FOR IMMEDIATE RELEASE
JUNE 8, 2018
WASHINGTON, D.C. – In a landmark ruling on June 6, 2018, the Eleventh Circuit Court of Appeals invalidated a Federal Trade Commission (FTC) order against cancer-screening facility LabMD. The agency had hounded LabMD for years claiming the company violated an undefined data security rule known only to the FTC. The opinion sends a clear message that the FTC’s enforcement of data security, without publishing any standards, disregards the rule of law, violates due process, and will not be tolerated by the Courts. Cause of Action Institute represented LabMD in the proceedings at the FTC and filed an amicus curiae brief in the Eleventh Circuit on behalf of nine medical doctors harmed by the FTC’s actions.
Cause of Action Institute’s President and CEO John Vecchione commented on the decision:
“The FTC’s lawless bullying of companies and actions that drove LabMD out of business and denied our physician clients’ access to its services have suffered a stern and public rebuke. Standardless regulatory overreach in this case forced the closure of a successful small business even though the FTC has never presented any evidence of consumer harm, nor published any data security standards with which it says the company should have complied. Notably the 11th Circuit ruled the FTC-issued injunction was so vague and unintelligible that no court could intelligently enforce it. The Court made no finding and affirmed no decision of the FTC that LabMD had done anything wrong.
“Scores of companies have knuckled under to the FTC’s insistence on ‘consent’ orders to buy peace. This ruling is a signal that they don’t have to. The Court signaled that vague, standardless dictates by unelected bureaucrats would not be enforced in Courts of law. LabMD’s experience in this case is a stark reminder of the costs required to fight a federal agency that is willing to spend millions of taxpayer dollars over more than eight years of investigation and litigation, all in the pursuit of wrong. We congratulate Ropes & Gray for its representation of this case before the Circuit and LabMD itself for daring to fight the good fight. We are also proud of our attorneys and Cause of Action Institute’s contribution to that fight.”
In the opinion, the court explained the absurdity of the FTC’s position– namely that the agency requires data security standards without providing any specificity on those very standards. From the opinion:
“[T]he Commission’s cease and desist order is nonetheless unenforceable. It does not enjoin a specific act or practice. Instead, it mandates a complete overhaul of LabMD’s data-security program and says precious little about how this is to be accomplished. Moreover, it effectually charges the district court with managing the overhaul. This is a scheme Congress could not have envisioned. We therefore grant LabMD’s petition for review and vacate the Commission’s order.”
While the decision may appear to be narrowly related to the cease and desist order at issue in LabMD, in practice, it will have broad ranging implications for how the agency investigates and enforces data security. The Court also recognized the constitutional injustice of the FTC’s enforcement action in this case: “Being held in contempt and sanctioned pursuant to an insufficiently specific injunction is therefore a denial of due process.” This abuse of due process by going after a company for allegedly violating Section 5 of the FTC Act, but never telling the company what it is actually supposed to have been doing has been a central theme of the LabMD case from the start.
The FTC lost this case before its own FTC’s chief administrative law judge (ALJ) and now before the Eleventh Circuit. The FTC’s disregard of the ALJ’s opinion, when the Commission considered the case at the administrative level, illustrates the unfairness of the FTC enforcement process where the agency acts as its own detective, prosecutor, judge, and executioner. As former FTC Commissioner Joshua Wright explained: “[I]n 100 percent of the cases in which the administrative law judge ruled found no liability, the Commission reversed. This is a strong sign of an unhealthy and biased institutional process.”
Read the full opinion here.
Read more about Cause of Action Institute’s efforts to hold the FTC accountable here and here.
About Cause of Action Institute
Cause of Action Institute is a 501(c)(3) non-profit working to enhance individual and economic liberty by limiting the power of the administrative state to make decisions that are contrary to freedom and prosperity by advocating for a transparent and accountable government free from abuse.
For more information, please contact Mary Beth Gombita, mbgcomms@gmail.com.
