# LABMD, INC. v. TIVERSA HOLDING CORP.

> District Court, W.D. Pennsylvania · March 29, 2023

URL: https://www.frixlaw.com/law-library/cases/10418773

## Case

- **Court:** District Court, W.D. Pennsylvania
- **Decided:** March 29, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA

LABMD, INC., )
Plaintiff, )
)
VS. ) Civil Action No. 15-92
) Magistrate Judge Maureen P. Kelly
)
TIVERSA HOLDING CORP. formerly ) Re: ECF Nos. 137 and 564
known as TIVERSA, INC. and ROBERT J. )
BOBACK, )
)
Defendants. )

MEMORANDUM OPINION
Plaintiff LabMD, Inc. (“LabMD”) has filed this civil action arising out of an alleged
shakedown scheme executed by Defendant Tiversa, Inc. (“Tiversa”) and Defendant Robert J.
Boback (“Boback”) (collectively, “Defendants”). Following a lengthy procedural history,
including an appeal to the United States Court of Appeals for the Third Circuit and subsequent
remand, LabMD’s only remaining claim is a portion of a defamation per se claim.
Presently before the Court is Defendants’ Supplemental Brief in Support of Motion to
Dismiss the Remaining Claims in Plaintiff's First Amended Complaint, ECF No. 564, in which
Defendants renew arguments raised in a previously filed Motion to Dismiss, ECF Nos. 137 and
138, relative to five alleged defamatory statements. For the reasons that follow, the renewed
Motion to Dismiss is denied.!

1 In accordance with the provisions of 28 U.S.C. § 636(c)(1), the parties voluntarily consented to having a United
States Magistrate Judge conduct all proceedings in this case, including the entry of a final judgment. ECF Nos. 249
and 250.

1 FACTUAL AND PROCEDURAL HISTORY
LabMD commenced this action by Complaint filed on January 21,2015. ECF No. 1. After
the disposition of two motions to dismiss, LabMD filed the operative Amended Complaint on
February 12, 2016. ECF Nos. 34, 36, 70, 115, 125 and 129.
A. Amended Complaint
In the Amended Complaint, LabMD describes an allege shakedown scheme in which
Defendants conspired to infiltrate LabMD’s computer systems and, upon gaining access, created

a data security breach in LabMD’s computer files. ECF No. 125 4. Through this breach, Tiversa
obtained a 1718-page file containing confidential patient health-related data (“the 1718 File”). Id.
37. With this file as proof of a breach, Tiversa then offered to sell LabMD services to remedy
the breach. Id. § 43. When LabMD refused to purchase Tiversa’s services, Defendants turned to
the Federal Trade Commission (“FTC”) and reported that due to LabMD’s failed data security
protocols, confidential patient health and personal information was disseminated on peer-to-peer
networks for unbridled use by identity thieves. Id. §§ 77-83. The FTC instituted an administrative
action. In the Matter of LabMD, Inc., No. 9357 (FTC). LabMD alleges that as a result of
Defendants’ conduct, it is now “an insolvent shell of a company.” Id. 1.
LabMD originally brought a claim for defamation per se (Count IT) based on 20 alleged
defamatory statements, which it claims diminished LabMD’s reputation and hurt its business by
casting doubt on its identity as “a business that operates legally, ethically and honestly.” Id.
159-174. Relevant here, LabMD’s claim arose in part out of these statements.

2 Also referred to “P2P.”

1. Defamatory Statement Nos. 10-14
LabMD identifies Defamatory Statement Nos. 10-14 as the following statements published
by Defendants in a February 10, 2015, statement to “The Pathology Blawg”:
After all, we found this file in a public file sharing network that was
accessible by millions of people from around the world. (Defamatory
Statement No. 10).
The FTC then filed a Civil Investigative Demand (CID) that forced Tiversa
to comply. In compliance with the CID, Tiversa provided information on 84
companies that were breaching information and that matched the criteria of
the CID. LabMD was one of those listed. (Defamatory Statement No. 11).
Tiversa has not had a single criminal allegation alleged against us by any
individual or organization in our entire 11 year history .... not even
Daugherty or LabMD, despite the defamatory and baseless allegations of
extortion, theft and fraud. One would think that if Daugherty truly believed
he was the victim of an actual extortion plot, as he has suggested, he would
have called the police or FBI. To my knowledge, he has not. It is my belief
that he knows that if he files a false police statement, he could be prosecuted,
which may be the likely reason why he has decided not to do so, (Defamatory
Statement No. 12).
LabMD lawsuit - The claims are baseless and completely unsubstantiated ....
even in the complaint itself. This appears to be another attempt by Daugherty
to distract people from the INDISPUTABLE FACT that LabMD and Michael
Daugherty leaked customer information on nearly 10,000 patients.
(Defamatory Statement No. 13).
To my understanding from the deposition transcripts, LabMD had a policy
against installing file sharing software. An employee at LabMD violated that
policy, which resulted in the exposure of nearly 10,000 patients[’] private
information. This clearly demonstrates that LabMD DID NOT adequately
protect their patient’s [sic] PHI/PII, which is alfl] that the FTC needs to
demonstrate. Case closed. The rest of this is just a desperate attempt to
distract everyone from that INDISPUTABLE FACT. (Defamatory
Statement No. 14).
Id. ¥ 133.

