Michael Daugherty v. Joel Adams

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

____________

No. 20-1446

_____________

LABMD INC.,

Appellants

v.

ROBERT J. BOBACK; ERIC D. KLINE; TIVERSA

HOLDING CORP.;

_______________

On Appeal from the United States District Court

For the Western District of Pennsylvania

(D.C. No. 2-17-cv-0368)

District Judges: Honorable Marilyn J. Horan and Maureen P.

Kelly

_______________

Nos. 20-1731, 20-1732, 20-3191, 20-3316, and 21-1429

_______________

LABMD, INC.,

v.

TIVERSA HOLDING CORP., FKA Tiversa Inc.; ROBERT

J. BOBACK; M. ERIC JOHNSON; DOES 1-10

LABMD INC., Appellant in 20-1731,

20-3191 and 21-1429

*JAMES W. HAWKINS, Appellant in

20-1732

*Pursuant to Fed. R. App. P. Rule 12(a)

MARC E. DAVIES, Appellant in

20-3316

_______________

On Appeal from the United States District Court

For the Western District of Pennsylvania

(D.C. No. 2-15-cv-0092)

District Judges: Honorable Mark R. Hornak and Maureen P.

Kelly

_______________

Nos. 20-1446, 20-1731, and 21-1429

Argued November 16, 2021

Nos. 20-1732, 20-3191, and 20-3316

Submitted under Third Circuit L.A.R. 34.1(a)

November 15, 2021

Before: AMBRO, JORDAN, and RENDELL, Circuit

Judges

(Filed August 30, 2022)

_______________

2

Ronald D. Coleman

Christie C. Comerford [ARGUED]

Lawrence G. McMichael

Dilworth Paxson

1500 Market Street – Ste. 3500E

Philadelphia, PA 19102

Richard B. Robins

Michael A. Saffer

Mandelbaum Salsburg

3 Becker Farm Road – Ste. 105

Roseland, NJ 07068

Counsel for Appellant, LabMD, Inc.

Cary Ichter

Ichter Davis

3340 Peachtree Road, N.E. – Ste. 1530

Atlanta, GA 30326

Counsel for Appellant, James W. Hawkins

Marc E. Davies

1315 Walnut Street – Suite 320

Philadelphia, PA 19107

Appellant Pro Se

Brandon J. Verdream

Clark Hill

301 Grant Street

One Oxford Centre – 14th Fl.

Pittsburgh, PA 15219

Counsel for Robert J. Boback

3

Eric N. Anderson

John L. Wainright [ARGUED]

Meyer Darragh Buckler Bebenek & Eck

600 Grant Street – Ste. 4850

Pittsburgh, PA 15219

Counsel for M. Eric Johnson

John C. Toro

King & Spalding

1180 Peachtree Street, NE – Ste. 1600

Atlanta, GA 30309

Counsel for Eric D. Kline

Jamie S. George [ARGUED]

Michael P. Kenny

Alston & Bird

1201 West Peachtree Street – Ste. 4900

Atlanta, GA 30309

Counsel for Pepper Hamilton

Jarrod S. Mendel

McGuire Woods

1230 Peachtree Street, NE

Suite 2100, Promenade II

Atlanta, GA 30309

Jarrod D. Shaw [ARGUED]

Natalie L. Zagari

McGuire Woods

260 Forbes Avenue – Ste. 1800

Pittsburgh, PA 15222

Counsel for Tiversa Holding Corp.

and Robert J. Boback

4

_______________

OPINION OF THE COURT

_______________

JORDAN, Circuit Judge.

In 2008, Tiversa Holding Corp., a cybersecurity

company, informed LabMD, Inc., a medical testing business,

that it had found some of LabMD’s confidential patient

information circulating in cyberspace and that it could provide

services to help LabMD respond to the data leak. LabMD’s

own investigation revealed no such leak, and it accused Tiversa

of illegally accessing the patient information. Tiversa

submitted a tip to the Federal Trade Commission (“FTC”),

prompting an investigation into LabMD’s cybersecurity

practices, and the regulatory pressure resulting from that and a

subsequent FTC enforcement action, along with the

reputational damage associated with public disclosure of the

supposed leak, ultimately ran LabMD into the ground. Later,

in 2014, a former Tiversa employee confirmed LabMD’s

suspicions about Tiversa when he claimed that the patient

information in question did not spread from a leak but that

Tiversa itself had accessed LabMD’s computer files and then

fabricated evidence of a leak.

Following that accusation, LabMD initiated numerous

lawsuits against Tiversa and its affiliates. Two of those suits

form the basis of this appeal. The complaint in the first

asserted, among other things, claims for defamation and fraud.

The District Court dismissed all of those claims, except for one

defamation claim that was subsequently defeated on summary

judgment. The Court limited the scope of discovery on that

5

defamation claim, including a prohibition on the discovery or

use of expert testimony. It then imposed severe sanctions

when, in its view, LabMD and its counsel breached those

limits. In addition to awarding fees and costs to the defendants,

the Court struck almost all of LabMD’s testimonial evidence

and revoked its counsel’s pro hac vice admission. When

LabMD’s replacement counsel later tried to withdraw, the

Court denied that request, and when LabMD failed to pay the

monetary sanctions, the Court held it in contempt. The second

lawsuit proceeded in somewhat the same timeframe as the first

and asserted similar claims for fraud. The District Court

dismissed that case in its entirety, for a variety of procedural

and substantive reasons.

LabMD now appeals the dispositive rulings in both

cases, along with the rulings on sanctions, contempt, and the

motion to withdraw. We agree with LabMD that, in the first

case, the District Court erred in granting summary judgment,

primarily because the Court’s prohibition on expert testimony

was unwarranted. We also hold that the Court abused its

discretion in imposing sanctions and that it erred in denying the

motion to withdraw. But we agree with the District Court in

general that LabMD’s other claims in that case were properly

dismissed. Thus, we will affirm in part and vacate in part the

judgment of the District Court in that matter. In the second

case, because LabMD does not challenge independently

sufficient grounds for the District Court’s decision, we will

affirm in full.

6

I. BACKGROUND1

LabMD is a privately owned Georgia corporation based

in Atlanta, Georgia. It had been a cancer-testing enterprise

and, at its peak, employed approximately forty medical

professionals. Before ceasing its ordinary business operations,

it had served many thousands of patients. Its CEO is Michael

J. Daugherty, a citizen of Georgia.

Tiversa is a Delaware corporation based in Pittsburgh,

Pennsylvania. It is a self-proclaimed world leader in peer-to-

peer (“P2P”) network cybersecurity.2 Tiversa has provided to

the FTC information about data breaches on P2P networks, and

representatives from Tiversa have testified before Congress

about cybersecurity. Tiversa’s CEO is Robert J. Boback, a

citizen of Pennsylvania. During times relevant to this

1

Unless otherwise noted, the narrative in this section is

based on undisputed facts or the evidence produced in

discovery (for LabMD’s defamation claim on the motion for

summary judgment) and the allegations of LabMD’s

complaints (for all the other claims on the motions to dismiss),

all viewed in the light most favorable to LabMD. Tundo v.

Cnty. of Passaic, 923 F.3d 283, 287 (3d Cir. 2019); Matrix

Distribs., Inc. v. Nat’l Ass’n of Bds. of Pharmacy, 34 F.4th 190,

195 (3d Cir. 2022). Citations to the appendices from Case Nos.

20-1446, 20-1731, and 21-1429 are designated by reference to

the last four digits of the respective case number.

2

P2P networks are networks in which internet-

connected computers share resources. They allow users to

download a computer file directly from other network

participants who already possess that file.

7

litigation, Tiversa had an agreement with Professor M. Eric

Johnson, a former director of the Center for Digital Strategies

at Dartmouth College, pursuant to which the professor worked

with Tiversa on cybersecurity research. Johnson is a citizen of

Tennessee.

A. The Alleged Data Leak and FTC Actions

In mid-2008, Tiversa informed LabMD that it had

obtained a 1,718-page computer file containing the

confidential data of more than 9,000 LabMD patients (the

“1718 File”). Tiversa represented that it had found the 1718

File on a P2P network and that it “continued to see individuals

… downloading copies of the [1718 File].” (1731 App. at 223.)

Tiversa tried to use that purported breach to persuade LabMD

to purchase its incident response services. LabMD rejected the

offer but still “spent thousands of dollars, and devoted

hundreds of man hours,” seeking to detect and remedy the

supposed data leak. (1731 App. at 223.)

In what LabMD alleges to be retaliation for its refusal

to purchase Tiversa’s services, Tiversa took two actions. First,

it gave the 1718 File to Johnson for use in an upcoming

research paper. That paper, published in April 2009 under the

title “Data Hemorrhages in the Health-Care Sector,”

prominently featured a redacted version of the 1718 File,

although it did not name LabMD as the company whose data

had been leaked. (1731 App. at 226-28.) Second, Tiversa

provided the 1718 File to the FTC. It told the FTC that it had

found the 1718 File on a P2P network and that third parties

were also downloading the file from that network.

