If Righthaven Declares Bankruptcy, Expect Lawyers To Go After Stephens Media, Media News, And Righthaven Principals

from the limited-liability? dept

Mon, Sep 19th 2011 6:58pm — Mike Masnick

There are lots of rumors swirling about a possible Righthaven bankruptcy, but that doesn't seem to worry those pushing for class action lawsuits against the company. Lawyer Todd Kincannon, whose been leading the charge against Righthaven on that front, apparently told law professor Eric Johnson that he'll keep going after other parties:

�I always knew Righthaven would file bankruptcy if things got rough,� Kincannon told me by e-mail. �They were set up as a limited liability company just so they could do that. Fortunately, Stephens Media, MediaNews Group, Sherman Frederick, Steve Gibson, and Dickinson Wright all seem to have plenty of money.�

Of course, Righthaven, being a limited liability company, may make that more difficult. And as awful a company as I think Righthaven has been, I'm a bit wary of breaking down the walls of a limited liability company. If it can be shown that Righthaven was set up by folks knowing that the effort was fraudulent, and that the sole purpose of Righthaven was to protect those who knew that what they were doing was illegal, that may open the window for pursuing other parties further. But, if they honestly believed that this was a legit operation and setup, I'm really not convinced that the pursuit should go beyond Righthaven -- especially to folks like Steve Gibson. I could see going after Stephens Media and MediaNews Group as one could argue they were really the driving forces behind the lawsuits. But taking on individuals seems like going too far.

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Filed Under: bankruptcy, corporate veil, todd kincannon
Companies: medianews, righthaven, stephens media

59 Comments

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ChurchHatesTucker (profile), 19 Sep 2011 @ 7:08pm

Deep Pockets
I'm past caring. If everyone else has to worry about secondary liability, why not Steve Gibson?

Seriously, make this crap as toxic as you can. Maybe that'll warn off others trying for the easy bucks.
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Anonymous Coward, 19 Sep 2011 @ 7:11pm

"But taking on individuals seems like going too far."

Why, simply because we have come accustomed to allowing individuals acting as 'businesses' to get away with things that they would never get away with acting as individuals.
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Bill W (profile), 19 Sep 2011 @ 7:14pm

No sympathy
If Steve G knew this was a shakedown then he should suffer a takedown.

Period.
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iamtheky (profile), 19 Sep 2011 @ 7:14pm

I say every person in the operation is liable. In your preferred scenario they have paid each other with all the money collected, declared bankruptcy, and walked. In my hopes, they all have individually named class action lawsuits; and each catch all the hell they imposed.
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Richard the Weasel-Hearted, 19 Sep 2011 @ 7:15pm

Principals, not Principles
I'm pretty sure Righthaven doesn't have any principles...
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Spaceboy (profile), 19 Sep 2011 @ 7:18pm

Re:
Why would it matter if they knew it was illegal or not? The companies involved set it up to limit their own liability in case something backfired. Then they only transferred the ability to sue to Righthaven, and nothing else. This has been proven. This makes the whole Righthaven setup illegal.
Ignorance of the law is no excuse.

Go after them all.
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out_of_the_blue, 19 Sep 2011 @ 7:24pm

Boy, you always pull your punches on corporations, Mike.
After milking this for over a year, I suppose you feel kind of grateful for all the posts, but these gangster/lawyers really need to be punished proportionally to what they tried to inflict on others, without merit. -- I'm for doing away entirely with this "limited liability" crap, it only shields criminals.

"Righthaven Principles"? -- Those can't be worth much.
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Scote, 19 Sep 2011 @ 7:35pm

No double standards.
"But, if they honestly believed that this was a legit operation and setup, I'm really not convinced that the pursuit should go beyond Righthaven"

Please, no double standards for liability Mike. Right haven sued individuals for $150,000 plus their web domain. Individuals can't claim the protections Righthaven set up for itself. Right haven has balked at paying even the smaller judgments against it and claims that paying 34,000 would risk bankruptcy. They shouldn't get to have it both ways, where they never have to pay out anything because of the likey underfunded, assets shifted LLC but they ruthlessly prosecute vulnerable individuals, including the ill and mentally challenged for high dollar amounts.

