Malibu Media Sues Its Former Lawyer Over Missing Funds, Breach Of Bar Rules

Legal Issues

from the filing-shows-MM-is-as-stupid-as-its-lawyer-is-crooked dept

All aboard the schadenfreude express! It appears that when you base your business model on dubious litigation, you also to attract dubious litigators. (See also: Righthaven, Prenda Law.) So, this latest development in the Malibu Media saga — brought to our attention by Sophisticated Jane Doe of Fight Copyright Trolls — is perhaps less surprising than inevitable.

Today Malibu Media (a litigation shell of a hardcore “barely legal” pornography producer X-Art), represented by its new counsel, Pillar Law Group, filed a lawsuit in Central District of California against its former counsel, Michael Keith Lipscomb and his firm, Lipscomb, Eisenberg and Baker (CACD 16-cv-04715).

The problem — or at least one of them — appears to be that Lipscomb, like his former client, isn’t a fan of sharing.

I’m still reading the complaint, but it seems that Lipscomb at some point (last fall) stopped paying Malibu/XArt percentage of ransom settlement proceeds and kept weaseling when he was asked a direct question “where is the money?”

Malibu Media employs a bit of kettle name-calling in the opening paragraphs of the complaint [PDF]:

Plaintiffs are informed and believe and thereon allege that Lipscomb used LEB as a mere shell, instrumentality, and/or conduit of each other, and commingled assets by and between himself and LEB to such an extent that any individuality or separateness of LEB ceased.

Yes, perhaps a little hypocritical of Malibu, considering it does the same thing on behalf of its porn production arm X-Art.

Much of what’s alleged appears to be the result of Malibu setting itself up to be burned. This complaint is its attempt to ice down the affected areas. What responsible company engages in this sort of behavior when suing people by the hundreds?

Upon information and belief, at the inception of their representation, LEB never provided MM with a written and signed retainer agreement setting forth the standards upon which LEB would provide legal services to MM and bill for those services, including whether LEB’s fee would be on a contingency, flat fee, or hourly basis, and which contained provisions for charges and apportionment of settlement amounts and costs.

Notwithstanding the lack of a written and signed retainer agreement, upon information and belief, MM would receive a fixed percentage of the total settlement amounts flowing from settlements. Upon information and belief, at some point the fixed percentage number changed and LEB also began to charge MM for the filing costs for new cases.

“Information and belief” isn’t nearly the same thing as a signed contract that contains both parties’ signature and a clearly-denoted agreement as to how all of these aspects of litigation are to be handled. Malibu Media’s pre-trolling preparations appear to be every bit as slapdash as the litigation that ensued under Lipscomb’s control.

What’s also interesting is that Lipscomb — and perhaps Malibu Media itself — appears to believe the trolling business model was no longer viable. After a few months of supposedly stashing away funds for future litigation, Lipscomb reversed course, declaring this particular form of litigation to be a dead end. As Malibu demanded detailed documentation of the supposed war chest (engaging the services of Pillar Law, which is also representing it in this suit), Lipscomb informed the legal reps that Malibu’s trolling days were over.

In one email dated April 5, 2016, Lipscomb indicated that “Malibu is winding its copyright campaign down because it is no longer profitable.” On April 12, 2016, Lipscomb indicated in order for LEB to “wind down” the campaign, an “engagement agreement” would need to be signed.

[…]

In another email dated April 12, 2016, Lipscomb indicated that the type of litigation involved in the campaign was “incredibly sophisticated and nuanced” and also warned that “if the cases (or the steps in a wind down process) are mismanaged… Malibu will lose cases or be sanctioned by courts or both.” He warned in another email dated April 12, 2016 that “[t]here is enormous potential liability to [MM] if this is not managed correctly.”

Lipscomb is only half right. Trolling is neither “sophisticated” nor “nuanced.” It’s half-junk mail, half-Ponzi scheme. However, much sophistication and nuance is needed to extricate trolls from lawsuits that go sideways. Without these, judges are angered and a quick, dirty moneymaker becomes nothing more than a surefire way to rack up sanctions and orders to pay defendants’ legal fees.

These emails weren’t just Lipscomb being pragmatic about the situation. They were apparently also useful in buying him time as he dodged requests for detailed info on where Malibu’s money was. He also sent over an agreement that would allow him to exit the trolling enterprise mostly intact, with his only liability being “malpractice going forward” from the date of agreement.

In a final indignity (at least according to Malibu Media), he withdrew from an ongoing case, forcing it to scramble to find replacement representation “within 21 days.” Three weeks might seem like plenty of time, but Malibu’s increasingly-poisonous reputation likely preceded it. It failed to obtain a new lawyer in time and the judge awarded a default judgment to the plaintiff — including nearly $160,000 in legal fees.

Malibu Media claims Lipscomb violated Florida bar rules by not providing it with a contingency agreement or itemization of costs claimed. That may be true, but Malibu is equally to blame (although not under rules governing the state bar) for moving forward with Lipscomb/LEB without demanding something resembling an actual contract first. Lipscomb may be hit with fees and sanctions for violating this code of conduct, but Malibu should really have to live with the consequences of its own actions. It can’t even sue for breach of contract because there was apparently no contract in place during this whole debacle — something that allowed Lipscomb to “rewrite” the terms at whim.

It remains to be seen if Malibu is actually winding down its trolling side business. No new lawsuits have been filed since April 20, which appears to indicate Lipscomb’s assertions about the end of the trolling era are true. Of course, Malibu Media has been running without a legal rep in these cases since that point, so it still may be interested in pursuing more copyright infringement litigation once it has “retained” (and that’s in quotes because Malibu Media doesn’t appear to know how to correctly retain a lawyer) new representation.

However, it could be the $160,000 default judgment is a hurdle it can’t overcome, especially since it’s likely still months or years away from extricating any funds from its former representation — and that’s assuming there’s anything left to take once this whole thing plays out.

Filed Under: copyright, copyright trolling, ethics, florida, keith lipscomb, speculative invoicing
Companies: malibu media, x-art