8

Relying on Tiversa’s tip, the FTC commenced an

investigation in 2010 into the suspected failure of LabMD to

protect its customers’ personal information. That investigation

eventually resulted in an FTC enforcement action against

LabMD in August 2013. According to LabMD, the

repercussions of the investigation and enforcement action were

devasting to its business:

As a direct consequence of the FTC’s

proceedings, including the attendant adverse

publicity and the administrative burdens that

were imposed on LabMD to comply with the

FTC’s demands for access to current and former

employees and the production of thousands of

documents, LabMD’s insurers cancelled all of

the insurance coverage for LabMD and its

directors and officers, and LabMD lost virtually

all of its patients, referral sources, and

workforce, which had included around 40 full-

time employees. Consequently, LabMD was

effectively forced out of business by January

2014, and it now operates as an insolvent entity

that simply provides records to former patients.

(1731 App. at 229.)

LabMD, for its part, believes that its data was secure,

despite some indications to the contrary. (See 1731 App. at 53

(Daugherty noting in his book, The Devil Inside the Beltway,

that a particular P2P file-sharing program “was an unruly beast

that could cause [LabMD] to expose . . . workstation files

9

without . . . ever knowing”).)3 It did, however, “suspect[] from

as early as May 2008 that [Tiversa was] lying about the source

of the 1718 File.” (1731 App. at 909.)

B. The Georgia Action

In October 2011, during the early days of that FTC

investigation, LabMD filed a lawsuit against Tiversa in

Georgia (the “Georgia Action”).4 The suit included claims for

violations of the federal Computer Fraud and Abuse Act

(“CFAA”) and Georgia’s computer crimes statute, along with

conversion and trespass claims, all of which were based on

allegations that Tiversa had unlawfully obtained the 1718 File.

Tiversa was represented in the Georgia Action by the law firm

of Pepper Hamilton LLP – now constituted as Troutman

3

In reviewing the FTC’s enforcement action, the

Eleventh Circuit accepted as supported by substantial evidence

that, “contrary to LabMD policy, a peer-to-peer file-sharing

application called LimeWire was installed on a computer used

by LabMD’s billing manager[,]” and that the contents of a “My

Documents” folder on that computer could have exposed the

1718 File. LabMD, Inc. v. FTC, 894 F.3d 1221, 1224, 1227,

1233 n.35 (11th Cir. 2018). It also noted, however, that the

ALJ who presided over the enforcement action determined that

“Tiversa’s representations in its communications with LabMD

that the 1718 File was being searched for on peer-to-peer

networks, and that the 1718 File had spread across peer-to-peer

networks, were not true.” Id. at 1224 n.6.

4

The case was filed in state court and subsequently

removed to federal court.

10

Pepper Hamilton Sanders LLP (“Troutman Pepper”) – and, in

particular, by a partner named Eric D. Kline.

Tiversa moved to dismiss the Georgia Action for lack

of personal jurisdiction. In support of its motion, it submitted

a declaration from its CEO, Boback, asserting that it did not

regularly solicit business in Georgia, and it argued that its only

solicitation of business in Georgia was its contact with LabMD

in 2008 regarding the 1718 File. The U.S. District Court for

the Northern District of Georgia accepted those representations

and dismissed the claims against Tiversa for lack of personal

jurisdiction. The Eleventh Circuit affirmed. LabMD now

alleges, however, that Tiversa and its lawyers knowingly

omitted from Tiversa’s briefs and from Boback’s declaration

the fact that Tiversa had also “solicited business from at least

five other companies” in Georgia. (1446 App. at 214-15.)

Nevertheless, at the time, LabMD did not refute the factual

assertions about Tiversa’s lack of Georgia contacts, nor did it

refile its claims in another jurisdiction or otherwise pursue

further action against Tiversa.

C. The Whistleblower and the Government’s

Investigation of Tiversa

LabMD was moved to action again in April 2014, when

a former Tiversa employee, Richard Wallace, called to share

his account of how Tiversa actually obtained the 1718 File.

According to Wallace, Tiversa had located the file on one of

LabMD’s own computers on a P2P network, downloaded it,

and then fabricated the file’s metadata in forensic reports to

make it appear as if the 1718 File had leaked and spread across

the network. Wallace later told LabMD that Tiversa was able

to search for and access the 1718 File only because it had used

11

secret, government-owned software called “enhanced P2P.”

According to Wallace, and contrary to Tiversa’s earlier

representations, the 1718 File had never leaked; Tiversa stole

it from LabMD’s own computer.

Wallace blew the whistle on Tiversa to the FTC as well,

telling them that Tiversa had essentially made an extortionate

business model out of accessing a company’s files, fabricating

evidence of the files spreading across a network, using the false

impression of a leak to sell data security remediation services

to the company, and reporting the company to the FTC if it

refused to purchase Tiversa’s services. In response, the U.S.

House of Representatives Oversight and Government Reform

Committee commissioned an investigation into Tiversa’s

business practices and its relationship with the FTC. It found

that Tiversa “often acted unethically and sometimes unlawfully

in its use of documents unintentionally exposed on peer-to-

peer networks” and that the information it provided to the FTC

“was only nominally verified but was nonetheless relied on by

the FTC for enforcement actions.” (1446 App. at 297.) Armed

with Wallace’s testimony and the findings of the congressional

investigation, LabMD fought the FTC enforcement action and

eventually prevailed. Although it was awarded attorneys’ fees

from the government in the amount of almost $850,000, that

was too little too late. LabMD’s business was destroyed.

Through all those dramatic events, Boback vigorously

defended Tiversa, proclaiming that the company had done

nothing wrong. In February 2015, he published an online post

on the Pathology Blawg in which he called LabMD’s

accusations baseless and reiterated Tiversa’s assertion that

LabMD’s lax security had allowed the 1718 File to be leaked

onto the internet. Boback later wrote a letter to the editor of

12

The Wall Street Journal, published in December 2015, in

which he similarly defended Tiversa and said that LabMD had

publicly exposed the 1718 File.

D. The First Pennsylvania Action

At the beginning of 2015, LabMD filed a new lawsuit

against Tiversa, Boback, and Johnson in the U.S. District Court

for the Western District of Pennsylvania (the “First

Pennsylvania Action”). It asserted Pennsylvania state-law

claims for conversion, defamation, tortious interference with

business relations, fraud, negligent misrepresentation, and civil

conspiracy, as well as federal RICO claims. Upon the

defendants’ motion, the District Court dismissed some of the

claims with prejudice, including the RICO claims, but it

dismissed the rest without prejudice and gave LabMD an

opportunity to amend those claims. LabMD filed an amended

complaint in February 2016, in which it asserted, among other

things, a claim for defamation based on statements Tiversa and

Boback made variously to the FTC, in a press release, on the

Pathology Blawg, and in The Wall Street Journal.

The defendants again moved to dismiss the complaint.

This time, the District Court dismissed all of the claims with

prejudice, except for the defamation claim, which survived

dismissal only as to two allegedly defamatory statements. The

first statement, labeled “Statement 13” in the complaint, was

one that Boback made for Tiversa on the Pathology Blog:

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

13

INDISPUTABLE FACT that LabMD and

Michael Daugherty leaked customer information

on nearly 10,000 patients.

(1731 App. at 4897.) The second statement to survive

dismissal, listed as “Statement 16,” was one that Boback, again

speaking for Tiversa, made in The Wall Street Journal:

LabMD’s CEO Michael Daugherty admits that a

LabMD employee improperly installed … file-

sharing software on a company computer. Doing

so made confidential patient information

publicly available.

(1731 App. at 4898.)

The First Pennsylvania Action proceeded to discovery

on the defamation claim. LabMD’s counsel, James Hawkins,

first deposed Joel Adams, a former Tiversa employee. Tiversa

believed that Hawkins’s questioning was entirely unrelated to

the defamation claim, and it moved for a protective order,

which the District Court granted. The Court highlighted

examples of irrelevant questions Hawkins had asked, including

“if there was something secretive about [Adams’s] children,

strengths and weaknesses of a certain employee, the workplace

culture at Tiversa, leadership styles, guns in the workplace, an

AIDS clinic in Chicago, Edward Snowden, an Iranian IP

address[,] and whether the witness had ‘ever met [the judge

presiding over the case].’” (1731 App. at 1709, 1775.) It then

ordered that “[t]he scope of the depositions in this action must

be limited to the remaining portion of the defamation per se

claim, specifically Statements #13 and #16, LabMD’s alleged

damages and defenses thereto.” (1731 App. at 1713.) The

14

protective order did not otherwise specify what categories of

questioning were off limits.