Righthaven's principles and their conspirators should be individually liable for the consequences of their deliberate actions.
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Righthaven Victims, 19 Sep 2011 @ 7:44pm

I remind you of the delightful fable, "The Wolf and the Lamb" (Townsend's translation)
http://en.wikisource.org/wiki/The_Wolf_and_the_Lamb
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That Anonymous Coward (profile), 19 Sep 2011 @ 8:02pm

The people who were the beneficiaries of the lawsuits, should have to return those funds to Rightshaven so they can be returned to the people Rightshaven wronged.
They played fast and loose with the law and committed fraud upon the court by not owning what they claimed to own. The individuals created a company to collect the money and then take the fall when it all went south, this is a premeditated act.
The willfully abused the law to create lawsuits in which Rightshaven had no standing at all, but was a paper tiger to do the dirty work and collect the money.

I think everyone involved with Rightshaven should have their assets frozen until every penny can be accounted for and returned to the people they ripped off. Rightshaven should be seized and every document should be examined to show exactly how rotten the apple was, then based on that charges and liability should be pressed against the companies and possibly the owners of those companies depending on what the review of records reveals.

They stood and claimed copyright was so very important, and then successfully twisted the law in a scheme to net "free money" where they did not own the copyright. They did an end run around the process set out by law, and went right to suing for much more than they could possibly get. This is not people being lead astray, this is people trying to get as much as they can in a quasilegal way.
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Spointman (profile), 19 Sep 2011 @ 8:07pm

Hah! I called it earlier today. =)
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Bergman (profile), 19 Sep 2011 @ 8:29pm

This sort of thing seems to be almost exactly what the RICO Act was made for.
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Trails (profile), 19 Sep 2011 @ 9:00pm

Not sure I agree
While the protections offered by a LLC are useful, when an org is setup to shake people down, knowing full well that it's nothing more than an extortion operation, sorry, I disagree. These guys should face personal repercussions. The people they've extorted have certainly had to deal with deep personal impacts as a result of this unconscionable behaviour.
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ken (profile), 19 Sep 2011 @ 9:16pm

I support Todd Kincannon
Limited liability only protects individuals from being held personally accountable for a failed business. It does not protect illegal activities. Steve Gibson and others must be held personally responsible for what they have done.

I support what Todd Kincannon is doing. Righthaven needs to be held as an example so other would be scam artists and trolls will think twice about ever attempting something similar again.
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ken (profile), 19 Sep 2011 @ 9:18pm

I support Todd Kincannon
Limited liability only protects individuals from being held personally accountable for a failed business. It does not protect illegal activities. Steve Gibson and others must be held personally responsible for what they have done.

I support what Todd Kincannon is doing. Righthaven needs to be held as an example so other would be scam artists and trolls will think twice about ever attempting something similar again.
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Justin (profile), 19 Sep 2011 @ 9:21pm

No, Corps and LLCs can not make these types of decisions, there is always a person behind the choice. We need to stop letting people hide behind the company badge and punish them, else they are just going to do it again and again.
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mrharrysan, 19 Sep 2011 @ 9:34pm

Mike, I believe the proper usage you are looking for is "principals"...

noun
4.a chief or head.
5.the head or director of a school or, especially in England, a college.
6.a person who takes a leading part in any activity, as a play; chief actor or doer.
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Anonymous Coward, 19 Sep 2011 @ 9:35pm

Gibson owns expensive house. Honestly earned? He can and should pay.

The pictures of his house:

http://lasvegasnewspaper.blog.com/gibsonshome/
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Rich Fiscus (profile), 19 Sep 2011 @ 9:49pm

Here's why I think you're wrong on this one Mike. It's a point I've made here before. Despite all their supposed professional duties, we hold lawyers to a ridiculously low standard we would never accept for an MD, CPA, or equivalent professional.

While it's true we need to allow some leeway when it comes to using an unusual or downright strange legal theory, if there is significant caselaw showing an issue is already decided, which there is when it comes to transferring copyrights, a lawyer should have a professional duty not to mislead the court by suggesting there isn't. Otherwise the legal system is a farce in which a party with the funds to pay a lawyer to make specious arguments for a few months or years has a decided advantage over the average person.

What Gibson did in setting up Righthaven was equivalent to an accountant trying to write off hookers and blow on a client's tax return. He could argue about his theories on tax law all he wants, but in the end he's held responsible for what he should know. Gibson should be held to the same standard. If he didn't know the copyright assignments weren't valid, as a lawyer he has a duty to do the basic research which would have made it clear. Either it was fraud or failure to meet his basic responsibilities. In either case he should be punished.
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Ed C., 19 Sep 2011 @ 10:02pm

Re:
Yep, just like those "investment capitalist" on Wall St.
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The eejit (profile), 19 Sep 2011 @ 11:03pm

Re: Re:
No, those weren't investment capitalists, they were charlatans, shysters and grifters...with other people's money.
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Angry Puppy (profile), 19 Sep 2011 @ 11:18pm

Re: I support Todd Kincannon
I'm not so sure any person will be convicted of any crime. The US system is designed to allow almost any activity by a corporation with no consequences to those in charge.

