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Judge Hits Pause Button on LabMD’s Hacking Cover-Up Suit Against Former U.S. Attorney

A federal judge in New York has dismissed LabMD’s lawsuit against a former United States Attorney – which charged her with ethics violations and engaging in a cover-up over her role in an U.S. Federal Trade Commission data security enforcement action – on jurisdictional grounds.

U.S. District Judge J. Paul Oetken dismissed the lawsuit without prejudice because LabMD did not adequately plead subject matter jurisdiction. It’s likely the case will be refiled in state court.

As this blog first reported, LabMD sued the former U.S. Attorney for the Western District of Pennsylvania for alleged violations of the Ethics in Government Act. The 27-page complaint, filed in early May, accused Mary Beth Buchanan and her law firm of participating in the LabMD enforcement action as counsel to a whistleblower, Richard E. Wallace, even though – the complaint charges – she participated “personally and substantially” in the case while the U.S. Attorney.

The complaint alleges that Buchanan authorized the FBI “to install a dedicated DSL line in Wallace’s home office … to access and use FBI proprietary surveillance software and equipment to search and seize evidence from the computers of child pornographers.” LabMD claims that “Wallace used the FBI surveillance software … authorized by Buchanan …. to search for, access and download from a LabMD billing computer … a 1,718-page LabMD file containing confidential health information.” That file is the basis of the FTC’s data security enforcement action against LabMD.  Wallace was then the director of special operations for Tiversa Inc., a cybersecurity forensics firm.

The LabMD complaint further alleges that Buchanan was eventually retained by Wallace to represent him in the FTC action and the former U.S. attorney and her firm “direct[ed] Wallace not to testify about his prior work with Buchanan, and in particular, not to disclose his use of the FBI surveillance software and equipment authorized by Buchanan to hack into and take from a computer … a [LabMD] file containing confidential information on over 9,000 patients.”

The Ethics in Government Act – passed after the Watergate scandal – places restrictions on former government officials and either prohibits or restricts their participation in matters in which they were involved while in the government.

The LabMD case dates back to 2010 when the Commission began investigating the Atlanta-based cancer detection lab’s data security practices. After years of contentious back-and-forth, an administrative law judge eventually dismissed the FTC’s case for want of proof.  The Commission reversed and reinstated the case. LabMD appealed to the U.S. Court of Appeals for the Eleventh Circuit. The matter was argued last June and a decision is expected soon. We have covered the LabMD case extensively on this blog.