FTC Appeals Decision to Dismiss Complaint against LabMD

The Federal Trade Commission has appealed a recent decision by its chief administrative law judge to dismiss the FTC’s data security complaint against now-defunct medical testing laboratory LabMD.

The appeal is subject to review by the full Commission, which filed the original complaint against the Atlanta-based company. FTC officials were not immediately available for comment on the case. However, if past history in similar matters is any indication, the agency will reverse the judge’s decision.

According to former FTC Commissioner Joshua Wright, over the past nearly 20 years the Commission has voted out a number of complaints that have been tried by administrative law judges. “In each of those cases, after the administrative decision is appealed to the Commission, the Commission has ruled in favor of FTC staff and found liability,” said Wright. “In other words, in 100 percent of cases where the administrative law judge ruled in favor of the FTC staff, the Commission affirmed liability; and in 100 percent of the cases in which the administrative law judge ruled found no liability, the Commission reversed. This is a strong sign of an unhealthy and biased institutional process.”

One group that intends to contest the FTC’s appeal of the LabMD case is Cause of Action, a not-for-profit and nonpartisan government accountability organization. “Every unbiased decision-maker who has reviewed this case, including the FTC’s own Chief Administrative Law Judge, the U.S. House of Representatives Oversight & Government Reform Committee, and a U.S. District Court Judge, has found FTC’s claims against LabMD to be baseless, and its conduct inexplicable and even an 'embarrassment,’” said Dan Epstein, executive director of Cause of Action.

The FTC filed an administrative suit alleging that LabMD violated the FTC Act by failing to employ reasonable and appropriate measures to prevent unauthorized access to consumers’ personal information. However, Chief Administrative Law Judge D. Michael Chappell found that the FTC’s complaint counsel had failed to prove that LabMD’s alleged failure to employ reasonable data security constitutes an unfair trade practice. In addition, the complaint counsel failed to prove that the allegedly unreasonable conduct caused or was likely to cause substantial injury to consumers.

Also See: FTC Data Security Complaint against LabMD Dismissed, But Damage Done

LabMD announced in January 2014 that was forced to go out of business due to the “debilitating effects” of the FTC’s investigative practices and litigation. Now, with the recent decision by Judge Chappell, LabMD founder and CEO Michael J. Daugherty has filed his own lawsuit in U.S. District Court for the District of Columbia against the FTC investigators involved in the case against his company, which he claims complied at all times with HIPAA.

Daugherty’s complaint and demand for a jury trial alleges that the FTC investigation and prosecution against LabMD was “fought so aggressively, abusively, unethically and illegally” by FTC investigators that they put his company out of business. The civil action is seeking financial “relief” for damages, losses and injuries as well as attorneys’ fees.

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