LabMD Attempt to Overturn FTC Decision Declared an Unripe Claim

Richard Raysman is a Partner in our New York office.

As far as disputes between administrative agencies and investigated companies, this one has gotten particularly public and ugly. The dispute in question involves the Federal Trade Commission (FTC) and LabMD Inc. (LabMD), a company that performed laboratory tests on blood samples from consumers, a business that thus involved obtaining personal information about those consumers. In August of 2013, the FTC filed an administrative complaint against LabMD based on alleged violations of Section 5 of the FTC Act. The authority to do so purported to arise from the Commission's authority to addresses "unfair ... acts or practices." See 15 U.S.C. §45(a)(1). The FTC claimed that inadequate data security protocols at LabMD contributed to multiple breaches of medical records. Specifically, the agency asserted that a totality of lax data security practices caused its computer systems to be breached, and as a result, personal information was stolen that ended up in the hands of identity thieves.

Needless to say, LabMD officials and its counsel were none too pleased about the filing of the action. LabMD CEO Michael Daugherty called it an "abuse of power" and an "administrative temper tantrum." Counsel for the company characterized the FTC enforcement action as having "eviscerated LabMD's business."

Undeterred by hyperbole, the FTC has proceeded forward with the complaint, and has succeeded in essentially all challenges proffered by LabMD, including a decision issued this week by the United States District Court for the Northern District of Georgia. Prior to analyzing this decision, a summary of the chronology of the proceedings is helpful for clarity. Subsequent to the filing of the complaint against it, LabMD filed a petition in the D.C. Circuit alleging that the FTC engaged in an "extralegal abuse of government power." Simultaneously, it filed a petition for review in the Eleventh Circuit requesting a review of the entire FTC administrative proceeding. The petition in the Eleventh Circuit was dismissed for lack of jurisdiction, as it can only review proceedings subsequent to review by the presiding district court. See LabMD, Inc. v. F.T.C., No. 13-15267-F (11th Cir. Feb. 18, 2014) (citing Califano v. Sanders, 430 U.S. 99 (1977)). Soon thereafter, LabMD voluntarily dismissed the petition requesting review by the D.C. Circuit.

In the meantime, LabMD had ceased operations, purportedly as a result of the...