22 Jun FTC Heads Delay Ruling In LabMD Data Security Row
Share us on: By Allison Grande
Law360, New York (June 16, 2016, 9:19 PM ET) — The heads of the Federal Trade Commission on Thursday gave themselves more time to decide whether to overturn an administrative law judge’s dismissal of the agency’s data security suit against LabMD, extending their deadline for a ruling to July 28.
The decision by FTC Chairwoman Edith Ramirez and Commissioners Maureen Ohlhausen and Terrell McSweeny to extend the time period for issuing a final ruling in the closely watched dispute came on the final day of a 100-day deadline for reaching a final determination that began ticking when the trio heard oral arguments in the appeal on March 8.
The commissioners’ brief one-paragraph order did not offer much insight into the delay, saying only that the deadline was extended until July 28 “in order to give full consideration to the issues presented by the appeal in this proceeding.”
Michael Daugherty, the president and CEO of now-defunct LabMD, blasted the delayWednesday, postulating that the commissioners — whose only options appear to be to either overturn their own administrative law judge or affirm the dismissal of a case that the heads of the commission voted to bring in 2013 — were punting for time.
“The FTC is in unchartered waters: Confirm an ALJ smack in the face or overturn to face their biggest nightmare: a level playing field in front of an Article III judge,” Daugherty said. “Bullies can’t cope with due process.”
The dispute came before the trio of active commissioners after one of the agency’s administrative law judges, D. Michael Chappell, in November rejected the commission’s argument that LabMD’s purported failure to institute reasonable data security constituted an unfair trade practice under Section 5 of the FTC Act.
Instead, the judge concluded in his 92-page order dismissing the case that the FTC had failed to meet its burden of proof under the unfairness prong of Section 5 because there was no evidence that any consumers had suffered harm.
In accordance with the administrative process, the FTC immediately appealed Judge Chappell’s decision to the agency’s acting commissioners. While the agency had four heads when the case was sent up the chain, Commissioner Julie Brill — who left the commission at the end of March to headHogan Lovells‘ privacy and cybersecurity practice — had previously recused herself from the matter.
The remaining three commissioners took up the case, and during the more than hourlong oral arguments session, they honed in on the reach of Section 5(n) of the FTC Act, which stipulates that the commission cannot deem an act or practice unfair unless the conduct “causes or is likely to cause” substantial injury to consumers.
In their attempt to find the proper legal trigger for this authority, the commissioners badgered attorneys from both sides over whether the lab’s allegedly lax data security practices harmed consumers in any way.
FTC attorney Laura Riposo VanDruff contended that even though no LabMD patients had reported being injured in the more than eight years since their data was allegedly exposed through a peer-to-peer file-sharing network, the risk that they could be injured was enough to sustain the commission’s claims.
In support of her argument, VanDruff pointed to the commissioners’ January 2014 decision rejecting LabMD’s motion to dismiss the dispute, in which they unanimously held that actual economic harm is not needed to sustain an action and that an act or practice that raises the risk of concrete harm is sufficient.
LabMD’s attorney Alfred J. Lechner Jr. from Cause of Action countered that the FTC had fallen well short of its burden to show that LabMD’s data security practices — which the commission contends led to the exposure of a file that contained sensitive data on nearly 10,000 patients — had caused harm to anyone.
“It’s [the commission’s] burden to prove it, and they haven’t offered any evidence other than speculation,” Lechner said.
LabMD is represented by Alfred J. Lechner Jr., Daniel Z. Epstein and Patrick J. Massari of Cause of Action Institute.
The FTC is represented by its attorneys Alain Sheer, Laura Riposo VanDruff, Megan Cox, Ryan Mehm and Jarad Brown.
The case is In the Matter of LabMD Inc., docket number 9357, before the Federal Trade Commission.
–Editing by Jill Coffey.