A number of interested readers have wondered what my opinion was about Monday’s sanctions hearing against Prenda Law Inc., Brett Gibbs, John Steele, Paul Hansmeier, and the others [Case Cite: Ingenuity 13 LLC v. John Doe, Case No. 2:12-cv-08333, in the California District Court (Case Documents “Recap’d” here)]. Quite frankly, I read the #Prenda Twitter stream throughout the day just as many of you did.
Up front, there were some pretty good articles on the event, and as far as I am concerned, there is nothing substantive that I can add to what has already been written. I advise anyone affected by the AF Holdings, LLC cases (or any of Prenda Law Inc.’s so-called “trusts”) to read the following articles:
IN ORDER OF APPEARANCE:
- Techdirt [1 of 2]: “Team Prenda Does Not Show Up In Court; Judge Is Not Amused”
- Techdirt (via Popehat) [2 of 2]: “Deep Dive Analysis: Brett Gibbs Gets His Day In Court — But Prenda Law Is The Star” (alt link)
- ArsTechnica: “Angry judge blasts porn trolls: ‘Someone has an awful lot to hide'”
- FightCopyrightTrolls: “March 11 hearing: another story by a witness”
In sum, it is my opinion that whatever the result, there was a lesson taught — that copyright trolls are not “above the law,” so to speak. As far as the effect of Monday’s hearing, we will not know the effect until we read Judge Wright’s order (which we do not expect to see for a few days). However, as for the applicability, the ruling will apply nationwide, and no doubt every court which hears their cases will probably receive a copy of the order.
There is a lot of mention of “trusts” when it comes to the Steele|Hansmeier organization. I have a “love-hate” relationships with trusts. They form a wonderful legal alter-ego function when it comes to protecting assets and benefiting third party beneficiaries. However, in scenarios like this, I believe they are tools to break the law and hide from responsibility. The problem here is that I’m not so sure Steele and Co. could pull off having a trust without it being broken by the courts.
From what I have read, it is my opinion that there is too much involvement in the trust by all parties, and putting it simply, keeping the classic definition and rules of a trust, I’m not sure they’ve done it in a way which could withstand scrutiny. For example, I’m not sure who the grantor is, who the grantee (receiver of assets) is, and for which beneficiary or purpose was the trust formed. Are there any documents relating to the formation of the trust? Are there any filings anywhere relating to the trust? Also, who is the trustee who is in charge of directing and managing the funds of the trust? I would be worried of the parties mishandling the movement of the funds (the trust assets), and this is where they may get busted for playing the trust game… not to mention that I hear that nobody has filed taxes on this income and all the members are U.S. citizens? I can’t believe no taxes have been filed or paid, because if not, the IRS would be after them for tax evasion (and I have heard nothing of the sort happening).
As far as the Hansmeier deposition that nobody gets paid and that every lawyer gratuitously works for free without receiving an income, I call BS on that statement. It appears to me that he is playing semantics with the term “income” according to the tax code, and he can get in trouble the way he has maybe misused the term. No lawyer, as wonderful as any of them might be, would work for “no income.” Even Brett Gibbs. I assume there is some foreign trust account set up for each of them into which funds get deposited on a regular basis. And, those “offshore trusts” need to pay taxes just like any other legal entity.
My sadness from Monday’s events stem from the fact that Steel/Hansmeier/Duffy clan staying out of court was a very smart move. By staying as far away from the court as possible, Judge Wright was unable to swear them in, and he was unable to take their [what would likely have been incriminating] testimony. If he sanctions them, if he orders a bench order for their arrest (not likely), or if he does something to them, from a distance [and out of jail], they can easily appeal any order the judge makes, essentially eviscerating any legal authority Judge Wright may show.
I mentioned to a few other lawyers how queasy attorneys get when a judge speaks strong words. However, we all have been watching these cases for almost THREE YEARS NOW (come June), and I have never seen a judge do any damage to a copyright troll. Even Evan Stone, the prolific copyright troll out of Dallas, Texas — for sending subpoenas out before the judge gave authorization to do so, he was only sanctioned $10,000 (essentially one day’s income for Steele, according to Alan Cooper’s testimony, or three of Evan Stone’s settlements).
