The opinion
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
)
MICHAEL J. DAUGHERTY, et al., )
)
Plaintiffs, )
)
v. ) Case No. 15-cv-2034 (TSC)
)
ALAIN H. SHEER, et al., )
)
Defendants. )
)
MEMORANDUM OPINION
Plaintiffs Michael Daugherty and LabMD, Inc. bring this Bivens action against Alain Sheer,
Ruth Yodaiken, and Carl Settlemyer, individuals employed by the Federal Trade Commission
(“FTC”), alleging that they are liable for violating, and conspiring to violate, Plaintiffs’ First,
Fourth, and Fifth Amendment rights. (Compl. ¶¶ 153–73). Defendants have moved to dismiss
under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (ECF No. 13). For the reasons
stated herein, Defendants’ motion is GRANTED IN PART and DENIED IN PART.
I. BACKGROUND
The events of this case stretch from 2008 through the present. Throughout this time,
Defendants Sheer, Yodaiken, and Settlemyer worked for the FTC and investigated Plaintiffs
LabMD, Inc. and Daugherty, LabMD’s sole owner and chief executive officer, for acts that
potentially violated the FTC Act. (Compl. ¶ 1). In May 2008, LabMD was notified by Tiversa, a
cybersecurity firm seeking to sell its services to Plaintiffs, that a 1,718-page file containing the
personal and confidential health information of approximately 9,300 patients was available for
anyone to download on a peer-to-peer file sharing network. (Id. ¶ 48). LabMD then investigated
its own computers, located the peer-to-peer file sharing program on one of them, and deleted the
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program to prevent the ability for the file to be downloaded. (Id. ¶ 52).
Plaintiffs allege that Defendants learned of the shared file in spring 2009 and “should have
learned” at that time that LabMD was “the only source” of the file, meaning that the file had not
been downloaded or “spread anywhere on any peer-to-peer network.” (Id. ¶¶ 68–72 (emphasis in
original)). They further allege that, in retaliation for Plaintiffs’ refusal to contract with Tiversa for
data security services, Tiversa began to falsify data and create records showing that LabMD’s file
had spread and been downloaded by unknown individuals. (Id. ¶¶ 96–99). At some point during
these events, the FTC began investigating LabMD’s data security practices relating to this shared
file, and Plaintiffs allege that Defendants knowingly accepted and used Tiversa’s falsified records
to assist their investigation. (Id.). Plaintiffs further allege that Defendants agreed with each other
and with Tiversa that the firm would withhold from the FTC any exculpatory information about
LabMD during their investigation. (Id. ¶ 100). Plaintiffs allege that in furtherance of this goal,
Defendants worked with Tiversa to create a shell company to whom Tiversa would selectively give
records and which the FTC would then subpoena for those records, thereby avoiding the risk that
exculpatory information beneficial to Plaintiffs and harmful to Tiversa would be disclosed. (Id.
¶¶ 84–96, 104–05).
In early 2012, Plaintiffs allege that Daugherty “began to warn the public about the FTC’s
abuses” through “the press and social media and through a book.” (Id. ¶ 127). Plaintiffs allege
that Defendants escalated the intensity of their investigation, and ultimately recommended
commencing an enforcement proceeding, in retaliation for this public criticism. In particular,
Plaintiffs point to a September 7, 2012 interview Daugherty gave with an Atlanta newspaper,
following which Defendants “ramped up” their investigation, and the July 2013 release of a trailer
for Daugherty’s book The Devil Inside the Beltway, followed three days later by Defendant Sheer’s
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recommendation that an enforcement action be brought against LabMD. (Id. ¶¶ 127–32).
The FTC filed its administrative complaint against LabMD in August 2013. 1 Over two
years later, on November 19, 2015, an FTC administrative law judge issued an Initial Decision
dismissing the complaint after concluding that LabMD had not engaged in unfair acts that were
likely to cause substantial consumer injury under the FTC Act. 2 The next day, November 20,
2015, Plaintiffs filed their Complaint in this case. On July 29, 2016, the FTC issued an Opinion
reversing the ALJ’s decision and concluding that LabMD’s data security practices constituted an
unfair act within the meaning of the FTC Act. 3 Defendants have now moved to dismiss all claims
in this case. (ECF No. 13).
II. LEGAL STANDARD
A. Federal Rule 12(b)(1)
Federal courts are courts of limited jurisdiction and, as such, a district court “may not
exercise jurisdiction absent a statutory basis.” Exxon Mobil Corp. v. Allapattah Servs., Inc., 545
U.S. 546, 552 (2005); see also Fed. R. Civ. P. 12 (“If the court determines at any time that it lacks
subject-matter jurisdiction, the court must dismiss the action.”). “Limits on subject-matter
jurisdiction ‘keep the federal courts within the bounds the Constitution and Congress have
prescribed,’ and those limits ‘must be policed by the courts on their own initiative.’” Watts v. SEC,
482 F.3d 501, 505 (D.C. Cir. 2007) (quoting Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583
(1999)). Such limits are especially important in the agency review context, where “Congress is
1
See Compl., In re LabMD, Inc., No. 9357 (F.T.C. Aug. 29, 2013), https://www.ftc.gov/sites/
default/files/documents/cases/2013/08/130829labmdpart3.pdf.
2
See Initial Decision, In re LabMD, Inc., No. 9357 (F.T.C. Nov. 19, 2015), https://www.ftc.gov/
system/files/documents/cases/151113labmd_decision.pdf.
3
See Opinion of the Commission, In re LabMD, Inc., No. 9357 (F.T.C. July 29, 2016),
https://www.ftc.gov/system/files/documents/cases/160729labmd-opinion.pdf.