Over the next two weeks, Hawkins deposed six more

current and former Tiversa employees, including Boback and

Wallace. After completion of the depositions, Tiversa moved

for sanctions against LabMD and Hawkins. It argued that

Hawkins had continued to ask irrelevant questions at those

depositions, in violation of the protective order. The District

Court agreed, finding that Hawkins had asked “no questions”

or “very minimal questions” related to Statements 13 and 16

and had instead “used the depositions to obtain discovery for

other cases” and to conduct “fishing expeditions[.]” (1731

App. at 1798-800.) As examples of such off-limits conduct,

the District Court quoted numerous questions from each of the

depositions. Those questions fell under the following general

topics: the alleged false spread of the 1718 File, including the

fabrication and alteration of metadata on the 1718 File; the

technology that Tiversa used to search for and access

documents on P2P networks; the legality of Tiversa’s products

and services; Tiversa’s prior representations to the FTC and

Congress; Boback’s alleged attempts to intimidate Wallace

into not testifying against Tiversa; and the culture at Tiversa’s

workplace, including whether there was a “gun culture.”

Having concluded that Hawkins’s questioning violated

the protective order, the Court decided the violations warranted

severe sanctions. Although it declined to dismiss the case, the

Court ordered the following sanctions (the “First Sanctions

Order”): LabMD was to pay Tiversa’s and Boback’s attorneys’

fees and costs related to the filing of the motion for sanctions

($12,056); Hawkins personally was to pay Tiversa’s court

reporter fees and transcript costs for the six depositions

15

($4,737.75); and LabMD was barred from using any testimony

elicited in those six depositions for any purpose in this case or

any other case in any other forum. The Court also put Hawkins

on “final notice” that “further litigation misconduct or

disregard of orders” would result in the termination of his pro

hac vice admission. (1731 App. at 1804.) LabMD moved for

reconsideration of the First Sanctions Order, which the District

Court denied.

At a status conference ahead of Tiversa’s anticipated

motion for summary judgment, LabMD indicated that it might

have to use an expert witness to respond to issues raised on

summary judgment as to its defamation claim. In response, the

District Court stated that it was “[not] going to need expert

reports for the motion for summary judgment[,]” and that it

would set a schedule for expert discovery only if the claim

survived summary judgment. (1731 App. at 1766-67.) Tiversa

and Boback then moved for summary judgment on the

defamation claim. LabMD, in its brief opposing summary

judgment, did not cite to any of the depositions outlawed by

the First Sanctions Order. It did, however, simultaneously file

an “offer of proof” in which it submitted transcripts of all six

depositions and explained how it would use the depositions to

rebut Tiversa’s factual claims if it were permitted to do so.

(1731 App. at 4264-71.) LabMD also submitted a declaration

from Daniel Regard, a specialist in computer forensics (the

“Regard Declaration”). Regard opined that the 1718 File was

never “publicly available” on any P2P network and was only

accessible using secret, government-owned software.

Tiversa moved to strike the offer of proof and the

Regard Declaration, and the District Court granted that motion.

It determined that the submission of the deposition transcripts

16

violated the First Sanctions Order and that the submission of

the Regard Declaration violated its directive prohibiting

experts. It thus imposed additional sanctions (the “Second

Sanctions Order”): Hawkins’s pro hac vice admission was

revoked, and LabMD was to pay Tiversa’s and Boback’s

attorneys’ fees and costs related to the filing of the motion to

strike. That same day, the Court also granted summary

judgment for the defendants on the defamation claim, holding

that there was not sufficient evidence to establish actual or

presumed damages.

Because Hawkins had lost his pro hac vice admission,

LabMD retained attorney Marc Davies to appeal the two

Sanctions Orders and the summary judgment order. Hawkins,

in his individual capacity, separately appealed the Sanctions

Orders. In the meantime, LabMD did not pay the monetary

sanctions the District Court had ordered. Instead, it asked the

Court to vacate, or at least stay, the monetary sanctions,

asserting that it lacked the financial ability to pay. After a

quick briefing schedule, which required Davies to file a

supplemental brief and a reply brief for LabMD, the District

Court denied LabMD’s motion and set a deadline for payment.

When LabMD missed that deadline, the Court ordered it to

show cause for its nonpayment. Davies, on behalf of LabMD,

filed a response to that order.

The next day, Davies moved to withdraw as counsel.

He explained that he had originally been engaged only for

appellate matters, that the motions practice before the District

Court was outside the scope of his engagement, and that

LabMD had terminated him as its counsel. He said that

LabMD was “currently seeking pro bono counsel” to resolve

the sanctions issues. (1429 App. at 683.) The District Court

17

denied his motion. It held that, because a corporation must be

represented by a lawyer, Davies could not withdraw without

first naming his successor counsel. LabMD and Davies each

appealed the denial of the motion to withdraw.

The District Court then held a hearing on the order to

show cause. At the hearing, Davies read an email from

LabMD’s CEO, Daugherty, in which Daugherty explained that

he was skipping the hearing because he “did not anticipate [it]

going forward” and had scheduled other matters at the same

time. (1429 App. at 699.) Daugherty’s email also reiterated

that “LabMD discharged [Davies] as its attorney long ago” and

that Davies had “no authority from LabMD to speak or act on

its behalf.” (1429 App. at 699.) The District Court found

LabMD in civil contempt for failing to comply with the

Sanctions Orders. LabMD then appealed the contempt ruling.

In summary, LabMD has appealed the District Court’s

rulings on dismissal, summary judgment, sanctions, contempt,

and the withdrawal of counsel. Additionally, Hawkins has

appealed the sanctions orders, and Davies has appealed the

order denying his withdrawal.

E. The Second Pennsylvania Action

On July 8, 2016, while the First Pennsylvania Action

was ongoing, LabMD and Daugherty filed a complaint against

Tiversa, Boback, Troutman Pepper, and Kline, among others,

in Georgia federal court, and the case was subsequently

transferred to the Western District of Pennsylvania (the

“Second Pennsylvania Action”). The complaint asserted

Georgia state RICO claims against all the defendants. It also

brought claims against Troutman Pepper and Kline for

18

violations of the federal RICO statute, along with state-law

claims of fraud, negligence, fraudulent misrepresentation,

negligent misrepresentation, and common-law conspiracy.

The defendants filed a motion to dismiss, which the District

Court granted in full. LabMD and Daugherty timely appealed,5

and we combined for argument the appeals from the two

Pennsylvania Actions.

II. DISCUSSION6

We begin with the issues on appeal from the First

Pennsylvania Action and then turn to the issues in the Second

Pennsylvania Action.

5

The District Court dismissed the complaint as to all

defendants, but LabMD appealed the decision only with

respect to defendants Tiversa, Boback, Kline, and Troutman

Pepper.

6

The District Court had jurisdiction in both cases under

28 U.S.C. §§ 1331, 1332, and 1367. We have appellate

jurisdiction under 28 U.S.C. § 1291 over all the appeals,

including those from the orders on sanctions, contempt, and the

motion to withdraw. In re Westinghouse Sec. Litig., 90 F.3d

696, 706 (3d Cir. 1996) (“Under the ‘merger rule,’ prior

interlocutory orders merge with the final judgment in a

case[.]”); Ohntrup v. Firearms Ctr., Inc., 802 F.2d 676, 678

(3d Cir. 1986) (per curiam) (“[M]ost post judgment orders are

final decisions within the ambit of 28 U.S.C. § 1291 as long as

the district court has completely disposed of the matter.”).

19

A. The Issues in the First Pennsylvania Action

The District Court’s dismissal of the federal RICO

claims and the claims for tortious interference with business

relations, fraud, and negligent misrepresentation against

Tiversa, Boback, and Johnson will be affirmed, but we will

vacate in large part the District Court’s decisions on the

defamation claim – both the dismissal with respect to certain

allegedly defamatory statements and the grant of summary

judgment with respect to the two statements that had originally

survived dismissal. We will also vacate the imposition of

sanctions, the finding of contempt, and the denial of Davies’s

motion to withdraw.

1. Dismissal7

i. Federal RICO Claims

LabMD alleges that Tiversa, Boback, and Johnson

violated the federal RICO statute, 18 U.S.C. § 1962(c),8 in

three ways: first, by lying about how and where Tiversa found

the 1718 File, so as to induce LabMD to purchase Tiversa’s

“We review a District Court’s dismissal of a complaint

7

under Federal Rule of Civil Procedure 12(b)(6) de novo.”

Schmidt v. Skolas, 770 F.3d 241, 248 (3d Cir. 2014).

8

That statute makes it “unlawful for any person

employed by or associated with any enterprise engaged in, or

the activities of which affect, interstate or foreign commerce,

to conduct or participate, directly or indirectly, in the conduct

of such enterprise’s affairs through a pattern of racketeering

activity[.]” 18 U.S.C. § 1962(c).

