Judge Wright Tells Team Prenda To Pay $80k, Refers Their Activity To State Bars, Feds & IRS

from the boom dept

Plenty of folks have been waiting to see how Judge Otis Wright would finally rule in the Prenda case he was overseeing. As you may recall, Judge Wright began to see through the tricks and facades put up by Brett Gibbs and Prenda, and eventually ordered everyone to show up in his courtroom (twice). The hearings, as you may recall, did not go well for Team Prenda and all its associated players. While Wright may be somewhat limited in what he can do to Prenda, it appears he's doing his best to throw whatever book he can at them, randomly using as many Star Trek references as he can cram into the tight 11 page order. The discussion lays out the details pretty clearly. We'll post the whole key part of the discussion, because it Judge Wright isn't wasting time and I'm sure many of you will appreciate it:

Steele, Hansmeier, and Duffy (“Principals”) are attorneys with shattered law practices. Seeking easy money, they conspired to operate this enterprise and formed the AF Holdings and Ingenuity 13 entities (among other fungible entities) for the sole purpose of litigating copyright-infringement lawsuits. They created these entities to shield the Principals from potential liability and to give an appearance of legitimacy.

AF Holdings and Ingenuity 13 have no assets other than several copyrights to pornographic movies. There are no official owners or officers for these two offshore entities, but the Principals are the de facto owners and officers.

The Principals started their copyright-enforcement crusade in about 2010, through Prenda Law, which was also owned and controlled by the Principals. Their litigation strategy consisted of monitoring BitTorrent download activity of their copyrighted pornographic movies, recording IP addresses of the computers downloading the movies, filing suit in federal court to subpoena Internet Service Providers (“ISPs”) for the identity of the subscribers to these IP addresses, and sending cease-and-desist letters to the subscribers, offering to settle each copyright infringement claim for about $4,000.

This nationwide strategy was highly successful because of statutory copyright damages, the pornographic subject matter, and the high cost of litigation. Most defendants settled with the Principals, resulting in proceeds of millions of dollars due to the numerosity of defendants. These settlement funds resided in the Principals’ accounts and not in accounts belonging to AF Holdings or Ingenuity 13. No taxes have been paid on this income.

For defendants that refused to settle, the Principals engaged in vexatious litigation designed to coerce settlement. These lawsuits were filed using boilerplate complaints based on a modicum of evidence, calculated to maximize settlement profits by minimizing costs and effort.

The Principals have shown little desire to proceed in these lawsuits when faced with a determined defendant. Instead of litigating, they dismiss the case. When pressed for discovery, the Principals offer only disinformation—even to the Court.

The Principals have hired willing attorneys, like Gibbs, to prosecute these cases. Though Gibbs is culpable for his own conduct before the Court, the Principals directed his actions. In some instances, Gibbs operated within narrow parameters given to him by the Principals, whom he called “senior attorneys.”

The Principals maintained full control over the entire copyright-litigation operation. The Principals dictated the strategy to employ in each case, ordered their hired lawyers and witnesses to provide disinformation about the cases and the nature of their operation, and possessed all financial interests in the outcome of each case.

The Principals stole the identity of Alan Cooper (of 2170 Highway 47 North, Isle, MN 56342). The Principals fraudulently signed the copyright assignment for “Popular Demand” using Alan Cooper’s signature without his authorization, holding him out to be an officer of AF Holdings. Alan Cooper is not an officer of AF Holdings and has no affiliation with Plaintiffs other than his employment as a groundskeeper for Steele. There is no other person named Alan Cooper related to AF Holdings or Ingenuity 13.

The Principals ordered Gibbs to commit the following acts before this Court: file copyright-infringement complaints based on a single snapshot of Internet activity; name individuals as defendants based on a statistical guess; and assert a copyright assignment with a fraudulent signature. The Principals also instructed Gibbs to prosecute these lawsuits only if they remained profitable; and to dismiss them otherwise.

Plaintiffs have demonstrated their willingness to deceive not just this Court, but other courts where they have appeared. Plaintiffs’ representations about their operations, relationships, and financial interests have varied from feigned ignorance to misstatements to outright lies. But this deception was calculated so that the Court would grant Plaintiffs’ early-discovery requests, thereby allowing Plaintiffs to identify defendants and exact settlement proceeds from them. With these granted requests, Plaintiffs borrow the authority of the Court to pressure settlement.

