Grady v. United States

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Pro Se

No. 15-746C

Filed: November 23, 2015

FILED

Nov 2 3 2015

CLYDE CALVIN GRADY II,

U.S. COURT OF

Plaintiff, , FEDERAL CLAIMS

15 U.S.C. $ 78a; Securities And

Exchange Act of 1934; Implied-

In-Fact Contract; Implied-ln-Law

THE UNITED STATES OF AMERICA, Contract; RCFC 12(bX1).

Defendant.

Clyde Calvin Grady II, Jacksonville, FL, Plaintilf, pro se.

Sarah Choi, Trial Attorney, with whom were Benjamin C. Mizer, Principal Deputy Assistant

Attomey General, Robert E. Kirschman, Jr., Director, and Steven J. Gillingham, Assistant

Director, Commercial Litigation Branch, United States Department of Justice, Washinglon, DC,

for Defendant.

OPINION AND ORDER

Kaplan, Judge.

Plaintiff, Clyde Calvin Grady II, appearing pgq se, filed this action on July 16, 2015. Mr.

Grady alleges breach of a contract between the United States and investors in the United States

stock market, claiming that such contract was created when Congress enacted the Securities

Exchange Act of 1934, l5 U.S.C. $ 78a, et seq., and subsequent legislation. Complaint

("Compl.") fl 1. According to Mr. Grady, this contract "obligated the Congress to take action

necessary to ensure the 'maintenance ofa fair and orderly' U.S. Stock Market for the 'protection

of investors. "' Id. He claims that Congress breached this obligation by failing to conduct

oversight of the Securities and Exchange Commission that was needed to ensure the maintenance

of a fair and orderly stock market. Compl. ll4.30;4.57. Mr. Grady alleges that as a result of

the govemment's failures, he sustained losses amounting to $106,935.92 on May 6, 2010-the

day of the so-called "Flash Crash." Compl. fl 4.58.

Currently before the Court is the government's motion to dismiss the complaint pursuant

to Rules of the Court of Federal Claims ("RCFC) 12(bX1) and 12(b)(6). For the reasons set

forth below the Court concludes that it lacks jurisdiction over the complaint and, accordingly, it

GRANTS the government's motion to dismiss pursuant to RCFC 12(bX1).

BACKGROUND '

Congress enacted the Securities Exchange Act of 1934 "to provide for the regulation of

securities exchanges and of over-the-counter markets operating in interstate and foreign

commerce and through the mails, [and] to prevent inequitable and unfair practices on such

exchanges and markets." Compl. Ufl 4.2-4.3 (quoting the preamble to the Securities Exchange

Act, Pub. L.73-291,48 Stat. 881 (1934)). In his complaint Mr. Grady alleges that Congress's

objective in the original Securities Exchange Act legislation, as well as in all of its subsequent

amendments, in essence, was to maintain a fair and orderly stock market for the protection of

investors. Compl. fllJ 4.5-4.7; 4.18;4.20.

Mr. Grady claims that in taking upon itself an obligation to maintain a fair and orderly

stock market for the protection ofinvestors in the Securities Exchange Act of i934, Congress

initiated a unilateral contract between the government and investors in the stock market. Compl.

ll14.2la.n;4.30. According to Mr. Grady, the act of investors investing their funds in the

stock market constituted consideration given to the govemment for that promise. Id. Mr. Grady

further asserts in the altemative that Congress entered into an implied-in-fact contract that can be

infened through its conduct, i.e., its enactment ofvarious pieces of legislation to control the

stock market. Compl. ilJlf 4.26; 4.294.30.

Mr. Grady's alleged damages for stock losses are attributed to the so-called "Flash

Crash." Compl. fl 4.58. The Flash Crash occurred on May 6, 2010, and refers to when the Dow

Jones Industrial Average dropped nearly a thousand points during the half hour between 2:30 and

3:00 p.m. Compl. fl 4.35. Individual investors, like Mr. Grady, are claimed to have suffered

losses of more than $200 million as a result ofthe unintended consequences of a widely used

investment tool known as a "stopJoss order." Compl. fll4.374.38;4.414.42. This tool was

designed as a means to limit losses by selling a stock when it drops below a certain price.