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free to choose the court in which judicial review of agency decisions may occur.” Am. Petroleum
Inst. v. SEC, 714 F.3d 1329, 1332 (D.C. Cir. 2013) (internal quotation marks omitted). The law
presumes that “a cause lies outside [the court’s] limited jurisdiction” unless the party asserting
jurisdiction establishes otherwise. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377
(1994). Thus, the plaintiff bears the burden of establishing jurisdiction by a preponderance of the
evidence. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992); Shekoyan v. Sibley Int’l
Corp., 217 F. Supp. 2d 59, 63 (D.D.C. 2002).
In evaluating a motion to dismiss under Rule 12(b)(1) for lack of subject matter
jurisdiction, the court must “assume the truth of all material factual allegations in the complaint
and ‘construe the complaint liberally, granting plaintiff the benefit of all inferences that can be
derived from the facts alleged.’” Am. Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir.
2011) (quoting Thomas v. Principi, 394 F.3d 970, 972 (D.C. Cir. 2005)). Nevertheless, “‘the court
need not accept factual inferences drawn by plaintiffs if those inferences are not supported by facts
alleged in the complaint, nor must the Court accept plaintiff’s legal conclusions.’” Disner v.
United States, 888 F. Supp. 2d 83, 87 (D.D.C. 2012) (quoting Speelman v. United States, 461 F.
Supp. 2d 71, 73 (D.D.C. 2006)). Further, under Rule 12(b)(1), the court “is not limited to the
allegations of the complaint,” Hohri v. United States, 782 F.2d 227, 241 (D.C. Cir. 1986), vacated
on other grounds, 482 U.S. 64 (1987), and “a court may consider such materials outside the
pleadings as it deems appropriate to resolve the question [of] whether it has jurisdiction to hear the
case,” Scolaro v. D.C. Bd. of Elections & Ethics, 104 F. Supp. 2d 18, 22 (D.D.C.2000) (citing
Herbert v. Nat’l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992)).
B. Federal Rule 12(b)(6)
A motion to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim tests the legal
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sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir. 2002). “To survive
a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim
is plausible when it alleges sufficient facts to permit the court to “draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id. Thus, although a plaintiff may survive
a Rule 12(b)(6) motion even where “recovery is very remote and unlikely,” the facts alleged in the
complaint “must be enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555–57 (2007) (internal quotation marks omitted). Evaluating a 12(b)(6)
motion is a “context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Iqbal, 556 U.S. at 679.
III. DISCUSSION
A. Subject Matter Jurisdiction
Defendants first argue that this court lacks subject matter jurisdiction to hear Plaintiffs’
claims because those claims may be brought only before the FTC in the agency’s administrative
proceedings. The Supreme Court held in Thunder Basin Coal Co. v. Reich, 510 U.S. 200 (1994),
that district courts lack jurisdiction to hear certain cases if “Congress has allocated initial review to
an administrative body [and] such intent is ‘fairly discernible in the statutory scheme.’” Id. at 207
(quoting Block v. Cmty. Nutrition Inst., 467 U.S. 340, 351 (1984)). To determine whether
Congress “intended to preclude initial judicial review,” courts look to “the statute’s language,
structure, and purpose, its legislative history, and whether the claims can be afforded meaningful
review.” Id. (internal citation omitted). The court must also consider “whether [a plaintiff’s]
claims are of the type Congress intended to be reviewed within this statutory structure.” Id. at 212.
Central to this question is whether the claims are “wholly ‘collateral’ to a statute’s review
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provisions and outside the agency’s expertise” and whether “a finding of preclusion could
foreclose all meaningful judicial review.” Id. at 212–13 (quoting Heckler v. Ringer, 466 U.S. 602,
618 (1984)); see also Free Enter. Fund v. Pub. Co. Accounting Oversight Bd., 561 U.S. 477, 489
(2010) (restating Thunder Basin principles).
1. Statutory Scheme
The court first considers whether Congress’s intent to require initial review of Plaintiffs’
claims by the FTC is “fairly discernible in the statutory scheme.” Thunder Basin, 510 U.S. at 207.
In the FTC Act, Congress directs the FTC to prevent persons, partnerships, or corporations “from
using unfair methods of competition in or affecting commerce and unfair or deceptive acts or
practices in or affecting commerce.” 15 U.S.C. § 45(a)(2). Upon finding that there is “reason to
believe” a corporation has engaged in conduct that violates the FTC Act, the FTC must issue a
complaint upon such corporation and hold a hearing to review evidence of the alleged unlawful
acts. 15 U.S.C. § 45(b). The charged entity has “the right to appear at the place and time so fixed
and show cause why an order should not be entered by the [FTC] requiring [it] to cease and desist
from the violation of the law so charged in said complaint.” Id. If the FTC concludes that the
corporation engaged in unlawful acts, it has the authority to issue a cease-and-desist order, and if
the charged party does not comply with the order, it may bring a civil action in U.S. district court
seeking an injunction and recovery of civil penalties. 15 U.S.C. §§ 45(b), (l), (m). The corporation
ordered to cease and desist its activities may obtain review from a U.S. Court of Appeals within
sixty days. 15 U.S.C. § 45(c).
This Circuit recently analyzed whether an analogous statutory scheme involving
administrative enforcement by the U.S. Securities and Exchange Commission precluded
jurisdiction for a constitutional challenge in district court. See Jarkesy v. SEC, 803 F.3d 9 (D.C.