That last paragraph is the key one. Given all of this, Judge Wright looks at what he can do. First, he digs into the failure of Team Prenda to "conduct a sufficient investigation" into whether or not anyone they were suing actually infringed on the copyrights they held. However, he notes, his bigger concern is not the lack of sufficient investigation, but rather Prenda's attempt at a "cover-up" of this point as well as Gibbs' "hasty after-the-fact investigation, and a shoddy one at that." In fact, he calls certain statements from Gibbs concerning the investigation "a blatant lie."

Gibbs’s statement is a blatant lie. His statement resembles other statements given by Plaintiffs in this and their other cases: statements that sound reasonable but lack truth. Thus, the Court concludes that Gibbs, even in the face of sanctions, continued to make factual misrepresentions to the Court.

However, he notes that even with this, it is inappropriate to impose Rule 11 sanctions (typically used for attorney misconduct) because the cases have already been dismissed. Wright then goes through a list of other deceptions by Prenda, including the Cooper forgery, ignoring the order blocking early discovery, the self-dealing with the copyright, the failure to disclose their own interest in the case, and other attempts to obfuscate facts. However, he notes, sanctions are still not the most appropriate, given that a decently large sanction wouldn't be effective because the plaintiffs "will transfer out their settlement proceeds and plead paucity."

However, he obviously does not feel they should be let off the hook. So he orders:

• They have to pay the defendant's legal fees of $40,659.86, which he then doubles "as a punitive measure" to $81,319.72, noting "This punitive multiplier is justified by Plaintiffs’ brazen misconduct and relentless fraud."
• He notes that "The Principals, AF Holdings, Ingenuity 13, Prenda Law, and Gibbs are liable for this sum jointly and severally, and shall pay this sum within 14 days of this order." Basically, all of them together are responsible for figuring out how to pay the money. As defined earlier, Steele, Hansmeier and Duffy are "the Principals" though I wouldn't put it past the three of them to claim that they are non-parties to all of this and thus not responsible for the payment.
• The bigger issue: referring the conduct of Steele, Hansmeier, Duffy and Gibbs to various state and federal bars. As Wright notes: "there is little doubt that that Steele, Hansmeier, Duffy, Gibbs suffer from a form of moral turpitude unbecoming of an officer of the court." That won't look good on a resume.
• The even bigger issue: alerting the feds of possible racketeering violations:

  though Plaintiffs boldly probe the outskirts of law, the only enterprise they resemble is RICO. The federal agency eleven decks up is familiar with their prime directive and will gladly refit them for their next voyage. The Court will refer this matter to the United States Attorney for the Central District of California. The will also refer this matter to the Criminal Investigation Division of the Internal Revenue Service and will notify all judges before whom these attorneys have pending cases. For the sake of completeness, the Court requests Pietz to assist by filing a report, within 14 days, containing contact information for: (1) every bar (state and federal) where these attorneys are admitted to practice; and (2) every judge before whom these attorneys have pending cases.

• And, finally, a smaller issue: Duffy and Gibbs, who are admitted to practice in California are referred to the "Standing Committee on Discipline." That's a relatively minor point given all of the above.

The end result may not yet be that satisfying for Prenda-watchers, but Team Prenda may still be in serious, serious trouble. This actually matches Ken White's predictions pretty damn closely, where he noted the limited ability to sanction, but focused on the referrals to the feds and to various state and federal bars. The inclusion of the IRS is an interesting one, as the evidence suggested that Team Prenda wasn't paying taxes on the money coming into the various shell companies.

So now we wait to see what, if anything, the feds will do -- though, as Ken noted, when a federal judge recommends such an investigation, the feds tend to follow through.