20

incident response services; second, by using the 1718 File in

Johnson’s research paper on data leaks in the medical field; and

third, by turning over the 1718 File to the FTC after LabMD

refused to hire Tiversa. The District Court dismissed the RICO

claims as being time-barred, and we agree with that conclusion.

“Establishing liability under … the RICO statute

requires (1) conduct (2) of an enterprise (3) through a pattern

(4) of racketeering activity, plus [(5)] an injury to business or

property,” and (6) the racketeering activity must have been

“the ‘but for’ cause as well as the proximate cause of the

injury.” Reyes v. Netdeposit, LLC, 802 F.3d 469, 483 (3d Cir.

2015). The limitations period for a federal RICO claim is four

years. Agency Holding Corp. v. Malley-Duff & Assocs., Inc.,

483 U.S. 143, 156 (1987). LabMD filed its complaint on

January 21, 2015. Thus, absent any tolling of the statute of

limitations, LabMD’s federal RICO claims were time-barred if

they accrued before January 21, 2011.9

The statute of limitations begins to run when the

plaintiff knows or should know of both its injury and the source

of its injury. Prudential Ins. Co. of Am. v. U.S. Gypsum Co.,

9

“[T]he law of this Circuit … permits a limitations

defense to be raised by a motion under Rule 12(b)(6), but only

if the time alleged in the statement of a claim shows that the

cause of action has not been brought within the statute of

limitations. If the bar is not apparent on the face of the

complaint, then it may not afford the basis for a dismissal of

the complaint under Rule 12(b)(6).” Robinson v. Johnson, 313

F.3d 128, 135 (3d Cir. 2002) (internal quotation marks and

citations omitted).

21

359 F.3d 226, 233 (3d Cir. 2004);10 Forbes v. Eagleson, 228

F.3d 471, 483 (3d Cir. 2000). Thus, we start by identifying

LabMD’s injury and the injury’s source. As for its injury,

LabMD says that, due to the FTC’s investigation and

enforcement action, it suffered a “reduction in value of its

business, lost revenue, and expenses associated with

insolvency,” as well as costs associated with “attempting to

resolve the purported security breach and to comply with the

investigations and [their] demands,” and finally “the

substantial and irreparable loss of goodwill and business

opportunities[.]” (1731 App. at 904.)11 As for the source of

10

There may be some tension between the accrual rule

we laid out in Prudential – that a federal RICO claim accrues

only after a plaintiff knows of both the injury and the source of

the injury, 359 F.3d at 233 – and the Supreme Court’s

instruction that a federal RICO claim accrues upon “discovery

of the injury, not discovery of the other elements of a claim,”

Rotella v. Wood, 528 U.S. 549, 555 (2000); see also Robert L.

Kroenlein Tr. ex rel. Alden v. Kirchhefer, 764 F.3d 1268, 1278

(10th Cir. 2014) (rejecting the “injury plus source discovery”

rule). Nevertheless, because we would conclude that LabMD’s

RICO claims accrued before 2011 under either the injury-

discovery-rule or the injury-plus-source-discovery-rule, we

need not address any such tension now.

11

Those injuries were alleged in LabMD’s RICO case

statement, a document required by local rules to be filed as a

supplement to a RICO complaint. See W.D. Pa. Civ. R. 7.1(B).

It may be considered as part of the pleadings on a motion to

dismiss. E.g., Lorenz v. CSX Corp., 1 F.3d 1406, 1413 (3d Cir.

22

the injury, LabMD alleges that Tiversa used fraudulent

representations to “proximately cause[] the FTC to investigate

and bring an enforcement action against LabMD.” (1731 App.

at 905.)

Determining when LabMD knew of its alleged injuries

is complicated because the extent of the injuries grew over

time. For example, when the FTC launched its investigation in

2010, LabMD faced “administrative burdens … to comply

with the FTC’s demand for access to current and former

employees and the production of thousands of documents[.]”

(1731 App. at 229.) But once the FTC filed the enforcement

action in 2013, LabMD suffered more severely from “adverse

publicity” resulting in the loss of “all of [its] insurance

coverage” and “virtually all of its patients, referral sources, and

workforce.” (1731 App. at 229.)

Certainly, LabMD may not have expected that the

FTC’s initial involvement in 2010 would result in the demise

of its business. But “[a] cause of action accrues even though

the full extent of the injury is not then known or

predictable. Were it otherwise, the statute would begin to run

only after a plaintiff became satisfied that [it] had been harmed

enough, placing the supposed statute of [limitations] in the sole

hands of the party seeking relief.” Kach v. Hose, 589 F.3d 626,

634-35 (3d Cir. 2009) (quoting Wallace v. Kato, 549 U.S. 384,

391 (2007)). For purposes of assessing the accrual of its

1993) (affirming dismissal of RICO claims “[a]fter reviewing

the amended complaints and RICO case statement”).

23

claims, then, we conclude that LabMD knew of its injuries in

2010, at the latest.12

LabMD also knew or should have known by 2010 that

Tiversa was the source of the injuries flowing from the FTC’s

investigation and subsequent enforcement action. Right from

the beginning of the “leak” ordeal, LabMD was suspicious of

Tiversa. It alleges that it “suspected from as early as May 2008

that Defendants were lying about the source of the 1718 File.”

(1731 App. at 909.) Even if LabMD did not have actual

knowledge that the FTC had gotten its information about the

1718 File from Tiversa, there were enough “storm warnings”

that it should have known that Tiversa was the source. Cf.

Cetel v. Kirwan Fin. Grp., Inc., 460 F.3d 494, 507 (3d Cir.

2006) (“[W]hen plaintiffs should have known of the basis of

their claims depends on whether and when they had sufficient

information of possible wrongdoing to place them on ‘inquiry

notice’ or to excite ‘storm warnings’ of culpable activity.”

(internal quotation marks and alterations omitted)). Tiversa

had demonstrated a willingness to disclose the 1718 File to

others, such as when it collaborated with Johnson on a research

paper that included a redacted version of the 1718 File. That

paper, published in April 2009, begins by noting that Johnson’s

12

LabMD’s allegations of injury also arguably

encompass the “thousands of dollars” and “hundreds of man

hours” that LabMD spent trying to remedy a purported data

breach after Tiversa – in 2008 – fed it misleading information

about the purported leaked. (1731 App. at 223.) To the extent

that LabMD’s theory of liability focuses on Tiversa misleading

the FTC into investigating LabMD, the injurious effects of that

conduct first arose by 2010.

24

research was “conducted in collaboration with Tiversa[.]”

(1731 App. at 310.) Tiversa had also demonstrated a close

relationship with government investigators. In 2007, Boback

testified alongside FTC representatives before the Senate

Oversight and Government Reform Committee about the

dangers of P2P networks. Two years later, he testified before

the House Subcommittee on Commerce, Trade and Consumer

Protection about P2P network data leaks, and produced the

1718 File as an example. LabMD’s complaint also highlights

two news articles from Computerworld in February 2010, in

which Boback and Johnson were both interviewed about the

FTC opening investigations into almost 100 companies

regarding data leaks on P2P networks. Based on all those

circumstances, LabMD knew or should have known by 2010

that Tiversa was very likely the source behind the FTC’s

investigation and eventual enforcement action.13

Because LabMD knew or should have known by 2010

about its injuries and their source, its federal RICO claims

accrued more than four years before it filed its complaint in

January 2015. Thus, unless the limitations period was tolled,

the RICO claims are time-barred.

13

It is further telling that, in a September 2010 letter to

Tiversa and in evident anticipation of government action,

LabMD accusingly asked Tiversa to describe its relationship

with the FTC and to disclose any communications with the

FTC about the 1718 File. Nevertheless, because that letter was

not mentioned in the complaint nor attached thereto, we do not

rely on it in reaching our conclusion here. Schmidt, 770 F.3d

at 249.

25

The limitations period for a RICO claim may be

equitably tolled “where a pattern remains obscure in the face

of a plaintiff’s diligence in seeking to identify it[.]” Rotella v.

