We blogged recently on the 11th Circuit’s decision that the FTC’s order against LabMD is unenforceable. If you enjoyed that blog, then you’re in luck because we have more LabMD versus FTC content coming your way. In a separate case, LabMD and its chief executive Michael Daugherty sued individual FTC attorneys, arguing that they ramped up the Commission’s investigation into LabMD in retaliation for public criticisms of the FTC made by Daugherty. Whether that’s true or not ultimately proved unimportant because the D.C. Circuit found that the FTC employees held qualified immunity protecting them from suit.

What is qualified immunity? It’s an immunity from civil suits covering a public official who is alleged to have violated a person’s rights while he or she was performing discretionary office duties. To determine whether qualified immunity may be granted, courts need to answer two questions: (1) Did the officer’s conduct violate a constitutional or statutory right? If so, (2) was that right clearly established at the time of the violation? For the right to be “clearly established,” the precedent has to put the right’s existence beyond debate. But even if there is no case law on point, if every reasonable official would know that he or she is violating the right, then such official would be stripped of the immunity. The Supreme Court cautioned against defining such right in general terms in Ashcroft v. al-Kidd. In that case, such claimed rights as “the general proposition . . . that an unreasonable search or seizure violates the Fourth Amendment” or “the general right to be free from retaliation for one’s speech [under the First Amendment]” were dismissed as too general.

LabMD argued that the FTC attorneys violated its “First Amendment right to be free from the FTC ramping up its enforcement action after [the public comments].” However, the court defined the right at issue somewhat differently. First, it noted that the investigation regarding a data breach had started before the public comments, and, second, the final decision to bring a complaint wasn’t made by the charged officials. It consequently defined the right as “a right to be free from an enforcement action where retaliatory motive was allegedly present, but was not plausibly alleged to be the but-for cause of the enforcement.” The court found no cases establishing such right. To the contrary, it found cases which stated that the presence of a retaliatory motive does not automatically mean that the actions in question are unconstitutional if there is another legitimate basis for them. LabMD did not prove that the alleged retaliatory motive was the main impetus for the FTC’s enforcement action. The court thus concluded that LabMD failed to prove a “clearly established right” and qualified immunity protected the FTC attorneys.

Even though this case resulted in a favorable decision for the FTC officials, it has already made waves within the agency. The FTC implemented a new policy last year allowing it to indemnify employees who are being sued for their job-related activities. The agency explained that the threat of employees being sued in their individual capacities may suppress the agency’s effectiveness as staff could be less inclined to pursue investigations, bring up initiatives, and take decisive actions. However, a decision to indemnify would be discretionary.

To the best of our recollection, actions against individual FTC staffers have been rare. This decision and the FTC’s new policy suggest that they will become rarer still.