Eleventh Circuit Holds District Court Lacks Subject-Matter Jurisdiction Over Challenge to FTC Action While Administrative Proceeding Ongoin

LabMD v. Federal Trade Commission, No. 14-12144 (Jan. 20, 2015).

Facts: LabMD is an Atlanta-based laboratory that performs cancer-detection tests for doctors.  When the FTC discovered that LabMD patient information files were available on a peer-to-peer file-sharing network, the FTC launched an investigation into LabMD’s data-security practices.  During this time, LabMD’s CEO, Michael Daugherty, posted an online trailer for his book, “The Devil Inside the Beltway,” which allegedly exposes corruption in the federal government.  Shortly after posting this, the FTC filed an administrative complaint against the company. The FTC alleged that LabMD had violated Section 5 of the FTC  Act by engaging in an unfair act or practice by failing to prevent unauthorized access to its patient information.  LabMD moved to dismiss the FTC administrative complaint, which was denied by the FTC.  After this dismissal was rejected, LabMD sued the FTC in the Northern District of Georgia and argued that the FTC’s enforcement action (1) violated the Administrative Procedure Act (APA), (2) was ultra vires, and (3) was unconstitutional. Importantly, the process for adjudicating this complaint in the FTC was ongoing at the time of this litigation in the District Court and the Eleventh Circuit.

Procedural History: The District Court dismissed LabMD’s challenges to the FTC’s ability to regulate in the area of healthcare data privacy because the District Court had no subject matter jurisdiction in this proceeding.  This lack of subject matter jurisdiction was due to the fact that the FTC’s Order denying dismissal was not a final order and the related constitutional and ultra vires claims were premature.

Issue: Whether the District Court has subject-matter jurisdiction to consider LabMD’s challenges while the FTC administrative proceeding was ongoing?

Holdings:

(1) With regard to the claims made under the APA, those claims were properly       dismissed because it was not a final agency action.

(2) The other claims that the FTC’s actions were ultra vires and unconstitutional    were properly dismissed because those claims were intertwined with its APA claim        for relief and may only be heard at the end of the administrative proceeding.

Reasoning: The Supreme Court has held that an action must satisfy two requirements to be final: first, the action must not be one of an interlocutory nature, and second, the action must be one by which legal consequences will flow (Bennett v. Spear, 520 U.S. 154, 177-78 (1997)).  The Order issued by the FTC was not final because the Order did not finally decide the issue and it was not the consummation of the agency’s decision-making process, and, because the agency proceeding was ongoing, no legal consequences flowed from the FTC action.  It did not even matter that the FTC characterized its own Order as final, because the Court is not required to agree with the FTC’s characterization of its own Order.  Secondly, the constitutional claims cannot be settled at this stage because of the Supreme Court precedent of Thunder Basin Coal Co. v. Reich (510 U.S. 200, 215 (1994)) and the 11th Circuit precedent of National Parks Conservation Association v. Norton (324 F.3d 1229, 1241 (11th Cir. 2003)).

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