11th Circuit Allows FTC Data Breach Case Against LABMD to Proceed

On Jan. 20, 2015, the Eleventh Circuit dismissed LabMD’s challenge to the current Federal Trade Commission (FTC) enforcement action regarding an alleged healthcare privacy breach. For now the FTC may proceed with its enforcement action and the federal courts will not intervene. According to the Court’s opinion, LabMD was a lab that performed cancer detecting service for physicians. After the FTC discovered that LabMD patient information was available on a public peer-to-peer file sharing network, the FTC investigated and filed an administrative enforcement action against LabMD, claiming that LabMD violated the FTC Act by engaging in unfair acts or practice due to its failure to prevent unauthorized access to patient information. LabMD filed a motion to dismiss in a lower federal court in Georgia, arguing in part that the FTC’s administrative case should be dismissed because the FTC has no authority to regulate protected health information. The lower federal court denied LabMD’s motion, LabMD appealed to the Eleventh Circuit Court of Appeals, and the Eleventh Circuit also denied LabMD’s motion. However, the Eleventh Circuit did not address the issue of the FTC’s authority to enforce healthcare privacy standards. Instead, the Eleventh Circuit held that before a federal court will review the case, LabMD must first exhaust its administrative remedies, which means LabMD must first go through the FTC administrative hearing process until the FTC makes a final decision. The Eleventh Circuit ruled that only then will LabMD be able to ask the federal courts to weigh in on the FTC’s authority.

This case is important because even though the FTC Act makes no specific mention of any requirements to maintain privacy of medical or any other sensitive information, in recent years the FTC has brought enforcement actions against LabMD and other companies for alleged privacy breaches. LabMD will have to submit to the hearing before the FTC and wait until the FTC makes a final decision before it can seek relief from federal courts. Stay tuned.