United States District Court, District of Columbia
MICHAEL J. DAUGHERTY, et al., Plaintiffs,
ALAIN H. SHEER, et al., Defendants.
S. CHUTKAN United States District Judge
Michael Daugherty and LabMD, Inc. bring this Bivens
action against Alain Sheer, Ruth Yodaiken, and Carl
Settlemyer, individuals employed by the Federal Trade
Commission (“FTC”), alleging that they are liable
for violating, and conspiring to violate, Plaintiffs'
First, Fourth, and Fifth Amendment rights. (Compl.
¶¶ 153-73). Defendants have moved to dismiss under
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). (ECF
No. 13). For the reasons stated herein, Defendants'
motion is GRANTED IN PART and DENIED IN PART.
events of this case stretch from 2008 through the present.
Throughout this time, Defendants Sheer, Yodaiken, and
Settlemyer worked for the FTC and investigated Plaintiffs
LabMD, Inc. and Daugherty, LabMD's sole owner and chief
executive officer, for acts that potentially violated the FTC
Act. (Compl. ¶ 1). In May 2008, LabMD was notified by
Tiversa, a cybersecurity firm seeking to sell its services to
Plaintiffs, that a 1, 718-page file containing the personal
and confidential health information of approximately 9, 300
patients was available for anyone to download on a
peer-to-peer file sharing network. (Id. ¶ 48).
LabMD then investigated its own computers, located the
peer-to-peer file sharing program on one of them, and deleted
the program to prevent the ability for the file to be
downloaded. (Id. ¶ 52).
allege that Defendants learned of the shared file in spring
2009 and “should have learned” at that time that
LabMD was “the only source” of the file,
meaning that the file had not been downloaded or
“spread anywhere on any peer-to-peer network.”
(Id. ¶¶ 68-72 (emphasis in original)).
They further allege that, in retaliation for Plaintiffs'
refusal to contract with Tiversa for data security services,
Tiversa began to falsify data and create records showing that
LabMD's file had spread and been downloaded by unknown
individuals. (Id. ¶¶ 96-99). At some point
during these events, the FTC began investigating LabMD's
data security practices relating to this shared file, and
Plaintiffs allege that Defendants knowingly accepted and used
Tiversa's falsified records to assist their
investigation. (Id.). Plaintiffs further allege that
Defendants agreed with each other and with Tiversa that the
firm would withhold from the FTC any exculpatory information
about LabMD during their investigation. (Id. ¶
100). Plaintiffs allege that in furtherance of this goal,
Defendants worked with Tiversa to create a shell company to
whom Tiversa would selectively give records and which the FTC
would then subpoena for those records, thereby avoiding the
risk that exculpatory information beneficial to Plaintiffs
and harmful to Tiversa would be disclosed. (Id.
¶¶ 84-96, 104-05).
early 2012, Plaintiffs allege that Daugherty “began to
warn the public about the FTC's abuses” through
“the press and social media and through a book.”
(Id. ¶ 127). Plaintiffs allege that Defendants
escalated the intensity of their investigation, and
ultimately recommended commencing an enforcement proceeding,
in retaliation for this public criticism. In particular,
Plaintiffs point to a September 7, 2012 interview Daugherty
gave with an Atlanta newspaper, following which Defendants
“ramped up” their investigation, and the July
2013 release of a trailer for Daugherty's book The
Devil Inside the Beltway, followed three days later by
Defendant Sheer's recommendation that an enforcement
action be brought against LabMD. (Id. ¶¶
filed its administrative complaint against LabMD in August
2013. Over two years later, on November 19,
2015, an FTC administrative law judge issued an Initial
Decision dismissing the complaint after concluding that LabMD
had not engaged in unfair acts that were likely to cause
substantial consumer injury under the FTC Act. The next day,
November 20, 2015, Plaintiffs filed their Complaint in this
case. On July 29, 2016, the FTC issued an Opinion reversing
the ALJ's decision and concluding that LabMD's data
security practices constituted an unfair act within the
meaning of the FTC Act. Defendants have now moved to dismiss
all claims in this case. (ECF No. 13).
Federal Rule 12(b)(1)
courts are courts of limited jurisdiction and, as such, a
district court “may not exercise jurisdiction absent a
statutory basis.” Exxon Mobil Corp. v. Allapattah
Servs., Inc., 545 U.S. 546, 552 (2005); see
also Fed. R. Civ. P. 12 (“If the court determines
at any time that it lacks subject-matter jurisdiction, the
court must dismiss the action.”). “Limits on
subject-matter jurisdiction ‘keep the federal courts
within the bounds the Constitution and Congress have
prescribed, ' and those limits ‘must be policed by
the courts on their own initiative.'” Watts v.
SEC, 482 F.3d 501, 505 (D.C. Cir. 2007) (quoting
Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583
(1999)). Such limits are especially important in the agency
review context, where “Congress is free to choose the
court in which judicial review of agency decisions may
occur.” Am. Petroleum Inst. v. SEC, 714 F.3d
1329, 1332 (D.C. Cir. 2013) (internal quotation marks
omitted). The law presumes that “a cause lies outside
[the court's] limited jurisdiction” unless the
party asserting jurisdiction establishes otherwise.
