Team Prenda Finally Goes To Jail: Hansmeier & Steele Indicted & Arrested

from the shit-gets-real dept

For many, many, many years, we've been covering the saga of Prenda Law -- a legal operation set up to file tons of shakedown copyright infringement lawsuits in an effort to get as many people as possible to just pay up and settle. The scam got deeper and deeper the more you looked, including forged signatures, clear evidence that the main actors behind Prenda -- John Steele and Paul Hansmeier -- were uploading their own works as a honeypot, while pretending to represent clients that they themselves owned through various shell companies -- which they denied owning. It went on and on and on. And on and on and on. Things really went sideways almost four years ago when Judge Otis Wright in California was the first judge to put much of this together, and called all of them to court, where everyone pleaded the fifth (yes, lawyers were pleading the fifth in a case they themselves brought). In response, Judge Wright referrred the case to law enforcement, leading many people to ask over the past four years how it was these guys weren't in jail (and, in fact, they continued to file lawsuits, reprising the same scheme but with ADA shakedowns.

Court after court after court has slammed Prenda, and ordered Hansmeier and Steele (partner 3, Paul Duffy, died in the middle of all of this) to pay up lots of money. Of course, in response to that, there were further accusations of illegally hiding money, bogus trusts, a questionable bankruptcy claim and more. And, yet, they still were not in jail. Oh, and we didn't even mention the various ethics investigations that recently suspended Hansmeier's license.

Ken "Popehat" White -- who as a former Assistant US Attorney and current criminal lawyer -- has kept saying that the wheels of justice turn slowly, but they do turn. Back in May, White noted that it appeared that ofifcials were getting mighty close to filing charges against Hansmeier and Steele, based on some evidence he had seen, suggesting the investigation was wrapping up. And the wheels continued to turn... until earlier today when it was revealed that Steele and Hansmeier have both been indicted and arrested in connection with the Prenda scam.

You can read the indictment or Ken White's excellent analysis of it. As White notes, the indictment is incredibly thorough. We've written about a number of indictments in the past in which law enforcement is fairly lax on details. This is not one of those cases. The overview gives a really good summary of everything:

Between 2011 and 2014, defendants Paul R. HANSMEIER and John L. STEELE orchestrated an elaborate scheme to fraudulently obtain millions of dollars in copyright lawsuit settlements by deceiving state and federal courts throughout the country. In order to carry out the scheme, the defendants used sham entities to obtain copyrights to pornographic movies--some of which they filmed themselves--and then uploaded those movies to file-sharing websites in order to lure people to download the movies. To learn the identities of the people caught in the trap they constructed, HANSMEIER and STEELE filed specious copyright infringement lawsuits and fraudulently procured permission from courts to send subpoenas to internet service providers for subscriber information associated with the IP addresses used to download their pornographic movies. After receiving this information, the defendants--through extortionate letters and phone calls--threatened the subscribers with enormous financial penalties and public embarrassment unless the subscribers agreed to pay a settlement, all the while concealing their collusion in the alleged copyright infringement. When courts restricted their ability to sue multiple individuals in the same lawsuit, the defendants shifted tactics. They filed lawsuits falsely alleging that computer systems purportedly belonging to their sham clients had been infiltrated by hackers, and then recruited ruse defendants against whom they brought these illusory "hacking" lawsuits. Finally, when courts became suspicious of the defendants' tactics and motives, the defendants began a long process of lies and deceit designed to conceal the truth and deflect responsibility from themselves. In total, the defendants obtained approximately. $6,000,000 made possible by the fraudulent copyright lawsuits they peddled to courts throughout the country

I believe the $6 million number is new. But everything else in there we've covered in the past. The lawsuit names some people by initials only -- but who are easily identifiable if you've been following the saga. M.L. is likely Mark Lutz the "paralegal" who was involved in many of these cases, and was a figurehead owner of some of the sham corporations. You may remember him from one of the earliest Prenda stories we had, where Lutz "appeared" in court as a "corporate representative" of one of Prenda's "clients" and yet knew nothing at all about the company he was supposed "representing." That story also involved an appearance by John Steele who claimed he was there just observing, but which the judge immediately became suspicious about.

P.H. is likely to be Peter Hansmeier, Paul's brother, whose name has appeared at times in connection with the Prenda scam and had been described as the technology person tracking down who was downloading the files in question. The indictment also mentions P.D. who is obviously Paul Duffy, the official owner of Prenda Law, but who was always sort of the third wheel of the operation before dying just as all the mess was unfolding. A.C. is clearly Alan Cooper, named here as "an acquaintance of Steele," but who was a caretaker for some Steele properties, and whose signature Steele forged on documents pretending to own AF Holdings, one of the bogus shell companies he set up. B.G. is almost certain Brett Gibbs, a California lawyer who filed a bunch of Prenda lawsuits early on, but was one of the first to reveal details once judges started to catch on.

Perhaps the most interesting part of the indictment is it details multiple lies that Team Prenda told under penalty of perjury or under oath to various courts. It's a pretty long and detailed list. It includes filings by Mark Lutz and Brett Gibbs, which the indictment claims were all done, under penalty of perjury, at the direction of Steele and Hansmeier -- so they don't even get off for trying to keep their names off these documents.

Based on all this, they're facing a bunch of charges, for mail fraud, wire fraud, conspiracy to commit money laundering (involving the transactions to hide money from courts) and conspiracy to commit and suborn perjury.

