function exception to the FTCA, 28 U.S.C. 2680(a).  The district court
granted the motion, holding that all of respondent's claims were
barred by that exception.  Pet. App. 21a-26a.  The court recognized
that the amended complaint focused on actions suggested to IASA by
federal regulators, in which IASA was induced to acquiesce by the
threat of receivership or other formal regulatory action.  Id. at
23a-24a.  Concluding that a decision to seek receivership would
unquestionably fall within the discretionary function exception, the
court determined that a decision to exert informal suasion in lieu of
such formal enforcement is likewise discretionary in nature and
therefore also within the exception.  Id. at 24a-25a.  Accordingly,
the court concluded that the present action fell outside the FTCA's
limited waiver of sovereign immunity.  Id. at 25a-26a.

   b. The court of appeals reversed in part, holding that as a matter
of law certain actions taken by the federal regulators were not
subject to the discretionary function exception.  Pet. App. 1a-20a.

   The court began its analysis of the discretionary function
exception with a discussion of this Court's ruling in Indian Towing
Co. v. United States, 350 U.S. 61 (1955).  Pet. App. 6a-7a.  While
acknowledging that the government had not invoked the discretionary
function exception in that case, the court of appeals referred to the
case as having established a "principled distinction between policy
decisions and operational actions," a distinction that "still retains
its force today and is dispositive of this case." Id. at 7a.  The
court of appeals then discussed this Court's recent discretionary
function cases, United States v. S.A. Empresa De Viacao Aerea Rio
Grandense (Varig Airlines), 467 U.S. 797 (1984), and Berkovitz v.
United States, 486 U.S. 531 (1988).  Pet. App. 7a-11a.  With respect
to Varig Airlines, the court noted this Court's central holding that
the discretionary function exception is aimed at "prevent(ing)
judicial 'second-guessing' of legislative and administrative decisions
grounded in social, economic, and political policy through the medium
of an action in tort." Id. at 9a (quoting Varig Airlines, 467 U.S. at
814).  And in Berkovitz, the court of appeals observed, the
discretionary function analysis had been ruled unavailable where
government officials violate express statutory or regulatory
requirements.  Id. at 10a.  The court then stated that the holding in
Berkovitz was "(u)nfortunately" not dispositive of this case, since
FHLBB and FHLB-D officials did not violate any express statutory or
regulatory provisions.  Id. at 11a.  The court found guidance,
however, in a footnote in Berkovitz, which cited Indian Towing as an
example of a case not involving the sort of policy discretion covered
by the discretionary function exception.  Ibid. (quoting Berkovitz,
486 U.S. at 538 n.3).  In the court of appeals' view, "(a)ny doubts
about the sustained viability of th(e) ("discretionary
function/operational activity") distinction were put to rest" by that
footnote.  Ibid.  Thus, the court concluded, any activity that is
"operational in nature" necessarily falls outside the scope of the
exception.  Id. at 12a.  The court stated, in summary, that "the FHLBB
and FHLB-Dallas officials were only protected by the discretionary
function exception until their actions became operational in nature
and thus crossed the line established in Indian Towing." Id. at
12a-13a.

   Applying what it called "the Indian Towing test," Pet. App. 13a, to
the activities at issue in this case, the court of appeals agreed with
the district court about the initial actions taken by the federal
regulators.  "Clearly, the decision to merge IASA with Investex and
seek a neutralization agreement from (respondent) was a policy
oriented decision protected by Section 2680(a)." Id. at 13a-14a.
"Similarly," the court went on, "the decision to replace the IASA
Board of Directors with FHLBB approved persons, and the actions taken
to effectuate that decision, are protected under the discretionary
function exception." Id. at 14a.  The court held, however, that the
federal regulators ceased to perform "discretionary functions"

      when they began to advise IASA management and participate in
      management decisions, including hiring a consultant, directing
      that IASA convert to a federally-chartered entity, supervising
      the filing of litigation on behalf of IASA, and other
      allegations contained in Paragraphs 33-43 of (respondent's)
      amended complaint.

Ibid.  On the basis of this holding, the court remanded the case to
the district court for further proceedings.  Id. at 19a-20a.  /12/

                          SUMMARY OF ARGUMENT

   A. The court of appeals erred by deciding the discretionary
function issue in this case without carefully assessing the nature of
the discretion exercised, and by relying instead on a mechanical test
that finds no support in the language, history, or policies of the
FTCA.  Congress considered the discretionary function exception an
important element of the FTCA, and drafted it broadly to cover a wide
range of "discretionary" governmental activities.  The exception,
which has its roots in concern for the discretion of federal
regulatory agencies, reaches even clearly negligent acts, and -- by
its express terms -- even those constituting abuse of discretion.

   This Court first addressed the discretionary function exception in
Dalehite v. United States, 346 U.S. 15 (1953).  There, the Court,
drawing heavily on the legislative history of the FTCA and historic
legal concepts of "discretionary" governmental activity, gave a broad
reading to the exception, concluding that "(w)here there is room for
policy judgment and decision there is discretion." Id. at 36.
Subsequently, in Varig Airlines, the Court reaffirmed the principles
of Dalehite and refuted any notion that intervening cases had
undermined its authority.  Varig Airlines reaffirmed that "it is the
nature of the conduct," regardless of the level at which it is taken,
that governs application of the discretionary function exception, and
emphasized that actions of the government "in its role as a regulator"
lie at the core of the exception.  467 U.S. at 813-814.

   In its most recent discretionary function case, Berkovitz v. United
States, 486 U.S. 531 (1988), the Court dealt with the particular issue
of governmental actions alleged to be in violation of specific
statutory or policy mandates.  Ruling that where a specific course of
action is prescribed by law there can be no discretion at all, the
Court concluded that the exception would not apply to such cases.
Otherwise, however, the Court reaffirmed the vitality of the basic
test of Dalehite and Varig Airlines, which remain the controlling
precedents in cases where there is no contention that federal
officials violated specific legal mandates.

   In this case, the court of appeals explicitly acknowledged that the
central principle of Berkovitz is inapt, because the federal officials
here violated no express legal mandate.  The court failed, however, to
apply the principles of Dalehite and Varig Airlines, relying instead
on a mechanical exclusion from the discretionary function exception of
all "operational" activities.  Contrary to the lower court's
supposition, such a test is not supported by this Court's decision in
Indian Towing Co. v. United States, 350 U.S. 61 (1955), and is
inconsistent with Dalehite and Varig Airlines.

   The "operational" limitation espoused by the court of appeals is
contrary to the language, history, and policies of the FTCA.  The text
of the discretionary function exception itself contains no
qualification excluding "operational" actions.  Moreover, the examples
of "discretionary" actions cited in the legislative history of the
FTCA confirm that the exception applies to "operational level"
activities in many instances.  The court of appeals' artificial
limitation would also violate the basic principle, established in
Dalehite and Varig Airlines, that application of the exception depends
upon the nature of the discretion exercised, not the level at which
action is taken.

   B. Because the court of appeals failed to apply the proper test in
making its discretionary function ruling, this Court could simply
reverse on that ground, and remand for consideration on the basis of
the correct legal principles.  But in light of the importance of this
issue to federal efforts to cope with the crisis facing the savings
and loan industry, we submit that it would be preferable, and
appropriate on this record, for the Court itself to apply the correct
standard and uphold the district court's judgment.

   Nearly all of the factual assertions in the amended complaint that
the court of appeals characterized as "operational" in nature
consisted of advice and recommendations made by federal regulators to
IASA managers and directors.  Providing the sort of advice federal
officials are alleged to have offered IASA on various complex
commercial matters obviously required the exercise of discretion.
Even without reference to the regulatory context in which the advice
was given, such activities fall within the discretionary function
exception because they necessarily relate to economic policy.  As
reflected in Dalehite and in numerous decisions of the lower courts,
governmental decisions significantly affecting the expenditure of
public funds, or otherwise involving discretionary commercial
activities, fall squarely within the scope of actions the
discretionary function exception was designed to shield.

   Moreover, the regulatory context in which any such advice was
offered here removes any question as to its status under the
exception.  The courts have consistently recognized that invocation of
any of the broad powers that federal regulatory agencies possess with
respect to financial institutions -- such as issuing a cease and
desist order or imposing a receivership -- is a discretionary matter
falling within the exception.  Where, as here, federal officials
instead act informally, seeking to assist an institution take steps to
avoid sterner regulatory actions, those actions are still integral to
the federal officials' regulatory mission, and still require
discretionary, policyoriented decisions.  And any recommendations that
federal regulators may have made to state regulatory officials
regarding discretionary decisions by those officials fall even more
clearly into the core area of governmental discretion protected by the
FTCA exception.

   While the sovereign immunity of the United States has been
partially waived by the FTCA, the courts have recognized modern policy
bases that give that doctrine continuing vitality where it has not
been so waived.  The discretionary function exception serves these
policies, all of which are implicated in the present case.  Imposition
of tort liability in circumstances such as these would inhibit
vigorous decision making by federal officials at a time of
acknowledged crisis.  It also would impermissibly skew regulatory
actions by imposing liability where officials seek to assist financial
institutions informally, but not where they exercise more intrusive
regulatory powers.  Given the scope of the difficulties facing the
savings and loan industry today, and the great losses that may result
from the failure of a thrift institution, permitting actions of this
sort would also expose the United States to enormous and unpredictable
liabilities -- liabilities that Congress has not determined to accept.
 Finally, the deference due the judgments of the federal banking
agenices caustins against judicial intrusion into an area, like this
one, that calls for difficult judgments ill-suited to judicial
inquiry.

