Daugherty et al v. Adams et alREPLY BRIEF re MOTION to Dismiss MOTION to Transfer Case to Western District of Pennsylvania MOTION to StayN.D. Ga.October 10, 2016 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION MICHAEL J. DAUGHERTY and LABMD, INC., Plaintiffs, v. JOEL P. ADAMS, et al., Defendants. Case No. 1:16-cv-02480-LMM DEFENDANT TIVERSA HOLDING CORP.’S REPLY IN SUPPORT OF ITS MOTION TO DISMISS, TRANSFER, OR STAY PURSUANT TO THE FIRST-FILED RULE Nathan A. Wood Georgia Bar No. 637904 MCGUIREWOODS LLP Suite 2100, Promenade 1230 Peachtree Street, N.E. Atlanta, GA 30309-3534 Telephone: (404) 443-5500 Facsimile: (404)443-5599 nwood@mcguirewoods.com Jarrod D. Shaw (Admitted pro hac vice) MCGUIREWOODS LLP EQT Plaza 625 Liberty Avenue 23rd Floor Pittsburgh, PA 15222 Telephone: (412) 667-6000 Facsimile: (412) 667-6050 jshaw@mcguirewoods.com Counsel for Defendant Tiversa, Inc. n/k/a Tiversa Holding Corp. Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 1 of 18 1 I. INTRODUCTION Plaintiffs’ Opposition fails to set forth any authority or factual support to preclude application of the first-filed rule. Nor does it demonstrate that any compelling circumstances exist warranting departure from this rule. The fact which Plaintiffs are unable to change is that Plaintiffs have initiated this matter after previously bringing substantially similar litigation in the Western District of Pennsylvania. Likewise, it is without question that this matter was initiated mere months after receiving adverse rulings in this Court and in the Western District of Pennsylvania. Now, in an effort to distract the Court from these realities, Plaintiffs attempt to blame their duplicative litigation practices on Tiversa. Setting aside those distractions, Plaintiffs’ motivation in filing this action is obvious-they are seeking yet another forum to attempt to relitigate issues which either are or were pending before another federal district court. To stop Plaintiffs’ reckless behavior, Tiversa has filed a Motion to Dismiss, Transfer, or Stay this action pursuant to the first-filed rule.1 To be clear, the latter Motion is not a second 1 Pursuant to the same rule, Tiversa also filed a Motion to Enjoin in the Western District of Pennsylvania. Chief Magistrate Judge Maureen P. Kelly’s October 7, 2016 Memorandum Opinion denying the Motion is attached hereto as Exhibit A. On the same day, the Court issued its Report and Recommendation granting, in large part, Tiversa’s Motion to Dismiss. That Report and Recommendation is attached hereto as Exhibit B. In response to the ruling, LabMD’s CEO, Michael Daugherty, confirmed his efforts to seek a different forum and his displeasure with litigating in Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 2 of 18 2 bite of the apple-it is a Motion seeking entirely permissible relief pursuant to the long-standing first-filed precedent in both the Third and Eleventh Circuits. Because (1) the Pennsylvania Action2 was filed prior to the Second Filed Action; (2) the Pennsylvania and the Second Filed Actions involve similar parties; (3) the Actions involve substantially similar claims; and (4) no compelling circumstances exist warranting departure from the first-filed rule, this Court must dismiss, transfer, or stay the Second Filed Action. II. ARGUMENT A. The First-Filed Rule Requires That The Second-Filed Court Defer To The Forum Of The First-Filed Court. The Eleventh Circuit has explained that “[w]here two actions involving overlapping issues and parties are pending in two federal courts, there is a strong presumption across the federal circuits that favors the forum of the first-filed suit under the first-filed rule.” Manuel v. Convergys Corp., 430 F.3d 1132, 1135 (11th Cir. 2005). Application of the first-filed doctrine should be the rule, not the exception. Id. As Tiversa established in its Motion, it has met the three threshold Pennsylvania. See Law360 Article, attached as Exhibit C (“I cannot explain why Pennsylvania courts keep ignoring the facts.”). 2 All Initial Caps used herein are defined in Tiversa’s Memorandum in Support of Its Motion to Dismiss, Transfer, or Stay Pursuant to the First Filed Rule. Dkt. 63- 1. Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 3 of 18 3 requirements of the rule: (i) chronology (i.e., the action sought to be stayed is the later-filed action); (ii) similarity of parties; and (iii) similarity of issues. Id. Plaintiffs have not shown otherwise, or that any compelling circumstances exist warranting departure from this rule. Accordingly, this Court must dismiss, transfer, or stay this case in light of the Pennsylvania Action. 1. The Chronology Requirement Is Met. Plaintiffs have not-and cannot-refute that this action was filed one-and-a- half years after the Pennsylvania Action. See Pennsylvania Action, Dkt. 1 (indicating Complaint filed on January 21, 2015); Second Filed Action, Dkt. 1 (indicating Complaint filed on July 8, 2016); see also Marietta Drapery & Window Coverings Co., Inc. v. N. River Ins. Co., 486 F. Supp. 2d 1366, 1370 (N.D. Ga. 2007) (concluding that “it is beyond dispute that the Georgia Action post-dates the Illinois Action” where Illinois Action was filed in June 2006 and Georgia Action was filed in November 2006). Therefore, Tiversa has met the chronology requirement of the first-filed rule. 2. The Parties Are Substantially Similar. Plaintiffs ignore the Eleventh Circuit case law which makes clear that the relevant inquiry under the first-filed rule is not whether the parties are identical, it is whether they overlap. See Manuel, 430 F.3d at 1135 (discussing requirement that Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 4 of 18 4 parties be overlapping); see also Chambers v. Cooney, No. 07-0373-WS-B, 2007 WL 2493682, at *5 (S.D. Ala. Aug. 29, 2007) (applying first filed rule where action involved overlapping but not identical parties). With this standard in mind, Tiversa reiterates that Daugherty, as LabMD’s sole shareholder, president, and CEO, and LabMD certainly overlap. Further, Plaintiffs have not demonstrated that LabMD’s interests in either the Pennsylvania Action or the Second Filed Action are distinguishable from Plaintiffs’ here. The analysis is even more concise with respect to Tiversa, as it is a defendant in both actions. Plaintiffs neither point to relevant facts nor applicable case law to counter this assertion, instead relying on a Table listing the additional co-defendants named in this action who were not initially named. By this logic, Plaintiffs would be able to continue initiating overlapping lawsuits against Tiversa in various jurisdictions merely because they add in claims against different co-defendants. The law does not support such an illogical conclusion. Setting aside Plaintiffs’ tortured argument, it remains clear that the Pennsylvania Action and the Second Filed Action involve substantially similar parties: LabMD/Daugherty and Tiversa. As such, Tiversa has met this requirement of the first-filed rule. Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 5 of 18 5 3. The Issues in the Pennsylvania Action and the Second Filed Action Are Substantially Similar. Plaintiffs do not provide any authority in opposition to Tiversa’s argument that the allegations in the Second Filed Action are substantially similar to those already asserted (and, in some instances, dismissed) in the Pennsylvania Action. When allegations in two causes of action are substantially similar, the first-filed rule requires that the second-filed action be dismissed, transferred, or stayed. See, e.g. Herman v. YellowPages.Com, LLC, Nos. 10-cv-0195 JAH (AJB), 10-cv-0798 JAH (AJB), 2011 WL 1615174, at *4 (S.D. Cal. Mar. 29, 2011) (“In regards to the similarity of issues, this Court agrees with defendant that the issues in these cases are substantially similar since the resolution of the claims in both cases will turn on the identical factual allegations alleged in both cases.”). Tiversa’s Motion sufficiently established that the Pennsylvania Action and the Second Filed Action are substantially similar. See Dkt. 63-1 at 15-19. Plaintiffs’ lack of legal analysis in this regard is telling. In addition, Tiversa has shown-and Plaintiffs do not dispute-that the relief sought from Tiversa is the same in both actions. See Georgia ex. rel. Olens v. McCarthy, No. 15-14035-EE, -F.3d-, 2016 WL 4363130, at *2 (11th Cir. Aug. 16, 2016) (“Although no precise test has been articulated for making this Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 6 of 18 6 determination [that litigation is duplicative], the general rule is that a suit is duplicative of another suit if the parties, issues and available relief do not significantly differ between the two actions.”) (quotation omitted). Again, Plaintiffs did not counter this argument. Plaintiffs attempt to distinguish the two cases because they decided to forego certain causes of action against Tiversa in the Second Filed Action. The first-filed rule still applies, however, because the two lawsuits arise out of the same set of core facts. See, e.g., Herman, 2011 WL 1615174, at *4 (“In regards to the similarity of issues, this Court agrees with defendant that the issues in these cases are substantially similar since the resolution of the claims in both cases will turn on the identical factual allegations alleged in both cases.”); see also Dkt. 72 at 5 (“Every claim and every factual allegation made in the Second, Third, Fourth and Fifth Filed Actions would have eventually been brought in the First Filed Action as those facts and causes of action came to LabMD and Daugherty’s attention.”). Indeed, in highlighting this point, Plaintiffs effectively concede that the allegations and relief are the same.3 3 In footnote 34 of their Opposition, Plaintiffs misunderstand Tiversa’s use of the phrase “causes of action” as well as the phrase’s meaning as determined by the relevant authority. See, e.g., Crowe v. Elder, 723 S.E.2d 428, 430 (Ga. 2012) (A cause of action is defined as “the entire set of facts which give rise to an enforceable claim.”) (quotations omitted). Further, two different claims may constitute an Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 7 of 18 7 Lastly, to the extent that there are minimal differences between the two Complaints, such differences should have no bearing on whether a dismissal, transfer, or stay is proper. Other than including a chart, Plaintiffs make no argument that the allegations underlying the two lawsuits are different. Indeed, the relevant inquiry is that they are based on the same set of operative facts. See Peterson v. Aaron’s, Inc., No. 1:14-CV-1919-TWT, 2015 WL 224750, at *3, n. 25 (N.D. Ga. Jan. 15, 2015) (“While the elements of the claims are distinct in part, resolution of the claims will turn on similar determinations of fact ... [d]ue to the related nature of the underlying factual disputes, the issues involved in the various claims seem substantially similar.”) (quotation omitted). The important point is that the court’s rulings in the Pennsylvania Action have the potential of substantially resolving Plaintiffs’ claims here. In the Pennsylvania Action, LabMD set forth claims based on largely similar operative facts to those that give rise to Plaintiffs’ claims here. To permit the two actions to proceed separately will inevitably result in the waste of judicial4 and party resources. identical cause of action if they are based on the same allegations of misconduct. See id. at 430-31. 