Appeals Court Smacks Down Team Prenda… Again

Legal Issues

from the still-waiting-for-the-truth-to-come-out,-huh? dept

Back in April it seemed fairly clear that the 7th Circuit Appeals Court panel set up to hear the Prenda appeal of the Lightspeed v. Anthony Smith case was not impressed by Team Prenda. I mean, when a judge directly states “there’s a lot of shell games going on here” and also points out that it’s “shocking” that the lawyer representing Prenda has no idea about the relationship between Prenda, Alpha Law and Steele Hansmeier (a central issue in the case), you expect that the eventual ruling is going to not go well for Team Prenda, but you never really know until the ruling comes out. It has come out. And it is not good news for Team Prenda. Any time a ruling starts off with the following, you know you’re going to be in for a good ride:

The first rule of holes, according to an old saying, is to stop digging. The two appeals before us bring that to mind, for reasons that will become apparent.

Yes, a failure to “stop digging” has long been a major fault many of us have associated with Prenda “mastermind” John Steele, and the judges clearly see that as well. They go through the history of the case, highlighting a bunch of questionable moves by Steele and Paul Hansmeier in demanding names from ISPs and using a bunch of questionable legal claims in the original lawsuit, and pretty quickly get at the “shell games”:

At the same time, Hansmeier submitted a motion for pro hac vice admission; he did not identify a law firm on the form. Steele entered an appearance in which he listed his firm as Prenda Law. The firm affiliations, however, turned out to be provisional, to put it kindly. At the emergency motion hearing, Steele identified his firm as Steele Hansmeier PLLC, Duffy said that he was with Prenda Law, and Hansmeier was with something called Alpha Law Firm. Steele Hansmeier and Prenda are listed at the same street address, 161 North Clark Street, in Chicago, in different suites.

Later, the court notes dryly that when Hansmeier submitted a motion to withdraw, he did so “without indicating which firm he was with.” The court then notes how Team Prenda was engaged in similar shenanigans elsewhere, citing the famous smackdown from Judge Otis Wright in California.

Then we get to the meat of the appeal. First, the silly claims (tried repeatedly) from Steele and Hansmeier that they were never properly informed about Smith’s motion for sanctions. The court doesn’t buy it. At all:

The record, however, does not support them. First, as the district court concluded, even if we assume that they did not have notice originally, that defect was cured when the district court granted rehearing on the sanctions issue. Indeed, in their briefs before this court, Steele and Hansmeier seem to concede as much. Their complaint has shifted to one focusing on the adequacy of their opportunity to respond. It is too late to change theories, however, and in any event, the district court correctly ruled that whatever procedural flaw there may have been was fully corrected by affording a new opportunity for a hearing. Finally, they received adequate notice in the first place.

The court further notes that the attempts by Steele and Hansmeier to claim that even if Duffy was properly notified it doesn’t mean they were ring pretty hollow, given how the three of them keep collaborating and using the ever-shifting names of each other’s law firms:

Duffy received notice, he was in charge of Prenda Law, and there was evidence that both Steele and Hansmeier were working for Prenda as well. While appellants huff that the district court ?wholly gloss[ed] over the fact that Hansmeier noticed his appearance in the case for Alpha Law Firm, not Prenda Law,? the district court had ample reason to find the Prenda/Alpha distinction illusory at best, fraudulent at worst. Two days after Steele moved to withdraw from this case, he declared in another action that he was ?of counsel with the law firm, Prenda Law, Inc.? and that Hansmeier was ?also of counsel to the firm.? … And this is to say nothing of the fact that at least once Hansmeier indicated in this case that he was of counsel to Prenda.

And, that’s not all. The court unpacks a bunch of the connections:

A quick look at publicly available documents supports the district court?s finding that service on Duffy also accomplished service on Steele and Hansmeier. In its application for authorization to transact business in Florida, Steele Hansmeier, a Minnesota corporation, listed its mailing ad? dress as 161 N. Clark St. No. 3200, Chicago, IL 60601. Paul Hansmeier is listed as Manager and his address is listed as 1111 Lincoln Rd., Suite 400, in Miami Beach, Florida….

Interestingly, 161 N. Clark St. Suite 3200 is also listed as the principal place of business for Prenda Law, Inc., in its 2011 application for authorization to transact business in Florida. Its registered agent, Mark Lutz, uses the same Miami Beach address as Hansmeier did in the Steele Hansmeier application…. Alpha?s connection to Steele Hansmeier and Prenda shows up in a search for Steele Hansmeier on Minnesota?s business filing site. There, Steele Hansmeier lists its registered address as 80 S. 8th St. #900 Alpha Law Firm, Minneapolis, MN 55402.

