Antitrust Law Daily Wrap Up, AGENCY NEWS: FTC chairwoman not recused in action against LabMD over data breaches, (Jun 15, 2015)

By Jeffrey May, J.D.

FTC Chairwoman Edith Ramirez can participate in administrative proceedings against medical testing laboratory LabMD, Inc. for failing to reasonably protect the security of consumers’ personal data, including medical information, in violation of the FTC Act. Today, the Commission denied motion to disqualify Ramirez based on her involvement in the agency’s responses to an inquiry from a congressional oversight committee regarding an evidentiary source in the agency's investigation into LabMD (In the Matter of LabMD, Inc., FTC Dkt. 9357).

A congressional inquiry can taint an adjudicative proceeding, the Commission explained. However, recusal would be required only if the congressional communications posed a serious likelihood of affecting the agency decision maker’s ability to act fairly and impartially in the matter before it.

Ramirez had responded to letters from the House Oversight Committee’s former Chairman Darrell Issa regarding Tiversa, Inc., an evidentiary source in the Bureau of Consumer Protection’s investigation of LabMD. Issa questioned Tiversa’s conduct in the FTC and committee investigations.

The chairwoman “carefully restricted her role to the appropriate one of ensuring agency cooperation with Congress,” it was noted. There was no evidence that she took part in addressing the substantive questions raised by the Oversight Committee or the merits of the case. Thus, the inquiry did not impair her ability to render a fair and impartial decision in this case, the Commission concluded.

Prejudgment. The Commission also rejected LabMD's argument that disqualification was required because there was a “reasonable suspicion” that the chairwoman prejudged the case. LabMD did not raise a “reasonable suspicion” or make a “demonstrable” showing of prejudgment by pointing to the agency's assertion of the deliberative process privilege to withhold certain documents in response to a Freedom of Information Act request regarding the Oversight Committee’s inquiry.

Case against LabMD. The FTC issued an administrative complaint against LabMD in August 2013. The agency alleged that now-defunct medical testing laboratory engaged in unfair acts or practices in violation of Sec. 5 of the FTC Act by failing to prevent the unauthorized disclosure of consumer information from its computer systems. According to the allegations, as a result of data security failures, unauthorized third parties in two security breach incidents obtained consumer information from the company’s computer systems via peer-to-peer file-sharing application Limewire installed on a billing computer. In addition, the Sacramento Police Department purportedly discovered identity thieves in possession of checks payable to LabMD and LabMD documents containing information of at least 500 consumers.

As the case moved through administrative proceedings, LabMD filed a motion to disqualify Ramirez. In a May statement, the chairwoman refused to recuse herself. In light of today's determination, Ramirez will be permitted to participate in an appeal of an administrative law judge's initial decision in the matter. The evidentiary hearing in the matter was set to resume today.

Companies: LabMD, Inc.; Tiversa, Inc.

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