4 As Plaintiffs note, “[t]his is the fifth of five lawsuits between the parties.” Dkt. 72 at 1 (emphasis in original). It remains to be seen how “LabMD’s overall strategy here is to reduce the number of lawsuits between the parties from five to as few as one.” Dkt. 72 at 4-5 (emphasis in original). To the extent Plaintiffs’ seek to Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 8 of 18 8 As a result, the first-filed rule requires that this Court dismiss, transfer, or stay this action to ensure that the first-filed court is the one to decide the case. See Marietta Draperty, 486 F. Supp. 2d at 1369 (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 675 F.2d 1169, 1174 (11th Cir. 1982) (“In [the] absence of compelling circumstances, the court initially seized of a controversy should be the one to decide the case.”). 4. There Are No Factors Warranting Departure From The First-Filed Rule. Plaintiffs next attempt to argue that the first-filed rule is “flexible.” Yet, they fail to set forth any reasons why this Court should disregard the first-filed rule. In fact, to do so would be in direct contravention to the principles espoused by the Eleventh Circuit. See Manuel, 430 F.3d at 1135 (explaining that the first-filed rule should not be “disregarded lightly.”) (quotation omitted). The first-filed rule may only be disregarded if Plaintiffs show that the first-filed action is the product of (1) bad faith (2) forum shopping or (3) is an anticipatory suit. See Soroka v. Lee Tech. Servs., Inc., No. 1:06-CV-0710-TWT, 2006 WL 1734277, at *4 (N.D. Ga. June 19, 2006). Plaintiffs hang their hat on their unsupported allegations that Tiversa consolidate the cases, then the consolidation should take place in Pennsylvania, where the First Filed Action exists. Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 9 of 18 9 engaged in bad faith and committed fraud on the court. Dkt. 72 at 19. Even if this were true, Plaintiffs have not convincingly connected this alleged “fraud on the court” to their filing of the Second Filed Action. Rather, the Federal Rules of Civil Procedure provide that, upon discovery of such a “fraud on the court,” a party may seek relief under Rule 60(d)(3). LabMD did just that when it brought its Rule 60(d)(3) Motion for Relief from Judgment in the Dismissed Georgia Action. Only a few months after this theory was rejected did LabMD then bring this action. Essentially, when this Court closed one door, LabMD attempted to open another by filing this lawsuit to seek a conflicting decision on the same issue-whether there was fraud on the Court. Such forum shopping is inappropriate and demonstrative of Plaintiffs’ total disregard for this Court’s prior decisions and resources. See Doe v. Barrow County, Ga., No. 2:03-CV-156-WCO, 2005 WL 6033020, *2 (N.D. Ga. Mar. 3, 2005) (“[w]hile plaintiff has a right to his day in court, the interests of judicial economy, the avoidance of conflicting decisions, and the preservation of party resources [can] override the potential but limited harm to plaintiff by delaying disposition.”). Third, Tiversa has not and is not relying on the Boback declaration in support of its Motion to Dismiss, Transfer, or Stay. Instead, it is relying on the indisputable litigation history between the parties and the first-filed rule-a long-standing legal Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 10 of 18 10 doctrine which ensures that federal district courts are not burdened with duplicative litigation. In that vein, where substantially similar lawsuits are pending in different district courts, the second-filed Court must dismiss, transfer, or stay its action to ensure that the first-filed court decides the case. See Marietta Drapery, 486 F. Supp. 2d at 1369 (quoting Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 675 F.2d 1169, 1174 (11th Cir. 1982) (“In [the] absence of compelling circumstances, the court initially seized of a controversy should be the one to decide the case.”). Plaintiffs have not provided any evidence demonstrating that compelling circumstances exist to depart from the first-filed rule. Even more, they have failed to articulate which compelling circumstances were “completely ignored by Tiversa.” Dkt. 72 at 19. As a last-ditch effort, Plaintiffs attempt to bolster their tenuous claim by implying that Tiversa has committed discovery violations. Dkt. 72 at 2 (“Thereafter, when Tiversa refused to answer any questions about its fraud on the courts. . .”); Id. at 5 (“Meanwhile, in the last five (5) years, Tiversa and Boback have not answered a single interrogatory, have not produced a single document and have not offered a single witness for examination in any of the cases between the parties. . . ”). Tiversa remains dismissed from the Dismissed Georgia Action and was not ordered to respond to any discovery in that action, even after LabMD filed Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 11 of 18 11 a Motion seeking post-judgment discovery. That Motion was denied and LabMD did not seek reconsideration of that Order. The Pennsylvania Action has not yet reached the discovery phase, because several of the claims from the first Complaint were dismissed and there a Report and Recommendation was recently issued granting, in large part, the Motion to Dismiss the Amended Complaint. The Second Filed Action has just been initiated. Tiversa currently is not under any obligations to respond to discovery. Plaintiffs also include e-mails between their counsel and Tiversa’s counsel wherein they seek further explanation of Tiversa’s legal positions. Any attempt to avoid application of the first-filed rule by pointing to Tiversa’s counsel’s refusal to substantively respond to these e-mails has no impact on the issue presently before the Court. As its counsel noted, Tiversa will not respond substantively to such requests. Put simply, it is under no duty to do so. Moreover, it has more than sufficiently articulated its legal positions in its responses to Plaintiffs’ filings and in support of its own. Moreover, given Plaintiffs’ counsel’s history, pattern and practice of misrepresenting Tiversa’s counsel’s statements and absurd attempts to use emails as evidence, judicial admissions and the basis for an adverse inference, Tiversa takes the position that its counsel will not provide substantive legal or factual responses via email absent an obligation to do so or when the inquiries are Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 12 of 18 12 actually warranted. Accordingly, because LabMD cannot establish that any of the exceptions warranting departure from the first-filed rule exist, the rule requires that this Court transfer, stay, or dismiss this action. B. This Case Should Be Transferred, Stayed, Or Dismissed To Preserve Judicial Resources And Prevent Forum Shopping. Plaintiffs do not dispute that the Court has the authority to dismiss, transfer, or stay this action in the event that it finds that the first-filed rule applies. See, e.g., United Wu Enters., Inc. v. Mon Cheri Bridals, LLC, No. 2:05CV143-FTM-99SPC, 2007 WL 646964, at *2 (M.D. Fla. Feb. 27, 2007) (dismissing second-filed action pursuant to the first-filed rule and finding that, although parties were not identical, the “new” party was, in fact, a real party in interest in both actions). A second-filed action may also be dismissed where, although the claims are different, the underlying facts are intertwined. See First Equitable Realty, III, Ltd. v. Dickson, No. 13-20609- CIV, 2013 WL 5539076, at *3 (S.D. Fla. Oct. 8, 2013); see also Strother v. Hylas Yachts, Inc., No. 12-80283-CV, 2012 WL 4531357, at *3 (S.D. Fla. Oct. 1, 2012) (dismissing second-filed action pursuant to first-to-file rule where two cases substantially overlapped). Similarly, Plaintiffs do not contest that the first-filed enables this Court to transfer this matter to the Western District of Pennsylvania. Glob. Innovation Tech. Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 13 of 18 13 Holdings, LLC v. Acer Am. Corp., 634 F. Supp. 2d 1346, 1349 (S.D. Fla. 2009) (transferring second-filed action because “common issues and parties between the [cases] indicate the wisdom of transfer and consolidation”).5 Lastly, Plaintiffs do not address Tiversa’s argument that the first-filed rule permits this Court to stay these proceedings pending the resolution of the Pennsylvania Action. See Doe, 2005 WL 6033020 at *2 (“[w]hile plaintiff has a right to his day in court, the interests of judicial economy, the avoidance of conflicting decisions, and the preservation of party resources [can] override the potential but limited harm to plaintiff by delaying disposition.”). Here, although a Memorandum Opinion has been issued, Tiversa has a right to appeal that decision. See Exhibit A. Considering this precedent and the litigation history, Tiversa submits that a dismissal, transfer, or stay is warranted to preserve the parties’ resources, avoid unnecessary duplicative litigation, and eliminate the risk of inconsistent rulings between the Pennsylvania and Second Filed Actions. The Court should also stay this case to prevent Plaintiffs from benefitting from their obvious forum shopping. To this end, Plaintiffs have not set forth any argument to rebut Tiversa’s 5 In fact, Plaintiffs note that they “will file motions to consolidate at the appropriate time.” Dkt. 72 at 5, n. 13. Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 14 of 18 14 contention that the Second Filed Action was a product of their own forum shopping. As explained in the Motion, a cursory review of the procedural history and prior rulings in these cases makes clear that LabMD has brought this latest lawsuit in direct response to adverse rulings it received in the Pennsylvania Action and the Dismissed Georgia Action. See Forrand v. Fed. Exp. Corp., No. C07-4674 TEH, 2008 WL 276389, at *3 (N.D. Cal. Jan. 31, 2008) (pointing out that the timing between one court’s unfavorable ruling regarding class certification in one case and the filing of a nearly identical class action by the same Plaintiffs’ attorneys strongly indicates forum shopping); Madani v. Shell Oil Co., No. C07-04296 MJJ, 2008 WL 268986, at *3 (N.D. Cal. Jan. 30, 2008) (finding high likelihood of forum shopping when second suit was filed in different federal court following unfavorable ruling); Groom v. Bank of Am, No. 08-cv-2567-T-27EAJ, 2010 WL 627564, at *7 (M.D. Fla. Feb. 10, 2010) (plaintiffs’ repeated attempts at filing actions in various federal jurisdictions supported contention of forum shopping). Further, Plaintiff Michael Daugherty recently As such, a dismissal, transfer, or stay will preserve judicial resources and curb against forum shopping. III. CONCLUSION For the foregoing reasons, Tiversa Holding Corp. respectfully requests that Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 15 of 18 15 the Court dismiss, transfer, or stay the Complaint against Tiversa pursuant to the first-filed rule. Respectfully submitted this 10th day of October, 2016. /s/ Nathan A. Wood Nathan A. Wood Georgia Bar No. 637904 MCGUIREWOODS LLP Suite 2100, Promenade 1230 Peachtree Street, N.E. Atlanta, GA 30309-3534 Telephone: 404-443-5500 Telecopier: 404-443-5599 nwood@mcguirewoods.com Jarrod D. Shaw (Admitted pro hac vice) MCGUIREWOODS LLP EQT Plaza 625 Liberty Avenue 23rd Floor Pittsburgh, PA 15222 Telephone: (412) 667-6000 jshaw@mcguirewoods.com Counsel for Defendant Tiversa, Inc. n/k/a Tiversa Holding Corp. Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 16 of 18 16 CERTIFICATE OF SERVICE AND COMPLIANCE WITH LOCAL RULE 5.1 I hereby certify that on the 10th day of October, 2016, I electronically filed the foregoing which will automatically send email notification of such filing to the attorneys of record. I also certify pursuant to LR 7.1D that the foregoing complies with the font and point selections permitted by LR 5.1 and that this document was prepared on a computer using the Times New Roman font (14 point). I further certify that a true and correct copy of the foregoing was served by depositing a copy of same in the United States mail with proper postage affixed thereto to ensure proper delivery of same to the following: Steven W. Zoffer DICKIE, MCCAMEY, & CHILCOTE, P.C. Two PPG Place, Suite 400 Pittsburgh, PA 15222 Attorney for Defendants Joel P. Adams, David J. Becker, Anju S. Chopra, Wesley J. Clark, Sr., Sam P. Hopkins, Daniel J. Kopchak, Larry Ponemon, Howard Schmidt and Brian J. Tarquinio Robert J. Ridge CLARK HILL PLC 301 Grant Street, 14th Floor Pittsburgh, PA 15219 Attorney for Defendant Robert J. Boback Thomas J. Farrell FARRELL & REISINGER, LLC 436 7th Avenue, Suite 300 Pittsburgh, PA 15219 Attorney for Defendant Keith W. Taliaferri Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 17 of 18 17 /s/ Nathan A. Wood Nathan A. Wood Georgia Bar No. 637904 MCGUIREWOODS LLP Suite 2100, Promenade 1230 Peachtree Street, N.E. Atlanta, GA 30309-3534 Telephone: 404-443-5500 Telecopier: 404-443-5599 nwood@mcguirewoods.com Counsel for Defendant Tiversa, Inc. n/k/a Tiversa Holding Corp. 82968091_2 Case 1:16-cv-02480-LMM Document 77 Filed 10/10/16 Page 18 of 18 EXHIBIT A Case 1:16-cv-02480-LMM Document 77-1 Filed 10/10/16 Page 1 of 6 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA LABMD, INC., ) Plaintiff, ) ) v. ) ) ) TIVERSA HOLDING CORP.formerly ) known as TIVERSA, INC.; ROBERT J. ) BOBACK; M. ERIC JOHNSON; DOES ) 1-10, ) Defendants. ) Civil Action No. 15-92 Judge Mark R. Hornak/ Chief Magistrate Judge Maureen P. Kelly Re: ECF No. 158 MEMORANDUM OPINION Maureen P. Kelly, Chief United States Magistrate Judge Before the Court is "Defendants Tiversa Holding Corp. and Robert J. Boback's Motion to Enjoin Plaintiff LabMD, Inc. and Non-Party Michael Daugherty" filed by Defendants Tiversa Holding Corp., formerly known as Tiversa, Inc. and Robert J. Boback ("Defendants") to enjoin Plaintiff LabMD, Inc. ("LabMD") and non-party Michael Daugherty from prosecution of a pending action in the United States District Court for the Northern District of Georgia. ECF No. 158. For the reasons that follow, the Motion is DENIED. I. RELEVANT FACTS AND PROCEDURAL HISTORY Litigation between the parties commenced in a Georgia state court action filed by LabMD, Inc. ("LabMD") in October 2011, for violating the federal Computer Fraud and Abuse Act and state claims of computer crimes, conversion and trespass. That case was removed to the United States District Court for the Northern District of Georgia where it was dismissed for lack of personal jurisdiction. LabMD, Inc. v. Tiversa, Inc., 509 F. App'x 842 (11th Cir. 2013)(affirming the dismissal). That case was reopened as of April 22, 2016, and the parties are Case 2:15-cv-00092-MRH-MPK Document 165 Filed 10/07/16 Page 1 of 5Case 1:16-cv- 2480-LM Document 77- Filed 10/10/16 Page 2 of 6 currently engaged in limited discovery related to a Motion for Relief from Judgment filed by LabMD, based on alleged fraud on the Court by Tiversa, and "Plaintiffs Motion for Appointment of Special Master," also filed by LabMD, is currently before the District Court. LabMD, Inc. v. Tiversa, Inc., Civ. A. No. 11-4044 (N.D. Ga.) A second action between the parties was initiated in 2013, when Tiversa Holding Corp. and Robert J. Boback filed an action in this Court against LabMD, pleading state law claims for defamation, slander per se, commercial disparagement and trade libel. Tiversa Holding Com. v. LabMD, Inc., Civ. A. No. 13-1296. On November 4, 2014, Judge Nora Barry Fischer granted a voluntary Motion to Dismiss the action without prejudice. A third action was commenced on September 23, 2014, when Tiversa Holding Corp. and Robert J. Boback filed a praecipe for writ of summons in the Court of Common Pleas of Allegheny County, at GD-14-16497, against, inter alia, LabMD, Inc. and Michael J. Daugherty. In March 2016, on the eve of discovery, Ti versa dismissed all of its claims. However, Boback is proceeding with his claims against LabMD and Daugherty. That suit is currently pending. The instant action was filed in this Court on January 21, 2015. ECF No. 1. In the operative Amended Complaiht, LabMD alleged counts of defamation, tortious interference with existing and prospective business relationships, fraud, negligent misrepresentation and civil conspiracy. ECF No. 125. A Motion to Dismiss, ECF No. 137, is currently pending. It is the second motion to dismiss to be filed in the case, but the first to be filed as to the operative Amended Complaint. Finally, on July 8, 2016, Michael Daugherty and LabMD filed an action in the United States Distric Court for the Northern District of Georgia, Civ. A. No. 16-2480, against Tiversa 2 Case 2:15-cv-00092-MRH-MPK Document 165 Filed 10/07/16 Page 2 of 5Case 1:16-cv- 2480-LM Document 77- Filed 10/10/16 Page 3 of 6 Holding Corp., Robert J. Boback and 26 other defendants. 1 The 192-page Complaint alleges claims of federal RICO violations, Georgia RICO violations, federal Computer Fraud and Abuse Act violations, Georgia computer crimes, fraud, negligence, fraudulent misrepresentation, negligent misrepresentation and conspiracy. Following the filing of the most recent action in the Northern District of Georgia, Defendants in this action now seek to have this Court enjoin LabMD and non-party Michael Daugherty from prosecution of the latest lawsuit in the Georgia federal court. II. LEGAL STANDARD The relevant legal standard has been explained as follows. The "first-filed" rule comes into play when two actions involving the same parties and issues are filed in different federal courts. See Triangle Conduit & Cable Co. v. National Elec. Products Corp., 125 F .2d 1008, 1009 (3d Cir. 1942). The first-filed rule gives a court the power to enjoin, dismiss or transfer "the subsequent prosecution of proceedings involving the same parties and the same issues already before another district court." EEOC v. University of Pennsylvania, 850 F.2d 969, 971 (3d. Cir. 1988), aff'd, 493 U.S. 182, 110 S. Ct. 577, 107 L. Ed. 2d 571 (1990); see also Lawrence v. Xerox Corp., 56 F.Supp.2d 442, 455 (D.N.J. 1999) (transferring action pursuant to first-filed rule). The purpose of this rule is to encourage sound judicial administration and to promote comity among the federal courts by avoiding duplicative litigation. Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817, 96 S. Ct. 1236, 47 L. Ed. 2d 483 (1976) ("As between federal district courts, ... the general principal is to avoid duplicative litigation"); EEOC, 850 F .2d at 971. "The letter and spirit of the first-filed rule is grounded on equitable principles"; therefore a court is not compelled to mechanically apply it. EEOC, 850 F.2d at 976-77. While exceptions to the rule are rare, a court may decline to apply it in extraordinary circumstances or to prevent inequitable conduct, bad faith and forum shopping. Id. at 976. Some circuits have interpreted the first-filed rule liberally, applying it when two actions involve a "similarity of core issues" or a "closely related question." See, e.g., West Gulf Maritime Assa. v. !LA Deep Sea Local 24, etc., 751F.2d721, 729 (5th Cir. 1985) (using "similarity of core issues" 1 Both lawsuits in the United States District Court for the Northern District of Georgia are assigned to the same judge. 3 Case 2:15-cv-00092-MRH-MPK Document 165 Filed 10/07/16 Page 3 of 5Case 1:16-cv- 2480-LM Document 77- Filed 10/10/16 Page 4 of 6 standard); Wash. Metro. Area Transit Auth. v Ragonese, 199 U.S. App. D.C. 246, 617 F.2d 828, 830 (D.C. Cir. 1980) (affirming dismissal of second-filed action where first-filed action presents a "closely related question."). However, the Third Circuit Court of Appeals has interpreted the "first-filed" rule narrowly, holding that it only applies to "truly duplicative" proceedings. Martin v. Townsend, 1990 U.S. Dist. LEXIS 13955, 1990 WL 159923, at *4 (D.N.J. Oct. 15, 1990) (explaining courts' divergent interpretations of "first-filed" rule.); see also Comp!. of Bankers Trust Co. v. Chatterjee, 636 F .2d 3 7, 40 (3d Cir. 1980) ("It is important to note, however, that only truly duplicative proceedings be avoided. When the claims, parties or requested relief differ, deference may not be appropriate); Lexington Ins. Co. v. Caleco, Inc., 2003 U.S. Dist. LEXIS 1318, 2003 WL 21652163, at *5 ([E.]D. Pa. Jan. 25, 2003) (relying on Complaint of Bankers Trust Co. 