Notorious porn copyright troll committed ‘fraud on courts’ – 9th Circuit

June 14, 2016

(Reuters) – The shadowy Chicago firm known as Prenda Law existed for only a couple of years. Its practice was ostensibly copyright enforcement, though the firm never litigated an infringement claim all the way to a judgment on the merits. Prenda’s principals – John Steele, Paul Hansmeier and Paul Duffy – were often evasive about their relationship to the firm and to Prenda’s nominal clients, shell companies that owned copyrights on porn movies. But before its dissolution in 2013, Prenda was undeniably profitable. All told, according to an opinion issued Friday by the 9th U.S. Circuit Court of Appeals, the firm’s principals made millions of dollars from the business model they pioneered.

The catch? According to the 9th Circuit, that business model was copyright trolling. As the opinion explained, Prenda incorporated offshore shell companies that acquired copyrights to porn movies and tracked illegal downloads of the films from file-sharing sites. Prenda and affiliated lawyers would sue these “John Doe” downloaders, subpoenaing Internet service providers to obtain identifying details. Once Prenda acquired downloaders’ names and addresses, it would offer to drop their cases in exchange for a payment of about $4,000. That’s much less than the statutory penalty for illegal file sharing, but when you sue hundreds or thousands of Does at a time, it adds up.

The 9th Circuit concluded Prenda’s business was basically a shakedown scheme that took advantage of the court system to extract “settlements” from defendants who didn’t want to be exposed for watching porn or risk damages of as much as $150,000 per download. The 9th Circuit panel, Judges Harry Pregerson, Richard Tallman and Jacqueline Nguyen, upheld nearly $100,000 in sanctions against Prenda and its affiliates, concluding that they had “engaged in abusive litigation, fraud on courts across the country and willful violation of court orders.”

The opinion practically drips with hostility, adding to the torrent of slime federal trial judges have already poured onto Prenda. (The 7th Circuit previously upheld sanctions and a contempt ruling against Prenda, though its 2014 opinion was not quite as scathing as the 9th Circuit’s.) It turns out that if you really want to enrage judges, misusing copyright law and deceiving the court are very effective tactics.

Prenda’s appellate lawyer, Daniel Voelker of the Voelker Litigation Group, had argued that the firm and its affiliates were deprived of due process in the hearings that led U.S. District Judge Otis Wright of Los Angeles to order sanctions against the firm. Judge Wright should have treated the hearings as a criminal contempt proceeding, Voelker said, because his show-cause order threatened Prenda principals with jail time, forcing them to assert their Fifth Amendment rights. The judge also ordered punitive monetary sanctions when he doubled the fee award to the John Doe defendants.

The 9th Circuit didn’t bother to address the arguments directly. The appeals court simply said that Judge Wright did not abuse his discretion or due process rights of the Prenda affiliates, who received adequate notice, had an opportunity to be heard and were determined to be acting in bad faith.

“Based on the myriad of information before it – including depositions and court documents from other cases around the country where the Prenda principals were found contradicting themselves, evading questioning, and possibly committing identity theft and fraud on the courts – it was not an abuse of discretion for Judge Wright to find that Steele, Hansmeier, and Duffy were principals and the parties actually responsible for the abusive litigation,” the 9th Circuit said. “Similarly, it was not an abuse of discretion for Judge Wright to find that the Prenda principals were indeed the leaders and decision-makers behind Prenda Law’s national trolling scheme.”

Voelker, who made similar and equally unavailing due process arguments for Prenda in front of the 7th Circuit, told me he considers the 9th Circuit opinion a “travesty of justice” because the judges “completely ignored our argument that this was a case of criminal contempt.” Voelker said Judge Wright did not follow due process guidelines for criminal contempt proceedings, but the 9th Circuit panel was not interested in hearing about that. “These were three jurists who came out of the box with their minds made up,” he said.

Morgan Pietz of Gerard Fox, who has represented the John Doe downloader throughout the litigation before Judge Wright and at the 9th Circuit, said the appeals court did address Prenda’s argument and concluded the Prenda principals and affiliates received all of the due process protection they were entitled to.

Time has not been kind to the Prenda principals. Paul Duffy died last year. Paul Hansmeier filed for personal bankruptcy in federal bankruptcy court in Minnesota, where he is defending an adversary proceeding over the sale of his condo. John Steele was hit with an Illinois bar complaint 10 months ago for, among other things, allegedly sending “settlement shakedown letters” and engaging in “dishonesty, fraud, deceit, or misrepresentation.” I asked Voelker to pass my contact information to Hansmeier and Steele but I did not hear back from them.

John Doe counsel Pietz told me he’s not sure that any other copyright holders have adopted the exact tactics that landed Prenda and its principals in so much trouble, but he pointed out that the adult website Malibu Media is a prodigious enforcer of its copyrights. According to law professor Matthew Sag of Loyola University in Chicago, Malibu alone was responsible for nearly 40 percent of all copyright filings in federal court in 2015. Litigation against anonymous downloaders, by Malibu and other copyright enforcers, made up nearly 60 percent of the federal copyright docket last year.

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