As White rightly reminds us, an indictment is just a bunch of allegations, not yet proven, but having followed Team Prenda and all these actions for many years, the feds seem to have clearly figured out what was going on, and appear to have the evidence to back up many of those claims. Things don't look good for Steele and Hansmeier. According to the Minneapolis Star Tribune, US Attorney Andrew Luger called a press conference to announce all of this and call out the actions of Steele and Hansmeier.

"The defendants in this case are charged with devising a scheme that casts doubt on the integrity of our profession," Luger said in prepared remarks. "The conduct of these defendants was outrageous — they used deceptive lawsuits and unsuspecting judges to extort millions from vulnerable defendants. Our courts are halls of justice where fairness and the rule of law triumph, and my office will use every available resource to stop corrupt lawyers from abusing our system of justice."

Turns out that when you abuse the judicial system to shake people down... people aren't going to be too happy about that. Of course, now we have to wonder if the other giant copyright troll, Malibu Media, may be facing similar issues going forward...

Filed Under: arrested, indictment, john steele, mail fraud, mark lutz, paul hansmeier, perjury, peter hansmeier
Companies: af holdings, guava, ingenuity 13, livewire, prenda, prenda law

Team Prenda Has A Very Bad Day In Court... And You Can Watch It All

from the make-sure-to-bring-lots-of-popcorn dept

It has been almost exactly two years since Judge Otis Wright released his blistering opinion of Prenda Law and the guys behind it, John Steele, Paul Hansmeier and Paul Duffy ("Team Prenda"). There have been various fights here and there since then, but the specific appeal in that case was finally heard yesterday and you can (and should) watch the whole damn thing (which runs almost exactly an hour and a half -- though if you're short on time, you can skip the Morgan Pietz part, and just focus on the first and last parts involving Team Prenda's lawyer, Daniel Voelker). If you follow a lot of appellate case or Supreme Court cases, you should know that it's generally not a good idea to read too much into any particular line of questioning, or even to assume which way judges are leaning. In this case, however, it would be nothing short of shocking if Team Prenda comes out of this story "winning" -- though, in an astounding bit of what appears to be cluelessness, Voelker said that Team Prenda would be perfectly happy having part of the case sent back to the lower court for criminal contempt sanctions. The three-judge panel seemed so shocked by this, that they asked him if he was sure, and one judge, Judge Tallman, pointed out:

"Do you understand that the maximum penalty for contempt is life imprisonment?"

In short, Team Prenda's own lawyer not only seemed completely unprepared and out of his depth in the hearing, he ended up arguing that rather than just pay $250,000, his clients would prefer to face criminal charges with the chance of life in prison (though, admittedly, such a sentence would be highly unlikely). From all indications, all three judges seem prepared to give Team Prenda what their lawyer appeared to be claiming they wanted.

There were many guffaw-worthy moments throughout the arguments, including Judge Tallman asking about the infamous Alan Cooper forgery, and Voelker playing really dumb, leading Tallman to ask if the "tooth fairy" made the document appear. Judge Tallman also repeatedly pointed out, in disbelief, that Voelker could assert that his clients had no idea how the document got forged when Cooper was Steele's "gardener" (actually housekeeper, but close enough).

All three of the judges seemed well aware of what Team Prenda was up to and how nefarious copyright trolling is. Judge Pregerson, who is 91 years old, talked about how his clerks explained to him how BitTorrent works, and then pretty clearly detailed how Team Prenda (and other copyright trolls) abuse the court system to "extort" settlements from end users. He concludes his description by saying, "Now that is just an ingenious... crooked, extortionate operation." Later he said, "They used our court system for illegal purposes -- to extort money." At least one of the other judges, Judge Nguyen referred to copyright trolling as "extortion" as well. The judges didn't refer to Prenda as a company or a law firm, but rather an "operation." It was a complete bloodbath. The judges also seemed well aware of other Prenda proceedings elsewhere in the country as well.

Basically, the judges seemed not just aware of, but very convinced by the evidence against Prenda's copyright trolling practices. Much of the opening part of the arguments consisted of the judges asking Voelker about those facts -- and Voelker dodging every one of those questions or responding that he didn't know, and then going back to procedural questions. The three-judge panel all found this completely unconvincing, and even where they were willing to grant potential procedural problems (mainly with the punitive sanctions on top of attorneys' fees), noted that if they rejected those, at the very least they were likely to (as mentioned above) just send the case back for criminal proceedings, which almost certainly would leave Team Prenda even worse off. Voelker's standard response: "They want their day in court." It sounds like they might get it.

There were two other really amazing tidbits, both from Judge Pregerson. First, right after describing the whole copyright trolling mess and (as noted above) calling it a "crooked, extortionate operation," he noted how historic this case was and how badly it was going to reflect on Voelker, even suggesting that Voelker may be implicated directly as well:

Pregerson: This is going to be written about for years and years, and you're probably going to be part of the story. They all will be. I don't know where this is going to end up. If they really want to have a trial on this... are you sure they want that?
Voelker: Absolutely your honor! They want a trial...
Pregerson: Is that what you want?
Voelker: Your honor, what I want is irrelevant. I'm just an appellate attorney. I'm not...
Pregerson: Well, you may be involved in this.
Voelker: I'm sorry your honor?
Pregerson: You may be involved!
Voelker: I don't believe so, your honor, with all due respect. I'm just the attorney.