's "truly-duplicative- proceedings" requirement to deny motion to dismiss or transfer subsequently filed action where previously filed action involved some overlapping issues but was not "truly duplicative"). Kedia v. Jamal, 2007 U.S. Dist. LEXIS 30343, 6-8 (D.N.J. Apr. 25, 2007). III. DISCUSSION Citing the above-described "first filed rule," Defendants seek to have this Court enjoin LabMD and non-party Michael Daugherty from prosecuting the latest action pending in the United States District Court for the Northern District of Georgia ("the 2016 case") because: (1) the 2016 case is substantially similar to the instant case; (2) the instant case pre-dates the 2016 case; and (3) the instant case has progressed significantly further than the 2016 case. ECF No. 159. LabMD opposes the application of the first filed rule and the injunction on the basis that the cases involve different parties, different claims, different issues and different allegations. ECF No. 163 at 8-11. LabMD also makes allegations concerning Defendants' unclean hands. Id. at 12-13. Having conducted a thorough review of the filings relevant to the instant motion, this Court does not find that the instant case and the 2016 case are "truly duplicative," despite some 4 Case 2:15-cv-00092-MRH-MPK Document 165 Filed 10/07/16 Page 4 of 5Case 1:16-cv- 2480-LM Document 77- Filed 10/10/16 Page 5 of 6 overlap in subject matter and parties. First, the 2016 case has one plaintiff and approximately fifteen (15) defendants who are not parties to the instant case. Second, the 2016 case has twelve (12) causes of action which are not present in the instant case, including violation of Georgia statutes. Given the narrow application of the first filed rule in this Circuit, the issuance of an injunction is not warranted. IV. CONCLUSION For the reasons set forth herein, Defendants' Motion to Enjoin Plaintiff LabMD, Inc. and non-party Michael Daugherty, ECF No. 158, is DENIED. In accordance with the Magistrate Judges Act, 28 U.S.C. § 636(b)(l), and Rule 72.C.2 of the Local Rules of Court, the parties are allowed fourteen ( 14) days from the date of this Order to file an appeal to the District Judge which includes the basis for objection to this Order. Any appeal is to be submitted to the Clerk of Court, United States District Court, 700 Grant Street, Room 3110, Pittsburgh, PA 15219. Failure to file a timely appeal will constitute a waiver of any appellate rights. Dated: October 7, 2016 cc: The Honorable Mark R. Hornak United States District Judge All counsel ofrecord via CM-ECF MAUREEN P. K LLY CHIEF UNITED ST A TES MAG IS TE JUDGE 5 Case 2:15-cv-00092-MRH-MPK Document 165 Filed 10/07/16 Page 5 of 5Case 1:16-cv- 2480-LM Document 77- Filed 10/10/16 Page 6 of 6 EXHIBIT B Case 1:16-cv-02480-LMM Document 77-2 Filed 10/10/16 Page 1 of 22 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA LABMD, INC., ) Plaintiff, ) ) vs. ) ) ) TIVERSA HOLDING CORP.formerly ) known as TIVERSA, INC.; ROBERT J. ) BOBACK; M. ERIC JOHNSON; DOES ) 1-10, ) Defendants. ) Civil Action No. 15-92 Judge Mark R. Hornak/ Chief Magistrate Judge Maureen P. Kelly Re: ECF No. 137 REPORT AND RECOMMENDATION I. RECOMMENDATION Plaintiff LabMD, Inc., a Georgia corporation, ("LabMD") has filed this civil action asserting claims for defamation per se, tortious interference with existing and prospective business relationships, fraud, negligent misrepresentation and civil conspiracy. The claims arise out of an alleged shakedown scheme executed by Defendant Tiversa, Inc., a Pennsylvania corporation, ("Tiversa"), Defendant Robert J. Boback, a Pennsylvania resident, ("Boback") (collectively, "Defendants"). 1 For the following reasons, it is respectfully recommended that the Motion to Dismiss presently before the Court, filed by Defendants, ECF No. 137, be granted in part and denied in part. 1 Defendants Does 1-10 are identified in the Amended Complaint as "as-yet unidentified individuals or entities that actively participated in and/or materially benefitted from the illicit conduct detailed herein" who "will be substituted with the proper names of these individuals or entities as they become available." ECF No. 125 ~ 9. No such substitution has been made and these defendants obviously have not been served with the Amended Complaint. Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 1 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 2 of 22 II. REPORT A. FACTUAL AND PROCEDURAL BACKGROUND The instant iteration of this litigation was commenced via a Complaint filed by LabMD with this Court on January 21, 2015. ECF No. 1. On January 8, 2016, following litigation of two Motions to Dismiss that Complaint, ECF Nos. 34 and 36, Counts I, VII and VIII of the original Complaint were dismissed with prejudice. ECF No. 115. Counts II and III were dismissed with prejudice against Defendant M. Eric Johnson, who is no longer a party to this case. Id. Counts II, III, IV, V and VI were dismissed without prejudice and with leave to amend. Id. LabMD subsequently filed a Motion for Reconsideration of the January 8, 2016, Order. ECF No. 117. Following extensive briefing thereupon, the Court denied the Motion for Reconsideration, ECF No. 130, and issued a Memorandum Opinion, ECF No. 129, in which it revised its rationale for its holding as to Count I and revisited several arguments as to statutes of limitations. On February 12, 2016, LabMD filed the operative Amended Complaint. ECF No. 125. On March 11, 2016, Defendants filed the instant Motion to Dismiss and Brief in support. ECF Nos. 137-138. On April 8, 2016, LabMD filed its Brief in opposition to the Motion to Dismiss. ECF No. 144. On April 29, 2016, Defendants filed a Reply Brief. ECF No. 151. On June 2, 2016, LabMD filed a supplemental Brief in Opposition. ECF No. 157. The Motion to Dismiss is now ripe for review. The allegations in the Amended Complaint describe the shakedown scheme as one in which Defendants conspired to infiltrate LabMD's computer systems and, upon gaining access, created a data security breach in LabMD's computer files. ECF No. 125 ~ 4. Through this breach, Tiversa obtained a 1718-page file containing confidential patient health-related data ("the 2 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 2 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 3 of 22 1718 File"). Id.~ 37. With this file as proof of a breach, Tiversa then offered to sell LabMD services to remedy the breach. Id. ~ 43 When LabMD refused to purchase Tiversa's services, Defendants turned to the Federal Trade Commission ("FTC") and reported that due to LabMD's failed data security protocols, confidential patient health and personal information was disseminated on peer-to-peer2 networks for unbridled use by identity thieves. Id. ~~ 77-83. The FTC instituted an administrative action. In the Matter of LabMD, Inc., No. 9357 (F.T.C.).3 LabMD alleges that as a result of Defendants' conduct, it is now "an insolvent shell of a company." Id.~ 1. B. STANDARD OF REVIEW Federal Rule of Civil Procedure 8(a)(2) requires that a complaint contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Dismissal of a complaint or portion of a complaint is warranted under Federal Rule of Civil Procedure 12(b)(6) when a claimant fails to sufficiently state a claim upon which relief can be granted. A voiding dismissal under Rule 12(b)(6) requires that the complaint to provide "enough factual matter (taken as true)" to suggest the required elements of the claim presented while providing the defendant with fair notice of the grounds upon which the claim rests. Phillips v. County of Allegheny, 515 F. 3d 224, 233, 234 (3d Cir. 2008). The pleader must '"nudge his or her claims across the line from conceivable to plausible."' Id. (quoting Bell Atlantic Co. v. Twombly, 550 U.S. 544 at 570 (2007)). In assessing the merits of a claim subject to a motion to dismiss, a court must accept all alleged facts as true and draw all inferences gleaned therefrom in the light most favorable to the non-moving party. Phillips, 515 F. 3d at 228 (citing Worldcom, Inc. v. Graphnet, Inc., 343 F. 3d 2 Also referred to "P2P." 3 On July 29, 2016, the FTC issued a final order concluding that LabMD's data security practices were unreasonable and constituted a violation of Section 5 of the Federal Trade Commission Act. 3 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 3 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 4 of 22 651, 653 (3d Cir. 2003 )). A pleading party need not establish the elements of a prima facie case at this stage; the party must only "put forth allegations that 'raise a reasonable expectation that discovery will reveal evidence of the necessary element[s]."' Fowler v. UPMC Shadyside, 578 F. 3d 203, 213 (3d Cir. 2009) (quoting Graff v. Subbiah Cardiology Associates, Ltd., 2008 WL 2312671 (W.D. Pa. June 4, 2008)). C. DISCUSSION As to each of LabMD's claims, Defendants argue in the pending Motion to Dismiss that: (I) the claim is substantively deficient; and (2) the claim is time-barred due to the expiration of the statute of limitations. A discussion of these arguments, as necessary, for each claim follows. 1. Count II: Defamation (All Defendants) a. LabMD claims In its Amended Complaint, LabMD alleges that Defendants made 20 defamatory statements which diminished LabMD's reputation and hurt its business by casting doubt on its identity as "a business that operates legally, ethically and honestly." ECF No. 125 if 160. LabMD classifies the allegedly defamatory statements into three groups: (1) statements indicating that LabMD publicly disclosed its patients' personal health information ("PHI") and personal identifying information ("PII"), id. if 73; (2) statements regarding the source of the 1718 file, id. if 74; and (3) statements that the 1718 file proliferated to multiple places, id. if 75. LabMD refers to these categories, respectively, as "Disclosure," "Source," and "Spread." Id. ifif 73-76. b. Substantive Deficiency Under the relevant Pennsylvania statute, the elements of a defamation claim are: (a) Burden of plaintiff. -- In an action for defamation, the plaintiff has the burden of proving, when the issue is properly raised: 4 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 4 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 5 of 22 ( 1) The defamatory character of the communication. (2) Its publication by the defendant. (3) Its application to the plaintiff. ( 4) The understanding by the recipient of its defamatory meaning. (5) The understanding by the recipient of it as intended to be applied to the plaintiff. ( 6) Special harm resulting to the plaintiff from its publication. (7) Abuse of a conditionally privileged occasion. (b) Burden of defendant. -- In an action for defamation, the defendant has the burden of proving, when the issue is properly raised: (1) The truth of the defamatory communication. (2) The privileged character of the occasion on which it was published. (3) The character of the subject matter of defamatory comment as of public concern. 