Michael J. Daugherty & Labmd, Inc. v. Sheer

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 9, 2018 Decided June 1, 2018

No. 17-5128

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

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.

2

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 for the Court filed by Circuit Judge WILKINS.

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

1

This factual background relies on the allegations in the Complaint:

we assume the truth of these allegations when reviewing the denial

of a motion to dismiss. Vila v. Inter-Am. Inv., Corp., 570 F.3d 274,

278 (D.C. Cir. 2009).

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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

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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 whether to

bring such an action. The Commission voted unanimously to

do so on August 28, 2013: the complaint against LabMD

alleged that it failed to provide appropriate security for patient

information, in violation of Section 5 of the Federal Trade

Commission Act (“FTCA”).

II.

LabMD continues to defend against the FTC enforcement

action, now in federal court. LabMD also filed several cases

attacking those proceedings. Each of its three lawsuits seeking

to enjoin the FTC has been dismissed. See LabMD, Inc. v.

FTC, No. 14-cv-810 (N.D. Ga. May 12, 2014); LabMD, Inc. v.

FTC, No. 13-cv-1787 (D.D.C. Feb. 19, 2014); LabMD, Inc. v.

FTC, No. 13-15267 (11th Cir. Feb. 18, 2014). This suit for

damages against Sheer, Yodaiken, and another FTC attorney in

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their personal capacities is LabMD’s fourth offensive foray in

response to the FTC’s enforcement effort.

Defendants moved to dismiss, and the District Court

granted the motion with respect to all but the claim that the FTC

attorneys Sheer and Yodaiken retaliated against LabMD and

Daugherty based on Daugherty’s exercise of his First

Amendment rights to publicly criticize the government. See

Daugherty v. Sheer, 248 F. Supp. 3d 272 (D.D.C. 2017). For

this particular claim, the District Court framed the allegations

as “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.” Id. at 285. The District Court

concluded that no special factors or alternative remedial

scheme precluded a Bivens remedy for Plaintiffs-Appellees’

First Amendment claims and denied Defendants’

qualified-immunity defenses, reasoning that

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.

Id. at 290.

Sheer and Yodaiken appealed. We review de novo, and

“in reviewing the denial of the motion to dismiss, we take the

allegations of the complaint as true.” Vila, 570 F.3d at 278.

“In assessing a claim of qualified immunity, the facts must be

taken ‘in the light most favorable to the party asserting the

injury.’” Corrigan v. Dist. of Columbia, 841 F.3d 1022, 1035

6

(D.C. Cir. 2016) (quoting Saucier v. Katz, 533 U.S. 194, 201

(2001)).

III.

“Qualified immunity depends upon the answers to two

questions: (1) Did the officer’s conduct violate a constitutional

or statutory right? If so, (2) was that right clearly established

at the time of the violation?” Jones v. Kirchner, 835 F.3d 74,

84 (D.C. Cir. 2016). Court have discretion to answer these

questions in either order. Ashcroft v. al-Kidd, 563 U.S. 731,

735 (2011). Accordingly, “courts may grant qualified

immunity on the ground that a purported right was not ‘clearly

established’ by prior case law, without resolving the often more

difficult question whether the purported right exists at all.”

Reichle v. Howards, 566 U.S. 658, 664 (2012).

For a right to be clearly established, “existing precedent

must have placed the statutory or constitutional question

beyond debate.” Reichle, 566 U.S. at 664 (quoting al-Kidd,

563 U.S. at 741). This standard does not “require a case

directly on point.” al-Kidd, 563 U.S. at 741. Regardless of

whether a court expressly has declared certain conduct

unlawful, a government official is not entitled to qualified

immunity where “every ‘reasonable official would have

understood that what he is doing violates th[e] right.’” Id.

(quoting Anderson v. Creighton, 483 U.S. 635, 640 (1987)).

Accordingly, “we look to cases from the Supreme Court and

this court, as well as to cases from other courts exhibiting a

consensus view – if there is one.” Bame v. Dillard, 637 F.3d

380, 384 (D.C. Cir. 2011) (citation and quotation marks

omitted). The proponent of a purported right has the “burden

to show that the particular right in question . . . was clearly

established” for qualified-immunity purposes. Dukore v. Dist.

of Columbia, 799 F.3d 1137, 1145 (D.C. Cir. 2015).

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In assessing whether a right is clearly established, courts

must mind the Supreme Court’s admonishment “not to define

clearly established law at a high level of generality.” al-Kidd,

563 U.S. at 742. This means, for instance, that courts cannot

rely on “[t]he general proposition . . . that an unreasonable

search or seizure violates the Fourth Amendment.” Id.

Similarly, in the First Amendment context, “the general right

to be free from retaliation for one’s speech” may be too broad

a proposition, not sufficiently “particularized” to make out

clearly established law. Reichle, 566 U.S. at 665. Again, the

touchstone remains whether the “contours of the right are clear

to a reasonable officer.” Id. (quotation marks omitted).

IV.

In their claim now on appeal, Daugherty and LabMD

assert that Sheer and Yodaiken violated their rights by

prosecuting an enforcement action in retaliation for

Daugherty’s speech, despite the undisputed data-security

breach underlying the FTC’s investigation and regardless of

ultimate control over the decision to bring a complaint residing

with the FTC board. Because no such right was clearly

established, Sheer and Yodaiken are immune from this suit.

We first consider the scope of the retaliation that Plaintiffs-

Appellees allege. As an initial matter, it is beyond dispute that

the FTC enforcement action began long before Daugherty’s

speech upon which the alleged retaliation purportedly was

based – in fact, Daugherty’s statements were about the ongoing

FTC investigation. Accordingly, we understand

Plaintiffs-Appellees’ arguments to allege retaliation through

Sheer’s and Yodaiken’s conduct while investigating,

recommending, and later prosecuting the FTC enforcement

action – not the decision to instigate the investigation in the

first place.