And then that leads into this astounding bit of courtroom drama:

Pregerson: And you're a great lawyer.
Voelker: I really appreciate that.
Pregerson: That's what your ad says when you go on the internet, right? I wonder how many "super lawyers" there are in this country?
Voelker: There are a lot of them.
Pregerson: There are a lot of them. And a lot of them is BS too.

Ouch. It appears that Pregerson wasn't joking around either. From Voelker's website: Either way, I can't see how the hearing could have gone much worse for Prenda.

If you want another recap from someone who knows a hell of a lot more about how epically bad this went for Prenda, check out Popehat's take, which includes this:

I have never seen an oral argument go so badly for an advocate. The judges were immersed in the details of the record and plainly convinced that Prenda was a criminal operation that merited some sort of sanction. They clearly viewed the case not in isolation, but as part of a series of cases involving Prenda across the country — most of which are turning out very badly for Prenda. It seemed clear that they believed that Judge Wright had the power to impose some sort of sanctions, and that the record supported his doing so.

I know that many of the Prenda watchers among our readers here keep wondering how it is that Team Prenda is not yet in jail. There are a lot of reasons for that, frankly, but their appeal in the 9th Circuit may actually lead them much closer to being in jail, in part because their own lawyer effectively said that's what they wanted.

Filed Under: 9th circuit, alan cooper, copyright, copyright trolling, copyright trolls, daniel voelker, forgery, john steele, morgan pietz, paul duffy, paul hansmeier
Companies: af holdings, ingenuity 13, prenda, prenda law, steele hansmeier

Prenda Loses Again: Minnesota Appeals Court Upholds Sanctions

from the we're-waiting-for-the-truth-to-come-out dept

Almost exactly a year ago, we wrote about Team Prenda being ordered to pay another $64k in attorneys' fees in one of its many cases. This one involved Prenda, along with Paul Hansmeier's "Alpha Law Firm" and local Minnesota lawyer Michael Dugas supposedly representing a company named Guava, suing a bunch of folks in Minnesota state court. The case had taken quite a twist when defendant Spencer Merkel revealed how he'd made a deal to take a dive in the case. That is, he'd been hit with a standard Prenda threat letter concerning "Hard Drive Productions" content, and when he told them he couldn't pay, someone from Prenda made a "deal" with him in which he'd get sued, and would agree to give up hit Bittorrent logs during discovery and then have the case dismissed. Team Prenda needed the logs to find more people to shake down, and most likely wanted to use the case as an "example" that it was okay for them to get logs through these very, very questionable lawsuits.

Except, somewhere along the way the court noticed that it was a bogus lawsuit, and that resulted in the order to pay $64k. Team Prenda appealed, and... have lost again as the Minnesota state court of appeals has, like nearly every other court, seen right through the Prenda scam.

We have carefully reviewed the record, and we conclude that the district court did not abuse its discretion in imposing attorney-fee sanctions against appellants. The district court found that appellants initiated and pursued this litigation in bad faith, that the only purpose of the litigation was “to harass and burden Non-Parties through obtaining IP addresses to pursue possible settlement rather than proceed with potentially embarrassing litigation regarding downloading pornographic movies.” This is an improper use of the judicial system.

As per usual, Team Prenda throws a lot of crap at the wall, hoping something will stick. None of it does. First, they claimed -- as they always do -- a failure of due process. The court brushes that aside and shows that there was plenty of due process, even if some of it could have been slightly clearer. Next, Team Prenda claims there's not enough evidence for "bad faith." The court has no problem rejecting that one quickly:

Although the record in this case was not fully developed because appellants voluntarily dismissed the underlying action before it could be considered on the merits, it includes sufficient evidence to support the district court’s finding. The evidence includes Merkel’s affidavit testimony that he received a letter from Prenda Law threatening suit on behalf of its client, Hard Drives; he made arrangements with someone named “Michael” or “Mike” at Prenda Law for an alternative settlement arrangement, including his consent to be sued in Minnesota; Prenda Law referred him to pro bono counsel; Hard Drives would dismiss the suit after Merkel provided his BitTorrent log; and he was surprised to be sued by Guava, rather than Hard Drives. The evidence also includes Morrison’s testimony that Merkel was referred to her by Hansmeier and Dugas; that she expected a lawsuit to be filed by Hard Drives, rather than Guava; and “[t]here’s been some bait and switch you might call it in this case.” And the evidence includes the facts that (a) despite repeated questioning by the district court regarding Guava’s corporate status, appellants failed to file a certificate of authority or provide any evidence regarding Guava’s incorporation, its officers, or its business operations, and (b) despite Merkel’s alleged involvement in a hacking conspiracy, appellants sought no discovery from Merkel during the pendency of the litigation. This evidence, taken together, amply supports the finding that appellants had no good-faith basis for this litigation....

Appellants assert that the district court erred by relying on the communications between Merkel and Prenda Law relating to claims by Hard Drives, arguing that there is no evidence of a connection to this action. But the district court found a connection, and there is evidence in the record to support that finding. “Michael” at Prenda Law offered to refer Merkel to Minnesota attorney, Morrison. Morrison testified that she received the referral from Hansmeier and Dugas; Hansmeier filed a notice of appearance identifying himself as “of counsel” to Prenda Law, and Dugas submitted a declaration in this matter identifying himself as the only “‘Mike or Michael’” at either Alpha Law Firm LLC or Prenda Law, Inc.” Dugas denied representing Hard Drives or being involved in the settlement agreement between Merkel and Hard Drives. But the district court rejected this assertion as incredible, and we will not disturb that credibility determination.

