LabMD, Inc v. Tiversa Holding Corp, No. 20-1732 (3d Cir. 2022)
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In 2008, Tiversa, a cybersecurity company, informed LabMD, a medical testing business, that it had found LabMD’s confidential patient information circulating in cyberspace and that it could help LabMD respond to the data leak. LabMD’s own investigation revealed no leak. LabMD accused Tiversa of illegally accessing the patient information. Tiversa submitted a tip to the FTC, prompting an investigation. The FTC enforcement action and the reputational damage ruined LabMD. In 2014, a former Tiversa employee disclosed that the patient information did not spread from a leak but that Tiversa had accessed LabMD’s computer files and fabricated evidence of a leak.
LabMD sued. In one suit, the district court dismissed claims of defamation and fraud after prohibiting the discovery or use of expert testimony. After finding that LabMD and its counsel breached those discovery limits, the court awarded fees and costs to the defendants, struck almost all of LabMD’s testimonial evidence, and revoked its counsel’s pro hac vice admission. When LabMD’s replacement counsel later tried to withdraw, the court denied that request. LabMD failed to pay the monetary sanctions; the Court held it in contempt. The second lawsuit, asserting similar fraud claims, was dismissed.
The Third Circuit vacated in part. The prohibition on expert testimony was unwarranted; the court abused its discretion in imposing sanctions and erred in denying the motion to withdraw. LabMD’s other claims, in that case, were properly dismissed. In the second case, the court affirmed; LabMD did not challenge independently sufficient grounds for the decision.
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