8

We next consider the appropriate level of generality for

analyzing whether the right is clearly established. Daugherty

and LabMD assert a First Amendment right to be free from the

FTC ramping up its enforcement action after Daugherty

publicly criticized the FTC. Plaintiffs-Appellees focus on their

allegation that “not one single patient suffered harm due to any

alleged disclosure of the 1718 file,” Appellees’ Br. 39, in an

attempt to undercut the factual basis for the FTC’s action. But

this is unpersuasive in light of other facts that are undisputed:

Daugherty and LabMD do not deny – nor could they – that the

1718 File was publicly available from a LabMD computer on

LimeWire’s peer-to-peer network, and that Tiversa was able to

access and download the file over that system. The 1718 File

contained confidential personal information about

approximately 9,300 patients. While the Complaint casts

LabMD as the “victim of inadvertent file sharing,” Compl.

¶ 48, and Plaintiffs-Appellees argue at length that there was no

consumer injury based on the availability of the 1718 File,

Plaintiffs-Appellees’ own characterization of the facts belies

any implication that the FTC’s enforcement action was

specious. And while Plaintiffs-Appellees take issue with the

relationship between Tiversa and the FTC, their allegations that

the FTC investigated Tiversa’s targets to gin up customers for

Tiversa do not controvert the data-security issue underlying the

FTC’s investigation. Like the fact that the investigation began

long before Daugherty’s criticism of the FTC and its

enforcement team, the undisputed factual basis for the FTC’s

enforcement action demonstrates a cause for that action –

regardless of whether FTC staff also had retaliatory motive

based on Daugherty’s intervening speech. Our task, then, is to

determine whether there is a clearly established right to be free

from an enforcement action where retaliatory motive was

allegedly present, but was not plausibly alleged to be the but-

for cause of the enforcement.

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Supreme Court precedent shows that there is no such

clearly established right. If anything, the leading cases cut the

other way: they show that retaliatory motive does not

automatically imbue the conduct in question with an

unconstitutional air, where the official’s actions have a

legitimate basis. In Crawford-El v. Britton, the Supreme Court

explained that “proof of an improper motive is not sufficient to

establish a constitutional violation – there must also be

evidence of causation,” as well as clarity that the conduct in

question violated a right. 523 U.S. 574, 593 (1998). The Court

reasoned that the causation element provides a check against

the “serious problem” of spurious allegations of improper

motive by government officials, notoriously “easy to allege and

hard to disprove.” Id. at 584-85, 592-93.

The same principles found further purchase in Hartman v.

Moore, where the Court concluded that an absence of probable

cause has “powerful evidentiary significance” in any

retaliatory-prosecution case and accordingly must be pleaded

and proved by the plaintiff. 547 U.S. 250, 261 (2006). The

presence or absence of probable cause is especially critical

where one official recommends prosecution to a different

decision-maker because “the causal connection . . . is not

merely between the retaliatory animus of one person and that

person’s own injurious action, but between the retaliatory

animus of one person and the action of another.” Id. at 262.

Although “showing an absence of probable cause may not be

conclusive that the inducement [to prosecute] succeeded, and

showing its presence does not guarantee that inducement was

not the but-for fact in a prosecutor’s decision,” the question of

a proper, alternative basis for a prosecution “will have high

probative force” in determining whether an officer’s retaliatory

motive caused a constitutional injury. Id. at 265.

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Applying these concepts here, we conclude that Daugherty

and LabMD have failed to allege that Sheer and Yodaiken

violated any clearly established right. At core, the allegations

relate that Sheer and Yodaiken continued an ongoing FTC

investigation, based on an undisputed data breach of LabMD’s

records. Even if the FTC staff were motivated to retaliate

against Daugherty and LabMD because of Daugherty’s

statements criticizing them, Plaintiffs-Appellees have not

alleged that any such retaliatory animus actually caused the

injury that they assert. They have not alleged that Sheer and

Yodaiken retaliated in initiating the inquiry – to the contrary,

Daugherty had not yet said the things that purportedly inspired

the FTC staff’s animosity. They do not contend that the FTC

lacked any reason to believe that LabMD violated the FTCA –

information about some 9,300 patients in the 1718 File was

available publicly from a LabMD computer via LimeWire,

although they dispute whether any consumers were harmed by

that publication. And while they include a conclusory

allegation that Sheer and Yodaiken “ramped up” their

investigative efforts in response to Daugherty’s public

criticism, they nowhere allege causation to “bridge the gap”

between that alleged retaliation and the Commission’s

unanimous vote to proceed with an enforcement action against

LabMD. See Hartman, 547 U.S. at 263. With these layers of

alternative causality separating Sheer’s and Yodaiken’s

conduct from the effect on LabMD and Daugherty, the

Defendants-Appellants’ allegedly retaliatory conduct during

the continuing investigation did not violate Daugherty’s and

LabMD’s clearly established rights. Accordingly, Sheer and

Yodaiken are entitled to qualified immunity and need not

defend against this suit.

* * *

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Because the FTC enforcement action against LabMD had

an alternative cause – the undisputed data-security breach by

which the 1718 File was publicly available from a LabMD

computer – the alleged actions by Sheer and Yodaiken did not

violate Daugherty’s or LabMD’s clearly established rights,

even assuming retaliatory motive. Sheer and Yodaiken

accordingly are entitled to qualified immunity, and the District

Court’s decision concluding otherwise is REVERSED.