42 Pa. Con. Stat. § 8343. (1) Defamatory Statements 1-3 LabMD identifies Defamatory Statements 1, 2 and 3 as statements to the "following effect," respectively: (1) "LabMD had publicly disclosed patients PII and PHI;" (2) "LabMD's 1718 File was found somewhere other than on a LabMD computer;" and (3) "LabMD's 1718 File had proliferated to multiple places on peer-to-peer networks." ECF No. 125 ~ 83. LabMD alleges that these statements were made by Tiversa to FTC investigators in 2009. Id. Defendants argue: (1) these statements are not sufficiently identified; and (2) these statements are absolutely privileged under Pennsylvania law. ECF No. 138 at 27-29. LabMD disputes Defendants' interpretation of the relevant law. ECF No. 144 at 17-21. As to Defendants' first argument, that LabMD insufficiently identifies only the general topic/effect of the statements, the Court is not convinced. A plaintiff is not required to plead "the precise defamatory statements" or "specifically name the person who made the statement," as long its defamation count "provides sufficient notice to defendants." Rishell v. RR Donnelley & Sons Co., Civ. A. No. 06-4782, 2007 U.S. Dist. LEXIS 38325, *9 (E.D. Pa. May 24, 2007) 5 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 5 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 6 of 22 (citations omitted). Here, although LabMD does not allege the precise language of the alleged defamatory statements, its description of their subject provides sufficient notice to Defendants. Defendants' second argument, however, that these statements are absolutely privileged under Pennsylvania law, is convincing. Defendants argue that, because the statements are alleged to have been made to FTC investigators,4 they were absolutely privileged as statements preliminary to a judicial proceeding. ECF No. 138 at 28 (citing Pawlowski v. Smorto, 588 A.2d 36 (Pa. Super. Ct. 1991 )(explaining absolute judicial privilege and finding it applicable to private parties involved in providing information to proper authorities in investigatory stages of case)). LabMD disagrees, asserting that the privilege does not apply because the statements were not made in connection with a civil suit or in relation to a court of competent jurisdiction. ECF No. 144 at 19. However, quasi-judicial proceedings, such as those before a regulatory body like the FTC, qualify as events for which the judicial privilege applies. See Schutter v. Herskowitz, Civ. A. No. 07-3823, 2008 WL 2726921, at *13 (E.D. Pa. July 11, 2008) (finding a statement made to a regulatory body responsible for promulgating and enforcing regulations was absolutely privileged); Doe v. Wyo. Valley Health Care Sys., 987 A.2d 758, 766-67 (Pa. Super. Ct. 2009) (explaining that privilege applies in quasi-judicial proceedings). Thus, LabMD's arguments in opposition are unavailing. Because it appears that the statements made to FTC investigators were absolutely privileged, it is recommended that the portion of the Count II based on Defamatory Statements 1-3 be dismissed. (2) Defamatory Statement 4 LabMD identifies Defamatory Statement 4 as "CXOOOl 9," a document that Tiversa provided to the FTC, which was later relied upon by the FTC as evidence of wrongdoing by LabMD. ECF No. 125 ~ 103. This document identified four IP addresses at which Tiversa 4 As discussed above, the FTC did pursue action against LabMD. 6 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 6 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 7 of 22 supposedly found the 1718 File on peer-to-peer networks. Id. For the reasons set forth above in regards to Defamatory Statements 1-3, statements in this document are absolutely privileged. It is therefore recommended that the portion of the Count II based on Defamatory Statement 4 be dismissed. (3) Defamatory Statements 5-9 LabMD identifies Defamatory Statements 5-9 as the following statements published by Defendants in a May 28, 2009, press release: Tiversa today announced the findings of new research that revealed 13,185,252 breached files emanating from over 4,310,839 sources on P2P filesharing networks within a twelve month period from March 01, 2008 - March 01, 2009. (Defamatory Statement No. 5). This new data clearly demonstrates that P2P file-sharing risk is not effectively being addressed by the security protocols of Fortune 500 companies and government agencies, as these organizations commonly have exposure across the Extended Enterprise. (Defamatory Statement No. 6). Findings released in February 2009, in a collaborative research study ("Data Hemorrhages in the Health-Care Sector") between Tiversa and The Tuck School of Business at Dartmouth College highlight these same risks by focusing on the exposure rate of sensitive data in the healthcare industry. (Defamatory Statement No. 7). Over a two-week period, Dartmouth College researchers and Tiversa searched file-sharing networks for key terms associated with the top ten publicly traded health care firms in the country, and discovered a treasure trove of sensitive documents. (Defamatory Statement No. 8). Also identified was a 1,718-page document from a medical testing laboratory containing patient Social Security numbers, insurance information, and treatment codes for thousands of patients .... (Defamatory Statement No. 9). ECF No. 125 i-1130. Defendants assert that "LabMD has not and cannot plead that any recipient could understand Defamatory Statements 5-9 apply to LabMD," ECF No. 138 at 30., i.e., the fifth 7 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 7 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 8 of 22 statutory requirement set forth above. LabMD offers no response to this argument. 5 Obviously, Statements 5-9 do not identify LabMD by name. LabMD has failed to provide any factual matter to suggest how the understanding of these statements by the recipient was intended to be applied to Lab MD. Because such understanding is a required element of defamation, it is recommended that the portion of the Count II based on Defamatory Statements 5-9 be dismissed. (4) Defamatory Statements 10-14 LabMD identifies Defamatory Statements 10-14 as the following statements published by Defendants in a February 10, 2015, statement to "The Pathology Blawg": After all, we found this file in a public file sharing network that was accessible by millions of people from around the world. (Defamatory Statement No. 10). The FTC then filed a Civil Investigative Demand (CID) that forced Tiversa to comply. In compliance with the CID, Tiversa provided information on 84 companies that were breaching information and that matched the criteria of the CID. LabMD was one of those listed. (Defamatory Statement No. 11 ). Tiversa has not had a single criminal allegation alleged against us by any individual or organization in our entire 11 year history . . . . not even Daugherty or LabMD, despite the defamatory and baseless allegations of extortion, theft and fraud. One would think that if Daugherty truly believed he was the victim of an actual extortion plot, as he has suggested, he would have called the police or FBI. To my knowledge, he has not. It is my belief that he knows that if he files a false police statement, he could be prosecuted, which may be the likely reason why he has decided not to do so. (Defamatory Statement No. 12). LabMD lawsuit - The claims are baseless and completely unsubstantiated . . . . even in the complaint itself. This appears to be another attempt by Daugherty to distract people from the INDISPUTABLE FACT that LabMD and Michael Daugherty leaked customer information on nearly 10,000 patients. (Defamatory Statement No. 13). To my understanding from the deposition transcripts, LabMD had a policy against installing file sharing software. An employee at LabMD violated 5 LabMD does acknowledge Defendants' argument, but baldly asserts that it does "not defeat Plaintiffs' defamation claim." ECF No. 144 at 23. 8 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 8 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 9 of 22 that policy, which resulted in the exposure of nearly 10,000 patients['] private information. This clearly demonstrates that LabMD DID NOT adequately protect their patient's [sic] PHI/PII, which is al[l] that the FTC needs to demonstrate. Case closed. The rest of this is just a desperate attempt to distract everyone from that INDISPUTABLE FACT. (Defamatory Statement No. 14). ECF No. 125 ~ 133. Defendants assert that these statements do not constitute defamation because they are either true or are non-actionable opinions. ECF No. 138 at 30-32. Indeed, a defamation claim may be dismissed when the affirmative defense of truth is apparent on the face of a complaint. Morrison v. Chatham Univ., Civ. A. No. 16-476, 2016 U.S. Dist. LEXIS 121227, * 11-12 (W.D. Pa. Sept. 8, 2016). Further, expressions of opinion cannot support an action in defamation. Constantino v. Univ. of Pittsburgh, 766 A.2d 1265, 1270 (Pa. Super. Ct. 2001). In its response to Defendants' Motion to Dismiss on these bases, LabMD addresses only one of the statements, Defamatory Statement 13, and focuses on the phrases, "indisputable fact," and "leaked customer information." ECF No. 144 at 21-23. Thus, it appears that LabMD has conceded that Defamatory Statements 1 0-12 and 14 are not defamatory. As for Defamatory Statement 13, Defendants argue that the qualifying language, "this appears to be," renders the entire statement a non-actionable opinion. ECF No. 138 at 32. However, a fair reading of the statement reveals that the identified qualifying language does not qualify the part of the statement LabMD claims is defamatory, i.e., "the INDISPUTABLE FACT that LabMD and Michael Daugherty leaked customer information on nearly 10,000 patients." As that statement is defamatory on its face, it is recommended that the portion of the Count II based on Defamatory Statements 10-14 be dismissed only as to Defamatory Statements 10, 11, 12 and 14. It is recommended that the portion of Count II based on Defamatory Statement 13 survive. 