Compl. fl 4.41. During the Flash Crash, however, the stoploss orders instigated unwanted sales

of stocks at prices far below their true market value. Compl. fltf 4.37-4 .38; 4.414.42.

Mr. Grady argues that the Flash Crash could have been prevented ifCongress had taken

appropriate measures to maintain a fair and orderly stock market pursuant to the Securities

Exchange Act of 1934. Specifically, Mr. Grady asserts, Congress failed to ensure the proper

implementation of legislation to deal with issues conceming the removal of the "uptick" rule,

naked short selling, high frequency traders, and the elimination of "specialists." Compl. lftf 4.20;

4.384.57. Mr. Grady contends that because Congress did not address these issues through

oversight or other legislative action, it breached its promise to maintain a fair and orderly stock

market, and as a result, Mr. Grady lost $106,935.92.

DISCUSSION

In ruling on a motion to dismiss, the Court assumes all undisputed factual allegations to

be true and construes all reasonable inferences in favor ofthe plaintiff. Scheuer v. Rhodes. 416

I The assertions

contained in this section are taken from Mr. Grady's complaint. For purposes of

deciding the govemment's motion to dismiss, the Court assumes that all factual allegations in the

complaint are true.

U.S.232,236 (1974), abroeated on other grounds by Harlow v. Fitzgerald, 457 U.S. 800 (1982).

In considering a motion to dismiss for lack of subject matter jurisdiction, the court may "inquire

into jurisdictional facts" to determine whether it has jurisdiction. Rocovich v. United States, 933

F.2d991,993 (Fed. Cir. l99l). The plaintiffbears the burden of establishing subject matter

jurisdiction by a preponderance ofthe evidence. Brandt v. United States,710 F.3d 1369,1373

(Fed. Cir. 2013). Pro se plaintiffs are held to "less stringent standards than formal pleadings

drafted by lawyers," Haines v. Kemer,404 U.S. 519,520 (1972). Nonetheless, even pgq gg

plaintiffs must persuade the Court that jurisdictional requirements have been met. Bernard v.

United States, 59 Fed. Cl. 497 ,499 (2004), affd, 98 F. App'x 860 (Fed. Cir. 2004).

In this case, Mr. Grady has failed to establish that his claims are within the jurisdiction of

this Court. Pursuant to the Tucker Act, the United States Court of Federal Claims may hear "any

claim against the United States founded either upon the Constitution, or any Act ofCongress or

any regulation ofan executive department, or upon any express or implied contract with the

United States, or for liquidated or unliquidated damages in cases not sounding in tort." 28

U.S.C. $ la9l(a)(l) (2012). The Tucker Act serves as a waiver of sovereign immunity and a

jurisdictional grant, but it does not create a substantive cause ofaction. Jan's Helicopter Serv..

Inc. v. Fed. Aviation Admin., 525 F.3d 1299, 1306 (Fed. Cir. 2008). A plaintiff; therefore, must

establish that "a separate source ofsubstantive law . . . creates the right to money damages.', Id.

(quoting Fisher v. United States,402F.3d 1167,11.72 (Fed. Cir. 2005) (en banc in relevant

part)).

Here, Mr. Grady seeks to rest this Court's Tucker Act jurisdiction on the claim that-by

failing to conduct oversight that Mr. Grady alleges would have averted the Flash crash-the

United States Congress breached either a unilateral or implied-in-fact contract that it entered

with investors by enacting the Securities and Exchange Act of 1934, the 1975 amendments to

that Act, and other related legislation. The first and most obvious problem with this theory is

that it collides with the well-established principle that the govemment's "performance of its

regulatory or sovereign functions does not create contractual obligations." D&N Bank v. United

stares, 331 F .3d, 1374, 1378-79 (Fed. Cir. 2003).