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Cir. 2015). There, as here, the statute provided for a charged—or “aggrieved”—individual to seek
review in a court of appeals following adjudication before the agency, and for the reviewing court
to exercise “exclusive” jurisdiction to “affirm or modify and enforce or to set aside the order in
whole or in part.” Id. at 16 (quoting 15 U.S.C. § 78y(a)(3)); see also 15 U.S.C. § 45(d) (identical
language in FTC Act). After reviewing that statute’s details regarding the appellate review of the
agency’s decisions, the Circuit concluded that it was “fairly discernible that Congress intended to
deny [aggrieved respondents] an additional avenue of review in district court.” Jarkesy, 803 F.3d
at 17 (quoting Elgin v. Dep’t of Treasury, 132 S. Ct. 2126, 2134 (2012)) (alteration in Jarkesy).
The statutory schemes for the FTC’s and the SEC’s proceedings are also similar to those of the
Mine Safety and Health Administration considered by the Supreme Court in Thunder Basin. See
id. at 16 (comparing statutes).
As in Jarkesy, Plaintiffs here “do not seriously dispute that Congress meant to channel most
challenges to the [agency’s] administrative proceedings through the statutory review scheme.” 803
F.3d at 17. Therefore, applying the Circuit’s guidance in Jarkesy, the court finds that Congress
intended to allocate initial review of at least some claims to the FTC.
2. Wholly Collateral to the Agency’s Review
As in Jarkesy, Plaintiffs instead argue that their claims are not “of the type Congress
intended to be reviewed within this statutory structure.” 803 F.3d at 17 (quoting Thunder Basin,
510 U.S. at 212). Addressing this argument requires the court to proceed to the next phase of the
Thunder Basin framework—determining whether the claims are “wholly ‘collateral’ to a statute’s
review provisions and outside the agency’s expertise.” Thunder Basin, 510 U.S. at 212–13. In
Heckler, the Supreme Court explained that a plaintiff’s claims are not “collateral” if “at bottom”
they are an attempt to reverse the agency’s decisions. 466 U.S. at 614, 618. Similarly, in Elgin,
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the Court considered whether the plaintiffs’ constitutional claims were merely “the vehicle by
which they seek to reverse” the agency’s decisions. 132 S. Ct. at 2139–40. Additionally, in
Jarkesy, this Circuit concluded that the plaintiffs’ constitutional challenges were not collateral
because they were “inextricably intertwined with the conduct of the very enforcement proceeding
that statute grants the [agency] the power to institute and resolve as an initial matter.” 803 F.3d at
23 (quoting Jarkesy v. SEC, 48 F. Supp. 3d 32, 38 (D.D.C. 2014)). The Jarkesy court further
stated that “[i]t is difficult to see how [the claims] can still be considered collateral to any
Commission orders or rules from which review might be sought, since the ALJ and the
Commission will, one way or another, rule on those claims and it will be the Commission’s order
that [the plaintiff] will appeal.” Id. (internal quotation omitted) (first alteration in original).
Here, the parties disagree as to whether Plaintiffs’ Bivens claims against individual FTC
investigators are “inextricably intertwined” with their objections to the FTC’s enforcement
proceedings already raised directly before the FTC. In the court’s view, Bivens claims pose a
distinct question from the one addressed by the Circuit in Jarkesy because Plaintiffs’ claims are
inherently different from those that they may have—and did—bring before the FTC. Plaintiffs
allege that specific FTC employees conspired to violate Plaintiffs’ rights and caused monetary
injury during the course of their investigation and enforcement proceeding. In order to seek
redress for these injuries, Plaintiffs have brought their Bivens claims to this court because they
simply were unable to do so before the agency. The remedy sought by Plaintiffs is not a reversal,
or even reconsideration, of the FTC’s decision, as the Supreme Court found dispositive in Elgin
and Heckler. If Plaintiffs sought reversal or reconsideration, that remedy would clearly fall within
the FTC’s own jurisdiction, or within the court of appeal’s “exclusive” jurisdiction upon review.
See 15 U.S.C. § 45(b)–(d). However, the FTC Act does not authorize the agency to award
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monetary damages for, much less even consider, the allegedly tortious actions of agency
employees committed during the investigation or enforcement proceeding. See 15 U.S.C. § 45(b)
(providing FTC’s sole authority to issue cease-and-desist orders). Indeed, the FTC Act provides no
path for an individual to affirmatively challenge the acts of FTC officials within the administrative
process, and any such challenges must be raised as defenses. If all claims were required to be
brought before the agency, an aggrieved individual would be blocked from ever raising their tort
claims if the FTC ultimately decided not to pursue adjudication.
The legal challenge in this case therefore differs significantly from that in Thunder Basin,
in which the plaintiff sought pre-enforcement injunctive relief to halt the agency’s potential
enforcement action, see 510 U.S. at 205–06, and in Jarkesy, where the plaintiffs similarly sought
emergency injunctive relief to block a scheduled administrative hearing, see 48 F. Supp. 3d at 35–
36. While Defendants attempt to blur the line between this case and Jarkesy by arguing that
plaintiffs in both cases “assert purported constitutional challenges to the grounds for and conduct
of an on-going administrative proceeding,” (Def. Mem. at 9), this ignores the basis of Plaintiffs’
Bivens claims and the monetary remedy sought for the damage to their business operations. It is
true that Plaintiffs may raise similar allegations as affirmative defenses against the FTC, though
only in an attempt to show cause why they should not be subject to an order from the FTC, as the
statute gives them the right to do. See 15 U.S.C. § 45(b). However, here Plaintiffs only seek
monetary relief for officials’ conduct during the investigation. That the challenged acts occurred
during the FTC investigation and proceeding does not, in this court’s view, determine whether the
claims are collateral to the agency’s review. Indeed, nothing in the FTC Act or the relevant case
law suggests that a claim for monetary damages would be akin to those claims that prior courts
have determined are not “collateral” to the agency’s review, i.e. those seeking to circumvent or
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reverse an agency’s administrative decision. Therefore, the court finds that Plaintiffs’ Bivens
claims are wholly collateral to their ongoing enforcement proceedings.