                               ARGUMENT

   THE CHALLENGED ACTIONS OF THE FEDERAL REGULATORY OFFICIALS ALL FIT
WITHIN THE DISCRETIONARY FUNCTION EXCEPTION TO THE FTCA

   A. The Court Of Appeals Erred In Concluding That The Discretionary
Function Exception Does Not Apply To "Operational" Activities

   The court of appeals' key holding was that certain actions taken by
federal thrift regulators fell outside the FTCA discretionary function
exception because they were operational in nature.  That ruling was
incorrect as a matter of law because it was based entirely on a
limitation found nowhere in the text of the FTCA and unsupported by
the policies and history of that law as well as this Court's decisions
interpreting it.  The relevant question is not whether the challenged
actions of the federal regulators were "operational," but whether
those actions were "discretionary," i.e., whether they were they
"grounded in social, economic, and political policy," Varig Airlines,
467 U.S. at 814, and taken in a context affording those officials
"room for policy judgment and decision," Dalehite v. United Sates, 346
U.S. 15, 36 (1953).

   1. The discretionary function exception protects the judgments of
federal officials that are grounded in social, economic, or political
policy

   a. The FTCA was enacted as part of the Legislative Reorganization
Act of 1946, ch. 753, Tit. IV, 60 Stat. 842, which contained a broad
range of initiatives to streamline and improve the workings of
Congress itself.  While the FTCA's waiver of sovereign immunity for
tort actions was the product of long congressional consideration, see
Dalehite, 346 U.S. at 24-25, its ultimate passage was prompted in
large part by the need "to relieve Congress of (the) time-consuming
chore" of considering private bills for the relief of citizens with
tort claims against the government.  See S. Rep. No. 1400, 79th Cong.,
2d Sess. 7 (1946);  Dalehite, 346 U.S. at 24-25 & n.9.  Congress
focused particularly on the need to provide judicial remedies for the
burgeoning number of commonplace torts, including "such torts as
negligence in the operation of vehicles," S. Rep. No. 1400, supra, at
31, stemming from the expansion of the federal government.  See
Dalehite, 346 U.S. at 28 & nn.19-20.

   Congress used caution in approaching the historic step of waiving
the sovereign immunity of the United States for tort claims.  It
included in the FTCA a number of exceptions to that waiver, and
several of these exceptions are geared to situations where the
imposition of tort liability would be novel or the impact of liability
on the public fisc could be large and unpredictable.  For example,
specific exceptions bar claims based on the loss or miscarriage of
mail, 28 U.S.C. 2680(b), the assessment of taxes or customs duties or
the detention of goods by law enforcement officials, 28 U.S.C.
2680(c), or combatant activities of military forces in time of war, 28
U.S.C. 2680(j).  All of these exceptions, including the discretionary
function exception of 28 U.S.C. 2680(a) at issue here, are limitations
on the FTCA's waiver of sovereign immunity and therefore must be read
in light of the principle that statutes waiving the immunity of the
United States from suit "are to be construed strictly in favor of the
sovereign." McMahon v. United States, 342 U.S. 25, 27 (1951).  See
Dalehite, 346 U.S. at 31;  United States v. Kubrick, 444 U.S. 111,
117-118 (1979);  Library of Congress v. Shaw, 478 U.S. 310, 318
(1986).

   This case involves one of the broadest and most important of the
FTCA exceptions, that for discretionary functions.  While the
legislative history of the final passage of the FTCA in 1946 sheds
little light on this provision, see, e.g., S. Rep. No. 1400, supra, at
33 (paraphrasing FTCA exceptions without elaboration), this Court has
recognized the significance of earlier congressional consideration.
See Dalehite, 346 U.S. at 26-30.  The predecessors of the present
exception were agency-specific exceptions precluding tort liability
based on the activities of two major federal regulatory bodies, the
Federal Trade Commission and the Securities and Exchange Commission.
See Varig Airlines, 467 U.S. at 809 & n.8;  Dalehite, 346 U.S. at 26 &
n.11.  In 1942, the 77th Congress generalized this exception, drafting
a provision that broadly applied to all federal regulatory activities
and numerous other areas in which federal officials exercise
discretion.  The text of the exception drafted by that Congress is
identical to the one ultimately adopted in 1946 and still in force
today.  Varig Airlines, 467 U.S. at 809.

   As this Court has repeatedly recognized, both the Executive
sponsors of the legislation and the congressional committees that
approved the language of the exception regarded it as a "highly
important" element of the FTCA.  Dalehite, 346 U.S. at 29 n.21
(quoting H.R. Rep. No. 2245, 77th Cong., 2d Sess. 10 (1942));  Varig
Airlines, 467 U.S. at 809 (quoting Hearings on H.R. 5373 and H.R. 6433
Before the House Comm. on the Judiciary, 77th Cong., 2d Sess. 33
(1942) (statement of Assistant Attorney General Shea)).  The
explanation of the exception as presented by the Executive and as
adopted by the congressional committees /13/ reflects the breadth and
diversity of the situations to which it applies.  The House committee
explained, for example, that the exception would bar liability for
negligent acts carried out in conjunction with an authorized flood
control or irrigation project, even where the same sort of conduct
would be actionable if conducted by a private party.  H.R. Rep. No.
2245, supra, at 10.

   Of special relevance to this case, the committee also explained how
the second clause of the exception, which focuses on "discretionary
function(s)," would operate.  The committee stated that the exception
was

      designed to preclude application of the bill to a claim against
      a regulatory agency, such as the Federal Trade Commission or the
      Securities and Exchange Commission, based upon an alleged abuse
      of discretionary authority by an officer or employee, whether or
      not negligence is alleged to have been involved.  To take
      another example, claims based upon an allegedly negligent
      exercise by the Treasury Department of the blacklisting or
      freezing powers are also intended to be excepted.  The bill is
      not intended to authorize a suit for damages to test the
      validity of or provide a remedy on account of such discretionary
      acts even though negligently performed and involving an abuse of
      discretion.

H.R. Rep. No. 2245, supra, at 10.  As that passage reflects, Congress
specifically intended the exception to reach even actions taken
negligently, or in a manner constituting an abuse of discretion, and
in doing so had the activities of federal regulatory agencies foremost
in mind.

   b. As the Court noted in Dalehite, its first case to involve the
discretionary function exception, Congress's use of the language of
"discretion" in the second phrase of 28 U.S.C. 2680(a) reflects a
"concept of substantial historical ancestry in American law" -- that
of "the discretion of the executive or the administrator to act
according to one's judgment of the best course." 346 U.S. at 34
(citing, inter alia, Marbury v. Madison, 5 U.S. (1 Cranch) 137, 170
(1803)).  The "discretion" protected by the FTCA is similar to that
recognized in other areas such as mandamus and injunction suits, where
the courts have traditionally distinguished between the sort of
"ministerial" duties of public officials that the courts may direct
and other sorts of duties, those involving "nice issues of judgment
and choice," that are properly left to the discretion of the Executive
branch.  See, e.g., Panama Canal Co. v. Grace Line, Inc., 356 U.S.
309, 317 (1958) (declining to intervene in the setting of tolls for
the Panama Canal, on the ground that it involved discretionary choices
regarding accounting methods).  See generally 2 L. Jayson, Handling
Federal Tort Claims Section 248.03 (1989).

   In applying those principles in Dalehite, this Court concluded that
Congress intended the exception to embrace a broad range of
"discretionary" activities.  346 U.S. at 24-34.  The Court flatly
rejected the plaintiffs' argument that the exception applies only to
high-level policy decisions.  Id. at 34-35.  The Court held instead
that

      the "discretionary function or duty" that cannot form a basis
      for suit under the Tort Claims Act includes more than the
      initiation of programs and activities.  It also includes
      determinations made by executives or administrators in
      establishing plans, specifications or schedules of operations.
      Where there is room for policy judgment and decision there is
      discretion.

Id. at 35-36 (footnote omitted).  The breadth of the "discretionary"
activities to which that reasoning applies is also apparent from the
manner in which Dalehite dealt with the various alleged acts of
negligence at issue, all of which arose from a devastating shipboard
explosion of fertilizer bound for Europe as part of a federal post-war
relief program.  The Court gave short shrift to any notion that the
cabinet-level decision to export the fertilizer, or a decision to
proceed with its manufacture without conducting further safety tests,
could be anything but "discretionary" under the FTCA.  Id. at 37-38.
The Court then went on to consider more specific allegations of
negligence in decisions relating to the actual manufacture of the
fertilizer.  Id. at 38-42.  The Court determined, for example, that
the decision to use a particular type of coating, although based
largely on technical factors, necessarily involved the balancing of
competing considerations and had ramifications for the feasibility of
the program.  Id. at 40.  Similarly, a decision concerning the
temperature at which to bag the fertilizer fell within the exception
because it involved a balancing of safety considerations against
increases in production costs.  Id. at 40-41.  The Court also held
that the discretionary function exception covered the actions of the
Coast Guard in policing the storage and loading of the fertilizer,
stating that such actions were "classically within the exception." Id.
at 43.