9 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 9 of 21Case :16-cv-02480-LMM Document 77-2 Filed 10/ 16 Page 10 of 22 (5) Defamatory Statements 15-20 LabMD identifies Defamatory Statements 15-20 as the following statements published by Defendants in a letter to the editor of The Wall Street Journal, published in the December 9, 2015, edition: LabMD, a Georgia-based cancer screening company, admits its own employee mistakenly exposed the confidential medical records of nearly 10,000 individuals on the Internet. (Defamatory Statement No. 15). LabMD's CEO Michael Daugherty admits that a LabMD employee improperly installed Lime Wire file-sharing software on a company computer. Doing so made confidential patient information publicly available over the Internet. (Defamatory Statement No. 16). Using this information, LabMD discovered that it had peer-to-peer sharing software on a company computer. Without Tiversa's free information, LabMD would have never known it was continuing to publicly expose patient information. (Defamatory Statement No. 17). The suggestion that Tiversa provided information on exposed files to the Federal Trade Commission as a means ofretribution because LabMD didn't hire Ti versa is 100% false. (Defamatory Statement No. 18). In the Fall of 2009 - well over a year later - as part of its investigation into cyber leaks, the FTC issued the equivalent of a subpoena to Ti versa, which legally required us to provide information on all the breaches we found from many companies. There was absolutely no "deal" entered into between the FTC and Tiversa. It is no different than the subpoena the FTC issued on LabMD. LabMD was legally required to respond, as was Tiversa. (Defamatory Statement No. 19). As a result of this dispute, LabMD's CEO has defamed my company and made statements that are 100% wrong. (Defamatory Statement No. 20). ECF No. 125 at 35-36. Defendants assert that these statements cannot support a defamation claim because Defamatory Statements 15-17 are true, Defamatory Statement 18 cannot be understood to apply to LabMD, Defamatory Statement 19 is true and Defamatory Statement 20 is an opinion. ECF No. 138 at 32-33. LabMD offers no directly responsive argument, but rather disputes only the 10 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 10 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 11 of 22 portion of these statements wherein its patient information is characterized as "publicly available." ECF No. 144 at 23-24. Thus, it appears that LabMD has conceded that Defamatory Statements 15 and 17-20 are not defamatory. As to the remaining statement, Defamatory Statement 16, Defendants assert that LabMD admits that this statement is true. ECF No. 138 at 32. Defendants base this assertion on an allegation in the Amended Complaint wherein LabMD alleges, "The 1718 File was a victim of inadvertent file sharing," ECF No. 125 if 37. LabMD disputes the characterization of the confidential patient information as "publicly available." ECF No. 144 at 23-24. Even if such information was technically accessible via inadvertent file sharing, the argument goes, it was, at a minimum, not legally available to the public. Id. Because the meaning of "publicly available," is subject to interpretation, the Court cannot say that LabMD cannot maintain a defamation claim as to Defamatory Statement 16. Accordingly, it is recommended that the portion of the Count II based on Defamatory Statements 15-20 be dismissed only as to Defamatory Statements 15 and 17-20. It is recommended that the portion of Count II based on Defamatory Statement 16 survive. c. Statute of Limitations Defendants' assertions concerning the statute of limitations for Count II are limited to Defamatory Statements 1-9. Because it is recommended that Count II survive only as to Defamatory Statements 13 and 16, there is no need to address the statute of limitations. 2. Count III: Tortious Interference with Existing and Prospective Business Relationships (All Defendants) a. LabMD claims In Count III of the Amended Complaint, LabMD alleges, inter alia, that: 11 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 11 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 12 of 22 175. By engaging in the above described misconduct, Defendants have substantially harmed and/or seriously jeopardized LabMD's reputation and goodwill in the healthcare industry and its existing and prospective business relationships with employees, patients, providers, third party payors, insurance carriers, referral sources, and others. 176. Defendants knew or should have known that the above described misconduct would substantially harm and/or seriously jeopardize LabMD's reputation and goodwill in the healthcare industry and its existing and prospective business relationships with employees, patients, providers, third party payors, insurance carriers, referral sources, and others. ECF No. 125 ifif 175-176. b. Substantive Deficiency Pennsylvania recognizes interference with existing contractual relations and interference with prospective contractual relations as branches of the tort of interference with contract. Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 530 (3d Cir. 1998) (citing U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 925 (3d Cir. 1990)). Although they are distinct, the two types of torts share essentially the same elements. Brokerage Concepts, Inc, 140 F .3d at 529. These elements include: 1. the existence of a contractual, or prospective contractual relation between [the plaintiff] and a third party; 2. purposeful action on the part of the defendant, specifically intended to harm the existing relation, or to prevent the prospective relation from occumng; 3. The absence of a privilege or justification on the part of the defendant; 4. the occasioning of actual legal damage as a result of the defendants' conduct; and 5. for prospective contracts, a reasonable likelihood that the relationship would have occurred but for the interference of the defendant. Id. at 530 (citing Pelagatti v. Cohen, 536 A.2d 1337, 1343 (Pa. Super. Ct. 1988); Thompson Coal Co. v. Pike Coal Co., 412 A.2d 466, 471 (Pa. 1979); Birl v. Philadelphia Elec. Co., 167 A.2d 472, 474 (Pa. 1960)). 12 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 12 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 13 of 22 In the instant Motion to Dismiss, Defendants argue that these claims are substantively deficient in that LabMD fails to allege facts in support of the second requisite element of this cause of action. Defendants claim that the Amended Complaint lacks any factual allegations to show that Defendants had knowledge of the existence of the contracts allegedly interfered with or to show that Defendants took purposeful action specifically intended to harm existing relationships, or to prevent prospective relationships from occurring. ECF No. 138 at 33-34. However, in the Amended Complaint, LabMD alleges, inter alia: 142. Boback and Tiversa knew that if they, directly or indirectly, represented to any of LabMD's employees, patients, providers, third party payors, insurance carriers and referral sources that LabMD had failed to keep [personal health information] and [personal identifying information] confidential, that such representations would erode if not eradicate the confidence that employees, patients, providers, third party payors, insurance carriers and referral sources had in LabMD. 149. The False and Defamatory Statements Regarding Disclosure, Source and Spread and other misconduct were done with the specific intent to harm LabMD's existing and prospective contractual relationships. Specifically, Boback and Tiversa wanted to put LabMD out of business (1) to prevent LabMD from learning and disclosing the truth behind their False and Defamatory Statements Regarding Disclosure, Source and Spread and (2) in retribution of the fact that LabMD did not hire Ti versa, that LabMD's chief executive officer published The Devil Inside the Beltway and that LabMD disclosed and challenged Tiversa and Boback's coercive business practices. 150. Boback and Tiversa were purposeful in their actions to destroy LabMD .... Boback and Ti versa also purposely acted, as discussed above, to injure LabMD's reputation to prevent employees, third party payors, insurance carriers and other from dealing with it. ECF No. 125 i-!i-1 142, 149-150. These allegations appear to remedy the previously identified problem with this claim; however, because the only two surviving Defamatory Statements are from 2015, these statements 13 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 13 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 14 of 22 cannot be the basis for a tortious interference claim for a company that was effectively out of business by January 2014. See id.,; 145. To the extent that LabMD is also basing this claim on eight "False Statements," identified in the Amended Complaint, see id. ii 149, such basis will be addressed below in the context of the statute of limitations for this claim. Accordingly, it is recommended that the portion of Count III based on the alleged Defamatory Statements be dismissed. c. Statute of Limitations As to the remaining portion of Count III, tortious interference based on eight identified "False Statements," it is noted that each of these False Statements was made in 2008 to LabMD or an employee thereof. 6 ECF No. 125 ,;,; 43, 45, 47, 49, 51, 53, 55 and 57. The statute of limitations for tortious interference is, at most, two years. Evans v. Philadelphia Newspapers, Inc., 601 A.2d 330, 333 (Pa. Super. Ct. 1991) (explaining that gravamen for tortious interference claim controls its statute of limitations); 42 Pa. Cons. Stat. § 5524 (two-year statute of limitations for torts); 42 Pa. Cons. Stat. § 5523(1) (one-year statute of limitations for defamation). A claim based on statements made to LabMD directly in 2008 was time-barred by the filing of this January 21, 2015, action. Accordingly, it is recommended that Count III be dismissed in its entirety. 