3. Meaningful Judicial Review
Finally, in determining whether Plaintiffs’ claims must be adjudicated by the agency, this
court must also consider if “a finding of preclusion could foreclose all meaningful judicial review.”
Thunder Basin, 510 U.S. at 212–13. The court concludes that dismissing Plaintiffs’ claims would
indeed foreclose all judicial review, meaningful or otherwise. In Jarkesy, the Court determined
that the SEC was competent to decide the plaintiffs’ constitutional challenges, including a facial
non-delegation challenge to the underlying statute, because even if the agency could not declare a
statute unconstitutional, a reviewing court of appeals could do so in the course of determining
whether to uphold or reserve the agency’s order. 803 F.3d at 19 (citing Elgin, 132 S.Ct. at 2136–
37). However, these cases are distinguishable because of the remedy Plaintiffs seek here. In cases
such as Jarkesy and Thunder Basin, the plaintiffs sought a reversal of or injunction against an
agency’s enforcement proceedings by claiming that the agency had no constitutional authority to
proceed with its enforcement—a question that appellate courts can readily analyze upon review of
an agency’s order. Here, however, Plaintiffs seek monetary damages completely apart from the
FTC’s ultimate decision to issue an order against them, and whether to award damages is not an
issue that an appellate court can or would consider on an appeal from an FTC order. Therefore,
because Plaintiffs’ request for damages will not be considered before the agency or on appeal of
the agency’s order, the court finds that dismissal here would result in the deprivation of meaningful
judicial review.
In sum, based on its review of the framework laid out in Thunder Basin and recently
analyzed by this Circuit in Jarkesy, this court concludes that Plaintiffs’ claims are collateral to the
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ongoing administrative proceedings before the FTC and dismissal would preclude all meaningful
judicial review of these claims. Therefore, the court finds that it has subject matter jurisdiction to
continue consideration of Plaintiffs’ case.
4. Claim Preclusion
Defendants further argue that the question of whether this court has jurisdiction has already
been fully litigated before and decided in LabMD, Inc. v. FTC, 776 F.3d 1275 (11th Cir. 2015), and
this court is therefore precluded from reconsidering the issue. In this Circuit, the “doctrine of issue
preclusion, or collateral estoppel, bars ‘successive litigation of an issue of fact or law actually
litigated and resolved’ that was ‘essential to the prior judgment, even if the issue recurs in the
context of a different claim.’” Nat’l Ass’n of Home Builders v. EPA, 786 F.3d 34, 41 (D.C. Cir.
2015) (quoting Taylor v. Sturgell, 553 U.S. 880, 892 & n.5 (2008)); see also Yamaha Corp. of Am.
v. United States, 961 F.2d 245 (D.C. Cir. 1992) (laying out three factors for courts to evaluate issue
preclusion). Courts also apply this doctrine to “threshold jurisdictional issues.” Nat’l Ass’n of
Home Builders, 786 F.3d at 41.
In LabMD, Inc. v. FTC, the Eleventh Circuit found that the district court lacked subject
matter jurisdiction over LabMD’s Administrative Procedure Act (“APA”) claim against the FTC
for alleged ultra vires conduct because neither the FTC’s filing of an administrative complaint nor
its denial of LabMD’s motion to dismiss were final agency actions reviewable under the APA. See
776 F.3d at 1277–79. The Circuit court then determined that LabMD’s claims were unreviewable
even apart from the APA, as the constitutional claims brought against the FTC seeking a
preliminary and permanent injunction against continued FTC enforcement were required to be
brought before the agency under Thunder Basin. Id. at 1279–80; see also Compl. at 38–40, Case
No. 14-cv-0810 (N.D. Ga. Mar. 20, 2014) (requesting preliminary and permanent injunctive relief).
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Unlike in LabMD, Inc. v. FTC, Plaintiffs here bring Bivens-type constitutional tort claims
against three agency employees, seeking monetary damages. While Defendants raise similar
jurisdictional arguments to those raised in the district court and at the Eleventh Circuit, this court
concludes that issue preclusion does not bar consideration of the jurisdictional issues here, as the
precise issue of jurisdiction over Plaintiffs’ Bivens claims has not been actually litigated by the
parties in a prior case. See Yamaha Corp., 961 F.2d at 254 (first factor to evaluate is whether “the
same issue now being raised [was] contested by the parties and submitted for judicial
determination in the prior case”). While many of the underlying facts overlap with the prior case,
and Defendants raise similar jurisdictional arguments, here Plaintiffs’ claims and the named
defendants are different from that earlier case. Therefore, this court is not barred by issue
preclusion from determining that it has subject matter jurisdiction over the present case.
B. Sufficiency of Plaintiffs’ Bivens Claims
In determining whether Plaintiffs have stated Bivens claims, the court must first “identify
the exact contours of the underlying right[s] said to have been violated” and determine “whether
the plaintiff[s] ha[ve] alleged a deprivation of a constitutional right at all.” County of Sacramento
v. Lewis, 523 U.S. 833, 841 n.5 (1998).