Filed Under: angela van den hemel, brett gibbs, john steele, mark lutz, morgan pietz, otis wright, paul duffy, paul hansmeier, prenda
Companies: prenda, prenda law

Mutual 'Friend' Of John Steele And Alan Cooper Implies That Cooper Was 'Off His Meds' When Accusing Steele Of Identity Fraud

from the the-plot-thickens dept

A bunch of new filings in the main event Prenda case have added some new wrinkles to the ongoing soap opera. The documents were all filed by Heather Rosing, representing Prenda Law, Paul Duffy (officially Prenda's only principal) and Angela Van Den Hemel (a paralegal at Prenda). She is not representing John Steele or Paul Hansmeier, who many have alleged are the real masterminds behind the Prenda scheme (Rosing did briefly represent both of them as well, but that was only in pushing back against appearing at the original March 11th hearing). However, the document that will undoubtedly bet the most attention is the one that Rosing filed as a bizarre character attack on Alan Cooper. It's a declaration from a "mutual friend" of John Steele and Alan Cooper suggesting that Alan Cooper has mental problems and that he was "off his meds" when he made the accusations against Steele. You can't make this stuff up (well, I can't...). The declaration is full of hearsay, but basically Brent Berry, who claims he introduced Cooper and Steele, suggests very strongly that Cooper is not right in the head, and does crazy things when not properly on medication.

Beginning in late 2011, Alan began exhibiting unusual behavior on various occasions when I was visiting the property. Alan began acting erratic, frequently threatening to hurt others.

On several occasions, Alan bragged that "If I pissed him off, they would never find my body, just like the others"

Due to Alan's strange behavior, I began to minimize my contacts with him unless others were around. Although I still consider Alan a very good person and a friend to this day, on some days he acted like a completely different person and extremely agitated. I later found out from Alan that the days he had acted very unusual were the ones in which he had not taken certain antipsychotic medication his doctor had prescribed.

[....]

Almost immediately I became aware that Alan's mental state had further deteriorated and felt very uncomfortable to be alone around him.

On approximately August 13th of 2012, I went to Mr. Steele's property to prepare it for a potential buyer. My girlfriend was with me on this trip. Alan came out of his cabin and was clearly in an extremely agitated state. Before I could even speak with him, he began threatening to hurt me. Due to the manner in which made the threats were made, his comments about past violence, I felt in fear for my life.

I immediately called John Steele and told him what happened and that I could not show the property under these conditions. I contacted the Aitkin County police department to report what had happened. Due to Mr. Steele's request, I did not follow through with filing charges.

Alan has sent me a variety of bizarre text messages, accurate copies of which are attached in Exhibit A hereto. In these text messages, Alan threatened to shoot me, indicated that he was removing wood from Mr. Steele's property, explained that he had some mental disorder(s), and apologized for his bizarre behavior.

Although Alan requested in his texts that I go to his doctor that was treating him for his mental illness.

Alan indicated that if I entered the property he would shoot me. Although Alan stated he would only shoot me in the foot, I felt out of an abundance of caution not to trust his assurance that he would only shoot me in a non-critical part of my body.

The full filing (linked above and embedded below, also shows these text message exchanges, poorly photographed. Here's just one of them. Frankly, reading the texts, they don't sound quite as bad ad Berry suggests they are. And the statements clearly lack context, and appear to involve a lot of other discussions not shown in the screenshots. Most importantly, they seem to have absolutely nothing to do with Steele, Prenda, AF Holdings or anything like that.

In the same filing, Berry states that in hanging out with Steele and Cooper, he was involved in many conversations with them -- and while he doesn't seem to have full details, he suggests that Cooper was knowingly helping Steele out on various legal projects, including a "porn company."

On several dates, I had occasion to be present when Mr. Steele and Alan would speak about various matters. Normally this occurred while we were sitting around campfire located between the two cabins.

Alan and Mr. Steele seemed to have a very good realtionship and Alan would routinely ask John how he wished he could help Mr. Steele for all the things Mr. Steele did for Alan, such as allowing him to live on the property for free.

It was clear from their conversations and references to Mr. Steele's legal work that Alan was involved working with Mr. Steele. Alan did not seem upset about this relationship, and in fact often made jokes about not having to worry about ever buying beer again due to his assisting Mr. Steele.

I remember Mr. Steele at various times asking Alan to assist him with certain paperwork and I never saw Alan objecting to this assistance.

On at least one occasion. I recall Alan asking John, "How's my porn company doing?"