In conclusion, the court basically calls “bullshit” on Steele and Hansmeier:

Little more need be said. We are disappointed that the appellants? own attorney, Daniel J. Voelker, was either unable or unwilling to tell us at oral argument about the precise relationship between Prenda and Alpha Law, despite its relevance for the issues on appeal. No matter: we have enough to conclude with confidence that notice to Duffy was reasonably calculated to apprise Steele and Hansmeier of the pendency of the motion. For the icing on the cake, we add that the district court also found that Steele received actual notice via email. Smith sent notice to the email address that Steele shared with Duffy. While Duffy argues that after he withdrew from the case he did not receive those emails, the district court did not find him to be credible. We have no reason to upset that assessment.

The ruling seems to be dripping with that kind of sarcastic understatement. The court then takes on the claim by Steele and Hansmeier that they were never given an opportunity “to be heard” in response to Smith’s motion for sanctions. Again, the court says “yeah, right.”

Once again, the record belies their assertion. As we have noted, they had adequate notice of the hearing. Duffy submitted a memorandum in opposition to Smith?s motion, but Steele and Hansmeier did not. Nonetheless, the court gave all three appellants another opportunity to be heard on the matter after they submitted motions to vacate or reconsider the order granting Smith?s request for attorneys? fees. Before the rehearing, Steele and Hansmeier both submitted briefs in opposition to Comcast?s fees. They chose not to submit additional briefs (apart from what was presented in the motion to vacate or reconsider itself) on any other aspect of the order

At the hearing Hansmeier explained in detail why he thought that sanctions should not be imposed against him; Steele spoke as well. This more than sufficed as an opportunity to be heard.

The court then turns its attention to Duffy. Duffy whined that he wasn’t given an opportunity to respond to the lower court’s decision granting fees to ISPs. Remember, in this case Team Prenda made the incredibly stupid decision to drag Comcast and AT&T into this lawsuit, after those two companies refused to just cough up names of people. Both companies decided to go after fees from Team Prenda, which they got. Duffy claimed that he never had a chance to respond to the motion for fees. The court, once again, points out that this is hogwash (or, more specifically, “frivolous.”)

While Steele and Hansmeier submitted timely memoranda in opposition to the ISPs? motions, Duffy did not. He asserts that he was not given an opportunity to respond because the district court ruled on the motions before the time to respond expired under the court?s local rules. This argument is frivolous. Duffy does not cite any local rule for this point, and had he taken the time to look at the rules, he quickly would have realized that there was time to respond. The ISPs electronically filed their motions on November 8, 2013. The local rules allow 17 days for any response to electronically filed motions… The rules provide that ?[f]ailure to file a timely response to a motion may, in the Court?s discretion, be considered an admission of the merits of the motion.?…. Duffy had until November 25, 2013, to submit his response, but he did not file anything. The district court granted the ISPs? motion on November 27, 2013. Duffy had an opportunity to respond; he simply chose not to exercise it.

The court also rejects the claim from all three that they didn’t have a chance to respond to the details of the fee itemization, noting that all three “had a full opportunity to respond to Smith?s itemization but chose to focus on other issues.” The court does admit that they didn’t really have a chance to respond to the ISPs’ itemization, but says “we conclude that this error was harmless.” It notes that no one has come close to suggesting that the ISPs’ itemization was unreasonable. In fact, the court points out that one of Team Prenda’s arguments is that Smith’s itemization is much higher than Comcasts — suggesting that they find Comcast’s to be more reasonable.

From there, they move on to the main act: Team Prenda wants to overturn the main ruling against them. The court is, again, not impressed:

Appellants next throw a variety of arguments regarding the substantive ruling against the wall, with the hope that one might stick. None does.

The court notes that Team Prenda’s use of the CFAA to try to route around copyright laws was clearly bogus. Even noting that the CFAA is ridiculously broad, the court notes that “this is a frivolous charge.” The court also rejects Team Prenda’s Hail Mary attempt to blame ISPs because people may have infringed on their service, an argument that is clearly blocked by the law (citing the DMCA’s safe harbors, though probably could have used CDA 230 as well for the non-copyright claims).

To this day, the appellants have provided no support for the idea that every time an internet user does something unlawful online, the user?s ISP is unjustly enriched because it continues receiving subscriber fees from the malefactor. The law in fact is to the contrary. See 17 U.S.C. § 512(a) (a ?service provider shall not be liable ? for infringement of copyright by reason of the provider?s transmitting, routing, or providing connections for? material distributed by others on its network).

As for the claim that there was a conspiracy between all the defendants, including the ISPs because they refused to cough up info? Um, no.

These assertions are utterly without legal merit. The complaint lacks even the most rudimentary allegation of agreement that would satisfy federal pleading standards. In addition, a service provider does not risk becoming a co?conspirator every time it challenges a subpoena. To argue that challenging a subpoena makes the ISPs co?conspirators in a fictional copyright infringement ring is frivolous. Appellants? theory is all the more outrageous given the fact that the Illinois Supreme Court quashed a functionally identical abusive subpoena.