As to these statements, LabMD alleges that “Defamatory Statements Nos. 10-14 are
expressly or impliedly false because the 1718 File was not found in ‘a public file sharing network
that was accessible by millions of people from around the world.’” Id. 4 134.
2. Defamatory Statement Nos. 15-20
LabMD identifies Defamatory Statement Nos. 15-20 as the following statements published
by Defendants in a letter to the editor of The Wall Street Journal, published in the December 9,
2015, edition:
LabMD, a Georgia-based cancer screening company, admits its own
employee mistakenly exposed the confidential medical records of nearly
10,000 individuals on the Internet. (Defamatory Statement No. 15).
LabMD’s CEO Michael Daugherty admits that a LabMD employee
improperly installed LimeWire file-sharing software on a company
computer. Doing so made confidential patient information publicly available
over the Internet. (Defamatory Statement No. 16).
Using this information, LabMD discovered that it had peer-to-peer sharing
software on a company computer. Without Tiversa’s free information,
LabMD would have never known it was continuing to publicly expose patient
information. (Defamatory Statement No. 17).
The suggestion that Tiversa provided information on exposed files to the
Federal Trade Commission as a means of retribution because LabMD didn’t
hire Tiversa is 100% false. (Defamatory Statement No. 18).
In the Fall of 2009 - well over a year later - as part of its investigation into
cyber leaks, the FTC issued the equivalent of a subpoena to Tiversa, which
legally required us to provide information on all the breaches we found from
many companies. There was absolutely no “deal” entered into between the
FTC and Tiversa. It is no different than the subpoena the FTC issued on
LabMD. LabMD was legally required to respond, as was Tiversa.
(Defamatory Statement No. 19).
As a result of this dispute, LabMD’s CEO has defamed my company and
made statements that are 100% wrong. (Defamatory Statement No. 20).
Id. 135.

LabMD alleges that Statement Nos. 15-20 are “expressly and/or impliedly false because
LabMD never admitted that any of its employees ever exposed anything on the Internet,” and “[a]n
installation of LimeWire did not make confidential patient information publicly available over the
Internet.” Id. § 136.
LabMD also sued for tortious interference with existing and prospective business
relationships (Count III), fraud (Count IV), negligent misrepresentation (Count V), and civil
conspiracy (Count VI). Id. 44 174-200.
B. Prior Disposition of Motion to Dismiss Amended Complaint
Defendants moved to dismiss the Amended Complaint on March 11, 2016. ECF Nos. 137
and 138. The undersigned issued a Report and Recommendation, recommending that Defendants’ -
Motion to Dismiss be granted as to Counts III, IV, V and VI. It was further recommended that the
Motion to Dismiss the defamation claim, Count I, be granted in part (as to Statement Nos. 1-12,
14-15 and 17-20) and denied in part (as to Statement Nos. 13 and 16). ECF No. 166 at 20.
As to Statement Nos. 10-14, the undersigned concluded that LabMD only specifically
addressed one of these statements, Statement No. 13, in its response in opposition to the Motion
to Dismiss, and it focused on the phrases “indisputable fact” and “leaked customer information.”
Thus, it appeared that LabMD had conceded that Statement Nos. 10-12 and 14 were not □
defamatory. Id. at 9.
As to Statement Nos. 15-20, the undersigned found that LabMD offered no direct response
to Defendants’ arguments but only disputed the portion of those statements in which patient

3 Counts I, VII and VIII of LabMD’s original Complaint were dismissed with prejudice, while Counts II, Ill, [V, V
and VI were dismissed without prejudice with leave to amend. ECF Nos. 115 and 129, LabMD did not replead a
claim under Count I in the Amended Complaint, so its first numbered claim is LabMD’s defamation claim at Count
Il. ECF No. 125.