   After Dalehite, this Court did not again squarely address the
discretionary function exception until Varig Airlines.  There, the
Court reviewed the language and history of the exception, and
expressly reaffirmed its analysis in Dalehite.  467 U.S. at 808-812.
The Court also specifically refuted any notion that its intervening
decisions had somehow undermined the authority of that case.  Id. at
812-813 & n.10 (discussing Indian Towing, supra, United States v.
Union Trust Co., 350 U.S. 907 (1955), and Rayonier, Inc. v. United
States, 352 U.S. 315 (1957)).  All of those cases, the Court noted,
dealt with issues other than the discretionary function exception,
/14/ and none of them could be read as detracting from the broad
reading given that exception in Dalehite.  Ibid.

   In Varig Airlines, the Court noted two key "factors useful in
determining when the acts of a Government employee are protected from
liability by Section 2680(a)." 467 U.S. at 813.  First, the Court
reaffirmed the notion, implicit in Dalehite, that "it is the nature of
the conduct, rather than the status of the actor, that governs whether
the discretionary function exception applies in a given case." Ibid.
Second, the Court observed that "whatever else the discretionary
function exception may include, it plainly was intended to encompass
the discretionary acts of the Government acting in its role as a
regulator of the conduct of private individuals." Id. at 813-814.
That proposition, the Court held, was especially clear from the
legislative history of the FTCA, which "(t)ime and again * * * refers
to the acts of regulatory agencies as examples of those covered by the
exception." Id. at 814.  The underlying basis for the exception, the
Court summarized, was Congress's intention

      to prevent judicial "second-guessing" of legislative and
      administrative decisions grounded in social, economic, and
      political policy through the medium of an action in tort.  By
      fashioning an exception for discretionary governmental
      functions, including regulatory activities, Congress took "steps
      to protect the Government from liability that would seriously
      handicap efficient government operations."

Ibid. (quoting United States v. Muniz, 374 U.S. 150, 163 (1963)).

   As in Dalehite, the Court's application of that test illuminated
the breadth and importance of the exception, particularly in the
regulatory context.  In Varig Airlines, several groups of plaintiffs
alleged, after a number of airplane crashes, that the Federal Aviation
Administration (FAA) had been negligent in its inspection and
certification of the aircraft in question.  In applying the
discretionary function exception to these claims, the Court started by
noting that the FAA had chosen to carry out its statutory inspection
and certification authority by means of a "spot-check" program, in
which FAA inspectors had broad inspection authority but in which it
was recognized that the primary responsibility for aircraft safety lay
with the manufacturers.  467 U.S. at 816-819.  The decision to
institute such a "spot-check" regime, the Court held, easily fell
within the discretionary function exception, because such decisions
regarding the establishment of priorities and the balancing of
enforcement goals against staffing and funding considerations
implicated "discretionary regulatory authority of the most basic
kind." Id. at 819-820.

   The Court further held that the actions of individual FAA
inspectors in conducting inspections were also sufficiently
"discretionary" to fall within the exception, since those employees
were "empowered to make policy judgments regarding the degree of
confidence that might reasonably be placed in a given manufacturer,
the need to maximize compliance with FAA regulations, and the
efficient allocation of agency resources." 467 U.S. at 820.  Since the
numerous mundane choices made by the inspectors involved "calculated
risks" requiring judgments concerning "the advancement of a
governmental purpose," the Court ruled that any alleged negligence in
making those choices "falls squarely within the discretionary function
exception of Section 2680(a)." Ibid.

   This Court subsequently addressed the discretionary function
exception in Berkovitz v. United States, 486 U.S. 531 (1988), a case
involving claims of negligence in the approval of an oral polio
vaccine.  Reasoning that "discretion" necessarily entails "judgment or
choice," the Court concluded that there can be no discretion where "a
federal statute, regulation, or policy specifically prescribes a
course of action for an employee to follow," thereby leaving no
choice.  Id. at 536.  In other words, the discretionary function
exception applies only when "the action challenged in the case
involves the permissible exercise of policy judgment." Id. at 537.
/15/ At the same time, Berkovitz reaffirmed the rule stated in
Dalehite and reiterated in Varig Airlines that "(w)here there is room
for policy judgment and decision there is discretion." Ibid. (quoting
Dalehite, 346 U.S. at 36).

   2. The "discretionary" actions of federal officials are immune from
suit under the FTCA regardless of whether those actions are
"operational"

   a. In the wake of Berkovitz, some lower courts have characterized
the discretionary function inquiry -- accurately, in our view -- as
requiring a two-step analysis.  See Ayer v. United States, 902 F.2d
1038, 1041 (1st Cir. 1990);  Kennewick Irrigation Dist. v. United
States, 880 F.2d 1018, 1025 (9th Cir. 1989).  First, a court must
consider whether the decision in question involves "an element of
choice." Ayer, 902 F.2d at 1041.  If not, the holding of Berkovitz
controls, and the action is outside the exception.  But if the action
entails an element of choice, the question then becomes "whether the
decision involved the kind of judgment Congress intended to protect."
Ibid.  That was the central issue addressed in Dalehite and Varig
Airlines, decisions the Court did not purport to question or modify in
Berkovitz.  See Ayer, 902 F.2d at 1041-1042;  Kennewick Irrigation
Dist., 880 F.2d at 1024-1025.

   The court of appeals here undertook the first step in that
analysis.  It readily acknowledged that the challenged actions of
federal officials were not dictated by specific statutory or
regulatory directives.  The court noted that Berkovitz "is not
dispositive" of this case ("(u)nfortunately" in its view) since "the
actions of the FHLBB and FHLB-Dallas were not as closely guided by
statute (as in Berkovitz)." Pet. App. 11a.  Indeed, the court
expressly noted that "(t)he authority of the FHLBB and FHLB-Dallas to
take the actions that were taken in this case, although not guided by
regulations, is unchallenged," and that "(t)he FHLBB and FHLB-Dallas
officials did not have regulations telling them, at every turn, how to
accomplish their goals for IASA." Id. at 12a.  That conclusion -- that
federal regulatory agencies vested with authority to take formal
actions necessarily also possess the more modest authority to use
informal suasion in lieu of those formal actions -- is also a sensible
one.  As the Fifth Circuit explained in an earlier decision:  "When a
governmental agency holds such great powers over its offspring, even
to the point of appointing a conservator or receiver to replace the
management * * * it is difficult to hold that an informal request,
even demand, to clean house would amount to an abuse of the statutory
powers and discretion of the agency." Miami Beach Federal Savings &
Loan Ass'n v. Callander, 256 F.2d 410, 414-415 (1958).  See also
United States v. Philadelphia National Bank, 374 U.S. at 330.
Accordingly, there is no question in this case that the challenged
actions of the federal officials were within the range of
"permissible" regulatory actions.  The only question is whether those
actions involved the sort of judgment discussed in Dalehite and Varig
Airlines.

   But the court of appeals did not analyze the challenged actions in
light of Dalehite and Varig Airlines.  Instead, it applied a
mechanical test, purportedly based on this Court's decision in Indian
Towing, that turns on whether the allegedly tortious actions can be
characterized as "operational in nature." See Pet. App. 12a-14a.  /16/
Since that approach is contrary to the language and policies of the
FTCA, the judgment of the court of appeals should be reversed.

   b. Some courts have distinguished between "planning" and
"operational" tasks for purposes of the discretionary function
exception.  The court below did not use that precise dichotomy;  it
distinguished between "policy" and "operational" activities.  But the
important point is that the court of appeals in this case, like
several other courts, has excluded "operational" activities from the
discretionary function exception even though the text of the FTCA does
not.  That judge-made limitation on an explicit congressional
exception to the waiver of sovereign immunity is clearly unjustified.

   The "operational" limitation on the discretionary function
exception doubtless had its genesis in Dalehite, where the Court
referred to the various specific decisions regarding the fertilizer
manufacturing process as having been "made at a planning rather than
operational level," 346 U.S. at 42.  But in so doing the Court did not
purport to hold that action at the "planning level" was a sine qua non
for discretionary functions, as the remainder of the Dalehite opinion
shows.  The Court went on to hold that the Coast Guard's actions in
policing the loading and storage of the fertilizer were within the
discretionary function exception, without giving any indication that
those activities in any sense constituted "planning" or policy-making
on a grand scale.  See id. at 42-43.  Dalehite therefore offers no
support for an "operational" limitation on the discretionary function
exception.

   The Court again referred to "operational" activities in Indian
Towing, noting that the allegedly tortious actions in that case -- the
failure to maintain a lighthouse in proper working order -- were
undoubtedly "operational" in nature.  350 U.S. at 64, 68.  The court
of appeals in this case, like some other courts, fastened on that
language to conclude that Indian Towing established a "distinction
between policy decisions and operational actions," and that actions
falling on the "operational" side of this divide necessarily also fall
beyond the discretionary function exception.  Pet. App. 7a, 12a-13a.
See also United States v. Hunsucker, 314 F.2d 98, 103-104 (9th Cir.
1962);  United States v. Gregory, 300 F.2d 11, 13 (10th Cir. 1962).
But that reasoning is fallacious.  This Court expressly noted in
Indian Towing that the United States had conceded that the actions in
question were outside the discretionary function exception.  350 U.S.
at 64.  We recognize, of course, that the actions in Indian Towing
were "operational" in nature under any standard, and that (as the
government also admitted in Indian Towing, 350 U.S. at 64) the
government can be held liable for some negligent operational
activities.  But it is illogical to conclude that since some such
operational activities are nondiscretionary, all of them are.  Indian
Towing did not set down a comprehensive definition of discretionary
functions, nor did it (in light of the government's concession) even
adjudicate any discretionary function question.  Rather it rejected
the government's distinct claim that the performance of "uniquely
governmental" functions -- even if not "discretionary" in any
meaningful sense -- necessarily falls outside the scope of the FTCA on
the ground that there are no "like circumstances" in which a "private
individual" may be held liable under the Act, 28 U.S.C. 2674.  See 350
U.S. at 64, 66-67.  Cf. Varig Airlines, 467 U.S. at 815 n.12 (noting
the distinction between that argument and one based on the
discretionary function exception).