It is not difficult to see where Steele is trying to go with this. He's working on a character attack against Cooper, arguing that he's mentally ill and "off his meds" while also suggesting that he was a willing participant in Steele's legal activities. It would be interesting to see if there's any other evidence to support this, because at first glance this seems quite sketchy (even beyond the typos and odd sentence structure such as sentences that are not complete). Second, almost none of it is conclusive. It's all just vague hints and statements that present little actual evidence relevant to whether or not Cooper actually was helping out Steele. Vague claims of "this guy seems crazy and off his meds" seem unlikely to sway Judge Wright given everything else he's seen. Even if we take Berry at his word, it suggests that Steele put someone he knew to be unstable in charge of one of his key "companies."

Furthermore, the statements by Berry actually support the argument that Steele was really the guy behind the scheme, and that Cooper was a mere figurehead. The fact that he asks "How's my porn company doing?" and all of the references in which Berry claims Cooper is doing work for Steele, if true, could actually add more evidence to the claim that Steele was pulling all the strings and using Cooper.

While the other documents aren't quite as entertaining, they may have a greater impact. Rosing presents the "legal arguments" she wanted 25 minutes to make during the last hearing. It basically says the judge can't do very much, and even when he can "sanctions are not appropriate," because nothing was done wrong. Rosing also complains about the way the court is handling the case, including the fact that, during the first Prenda hearing, the judge allowed a lawyer in the crowd, Jason Sweet (who has fought Prenda multiple times), to speak up and make a point about how Brett Gibbs represented himself in the past. As our post by Ken White noted, this "Perry Mason" moment was highly unusual. The rest of the filing argues that nothing that was done is actually sanctionable activity, including pushing back against the claim that Gibbs did a bad jobs in determining if someone was likely guilty of infringement. As Ken White notes in his writeup about these filings a lot of this is irrelevant, since it only matters if Judge Wright relies on the things that Rosing objects to.

Rosing then moves further along the argument chain, noting that even if there are sanctionable activities "it wasn't us!" It's not quite throwing Steele and Hansmeier under the bus, but it comes close. There are also some procedural complaints about being summoned to California on short notice (along with the jurisdiction questions), but, really, the crux of the argument is that Prenda Law had no idea what was going on under its banner. They also challenge the point about Prenda's refusal to show the cases as related based on another ruling that said they weren't related. There may be some legitimate complaints in there, but the "we had no idea" argument probably won't be that helpful to Paul Duffy, seeing as he's officially the only principal of Prenda Law and has been clearly involved in many of the cases. I could see the court going easy on the paralegal, suggesting she was just dragged into this, but earlier evidence does suggest that she was involved in pushing AT&T and possibly other to fork over names, even the court had already said that Prenda had to put its subpoenas on hold.

Separately, Rosing shows how Duffy and Prenda have been dropping all the various Prenda related cases just to be safe, as an apparent sign of good faith or something.

All in all, Rosing may get a little somewhere with this filing, and may help her individual clients -- Paul Duffy, Andgela and Prenda itself as a corporate entity. But it's hardly a slam dunk, and should have little impact on John Steele or Paul Hansmeier who are represented separately. I'll be curious to see if anything else comes out of the Berry filing, which seems like a pure joke at this point.

Filed Under: alan cooper, angela van den hemel, brent berry, heather rosing, john steele, paul duffy
Companies: prenda, prenda law

As Expected, Team Prenda Trying Desperately To Get Out Of Appearing On Monday

from the well-of-course dept

All week I've been checking the docket on the Prenda case where the showdown is supposed to be happening on Monday, fulling expecting to see John Steele, Paul Duffy, Paul Hansmeier and others desperately trying to get out of appearing, and it's finally showed up -- but not via their own filing, but rather opposing attorney Morgan Pietz who received the documents before the court did, and is opposing them, in part by arguing that Team Prenda stalled in filing these documents. Team Prenda try a variety of arguments, first noting that they have nothing (nothing, I tell you!) to do with the case, and they point out that Brett Gibbs and the lawyers he hired are the lawyers on the case. They're even so bold to claim that they have "no dog in this fight."

Even where the court seeks to adjudicate issues between parties, it must have personal jurisdiction over them. Here, Steele, Hansmeier, Duffy, and Van Den Hemel are not parties and have not otherwise participated in this litigation. As such, the public policy behind the need to determine personal jurisdiction is arguably at an elevated level because, as individuals, they effectively have "no dog in this fight."

As if anyone believes that.

