Ropes & Gray Ropes & Gray sign/Photo: Diego M. Radzinschi/NLJ

The Federal Trade Commission must pay more than $843,000 in attorney fees and costs to the law firms that represented a now-defunct medical diagnostic testing company that had long argued the agency was misguided in an enforcement action alleging inadequate data-privacy protections.

Atlanta-based LabMD, which has claimed the FTC's enforcement action put it out of business, was represented by such firms as Ropes & Gray, Dinsmore & Shohl, and Wilson Elser Moskowitz Edelman & Dicker. A team from Ropes & Gray served pro bono as lead counsel for LabMD in the U.S. Court of Appeals for the Eleventh Circuit, which last year ruled against the FTC.

The appeals court this week upheld a special master's report that said the law firms were entitled to fees and costs for their successful advocacy on behalf of LabMD. The report said the FTC's litigation position was not "substantially justified," a threshold test for disputes involving whether a federal agency is on the hook for legal fees. Ropes & Gray was awarded nearly $300,000 in fees. Dinsmore was granted about $346,000, and Wilson Elser was awarded $83,200.

Monday's court order marked the latest setback for the FTC in a long-running feud with LabMD over the agency's claims of lax information security protocols and the company's assertions of government misconduct. Both sides have argued for years over the propriety of an enforcement action that confronted the scope of the agency's efforts to regulate cybersecurity.

The Eleventh Circuit last year voided as unenforceable an FTC order that would have required LabMD to adopt a "reasonable" data protection program. LabMD's lawyers sought to recoup attorney fees under the Equal Access to Justice Act, which can provide some relief to parties who prevail against federal agencies. FTC lawyers had urged the federal appeals panel to reject any legal-fee award at all.

"LabMD is not entitled to recover any of its fees or costs because the commission's position at every stage—when it opened the investigation, prosecuted an enforcement complaint, and defended its cease-and-desist order on appeal—had 'a reasonable basis in both law and fact' and therefore was 'substantially justified,'" FTC attorney Theodore Metzler said in a court filing last month.

The special master, Walter Johnson, a U.S. magistrate judge in Rome, Georgia, concluded the FTC was not "substantially justified" in its investigation and prosecution of LabMD.

Johnson, like others before him, examined the FTC's relationship with, and reliance on, a company that allegedly tried to get LabMD to buy its data-protection services after informing the company of an alleged information-security breach. "Tragically, as this case was proceeding through the enforcement action stage, LabMD was forced to cease operations," Johnson wrote in his report.

LabMD's chief executive has publicly railed against the FTC's enforcement action. James Hawkins, a lawyer in Georgia for LabMD, told the appeals court in a filing: "The FTC's pre-litigation position, its original litigation position and the revised position it took at trial and on appeal after its fraudulent evidence was exposed were all unreasonable. No reasonable person could think otherwise."

Douglas Meal Orrick, Herrington & Sutcliffe's Douglas Meal. Courtesy photo

LabMD's fee petition in the Eleventh Circuit revealed various rates for leading Ropes & Gray partners and associates as of October 2018. The firm said it would reinvest any awarded compensation into further pro bono work.

Douglas Meal, the primary lawyer for LabMD in the Eleventh Circuit and formerly co-leader of the firm's privacy and cybersecurity practice, reported an hourly rate of $1,500. Appellate partner Douglas Hallward-Driemeier was charging $1,200, and then-partner Michelle Visser was billing at $1,060 hourly. The firm's fee application presented both current hourly rates and discounted figures that were used as the basis for the petition.

Meal and Visser earlier this year departed Ropes & Gray for Orrick, Herrington & Sutcliffe. Meal, who is based in Boston, now leads the firm's cyber and privacy litigation enforcement practice, and Visser joined Orrick in San Francisco.

 

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