Michael J. Daugherty v. United States

• Court: Court of Appeals for the Eleventh Circuit
• Decided: September 29, 2023
• Docket: 23-11428
• Status: Unpublished

Opinion

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[DO NOT PUBLISH] In the United States Court of Appeals For the Eleventh Circuit

____________________

No. 23-11428 Non-Argument Calendar ____________________

MICHAEL J. DAUGHERTY, Plaintiff-Appellant, versus FEDERAL TRADE COMMISSION,

Defendant,

UNITED STATES OF AMERICA,

Defendant-Appellee.

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Appeals from the United States District Court for the Northern District of Georgia D.C. Docket No. 1:21-cv-03526-MLB ____________________

No. 23-11431 Non-Argument Calendar ____________________

LABMD, INC., Plaintiff-Appellant, versus FEDERAL TRADE COMMISSION,

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23-11428 Opinion of the Court 3

Appeals from the United States District Court for the Northern District of Georgia D.C. Docket No. 1:21-cv-03525-MLB ____________________

Before WILSON, NEWSOM, and BRASHER, Circuit Judges. PER CURIAM: Michael Daugherty and his company, LabMD, are suing the United States for allegedly forcing the closure of the business with a fraudulent civil enforcement. The district court dismissed for lack of subject-matter jurisdiction. Because Daugherty’s and LabMD’s suits are based on alleged acts of misrepresentation and deceit by the government, the Federal Tort Claims Act preserves the United States’s sovereign immunity. As a result, the district court correctly held that it lacked jurisdiction. So we affirm. I.

Daugherty was the sole owner and chief executive officer of LabMD, a former cancer detection laboratory. Daugherty and LabMD say that, sometime before 2007, a U.S. Attorney hired a company called Tiversa to help the FBI investigate child pornogra- phy. As part of this partnership, law enforcement gave Tiversa ac- cess to a powerful program that allowed it to search peer-to-peer networks. But Tiversa abused it. Apparently, Tiversa used the pro- gram to steal private information from companies, make it seem like the information had been published in a breach, and then USCA11 Case: 23-11428 Document: 27-1 Date Filed: 09/29/2023 Page: 4 of 7

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persuade those companies to hire Tiversa to bolster their cyberse- curity. In short, extortion. One of Tiversa’s victims was LabMD. In 2008, Tiversa stole a file containing confidential patient information. Then Tiversa told LabMD that the information had been published online. LabMD did not take the bait. So Tiversa gave the information to the Federal Trade Commission, saying LabMD suffered a data breach. The FTC began inquiring. After LabMD continued to insist no such breach occurred, the FTC contemplated a civil enforce- ment action. As part of the action, an FTC attorney apparently told Tiversa that they needed proof that this data spread online. So Tiversa manufactured it, based on instructions that an FTC attor- ney allegedly provided. The FTC then publicly pursued the en- forcement action against LabMD. It failed. But enduring the en- forcement action took a financial toll, and LabMD had to cease do- ing business. Later, Dougherty and LabMD filed administrative com- plaints with the FTC. When that failed, they sued the FTC attorney and the U.S. Attorney, to no avail. Then they sued the United States under the FTCA, alleging negligence and negligence per se. Daugherty and LabMD have since conceded that some of their claims fail. But they still contend that part of their negligence per se claim, rooted in theories they argue are analogous to trespass and conversion, survives. The district court dismissed their com- plaints for lack of subject-matter jurisdiction. These timely appeals followed, which we consolidated. USCA11 Case: 23-11428 Document: 27-1 Date Filed: 09/29/2023 Page: 5 of 7

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II.

We have an ongoing obligation to satisfy our jurisdiction and may raise any jurisdictional issue sua sponte. AT&T Mobility, LLC v. Nat’l Ass’n for Stock Car Auto Racing, Inc., 494 F.3d 1356, 1360 (11th Cir. 2007). We review jurisdictional issues de novo. Id. III.

As a sovereign, the United States enjoys immunity from suit. Zelaya v. United States, 781 F.3d 1315, 1321 (11th Cir. 2015) (citing Christian Coal. of Fla., Inc. v. United States, 662 F.3d 1182, 1188 (11th Cir. 2011)). But a sovereign can consent to shed its immunity. Id. Without such a waiver of immunity, though, we have no subject- matter jurisdiction to hear a case against the United States. Id. (cit- ing F.D.I.C. v. Meyer, 510 U.S. 471, 475–76 (1994)). Through the Federal Tort Claims Act, the United States gen- erally waived its immunity from suits in tort. Millbrook v. United States, 569 U.S. 50, 52 (2013) (citing Levin v. United States, 568 U.S. 503, 506 (2013)). But it kept its immunity against, among others, suits arising out of certain intentional torts, including misrepresen- tation and deceit. See id. Therefore, if a plaintiff’s injury is based on misrepresentation or deceit, the government is immune. See Ze- laya, 781 F.3d at 1334. But if a plaintiff alleges an injury he suffered independent of the misrepresentation or deceit, the government is not immune. See Block v. Neal, 460 U.S. 289, 296–97 (1983). For misrepresentation, we ask “whether the essence of the claim involves the government’s failure to use due care in USCA11 Case: 23-11428 Document: 27-1 Date Filed: 09/29/2023 Page: 6 of 7

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obtaining and communicating information.” JBP Acquisitions, LP v. United States ex rel. F.D.I.C., 224 F.3d 1260, 1264 (11th Cir. 2000) (ci- tations omitted). The test for deceit, meanwhile, is whether the es- sence of the claim involves intentionally false representations on the part of the government. See United States v. Neustadt, 366 U.S. 696, 707 (1961). Daugherty and LabMD’s injuries are based on misrepresen- tation and deceit. Daugherty and LabMD say that enduring the FTC’s enforcement action shuttered the business. Those injuries are a direct result of the FTC publicly claiming LabMD suffered a breach and pursuing an enforcement action based on allegedly fraudulent evidence, without disclosing that the evidence was fraudulent. Daugherty and LabMD fail to allege any injury independent of misrepresentation and deceit. They point to no allegations in their complaint that they suffered an injury caused by the trespass and conversion of their data. They do note that the trespass and conversion of their data happened before the FTC’s misrepresen- tations. And thus, they argue, their claims for trespass and conver- sion are independent of the later misrepresentations by the FTC. However, we do not accept such “theoretical” distinctions when, based on the allegations, the actual underlying injuries were caused by the government’s misrepresentations. See Metz v. United States, 788 F.2d 1528, 1535 (11th Cir. 1986); see Zelaya, 781 F.3d at 1336– 38. USCA11 Case: 23-11428 Document: 27-1 Date Filed: 09/29/2023 Page: 7 of 7

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As the district court pointed out, in the absence of the later misrepresentation and deceit, Daugherty and LabMD would have suffered no injury, at least based on their alleged facts. Nobody would have heard about any breach, and their business likely would have continued as usual. Based on the complaint, the alleged trespass and conversion caused no injury independent of the al- leged misrepresentation and deceit. LabMD did not lose access to its patient files nor were those files damaged. Daugherty and LabMD’s alleged injury—the closure of the business—is directly at- tributable to the government’s misrepresentations and deceit, not the trespass and conversion. Because the essence of this appeal arises out of misrepresen- tation and deceit by the government, the FTCA preserves the sov- ereign immunity of the United States against the suit. As a result, the district court was correct that it has no subject-matter jurisdic- tion here. IV.

For the above reasons, we AFFIRM.