information was characterized as “publicly available.” Thus, it appeared that LabMD had also
conceded that Statement Nos. 15 and 17-20 were not defamatory. Id. at 10-11.
As to Statement No. 16, it was noted that LabMD disputed the characterization of the
confidential patient information as “publicly available,” arguing that even if such information were
technically accessible via inadvertent file sharing, it was not legally available to the public.
“Because the meaning of ‘publicly available’ is subject to interpretation, the Court cannot say that
LabMD cannot maintain a defamation claim as to Defamatory Statement 16.” Based on this, it
was recommended that the portion of Count II based on Statement Nos. 15-20 be dismissed as to
Statement Nos. 15 and 17 through 20—but not as to Statement No. 16. Id. at 11.
The Report and Recommendation was adopted by District Judge Mark R. Hornak. ECF
No. 185.* Asa result, LabMD’s only remaining claim was its defamation per se claim at Count II
relative to Statement Nos. 13 and 16.
C. Third Circuit Appeal and Remand
The parties conducted extensive fact discovery as to LabMD’s remaining claim.
Defendants then moved for summary judgment. ECF Nos. 414 and 419. Upon consideration, the
Court granted summary judgment for Defendants. ECF Nos. 464 and 465.
LabMD then appealed from multiple orders of this Court to the United States Court of
Appeals for the Third Circuit, including the Order granting in part Defendants’ Motion to Dismiss
the Amended Complaint, and the Order granting summary judgment for Defendants. ECF Nos.
468, 469, 522 and 527.
Upon review, the Third Circuit vacated this Court’s Order granting the Motion to Dismiss
LabMD’s defamation claim relative to Statement Nos. 10, 14, 15, 17 and 18, along with its Order

4 The parties later consented to the jurisdiction of a United States Magistrate Judge to conduct proceedings in this
case, ECF Nos. 249 and 250.

granting summary judgment relative to Statement Nos. 13 and 16, and it remanded for further
proceedings. LabMD Inc. y. Boback, 47 F.4th 164 (3d Cir. 2022).
As to Statement Nos. 10, 14, 15, 17 and 18, the Third Circuit disagreed that LabMD had
conceded the non-defamatory nature of those statements in responding to the Motion to Dismiss.
The Third Circuit found that while LabMD had focused on the phrases “indisputable fact,”
“leaked” and “publicly available” that appear in Statement Nos. 13 and 16 (which the Court did
not dismiss), Statement Nos. 10, 14, 15, 17 and 18 (which the Court did dismiss) contained similar
language or characterizations. Based on this, the Third Circuit found this Court had too narrowly

construed LabMD’s argument, and it was improper to grant the Motion to Dismiss on this basis
relative to Statement Nos. 10, 14, 15, 17 and 18. Id. at 183-85.
As aresult, the Third Circuit directed as follows.
We will therefore direct the reinstatement of LabMD's defamation claim pertaining
to Statements 10, 14, 15, 17, and 18. On remand, the District Court may consider
any other arguments Tiversa has made in favor of dismissing the claim as to those
statements.
Id. at 185.
The Third Circuit also vacated the Court’s Order granting summary judgment on the
defamation claim as to Statement Nos. 13 and 16, and it remanded for further proceedings. Id. at
188.
D. Renewed Motion to Dismiss
Upon remand, the Court entered an Order on December 15, 2022 reinstating LabMD’s
defamation claim, Count II, as to Statement Nos. 10, 14, 15, 17 and 18, and it allowed Defendants
to renew any other arguments it previously made in favor of dismissing the claim, as per the ruling
of the Third Circuit. ECF Nos. 561 and 562.

On January 18, 2023, Defendants filed this Supplemental Brief in Support of the Motion
to Dismiss. ECF No. 564. LabMD filed a Brief in Opposition. ECF No. 565. Defendants filed a
Reply. ECF No. 566.
The renewed Motion to Dismiss is ripe for consideration.
Il. LEGAL STANDARD
In assessing the sufficiency of a complaint pursuant to a motion to dismiss under Federal
Rule of Civil Procedure 12(b)(6), the Court must accept as true all material allegations in the
complaint and all reasonable factual inferences must be viewed in the light most favorable to the
plaintiff. Odd v. Malone, 538 F.3d 202, 205 (3d Cir. 2008). The Court, however, need not accept
bald assertions or inferences drawn by the plaintiff if they are unsupported by the facts set forth in
the complaint. See Cal. Pub. Employees’ Ret. Sys. v. The Chubb Corp., 394 F.3d 126, 143 (3d
Cir, 2004) (citing Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997)). Nor must
the Court accept legal conclusions set forth as factual allegations. Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007). Rather, “[flactual allegations must be enough to raise a right to relief
above the speculative level.” Id. (citing Papasan y. Allain, 478 U.S. 265, 286 (1986)). Indeed, the
United States Supreme Court has held that a complaint is properly dismissed under Fed. R. Civ.
P. 12(b)(6) where it does not allege “enough facts to state a claim to relief that is plausible on its
face,” id. at 570, or where the factual content does not allow the court “to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009); see also Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (finding
that, under Twombly, “labels, conclusions, and a formulaic recitation of the elements of a cause
of action” do not suffice but, rather, the complaint “must allege facts suggestive of [the proscribed]