1. First Amendment
In Counts I through III, Plaintiffs allege that Defendants violated their First Amendment
rights, including freedom of speech, freedom of the press, and the right to petition the government
for redress of grievances. (Compl. ¶¶ 153–61). While the Supreme Court has not expressly held
that a plaintiff may seek monetary damages for First Amendment violations, courts in this Circuit
have concluded that such a remedy is available, particularly in the case of retaliatory acts. See
Patterson v. United States, 999 F. Supp. 2d 300, 307–11 (D.D.C. 2013) (collecting cases); Navab-
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Safavi v. Broad. Bd. of Governors, 650 F. Supp. 2d 40, 66 (D.D.C. 2009) (retaliatory prosecution);
Dellums v. Powell, 566 F.2d 167, 194–96 (D.C. Cir. 1977) (retaliatory arrest).
a. Elements of the Claim
To establish a First Amendment violation, Plaintiffs must allege “(1) that [they] engaged in
protected conduct, (2) that the government ‘took some retaliatory action sufficient to deter a person
of ordinary firmness in plaintiff[s’] position from speaking again;’ and (3) that there exists ‘a
causal link between the exercise of a constitutional right and the adverse action taken against
[them].’” Doe v. District of Columbia, 796 F.3d 96, 106 (D.C. Cir. 2015) (quoting Aref v. Holder,
774 F. Supp. 2d 147, 169 (D.D.C. 2011)). For the third element, causation “may be inferred—
especially at the pleading stage—when the retaliatory act follows close on the heels of the
protected activity.” Smith v. De Novo Legal, LLC, 905 F. Supp. 2d 99, 104 (D.D.C. 2012). Indeed,
the D.C. Circuit “has held that a close temporal relationship may alone establish the required
causal connection,” Singletary v. District of Columbia, 351 F.3d 519, 525 (D.C. Cir. 2003), if “the
two events are ‘very close’ in time,” Woodruff v. Peters, 482 F.3d 521, 529 (D.C. Cir. 2007)
(quoting Clark Cnty. Sch. Dist. v. Breeden, 532 U.S. 268, 273–74 (2001)).
Plaintiffs alleges that in early 2012 Daugherty “began to warn the public about the FTC’s
abuses (orchestrated by Sheer and Yodaiken) through the press and social media and through a
book.” (Compl. ¶ 127). Specifically, Plaintiffs state that Daugherty criticized the FTC in a
September 2012 interview with the Atlantic Business Chronicle, and on July 19, 2013, he posted
on the internet a trailer for his book, The Devil Inside the Beltway, about his experience with Sheer,
Yodaiken, and others at FTC. (Id. ¶¶ 128, 131). Plaintiffs also allege that Sheer and Yodaiken
“ramped up their investigative efforts against” them immediately after Daugherty’s interview in
September 2012, and then three days after Daugherty posted the trailer for his book, on July 22,
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2013, Sheer recommended that an enforcement action be commenced against Plaintiffs. (Id.
¶¶ 129–30, 132). Given the close proximity in time between Daugherty’s activity criticizing the
FTC officials and the FTC’s decisions with regard to Plaintiffs, the court finds that Plaintiffs have
articulated sufficient factual allegations to support the elements of a First Amendment claim
against Sheer and Yodaiken.
However, Plaintiffs have not alleged any facts supporting a claim against Defendant
Settlemyer for violating their First Amendment rights. With respect to Settlemyer, Plaintiffs plead
only that he knew or should have known that the evidence collected from Tiversa was unlawfully
obtained, falsified, or otherwise not trustworthy. (See Compl. ¶¶ 1, 66–71, 82–86, 96–100, 103–
04, 118–19 (allegations involving Settlemyer)). Because Plaintiffs’ Bivens claims are founded on
an allegation that government employees’ personal conduct violated their rights, “[t]he complaint
must at least allege that the defendant federal official was personally involved in the illegal
conduct.” Simpkins v. D.C. Gov’t, 108 F.3d 366, 369 (D.C. Cir. 1997) (citing Tarpley v. Greene,
684 F.2d 1, 9–11 (D.C. Cir. 1982)). Having failed to allege any facts with regard to Settlemyer’s
knowledge of Plaintiffs’ protected activity or his actions following that activity, Plaintiffs have
failed to state a claim against him.
At this stage of the litigation, accepting Plaintiffs’ allegations as true and resolving all
possible inferences in their favor, the court finds that Plaintiffs’ have stated a plausible claim that
Defendants Sheer and Yodaiken, but not Settlemyer, violated Plaintiffs’ First Amendment rights.
b. Special Factors Counseling Hesitation
The Supreme Court in Bivens recognized a cause of action for monetary damages in part
because “no special factors counsel[led] hesitation in the absence of affirmative action by
Congress.” Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388, 396
14
(1971). In their Bivens analyses, courts must therefore determine whether “special factors counsel
hesitation” against recognizing a plaintiff’s claim for monetary damages. See, e.g., Meshal v.
Higgenbotham, 804 F.3d 417, 420–22 (D.C. Cir. 2015) (discussing the role of special factors in
Bivens cases). One such factor is “whether an alternative remedial scheme is available.” Id. at 425
(citing Wilkie v. Robbins, 551 U.S. 537, 550 (2007)). In Bush v. Lucas, 462 U.S. 367 (1983), for
example, the Supreme Court declined to recognize a federal employee’s Bivens claim alleging First
Amendment violations because Congress had provided a comprehensive scheme for monetarily
redressing such allegations, and indeed the plaintiff had already been awarded monetary damages
through that administrative scheme. Id. at 371, 389–90.
Defendants argue that the FTC Act’s administrative process, as described above in Section
III.A.1, creates such an alternative scheme because it “permits regulated parties to protect their
constitutional and other interests.” (Def. Mem. at 20). However, the mere existence of an
administrative scheme is not enough to preclude consideration of a Bivens claim; the court must
consider whether Congress “created a comprehensive scheme that was specifically designed to
provide full compensation to” the individuals whose constitutional rights were violated. Bush, 462
U.S. at 390 (Marshall, J., concurring). As discussed above in Sections III.A.2 and III.A.3, the
court finds nothing in the FTC Act that permits an aggrieved party to bring a tort claim to the FTC,
as any constitutional arguments may only be raised as defenses once a complaint is filed.
