Federal Judge Denied FTC Motion to Dismiss in LabMD Case

In the ongoing saga of FTC chicanery in the LabMD case… In case you are not up to speed, LabMD was investigated and charged by the FTC for lax security and exposure of patient data in 2009, and in subsequent hearings it became evident that the FTC was on a fishing expedition, paying infosec contractor Tiversa to “manufacture” evidence of malfeasance when there was no proof the data had been stolen or that any harm had subsequently come to patients of the small cancer detection lab.

This week, a federal judge denied the motion to dismiss the First Amendment case that LabMD brought against alleged complicit FTC employees. An excerpt from Law360, below:

LabMD and its CEO Michael Daugherty claimed in a November 2015 lawsuit that FTC employees Alain Sheer, Ruth Yodaiken and Carl Settlemyer launched an investigation into its data security practices based on information stolen from LabMD by cybersecurity firm Tiversa Holding Corp., and then violated the First Amendment by escalating that investigation immediately after Daugherty publicly criticized the agency in interviews with the press in 2012 and through a book he released in 2013.

On Friday, U.S. District Judge Tanya S. Chutkan rejected Sheer and Yodaikens motion to dismiss the First Amendment claims, finding LabMD’s allegations plausible at this stage of the litigation. However, the alleged facts did not support a claim against Settlemyer, the judge concluded.

At the bedrock of the entire dispute lies an allegation by LabMD, a cancer research firm, and Daugherty that cybersecurity firm Tiversa, in retaliation for their refusing to contract with it for data security services, began to falsify data and records showing that a 1,700-page file containing thousands of patients information had been shared online and downloaded.

The FTC employees then knowingly relied on that false data to pursue claims against LabMD, and even created a sham company with Tiversa founder Robert Boback to provide evidence againstLabMD while concealing its actual source, according to the November 2015 complaint, which accused the FTC employees in their individual rather than official capacities.

Daugherty told Law360 on Monday that while people don’t want to believe the FTC is corrupt, theLabMD saga demonstrates the FTCs willingness to abuse its power.

“The FTC teamed with criminals now under FBI criminal investigation to take files from companies to use for enforcement actions. They never verified the evidence, an appalling lack of professional procedure. The First Amendment is precious to all of us. FTC employees cannot get away with book suppression and speech suppression via revenge missions that steamroll doctors and patients as necessary collateral damage just because they seek to be the nation’s cybersecurity police,” Daugherty said.

The FTC declined to comment.

April 4th, 2017 by