Wood, 528 U.S. 549, 561 (2000). Equitable tolling is “the

exception, not the rule.” Id. It requires active misleading by

the defendant. Mathews v. Kidder, Peabody & Co., 260 F.3d

239, 256 (3d Cir. 2001). Active misleading involves “tak[ing]

steps beyond the challenged conduct itself to conceal that

conduct from the plaintiff.” Gabelli v. S.E.C., 568 U.S. 442,

447 n.2 (2013). Here, the only purported acts of active

misleading that LabMD cites are Tiversa’s assertions that

LabMD had a data leak and that the 1718 File was spreading

across cyberspace. But those misrepresentations, if they are

that, are not acts of concealment “beyond the challenged

conduct itself.” Id. Rather, they are at the very heart of

LabMD’s claims. When LabMD was asked to identify the

predicate acts for its RICO claim, it listed a half-dozen acts of

alleged “wire fraud” involving Tiversa and Boback “making

misrepresentations about the 1718 File” in telephone calls and

emails to LabMD. (1731 App. at 889.) LabMD has not

pointed to any other independent instances of active

misleading that would entitle it to equitable tolling of its RICO

claims. As a result, those claims are time-barred, and we will

affirm the District Court’s dismissal of them.

ii. Tortious Interference with

Business Relationships

Next, LabMD claims that Boback’s statements in 2015

on the Pathology Blawg and in The Wall Street Journal

tortiously interfered with LabMD’s prospective business

26

relationships.14 To plead a claim under Pennsylvania law for

tortious inference with a prospective business relationship,

LabMD must allege facts showing, among other things, “the

existence of a … prospective contractual relationship between

[LabMD] and a third party,” and “a reasonable likelihood that

the relationship would have occurred but for the interference

of [Boback].” Brokerage Concepts, Inc. v. U.S. Healthcare,

Inc., 140 F.3d 494, 530 (3d Cir. 1998). A prospective

contractual relationship is “something less than a contractual

right, something more than a mere hope.” Thompson Coal Co.

v. Pike Coal Co., 412 A.2d 466, 471 (Pa. 1979).

LabMD has not adequately alleged that Boback’s

statements caused any prospective contractual relationships to

suffer. The timing of events matters here. The amended

complaint identifies numerous third-party payors and a handful

of insurance carriers that previously did business with LabMD,

but it does not allege that any of those parties would have been

likely to do future business with LabMD. As the District Court

observed, LabMD was effectively shut down by January 2014,

over a year before Boback made the statements at issue. And

the amended complaint acknowledges that it was the FTC’s

actions, not Boback’s later allegedly defamatory remarks, that

drove away business: “OneBeacon, for example, refused to

provide LabMD with [insurance] coverage … because of the

FTC investigation and Enforcement Action, which were

14

LabMD also claimed tortious interference based on

Tiversa’s false statements to it in 2008 regarding the source

and spread of the 1718 File. The District Court dismissed that

portion of the claim as barred by the applicable two-year statute

of limitations, and LabMD does not challenge that decision.

27

predicated on Tiversa and Boback’s False Statement [from

2008].” (1731 App. at 4905.) There is not an objectively

reasonable probability that Boback’s 2015 statements did any

additional damage to LabMD’s prospective contractual

relationships. The District Court’s dismissal of the tortious

interference claim was thus proper.

iii. Fraud and Negligent

Misrepresentation

LabMD claims that Tiversa and Boback are liable for

fraud and negligent misrepresentation based on their telling

LabMD “that Tiversa had obtained the 1718 File from a [P2P]

network and that Tiversa continued to see individuals

downloading copies of the 1718 File.” (1731 App. at 4909

(internal quotation and alteration marks omitted).) Under

Pennsylvania law, plaintiffs must bring fraud claims “within

two years of when they learned or should have learned, through

the exercise of due diligence, that they have a cause of action.”

Beauty Time, Inc. v. VU Skin Sys., Inc., 118 F.3d 140, 148 (3d

Cir. 1997). For that limitations period to begin running, “a

claimant need only be put on inquiry notice by ‘storm

warnings’ of possible fraud.” Id. The statute of limitations for

negligent misrepresentation is also two years. 42 Pa. Cons.

Stat. § 5524(7).

We agree with the District Court that LabMD knew or

should have known of its fraud and negligent

misrepresentation claims by 2011, when it filed its complaint

in the Georgia Action. There, LabMD alleged that “Tiversa

intentionally accesse[d] LabMD’s computers and networks

and downloaded the [1718 File] without authorization” and

that “Tiversa accessed LabMD’s computers and networks with

28

the intent to extort money from LabMD[.]” (1731 App. at

1549-50.) Those older allegations demonstrate that LabMD

had already concluded that Tiversa lied about obtaining the

1718 File from a P2P network. That knowledge should have

also put LabMD on inquiry notice in 2011 as to whether

Tiversa allegedly lied about others obtaining the 1718 File

from a P2P network. Because LabMD learned or should have

learned of the claimed falsehoods more than two years before

filing its original 2015 complaint in the First Pennsylvania

Action, its fraud and negligent misrepresentation claims are

barred by the applicable statutes of limitations. See Toy v.

Metro. Life Ins. Co., 863 A.2d 1, 9 (Pa. Super. Ct. 2004)

(applying the same statute-of-limitations analysis to uphold

dismissal of claims for fraud and negligent misrepresentation),

aff’d, 928 A.2d 186 (Pa. 2007). We will therefore affirm the

District Court’s dismissal of those claims.

iv. Defamation

“Defamation … is the tort of detracting from a person’s

reputation, or injuring a person’s character, fame, or

reputation, by false and malicious statements.” Joseph v.

Scranton Times L.P., 959 A.2d 322, 334 (Pa. Super. Ct. 2008).

Under Pennsylvania law, the plaintiff bears the burden of

proving, inter alia, the defamatory character of a statement and

harm resulting from its publication. 42 Pa. Cons. Stat. Ann.

§ 8343(a)(6). The plaintiff does not have to affirmatively

prove that the statement was false; rather, a defendant who

disputes falsity has to prove the truth of the defamatory

communication. Id. § 8343(b)(1).

In its amended complaint, LabMD identified twenty

allegedly defamatory statements made by Boback, for Tiversa,

29

accusing LabMD of having poor data security practices and

exposing the 1718 File to the public. Statements 1 through 4

were made to the FTC in 2009. Statements 5 through 9 were

made in a Tiversa press release in May 2009. Statements 10

through 14 were published on the Pathology Blawg in February

2015. And Statements 15 through 20 were made in a letter to

the editor of The Wall Street Journal that was published in

December 2015. The District Court dismissed LabMD’s

defamation claim as to Statements 1-9, and LabMD does not

challenge that aspect of the Court’s decision.

Concerning the statements on the Pathology Blawg

(Statements 10 through 14), the District Court denied the

motion to dismiss only as to Statement 13, which, as noted

earlier, reads as follows:

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.

(1731 App. at 4897.) The Court held that Statement 13 was

“defamatory on its face,” and it rejected Tiversa’s argument

that the statement was a non-actionable opinion. (1731 App.

at 1542.) But the Court granted Tiversa’s motion to dismiss as

to the other statements made on the Pathology Blawg because

it thought LabMD had not addressed those individual

statements in its opposition to Tiversa’s motion to dismiss and

thus had “conceded that [they] were not defamatory.” (1731

App. at 1542.)

30

The District Court erred in that. As to Statements 10

and 14, LabMD did not make such a concession. Those two

statements read, respectively:

After all, we found this file in a public file

sharing network that was accessible by millions

of people from around the world.

…

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

[patients’ private information], 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.

(1731 App. at 4896-97.)

In its brief in opposition to Tiversa’s motion to dismiss,

LabMD included a subsection titled “Defamatory Statements

Nos. 10 – 14,” in which it wrote: “Although the entire

statement [on the Pathology Blawg] provides the context of

this ongoing dispute, it is absolutely clear that Defendants

made a false and defamatory statement about LabMD by

asserting as ‘indisputable fact’ that LabMD ‘leaked’ customer

information on nearly 10,000 patients. Defendants cannot

dismiss this statement on the basis that it is an opinion.” (1731

31

App. at 1946-47.) At no point did LabMD single out Statement

13 as the only part of its defamation claim that it was

defending.

Instead, the District Court appears to have reached its

conclusion by observing that Statement 13 was the only one

that specifically included the exact terms “indisputable fact”

and “leaked[,]” which were the terms LabMD quoted in its

brief. But it appears that LabMD quoted those specific terms

merely to exemplify how Tiversa’s statements on the

Pathology Blawg contained assertions of fact, not opinions.

Other statements on the Pathology Blawg included analogous

phrases. Statement 10 said that the 1718 File was “found … in

a public file sharing network that was accessible by millions of

people from around the world” – which is consistent with

LabMD’s use of the term “leaked” in its brief. (1731 App. at

4896.) Statement 14 similarly said that “[a]n employee at

LabMD … expos[ed] … nearly 10,000 patients[’] private

information” – again, an assertion effectively synonymous

with “leaked” – and it even used the exact phrase “indisputable

fact” that LabMD quoted in its brief. (1731 App. at 4897.) Yet

the District Court took a constricted view of LabMD’s

opposition and gave too little weight to the substance of its

argument. LabMD was not required to repeat each of the

defamatory statements verbatim in order to preserve its claim.

Cf. Nelson v. Adams USA, Inc., 529 U.S. 460, 469 (2000)

(“[Preservation] does not demand the incantation of particular

words; rather, it requires that the lower court be fairly put on

notice as to the substance of the issue.”).15

15

We agree with the District Court, however, that

LabMD did not adequately defend the motion to dismiss as to

32

Statements 11 and 12. Those two statements read,

respectively:

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.