At the end of the day, unless the result of this hearing is a state bar disciplinary hearing (or more seriously, a criminal investigation if there was indeed “fraud” in the legal sense), and unless some lawyers lose their licenses, there will be no deterrence from Prenda Law Inc. (or any other copyright troll) thinking twice about their actions, and copyright trolling lawsuits will grow exponentially until enough people cry out, “this must be stopped!”
SJD reports that Judge Wright has ordered the Steele|Hansmeier gang to appear on 3/29/2013 based on “their pecuniary interest and active, albeit clandestine participation in these cases” (emphasis added). He continues that “Not only does [their motion not to appear] lack merit, its eleventh-hour filing exemplifies gamesmanship” (emphasis added). Wow. Further, the judge expanded his inquiry to impose sanctions not only to the original masterminds of these lawsuits, but to the so-called entities who are supposed to be separate and apart from their operation (they’re not). He called Livewire Holdings LLC, and 6881 Forensics, LLC to be present at the hearing. Now if these entities will be represented by the same Steele / Hansmeier / Duffy / Lutz characters (Hansmeier’s deposition already pegged paralegal Lutz as the CEOs of a number of these entities), this will look very bad for them.
NOTE: A commenter referred to this article (or me) as a “buzzkill,” and that got a good laugh out of me. If you knew how much my reporting on these blogs represented how dull I sometimes am in real life, the humor of that comment is pretty on-point. On this note, however, if you read Judge Wright’s order carefully, again, he’s only threatening sanctions. Even if he imposes $1 million dollars in sanctions, I cannot imagine Steele and the others would pay it. After all, they technically don’t “own” that money that is in the various trusts (#sarcasm).
- ArsTechnica Article, “Court will sanction Prenda lawyers if they don’t appear March 29“
- SJD Article, “Prendacalypse #2: Judge Wright orders a follow-up hearing on March 29; no excuses for not appearing,” and
- Popehat Article, “Another Day of Reckoning Scheduled For Prenda Law“
CONTACT FORM: If you have a question or comment about what I have written, and you want to keep it *for my eyes only*, please feel free to use the form below. The information you post will be e-mailed to me, and I will be happy to respond.
NOTE: No attorney client relationship is established by sending this form, and while the attorney-client privilege (which keeps everything that you share confidential and private) attaches immediately when you contact me, I do not become your attorney until we sign a contract together. That being said, please do not state anything “incriminating” about your case when using this form, or more practically, in any e-mail.
16 thoughts on “TorrentLawyer: Thoughts about the effects from Monday’s sanctions hearing.”
Way to be a buzzkill!
Seriously though, thank you for your honest impressions and helping to temper some expectations.
Regardless of the ruling and the effects of Judge Wright’s ruling, I do feel grateful knowing that wonderful people like you, SJD, Raul, DTD, darkmoe, copyright clerk, Pietz, Ranallo, and everyone else that I didn’t include are fighting to improve a horrible state of affairs.
Sorry. I forgot to mention that I too am very excited to see the ruling, and I have positive thoughts and am looking forward to a good result as well.
I get that it was a smart move of Steele’s, Hansmeier’s, and Duffy’s parts not to show up and get under oath, but can’t they still face bar issues, and if the defamation suits continue, aren’t they each opened up for deposition?
Yep, and AFAIK, yep.
Well at least I got a laugh and did not offend (as none was intended).
I know Wright is only threatening sanctions, and even though that really doesn’t effectively kill Prenda’s business model, or as you mention have an effect on the participants; wouldn’t it be very, very bad for them in future litigation?
Nah. I know of patent trolls who have been sanctioned $700,000 for doing something silly (not doing proper research before suing), and they never paid a penny. They just continued their lawsuits, appealed the sanctions order, and two years later, got it overturned.
Same deal with the sanctions against Evan Stone. He can still file his copyright trolling lawsuits in Dallas as often as he wants. Do you think anyone would take him less serious because he broke a judge’s ruling (“not yet”) and sent subpoenas to the ISPs anyway? His sanctions were $10,000.
Wow…possible sanctions for fraud on the court has no effect on one’s career? Jeez, I wish I had a job with such a lax view on ethics as that…
Without killing the mood anymore (evil face), is it still at least possible (possible, not likely!) that Judge Wright could refer the matter to the DOJ or FBI or what-have-you for a possible criminal investigation?
