McCarthy is wrong on several points. The most important one is that when the government drops a case because they have proof the defendant is actually innocent, there is no justice in proceeding with the case. To do so would be a clear violation of Flynn’s due substantive due process rights.
Another big factor in Sullivan’s refusal to dismiss the case is that when Flynn files his civil rights case, he will have the right to depose Sullivan, the previous prosecutors, and his previous attorneys. Discovery will get very nasty because it is very likely those individuals conspired to convict Flynn.
While Sullivan may not be subject to civil liability, judges are definitely subject to being deposed in a civil action. I assume he wants to avoid that at all costs.
I don't think that McCarthy is arguing against this. Powell has argued this point, but the Court has seemingly ignored it. McCarthy is suggesting that the Court can continue to ignore it, but get to the same result, removing Sullivan from the case.