   Indian Towing also acknowledged that the "Good Samaritan" theory of
tort liability followed by many States may be applied against the
federal government when it undertakes a particular function (such as
operating a lighthouse) and thereby "engender(s) reliance on the
guidance afforded by the light," 350 U.S. at 69, 64-65.  But that
issue is one of substantive tort law, which is relevant only after it
is decided that the threshold requirements of the FTCA are satisfied
and that none of the exceptions in 28 U.S.C. 2680 is applicable.  That
proposition is clear from the structure of the FTCA.  Section 2680
provides that the Act's waiver of the government's tort immunity
"shall not apply" to the listed category of claims, and an exception
to a waiver of sovereign immunity necessarily bars a claim even if the
elements of liability are proved.  See Dalehite, 346 U.S. at 32
("Congress exercised care to protect the Government from claims,
however negligently caused, that affected the governmental functions")
(emphasis added);  Kennewick Irrigation Dist., 880 F.2d at 1029
("negligence is simply irrelevant to the discretionary function
inquiry").  In fact, Indian Towing recognized that FTCA actions remain
subject to the exceptions by which Congress "circumscribed" the
government's liability under that statute.  350 U.S. at 67-68.

   Thus, neither Dalehite nor Indian Towing supports the notion that
all "operational" activities necessarily fall outside the
discretionary function exception.  They and other decisions bear out
what should be obvious from the text of the FTCA itself -- that a
mechanical exclusion of "operational" activities is not faithful to
that text or to the will of Congress.  The discretionary function
exception is not limited to the performance of a discretionary
function by a federal agency or employee acting at a planning or
policy formulation level.  Rather, it bars all claims based on the
performance of "discretionary" functions.  The elimination of
"operational" activity would add a qualification to the exception
"which simply does not appear there," 2 L. Jayson, supra, Section
249.07, at 12-183, contrary not only to the normal canons of statutory
construction, but also to the frequent admonition that waivers of
sovereign immunity are to be strictly construed.  See Shaw, 478 U.S.
at 315;  United States v. Mottaz, 476 U.S. 834, 841 (1986);  McMahon,
342 U.S. at 27.  /17/

   c. The legislative history of the discretionary function exception
provides no support for an "operational" limitation.  To be sure, one
particular category of operational activities -- the operation of
motor vehicles -- lay at the core of what Congress intended the FTCA
to cover.  See S. Rep. No. 1400, supra, at 31;  Dalehite, 346 U.S. at
28 & n.20.  But it does not follow that all "operational" tasks are
outside the discretionary function exception.  On the contrary, the
specific examples that Congress used in describing the exception belie
any such notion.  A "negligent exercise by the Treasury Department of
the blacklisting or freezing powers," for instance, would quite likely
occur at an operational rather than policy formulation level.  See
H.R. Rep. No. 2245, supra, at 10 (quoted in Dalehite, 346 U.S. at 29
n.21).  Without distinguishing between "planning" or "policy
formulation" on the one hand and "operational" activities on the
other, Congress also said that the exception would apply to negligent
actions involving "abuse of discretionary authority" by employees of
regulatory agencies such as the FTC or SEC.  Ibid.

   d. The "operational" limitation adopted by the court below (and
elsewhere) /18/ is also contrary to the essential policies of the
exception.  In Dalehite and Varig Airlines, this Court recognized
that, to serve its vital purpose, the discretionary function exception
cannot be limited to "the initiation of program and activities,"
Dalehite, 346 U.S. at 35;  "it is the nature of the conduct, rather
than the status of the actor, that governs whether the discretionary
function exception applies in a given case." Varig Airlines, 467 U.S.
at 813.  An "operational" limitation would likely make application of
the exception turn on the identity of the actor in many cases, by
insulating the decisions of "planners" while holding the government
liable for the actions of their "operational" subordinates, even if
their actions also entailed a substantial degree of discretion.

   The error in the court of appeals' rule, moreover, is vividly
demonstrated by the holding in Varig Airlines.  There, the broad
decision of the FAA to implement its inspection authority by means of
a "spot-check" system would doubtless be recognized by all as a
"planning level" or "policy formulation" decision, to which the
exception easily applies.  But this Court also applied the exception
to the actions of individual FAA inspectors, making individual
inspection decisions, because those decisions inherently entailed
discretionary judgments related to underlying policy considerations.
467 U.S. at 820.  Those inspection decisions were (quite literally)
"nuts and bolts" decisions that had nothing whatever to do with
"planning," and are best seen as "operational."

   Varig Airlines should have put an end to the use of the mechanical
limitation adopted by the court below.  At lease one court of appeals
has expressly so read Varig Airlines, /19/ and the majority of other
circuits appear also to have rejected that limitation.  /20/ The court
below, however, read Berkovitz as somehow reviving a
policy/operational "dichotomy." Pet. App. 11a.  That reading was based
entirely on a single footnote in Berkovitz, which referred to Indian
Towing as "illuminat(ing) the appropriate scope of the discretionary
function exception." Berkovitz, 486 U.S. at 538 n.3.  But as noted
above, Indian Towing illuminates the scope of the exception only in
the limited sense of presenting one example of an unquestionably
discretionary decision (whether to build a lighthouse in a particular
location) and one example of conduct concededly falling outside the
exception's scope (failing to maintain the lighthouse in proper
working order).  While that illustration offers a useful starting
point, it cannot provide a comprehensive definition of activities that
fall within the discretionary function exception.  Still less does it
establish a rule that any activity that may be classified as
"operational" is, by that fact alone, outside the scope of the
exception.  Failing to maintain the lighthouse in Indian Towing fell
beyond the discretionary function exception because it was not
discretionary, not because it was "operational." As two other courts
of appeals have expressly recognized, the reference to Indian Towing
in footnote 3 in Berkovitz did not purport to undermine Dalehite and
Varig Airlines.  /21/ Those cases still provide the definitive guide
to the application of the discretionary function exception in cases,
like this one, where there is no question whether government officials
have violated laws or policies "specifically prescrib(ing) a course of
action," Berkovitz, 486 U.S. at 536.

   e. If further reason were needed to reject an "operational"
limitation, the inherent vagueness of that term and the contradictory
results its use can produce would be sufficient.  While many cases
have used the term in this context, none that we know of has defined
it with any clarity.  Indeed, the only principled way the term can be
used is to distinguish strictly between all planning and preparatory
actions and ones that implement policies.  /22/ But even the cases
purporting to use an "operational" test fail to do so in a consistent
or principled manner.  The court of appeals here, for example, branded
as "operational" various actions taken by federal regulators to advise
and assist IASA in an attempt to avoid the use of harsher regulatory
powers, even though such "jawboning" should have been seen as a clear
example of nonoperational activities, since the agencies did not have
actual control of IASA's operations.  See pp. 37-38, infra.  At the
same time, the court found discretion in "the decision to replace the
IASA Board of Directors with FHLBB approved persons, and the actions
taken to effectuate that decision." Pet. App. 14a (emphasis added).
Such internal inconsistencies can only leave the district courts and
potential litigants to guess which activities will be labeled
"operational" and which ones will not.  In short, as one court that
has rejected any "operational" limitation has put it, such a test is
nothing more than a "conclusory analytical label()" that tends only to
obscure further an already difficult area.  Gray v. Bell, 712 F.2d
490, 507 (D.C. Cir. 1983), cert. denied, 465 U.S. 1100 (1984).  /23/

   B. The Challenged Actions Of The Federal Regulatory Officials Are
Typical Of The "Discretionary Functions" That Congress Excepted From
Liability Under The FTCA

   Because the court of appeals misread Indian Towing and Berkovitz,
it did not consider whether, under Dalehite and Varig Airlines, the
challenged actions of the federal regulatory officials are immune from
suit under the FTCA.  This Court could therefore remand the case to
the court of appeals for it to address that issue in the first
instance.  Such a remand would be appropriate, for example, if the
Court were to conclude that it is necessary for the parties to develop
the factual background to the challenged actions before the
discretionary function question can be resolved.  In our view,
however, respondent's complaint cannot survive a motion to dismiss
based on the discretionary function exception, and we therefore urge
the Court to resolve that issue and uphold the district court's
judgment.

   1. The court of appeals held that many of the actions of the FHLBB
officials with respect to IASA -- including any decision to merge IASA
with Investex and seek a neutralization agreement, and any decisions
regarding the replacement of IASA's board of directors -- were covered
by the discretionary function exception.  Pet. App. 13a-14a.  At the
same time, the court held that, under its "operational" test, federal
regulators "lost the protection of Section 2680(a) * * * when they
began to advise IASA management and participate in management
decisions," Pet. App. 14a.  The court of appeals therefore reversed
the district court's judgment, but only with respect to paragraphs 33
through 43 of the amended complaint, J.A. 13-17.  Because respondent
did not file a cross-petition challenging the dismissal of the other
allegations, those paragraphs alone are relevant at this point.