A good example is General Electric's long history of bribes, fraud, and corruption including the Pittsfield operation's 40 years of dumping an estimated 500,000 to 1.5 million pounds of PCB-saturated insulating oil into the Hudson river. No one individual has been convicted, jailed, or fined for anything.
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Jay (profile), 19 Sep 2011 @ 11:21pm

Re: No double standards.
While I agree... Somehow this seems to set a bad example. Whatever happens with RH, this may weaken third party liability in other circumstances, such as the lawsuit with mwith mp3 tunes. Do we really want to weaken llc rules because one company abused them?

It's somewhat conflicting when you consider it...
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Jay (profile), 19 Sep 2011 @ 11:21pm

Re: No double standards.
While I agree... Somehow this seems to set a bad example. Whatever happens with RH, this may weaken third party liability in other circumstances, such as the lawsuit with mwith mp3 tunes. Do we really want to weaken llc rules because one company abused them?

It's somewhat conflicting when you consider it...
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Anonymous Coward, 19 Sep 2011 @ 11:51pm

""But taking on individuals seems like going too far.""

Wow, could the masnik have flip flopped faster, doesnt he "hate" those people sueing folks for "downloading" songs and talks about how bad making them pay $675,000 per song is, and now this, he feels the "individuals" behind the company set up shouldn't be sued for what they allowed to happen, hypocrite much????
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Bob Dowling (profile), 20 Sep 2011 @ 12:04am

Limitation of liability may not apply
The reason LLCs put LLC after their names is to inform principals choosing to enter contract with them that they are protected by liability limitations. If I choose to buy a fridge from an LLC and it goes BK after taking my money I know that I have a low chance of getting my money back. And I knew that when I chose to give them my money.

Righthaven went after people without giving them any choice. The sued parties never had an option of "shall I be sued by an LLC or another sort of company". I think the limitation of liability may not apply here.

(Certainly I think it should not apply but that's just me.)
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Mike Masnick (profile), 20 Sep 2011 @ 12:15am

Re:
I say every person in the operation is liable. In your preferred scenario they have paid each other with all the money collected, declared bankruptcy, and walked. In my hopes, they all have individually named class action lawsuits; and each catch all the hell they imposed

Do you also think that the guys who founded Napster should be personally liable for what Napster was found guilty of?
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The eejit (profile), 20 Sep 2011 @ 12:27am

Re: Re:
I would counter that Napster didn't do anything against the law. Stephens Media attempted to circumvent the legal process in order to extort money from people, which is actually a criminal offense.
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The eejit (profile), 20 Sep 2011 @ 12:29am

Re:
I think you missed the part where Righthaven is an LLC, whereas Thomas-Rasset is an individual.

But let's not let a simple thing like facts get in the way of an attack on Mike.
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Still and anonymous coward, 20 Sep 2011 @ 12:31am

I say we go after then for some massive values, completely destroy their companies and personal lives and get some nice headlines in the news.

After that people are surely less likely to do it in the future.

:D
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Beech, 20 Sep 2011 @ 1:24am

So, if I want to mug someone, but want to get away with it, I can form an LLC company called "Mughaven," and hire people to beat and rob people in the streets. Then, when someone inevitably sues, I can just say, "Well, I didn't KNOW mugging was wrong!" and walk away unscathed?

Even in a case where the "crime" is more grey than that, if you use the guise of a company to break the law, yes, you should be held accountable for that. The guys from napster? Sure they should be held liable. What about the guys in charge of BP, should they be held liable for the oil spill? I'd say so. In fact, it would be one of the better ways to keep companies accountable if every time they did something horribly wrong the fines and fees came out of the CEOs pocket. Then they'd be a lot more careful about making decisions.
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Anonymous Coward, 20 Sep 2011 @ 1:55am

LLC's will be outlawed when pirates start using them, relax people.
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G Thompson (profile), 20 Sep 2011 @ 1:57am

Were Righthaven taking civil legal action with enough monies held in a Trust (escrow) to cover contingencies up to and including having a case go against them with prejudice?

IF not then that is basically the same as knowingly trading whilst insolvent, knowingly accruing debts that you knowingly can not repay. We call that fraud, and any directors, whether they are other companies or individuals/partners/directors can be held personally and also vicariously liable for any debts.

That's my take on the matter, and personally I couldn't think of a more fitting punishment since they have brought both themselves and the courts into disrepute, also I think at a minimum professional development classes in fundamental ethics should be given to the lawyers involved on Righthaven's side.
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Mike Masnick (profile), 20 Sep 2011 @ 2:03am

Re: Re: Re:
I would counter that Napster didn't do anything against the law.