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.

(App. at 4896-97 (alteration in original).) Unlike the other

statements on the Pathology Blawg, Statements 11 and 12 do

not contain accusations of LabMD “leaking” patient

information, declarations of “undisputable facts,” or anything

else that LabMD alluded to in its brief.

33

The District Court applied a similarly erroneous

analysis to Statements 15 through 20, found in a letter to The

Wall Street Journal. The Court sustained the defamation claim

as to Statement 16, which said:

LabMD’s CEO Michael Daugherty admits that a

LabMD employee improperly installed … file-

sharing software on a company computer. Doing

so made confidential patient information

publicly available over the Internet.

(1731 App. at 4898.) The Court rejected Tiversa’s argument

that the statement was true, reasoning that the meaning of

“publicly available” was subject to interpretation. But it then

granted the motion to dismiss as to the other statements made

in The Wall Street Journal, because it again thought LabMD

had conceded that those statements were not defamatory by not

adequately opposing Tiversa’s motion to dismiss. Again,

however, LabMD did no such thing, at least as to Statements

15, 17, and 18. Those statements read, respectively:

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.

…

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.

34

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.

(1731 App. at 4898.)

In its opposition to the motion to dismiss, LabMD

argued that Statements 15 through 20 were defamatory because

its files “were and are never ‘publicly available’ on [P2P]

networks, as a matter of fact and as a matter of law.” (App. at

1948-49 (footnote omitted).) The District Court focused on the

words “publicly available,” concluding that LabMD had

conceded its defamation claim as to all those statements except

for Statement 16, the only statement with the exact phrase

“publicly available.” Once more, the District Court’s narrow

approach led it to erroneously dismiss the other statements as

being concededly non-defamatory. Yet other statements

likewise contain accusations of the 1718 File being made

publicly available. Statement 15 said that “LabMD … admits

its own employee mistakenly exposed the confidential medical

records of nearly 10,000 individuals on the Internet.” (App. at

4898 (emphases added).) Statement 17 said that “LabMD

would have never known it was continuing to publicly expose

patient information.” (App. at 4898 (emphasis added).) And

Statement 18 similarly addressed LabMD’s “exposed files.”

(App. at 4898 (emphasis added).) Thus, LabMD’s briefing

35

adequately preserved its argument with respect to Statements

15, 17, and 18, and not just Statement 16.16

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.

16

We agree with the District Court that LabMD did not

sufficiently preserve its opposition to the motion to dismiss as

to Statements 19 and 20, which respectively read:

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.

As a result of this dispute, LabMD’s CEO has

defamed my company and made statements that

are 100% wrong.

(App. at 4898-99.) Neither statement relates to LabMD

making the 1718 File publicly available, which was the topic

of the statements that LabMD argued in its briefing were

defamatory.

36

2. Summary Judgment17

After the District Court held that LabMD had

adequately stated a defamation claim as to Statements 13 and

16, Tiversa and Boback moved for summary judgment. The

District Court’s decision at summary judgment turned on

whether LabMD could establish that it was harmed by

Boback’s statements. The District Court held that the record

did not support a finding of actual damages, since LabMD had

already gone out of business over a year before Boback made

those statements. It further held that the record did not support

an alternative finding of presumed damages. Although

LabMD concedes the lack of actual damages, it contests the

District Court’s decision that there was no evidence to support

presumed damages – and, specifically, the Court’s refusal to

consider the evidence it offered on that issue.

A plaintiff who establishes presumed damages can

prevail on a claim for defamation even without proof of actual

damages. See Dun & Bradstreet, Inc. v. Greenmoss Builders,

Inc., 472 U.S. 749, 760-61 (1985) (discussing the common-law

rule that allows juries to presume that damage occurred from

defamatory statements, even when “proof of actual damage [is]

impossible”). To establish presumed damages in

Pennsylvania, the plaintiff must prove that the defendant made

the defamatory statements with actual malice. Joseph v.

Scranton Times L.P., 129 A.3d 404, 432 (Pa. 2015). Actual

malice is “knowledge of falsity or reckless disregard for the

“We review orders granting summary judgment de

17

novo.” Daubert v. NRA Grp., LLC, 861 F.3d 382, 388 (3d Cir.

2017).

37

truth.” Id. at 426 (quoting Gertz v. Robert Welch, Inc. 418 U.S.

323, 349 (1974)). Whether there has been actual malice is

judged by a subjective standard. Lewis v. Phila. Newspapers,

Inc., 833 A.2d 185, 192 (Pa. Super. Ct. 2003). The question is

whether there is “evidence that the defendant in fact

entertained serious doubts as to the truth of his publication.”

Id. (emphasis and internal quotation marks omitted).

In support of their motion for summary judgment,

Tiversa and Boback submitted an affidavit from Boback in

which he declared that files in a folder on a P2P network are

“publicly available” and that a person who places the

documents on the network has “leaked” the documents. He

declared that he has always believed that to be true and that he

“relied upon [his] knowledge as it existed … when [he] made

Statements 13 and 16.” (1731 App. at 1810.)

LabMD sought to rebut Boback by using expert

evidence to demonstrate that the 1718 File was not publicly

available. The District Court, however, refused to consider any

expert declaration, expert report, or other expert discovery on

the motion for summary judgment. At an earlier scheduling

conference, the District Court had stated that “it appears to the

Court that it’s in the interests of efficiency that, before we get

into experts we see if the claim survives [the motion for

summary judgment].” (App. at 1766.) LabMD’s counsel then

observed that “[i]t may be that issues are raised on summary

judgment that need to be addressed by an expert[.]” (1731

App. at 1766.) But the District Court reiterated that it would

not hear expert testimony:

And let me be clear. Given the issues of what’s

left in this case, the two remaining issues are not

38

an issue where we’re going to need expert reports

for the motion for summary judgment. … So if

the remaining portion of [the defamation claim]

survives the motion for summary judgment, then

at that point we’ll set a schedule for each side’s

expert reports and expert depositions. [I]f the

case happens to be dismissed, then the parties

will have spent considerable time and money,

and I am respectful of that. And in light of the

posture of this case and the issues at hand, we

will deal with summary judgment first, and then,

if the claim survives as to one or both statements

at issue, then we’ll set the expert schedule.

(1731 App. at 1767.)

Nevertheless, in LabMD’s opposition to the motion for

summary judgment, it submitted the Regard Declaration.

Regard, a specialist in computer forensics, asserted that the

1718 File was never publicly available; that Tiversa had used

secret, government-owned software to access the 1718 File;

and that the metadata supported Wallace’s story that he was

directed by Boback to generate the appearance of a prior leak.

But the District Court, at Tiversa’s request, struck the Regard

Declaration and refused to consider it when ruling on the

motion for summary judgment. The Court found that LabMD

“plainly violate[d] the Court’s clear directive” and

“conduct[ed] litigation by surprise.” (1731 App. at 1878-79.)

LabMD challenges that refusal to consider the Regard

Declaration.

Parties are permitted to submit declarations to support

or defend against a motion for summary judgment. Fed. R.

39

Civ. P. 56(c)(1)(A). That includes expert declarations. E.g.,

1836 Callowhill St. v. Johnson Controls, Inc., 819 F. Supp.

460, 462 (E.D. Pa. 1993) (“An expert’s affidavit … is eligible

for summary judgment consideration if the affiant would be

qualified to give the expert opinion at trial.”). As with other

rules for obtaining and presenting evidence, the timing and

availability of expert discovery is subject to the court’s

discretion. See Lloyd v. HOVENSA, LLC., 369 F.3d 263, 274-

75 (3d Cir. 2004) (“It is well established that the scope and

conduct of discovery are within the sound discretion of the

trial court and that after final judgment of the district court …

our review is confined to determining if that discretion has

been abused.” (quoting Marroquin-Manriquez v. I.N.S., 699

F.2d 129, 134 (3d Cir. 1983)). But, of course, a district court’s

discretion is not unbounded. It abuses that discretion if it

“interfere[s] with a substantial right[.]” Pub. Loan Co. v.

FDIC, 803 F.2d 82, 86 (3d Cir. 1986) (quoting Marroquin-

Manriquez, 699 F.2d at 134) (internal quotation marks

omitted).

Here, the District Court abused its discretion when it

prohibited LabMD from submitting an expert declaration

during the summary-judgment phase of this case. By refusing

to allow expert support for the defamation claim until after

summary judgment – and then entering summary judgment

against LabMD – the Court denied LabMD any opportunity to

present expert testimony, despite the technical subject matter

at issue. Discerning the falsity of the allegedly defamatory

statements about LabMD “leak[ing]” the 1718 File or making

it “publicly available” was predictably going to involve

determining whether the participants on a computer network

were able to search for and access the 1718 File using publicly

available programs. Expert insight into the technical workings

40

of P2P networks and available search software clearly would

have aided that determination and should have been allowed.