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S.
375, 377 (1994). Thus, the plaintiff bears the burden of
establishing jurisdiction by a preponderance of the evidence.
See Lujan v. Defenders of Wildlife, 504 U.S. 555,
561 (1992); Shekoyan v. Sibley Int'l Corp., 217
F.Supp.2d 59, 63 (D.D.C. 2002).
evaluating a motion to dismiss under Rule 12(b)(1) for lack
of subject matter jurisdiction, the court must “assume
the truth of all material factual allegations in the
complaint and ‘construe the complaint liberally,
granting plaintiff the benefit of all inferences that can be
derived from the facts alleged.'” Am. Nat'l
Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir. 2011)
(quoting Thomas v. Principi, 394 F.3d 970, 972 (D.C.
Cir. 2005)). Nevertheless, “‘the court need not
accept factual inferences drawn by plaintiffs if those
inferences are not supported by facts alleged in the
complaint, nor must the Court accept plaintiff's legal
conclusions.'” Disner v. United States,
888 F.Supp.2d 83, 87 (D.D.C. 2012) (quoting Speelman v.
United States, 461 F.Supp.2d 71, 73 (D.D.C. 2006)).
Further, under Rule 12(b)(1), the court “is not limited
to the allegations of the complaint, ” Hohri v.
United States, 782 F.2d 227, 241 (D.C. Cir. 1986),
vacated on other grounds, 482 U.S. 64 (1987), and
“a court may consider such materials outside the
pleadings as it deems appropriate to resolve the question
[of] whether it has jurisdiction to hear the case, ”
Scolaro v. D.C. Bd. of Elections & Ethics, 104
F.Supp.2d 18, 22 (D.D.C.2000) (citing Herbert v.
Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir.
Federal Rule 12(b)(6)
motion to dismiss under Fed.R.Civ.P. 12(b)(6) for failure to
state a claim tests the legal sufficiency of a complaint.
Browning v. Clinton, 292 F.3d 235, 242 (D.C. Cir.
2002). “To survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its
face.'” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009). A claim is plausible when it alleges sufficient
facts to permit the court to “draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Id. Thus, although a plaintiff may
survive a Rule 12(b)(6) motion even where “recovery is
very remote and unlikely, ” the facts alleged in the
complaint “must be enough to raise a right to relief
above the speculative level.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555-57 (2007) (internal quotation
marks omitted). Evaluating a 12(b)(6) motion is a
“context-specific task that requires the reviewing
court to draw on its judicial experience and common
sense.” Iqbal, 556 U.S. at 679.
Subject Matter Jurisdiction
first argue that this court lacks subject matter jurisdiction
to hear Plaintiffs' claims because those claims may be
brought only before the FTC in the agency's
administrative proceedings. The Supreme Court held in
Thunder Basin Coal Co. v. Reich, 510 U.S. 200
(1994), that district courts lack jurisdiction to hear
certain cases if “Congress has allocated initial review
to an administrative body [and] such intent is ‘fairly
discernible in the statutory scheme.'” Id.
at 207 (quoting Block v. Cmty. Nutrition Inst., 467
U.S. 340, 351 (1984)). To determine whether Congress
“intended to preclude initial judicial review, ”
courts look to “the statute's language, structure,
and purpose, its legislative history, and whether the claims
can be afforded meaningful review.” Id.
(internal citation omitted). The court must also consider
“whether [a plaintiff's] claims are of the type
Congress intended to be reviewed within this statutory
structure.” Id. at 212. Central to this
question is whether the claims are “wholly
‘collateral' to a statute's review provisions
and outside the agency's expertise” and whether
“a finding of preclusion could foreclose all meaningful
judicial review.” Id. at 212-13 (quoting
Heckler v. Ringer, 466 U.S. 602, 618 (1984));
see also Free Enter. Fund v. Pub. Co. Accounting
Oversight Bd., 561 U.S. 477, 489 (2010) (restating
Thunder Basin principles).
court first considers whether Congress's intent to
require initial review of Plaintiffs' claims by the FTC
is “fairly discernible in the statutory scheme.”
Thunder Basin, 510 U.S. at 207. In the FTC Act,
Congress directs the FTC to prevent persons, partnerships, or
corporations “from using unfair methods of competition
in or affecting commerce and unfair or deceptive acts or
practices in or affecting commerce.” 15 U.S.C. §
45(a)(2). Upon finding that there is “reason to
believe” a corporation has engaged in conduct that
violates the FTC Act, the FTC must issue a complaint upon
such corporation and hold a hearing to review evidence of the
alleged unlawful acts. 15 U.S.C. § 45(b). The charged
entity has “the right to appear at the place and time
so fixed and show cause why an order should not be entered by
the [FTC] requiring [it] to cease and desist from the
violation of the law so charged in said complaint.”