There's a funny bit where Team Prenda tries to claim that originally the court thought the case was brought in good faith, so the later bad faith determination shouldn't count. The appeals court is, again, not impressed:

We reject this argument as circular and unpersuasive. The district court’s initial determination that Guava demonstrated that the information it sought was relevant and material did not preclude it from later—on being made more fully informed of the facts—finding that appellants were acting in bad faith.

Team Prenda also protested the $64k amount. But, again, their arguments fall (mostly) flat. The court basically says the amount is enough, as is the requirement that the lawyers file a $10k bond before filing any more lawsuits, but there was one procedural issue, concerning filing a Minnesota "certificate of authority" that was improperly presented in the lower court ruling, so the appeals court fixes that. It's a meaningless issue, though.

Finally, Team Prenda argues that sanctions can't be applied because they had voluntarily dismissed the lawsuit already. No go:

Lastly, appellants assert that the district court was precluded from awarding sanctions after the action had been voluntarily dismissed, citing such a limitation in the district court’s authority [citing laws and caselaw that say] “motions for sanctions brought after the conclusion of the trial must be rejected precisely because the offending party is unable to withdraw the improper papers or otherwise rectify the situation”). But the district court’s inherent authority to impose sanctions is not so circumscribed. See, e.g., Brickwood Contractors, Inc. v. Datanet Eng'g, Inc., 369 F.3d 385, 389 n.2 (4th Cir. 2004) explaining that “failure to comply with the safe-harbor provisions would have no effect on the court’s authority to . . . impose sanctions within its inherent power”).

So, once again, an appeal by Team Prenda falls totally and completely flat. And they need to pay up.

Filed Under: michael dugas, minnesota, paul hansmeier, spencer merkel
Companies: af holdings, alpha law firm, guava, hard drive productions, prenda, prenda law

Prenda Hit With $12,000 In Sanctions Over Its Bogus Defamation Suit

from the Assclown-Law-racks-up-another-debit dept

The spectacular Prenda flameout continues. As was reported here back in January, US District Judge John Darrah approved Paul Godfread and Alan Cooper's request for sanctions at the tail end of Prenda's disastrous defamation suit (one John Steele himself did plenty to undermine). Now, we have a dollar amount. (via Ars Technica)

Today, Judge Darrah in the Northern District of Illinois granted yet another sanctions award against copyright troll Prenda Law. Paul Godfread and Alan Cooper have been awarded $11,758.20 as reimbursement for a portion of the fees they have spent on attorneys in defending themselves against Prenda’s defamation lawsuit.

The Court awarded the sanctions under both Federal Rule of Civil Procedure 11 as well as its inherent power to sanction provided in 28 U.S.C. § 1927. In the Court’s own words, the sanctions award was “[b]ased on Prenda’s misrepresentations in this Court” and the Defendants’ incurred fees were “occasioned by the misconduct of Prenda Law and Paul A. Duffy in this Court.”

This will be added to the half-million in (mostly uncollected) sanctions levied against Prenda since the beginning of last year. Prenda tried to argue that the hourly fee requested was ridiculously high.

According to the American Intellectual Property Law Association’s 2013 Report of the Economic Survey, intellectual property attorneys based in Chicago and Boston within the first quartile bill $400 per hour, in line with the amount billed by Defendants’ counsel, who are based in Chicago and Boston. (Dkt. No. 61, Ex. B.) Yet, Prenda argues that this rate is “exorbitant” because Defendants’ attorney Erin Russell is not registered before the United States Patent and Trademark Office and, therefore, not an intellectual property attorney.

"Apropos of what," Judge Darrah doesn't even bother asking.

Prenda cites no law supporting this contention, and its claim of exorbitant rates fails.

Prenda also argued that some of the fees incurred were "self-inflicted" and not the direct result of its bogus lawsuit/endless dicking around. Darrah dismantles this argument as well.

The basis of Prenda’s mitigation argument is that Defendants chose not to trust Prenda to withdraw its motion to remand. Defendants’ failure to trust Prenda was not unreasonable, given Prenda’s vigorous defense of its motion to remand on the same day it filed its motion to withdraw the motion. In any event, Defendants’ response to Prenda’s motion to remand was sufficiently quick and efficient. Not only did Defendants file their response within six days, they filed it on the same day that Prenda presented its motion to withdraw. Prenda’s opposition with respect to Defendants’ fees being self-inflicted or avoidable is denied.

Prenda did manage to come out of this in slightly better shape than it could have. Darrah only awarded the attorney's fees racked up in his court, not including anything that occurred in a separate court in 2013. That decision cut the awarded amount roughly in half.

This appears to be the final moments for Prenda Law, a sordid episode of legal abuse that is ending with lots of (gavel) banging and (Prenda partner) whimpering.