   Only four of those paragraphs allege that actions taken by the
federal regulators were tortious.  /24/ One of the most striking
features of those paragraphs is the extent to which they show that
respondent's claims are based on advice given by the regulators to the
new IASA management and directors installed in 1986.  For example,
respondent claims in paragraph 33 of the amended complaint that the
federal regulators had "involved themselves in IASA's affairs" by
"consult(ing) as to day-to-day affairs and operations of IASA," by
"exchang(ing) information," and by "giving advice, making
recommendations, urging, or directing action or procedures at IASA."
J.A. 13-14.  Although respondent alleges (in a conclusory fashion)
that federal regulators "were not only consulted, but actually
participated in management decisions," respondent makes no allegations
reflecting what such "participation" possibly could have consisted of
apart from the sort of advice and recommendations that the federal
regulators are repeatedly alleged to have offered.  IASA was a private
corporation, Amended Compl. para. 6, J.A. 7-8, and the relevant
paragraphs contain no allegations indicating how during the period in
question federal regulators could conceivably have exercised any
control over the corporation's assets or activities other than by
offering advice and recommendations to the existing board and
management.  /25/ Respondent might seek to prove that the federal
regulators impliedly threatened to exert more formal authority over
IASA if their advice went unheeded.  See Amended Compl. paras. 21 &
29, J.A. 10, 12.  But as discussed below, any such claim would only
reinforce the link between the alleged actions and the pursuit of
regulatory policies, of this link is one of the factors bringing those
actions within the FTCA discretionary function exception.

   Paragraph 34 of the amended complaint focuses on various specific
acts, but they too all constitute the offering of advice to IASA
management.  Respondent alleges, for example, that federal officials
"arranged for the hiring" of a financial consultant, Amended Compl.
para. 34(a), J.A. 14.  But he alleges no legal authority (and we are
aware of none) that the federal regulators could have exercised to
take that action other than by making a recommendation to IASA
management.  Similarly, respondent alleges that FHLB-D officials
"urged or directed that IASA convert from a state-chartered savings
and loan to a federally-chartered" institution, id. para. 34(b), J.A.
14-15;  that FHLB-D officials "gave advice and made recommendations
concerning whether, when, and how to place IASA subsidiaries into
bankruptcy," id. para. 34 (c), J.A. 15;  that FHLB-D officials
"mediated salary disputes between IASA and its senior officers," id.
para. 34(d), J.A. 15;  and that FHLB-D officials "reviewed a draft
complaint in litigation" and were involved in "giving advice, making
recommendations, and directing matters related to IASA's litigation
policy," id. para. 34(e), J.A. 15.  One FHLB-D official is alleged to
have exhorted IASA management to be mindful, in making its decisions,
of the broad goal of preserving the FSLIC insurance fund.  Id. para.
34(g), J.A. 15-16.

   The allegations in paragraphs 34(f), 41 and 42 of the amended
complaint, J.A. 15, 17, all involve alleged instances in which federal
regulators are claimed to have urged state regulatory officials to
take various actions regarding IASA.  As discussed below, those
actions (whether or not purely "advisory") fall even more clearly
within the discretionary function exception.  /26/

   2. In determining whether the foregoing actions of the federal
regulatory officials are protected by the discretionary function
exception, the test is whether those actions were "grounded in social,
economic, and political policy." Varig Airlines, 467 U.S. at 814.  We
submit that the foregoing actions are clear examples of precisely the
type of "economic" judgments that the discretionary function exception
protects.

   a. FHLBB officials had to exercise a considerable degree of
discretion when offering advice and assistance to IASA managers about
such matters as whether to seek federally chartered status, whether to
place particular subsidiaries into bankruptcy, or even whether to
pursue a particular item of litigation on the corporation's behalf.
As the court of appeals noted, the federal banking officials "did not
have regulations telling them, at every turn, how to accomplish their
goals for IASA." Pet. App. 12a.  Lower courts have frequently applied
the discretionary function exception to governmental decisions that
would be considered purely "commercial" if engaged in by private
parties.  For example, in Williamson v. United States Dep't of
Agriculture, 815 F.2d 368, 374-376 (5th Cir. 1987), the court
recognized that decisions regarding the creditworthiness of individual
loan applicants are discretionary functions in the context of a
federal loan program.  In Kennewick Irrigation Dist., supra, the court
held that decisions regarding the design of an irrigation canal are
within the discretionary function exception, principally because of
the need for government decision makers to weigh the "vital item of
cost" in determining the appropriate design.  880 F.2d at 1027-1028.
/27/ Similarly, courts have recognized that government contracting
decisions, judgments regarding trademark rights, and other commercial
decisions fall within the scope of the exception.  See Gowdy v. United
States, 412 F.2d 525, 529 (6th Cir.) (award of contracts), cert.
denied, 396 U.S. 960 (1969);  U.S. Gold & Silver Investments, Inc. v.
Director, United States Mint, 656 F. Supp. 380, 382-383 (D. Ore. 1987)
(trademark), aff'd on other grounds, 885 F.2d 620 (9th Cir. 1989),
cert. denied, 110 S. Ct. 3239 (1990);  see generally L. Jayson, supra,
Sections 249.04(5), 249.04(6), 249.04(7).  /28/ Those cases recognize
that decisions affecting the public fisc "go() to the heart of
governmental activity." Pennbank v. United States, 779 F.2d 175, 180
(3d Cir. 1985) (refusal to grant loan is discretionary function).  The
principle that cost considerations can amount to the sort of
"discretion" protected by the discretionary function exception stems
from Dalehite, where this Court relied on such factors in ruling that
various decisions about specific aspects of the fertilizer
manufacturing process fell within the exception.  See 346 U.S. at
40-41.

   The regulatory choices facing FHLBB when it offered advice to IASA
remove any doubt that the challenged activities are of the sort that
Congress intended to protect from "judicial 'second-guessing' * * *
through the medium of an action in tort." Varig Airlines, 467 U.S. at
814.  As the district court in this case noted, Pet. App. 25a, a
decision by FHLBB to invoke its more formal powers, such as issuance
of a cease-and-desist order or placing IASA into conservatorship or
receivership, would have been shielded from liability as a
discretionary function.  /29/ The courts have also recognized the
corollary that a decision by federal banking regulators not to take
regulatory actions is similarly within the exception.  /30/ Decisions
like these involve "innumerable subtle judgments * * * that draw upon
a mix of law, accounting, bank custom, and policy," and are typical of
the actions that the discretionary function exception was designed to
protect.  Golden Pacific Bancorp v. Clarke, 837 F.2d 509, 512 (D.C.
Cir.), cert. denied, 109 S. Ct. 223 (1988).

   The court of appeals acknowledged that FHLBB's use of informal
suasion in an effort to help IASA improve its condition, rather than
immediately employing more intrusive regulatory mechanisms, was an
"unchallenged" aspect of the agency's broad regulatory powers.  Pet.
App. 12a;  pp. 26-27, supra.  What the court of apeals failed to
recognize, however, was that the decision to proceed in this manner,
and the continuing decisions as to what sort of guidance IASA needed,
were themselves highly discretionary decisions regarding the conduct
of the agency's regulatory responsibilities.  Another lower court,
dealing with an analogous situation involving the federal regulation
of airport safety, has recognized the discretionary nature of such
activities:

      (T)he Secretary was acting as a governmental policy-maker in his
      decision to apply negotiation and diplomacy rather than legal
      measures.  Weighing the governmental interest in insuring the
      most efficient use of federal funds against such remedies as
      closing down the airport or instituting other legal sanctions
      and deciding in favor of a less antagonistic approach clearly
      constitutes the type of discretion reflected in the history of
      the FTCA.

Sellfors v. United States, 697 F.2d 1362, 1368 (11th Cir. 1983), cert.
denied, 468 U.S. 1204 (1984).  Similarly, FHLBB's decisions to offer
advice to IASA, rather than resort immediately to sterner regulatory
measures, were simply an aspect of its highly discretionary,
policy-oriented judgment about "whether and how to intervene" in that
institution's affairs.  FDIC v. Jennings, 615 F. Supp. 465, 467 (W.D.
Okla. 1985).

   Accordingly, any advice and guidance FHLBB offered to IASA must be
recognized as integral to its broader regulatory activities.  The
ultimate goal of such activities is, of course, "to preserve depositor
confidence in the savings institutions of this country and to minimize
loss and depletion of FSLIC insurance funds." Woods v. FHLBB, 826 F.2d
1400, 1411 (5th Cir. 1987), cert. denied, 485 U.S. 959 (1988).  Just
as the FAA inspectors in Varig Airlines necessarily exercised their
discretion "for the advancement of (the) governmental purpose" of
aircraft safety, 467 U.S. at 820, the FHLBB officials whose actions
are at issue here exercised their authority with an eye to the broad
regulatory policies under which they operate.  For example, in
advising IASA managers to engage a consultant, to close a particular
subsidiary, or even to file a lawsuit, the federal regulators were
making judgments concerning the best way to further the regulatory
goals of preserving the institution's soundness, for the ultimate
purpose of safeguarding federal deposit insurance funds.  Nor can it
be doubted that a federal regulator's advice to an institution to
convert to federally chartered status is a judgment grounded in
regulatory policy.  Furthermore, because all of these actions were
taken in lieu of pursuing more formal regulatory actions, including
receivership, federal regulators also had to consider at every
juncture whether the particular actions they recommend were likely to
produce beneficial results justifying the agency's continued
forbearance from formal proceedings.  Such decisions call for the
exercise of discretion and expertise, are ultimately related to broad
policy goals, and, as this Court recognized in Varig Airlines, are
precisely the kinds of decisions that must be shielded from liability
by the discretionary function exception.

