In the ongoing Federal Trade Commission (“FTC”) proceeding against LabMD, Inc. (“Lab MD”), the FTC recently denied LabMD’s attempts to stay the proceeding pending the outcome of the company’s separate requests for injunctive relief pending before the U.S. District Court for the District of Columbia and petition for review before the U.S. Court of Appeals for the Eleventh Circuit. The FTC reasoned that those courts lacked the authority to review the proceedings because there is no final ruling. This decision provides a good reminder that once the FTC’s administrative process has begun, it will likely be difficult to short-circuit that process through judicial review.
In its administrative proceeding, the FTC has alleged that LabMD violated Section 5(a) of the FTC Act by “fail[ing] to implement reasonable and appropriate measures to prevent unauthorized access to consumers’ personal data stored on its computer system.” Like Wyndham Worldwide Corp., however, Lab MD has argued that the FTC does not have authority to regulate the security of consumer information as an “unfair” practice under Section 5 of the FTC Act.
LabMD moved to dismiss the administrative complaint, also requesting that the Administrative Law Judge stay the action pending resolution of the motion.
The FTC rejected LabMD’s argument that discovery should be stayed pending resolution of the challenge to its jurisdiction. Although LabMD claimed that the pending discovery was burdensome, abusive, and potentially crippling from a financial standpoint, the FTC also refused to stray from its standard practice of allowing discovery to continue while dispositive motions are pending. Likewise, the FTC was not persuaded by the two pending federal court actions, both of which sought in some form to stop the FTC from proceeding with its administrative action. LabMD sought to stay the administrative action while these cases were pending. Noting that under its rules, “[t]he pendency of a collateral federal court action that relates to the administrative adjudication shall not stay the proceeding unless a court of competent jurisdiction, or the Commission for good cause, so directs” the FTC found that LabMD did not establish either the likelihood of success or irreparable harm.
The company’s motion to dismiss is expected to be ruled on by January 16, 2014.