Id. If the FTC concludes that the corporation
engaged in unlawful acts, it has the authority to issue a
cease-and-desist order, and if the charged party does not
comply with the order, it may bring a civil action in U.S.
district court seeking an injunction and recovery of civil
penalties. 15 U.S.C. §§ 45(b), (1), (m). The
corporation ordered to cease and desist its activities may
obtain review from a U.S. Court of Appeals within sixty days.
15 U.S.C. § 45(c).
Circuit recently analyzed whether an analogous statutory
scheme involving administrative enforcement by the U.S.
Securities and Exchange Commission precluded jurisdiction for
a constitutional challenge in district court. See Jarkesy
v. SEC, 803 F.3d 9 (D.C. Cir. 2015). There, as here, the
statute provided for a charged-or
“aggrieved”-individual to seek review in a court
of appeals following adjudication before the agency, and for
the reviewing court to exercise “exclusive”
jurisdiction to “affirm or modify and enforce or to set
aside the order in whole or in part.” Id. at
16 (quoting 15 U.S.C. § 78y(a)(3)); see also 15
U.S.C. § 45(d) (identical language in FTC Act). After
reviewing that statute's details regarding the appellate
review of the agency's decisions, the Circuit concluded
that it was “fairly discernible that Congress intended
to deny [aggrieved respondents] an additional avenue of
review in district court.” Jarkesy, 803 F.3d
at 17 (quoting Elgin v. Dep't of Treasury, 132
S.Ct. 2126, 2134 (2012)) (alteration in Jarkesy).
The statutory schemes for the FTC's and the SEC's
proceedings are also similar to those of the Mine Safety and
Health Administration considered by the Supreme Court in
Thunder Basin. See Id. at 16 (comparing
Jarkesy, Plaintiffs here “do not seriously
dispute that Congress meant to channel most challenges to the
[agency's] administrative proceedings through the
statutory review scheme.” 803 F.3d at 17. Therefore,
applying the Circuit's guidance in Jarkesy, the
court finds that Congress intended to allocate initial review
of at least some claims to the FTC.
Wholly Collateral to the Agency's Review
Jarkesy, Plaintiffs instead argue that their claims
are not “of the type Congress intended to be reviewed
within this statutory structure.” 803 F.3d at 17
(quoting Thunder Basin, 510 U.S. at 212). Addressing
this argument requires the court to proceed to the next phase
of the Thunder Basin framework-determining whether
the claims are “wholly ‘collateral' to a
statute's review provisions and outside the agency's
expertise.” Thunder Basin, 510 U.S. at 212-13.
In Heckler, the Supreme Court explained that a
plaintiff's claims are not “collateral” if
“at bottom” they are an attempt to reverse the
agency's decisions. 466 U.S. at 614, 618. Similarly, in
Elgin, the Court considered whether the
plaintiffs' constitutional claims were merely “the
vehicle by which they seek to reverse” the agency's
decisions. 132 S.Ct. at 2139-40. Additionally, in
Jarkesy, this Circuit concluded that the
plaintiffs' constitutional challenges were not collateral
because they were “inextricably intertwined with the
conduct of the very enforcement proceeding that statute
grants the [agency] the power to institute and resolve as an
initial matter.” 803 F.3d at 23 (quoting Jarkesy v.
SEC, 48 F.Supp.3d 32, 38 (D.D.C. 2014)). The
Jarkesy court further stated that “[i]t is
difficult to see how [the claims] can still be considered
collateral to any Commission orders or rules from which
review might be sought, since the ALJ and the Commission
will, one way or another, rule on those claims and it will be
the Commission's order that [the plaintiff] will
appeal.” Id. (internal quotation omitted)
(first alteration in original).
the parties disagree as to whether Plaintiffs'
Bivens claims against individual FTC investigators
are “inextricably intertwined” with their
objections to the FTC's enforcement proceedings already
raised directly before the FTC. In the court's view,
Bivens claims pose a distinct question from the one
addressed by the Circuit in Jarkesy because
Plaintiffs' claims are inherently different from those
that they may have-and did-bring before the FTC. Plaintiffs
allege that specific FTC employees conspired to violate
Plaintiffs' rights and caused monetary injury during the
course of their investigation and enforcement proceeding. In
order to seek redress for these injuries, Plaintiffs have
brought their Bivens claims to this court because
they simply were unable to do so before the agency. The
remedy sought by Plaintiffs is not a reversal, or even
reconsideration, of the FTC's decision, as the Supreme
Court found dispositive in Elgin and
Heckler. If Plaintiffs sought reversal or
reconsideration, that remedy would clearly fall within the
FTC's own jurisdiction, or within the court of
appeal's “exclusive” jurisdiction upon
review. See 15 U.S.C. § 45(b)-(d). However, the
FTC Act does not authorize the agency to award monetary
damages for, much less even consider, the allegedly tortious
actions of agency employees committed during the
investigation or enforcement proceeding. See 15
U.S.C. § 45(b) (providing FTC's sole authority to
issue cease-and-desist ...