   The only allegations of actions by FHLBB officials other than
giving advice to IASA were that FHLBB officials "actively intervened"
with state regulatory bodies concerning IASA, "asked the State" to
delay certain regulatory actions, and later "repeatedly requested"
state officials to close IASA.  Amended Compl. paras. 34(f), 41, 42,
J.A. 15, 17.  Any such actions, however, are even more obviously part
of FHLBB's discretionary functions.  Just as a federal regulatory
agency's own enforcement decisions constitute highly discretionary
determinations that cannot support an FTCA claim, surely an action by
a federal agency to urge state officials to exercise their
discretionary authority in a particular way is also a discretionary
matter, related to regulatory policies, which the courts are
ill-equipped to second-guess.  See Taylor v. FHLBB, 661 F.Supp. at
1349 (indicating that discretionary function exception applies, inter
alia, to FHLBB request to state authorities to issue cease and desist
order).

   b. Although the doctrine of sovereign immunity has its roots in the
historical prerogatives of the English monarchs, this Court has
recognized that the doctrine has continuing vitality, and is grounded
in policy considerations consonant with the principles of democratic
government.  See, e.g., Guaranty Trust Co. v. United States, 304 U.S.
126, 132 (1938).  In the specific context of the FTCA, one court has
identified "three principal themes" in the modern justifications for
sovereign immunity, noting that each is directly pertinent to the
important purposes served by the discretionary function exception.
See Gray v. Bell, 712 F.2d at 511.  First, separation of powers
principles militate against judicial interference with discretionary,
policy-based decisions of the coordinate, political branches.  /31/
Second, "courts should not subject the sovereign to liability where
doing so would inhibit vigorous decisionmaking by government
policy-makers." Ibid.  Third, "courts should be wary of creating huge
and unpredictable governmental liabilities" by permitting damage
claims based on policy decisions with broad impact.  Ibid.  See also
OPM v. Richmond, 110 S. Ct. 2465, 2476 (1990).  Each consideration
reinforces the importance of recognizing the "discretionary" nature of
the informal regulatory actions at issue.

   Imposing tort liability on the United States based on the kinds of
actions taken in this case can only hobble and confine federal efforts
to deal with the current crisis affecting the savings and loan
industry.  Even apart from the general tendency of such tort liability
to "inhibit vigorous decisionmaking" by government officials, the
range of claims that would be permitted under the court of appeals'
ruling would have especially pernicious effects by restricting and
skewing regulatory efforts.  It is widely recognized that decisions by
federal regulators to invoke formal regulatory powers against
financial institutions fall well within the scope of the discretionary
function exception.  If liability is to be imposed when federal
regulators act informally to assist troubled institutions in an effort
to obviate more drastic measures, the resulting incentive is clear:
Regulators will be encouraged to avoid such efforts, to stand mute
while the institution deteriorates, and then invoke their
"discretionary" powers.  Such an incentive would be perverse, given
the congressionally recognized need to encourage flexible and decisive
action by thrift regulators.  Constriction of regulatory options
"through the medium of (actions) in tort" is precisely the sort of
interference with policy judgments that Congress sought to avoid by
the discretionary function exception.  See Varig Airlines, 467 U.S. at
814.  /32/

   Imposition of tort liability in this context, moreover, poses an
extraordinarily grave danger of "creating huge and unpredictable
governmental liabilities." Gray v. Bell, 712 F.2d at 511.  An
unprecedented number of thrifts, totalling at least several hundred,
are now either insolvent or "troubled." See H.R. No. 54-(I), 101st
Cong., 1st Sess. 294, 303 (1989).  As the damage prayer in the present
case reflects, /33/ the amount of the financial loss in any individual
thrift failure is likely to be large indeed.  Taken together, these
factors show that imposition of liability in cases of this sort could
result in staggering financial losses to the federal government.  The
prospect of such losses would inevitably further chill the vigor of
enforcement efforts.

   Finally, the need to defer to the economic judgment of the federal
banking agencies reinforces the impropriety of permitting tort claims
in this area.  Administrative agencies, including the FDIC and the
newly created Office of Thrift Supervision, will continue to undertake
the difficult day-to-day tasks of thrift regulation, tasks that
require "innumerable subtle judgments * * * that draw upon a mix of
law, accounting, bank custom, and policy." Golden Pacific Bancorp, 837
F.2d at 512.  The federal courts are ill-equipped to "second-guess"
these subtle judgments, or the congressional policies upon which they
are based.

                              CONCLUSION

   The judgment of the court of appeals should be reversed.

   Respectfully submitted.

   JOHN G. ROBERTS,JR.

      Acting Solicitor General /34/

   STUART M. GERSON

      Assistant Attorney General

   DAVID L. SHAPIRO

      Deputy Solicitor General

   PAUL J. LARKIN,JR.

      Assistant to the Solicitor General

   ANTHONY J. STEINMEYER

   JOHN F. DALY

      Attorneys

   AUGUST 1990

   /1/ Neither party has sought review of the other aspects of the
court of appeals' decision, regarding respondent's ability under Texas
law to assert his claims for (1) the diminution of the value of his
corporate stock and (2) his loss of personal assets.  See Pet. App.
14a-20a;  pp. 13-14 note 12, infra.

   /2/ The regulatory scheme as here described is that in place in
1984 through 1986, the time of the actions at issue.  As discussed
below, many of the regulatory functions have been altered or shifted
by the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA), Pub. L. No. 101-73, 103 Stat. 183.

   /3/ In this case, it appears that the alleged actions of FHLB-D
personnel would constitute actions on behalf of the relevant federal
agencies, FHLBB or FSLIC, within the meaning of the FTCA, 28 U.S.C.
2671, since the personnel were performing delegated functions for
those agencies.  We note that the question whether FHLB-D would itself
be a "federal agency" for purposes of the FTCA is an undecided issue
that is not posed by this case.  Cf. Colony First Federal Savings &
Loan Ass'n v. FSLIC, 643 F. Supp. 410, 416 n.4 (C.D. Cal. 1986)
(noting but declining to decide this question).

   /4/ The Board itself directly exercised such authority over
federally chartered thrifts, under the analogous provisions of the
Home Owners' Loan Act of 1933, 12 U.S.C. 1464 (1988).

   /5/ Subsequent to the events upon which this action is based,
Congress enacted major changes in the statutory scheme for federal
thrift regulation in FIRREA.  Although that legislation does not
directly affect this litigation or any of the underlying regulatory
actions, we set forth a very brief sketch of its provisions to place
the present controversy in context, and to reflect the continuing
importance of the issues presented in this case.

   FIRREA was a response to what Congress termed a "crisis" in the
thrift industry.  See H.R. Rep. No. 54(I), 101st Cong., 1st Sess. 294,
302-305 (1989).  This crisis was brought about, in Congress's view, by
a combination of factors including precipitous growth by many
institutions -- often combined with poor management and fraudulent
practices -- and the lack of resources for sufficiently vigorous
enforcement efforts.  Id. at 298-301.  Congress sought to address
these problems by fostering "stronger supervisory oversight" of thrift
institutions.  Id. at 307-308.

   FIRREA makes major changes in the federal regulatory structure and
has created new federal agencies to deal with the affairs of failed
thrift institutions, yet it has not altered the basic regulatory tools
available to deal with the problems of troubled institutions.  For
example, while FIRREA abolishes FHLBB and FSLIC and repeals the
specific statutory enforcement provisions invoked in this case, see
FIRREA Sections 401, 407, 103 Stat. 354-357, 363, it assigns
substantially similar authority for examinations, cease-and-desist
orders, and the imposition of receiverships to the Federal Deposit
Insurance Corporation and the newly created Office of Thrift
Supervision.  FIRREA Sections 201, 301, 103 Stat. 187-188, 277-343.
Despite other provisions of FIRREA that enhance enforcement authority
in various ways, see FIRREA Sections 901-968, 103 Stat. 446-506, there
is no reason to doubt that these agencies will continue to use the
sort of informal, supervisory techniques used in the present case, in
an effort to assist regulated institutions without invoking formal
regulatory procedures.  Indeed, the regulatory workload engendered by
the large number of troubled thrift institutions across the Nation
will undoubtedly require federal regulators to employ such techniques
in order to provide the "vigilant and responsive" regulatory action
mandated by Congress.  H.R. Rep. No. 54(I), supra, at 291.

   /6/ In granting the motion of the United States to dismiss, the
district court did not resolve any disputed factual issues;  those
issues therefore remain to be resolved if the action is not dismissed.
 The background stated here is drawn either from the amended
complaint, J.A. 6-19, or from certain exhibits to the motion of the
United States to dismiss the complaint that were provided to the
district court "for background only." Memo. in Support of Mot. of the
United States to Dis. the Compl. 32 n.22 (dated Mar. 17, 1988).  These
exhibits include various written agreements between federal regulators
and respondent or IASA, a January 1987 FHLBB memorandum recommending
the appointment of a receiver for IASA, and an April 1987 report by an
independent counsel engaged by FHLBB to look into respondent's
allegations of misconduct by personnel of FHLB-D, FSLIC, and FHLBB.
The exhibits are cited herein as "Exh. ......"