Moreover, the FTC has only the authority to issue or not issue a cease-and-desist order, and has no
power to award monetary damages. Therefore, the court has little difficulty concluding that in
enacting the FTC Act, Congress did not create a comprehensive scheme designed to provide
compensation for Plaintiffs’ claims here, and there are no other special factors that might persuade
the court to hesitate in recognizing Plaintiffs’ claims.
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c. Statute of Limitations
With respect to Plaintiffs’ First Amendment claims, Defendants argue that the claims
against Yodaiken and Sheer must be dismissed because the statute of limitations expired before
Plaintiffs brought this suit. Defendants contend that this court should apply a three-year statute of
limitations, as this is the time frame within which tort suits must be brought under D.C. Code § 12-
301(8), and courts should “ordinarily look to analogous provisions in state law as a source of a
federal limitations period.” Doe v. DOJ, 753 F.2d 1092, 1444 (D.C. Cir. 1985). Although the
Complaint plainly states that early retaliatory acts were taken following a September 2012 news
article (see Compl. ¶¶ 128–30), Plaintiffs—for reasons that are unclear to the court—misstate their
own Complaint and argue in response that their earliest allegations involving retaliation are in
September 2014, so the filing of their Complaint in November 2015 was well within the three-year
period. This response is without merit, as it is based on Plaintiffs’ incorrect recitation of the facts
alleged in their own Complaint.
However, the courts notes that Plaintiffs frame the alleged retaliation as a series of ongoing
acts, claiming that Defendants increased the intensity of the investigation in 2012 and 2013, and
later in 2013 elevated the matter to an enforcement proceeding following additional public
criticism by Daugherty. (See Compl. ¶¶ 128–32). As a result, though neither party articulated it in
their briefs, the court is inclined to apply the “continuing tort doctrine” to Plaintiffs’ Bivens claims.
Under this doctrine, “[w]hen a tort involves continuing injury, the cause of action accrues, and the
limitation period begins to run, at the time the tortious conduct ceases.” Page v. United States, 729
F.2d 818, 821 (D.C. Cir. 1984). In Whelan v. Abell, 953 F.2d 663 (D.C. Cir. 1992), for example,
the D.C. Circuit wrote that “a lawsuit is a continuous, not an isolated event, because its effects
persist from the initial filing to the final disposition of the case. . . . A defendant subject to a
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lawsuit is likely to suffer damage not so much from the initial complaint but from the cumulative
costs of defense and the reputational harm caused by an unresolved claim.” Id. at 673. The case at
bar appears to be sufficiently analogous for the court to conclude that the statute of limitations
period only began to run when Defendants’ alleged retaliatory acts ended. Taking the July 2013
date on which Sheer recommended commencement of an enforcement action as the earliest
possible date for the end of the retaliation, Plaintiffs’ claims were filed eight months prior to the
expiration of the three-year window proposed by Defendants. The court therefore concludes that,
even in the absence of a precise calculation for when Plaintiffs’ window to file began or ended,
Plaintiffs filed their Complaint within that window.
In sum, the court finds that Plaintiffs have plausibly stated First Amendment claims for
which they may seek monetary damages against Sheer and Yodaiken, and neither consideration of
special factors nor the statute of limitations preclude further review.
2. Fourth Amendment
In Count IV, Plaintiffs allege that Defendants violated their Fourth Amendment rights.
(Compl. ¶¶ 162–64). The Fourth Amendment guards against “unreasonable searches and seizures”
of individuals’ “persons, houses, papers, and effects.” U.S. Const. amend. IV. Plaintiffs’
Complaint does not articulate what, if anything, was unlawfully and unreasonably searched or
seized, and how Defendants participated in the unlawful search or seizure. Indeed, the Complaint
appears to be completely devoid of facts which could plausibly support a Fourth Amendment
claim. Moreover, Plaintiffs failed to respond to Defendants’ argument that they alleged no facts to
support such a claim. (See Pl. Mem. at 29–32 (responding only to Defendants’ First Amendment
arguments)). Because Plaintiffs appear to have conceded this issue, and the court can identify
nothing in the Complaint to support a Fourth Amendment claim, Defendants’ motion to dismiss is
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GRANTED as to Count IV.
3. Fifth Amendment
In Counts V and VI, Plaintiffs allege that Defendants violated their procedural and
substantive due process rights in violation of the Fifth Amendment. (Compl. ¶¶ 165–70).
a. Procedural Due Process
“A procedural due process violation occurs when an official deprives an individual of a
liberty or property interest without providing appropriate procedural protections.” Abdelfattah v.
U.S. Dep’t of Homeland Sec., 787 F.3d 524, 538 (D.C. Cir. 2015) (quoting Atherton v. D.C. Office
of the Mayor, 567 F.3d 672, 689 (D.C. Cir. 2009)). This Circuit has noted that “the due process
clause requires, at a minimum, that the government provide notice and some kind of hearing before
final deprivation of a property interest.” Propert v. District of Columbia, 948 F.2d 1327, 1331
(D.C. Cir. 1991). Plaintiffs do not articulate in their Complaint or Opposition what interest,
whether liberty or property, has been deprived without necessary process; however, construing
their allegations liberally, the court finds that Plaintiffs appear to allege that because LabMD
ultimately closed due to the expenses of the investigation and enforcement proceedings, Daugherty
was deprived of the ability to pursue his chosen profession. (See Compl. ¶ 152).