Then they claim lack of jurisdiction by the court:

On March 5, 2013, this court issued an order that eight individuals would have to appear before this court on March 11, 2013. But this court lacks jurisdiction to order those individuals to appear in that they reside outside California, are not parties to this litigation, have not appeared in this action, and do not represent parties to this action.

Moreover, although some of these individuals may have received notice as the court ordered, others did not because those charged with providing notice simply lacked the information necessary to do so. And, even those that were served have not received reasonable notice of the nature of the proceedings they are being ordered to appear in or what is expected of them besides their physical presence.

Further, they have not received a reasonable amount of notice to accommodate cross-country travel or information regarding who will pay for such travel. Based on these factors, the court should withdraw its order for John Steele, Paul Hansmeier, Paul Duffy, and Angela Van Den Hemel to appear on Monday, March 11, 2013 at 1:30 P.M.

On top of that, they argue that they "can be nothing more than witnesses."

Here, because they are not parties in this action, Steele, Hansmeier, Duffy, and Van Den Hemel can be nothing more than witnesses. California Code of Civil Procedure section 1989 provides that "a witness . . . is not obliged to attend as a witness before any court, judge, justice or any other officer, unless the witness Is a resident within the state at the time of service." None of these individuals named in the court's March 5, 2013 reside in California... Thus, the court lacks jurisdiction to order them to appear.

Furthermore, they claim that even thought it seems quite likely that they heard about this order immediately after it came out on March 5th, that they didn't actually find out about it until yesterday, March 7th, which (they claim) is not enough notice.

Although counsel submitting this application has been unable to identify any authority addressing the notice requirements to witnesses ordered to appear at such hearings, logic dictates that such individuals should at least be similarly accommodated with reasonable notice. Here, the court's March 5, 2013 order that notice be provided by March 7, 2013 to attend a March 11, 2013 hearing with no further information is fundamentally unreasonable.

Oh yes, and they also say that they need to be paid to show up:

Finally, witnesses are entitled not only to receive payment for their attendance, but also for travel expenses.... But, the court's order not only fails to provide who will compensate Steele, Hansmeier, Duffy, and Van Den Hemel for their time and these expenses, but that they will be compensated at all. Given the considerable expense of traveling such distances (including consideration of the fact that one of the witnesses likely has limited means given her employment as a paralegal), especially on such short notice when many common carriers may not have seats available, this is a significant issue.

As is typical for Prenda, throwing any excuse at the wall to see what sticks.

Morgan Pietz has already filed a response noting the claims of the court not having jurisdiction are basically bullshit, since all of these guys have been involved in this and other Prenda cases in California. He lists out each and every person and notes their connection to California or this case in particular. I won't post them all, but here's the entry on Steele:

John Steele has frequently sent demand letters into the State of California, seeking to pressure Internet users into settling copyright infringement claims. An example of only one such letter (undersigned counsel knows there are many more) accompanies this opposition as Exhibit 1 to the Declaration of Nicholas Ranallo. Further, Mr. Steele has not been shy about conducting media interviews, with California publications, about his California cases. See http://www.sfgate.com/business/article/Lawsuit-says-grandma-illegallydownloaded-porn-2354720.php. Accordingly, both general and specific jurisdiction exists over John Steele.

For Paul Hansmeier, they note he already traveled to California for that deposition. Paul Duffy is a member of the California Barr, and has taken over some Prenda cases in California for Brett Gibbs. Oh yeah, and the paralegal Angela Van Den Hemel is accused of violating the court's discovery order in this very case, so the jurisdiction over her is even clearer.

Pietz also claims that the short timeframe argument is bogus too, and suggests that Prenda chose to file this attempt to get out manually in an attempt to delay the whole thing, and even notes the oddity that he got the documents before the court did:

It appears that the Application may have been manually filed in order to create a purposeful lag time (of the motion getting from the filing window to chambers) on what is supposed to otherwise be an emergency motion. It is unclear why undersigned counsel found himself in possession of a copy of the moving papers prior to the Court. Further, the original amount of time was reasonable.

And now... we see what Judge Otis Wright thinks about all of this...

Filed Under: angela van den hemel, brett gibbs, fees, john steele, jurisdiction, morgan pietz, paul duffy, paul hansmeier, prenda, prenda law
Companies: prenda, prenda law