It also may have aided the actual malice inquiry, as it could

have shed light on whether reckless disregard of the truth could

be inferred from the allegedly false statements of the CEO of a

P2P-network cybersecurity company about how his company

retrieved documents from a P2P network. Reckless disregard

can be proven by circumstantial evidence, Joseph, 129 A.3d at

437, and LabMD was not obligated to stand mute in the face of

Boback’s self-serving testimony that his statements were true

and he always thought so. See Schiavone Constr. Co. v. Time,

Inc., 847 F.2d 1069, 1090 (3d Cir. 1988) (“[O]bjective

circumstantial evidence can suffice to demonstrate actual

malice. Such circumstantial evidence can override defendants’

protestations of good faith and honest belief that the report was

true.” (footnote omitted)). Yet the District Court’s “no

experts” insistence put LabMD in exactly that position,

depriving it of the substantial right to prove its case.

We do not minimize the District Court’s legitimate

concern that expert discovery can become disproportionately

burdensome and costly. There are, however, other ways to

control costs besides a blanket prohibition on expert evidence.

Limits on the type and amount of such evidence and associated

discovery may be appropriate. See Fed. R. Civ. P. 26(b)(2).

But, again, the nature of the accusations here, involving

computer software functions, strongly indicated that resort to

expert testimony was to be anticipated and should have been

allowed.

The District Court’s exclusion of expert evidence on

LabMD’s defamation claim resulted in fundamental unfairness

in the resolution of the case, and its exclusion order was thus

41

an abuse of discretion. We will therefore vacate the District

Court’s order granting summary judgment. On remand, the

District Court should set a schedule that will permit LabMD to

present its expert evidence to oppose the motion for summary

judgment and also give Tiversa and Boback an opportunity to

respond to LabMD’s proposed expert declaration.

Furthermore, for the reasons already discussed, the District

Court should include Statements 10, 14, 15, 17, and 18 as

additional grounds for LabMD’s defamation claim.

3. Sanctions and Contempt18

Hawkins and LabMD engaged in aggressive discovery

tactics that frustrated Tiversa and unnecessarily burdened the

District Court, as is apparent from discovery disputes that we

need not describe in detail here. Suffice it to say, we do not

doubt that some of those tactics, including some of the

questioning at depositions, warranted sanctions. For example,

after the District Court issued a protective order because

Hawkins was asking deposition questions about guns in the

workplace, and he then pursued further questioning on that

subject in later depositions, there was a blatant disregard for

18

We review for abuse of discretion a district court’s

decision to impose sanctions under Rule 37 of the Federal

Rules of Civil Procedure. Naviant Mktg. Sols., Inc. v. Larry

Tucker, Inc., 339 F.3d 180, 185 (3d Cir. 2003). “While this

standard of review is deferential, a district court abuses its

discretion in imposing sanctions when it bases its ruling on an

erroneous view of the law or on a clearly erroneous assessment

of the evidence.” Grider v. Keystone Health Plan Cent., Inc.,

580 F.3d 119, 134 (3d Cir. 2009) (cleaned up).

42

the District Court’s order, and it was not an abuse of discretion

to impose some sanction as a consequence.

Yet that First Sanctions Order did not stop at penalizing

Hawkins and LabMD solely for asking questions on obviously

extraneous topics that the District Court had warned against in

the protective order. Instead, the language of the First

Sanctions Order and the breadth of the sanctions imposed

suggest that the Court was treating a much wider range of

questions as off limits. It erred in that regard.

The protective order said that “[t]he scope of the

depositions in this action must be limited to the remaining

portion of the defamation per se claim, specifically Statements

#13 and #16, LabMD’s alleged damages and defenses thereto.”

(1731 App. at 1777.) And large portions of Hawkins’s

questioning did fall within that narrowed scope of LabMD’s

defamation claim. For example, questions about what

technologies Tiversa used to access documents on P2P

networks – which might have included proprietary or

government-owned technologies – are relevant to whether it

was true, as Boback stated, that Tiversa’s ability to download

the 1718 File from LabMD’s computer in fact made the 1718

File “publicly available.” Furthermore questions about

whether Tiversa took steps to create a false appearance of the

1718 File spreading across the P2P network are plainly

relevant to whether Boback had “knowledge of falsity or

reckless disregard for” the true nature of the 1718 File’s

availability, which could support a finding of presumed

damages. Joseph, 129 A.3d at 426 (quoting Gertz, 418 U.S. at

349); see also id. at 437 (observing that actual malice may be

proven through circumstantial evidence). Despite that, the

District Court repeatedly expressed its concern that most of the

43

questions, especially those about false spread, were trying to

uncover information that would be used in other cases. But

evidence of Tiversa creating a false “leaks” narrative could be

relevant to claims in other cases and, at the same time, be

relevant to the defamation claim here. The District Court erred

in holding that the scope of its protective order, as objectively

understood from the language of the order, prohibited inquiry

into such topics.

Even if the Court had intended to prohibit questioning

on those topics,19 the protective order was not specific enough

to delineate the exact topics that were off limits during

depositions. The order appeared to broadly permit questions

within the scope of the defamation claim as to Statements 13

and 16, including whether the 1718 File was publicly available

and, if it was not, whether Boback knew that. Those were the

rules in effect when Hawkins conducted the remaining

depositions. When the District Court penalized Hawkins for

asking questions that did not actually violate the announced

rules as reasonably understood, it abused its discretion. See

Clientron Corp. v. Devon IT, Inc., 894 F.3d 568, 580-81 (3d

Cir. 2018) (explaining that a sanction must be “just,” which

“represents the general due process restrictions on the court’s

discretion”).

Furthermore, with respect to the portion of the First

Sanctions Order that prohibited LabMD from using the six

depositions for any purpose in any case, it also abused its

19

We need not decide here whether a protective order

precluding such relevant questioning would have itself been an

abuse of discretion.

44

discretion under the test announced in Meyers v. Pennypack

Woods Home Ownership Ass’n, 559 F.2d 894, 905 (3d Cir.

1977), overruled on other grounds as recognized by Goodman

v. Lukens Steel Co., 777 F.2d 113 (3d Cir. 1985). In

Pennypack, we identified five factors to consider when

determining whether a district court abuses its discretion in

precluding evidence as a discovery sanction: (1) the prejudice

or surprise in fact of the party against whom the evidence

would have been presented, (2) the ability of that party to cure

the prejudice, (3) the extent to which the presentation of the

evidence would disrupt the orderly and efficient trial of the

case or other cases in the court, (4) bad faith or willfulness in

failing to comply with the court’s order, and (5) the importance

of the excluded evidence. Konstantopoulos v. Westvaco Corp.,

112 F.3d 710, 719 (3d Cir. 1997). “The importance of the

evidence is often the most significant factor.” ZF Meritor, LLC

v. Eaton Corp., 696 F.3d 254, 298 (3d Cir. 2012).

The District Court did not expressly consider the

Pennypack factors. Its primary reasons for excluding the

evidence seem to be what it perceived as an unwarranted

expansion of issues and LabMD’s willful violation of the

protective order, which might correspond to the third and

fourth Pennypack factors. For the reasons discussed above,

however, those factors do not weigh as heavily against LabMD

when we consider the full scope of the defamation claim and

what the protective order objectively prohibited. Furthermore,

the importance of the evidence undoubtedly disfavored

exclusion; the District Court excluded testimonial evidence

from six out of seven witnesses, including the deposition

testimony from Boback, the alleged defamer himself. Thus,

the Pennypack analysis also indicates that, in the First

Sanctions Order, the District Court abused its discretion by

45

excluding critical evidence. We will therefore vacate the First

Sanctions Order.

As a consequence, we will also vacate the Second

Sanctions Order, the revocation of Hawkins’s pro hac vice

admission, and the contempt order. They were all based on the

District Court’s finding that LabMD and Hawkins had violated

the First Sanctions Order, and that conclusion no longer stands

on an entirely sound footing.

Nothing we say here, however, should be understood as

license for any counsel to disregard the warnings and orders

given by district courts. That we believe the District Court in

this case overstepped its bounds with its sanctions orders in no

way condones the hyper-aggressive behavior that burned

through the patience of a thoughtful judge and got Hawkins

and LabMD into trouble. The Court is free to keep them on an

appropriately designed and well-explained short leash, as the

case continues.

4. Attorney Withdrawal20

When Davies, the attorney that LabMD hired as

Hawkins’s replacement to appeal its case, moved to withdraw,

the District Court denied his motion for the sole reason that his

withdrawal would leave LabMD unrepresented by counsel. In

support of that decision, it cited Simbraw, Inc. v. United States,

367 F.2d 373, 373-74 (3d Cir. 1966) (per curiam), where we

20

We review for abuse of discretion the District Court’s

denial of a request by counsel to withdraw from

representation. Ohntrup, 802 F.2d at 679.