The record labels and the courts would disagree with you. Which is the point. We can't just pierce the corporate veil when we don't like the actions of one company, if you're not willing to accept it when you think that the company's actions are ok.
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Mike Masnick (profile), 20 Sep 2011 @ 2:04am

Re: No double standards.
Righthaven's principles and their conspirators should be individually liable for the consequences of their deliberate actions

Same question as above. Should Napster's founders be liable for what Napster was eventually found guilty of doing?
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The eejit (profile), 20 Sep 2011 @ 2:58am

Re: Re: Re: Re:
Okay, then - I amend it to criminal law. As far as I can tell, no-one in Napster served jailtime at the time Napster closed. Righthaven (and by extension, Stephens Media) are deliberately trying to piss off judges by attempting to end-run around the legal processes in place for civil proceedings in order to obtain monies by deception.

If that isn't a criminal activity, then I have no clue what is.
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The eejit (profile), 20 Sep 2011 @ 3:00am

Re:
Doesn't one of the states involved have Death by lethal injection? I think that might be more apropos to these freetarding leeches.
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Prisoner 201, 20 Sep 2011 @ 3:12am

Re: Re:
Facts get in the way of a lot of stuff. I'm thinking we may have to buy some legislation to do away with facts.

It's for the best, really. Think of the children.
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Mike Masnick (profile), 20 Sep 2011 @ 3:28am

Re: Re: Re: Re: Re:
Okay, then - I amend it to criminal law. As far as I can tell, no-one in Napster served jailtime at the time Napster closed. Righthaven (and by extension, Stephens Media) are deliberately trying to piss off judges by attempting to end-run around the legal processes in place for civil proceedings in order to obtain monies by deception.

Have any criminal charges been filed? Until such time as they're found guilty of criminal conduct, I don't think it's fair to say that the individuals should face such punishment.

And, of course, a criminal lawsuit would involve the gov't, not the folks that Righthaven sued, so it's a totally different ballgame.
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Anonymous Coward, 20 Sep 2011 @ 3:30am

I'm really not convinced that the pursuit should go beyond Righthaven -- especially to folks like Steve Gibson. I could see going after Stephens Media and MediaNews Group as one could argue they were really the driving forces behind the lawsuits. But taking on individuals seems like going too far.

How do you stop the bastards from doing this again it you do not go after them?

The bastards tried to do a copyright shakedown, fuckem.
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Anonymous Coward, 20 Sep 2011 @ 3:59am

Burn them
Legal action should continue until those behind this are bankrupt, homeless, and starving in the gutter. THAT would be justice -- after all, it's the fate they attempted to inflict on others for no reason other than their own greed, so it's only fair that it be imposed on them.
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hmm (profile), 20 Sep 2011 @ 6:14am

What I'd say
I'd say NO correctly founded LLC should end in personal liability HOWEVER if the LLC was set up purely as a barrier to protect someone from illegal activity then personal liability SHOULD come into play.

i.e. person A sets up a PC repair business, goes bankrupt due to cashflow/lack of customers. No liability on the owner because he TRIED to run a successful business but it just didn't work out.

person B sets up an LLC just to act illegally then use the company as a 'shield' against comeback that he'd experience if he did the same actions as an individual. Then he should face liability as there was no intention that the LLC be a sustainable/workable business.
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iamtheky (profile), 20 Sep 2011 @ 6:58am

Re: Re:
Do you also think that the guys who founded Napster should be personally liable for what Napster was found guilty of?

Fair question, but I do not know the full details of the Napster case. Bringing an file sharing application to market, that is then used for nefarious purposes is not the same as extorting money from individuals (and working the courts through very shady legal means).

However, if the courts deemed it was Napster's intent, then I would have no issue with them tarballing the source code and offering it for free download. That would seem comparable, but probably defeat the purpose.
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CommonSense (profile), 20 Sep 2011 @ 7:15am

Re: Re:
I don't think the guys who founded Napster had a crystal clear goal of breaking the law to make tons of money with no risk of losing any... I understand what you're saying, and if we hold one accountable it could have negative side effects for others, but I think there are two very different situations here, and hopefully the law can distinguish between them so as to only go after the Righthaven's of the world...those criminals who believe they are smart enough to work around the law and cover their tracks so as to not risk any penalties for their egregious acts...

