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Daugherty v. Sheer

United States Court of Appeals, District of Columbia Circuit

June 1, 2018

Michael J. Daugherty and LabMD, Inc., Appellees
v.
Alain H. Sheer, in his individual capacity and Ruth T. Yodaiken, in her individual capacity, Appellants Does 1-10, in their individual capacities, Appellees

          Argued January 9, 2018

          Appeal from the United States District Court for the District of Columbia (No. 1:15-cv-02034)

          Tyce R. Walters, Attorney, U.S. Department of Justice, argued the cause for appellants. With him on the briefs were Jessie K. Liu, U.S. Attorney, and Mark B. Stern, Attorney.

          James W. Hawkins argued the cause and filed the brief for appellees.

          Patrick J. Massari and Michael Pepson were on the brief for amicus curiae Cause of Action Institute in support of plaintiffs-appellees.

          Before: Pillard and Wilkins, Circuit Judges, and Sentelle, Senior Circuit Judge.

          OPINION

          WILKINS, CIRCUIT JUDGE

         This case requires us to decide whether two Federal Trade Commission attorneys are immune from suit for their conduct during an enforcement action against a medical-records company after the company's CEO publicly criticized the FTC about their investigation, where the company's data-security practices made patient records available over public file-sharing. Because "qualified immunity protects all but the plainly incompetent or those who knowingly violate the law, " Mullenix v. Luna, 136 S.Ct. 305, 308 (2015) (internal quotation marks omitted), the answer is yes. Even if the FTC attorneys sought to retaliate for the public criticism, their actions do not violate any clearly established right absent plausible allegations that their motive was the but-for cause of the Commission's enforcement action.

         I.

         LabMD, Inc. is a small medical-services company in Fulton County, Georgia, owned by Michael Daugherty.[1]LabMD maintained personal information about thousands of patients, including information covered by the Health Insurance Portability and Accountability Act of 1996 ("HIPAA").

         In May 2008, data-security company Tiversa Holding Corporation notified LabMD that Tiversa located a LabMD PDF file with personal information about 9, 300 patients on LimeWire, a peer-to-peer file-sharing application. Tiversa was able to access and download this file, known as the "1718 File, " through its data-monitoring technologies that run a prodigious number of searches across file-sharing networks. Tiversa also informed LabMD that the 1718 File had "spread, " meaning that other users searched for and downloaded the file on various peer-to-peer networks. LabMD determined that the 1718 File was on LimeWire because the application was installed on a LabMD billing computer, and the company removed LimeWire immediately. LabMD employees searched for the 1718 File on other networks, but did not find it. Plaintiffs-Appellees allege that Tiversa's actions were a sales tactic to attempt to persuade LabMD to purchase Tiversa's data-breach-remediation services.

         Enter the FTC. On January 19, 2010, LabMD CEO Daugherty received a letter from Alain Sheer, an FTC enforcement attorney, informing LabMD that the FTC was investigating LabMD's information-security practices, because "[a]ccording to information [they] ha[d] received, a computer file (or files) from your computer network is available to users on a peer-to-peer file sharing ('P2P') network." Compl. ¶ 115. According to Plaintiffs-Appellees, Sheer knew about the 1718 File only because Tiversa contacted the FTC to suggest an investigation, another Tiversa strategy for pressuring companies to retain their services.

         Over the next three and a half years, FTC attorneys Sheer and Ruth Yodaiken investigated Daugherty and LabMD regarding the company's data-security practices that allowed the 1718 File to be available on LimeWire. During this period, Daugherty publicly criticized the FTC, Sheer, and Yodaiken regarding the conduct of the investigation. On September 7, 2012, the Atlanta Business Chronicle quoted Daugherty describing the FTC's investigation as "a fishing expedition" that was "beating up on small business." Compl. ¶ 128. An FTC paralegal downloaded the article and sent it to Sheer, Yodaiken, and others not named. Id. ¶ 129. Daugherty and LabMD allege that "[a]fter reading Daugherty's quote, Sheer and Yodaiken ramped up their investigative efforts against Daugherty and LabMD." Id. ¶ 130. However, it is not alleged what this "ramp[ing] up" entailed. On July 19, 2013, Daugherty posted on the internet a "trailer" for his book, The Devil Inside the Beltway, which details his experience with the FTC investigation into LabMD. Three days later, Sheer informed LabMD's attorney that the investigation team had recommended an enforcement action against LabMD to the Commission, which would make the decision about ...


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