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Prenda attorneys file opening brief in Seventh Circuit over $261K sanctions award; oppose contempt motion

By Bethany Krajelis | Jan 30, 2014

Attorneys with ties to the now-dissolved Prenda Law firm told the Seventh Circuit Court of Appeals this week that the sanctions order lodged against them in a southern Illinois computer hacking case should be reversed because the district judge failed to afford them with their due process rights or consider personal responsibility.

Paul Duffy, Paul Hansmeier and John Steele submitted the 50-page-plus brief Monday in their appeal of since-retired U.S. District Judge G. Patrick Murphy’s November order requiring them to pay $261,025 in fees to the defendants in Lightspeed Media Corp. v Anthony Smith, et al.

Their argument over personal responsibility asserts they “took minimal discrete actions in the case” and appears to try to pass off the blame to a downstate attorney who they say filed the amended complaint in the case while serving as co-counsel, not local counsel.

Hansmeier, a Minnesota attorney, submitted the brief with consent from Duffy, an attorney in Chicago, and Steele, a former attorney with Steele Hansmeier in Chicago who now lives in Florida. All three are representing themselves in the matter.

Also this week, Duffy filed a memorandum in southern Illinois’ federal court in opposition to a Dec. 27 request from the defendants in the same case – Anthony Smith, AT&T and Comcast -- to hold the three attorneys in contempt for failing to pay the sanctions.

The six-page memo asserts the contempt motion is “baseless,” “suggests gamesmanship” on the part of defense counsel and should be denied because it attempts to bypass procedures to enforcement judgments and fails to satisfy the elements of civil contempt.

The attorneys behind these two recent filings are believed to be the key players in nationwide litigation that some defense attorneys and judges say has included creating sham corporations in order to file computer hacking and copyright infringement suits, exploit the courts’ subpoena powers and extort defendants into settling.

Case background
Both of the filings stem from a suit Prenda-client Lightspeed Media brought in the St. Clair County Circuit Court against a potential John Doe defendant.

It was later amended to name Smith, AT&T and Comcast as defendants, as well as an unnamed representative from each of the Internet Service Providers (ISPs).

Before it was removed to federal court and eventually dismissed, the suit made a stop in the Illinois Supreme Court on an emergency motion over requests from the ISPs to quash subpoenas seeking the personally identifiable information about Internet Protocol (IP) addresses accused of hacking into the plaintiff’s website to download porn.

The high court in June 2012 ordered the circuit court to quash the subpoenas and Lightspeed in March 2013 voluntarily dismissed the suit. The defendants then filed motions seeking attorneys’ fees on the basis the claims lodged against them were baseless.

Murphy agreed with the defendants in November and sanctioned the three attorneys, after finding they showed “a serious and studied disregard for the orderly process of justice” and a “relentless willingness to lie to the Court on paper and in person.”

Duffy, Hansmeier and Steele appealed last month to the Seventh Circuit, where they filed their opening brief this week. The defendants have until Feb. 26 to submit their own brief.

Seventh Circuit opening brief
In their brief, the three attorneys argue the sanctions Murphy imposed on them should be reversed for several reasons, one of which focuses on due process.

This argument stems from their claim that Steele and Hansmeier were never served with Smith’s sanctions motion  because they were no longer the attorneys of record and Duffy wasn’t given the chance to respond to sanctions motions submitted by AT&T and Comcast.

The brief further alleges that “none of the sanctioned attorneys were given an opportunity to respond to the fee itemizations” filed by the defendants.

At the district court level, Murphy rejected their due process argument, saying notice of the sanctions motion was sent to an email address used by both Steele and Duffy and that Smith served his motion for attorneys’ fees on Duffy, which was enough.

Noting that the attorneys “are closely associated,” Murphy also took judicial notice “that several other federal courts have found Duffy, Steele, and Hansmeier to be in cahoots,” and specifically mentioned findings from U.S. District Judge Otis Wright II of California.

The three attorneys, however, dub those justifications as “insufficient.”

“Judge Wright’s findings are currently on appeal before the Ninth Circuit, and that case—a copyright action brought by an entirely different plaintiff—has nothing to do with the instant case, which asserted claims based upon computer hacking,” the brief states.

It adds, “More fundamentally, whether attorneys are or have been, at some point, ‘in cahoots’ does not indicate whether service of Smith’s [sanctions] motion on April 5, 2013 was properly effectuated.”

The trio further asserts that Murphy “was wrong to impose sanctions without considering the crucial issues of personal responsibility or timeliness” and “erred further by making findings, and imposing over a quarter-million dollars in sanctions, without explanation or clear support in the record.”