3. Count IV: Fraud (All Defendants) a. LabMD Claims Count IV of the Amended Complaint is identical to Count IV of the original Complaint.7 LabMD alleges therein that Defendants are liable for fraud. LabMD asserts that, in order to 6 It is worth noting that statements made to LabMD or its employees would be unlikely to have any effect on parties outside ofLabMD. 7 The sole difference is a relabeling of the Defendants (from "Defendants Tiversa and Boback" to "all Defendants"). ECFNo. I at 15; ECFNo. 125 at45. 14 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 14 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 15 of 22 induce it to obtain Tiversa's services, Defendants made knowingly false statements concerning how they had obtained the 1718 File and the extent to which third parties were downloading copies of the 1718 File. ECF No. 125 ~~ 181-182. LabMD further alleges that it relied on these statements to its detriment, in that it spent time and money attempting to detect and remedy phantom data breaches. Id. ~~ 184-186. b. Substantive Deficiency In the Report and Recommendation as to the original Complaint, this Court recommended that LabMD's fraud claim at Count IV be dismissed because no transaction was entered into by Tiversa and LabMD. ECF No. 70 at 11-13. In the Memorandum Order disposing of the Motions to Dismiss the original Complaint, Count IV was dismissed without prejudice and with leave to amend, explaining: While the Complaint appears to plead that any misrepresentations by Defendants were done with intent to induce Plaintiff to retain Defendant's services, no such transaction was entered into. However, the Court concludes that the alleged misrepresentation may be actionable apart from such a specific transaction if fraudulent conduct was intended to induce the Plaintiff to act to its detriment outside of a specific transaction with a Defendant, and Plaintiff thereafter acted to its detriment. However, the allegations of the Complaint are not currently so styled in light of the requirement of Federal Rule of Civil Procedure 9(b) for pleading fraud with particularity. ECF No. 115 at 2-3. LabMD did not amend the allegations in Count IV. Further, in response to the instant Motion to Dismiss, LabMD makes no argument but merely "incorporates by reference its previous responses to those arguments found at ECF No. 63 and 73." ECF No. 144 at 27. These responses were unavailing at the time they were made. To the extent they are appropriate or relevant at this point, they remain unavailing. Additionally, LabMD fails to offer any response to Defendants' statement that, in light of LabMD's failure to address Defendants' challenge to 15 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 15 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 16 of 22 these counts, "it appears that LabMD is conceding [its fraud and negligent misrepresentation] claims." ECF No. 151 at 9 n.8. However, the Court's review of the new factual allegations in the Amended Complaint reveals the following allegations. LabMD alleges that "Boback and Tiversa intended for LabMD to rely upon [multiple identified false] statements by incurring enough costs in their own investigation that they would eventually be motivated to hire Tiversa after LabMD failed to uncover the truth." ECF No. 125 ~ 66. Further, LabMD alleges that "LabMD justifiably relied on these misrepresentations by conducting an unnecessary investigation at a great cost to LabMD of time and money." Id. ~ 66. These allegations appear to cure the identified problem with the original Complaint. c. Statute of Limitations The Pennsylvania statute of limitations for fraud is two years. 42 Pa. Cons. Stat. § 5524(7). The statements and acts of fraud described in Count IV occurred in 2008. ECF No. 125 ~~ 43-66. This action was commenced on January 21, 2015. ECF No. 1. Facially, the claim is time-barred. In opposing the Motion to Dismiss, LabMD raises multiple general challenges to the application of statutes of limitations in this case, but does not address the specific statute of limitations or time frame applicable to fraud/Count IV. To the extent that LabMD relies on fraudulent concealment, ECF No. 144 at 13-17, it is clear from a reading of Lab MD' s Complaint filed in Georgia state court in October 2011, wherein LabMD alleged that "Defendant Tiversa intentionally accesse[d] LabMD's computers and networks and downloaded the 1, 718 File without authorization" and "Defendant Ti versa 16 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 16 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 17 of 22 accessed LabMD's computers and networks with the intent to extort money from LabMD," ECF No. 138-2 ~~ 106, 112, that LabMD knew of the basis for the fraud claim in 2011. To the extent that LabMD asserts that the filing of the Georgia action equitably tolled the statute for this claim, id. at 14, this Court previously determined that no tolling resulted from that action. ECF No. 129 at 4. Accordingly, because LabMD knew the significance of the 2008 statements at least in 2011, the two-year statute of limitations on its fraud claim had run by the time of this 2015 action. It is therefore recommended that Count IV be dismissed. 4. Count V: Negligent Misrepresentation (All Defendants) a. LabMD Claims Count V of the Amended Complaint is identical to Count V of the original Complaint.8 The basis for LabMD's negligent misrepresentation claims is essentially the same as the basis for its fraud claims. LabMD alleges that Defendants made statements they knew or should have known were false concerning how they had obtained the 1718 File and the extent to which third parties were downloading copies of the 1718 File. ECF No. 125 ~~ 187-194. b. Substantive Deficiency In the Report and Recommendation as to the original Complaint, this Court recommended that LabMD's negligent representation claim at Count V be dismissed because no transaction was entered into by Tiversa and LabMD. ECF No. 70 at 13-14. In the Memorandum Order disposing of the Motions to Dismiss the original Complaint, Count V was dismissed without prejudice and with leave to amend for the same reasons as noted in the ruling on Count IV. ECF No. 115 at 3. 8 The sole difference is a relabeling of the Defendants (from "Defendants Tiversa and Boback" to "all Defendants"). ECF No. 1at16; ECF No. 125 at 46. 17 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 17 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 18 of 22 LabMD did not amend Count V. Further, in response to the instant Motion to Dismiss, LabMD makes no argument but merely "incorporates by reference its previous responses to those arguments found at ECF No. 63 and 73." ECF No. 144 at 27. These responses were unavailing at the time they were made. To the extent they are appropriate or relevant at this point, they remain unavailing. Additionally, LabMD fails to offer any response to Defendants' statement that, in light of LabMD's failure to address Defendants' challenge to these counts, "it appears that LabMD is conceding [its fraud and negligent misrepresentation] claims." ECF No. 151at9n.8. However, as set forth above, the Court's review of the new factual allegations in the Amended Complaint reveals allegations which appear to cure the identified problem with the original Complaint. Specifically, LabMD alleges that "Boback and Tiversa intended for LabMD to rely upon [multiple identified false] statements by incurring enough costs in their own investigation that they would eventually be motivated to hire Tiversa after LabMD failed to uncover the truth." ECF No. 125 ~ 66. Further, LabMD alleges that "LabMD justifiably relied on these misrepresentations by conducting an unnecessary investigation at a great cost to LabMD of time and money." Id.~ 66. c. Statute of Limitations The Pennsylvania statute of limitations for negligent misrepresentation is two years. 42 Pa. Cons. Stat. § 5524(7). The statements and acts described in Count V occurred in 2008. ECF No. 125 ~~ 43-66. This action was commenced on January 21, 2015. ECF No. 1. Facially, the claim is time-barred. 18 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 18 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 19 of 22 In opposing the Motion to Dismiss, LabMD raises multiple general challenges to the application of statutes of limitations in this case, but does not address the specific statute of limitations or time frame applicable to negligent misrepresentation/Count V. To the extent that LabMD relies on fraudulent concealment, ECF No. 144 at 13-17, it is clear from a reading of LabMD's Complaint filed in Georgia state court in October 2011, wherein LabMD alleged that "Defendant Tiversa intentionally accesse[d] LabMD's computers and networks and downloaded the 1, 718 File without authorization" and "Defendant Ti versa accessed LabMD's computers and networks with the intent to extort money from LabMD," ECF No. 138-2 ~~ 106, 112, that LabMD knew of the basis for the negligent misrepresentation claim in 2011. To the extent that LabMD asserts that the filing of the Georgia action equitably tolled the statute for this claim, id. at 14, this Court previously determined that no tolling resulted from that action. ECF No. 129 at 4. Accordingly, because LabMD knew the significance of the 2008 statements at least in 2011, the two-year statute of limitations on its negligent misrepresentation claim had run by the time of this 2015 action. It is therefore recommended that Count V be dismissed. 5. Count VI: Civil Conspiracy (All Defendants) a. LabMD Claims LabMD alleges that Defendants have a common design and purpose to benefit commercially from misrepresentations about data security breaches and that they acted in concert to harm LabMD through conversion of LabMD's property,9 defamation relating to LabMD's trade and profession and interference with LabMD's business relations. ECF No. 125 ~~ 195- 201. 9 LabMD raised a conversion claim in the original Complaint which was dismissed with prejudice. ECF No. 115 at 1. The Amended Complaint contains no such claim. 