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Labmd, Inc. v. Tiversa Holding Corp.

United States District Court, W.D. Pennsylvania

March 17, 2015

LABMD, INC., Plaintiff,


MAUREEN P. KELLY, Chief Magistrate Judge.


In a new chapter of the ongoing litigation between the parties, [1] Plaintiff LabMD, Inc., a Georgia corporation ("LabMD") has filed this civil action stating claims for conversion, defamation, interference with business relations, fraud, negligent misrepresentation, conspiracy and a claim for the violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c).

Plaintiff's claims arise out of an alleged shakedown scheme, whereby Defendant Tiversa, Inc., a Pennsylvania corporation, ("Tiversa"), Defendant Robert J. Boback, a Pennsylvania resident ("Boback"), and Defendant M. Eric Johnson, a New Hampshire resident ("Johnson") conspired to infiltrate LabMD's computer systems and, upon gaining access, created a data security breach in LabMD's confidential patient health-related computer files. Tiversa then offered to sell LabMD services to remedy the security breach that Tiversa created. When LabMD refused to purchase Defendant Tiversa's services, Defendants turned to the Federal Trade Commission and reported that due to LabMD's failed data security protocols, confidential patient health and personal information was disseminated on peer to peer networks, for unbridled use by identity thieves. Tiversa informed the FTC that its analysis of LabMD's data security led it to conclude that LabMD was in violation of federal privacy rules and regulations.

LabMD alleges that as a result of Defendants' conduct, the Federal Trade Commission initiated a public and wide-ranging investigation, leaving LabMD "an insolvent shell of a company." LabMD further alleges that an ongoing investigation by the United States House of Representatives Committee on Oversight and Governmental Reform revealed that Tiversa inaccurately provided information to the Federal Trade Commission, and that Tiversa benefitted commercially from federal investigations of several companies that were initiated upon Tiversa's reports of security data breaches. This revelation appears predicated upon statements allegedly made a former Tiversa employee. (ECF No. 1, ¶ 31). It would further appear that at least one former Tiversa employee has been provided a grant of immunity by the United States Attorney General, and is expected to testify in the coming weeks before the Federal Trade Commission, in its pending action against LabMD. In the Matter of LabMD, Inc., No. 9357, 2014 WL 7495797 (F.T.C.) (Dec. 29, 2014).

Having recognized the history between LabMD and Tiversa, the Court now addresses two pending motions. The first is a Motion to Modify Docketing of Errata at ECF 18 and 19 filed by Tiversa (ECF Nos. 21, 23), and the second is a Motion for Disclosure of Plaintiff's Original RICO statement and co-Defendant's Unredacted Motion to Modify by M. Eric Johnson (ECF No. 26).

On February 18, 2015, pursuant to Local Rule 7.1B, LabMD filed its "RICO Case Statement, " setting forth with specificity the facts underlying its RICO related claims against each of the Defendants. ECF No. 18. Plaintiff attached Exhibit P to the RICO Case Statement, which is a publicly available Order of Chief Administrative Law Judge D. Michael Chappell. Also attached to the RICO Case Statement, at Exhibit Q, is an executed fact-laden Affidavit, dated April 17, 2014.

Several hours after LabMD filed the RICO Case Statement, an "Errata" containing an amended version of the RICO Case Statement was filed on the docket at ECF No. 19. The amendment removes any reference to the contents of Exhibits P and Q, and indicates that the documents have been "Removed." The docket entry further states: "Reason for Correction: Inadvertent filing of privileged draft." An entry by a Clerk's Office staff member notes that ECF No. 18 has been removed from public view. In pertinent part, the Errata is an amended version of the RICO Case Statement and appears to revise LabMD's allegations as to how and when it learned of Defendants' alleged fraudulent concealment.

Later that day, counsel for LabMD wrote a letter to counsel for Defendants, stating that in accordance with the notification requirements of Rule 26(b)(5)(B) of the Federal Rules of Civil Procedure, counsel was reporting an inadvertent disclosure of privileged matter which was filed on the docket at ECF No. 18, and that upon notification to the Court of the inadvertent filing, the privileged draft was removed and "timely replaced with the final filed version." (ECF No. 24-2). Plaintiff's counsel requested that any copies accessed by Defendants be destroyed.

Counsel for Tiversa responded, requesting the legal basis for LabMD's assertion of privilege, and noting that the cited Federal Rule of Civil Procedure pertains to discovery materials, which on its face, would not apply to the retracted documents. (ECF No. 24-3). Counsel for LabMD replied, expressing disappointment in the lack of "professional courtesy, " and claiming that the draft RICO Case Statement is not a pleading, but is required by LR 7.1B as "another mandatory Initial Disclosure under Fed.R.Civ.P. 26(a)(1)." Citing Fed.R.Evid. 502(b) and Rule 4.4(b) of the Model Rules of Professional Conduct as adopted in Pennsylvania, counsel claimed the documents are attorney work-product, and also claiming that the documents include "information that was provided in confidence by Plaintiff to its counsel for purposes of this representation." (ECF No. 24-4). The correspondence between counsel reveals the anticipated necessity for resort to this Court to resolve the issue.

Subsequently, a telephone call was received at the Chambers of the undersigned from counsel for Tiversa, requesting a conference addressing the removal of the original RICO Case Statement as well as Exhibits P and Q. Counsel was instructed to file the pending Motion to Modify the Docket, and was provided a briefing schedule, which was also communicated to counsel for LabMD by telephone.

Given the absence of a Motion to Seal pursuant to Standing Order 2:05-mc-45 of the United States District Court for the Western District of Pennsylvania and/or a related Order, Chambers' staff contacted the Clerk's Office to determine how the documents at ECF No. 18 came to be removed from public view. It was reported that a secretary for LabMD's local counsel contacted the Clerk's Office and stated that she had inadvertently filed a draft of the RICO Case Statement. She requested that she be permitted to file the correct version, which omitted Exhibits P and Q, and any references thereto. She also requested that the originally filed version be removed from public view. The Clerk's Office honored the request, and the documents were sealed and removed from public view. The Court notes that LabMD is presumed to have knowledge of the procedures for sealing documents filed of record as implemented through the Local Rules for the United States District Court for the Western District of Pennsylvania, given that LabMD has previously filed appropriate motions. See e.g. No. 13-1296, ECF No. 54.

On February 26, 2015, Tiversa and Boback filed an "Unopposed Motion for Leave to File Under Seal." (ECF No. 20). The Motion explained the procedural irregularity at issue as well as LabMD's position that the originally filed RICO Case Statement and Exhibits P and Q were privileged and/or subject to protection afforded by the attorney work-product doctrine. The Motion explained that Tiversa intended to file a Motion to Modify Docketing of ECF No. 18 and 19 to strike the Errata or, in the alternative, to compel production of the redacted documents.

Upon the granting of Tiversa's Motion for Leave to File Under Seal (Text Order dated February 27, 2015), Tiversa and Boback filed the pending motion (ECF No. 23) and brief in support (ECF No. 24). On March 5, 2015, counsel for M. Eric Johnson entered his appearance and filed a "Motion for Disclosure of Plaintiff's Original RICO Statement and co-Defendant's Unredacted Motion to ...

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