I would think this (FBI, DOJ, OIG, IRS) is what Steele, Hansmeier, and the others are afraid of… an investigation into activities that cross the line from being “legal but unethical” to being outright illegal.
@AnonLitSupport comment on Popehat’s site: “I’m guessing they show up – with a criminal defense attorney and 5th Amendment argument in tow.” Agree.
Hypothetically, if a large sanction were to be imposed, and they didn’t pay it, what other recourse is there, if any, to stop this madness?
Referral to bar association(s) for reprimand and/or disbarment, referral to attorney general for criminal investigation, bench warrant for arrest, etc.
Nobody likes to get sanctions, but chances are, the sanctions will be small compared to the “crimes” allegedly committed. Otherwise, the sanctioned parties can cry foul and claim the sanctions were “disproportionate” to the activities allegedly committed, and they would be appealed and scrutinized by a judge who may be more forgiving than the judge who issued the sanctions.
If that isn’t rich:
“the sanctioned parties can cry foul and claim the sanctions were “disproportionate” to the activities allegedly committed”
That’s what Prenda has been doing to people for years. If the thinks there has been fraudulent activity he should make sanctions equal to all the money they’ve bilked from people since they never should have gotten it in the first place.
“On this note, however, if you read Judge Wright’s order carefully, again, he’s only threatening sanctions.”
Wright has already put incarceration on the table as a possible sanction. From 2/7 OSC:
“the Court will consider whether sanctions are appropriate, and if so, determine the proper punishment. This may include a monetary fine, incarceration, or other sanctions sufficient to deter future misconduct. ”
Here we are a month later, and it seems that Wright has all but made up his mind that sanctions are appropriate… now we just have to wait to learn what type of sanction he feels will deter future misconduct.
Admittedly, this statement was directed at Gibbs, but that was when he didn’t know the depth of involvement of the other parties. I think it’s safe to say this statement in the OSC now applies to all parties in today’s order.
It’s not merely “safe to say,” the order literally says:
Thus, the Court amends its February 7, 2013 Order to Show Cause (ECF No. 48) to include sanctions against the persons and entities in subparagraphs a–m below:
a) John Steele, of Steele Hansmeier PLLC, Prenda Law, Inc., and/or Livewire Holdings LLC;
b) Paul Hansmeier, of Steele Hansmeier PLLC and/or Livewire Holdings LLC;
c) Paul Duffy, of Prenda Law, Inc.;
d) Angela Van Den Hemel, of Prenda Law, Inc.;
e) Mark Lutz, of Prenda Law, Inc., AF Holdings LLC and/or Ingenuity 13 LLC;
f) Alan Cooper, of AF Holdings LLC;
g) Peter Hansemeier, of 6881 Forensics, LLC;
h) Prenda Law, Inc.;
i) Livewire Holdings LLC;
j) Steele Hansmeier PLLC;
k) AF Holdings LLC;
l) Ingenuity 13 LLC; and
m) 6881 Forensics, LLC.
It seems many people at first glance took this to be a mere reiteration of the March 5 order to appear that our boys blew off, but it is more than that. It is actually a fresh order to show cause that expands sanctions to everyone (and not just the people but the entities), as well as another order to appear.
Wright also slipped in a mention that these people may have defrauded the court, sort of like how Steve Jobs would say “Oh yeah, there’s one more thing…” And it would turn out to be the main event.
One particularly devious trick Wright is playing is continuing to order Alan Cooper of AF holdings to appear, as well as ordering Brett Gibbs to serve him with this order and file proof of service by Monday. This is likely impossible, as Alan Cooper of AF Holdings seems not to exist (presumably if he did exist, they would have no reason to find themselves in this position).
Wright seems to have more than enough to get where he’s going, but forcing them to fail to produce their Alan Cooper will be checkmate. If they can’t produce the man they will be pretty well caught filing forged document in a number of federal courts, John Steele will be the likely forger, and you can speculate on where it will go from there.
Part of me really wants to send Judge Wright a popcorn gift basket so he can have something to munch on as they stand before him twisting and turning…