Filed Under: alan cooper, defamation, john steele, paul duffy, paul godfread, paul hansmeier, sanctions
Companies: af holdings, prenda, prenda law

Prenda Tries To Weasel Out Of Case It Just Lost At The Appeals Court

from the run-away,-run-away dept

Remember last week when the DC Circuit appeals court overturned one of Prenda's few "wins" on the question of "joinder" (lumping together a bunch of unrelated people in a single lawsuit)? That was the case where a former RIAA lobbyist-turned-judge, Beryl Howell, was one of a very few judges who found such joinder appropriate. The appeals court disagreed and sent it back. And... in response, Prenda (in the form of Paul Duffy) are now trying to scamper away, by filing to voluntarily dismiss the case. This is pretty typical in the Prenda playbook. Whenever things start to look problematic, they try to dismiss the case and get away unscathed. Most of the cases where various attorneys' fees are being lumped on them involve similar cases where Prenda tried to run away, and was not allowed to do so. Some of the plaintiffs in this case may pursue fees, though with the previous awards piling up, it's unlikely they'd get much at this point. Either way, it's clear that after the appeal went against Prenda, it doesn't even want to try again at the district level.

Filed Under: beryl howell, dc circuit, joinder, paul duffy, paul hansmeier
Companies: af holdings, prenda, prenda law

Appeals Court Overturns Prenda Win From Former RIAA Lobbyist Judge

from the good-to-see dept

As we've been covering the Prenda debacle for years, there was still the one big "victory" it had, in which a DC district court judge ruled that randomly lumping together over a thousand unrelated "Does" was perfectly legitimate, something most other courts had found to be inappropriate. Of course, people quickly figured out that the judge who found in favor of this bizarre joinder ruling, had only recently been appointed to the bench, having previously been an RIAA lobbyist, and who, years earlier, had helped write the DMCA as a Congressional staffer.

That case made its way slowly through the appeals process, and earlier today, the DC Circuit appeals court overturned the ruling, highlighting a bunch of Prenda's bad behavior, but (perhaps more importantly) pointing out that the subpoenas for information on these 1,000+ Does was clearly inappropriate, first because almost none of the Does appeared to live in Washington DC, and thus were outside the court's jurisdiction. Prenda/AF Holdings complete failure to do anything even remotely close to figuring out if people might be located in DC was pretty damning here:

Federal Rules of Civil Procedure 45 and 26 set forth the relevant considerations. Rule 45(d)(3)(A) requires a district court to “quash or modify a subpoena that . . . subjects a person to undue burden.” If a subpoena compels disclosure of information that is not properly discoverable, then the burden it imposes, however slight, is necessarily undue: why require a party to produce information the requesting party has no right to obtain?

And, here, the court certainly finds the discovery attempts to be "undue," because AF Holdings/Prenda could show no good faith belief that they were going after information relevant to a lawsuit in that court.

Here, we think it quite obvious that AF Holdings could not possibly have had a good faith belief that it could successfully sue the overwhelming majority of the 1,058 John Doe defendants in this district. AF Holdings concedes that under the District of Columbia’s long-arm statute, which along with the Due Process Clause governs this question... the only conceivable way that personal jurisdiction might properly be exercised over these Doe defendants is if they are residents of the District of Columbia or at least downloaded the copyrighted work in the District.... But AF Holdings has made absolutely no effort to limit its suit or its discovery efforts to those defendants who might live or have downloaded Popular Demand in the District of Columbia. Instead, it sought to subpoena Internet service providers that provide no service at all in the District. As Duffy reluctantly conceded at oral argument, AF Holdings could have no legitimate reason for objecting to the court’s quashing the subpoenas directed at these providers.... Even for those providers that do serve the District of Columbia, AF Holdings’s discovery demands were overbroad because it made no attempt to limit its inquiry to those subscribers who might actually be located in the District. It could have easily done so using what are known as geolocation services, which enable anyone to estimate the location of Internet users based on their IP addresses. Such services cost very little or are even free.

The court notes that Prenda's failure to do even the most basic things to limit discovery raises questions about its motives:

Given AF Holdings’s failure to take even these minimal steps, we cannot escape the conclusion that it sought the vast majority of this information for reasons unrelated to its pursuit of this particular lawsuit.... . Indeed, Duffy essentially admitted as much at oral argument, stating that if, as appears to be the case, 399 of Comcast’s 400 identified subscribers were found to live outside the District, “the 399 likely wouldn’t be named as defendants in this case.”

The court then checks in on the big question of "joinder" -- and whether or not it's appropriate to lump together over 1,000 totally unrelated individuals in one of these copyright trolling lawsuits. Like most courts to date, but unlike Judge Howell, the appeals court sees how problematic this is.

We are unconvinced. For purposes of this case, we may assume that two individuals who participate in the same swarm at the same time are part of the same series of transactions within the meaning of Rule 20(a)(2). In that circumstance, the individuals might well be actively sharing a file with one another, uploading and downloading pieces of the copyrighted work from the other members of the swarm.

But AF Holdings has provided no reason to think that the Doe defendants it named in this lawsuit were ever participating in the same swarm at the same time. Instead, it has simply set forth snapshots of a precise moment in which each of these 1,058 Does allegedly shared the copyrighted work—snapshots that span a period of nearly five months. Two individuals who downloaded the same file five months apart are exceedingly unlikely to have had any interaction with one another whatsoever. Their only relationship is that they used the same protocol to access the same work. To paraphrase an analogy offered by amicus counsel at oral argument, two BitTorrent users who download the same file months apart are like two individuals who play at the same blackjack table at different times. They may have won the same amount of money, employed the same strategy, and perhaps even played with the same dealer, but they have still engaged in entirely separate transactions.... We therefore agree with those district courts that have concluded that the mere fact that two defendants accessed the same file through BitTorrent provides an insufficient basis for joinder.