conduct” and that are sufficient “to raise a reasonable expectation that discovery will reveal
evidence of the necessary element[s] of his claim
UI. DISCUSSION
Defendants renew their Motion to Dismiss as to the remaining portion of LabMD’s
defamation per se claim, Count IJ, relating to Statement Nos. 10, 14, 15, 17 and 18. ECF No. 564.
Under Pennsylvania law, the elements of a defamation claim are codified by statute. In order to
successfully establish a claim for defamation, the plaintiff has the burden of proving:
(1) The defamatory character of the communication.
(2) Its publication by the defendant.
(3) Its application to the plaintiff.
(4) The understanding by the recipient of its defamatory meaning.
(5) The understanding by the recipient of it as intended to be applied to the plaintiff.
(6) Special harm resulting to the plaintiff from its publication.
(7) Abuse of a conditionally privileged occasion.
42 Pa. C.S.A. § 8343(a).
A defamatory statement is one that “tends so to harm the reputation of another as to lower
him or her in the estimation of the community or to deter third persons from dealing with him or
her.” U.S. Healthcare v. Blue Cross of Greater Phila., 898 F.2d 914, 923 (Gd Cir. 1990) (quoting
Birl v. Phila. Elec. Co., 17 A.2d 472 (Pa. 1960)). The court determines, in the first instance,
whether a statement is capable of defamatory meaning. Id. Ifthe court decides that it is capable
of a defamatory meaning, then it is for the jury to decide whether the statement was understood as
such by the reader or listener. Id.

9 □

Truth is an affirmative defense to defamation. Tucker v. Fischbein, 237 F.3d 275, 288 (3d
Cir. 2001) (citing Pa. Const. Stat. Ann. § 8343(b)(1). A defamation claim may be dismissed when
the affirmative defense of truth is apparent on the face of a complaint. Morrison v. Chatham Univ.,
Civ. A. No. 16-476, 2016 WL 4701460, at *11-12 (W.D. Pa. Sept. 8, 2016). Further, pure
expressions of opinion cannot support an action in defamation. McCafferty v. Newsweek Media
Grp., Ltd., 955 F.3d 352, 357 (3d Cir. 2020).
The Court will address the statements at issue in the order presented by Defendants.
A. Statement Nos. 10, 15 and 17
Statement No. 10: After all we found this file in a public file sharing network that
was accessible by millions of people from around the world.
Statement No. 15: LabMD, a Georgia-based cancer screening company, admits its
own employee mistakenly exposed the confidential medical records of nearly
10,000 individuals on the Internet.
Statement No. 17: Using this information, LabMD discovered that it had peer-to-
peer sharing software on acompany computer. Without Tiversa’s free information,
LabMD would have never known it was continuing to publicly expose patient
information.
ECF No, 125 9§ 133, 135.
In support of the Motion to Dismiss, Defendants argue that Statement Nos. 10, 15 and 17

are not defamatory as a matter of law because they are true. According to Defendants, these
statements all relate to the exposure of the 1718 File through a P2P network. Defendants argue
that the Complaint heavily references the public accessibility of the 1718 File through P2P network
capabilities, and that LabMD has conceded the file was accessed through “inadvertent file
sharing.” Defendants also contend that LabMD has made substantially similar statements in other
public filings, and that courts in Pennsylvania have explained that files housed on P2P networks