The Supreme Court has held that “the right to hold specific private employment and to
follow a chosen profession free from unreasonable governmental interference comes within the
‘liberty’ and ‘property’ concepts of the Fifth Amendment.” Greene v. McElroy, 360 U.S. 474, 492
(1959); Kartseva v. Dep’t of State, 37 F.3d 1524, 1529 (D.C. Cir. 1994) (stating that Greene
recognized a constitutional “right to follow a chosen trade or profession”). To state a claim for the
deprivation of this right, Plaintiffs must allege that “the government formally debar[red] [them]
from certain work or implement[ed] broadly preclusive criteria that prevent[ed] pursuit of a chosen
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career.” Abdelfattah, 787 F.3d at 538 (quoting Trifax Corp. v. Dist. of Columbia, 314 F.3d 641,
643–44 (D.C. Cir. 2003)). This Circuit has found that “this ‘liberty concept’ protects corporations
as well as individuals.” Trifax Corp., 314 F.3d at 643 (citing Old Dominion Dairy Prods., Inc. v.
Sec’y of Def., 631 F.2d 953, 961–62 (D.C. Cir. 1980)).
Plaintiffs allege that “[t]hrough the Federal Defendants’ abuses of power and disregard for
the core constitutional rights of LabMD and Daugherty, the Federal Defendants have put LabMD
out of business and laid it to rest. In addition, they have deprived Daugherty of his right to make a
living from an extremely valuable asset that he built from the ground up.” (Compl. ¶ 152).
Plaintiffs also allege that Defendants’ investigation of LabMD “caus[ed] [its] insurance carriers to
cancel LabMD’s insurance coverage and caus[ed] crippling economic hardship and reputational
harm.” (Id. ¶ 116). As of September 2012, three years into Defendants’ investigation but before
the alleged “ramp[ing] up,” Plaintiffs claim they had already spent approximately $500,000 to
defend themselves and comply with the investigative demands. (Id. ¶¶ 128, 130). They further
allege that during the investigation and enforcement proceedings, Defendant Sheer “punish[ed]
LabMD” when he “filed or caused to be filed burdensome, duplicative, and oppressive discovery
requests.” (Id. ¶ 143). Plaintiffs further allege throughout their Complaint that all three
Defendants were involved in using falsified evidence and refusing to acknowledge exculpatory
evidence in their possession. (See, e.g., Compl. ¶¶ 118, 133).
Absent from Plaintiffs’ Complaint, however, is any allegation that they were deprived of
any process to which they entitled. A procedural due process claim is inherently tethered to an
allegation that a plaintiff was not given “the opportunity to be heard ‘at a meaningful time and in a
meaningful manner’” in connection with the deprivation of their liberty or property interest.
Mathews v. Eldridge, 424 U.S. 319, 333 (1976). Therefore, to state such a claim, Plaintiffs must
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allege as a basic element that Defendants acted without due process of law. See Propert, 948 F.2d
at 1331. Not only do Plaintiffs not state what process they were entitled to, but they also fail to
articulate why the hearings held by the FTC throughout the enforcement proceedings were
insufficient. (See Compl. ¶ 126 (referencing two hearings)). 4
At a minimum, a complaint must “give the defendant fair notice of what the . . . claim is
and the grounds upon which it rests.” Twombly, 550 U.S. at 555 (quoting Conley v. Gibson, 355
U.S. 41, 47 (1957)). As the court noted above, Plaintiffs failed to expressly articulate specifically
what property or liberty interested they allege was deprived, or what process they were due. If the
court construes their Complaint liberally, it can discern an allegation relating to a liberty interest to
pursue a chosen profession, but Plaintiffs have simply not alleged any facts to support their claim
that this deprivation occurred without due process of law. Therefore, the court concludes that
Plaintiffs have failed to state a claim for violation of their procedural due process rights, and
Defendants’ motion is GRANTED as to Count V.
b. Substantive Due Process
The Fifth Amendment additionally protects individuals when their property or liberty
interests are deprived not because of a “denial of fundamental procedural fairness . . . [but from]
the exercise of power without any reasonable justification in the service of a legitimate
governmental objective.” County of Sacramento, 523 U.S. at 845–46. However, only
“deprivations of liberty caused by ‘the most egregious official conduct,’ . . . may violate the Due
Process Clause.” Chavez v. Martinez, 538 U.S. 760, 774 (2003) (plurality opinion) (quoting Lewis,
523 U.S. at 846). Because the path to recovery is narrower under a substantive due process theory,
4
In the FTC’s 2016 Opinion, it also described an evidentiary hearing that began in May 2014 and
was completed in July 2015 in which Plaintiffs called numerous expert witnesses. See Opinion, In
re LabMD, Inc., No. 9357 (F.T.C. July 29, 2016).
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the court must consider “the threshold question [of] whether the behavior of the governmental
officer is so egregious, so outrageous, that it may fairly be said to shock the contemporary
conscience.” Lewis, 523 U.S. at 847 n.8; see also Abdelfattah, 787 F.3d at 540. As discussed
above, neither Plaintiffs’ Complaint nor Opposition articulate precisely what interest has been
deprived. Even assuming that Plaintiffs intended to allege a deprivation of the above-described
liberty interest in pursuing a profession, Plaintiffs do not to allege any facts that are so egregious as
to shock the conscience. Simply stated, Plaintiffs allege that Defendants knowingly used falsified
evidence in the course of their investigation and ignored exculpatory evidence. If true, such
actions may certainly be considered unethical and improper, but do not rise to the level of “the
most egregious official conduct.” Abdelfattah, 787 F.3d at 540. The court therefore concludes that
Plaintiffs have failed to state a claim for a substantive due process violation, and so Defendants’
motion is GRANTED on Count VI.
4. Civil Conspiracy under Federal Common Law
Finally, in Count VII, Plaintiffs allege that Defendants engaged in a civil conspiracy to
deprive Plaintiffs of their constitutional rights. (Compl. ¶¶ 171–73). In this Circuit, “[a] civil
conspiracy is a combination of two or more persons acting in concert to commit an unlawful act, . .