It's nice to see that the court picked up on many of the amicus arguments made by EFF, ACLU, Public Knowledge and Public Citizen.

Oh, and, in case you're wondering about all the other stuff, such as the Alan Cooper forgery, the court notes those allegations, while saying they are unrelated to the issues here, but, at the very end, in sending the case back to the district court, tosses this in:

Accordingly, we vacate the district court’s order and remand for further proceedings consistent with this opinion. We leave it to the district court to determine what sanctions, if any, are warranted for AF Holdings’s use of a possible forgery in support of its claim.

Filed Under: alan cooper, beryl howell, copyright, copyright troll, john steele, joinder, jurisdiction, mark lutz, misjoinder, paul duffy, paul hansmeier
Companies: af holdings, prenda, prenda law

Chutzpah: John Steele To Court: What, You Think I Would Lie, Cheat And Break The Law? Come On!

from the get-crackin' dept

Having followed the saga of Prenda Law over the past few years, one thing has become clear: John Steele really loves the "I know you are, but what am I" form of legal argument, in which whatever he's accused of, he aggressively accuses his accuser of being guilty of the same. It's a sort of faux macho move, in which every attack on him is met with an equally or more aggressive attack. To date, the strategy has failed badly, but it seems that Steele just can't let go of this kind of approach. In the latest round of the Anthony Smith case, Steele appears to be trying on a variant of that aggressive posture, taking on the very serious and direct accusations made against him (including those by multiple federal judges) and mocking them, by asking another court rhetorically, "what, do you really think I'm guilty of all these crazy things?" when the answer to that question may very well be yes.

At issue is the continuing fight over getting Steele and his collaborators, Paul Hansmeier and Paul Duffy, to actually pay up for their abuse of the legal process. Last we checked in on this particular case, the district court was finding them in contempt and piling more onto the money they would need to pay, while the appeals court does not appear to be impressed by Team Prenda's arguments, clearly calling out the "shell games" that Prenda and associated entities were playing.

While aspects of the case have been stayed during the appeal, other aspects are moving forward, including Smith's lawyer continuing to push for discovery on the actual assets of Steele, Hansmeier and Duffy. As you may recall, despite being required to provide such information, they did so in a questionable manner. As Judge David Herndon pointed out:

The Court finds that plaintiff's counsel has not met its burden. They submitted incomplete, and to say the least suspicious, statements of financial condition. Attached to each statement was a letter from their certified public accountant ("CPA"). In these letters, the CPA indicates a departure from generally accepted accounting principles. He further notes that plaintiff's counsel elected to omit substantially all of the disclosures required by generally accepted accounting principles. The Court finds these statements insufficient to establish plaintiff's counsel's inability to pay.

Since then, Smith's lawyer, Jason Sweet of Booth & Sweet, has continued to push for determining the financial position of the three individuals here. There's a sealed document which apparently hints at some shady financial dealings, but it appears to be making Steele very angry. While Paul Duffy filed a pretty empty opposition saying that he has no offshore accounts, Steele went into full on, ultra-aggressive "who me?" defensiveness in response, leading to some incredible statements, considering what multiple courts have already said about them. The classic part has to be this:

For this Court to find any act of Prenda should be attributed to Steele, the Court would have to believe that Steele lied to multiple federal judges without getting caught, committed massive tax fraud without the IRS finding out, and proactively broke into the Illinois Secretary of State’s corporate records database to hide his ownership of Prenda Law, all because of the remote chance that years later a federal judge might sanction Prenda Law for $261,000.

Except... of course, multiple judges have already claimed that Steele and the others have lied, including in this very case. In the original ruling in this case, Judge Patrick Murphy directly called out Steele for lying, saying: "These men have shown a relentless willingness to lie to the Court on paper and in person." He furthermore highlighted how it was quite clear that Steele was directly involved in Prenda, which Steele is now denying yet again. And no one is claiming he hacked into the corporate records database (though, now that he's denied it, it almost makes you wonder...), but that he was clearly in control of Prenda and received much of the money that went into Prenda.

As for the issue of the IRS, well, last we checked, at least one judge, Otis Wright, has referred their conduct to the IRS, and there are at least some indications that an investigation is ongoing. And while no one thinks they set up this shell game specifically to avoid this particular ruling, it's not difficult to see that they did so to try to avoid a series of similar court rulings, after Prenda's initial approach started getting regularly shot down in court.

Steele's response also ratchets up the ridiculous rhetoric in describing the copyright trolling shakedown business, which they copied from a bunch of other firms:

Steele and his partner, Paul Hansmeier (”Hansmeier”) were early pioneers in catching thieves and hackers who engaged in stealing copyrighted works and other computer related misdeeds, including computer hacking and copyright infringement.

Except, of course, they were neither pioneers, nor were they catching "thieves" or "hackers." Rather, by all accounts, they set up a honeypot site, uploaded their own content to it, shared it on file sharing sites, and then used the IP addresses of those who followed the release that they themselves put online, to shake them down with lawsuits and demands for settlement. The evidence on this is fairly overwhelming.

Steele tries to argue away the "oddities" the court noted in the filings made by the CPA they hired this way:

At the hearing, no reference was made to the GAAP, the Generally Accepted Accounting Rules, a set of standards designed for the financial reporting of corporations, not individuals. Steele submitted his financial statement as directed. Steele’s submissions were accurate, and no filing since has disproved any aspect of Steele’s statement

If he thinks that this will get him out of the fact that the CPA "elected to omit substantially all of the disclosures required" I would imagine he's got another thing coming.