   Because the government's dismissal motion based on the
discretionary function exception went to subject matter jurisdiction,
these background materials were properly before the district court.
See Land v. Dollar, 330 U.S. 731, 735 n.4 (1947);  5A C. Wright & A.
Miller, Federal Practice and Procedure Section 1350, at 213 (2d ed.
1990) ("When the movant's purpose is to challenge the substance of the
jurisdictional allegations, he may use affidavits and other matter to
support the motion.").

   /7/ See Report of Independent Counsel Aubrey B. Hardwell, Jr., to
Chairman Edwin J. Gray, Federal Home Loan Bank Board 64-65 (Apr. 21,
1987) (Exh. J);  Amended Compl. para. 12, J.A. 9.

   /8/ Respondent's allegations are ambiguous with respect to the
initiative for this merger.  While the heading above paragraph 16 of
the amended complaint recites, "Federal Agencies Seek To Merge IASA
With Investex," paragraph 16 itself refers to IASA's "application."
J.A. 9.  Resolution of any factual dispute on this point is
unnecessary to the adjudication of this case.  The court of appeals
decided the case on the premise that FHLBB "wanted IASA to merge" with
Investex, Pet. App. 2a, and ruled that any such "decision to merger
IASA with Investex * * * was a policy oriented decision protected
(under the discretionary function exception)." Pet. App. 13a-14a.
Respondent has not sought review of that portion of the court of
appeals' ruling.

   /9/ See Recommendation for Appointment of a Receiver for
Independent American Savings Association 27-28 (Jan. 21, 1987) (Exh.
C).

   /10/ Federal regulatory authorities have since brought two actions
against respondent and other former IASA officers and directors for
negligence and breach of fiduciary duties to IASA.  See FDIC, As
Manager of the FSLIC Resolution Fund v. Gaubert, No. CA3-90-1196-G
(N.D. Tex. filed May 18, 1990);  FSLIC v. Crowe, No. CA 3-86-3166-T
(N.D. Tex. dated May 4, 1989).

   /11/ The present action is one of several that respondent has filed
arising out of the same underlying events.  He also filed two
derivative actions on behalf of IASA -- one against FHLBB and other
federal agencies, and one against the IASA directors elected in 1986
-- both of which were dismissed.  See Gaubert v. FHLBB, Civ. No.
87-1682-LFO (D.D.C. Feb. 12, 1988) (reprinted at Exh. A), aff'd, 863
F.2d 59 (D.C. Cir. 1988);  Gaubert v. Hendricks, 679 F. Supp. 622
(N.D. Tex. 1988).  He also filed an action against various federal
officials in their individual capacities, alleging both common law
torts and constitutional torts under Bivens v. Six Unknown Named
Agents, 403 U.S. 388 (1971).  Gaubert v. Gray, No. 87-3500 (D.D.C.
filed Dec. 24, 1987).  A motion to dismiss that action is now pending.
 More recently, respondent has filed an action against the United
States in the Claims Court, alleging that the actions of federal
regulators amounted to a "taking" of his property in violation of the
Fifth Amendment, as well as several breach of contract counts
purportedly based on the neutralization agreement.  Gaubert v. United
States, No. 90-434 C (Cl. Ct. filed May 21, 1990).

   Respondent also raised regulatory negligence as a counterclaim in
FSLIC v. Crowe, supra.  That counterclaim was dismissed on June 16,
1990.

   /12/ Because the court of appeals reversed a portion of the
district court's judgment on the discretionary function exception, it
addressed certain issues pretermitted by the district court.  Pet.
App. 14a-20a.  The court held that, under Texas law regarding injuries
suffered by corporations, respondent could not sue for the alleged
diminution of the value of his IASA stock.  Id. at 19a.  But with
respect to the personal property respondent posted as a guarantee as
part of the neutralization agreement -- alleged to be worth $25
million -- the court ruled that respondent might be able to maintain a
cause of action.  Ibid.  The court remanded the case to the district
court for resolution of that state law issue.  Id. at 19a-20a.

   /13/ The Court noted in Varig Airlines that the key passage in the
committee reports was based almost verbatim on the remarks of
Assistant Attorney General Shea.  467 U.S. at 810 n.9.  The text of
that passage, as it appeared in H.R. Rep. No. 2245, is set out in full
in Dalehite, 346 U.S. at 29-30 n.21.

   /14/ With respect to Indian Towing, for example, the Court found it
"significant()" that "the Government conceded that the discretionary
function exception was not implicated * * *, arguing instead that the
Act contained an implied exemption from liability for 'uniquely
governmental functions.'" 467 U.S. at 812.

   /15/ Berkovitz rejected the argument that the discretionary
function exception is applicable to "any and all acts arising out of
the regulatory programs of federal agencies." 486 U.S. at 538.  We do
not make any such argument in this case.

   /16/ At this juncture the court of appeals also discussed at some
length its prior ruling in B & F Trawlers, Inc. v. United States, 841
F.2d 626 (5th Cir. 1988), which it found distinguishable.  Pet. App.
13a.  This discussion in no way cures the basic flaws in the court of
appeals' analysis, and indeed it further reflects the court's
misapprehension of the proper approach to the discretionary function
exception.  The court below stated that B & F Trawlers was inapposite
because the ruling in that case -- upholding the applicability of the
discretionary function exception -- had rested on the proposition that
in undertaking the action in question (towing a boat apprehended while
smuggling illegal drugs), the United States acted with the sole
purpose of protecting the general public.  In this case, the court
continued, the federal regulators acted with a dual purpose, and
respondent was "within the pool of beneficiaries of government action
here." Pet. App. 13a.

   This reasoning is incorrect on two grounds.  First, the court of
appeals erred in its premise that respondent was an intended
beneficiary of any actions of the federal regulators.  On the
contrary, federal regulators of financial institutions act solely for
the benefit of the public and the federal insurance funds, and their
regulatory actions give rise to no duty of care to the regulated
institutions or their shareholders.  See North Dakota v. Merchants
National Bank & Trust Co., 634 F.2d 368, 379 n.20 (8th Cir. 1980);
First State Bank v. United States, 599 F.2d 558, 562-564 (3d Cir.
1979), cert. denied, 444 U.S. 1013 (1980);  Harmsen v. Smith, 586 F.2d
156, 157 (9th Cir. 1978);  FDIC v. Renda, 692 F. Supp. 128, 135 (D.
Kan. 1988) (collecting cases);  FDIC v. Baker, No. SA CV 89-386, 1990
U.S. Dist. LEXIS 7559, *16-*17 (C.D. Cal. June 18, 1990).

   More fundamentally, any question of whether federal regulators
might or might not have had a duty of due care to respondent, Pet.
App. 13a, is a matter of substantive tort law, and thus has no bearing
on the logically anterior (and dispositive) issue of whether the
discretionary function exception precludes the courts from even
considering this tort claim on its merits.  See p. 30, infra.  To the
extent that B & F Trawlers may be seen as implicitly ruling that the
existence of certain types of substantive duties of care may somehow
result in FTCA liability regardless of the terms of the discretionary
function exception, see 841 F.2d at 632-633, such a ruling is flatly
contrary to the structure of the FTCA.

   /17/ Congress recently considered and decided not to take action on
a bill that would have inserted into the discretionary function
exception the operational limitation imposed by the court of appeals
in this case.  See H.R. 3872, 100th Cong., 2d Sess. (1988) (limiting
the exception to situations where "the discretionary function or duty
involves the formulation of policy rather than the implementation of
the policy at an operational level");  Legislation to Amend the
Federal Tort Claims Act:  Hearing Before the Subcomm. on
Administrative Law and Governmental Relations of the House Comm. on
the Judiciary, 100th Cong., 2d Sess. 10-11, 21-32, 47-56, 97-126,
199-242 (1988).  As reflected in the statement of the principal
congressional sponsor of this legislation, the proposed bill was
clearly seen as altering the existing law established by Varig
Airlines.  See id. at 29-30 (statement of Rep. Owens).

   /18/ As we noted in our petition (at 19 & n.10), the court below is
not the only court of appeals that purports to adhere to this
distinction, even after Varig Airlines.  See E. Ritter & Co. v. United
States, 874 F.2d 1236, 1241 (8th Cir. 1989);  United States Fire
Insurance Co. v. United States, 806 F.2d 1529, 1535-1536 (11th Cir.
1986) (applying discretionary function exception under Public Vessels
Act, but relying on FTCA case law).  See also Caplan v. United States,
877 F.2d 1314, 1319 (6th Cir. 1989) (Martin, J., concurring).

   /19/ See Begay v. United States, 768 F.2d 1059, 1062-1063 n.2 (9th
Cir. 1985);  Kennewick Irrigation Dist., 880 F.2d at 1022-1023.  See
also Colorado State Bank v. FDIC, 671 F. Supp. 706, 709 (D. Colo.
1987) (making the same point in the specific context of alleged
negligence in the "operational" activities of FDIC in disposing of
assets of failed financial institution).