The court basically agrees with everything the district court said about Team Prenda’s scheming in deciding that they deserved to be sanctioned for their actions:

The district court similarly did not abuse its discretion in awarding attorneys? fees to Smith from the inception of the suit. Lightspeed raised baseless claims and pressed for a meritless ?emergency? discovery hearing. The district court found that the litigation ?smacked of bully pretense.? At the November 13, 2013, hearing on fees, the court could not have been more clear: it stated that appellants were engaged in ?abusive litigation ? simply filing a lawsuit to do discovery to find out if you can sue somebody. That?s just utter nonsense.? We see no need to belabor the point. The record amply supports the district court?s conclusions, as our discussion of the case thus far demonstrates. There was no abuse of discretion in the court?s decision to grant either the ISPs or Smith fees for the entire case

So far, Team Prenda seems to be scoring a perfect zero, and their luck doesn’t get any better as they move into challenging the fact that the court lumped all of them together in making them jointly and severally liable. Team Prenda didn’t like it. The court says, deal with it:

Appellants begin by asserting that the district court misapplied section 1927 by holding them vicariously liable for each others? actions. They are mistaken. While it is true that section 1927 liability is direct…, an order holding parties jointly and severally liable for costs after determining that each one is individually liable is a finding of direct liability.

Next, they contend that FM Industries, Inc. v. Citicorp Credit Services, Inc…., stands for the proposition that a lawyer cannot be held responsible for documents that bear another?s name but not his own. FMI, however, does not stand for such a broad proposition. There, we upheld sanctions against an attorney, but we found that they could not be levied against the copyright specialist retained by plaintiff?s principal counsel….

[….]

The relevant question thus relates to the scope of responsibility undertaken by each individual attorney. In our case, the district court found that while Steele and Hansmeier were not listed on every court document, the evidence showed that they were ?in cahoots? with Duffy and worked with him to use the judicial system for a legally meritless claim. Their efforts seem to have continued in this court. While both Steele and Hansmeier now contend that they showed up in this case only after the federal proceedings were underway, the record shows that both were also involved in the shadows of the state court proceedings. Steele called AT&T?s counsel about the subpoenas, and he appeared and argued against the ISPs? motion to quash and motion to stay. Hansmeier appeared at a conference before a magistrate judge and was the sole signatory of the 10?page opposition to the ISPs? motion for the stay of discovery. While Steele and Hansmeier insist that they had only minimal activity with this case, the district court did not abuse its discretion when it found otherwise.

And finally, the court takes on Team Prenda’s appeal for their being found in contempt by the district court. As you may recall, after the original district court ruling that told them to pay $261,025.11, Team Prenda simply ignored it. They didn’t pay. When hit with the contempt claim, Team Prenda tried to pretend that the sanctions were ineligible for contempt (by twisting the law and pretending it was a “money judgment” and not “sanctions”) and then claiming they couldn’t pay. This was when the court ordered financial statements from all of them, receiving documents where the CPA who prepared them flat out admitted that they “elected to omit substantially all of the disclosures required by generally accepted accounting principles.” And thus, they were found in contempt, and Team Prenda appealed that too. Guess what the appeals court thinks of that? You’re right.

Appellants try to evade it by arguing that they thought the order was for a money judgment. But this was neither private nor public litigation against the attorneys. What was at stake was the court?s power to govern its bar. As section 1927 (and for that matter 28 U.S.C. § 1651) reflect, courts have the authority, through contempt proceedings, to sanction attorneys and to enforce their orders…. The money?judgment defense gets appellants nowhere.

Oh yeah, almost forgot. Team Prenda claimed there was no evidence that they didn’t comply with the sanctions. The court laughs:

Appellants next argue that there is no evidence that they did not substantially comply with the order, or at least take reasonable and diligent steps to do so. This position ignores the record. At the show?cause hearing appellants made clear that they had not paid anything and, when questioned about payment, they never pointed to any step in that direction. They elected instead to defend on the ground that they were unable to pay. Inability to pay is indeed a valid defense in contempt proceedings…, but the question whether the sanctions were paid is different from the question why payment was not made. The district court was entitled to answer the first one in the negative, given appellants? admission on the record that they had neither paid the required amount to defendants nor posted a supersedeas bond.

What about the whole “inability to pay” thing? Yeah, guess what the court thinks of that. It simply notes that the burden of an inability to pay is a high one and it’s totally on Team Prenda to prove — and they totally failed to do that.

End result: appeals court basically calls bullshit on every single Prenda claim and upholds the original ruling and the contempt finding. It also notes that while it may have skipped over some of the many arguments Team Prenda threw against the wall “any arguments we have not discussed do not merit separate attention.” Oh yeah, and the costs of the appeal are now to be added to the amount that Team Prenda has to pay up.

Filed Under: 7th circuit, anthony smith, john steele, paul duffy, paul hansmeier, team prenda
Companies: alpha law group, lightspeed, prenda, prenda law, steele hansmeier