. the principal element of which is an agreement between the parties to inflict a wrong against or
injury upon another, and an overt act that results in that damage.” Lyles v. Hughes, 83 F. Supp. 3d
315, 323 (D.D.C. 2015) (quoting Graves v. United States, 961 F. Supp. 314, 320 (D.D.C. 1997)).
Therefore, “an essential element of a conspiracy claim is an allegation that the parties to the
conspiracy come to an agreement or meeting of the minds.” Id. (internal quotation omitted). A
plaintiff must offer more than conclusory allegations that there was an agreement between
defendants. See id.; see also Bush v. Butler, 521 F. Supp. 2d 63, 68–69 (D.D.C. 2007) (dismissing
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civil conspiracy claim because “plaintiff merely concludes that there was an agreement among the
defendants to deprive him of access to the courts”).
Defendants argue that Plaintiffs have not alleged the elements of a conspiracy claim;
Plaintiffs did not respond to this argument in their Opposition. The court agrees with Defendants,
and finds that, even accepting all of Plaintiffs’ allegations as true, they fail to allege facts to show
the existence of an agreement among the Defendants to deprive Plaintiffs of their constitutional
rights. Instead, Plaintiffs allege the following: Defendants “expressly or tacitly agreed and
conspired in 2009 that” Tiversa would “provide whatever evidence the FTC needed in its
investigation and enforcement of companies on the List, even if the evidence was fraudulent,”
“provide the FTC false evidence of source and spread,” and “withhold from production to the FTC
and third parties documents and things that were exculpatory to LabMD and Daugherty,” and they
further “agreed and conspired in 2009 to hurt, if not destroy, LabMD and to deprive Daugherty of
his livelihood and property.” (Compl. ¶¶ 96, 97, 100, 101). Such conclusory statements do not
allege with any specificity the “events, conversations, or documents indicating there was an
agreement between the defendants to violate [their] rights.” Butler, 521 F. Supp. 2d at 68–69.
Because Plaintiffs appear to have conceded this claim, and the court can discern no allegations
from the Complaint that plausibly support a conspiracy claim, the court GRANTS Defendants’
motion on Count VII.
C. Absolute and Qualified Immunity
1. Absolute Immunity (Sheer)
Defendants ask this court to find that during the alleged events Sheer was entitled to
absolute immunity from suit. The Supreme Court has recognized that certain government officials
have special functions requiring full exemption from liability, one of which is when they “are
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responsible for the decision to initiate or continue a proceeding subject to agency adjudication.”
Butz v. Economou, 438 U.S. 478, 516 (1978). Defendants argue that Sheer was entitled to absolute
immunity with regard to Plaintiffs’ “allegations that he recommended the enforcement action, then
served discovery burdening plaintiffs.” (Def. Mem. at 46). However, Defendants “bear[] the
burden of showing that such immunity is justified for the function in question,” Burns v. Reed, 500
U.S. 478, 486 (1991), and they have failed to present the court with any information about Sheer’s
job responsibilities and precise role in the alleged activity to determine whether he might be
entitled to absolute immunity. Pending further development of the factual record, the court will
deny Defendants’ motion to dismiss without prejudice on this ground.
2. Qualified Immunity (All Defendants)
Defendants also request that this court find that all Defendants are immune from suit
because they possess qualified immunity. Government officials may be protected by qualified
immunity only if “their conduct does not violate clearly established statutory or constitutional
rights of which a reasonable person would have known.” Harlow v. Fitzgerald, 457 U.S. 800, 818
(1982). In Saucier v. Katz, 533 U.S. 194 (2001), the Supreme Court established a two-step
analysis for qualified immunity, including “first, whether the alleged facts show that the
individual’s conduct violated a statutory or constitutional right, and, second, whether that right was
clearly established at the time of the incident.” Atherton v, 567 F.3d at 689 (citing Saucier, 533
U.S. at 200). In Pearson v. Callahan, 555 U.S. 223 (2009), the Court later clarified that district
courts have discretion to decide “which of the two prongs of the qualified immunity analysis
should be addressed first in light of the circumstances in the particular case at hand.” Id. at 236.
To determine if a right was clearly established, the court considers whether “at the time of the
challenged conduct, ‘[t]he contours of [a] right [are] sufficiently clear’ that every ‘reasonable
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official would have understood that what he is doing violates that right.’” Ashcroft v. al-Kidd, 563
U.S. 731, 741 (2011) (quoting Anderson v. Creighton, 483 U.S. 635, 640 (1987)).
In the court’s view, Plaintiffs’ First Amendment rights to criticize the actions of the federal
government without fear of government retaliation are as clearly established as can be, and a
serious escalation of an agency’s investigation or enforcement against Plaintiffs for publicly
criticizing the agency would appear to violate that clearly established constitutional right.
Therefore, the court DENIES Defendants’ motion to dismiss based on qualified immunity.
However, as discussed above, the court finds that a greater factual record is required before it can
determine the precise nature of Sheer’s and Yodaiken’s activities and whether they did in fact
clearly violate Plaintiff’s First Amendment rights, and so the court declines to conclusively
determine whether Defendants Sheer or Yodaiken are entitled to qualified immunity in this suit.
Because the court determines that the doctrines of absolute or qualified immunity do not
bar Plaintiffs’ First Amendment claims at this stage of the litigation, the court therefore DENIES
Defendants’ motion on Counts I, II, and III as to Sheer and Yodaiken and GRANTS Defendants’
motion on these Counts as to Settlemyer.
IV. CONCLUSION
For the foregoing reasons, Defendants’ motion to dismiss is GRANTED IN PART and
DENIED IN PART.
Date: March 31, 2017
Tanya S. Chutkan
TANYA S. CHUTKAN
United States District Judge
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