They claim that instead of apportioning personal responsibility, Murphy “instead focused its remarks on the nature and extent of the interrelationship between the sanctioned attorneys” to hold them “vicariously liable for others’ actions.”

Murphy’s alleged failure to look at personal responsibility, the attorneys claim in their brief, “is particularly striking in light of two facts.”

First, they note that Murphy “imposed no sanction whatsoever on attorney Kevin Hoerner—the only attorney who actually signed the First Amended Complaint.”

Hoerner, a Belleville attorney, was allowed to withdraw from the case, but the three attorneys assert in their brief that Murphy’s “determination that Hoerner was merely ‘local counsel’ was error; Hoerner acted as co-counsel.”

Lightspeed, they claim, had no need for local counsel when the amended complaint was filed because it was also represented by Duffy, who is licensed to practice in Illinois.

In their brief, they tell the federal appeals panel that it “is not bound by a ‘mere label’ offered by a district court.”

They go on to note they believe Murphy’s main reason for sanctioning them was because of his determination the first amended complaint Hoerner filed alleged baseless claims.

“Yet, the district court imposed over a quarter-million dollars in sanctions against attorneys who did not sign the complaint, while declining to sanction or even examine the role of the attorney who actually signed the complaint,” their brief states.

Along those same lines, Duffy, Hansmeier and Steele argue Murphy failed to take into account that they each played very different roles in the underlying case,” and then detailed which hearings they attended or participated in and which filings they signed.

“Each of the sanctioned attorneys took minimal discrete actions in the case,” the brief states, adding “Yet, these minimal actions gave rise to over a quarter-million dollars in sanctions.”

Saying each of their actions in the case “were different and varied,” the attorneys contend Murphy’s decision to sanction them “jointly and severally for the entirety of the litigation cannot be squared with the logical apportionment of responsibility among attorneys …”

The attorneys also contend Murphy was wrong to even consider the sanctions motions brought by AT&T and Comcast since they were brought more than seven months after the case was dismissed, an error they contend requires reversal.

Among other arguments, the trio alleges Murphy imposed sanctions “by making findings without explanation or clear support from the record.”

In their brief, the attorneys contend “the district court made no findings of delay, instead imposing sanctions for the filing and prosecution of an allegedly baseless complaint—but it failed to explain how or why the claims were baseless.”

“The district court failed to acknowledge favorable authority, or even its own early expression of optimism regarding the merits of the case,” the brief states. “The district court drew an improper inference of bad faith from Plaintiff’s voluntary dismissal where the record shows valid, good-faith reasons for it, and the district court found a handful of uncontroverted statements to be lies.”

Contempt motion
In regards to the request from defense counsel to hold Duffy, Hansmeier and Steele in contempt for not paying the sanctions within 14 days of Murphy’s order, the three attorneys claim it “suggests gamesmanship” because their Seventh Circuit brief “was due to be filed the previous day, as Defendants well know.

They contend the defendants’ motion fails to comply with procedure as “Federal Rule of Civil Procedure 69 makes clear that a money judgment—such as the default judgment obtained by Defendants—is enforceable according to the procedures of the state where the court is located.”

“The only permissible way for Defendants to seek to enforce the final judgment is through the initiation of supplemental proceedings to enforce it,” they assert in their brief, pointing to an Illinois statute and Supreme Court rule.

The defendants, the brief states, “have not taken any proper steps to enforce it,” such as initiating supplemental proceedings or serving a citation to discover assets.

“Instead,” the attorneys assert, “Defendants are attempting to invoke the Court’s contempt power to enforce the judgment, without having first complied with the due process mandates established by Illinois law.”

They also claim the defendants failed to meet the elements required for civil contempt, which include showing that “1) a court order sets forth an unambiguous command; 2) the alleged contemnor violated the command; 3) the violation was significant …; and 4) the alleged contemnor failed to make a reasonable and diligent effort to comply.”

Duffy, Hansmeier and Steele allege the defendants failed to satisfy the first two elements and can’t suggest they didn’t make an effort to comply because the defendants didn't initiate supplemental proceedings or serve a citation to discover assets as required by law.

The defendants’ contempt motion was submitted by several attorneys, including Massachusetts attorneys Jason Sweet and Dan Booth; Bart Huffman in Texas; Troy Bozarth in Edwardsville; John Seiver and Ronald London in Washington D.C., and Belleville attorney Andrew Toennies.

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