Steele, also tries to angrily argue away the infamous Brett Gibbs spreadsheet that revealed the revenue of Prenda Law, and how 70% of it went to both Steele and Hansmeier, who have long denied being associated with that firm. Steele argues that this spreadsheet was made by Gibbs, as opposed to (as Gibbs has noted) made by Prenda and shared with Gibbs via a shared Dropbox account.

It appears that Mr. Gibbs created some accounting sheet of Prenda Law finances for some period of time prior to this case, and thus is irrelevant. Steele has no personal knowledge of Mr. Gibbs’ accounting records, methodology, or how Mr. Gibbs created his documents. According to Mr. Gibbs himself, he doesn’t either, and claims he doesn’t even know how his document came into existence. Such a document hardly comports with the Federal Rules of Civil Procedure governing admissible evidence.

He focuses on the fact that the spreadsheet is not admissible. Of course, his partner, Hansmeier, having argued basically the same thing in the past, has also suggested that the facts of the document are accurate, noting (incorrectly) that the document supports Steele/Hansmeier's position and that it was "stolen."

Related to all of this, Steele appears to still be playing games. In a separate filing, Sweet details how Steele took it upon himself to (incorrectly) inform various parties that Sweet had subpoenaed, that the stay on one part of the case meant those subpoenas were withdrawn as well. Except that they're part of a separate process, which is still ongoing. Sweet asked Steele to confirm that Steele had gone back to those third parties, and admitted that he was wrong in interfering with the discovery process. Steele did not do so, but rather sent one of his snarky emails about how he promises that he "will address your most recent round of subpoenas as appropriate."

It's been a while since Steele has done this kind of thing, but it's the same old John Steele, cocky until the very end, even as all of the evidence is against him. It reminds you of a little kid who has been caught doing something wrong but figures if he just keeps denying it over and over again, buying himself time, there will be some way to get out of it all.

Filed Under: anthony smith, brett gibbs, david herndon, jason sweet, john steele, paul duffy, paul hansmeier, sanctions, subpoenas
Companies: af holdings, ingenuity 13, lightspeed, lightspeed media, prenda, prenda law

Appeals Court Not At All Impressed By Prenda's Appeal

from the wanna-try-that-again dept

Team Prenda finally got to an appeals court on Monday and it didn't go particularly well. The appeal in the Lightspeed case, in which Judge Patrick Murphy called them out for "flat-out lying" to the court and hit them with $261,000 in attorneys' fees (a number that has been bumped up as Team Prenda was found in contempt for not actually paying) was heard on Monday, and the three judge panel in the 7th Circuit did not appear at all impressed by the arguments made by Daniel Voelker who was representing John Steele, Paul Hansmeier and Paul Duffy. You can listen to the 32 minute hearing yourself for all the fun.

It starts off almost immediately, as Voelker argues there's no basis for the district court ruling -- and is interrupted by one of the judges, noting that the court found that the case was pursued in bad faith "which stands on its own as a basis for sanctions." Voelker insists that the court "didn't rely on any record nor cite any facts" and, again, he's cut off: "well, it talks about an extensive pattern of lying and misrepresentations, and vindictive pursuit of claims that were, in the court's view, frivolous or marginal at best. And, trying to extract settlement payments before an inevitable voluntary dismissal."

In other words, within 3 minutes of the appeal hearing, the judges had made it clear that they were well-informed about the scheme Team Prenda had cooked up and why the district court had ruled the way it had. Voelker tries to slam the judge for taking "extrajudicial notice" of basically every other case where Prenda had been thumped. Of course, I don't see how that helps Team Prenda at all: to argue "please ignore my clients' record of being slammed by judges all across the country" doesn't seem very convincing. And, immediately another judge jumped in to point out that there were, in fact, statements made on the record in those other cases that contradicted what was being said in this case. The same judge immediately highlights the questionable nature of the different organizations, such as the affiliation between Prenda Law and AF Holdings, and says that of course it's reasonable for the judge to take notice of those contradictory claims.

Eventually, the judges ask about the relationship between the various organizations, including Prenda Law, Alpha Law and Steele Hansmeier ("in 25 words or less") and Voelker doesn't inspire any confidence by saying he has no ideas: "I can't your honor. I don't know, I don't know what it is today; I don't know what it was a year ago. So I wouldn't want to even begin to tell you because I just don't know." One of the judge hits back immediately:

That's shocking!

After a bit more of a back and forth she understates the situation:

There's a lot of shell game going on here.

Voelker claims this has no relevance to the issue at hand. The judges don't appear to buy it, at all, noting "this is all pretty serious conduct."

It's often a mistake to read too much into what appeals court panels (and Supreme Court Justices) say during oral hearings. Sometimes they're just testing out theories or pushing various attorneys to see how thoroughly their arguments make sense. But in this case, it seems abundantly clear that the judges are incredibly skeptical about Team Prenda's appeal.