19 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 19 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 20 of 22 b. Substantive Deficiency Defendants argue, inter alia, that there can be no conspiracy claim against Boback and Tiversa, because they are legally the same person. ECF No. 138 at 37. LabMD offers no response to Defendants' Motion to Dismiss this claim. As such, it is recommended that Count VI be dismissed as conceded. c. Statute of Limitations Due to the above recommendation, no analysis of the statute of limitations for this claim 1s necessary. D. CONCLUSION For the foregoing reasons, it is respectfully recommended that the Motion to Dismiss, ECF No. 137, be granted as to Count II (as to Defamatory Statements 1-12, 14-15 and 17-20), Count III, Count IV, Count V, and Count VI. It is further recommended that the Motion to Dismiss be denied as to Count II (as to Defamatory Statements 13 and 16). In accordance with the Magistrate Judges Act, 28 U.S.C. § 636(b)(l), and Local Rule 72.D.2, the parties are permitted to file written objections in accordance with the schedule established in the docket entry reflecting the filing of this Report and Recommendation. Failure to timely file objections will waive the right to appeal. Brightwell v. Lehman, 637 F.3d 187, 193 n. 7 (3d Cir. 2011 ). Any party opposing objections may file their response to the objections within fourteen (14) days thereafter in accordance with Local Civil Rule 72.D.2. Dated: October 7, 2016 MAUREEN P. K L CHIEF UNITED ST A TES MAGIST 20 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 20 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 21 of 22 cc: The Honorable Mark R. Hornak United States District Judge All Counsel of Record Via CM-ECF 21 Case 2:15-cv-00092-MRH-MPK Document 166 Filed 10/07/16 Page 21 of 21Case 1:16-cv- 2480-LM Document 77-2 Filed 10/10/16 Page 22 of 22 EXHIBIT C Case 1:16-cv-02480-LMM Document 77-3 Filed 10/10/16 Page 1 of 4 10/10/2016 LabMD's Claims Against Tiversa Mostly Fail, Judge Says - Law360 http://www.law360.com/articles/849631/print?section=health 1/3 Portfolio Media. Inc. | 111 West 19th Street, 5th floor | New York, NY 10011 | www.law360.com Phone: +1 646 783 7100 | Fax: +1 646 783 7161 | customerservice@law360.com LabMD's Claims Against Tiversa Mostly Fail, Judge Says By Allison Grande Law360, New York (October 7, 2016, 8:10 PM EDT) -- A Pennsylvania magistrate judge recommended Friday that the court nix most of a defamation and fraud suit that LabMD brought against Tiversa, which the lab claims stole a patient data file that it gave to the Federal Trade Commission, saying only allegations over a pair of purportedly defamatory statements should survive. In a 21-page report and recommendation, Chief U.S. Magistrate Judge Maureen P. Kelly weighed in on the strength of the claims that LabMD had lodged in one of the several disputes that the two parties have filed during the past five years over the exposure of a LabMD patient data file that ended up forming the basis of a heated data security enforcement action that the FTC brought against the lab in 2013. Tiversa claims it discovered the file and turned it over to the FTC after it had been publicly shared on a peer-to-peer network, while LabMD claims that the cybersecurity firm stole the file and handed it over to the regulator after LabMD refused to purchase its security services. Specifically, Magistrate Judge Kelly advised that Tiversa's motion to dismiss the lab's amended complaint be mostly granted, after identifying deficiencies with the lab's defamation, tortious interference with business relationships, fraud, negligence and civil conspiracy claims. The only claims that she recommended preserving were allegations tied to two of the 20 defamatory statements that LabMD claims that Tiversa has made in recent years that purportedly diminished the lab's reputation and hurt its business. The first statement related to Tiversa's characterization of the assertion that LabMD had leaked patient information as an "indisputable fact," while the second stemmed from a letter to the editor of the Wall Street Journal in which Tiversa claimed that LabMD's actions made confidential patient information "publicly available" over the internet. "LabMD disputes the characterization of the confidential patient information as 'publicly available,'" the magistrate judge wrote in her report. "Even if such information was technically accessible via inadvertent file sharing, the argument goes, it was, at a minimum, not legally available to the public. Because the meaning of 'publicly available' is subject to interpretation, the court cannot say that LabMD cannot maintain a defamation claim as to [this] statement." However, the magistrate found that the claims pertaining to the other 18 statements - which were allegedly made either to the FTC or the public between 2009 and 2015 and related to how the file was disclosed and how widely it was disseminated - should be nixed because they were either made to FTC investigators and therefore protected by privilege, did not identify LabMD by name, or the lab had conceded that the statements weren't defamatory by failing to respond to Tiversa's arguments defending the truth of its assertions. Magistrate Judge Kelly also found that, while LabMD had failed to make any changes to its fraud and negligent misrepresentation claims after the judge dismissed them without prejudice last year, some of the new factual allegations contained in the amended complaint about how Tiversa and its former CEO Robert Boback had used false statements to motivate the lab to hire them and how the lab spent significant resources investigating these claims "appear to cure the identified Case 1:16-cv-02480-LMM Document 77-3 Filed 10/10/16 Page 2 of 4 10/10/2016 LabMD's Claims Against Tiversa Mostly Fail, Judge Says - Law360 http://www.law360.com/articles/849631/print?section=health 2/3 problems with the original complaint." However, the magistrate judge ultimately concluded that neither claim could proceed because the statute of limitations for both allegations is two years, and LabMD had known about the cybersecurity firm's acts since at least 2011, when it filed a hacking and trespass suit against Tiversa in Georgia federal court. "It is clear from a reading of LabMD's complaint filed in Georgia state court in October 2011, wherein LabMD alleges that 'defendant Tiversa intentionally accesse[d] LabMD's computers and networks ... with the intent to extort money from LabMD,' that LabMD knew of the basis for [these claims] in 2011," the magistrate judge ruled. Timing additionally doomed LabMD's tortious interference claims, given that the only two defamatory statements that the judge found to have any merit were from 2015 - a year after LabMD had shuttered its business operations as a result of the FTC probe - and eight additional false statements that Tiversa allegedly made to the lab in 2008 fell outside the two-year statute of limitations for tortious interference, according to the ruling. LabMD CEO Michael Daugherty took the most issue with the magistrate judge's finding that the fraud and negligent misrepresentation claims were time-barred in a statement provided to Law360 Friday. "I have to admit, I'm shocked that a complaint for fraud in a Pennsylvania court regarding Pennsylvania company Tiversa's malfeasance has been dismissed because the court thinks LabMD knew about Tiversa's frauds in 2011," Daugherty said. "As we told the court, we did not know about those frauds until a whistleblower came forward in 2014. The House Oversight Committee's broad investigation led them to conclude in 2015 that Tiversa lied to both the FTC and Congress. After these disclosures, even the FTC admitted it had been lied to. I cannot explain why Pennsylvania courts keep ignoring the facts." Magistrate Judge Kelly's report and recommendation came on the same day that the judge issued a separate ruling rejecting Tiversa's bid to enjoin LabMD and Daugherty, who is not a party in the instant action, from proceeding with an expansive racketeering and fraud suit the lab filed in Georgia in July that targeted not only Tiversa but also purported co-conspirators such as the law firms Morgan Lewis & Bockius LLP and Pepper Hamilton LLP and the trustees of Dartmouth College. Tiversa had asked the Pennsylvania federal judge to block LabMD from proceeding with the Georgia dispute, which is the most recent of at least five suits that the parties have brought against each other in the two states since 2011, on the grounds that the Georgia suit was basically a duplicate of one in Pennsylvania. But LabMD countered that the Georgia complaint included dozens of parties, claims and issues that were completely distinct from the more limited Pennsylvania dispute - including the allegation that Tiversa and its co-conspirators pulled off their classic “steal, lie, threaten, retaliate” ploy against both LabMD and other Georgia-based businesses, including Coca-Cola and Papa John’s - a stance that won favor with Magistrate Judge Kelly on Friday. "Having conducted a thorough review of the filings relevant to the instant motion, this court does not find that the instant case and the 2016 case [in Georgia] are ‘truly duplicative,’ despite some overlap in subject matter and parties,” Magistrate Judge Kelly wrote, pointing to the fact that the Georgia complaint names 15 defendants and 12 causes of action, including state law claims, that are not present in the action before her in Pennsylvania. "Thankfully, the judge did not grant Tiversa’s motion to enjoin our recent Georgia action, which is where our original suit against Tiversa was filed in 2011," Daugherty added Friday. The parties have 14 days to challenge both the injunction order as well as the report and recommendation on Tiversa's motion to dismiss, according to the two opinions. Counsel for Tiversa declined to comment on the rulings Friday. Case 1:16-cv-02480-LMM Document 77-3 Filed 10/10/16 Page 3 of 4 10/10/2016 LabMD's Claims Against Tiversa Mostly Fail, Judge Says - Law360 http://www.law360.com/articles/849631/print?section=health 3/3 LabMD is represented in the Pennsylvania action by James Hawkins of James W. Hawkins LLC and Kenneth Argentieri of Duane Morris LLP. Tiversa and Boback are represented by Jarrod Shaw of McGuireWoods LLP. The cases at issue in Friday's rulings are LabMD Inc. v. Tiversa Holding Corp. et al., case number 2:15-cv-00092, in the U.S. District Court for the Western District of Pennsylvania, and Daugherty et al. v. Adams et al., case number 1:16-cv-02480, in the U.S. District Court for the Northern District of Georgia. --Editing by Kelly Duncan. All Content © 2003-2016, Portfolio Media, Inc. Case 1:16-cv-02480-LMM Document 77-3 Filed 10/10/16 Page 4 of 4