10

are “accessible [by] the general public.” ECF No. 564 at 3-7 (quoting Motown Rec. Co., L.P. v.
Kovalcik, No. 07-cv-4702, 2009 WL 455137, at *4 (E.D. Pa. 2005)).
In response, LabMD argues that this Court has already denied the Motion to Dismiss as to
Statement No. 16, and the Third Circuit found that Statement Nos. 15, 17 and 18 are substantially
similar in that they all allege the 1718 File being publicly available. LabMD also disputes that it
has admitted to exposing the 1718 File, and it instead alleges that Defendants hacked into a LabMD
computer. ECF No. 565 at 2-6.
Upon review, the Motion to Dismiss is denied as to Statement Nos. 10, 15 and 17. The
Court has held allegations the 1718 File was “publicly available” to be capable of defamatory
meaning. Based on the Third Circuit’s finding these statements are substantially similar and
contain analogous phrasing, dismissal on this basis is improper. LabMD, 47 F.4th at 184-85.
B. Statement No. 14
Statement No. 14: To my understanding from the deposition transcripts, LabMD
had a policy against installing file sharing software. An employee at LabMD
violated that policy, which resulted in the exposure of nearly 10,000 patients private
information. This clearly demonstrates that LabMD DID NOT adequately protect
their patient’s PHI/PII, which is all that the FTC needs to demonstrate. Case closed.
The rest of this is just a desperate attempt to distract everyone from that
INDISPUTABLE FACT.
ECF No. 125 4 133.

In support of the Motion to Dismiss, Defendants argue that LabMD’s claim fails to state a
claim as to Statement No. 14 because it is both true and a non-actionable opinion. Defendants
argue that Boback signaled this was his opinion by stating it was “to [his] understanding” based
on information contained in deposition transcripts. ECF No. 564 at 8-9.
In response, LabMD argues that use the phrase “to my understanding” does not shield
Defendants from liability, and that this qualifying language only relates to the portion of the
statement that refers to LabMD’s policy. LabMD argues that Boback’s assertion that patient
11

information was “exposed” was false and defamatory, as is the subsequent claim that LabMD did
not adequately protect its patients’ information, and that this false assertion was amplified by the
claim this is “indisputable fact.” ECF No. 565 at 8-9.
Upon review, the Court finds that dismissal is not warranted as to this statement at this
stage of the case. As the Third Circuit found, Boback’s assertion about “exposed files” is
“effectively synonymous” with language the Court has held to be capable of defamatory meaning.
LabMD, 47 F.4th at 184.
Although Defendants argue this is mere non-actionable opinion, the Court disagrees.
Under Pennsylvania law, “a statement qualified by the speaker as being only an opinion may
nevertheless be considered a statement of fact if it could ‘reasonably be interpreted’ as such by the
audience.” Meyers v. Certified Guaranty Co., 221 A.3d 662, 671 (Pa. Super. Ct. 2019) (citing
Braig v. Field Comme’ns, 456 A.2d 1366, 1373 (Pa. Super. Ct. 1983)). Despite the use of the
phrase “to my understanding,” a reader could reasonably construe this as a statement of fact that
LabMD had exposed patients’ information. Indeed, the Court notes that Boback emphasizes his
own statement as “INDISPUTABLE FACT.” Accordingly, the Motion to Dismiss is denied as to
Statement No. 14.
C. Statement No. 18
Statement No. 18: The suggestion that Tiversa provided information on exposed
files to the Federal Trade Commission as a means of retribution because LabMD
didn’t hire Tiversa is 100% false.
ECF No. 125 135.
As to Statement No. 18, Defendants argue that dismissal of this portion of the defamation
claim is proper because reasonable readers would not understand this statement to be referring to
LabMD. Defendants argue that when read in context, Boback is responding to the “suggestion”
of op-ed writer Dan Epstein (“Epstein”), and not LabMD. ECF No. 564 at 11.
12

In response, LabMD argues that this statement is clearly “of and concerning LabMD,”
which Boback expressly refers to. And, it argues, Boback resurrects and relies on the prior false
and defamatory allegation that LabMD’s confidential files were exposed, which is itself false and
defamatory. ECF No. 565 at 9-10.
Upon review, the Court finds that Motion to Dismiss should not be granted on this basis.
While Boback may have been responding to Epstein’s suggestion, he discusses LabMD’s files as
having been “exposed.” As the Third Circuit found, Boback’s characterization of the files as
“exposed” is similar to accusations that the 1718 File was “publicly available,” and is thus capable
of defamatory meaning. LabMD, 47 F.4th at 185. Therefore, the Court denies the Motion to
Dismiss LabMD’s defamation claim as to Statement No. 18.
IV. CONCLUSION
For the reasons set forth herein, the renewed Motion to Dismiss LabMD’s defamation per
se claim, Count II, as to Statement Nos. 10, 14, 15, 17 and 18 is denied. An appropriate Order
follows.

Dated: March 27 , 2023 BYTHECOURT:
CY VU gecreen) 7 0 LM =<
MAWREEN P. KBELY Nd
UNITED’STATES MAGISTRATE J UDGE

ce: All counsel of record via CM/ECF.

13

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10418773. Public record. Not legal advice.