In Napster's case, people were sharing mixed tapes like nobody's business, people were burning and sharing mixed CD's already, and none of those people were being sued. That they saw this, and simply wanted to make it easier to do the same sharing that was already going on kind of takes the "they knew before hand that it was illegal, and they willfully broke the law to make a bunch of money" argument off the table...it was a couple of college kids and not certified lawyers ya know...
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DannyB (profile), 20 Sep 2011 @ 7:24am

Re: Re: Sauce for the goose is sauce for the gander
If copyright infringers had set up Napster to shield their own infringement activity from liability, then it seems fair that Napster founders should be personally liable.

If copyright trolls had set up Righthaven to shield their own trolling activity from liability, then it seems fair that Righthaven founders should be personally liable.
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DannyB (profile), 20 Sep 2011 @ 7:27am

Re: Re: No double standards.
If Napster's founders had set up Napster for the purpose of copyright infringement and to shield themselves from the liability of it, then Yes.

Whether that was indeed Napster's founders' purpose is unknown to me.
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DannyB (profile), 20 Sep 2011 @ 7:35am

Re: Re: I support Todd Kincannon
If I remember correctly . . . When documents revealed Ford thought it was cheaper to pay settlements to people who would continue to be killed in rear end gas tank explosions rather than recall and fix the defective cars, the DOJ said they would go after the directors personally for manslaughter if they did not issue the recall.
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DannyB (profile), 20 Sep 2011 @ 7:41am

Re: Limitation of liability may not apply
That is an outstanding comment sir.

LLC is to inform people doing business with you of your limited liability if you go BK. People choose and risk whether to do business with an LLC. They don't choose whether to be sued by an LLC.
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Jay (profile), 20 Sep 2011 @ 8:33am

Re: Re: Re: No double standards.
But Napster precedes the dmca. What sense does it make to hold Sean Fanning for inducement? How about Michael Robertson for mp3tunes?
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iBelieve, 20 Sep 2011 @ 10:30am

Was there ever a doubt
that lawyers would end up feeding on each other in the end? They parked it on the wrong haven, seems also not surprising they follow the coinage(carnage).
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Anonymous Coward, 20 Sep 2011 @ 10:42am

Re: Re: Re: I support Todd Kincannon
At that point, they should have been willing to go to prison for the sake of the company, no? Elsewise, they should have been charged with manslaughter anyway.. for the sake of the company..
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MD, 20 Sep 2011 @ 11:04am

Liability and Limits
The prime movers behind any action should not be able to escape responsibility by saying they were oly working for a company. WHile the front line soldiers of the LLC corporation should not be liable, anyone who gave orders, initiated or directed action and policy, should be liable if their activity was blatantly unethical, repeated and continued in the face of obvious signs that they were pursuing activities that could have repercussions. They can't just blame it all on the faceless corporation.

That also goes for willful blindness by someone who knew the situation, participated in intitiating it, and allowed it to continue, whether they took an active part or not after the start.
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S, 20 Sep 2011 @ 12:50pm

Re:
So what happens when some company hires a manager who ends up stealing customers' credit card data, or dealing drugs out of a retail location?

Should the CEO be held responsible for every action done by anyone in his company?
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S, 20 Sep 2011 @ 12:53pm

Re: Liability and Limits
"But, corporations are people! The corporation made me do it!"
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Anonymous Coward, 20 Sep 2011 @ 3:17pm

Re: Re: Re: Re: No double standards.
"But Napster precedes the dmca."

Actually, no. The DMCA came to be in Oct. 1998, Napster was released in June of 1999.
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Beech, 20 Sep 2011 @ 6:17pm

The problem
The main problem, as I see it, if you don't go after Steve personally what keeps him from starting a new LLC called "Lefthaven" and starting the same pay-up-or-else thing all over again? And once Lefthaven goes bankrupt with no personal liability to the jackass who owns it, why not start another ____haven?
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Individual Liability, 21 Sep 2011 @ 10:39am

Re: Re: No double standards.
An employee of a company who actively and willingly participates in tortious conduct may be held personally liable in a civil action.
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Howie@CW, 26 Sep 2011 @ 2:57pm

Nail 'Em All
I think that the scorched earth policy that Righthaven used should be used against them in return. Most if not all who have felt the wrath of Righthaven did not do anything malicious and have paid unnecessarily!
Nail 'Em All to the wall and let the chips fall where they may!
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sta303 (profile), 26 Sep 2011 @ 3:40pm

A lack of criminal charge should not preclude a test for civil liability. The standards for determining guilt and responsibility are different. While it may not be possible to prove that the principals broke the law in a criminal proceeding, there may be enough evidence break the shield of the LLC . Perhaps they will be willing to settle out of court?
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