Dismiss Big Law Malicious Prosecution Suit, Judge Recommends

A federal magistrate judge recommended the dismissal of a lawsuit that accuses Reed Smith LLP and Clark Hill PLC of using baseless lawsuits, discovery delays—and even thuggish private eyes—to help a client conceal its criminal activities.

The May 17 recommendation could bring an end to one of several high-stake lawsuits that LabMD Inc. is pursuing against cybersecurity firm Tiversa Inc. and some of the nation’s largest law firms.

LabMD claims that Tiversa hacked its computers to steal a file with cancer patient information, and then reported LabMD to federal regulators when it refused to pay for “remediation” services.

Last month, LabMD filed a lawsuit that accused former U.S. Attorney Mary Beth Buchanan and Bryan Cave Leighton Paisner LLP of trying to prevent a whistleblower from revealing Tiversa did the hacking with “FBI surveillance software” it got from Buchanan.

In this lawsuit, LabMD alleged that two other firms—Reed Smith and Clark Hill—also helped Tiversa cover up its allegedly criminal activities. The firms allegedly did so by bringing baseless defamation suits that drained LabMD’s resources, and by using private investigators to intimidate and silence the whistleblower.

But in a 12-page report, U.S. District Court Magistrate Judge Maureen P. Kelly said LabMD could not prove malicious prosecution and abuse of process claims against the law firms.

The Devil Inside the Beltway

In 2013, the FTC filed a complaint alleging a LabMD spreadsheet containing patient data was found on a peer-to-peer file-sharing network. LabMD claims Tiversa hacked the file and held it hostage to pressure LabMD to purchase “remediation” services.

This lawsuit alleges that Reed Smith and Clark Hill helped Tiversa retaliate against LabMD after the company’s founder, Michael J. Daugherty, “exposed Tiversa’s racket” in a book, The Devil Inside the Beltway.

The complaint says the law firms did so by filing “frivolous” defamation suits against LabMD, and by “suing, harassing and intimidating” Richard E. Wallace, a former Tiversa employee who blew the whistle on the company.

The complaint says Tiversa and Reed Smith also “conspire[d] with former U.S. Attorney Mary Beth Buchanan to conceal Tiversa’s illegal use of FBI surveillance software” to hack computers.

‘U R DEAD’

LabMD’s 102-page amended complaint says Reed Smith helped wage a campaign of intimidation against Wallace, who testified about Tiversa’s actions before the FTC.

The complaint says Tiversa’s founder, Robert J. Boback, “cornered Wallace in an elevator” before his FTC testimony and demanded that he lie—then pulled out a gun and threatened to harm Wallace when he refused.

The complaint says Tiversa and Reed Smith also “hired and directed” private investigators to “intimidate, harass, photograph, videotape, track, trail, antagonize, surveil and leave threatening notes for Wallace and his family.”

The complaint says Wallace found a note that read “ICU!” on his refrigerator, a note in his mailbox that read “WATCH OUT,” and a message, written in chalk on his driveway, that warned “U R DEAD.”

Essential Elements

Kelly, a magistrate judge in the U.S. District Court for the Western District of Pennsylvania, said the plaintiffs couldn’t establish an element of malicious prosecution: that the allegedly frivolous defamation suits “terminated in [their] favor.”

Tiversa voluntarily discontinued its claims, but Boback is still pursuing his in state court. That suggests there was “no imminent defeat” for Tiversa when it discontinued its claims, Kelly said.

Kelly said the plaintiffs also failed to show an essential element of abuse of process: that they were harmed by the defendants’ alleged perversion of the legal system.

“Plaintiffs’ conclusory allegation that they ‘were harmed’ as the result of Defendants’ conduct in a pending state court case in which discovery has not been completed is obviously insufficient,” Kelly wrote.

James W. Hawkins, Alpharetta, Ga., represented the plaintiffs.

Dickie, McCamey & Chilcote P.C. represented Tiversa; DeForest Koscelnik Yokitis Skinner & Berardinelli represented Boback and Clark Hill; Babst, Calland, Clements & Zomnir P.C. represented Reed Smith.

The case is LabMD, Inc. v. Tiversa Holding Corp., 2018 BL 177467, W.D. Pa., No. 17-1365, 5/17/18.

To contact the reporter on this story: Samson Habte in Washington at shabte@bloomberglaw.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bloomberglaw.com