Further, although Mr. Grady claims that the contract at issue is one that is implied-in-fact,

he does not allege a meeting ofthe minds between an authorized representative ofthe

govemment and himself regarding some specific goods or services. An implied-in-fact contract

is founded upon a meeting of the minds regarding specific terms of an agreement, ,,which,

although not embodied in an express contract, is infened, as a fact, from conduct of the parties

showing, in the light of the surrounding circumstances, their tacit understanding." Hercules. Inc.

v. United States, 516 U.S. 417,424 (1996) (quoting Baltimore & Ohio R. Co. v. United States,

261 U.S. 592,597 (1923)); see also Ciw of El Cenfto v. United States,922F.2d,8l6, g20 (Fed.

Cir. 1990) (holding that an implied-in-fact contract requires "( 1) mutuality of intent to contracq

(2) consideration; and, (3) lack of ambiguity in offer and acceptance"). Nor does he allege with

any specificity what the terms were of this supposed implied contract. Rather, he identifies a

general aspirational goal of the securities laws-to maintain a fair and orderly stock market.

Compl. $fl 4.24.3. He then makes a rather substantial leap of logic, arguing that, by enactrng

legislation with this general goal, congress evinced an intent that it would be contractually

obligated to ensure that the legislation's general goal was met through oversight. Compl. fl,]f

4.294.30.

In effect, what the complaint alleges is that a contract between Congress and all investors

in the stock market should be imputed from Congress' exercise of its sovereign functions of

enacting legislation with a particular legislative goal in mind. This is a truly extraordinary

proposition. More to the point, such allegations, at best, suggest the existence of an implied-in-

law contract. See Hercules, 516 U.S. at 424 ("[Aln agreement implied in law is a'fiction of law'

where 'a promise is imputed to perform a legal duty . . . ."') (quoting Baltimore & Ohio R. Co.,

261 U.S. at 597). The Tucker Act, however, does not provide this Court with jurisdiction to

consider alleged breaches of an implied-inJaw contract. Id. ar 423 (citing Merritt v. United

States, 267 U.S. 338, 341 (1925)).

Finally, the Court notes that Mr. Grady raised claims very similar to those he is making

here in an action he filed in this Court in 2013. See Compl., Gradv v. United States, No. 1:13-

cv-00015 (Fed. Cl. Jan.7,2013), ECFNo. l. While Mr. Grady claims a breach of contract by

Congress in this case, in No. l3-l5C he argued that the United States, acting through the

Securities and Exchange Commission, had breached an implied-in-fact contract by failing to

discharge its statutory duty to maintain a fair and orderly stock market. See id. He further

argued that as a result of this breach, and in the wake of the Flash Crash, he suffered losses in the

amount of $106,935.62. Id.

On July 31,2013, the Court of Federal Claims dismissed Mr. Grady's complaint for lack

of subject matter jurisdiction. Opinion and Order at 1, Grady,No. 1:13-cv-00015,ECFNo. 13.

Mr. Grady appealed that decision to the United States Court ofAppeals for the Federal Circuit,

which affirmed on May 7,2014. Grady v. United States,565 F. App'x 870 (Fed. Cir.2014).

Mr. Grady then filed a petition for a writ of certiorari to the Federal Circuit, which the Supreme

Court denied on October 6,2014. Gradv v. United States, 135 S. Ct. 245 (2014).

In light ofthe prior litigation, the govemment has argued in this case that the doctrine of

collateral estoppel bars Mr. Grady from re-litigating the issue of this Court's jurisdiction. While

the govemment's arguments are not without some force, the Court finds it unnecessary to reach

them, given its conclusion that it clearly lacks jurisdiction over the contract claims Mr. Grady

has articulated in this case.

CONCLUSION

On the basis of the foregoing, the govemment's motion to dismiss pursuant to RCFC

12(b)(1) is GRANTED and the complaint is DISMISSED without prejudice. Each side shall

bear its own costs. The Clerk shall enterjudgment accordingly.

IT IS SO ORDERED,

a- /(/_-

ELAINE D. KAPLAN

Judge

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