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).
3
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
4
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
5
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).
7
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.
9
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.
 10
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.
* * *
11
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.