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
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
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.
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