46

held that a corporation must be represented in court by an

attorney. The District Court acknowledged that Tiversa had

made two other arguments for why Davies’s motion should be

denied – namely, that LabMD still had the means to pay Davies

and that the motion to withdraw was simply a litigation tactic

intended to avoid paying the sanctions – but the Court

determined that it “[did] not need to resolve the merits of these

two arguments, in light of the clear application of [Simbraw]

to the instant Motion.” (1429 App. at 689.)

That reasoning too was in error. Although Simbraw

requires a corporation to be represented by counsel, it does not

absolutely prohibit a corporation’s counsel from withdrawing

before new counsel is retained. We have previously rejected

that interpretation of the rule. In Ohntrup v. Firearms Center,

Inc., 802 F.2d 676 (3d Cir. 1986) (per curiam), the district court

had held that a corporation’s attorney who sought to withdraw

“would be required to continue to represent [the corporation]

until such time as [the corporation] arranged for representation

by other counsel.” Id. at 679. We disagreed and reasoned that

such a rigid prohibition on an attorney’s ability to withdraw

was “neither mandated nor required for the effective

administration of the judicial system.” Id. at 679-80. Thus, in

certain circumstances, counsel for a corporation should be

permitted to withdraw even before the corporation finds a

suitable substitute.

That is not to say that Davies necessarily should have

been permitted to withdraw. A lawyer is entitled to withdraw

“once [he] demonstrates to the satisfaction of the district court

that [his] appearance serves no meaningful purpose[.]” Id. at

680; Fid. Nat’l Title Ins. Co. of N.Y. v. Intercounty Nat’l Title

Ins. Co., 310 F.3d 537, 541 (7th Cir. 2002) (holding that

47

counsel should have been permitted to withdraw, leaving a

corporate client unrepresented, after considering the burden

imposed on the potentially withdrawing counsel if the status

quo is maintained, the stage of the proceedings, and the

prejudice to other parties). But the District Court expressly did

not decide whether there were other reasons to deny Davies’s

motion to withdraw. Its decision was based solely on an

erroneous conclusion of law, so we will vacate and remand for

further consideration.21

B. Appeal in the Second Pennsylvania Action

In the Second Pennsylvania Action, LabMD brought

claims primarily against Tiversa’s lawyers, Kline and

Troutman Pepper, for their alleged participation in Tiversa’s

extortionate scheme. After conducting a thorough analysis, the

District Court dismissed those claims with prejudice. LabMD

contests various aspects of the District Court’s analysis, and,

as a fallback, argues that its claims should have been dismissed

without prejudice. None of its arguments is persuasive.

1. RICO Claims and Fraud Claims

According to LabMD, the District Court erred in

dismissing the federal RICO and Georgia RICO claims

21

The alternative arguments proposed by Tiversa are

grounded on the sanctions orders and finding of contempt. As

those grounds have been vacated, the alternative arguments

fail. There may, however, be other reasons that the District

Court believes should be taken into consideration in deciding

the resurrected motion to withdraw, and we do not prejudge

those.

48

because they were barred by the statutes of limitations.

LabMD also argues that the Court erred in dismissing its

federal and state RICO, fraud, fraudulent misrepresentation,

and negligent misrepresentation claims for failure to allege any

injury. We need not address the merits of either of those

arguments, however, because there is a threshold defect in

LabMD’s appeal. LabMD does not challenge the District

Court’s separate, independent reasons for dismissing each of

those claims, so we are compelled to affirm. The failure to

challenge an independent basis for a district court’s decision is

fatal to an appeal. See Nagle v. Alspach, 8 F.3d 141, 143 (3d

Cir. 1993) (“Because the plaintiffs have not contested two of

the four independent grounds upon which the district court

based its grant of summary judgment, each of which is

individually sufficient to support that judgment, we must

affirm.”); accord, e.g., Sapuppo v. Allstate Floridian Ins. Co.,

739 F.3d 678, 683 (11th Cir. 2014).

The District Court dismissed the federal RICO claims

against Kline and Troutman Pepper for multiple reasons: the

claims were time-barred and equitable tolling did not apply;

LabMD did not suffer an injury from the Georgia Action being

dismissed without prejudice; the allegedly fraudulent acts by

Kline and Troutman Pepper did not cause the Georgia Action

to be dismissed; LabMD did not adequately plead that

Troutman Pepper was involved in a RICO enterprise or acted

to further the common purpose of any such enterprise; and

LabMD did not adequately plead that Kline engaged in a

pattern of racketeering activity or acted to further the common

purpose of a RICO enterprise. Yet LabMD contests on appeal

only the reasoning related to the first two holdings, the time-

bar and the lack of injury. Because LabMD gives us no reason

to disturb the other substantive holdings, each of which

49

provides an independently sufficient ground for dismissing the

federal RICO claims, we must and will affirm the dismissal of

those claims.

The District Court’s dismissal of the Georgia RICO

claims against all defendants also rested on multiple

independent bases. The Court held that those claims were

barred by the statute of limitations. But it then addressed the

substantive merits of the Georgia RICO claims and concluded

that they were also substantively deficient as to each defendant.

As to Tiversa and Boback, the Court held that LabMD waived

its argument on the Georgia RICO claims by not opposing

Tiversa’s and Boback’s challenges to the merits of the claims.

As to Kline and Troutman Pepper, the Court held that the

Georgia RICO claims failed for the same reasons as the federal

RICO claims, including that Troutman Pepper was not a part

of the alleged enterprise, Kline did not engage in a pattern of

racketeering activity, and their conduct did not cause LabMD’s

alleged injuries. As LabMD contests only the statute-of-

limitations determination but not those other reasons, we must

and will affirm the dismissal of the Georgia RICO claims.

Finally, the District Court dismissed LabMD’s fraud,

fraudulent misrepresentation, and negligent misrepresentation

claims against Troutman Pepper and Kline for two reasons:

because the dismissal of the Georgia Action was without

prejudice and thus did not result in injury, and because

Troutman Pepper’s and Kline’s allegedly fraudulent acts did

not cause the Georgia Action to be dismissed. In its appeal,

LabMD does not address the District Court’s causation

determination, which stands as an independent basis for

dismissing those claims. The dismissal of the fraud, fraudulent

50

misrepresentation, and negligent misrepresentation claims

must therefore also be affirmed.

2. Dismissal Without Leave to Amend22

Lastly, LabMD challenges the District Court’s

dismissal of its complaint pursuant to Rule 12(b)(6) without

giving it an opportunity to amend. “[I] n civil rights cases[,]

district courts must offer amendment – irrespective of whether

it is requested – when dismissing a case for failure to state a

claim[.]” Fletcher-Harlee Corp. v. Pote Concrete

Contractors, Inc., 482 F.3d 247, 251 (3d Cir. 2007). In other

types of cases, however, a plaintiff must properly request leave

to amend a complaint in order for the district court to consider

whether to permit amendment. Id. at 252 (“[A] district court

need not worry about amendment when the plaintiff does not

properly request it.”). A plaintiff properly requests amendment

by asking the district court for leave to amend and submitting

a draft of the amended complaint, so that the court can judge

whether amendment would be futile. Id. The court may deny

leave to amend if the plaintiff does not provide a draft amended

complaint. E.g., Fletcher-Harlee, 482 F.3d at 252-53;

Ramsgate Ct. Townhome Ass’n v. West Chester Borough, 313

F.3d 157, 161 (3d Cir. 2002); Lake v. Arnold, 232 F.3d 360,

374 (3d Cir. 2000).

22

We review for abuse of discretion the decision to

dismiss without granting leave to amend. United States ex rel.

Wilkins v. United Health Grp., Inc., 659 F.3d 295, 302 (3d Cir.

2011), overruled on other grounds as recognized by United

States ex rel. Freedom Unlimited, Inc. v. City of Pittsburgh,

728 F. App’x 101 (3d Cir. 2018).

51

This is not a civil rights case, so the District Court was

not obligated to grant leave to amend of its own accord.

LabMD never filed a motion to amend, and it never submitted

a draft amended complaint. Thus, the District Court did not

have any reason to believe that amendment would cure the

identified defects, and it “had nothing upon which to exercise

its discretion.” Ramsgate, 313 F.3d at 161. It therefore did not

abuse that discretion in dismissing the complaint in the Second

Pennsylvania Action with prejudice and without leave to

amend.

III. CONCLUSION

For the foregoing reasons, we will affirm in part the

District Court’s dismissal of the complaint in the First

Pennsylvania Action, but will vacate specific rulings regarding

the defamation claim and remand, as described above. We will

also vacate the District Court’s orders on sanctions and

contempt, and the order denying Davies’s motion to withdraw.

In the Second Pennsylvania Action, we will affirm the District

Court’s dismissal of the complaint.

52