Filed Under: 7th circuit, anthony smith, daniel voelker, john steele, patrick murphy, paul duffy, paul hansmeier
Companies: af holdings, alpha law, at&t, comcast, prenda, prenda law, steele hansmeier

Prenda Actually Wins A Round; Order To Pay Back Settlements Tossed In Minnesota

from the well-that's-unfortunate dept

For months now, we've been covering how Prenda had been losing pretty much every one of its legal fights concerning its fraudulent copyright trolling practices. I guess it was bound to happen sooner or later, but Team Prenda has bounced back with an actual victory. You may recall that one of the (many) key Prenda cases was taking place in Minnesota, where magistrate judge Franklin Noel, becoming aware of what was happening with Prenda in other courts had reopened a bunch of Prenda (via AF Holdings) cases in Minnesota to explore if Team Prenda had committed fraud upon the court. Noel dug in, demanding actual answers to various questions that Team Prenda had avoided in other cases, eventually ruling against Team Prenda and (importantly) ordering the law firm to pay back all the settlement money it had taken in via those cases.

Well, it appears that's all for nothing now. Judge Joan Ericksen has apparently stepped in to put magistrate judge Noel in his place, pointing out that he went way beyond what a magistrate judge is allowed to do and then actually siding with Prenda lawyer Paul Hansmeier in saying that the fact that team Prenda forged Alan Cooper's signatures on the copyright assignment isn't fraud on the court... and, in fact, saying that it basically doesn't matter at all. First, as to a mere magistrate judge sniffing out these problems, judge Ericksen isn't having any of it:

AF Holdings consistently objected to the magistrate judge’s authority to determine whether it had committed a fraud on the Court. The magistrate judge had no such authority. See Reddick v. White, 456 F. App’x 191, 193 (4th Cir. 2011) (per curiam) (“A motion for sanctions under the district court’s ‘inherent’ power is not a pretrial matter under § 636(B)(1)(a). Magistrate judges have no inherent Article III powers—they have only those powers vested in them by Congress. Congress has not created statutory authorization for magistrate judges to exercise inherent Article III powers.”

Furthermore, Ericksen points out that, as a magistrate judge, Noel can't really make an order like he did (which is likely accurate), but instead can just make a recommendation for a "real" judge like Ericksen to review. And Ericksen just doesn't seem concerned about the forgery, lying and other shenanigans from Team Prenda.

Cooper’s signatures were immaterial to the decision that granted AF Holdings expedited discovery.... AF Holdings’ submission of the agreements with Cooper’s signatures—legitimate or not, authorized or not—to evince the transfer of the copyrights to AF Holdings did not amount to a fraud on the Court.

It's somewhat disappointing to see a court not all that concerned that an effort that involved forgery is really no big deal, especially when it was about copyright trolling, a practice of abusing the court system to hound people into paying up to avoid having to fight a lawsuit.

That's unfortunate, but given how many other courts have ruled on Prenda's efforts and the multiple referrals to state bars, DOJ and others, I would imagine that this is merely a slight and brief reprieve for Team Prenda.

Filed Under: alan cooper, copyright, copyright trolling, franklin noel, joan ericksen, john steele, paul duffy, paul hansmeier
Companies: af holdings, prenda, prenda law

Confused Law Professor Cites Fraudulent Prenda Win As 'Proof' That There's No Problem With Statutory Damages

from the uh-what dept

The good folks over at EFF have a good review of the House Judiciary Committee's recent hearing on the scope of fair use, which we discussed earlier. It's a good read, but there's one note towards the end which is really incredible. One of the panelists, June Besek, of Columbia University, has been defending ridiculous statutory damages by arguing not only are they reasonable, but also that courts can handle circumstances where the damages awards should be lower based on circumstances.

However, as EFF points out, Besek's argument here is suspect, given that she just a few weeks ago sent a letter on this issue in response to the Commerce Department's green paper on copyright, in which she defends current statutory damages practices... by pointing to a ruling in a Prenda case making a defendant pay $6,000. Specifically, her letter notes the following:

There is no satisfactory rationale at this time for singling out individual file-sharers with regard to statutory damages. The majority of reported cases against individual file-sharers have been resolved on summary judgment or on default, with the statutory damage awards under $10,000.

And after the $10,000 is a footnote, where she points to three cases where courts granted awards of ~$6,000, including AF Holdings v. Bossard. You might recognize the name AF Holdings, better known as the shell company set up by Prenda Law which has been accused by multiple courts of being engaged in forgery and fraud in shaking down people into paying up. This seems like an odd choice for Besek to choose to support her position that statutory damages are not a problem, given that Prenda/AF Holdings has been using the threat of statutory damages on its bogus copyright claims to shake down millions of dollars from people without ever going to court.

In fact, the AF Holdings/Prenda fiasco is a perfect example of why statutory damages are so dangerous. They allow a new category of copyright trolls to go around sending out threat letters threatening the possibility of $150,000 awards, which lead many, many people to just pay up rather than go to court. For Professor Besek to use Prenda/AF Holdings as an example of how the system is working, at the very same time that the folks behind it are facing sanctions from multiple courts, have been referred to law enforcement and multiple local bars for discipline for their fraudulent actions, which were almost entirely predicated on using the threat of crazy statutory damages to make people cough up thousands of dollars is laughable.

And, it's not like Professor Besek used this example back when there was still some uncertainty about Prenda. She used in just a couple weeks ago, months after multiple courts had outlined the fraud AF Holdings was involved in. The fact that she would use that as an example of statutory damages working as intended suggests she is either ridiculously uninformed or dangerously confused about how statutory damages are used in practice.

Filed Under: copyright, fair use, june besek, statutory damages
Companies: af holdings, columbia university, prenda