   /20/ See U.S. Fidelity & Guaranty Co. v. United States, 837 F.2d
116, 121 (3d Cir.), cert. denied, 487 U.S. 1235 (1988);  Patterson v.
United States, 856 F.2d 670, 673-674 (1988), modified, 881 F.2d 127
(4th Cir. 1989) (en banc);  Allen v. United States, 816 F.2d 1417,
1420 (10th Cir. 1987), cert. denied, 484 U.S. 1004 (1988);  Red Lake
Bank of Chippewa Indians v. United States, 800 F.2d 1187, 1195-1196
(D.C. Cir. 1986);  see also Ayer v. United States, 902 F.2d at
1041-1042 (not referring to the "operational" test as such, but
adopting an approach that is consistent with the above cases).

   /21/ See Kennewick Irrigation Dist., 880 F.2d at 1024-1025;  Ayer,
902 F.2d at 1042.  While both courts found the reference to Indian
Towing in Berkovitz somewhat "confusing," both courts ultimately
determined that it could not have been intended to bring about the
sort of fundamental change in the law that the court of appeals in the
present case supposed.  As the Ninth Circuit concluded in Kennewick,
880 F.2d at 1024-1025:

      The Berkovitz reference to Indian Towing must be read in the
      context of Dalehite and Varig.  A matter does not fall outside
      of the discretionary function exception merely because the
      decision to embark on an activity has already been made.  Were
      that the case, Dalehite and Varig would be eviscerated.

   /22/ That use of the word is derived by analogy from one standard
definition, involving "execution of military or naval operations in
campaign and battle as distinguished from training, testing,
observation." Webster's Third New International Dictionary 1581
(1986).  Other standard definitions of the word are either clearly
inapposite ("ready for or in condition to undertake a destined
function") or unhelpful ("of or relating to operation or an
operation").  Ibid.

   /23/ Indeed, the facts of this case confirm the artificiality of
any line between policy formulation and operational implementation.
As discussed below, FHLBB offered guidance to IASA in lieu of more
formal regulatory steps that were under consideration.  Thus, the
effective use of the sort of suasion brought to bear in a case like
this is inextricably connected to the express powers of federal
regulators, the direct exercise of which would unquestionably fall
within the discretionary function exception.

   /24/ Several of the paragraphs cited by the court of appeals do not
contain any actual allegations of actions by federal regulators, but
set forth respondent's allegations regarding injury and causation.
See Amended Compl. paras. 35-36, 38-39, J.A. 16-17.  Paragraph 37
alleges only actions taken by the IASA directors, paragraph 40
contains allegations about the stockholders' 1987 action electing
persons other than those who had previously been approved by FHLBB as
directors, and paragraph 43 simply recites the FHLBB's denial of
respondent's administrative tort claim.  See J.A. 16, 17.
Accordingly, the only relevant paragraphs of the amended complaint
setting forth factual allegations concerning actions taken by federal
regulators are paragraphs 33, 34, 41, and 42, J.A. 13-16, 17.

   /25/ In the paragraphs of the amended complaint that were not
stricken, respondent frequently refers to actions of allegedly
"handpicked" officers and directors.  E.g., Amended Compl. paras.
33(c), 34, 34(c), J.A. 14-15.  But the allegations underlying
respondent's claim of liability based on the selection of these
officers and directors appeared in a portion of the amended complaint,
paras. 27-32, J.A. 12-13, that was stricken by the court of appeals as
being squarely within the discretionary function exception.  Pet. App.
14a.  And, of course, the actions of these managers of a private
corporation following their selection were not subject to the
"direction" of federal regulators, only to their advice and
recommendations.

   /26/ The federal regulators also did not act randomly.  In addition
to the precise character of the actions alleged, it is important to
note the regulatory context in which these events arose.  The
background factual materials submitted to the district court flesh out
that context somewhat.  See pp. 5-6 note 6, supra.  We recognize that
issues such as the financial condition of IASA at various times entail
factual questions that respondent might contest.  But for present
purposes, it is unnecessary to resolve or even address such disputed
questions.  We present these background matters here, as we did in the
district court, simply to show that the federal "involvement" in
IASA's affairs alleged by respondent did not occur in a vacuum, but
came about in the course of regulatory activities and concerns.  We do
not understand respondent to dispute that basic proposition, but we
also believe that respondent's complaint should be dismissed even if
the specific regulatory context is not considered.

   /27/ Kennewick also relied on Boyle v. United Technologies Corp.,
487 U.S. 500 (1988).  See 880 F.2d at 1029.  In Boyle, this Court
invoked the policies of the FTCA discretionary function exception in
ruling that military equipment procurement decisions, which involve
balancing of numerous considerations including cost, are matters with
which state tort law cannot be allowed to interfere.  See 487 U.S. at
511-512.

   /28/ Such results are also consistent with the traditional legal
concept of governmental discretion, drawn from cases such as those
involving mandamus, that this Court has recognized as pertinent to the
FTCA exception.  See Dalehite, 346 U.S. at 34.  For example, in Panama
Canal Co. v. Grace Line, Inc., supra, the Court declined to review
tolls set for use of the Panama Canal, on the ground that decisions
setting such tolls involved discretionary choices regarding methods of
accounting and cost allocation.  356 U.S. at 317-319.

   /29/ See Golden Pacific Bancorp v. Clarke, 837 F.2d 509, 512 (D.C.
Cir.), cert. denied, 109 S. Ct. 223 (1988);  Taylor v. FHLBB, 661 F.
Supp. 1341, 1349-1350 (N.D. Tex. 1986);  Colony First Federal Savings
& Loan Ass'n v. FSLIC, 643 F. Supp. at 417;  FDIC v. Jennings, 615 F.
Supp. 465, 467-468 (W.D. Okla. 1985);  First Savings & Loan Ass'n v.
First Federal Savings & Loan Ass'n, 531 F. Supp. 251, 255 (D. Haw.
1981);  Newberg v. FSLIC, 317 F. Supp. 1104, 1106-1107 (N.D. Ill.
1970).  See also FDIC v. Carter, 701 F. Supp. 730, 736 (C.D. Cal.
1987).

   Some district courts have suggested that the discretionary function
exception does not apply when the government goes beyond its role as
regulator and substitutes its decisions for those of a bank's officers
and directors.  See FDIC v. Renda, 692 F. Supp. at 136 (dictum);  In
re Franklin Nat'l Bank Securities Litigation, 445 F. Supp. 723
(E.D.N.Y. 1978).  Those decisions, however, make essentially the same
error as did the court of appeals in this case, i.e., they suppose
that application of the discretionary function exception turns on
whether an agency has exercised "operative control," Renda, 692 F.
Supp. at 136, rather than on a careful assessment of the nature of any
discretion exercised.  Indeed, Franklin National Bank misapplied this
Court's decision in Indian Towing in the same way as did the court
below.  See 445 F. Supp. at 735.  Franklin National Bank also confused
the issue of whether the United States has assumed a duty upon which
tort liability could be based, see id. at 731-735, with the issue of
whether the discretionary function exception applies.  As explained
above, the two issues are conceptually distinct, and the arguable (or
even proven) assumption of a duty says nothing about whether actions
carrying out that duty are discretionary.  See pp. 27-28 note 16, p.
30, supra.

   /30/ See FDIC v. Mmahat, 907 F.2d 546 (5th Cir. 1990);  Emch v.
United States, 630 F.2d 523, 527 (7th Cir. 1980), cert. denied, 450
U.S. 966 (1981);  Huntington Towers, Ltd. v. Franklin National Bank,
559 F.2d 863, 870 (2d Cir. 1977), cert. denied, 434 U.S. 1012 (1978);
FDIC v. Manatt, 723 F. Supp. 99, 103-104 (E.D. Ark. 1989).  See also
Successor Trust Committee v. First State Bank, Odessa, 735 F. Supp.
708, 716-717 (W.D. Tex. 1990) (FDIC statements regarding possible
buy-back of loans constitute discretionary function);  Colorado State
Bank v. FDIC, 671 F. Supp. at 708-709 (same, FDIC actions regarding
disposition of assets of failed institution);  Magellsen v. FDIC, 341
F. Supp. 1031, 1035-1037 (D. Mont. 1972) (same, FDIC delay in acting
on insurance application).

   /31/ Separation of powers principles have been recognized as
underlying the discretionary function exception.  See Laird v. Nelms,
406 U.S. 797, 812 n.11 (1972) (Stewart, J. dissenting);  In re Joint
Eastern & Southern Districts Asbestos Litigation, 891 F.2d 31, 35 (2d
Cir. 1989);  Kennewick Irrigation Dist., 880 F.2d at 1021-1022.

   /32/ Moreover, the decision below, by characterizing as
"operational" actions with respect to matters of an institution's
basic financial integrity, has opened the door to disgruntled
creditors to bring suit against the United States concerning
day-to-day problems in the institution -- problems that, in a time of
crisis, the regulators did not and could not address in their advice.
At least one such suit is pending in federal district court, McNeilly
v. United States, No. CA3-88-1853-H (N.D. Tex.).

   /33/ Although the court of appeals dismissed all but $25 million of
respondent's claims, on the ground that he could not sue for the loss
in value of IASA stock that he and other shareholders allegedly
suffered, the total loss for which recovery was sought in this case
was $100 million.  Amended Compl. para. 59, J.A. 19.

   /34/ The Solicitor General is disqualified in this case.

   APPENDIX