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Prenda saga continues as appeals over sanctions move forward

By Bethany Krajelis | Feb 13, 2014

The days of Prenda Law filing copyright infringement and computer hacking suits may be over, but attorneys with ties to the now-dissolved Chicago firm still have a ways to go before they can close the book on the litigation practice that has received scrutiny from judges across the nation.

Since about 2010, Prenda has brought hundreds of complaints, accusing thousands of people of illegally downloading pornography by hacking into the computer systems of its clients, some of which have been called out by judges as shell corporations created to benefit the very attorneys representing them.

While the majority of these suits are now closed, the result of voluntarily dismissals by the plaintiffs, dismissals at the hands of judges, default judgments and settlements, Prenda-affiliated attorneys continue to fight a few suits and are appealing at least a pair of sanction orders handed down over their alleged misconduct.

And the reach of the nationwide litigation extends outside of the federal and state courtrooms that have served as backdrops for the battles between those believed to be behind Prenda’s practice – Paul Duffy, Paul Hansmeier and John Steele– and dozens of defense attorneys.

In May, these three attorneys and others were referred to the criminal investigation unit of the Internal Revenue Service, at least one U.S. Attorney’s office and the state and federal bars where they are admitted to practice. These agencies typically don’t comment on pending or potential investigations.

The referral came in what has since become a well-known and commonly cited order from U.S. District Judge Otis Wright II in California that sanctioned Duffy, Hansmeier, Steele, Brett Gibbs and Prenda Law, as well two of its clients: AF Holdings and Ingenuity 13.

Applying a Star Trek theme to his order, Wright accused the attorneys of engaging in “brazen misconduct and relentless fraud” and said they “outmaneuvered the legal system” with their practices, which have earned a reputation for attempting to coerce settlements from John Doe defendants and exploit the court’s subpoena powers.

Judges who sanctioned Prenda and its affiliated attorneys and firms since Wright’s order have made similar comments in ordering them to pay thousands of dollars in fees and costs to defense attorneys and defendants, including a few Internet Service Providers (ISPs) that fought to quash subpoenas seeking personally identifiable information on Internet Protocol (IP) addresses.

Several defense attorneys involved in the litigation said they wonder why Prenda didn’t throw in the towel after being referred to the authorities in Wright’s order and slapped with subsequent sanctions by judges in California, Illinois and Minnesota.

“A sane person would have stopped a long time ago, but they just keep going,” said Jason Sweet, a Massachusetts attorney who represents several John Does and named defendants across the country. “Why these guys aren’t in jail yet, I have no idea.”

Illinois defense attorney Laura Beasley agreed, referring to Prenda’s litigation as “unbelievable” and “a horrible abuse of our judicial system.”

“They should be disbarred,” she said. “I can’t believe they aren’t already.”

Attempts to reach Duffy and Steele were unsuccessful.

A message left for Duffy, a Chicago attorney who is representing Prenda in a defamation suit in the Northern District of Illinois, was not immediately returned and several calls made to the number Steele, a former Chicago attorney who now lives in Florida, listed in recent court filings resulted in an automated message that said “We could not complete your call. Please try again.”

Hansmeier, who continues to practice in Minnesota, said “no comment” when reached by phone today.

According to other published media reports, Hansmeier helped start Class Justice, an advocacy organization in Minneapolis. The group’s website states it works to promote “accessibility for all people, consumer rights, and class action fairness.

A media report from November details a lawsuit alleging violations of the Americans with Disabilities Act (ADA) the group filed in October on behalf of a visually impaired woman who later said she had no idea her name was being as a plaintiff.

The woman was cited in the report as saying she thought she was helping her cousin, who asked her to evaluate websites for Class Justice, work she was told would be used to educate businesses about money they are losing by not making their sites ADA accessible.

Wright’s May order appears to mark the first of about a handful of orders imposing sanctions and fees on Prenda and some of its attorneys.

In Ingenuity 13 LLC v. John Doe, Wright doubled an award of attorneys’ fees and costs for defense lawyers to $81,319.72. After missing the deadline, he ordered Prenda, its affiliated attorneys and clients to pay an extra $1,000 per day, per person or entity.

California attorney Morgan Pietz, who represents some of the defendants in this case, previously said the sanctions eventually reached about $237,000 and after “after a bit of kicking and screaming,” they were ultimately paid.

Wright’s order is now on appeal before the Ninth Circuit Court of Appeals. The briefing schedule is underway and records show the court last month extended a deadline, giving the sanctioned parties until March 17 to file an optional reply brief.

Another sanctions order Prenda has appealed is now in the Seventh Circuit Court of Appeals, where Hansmeier filed an opening brief last month on behalf of himself, Duffy and Steele.

This appeal is over since-retired U.S. District Judge G. Patrick Murphy’s November order in Lightspeed Media Corp. v Anthony Smith, et al., requiring the trio to pay $261,025 in fees to the defendants in the southern Illinois computer hacking case.

The defendants in this case – Anthony Smith, AT&T and Comcast, as well as an unnamed representative from each of the ISPs — have until Feb. 26 to submit their brief to the Seventh Circuit.

In an argument over personal responsibility included in their opening brief, it appears the Prenda-affiliated attorneys try to pass off the blame to Belleville, Ill. attorney Kevin Hoerner, who they say filed the amended complaint in the case while serving as co-counsel, not local counsel.

Hoerner, who is not subject to the sanctions order, did not return a message seeking comment.

He is also mentioned in, but again not subject to, another recent order sanctioning Prenda and Duffy in Prenda Law v. Godfread, et al.

Earlier this month, U.S. Judge John Darrah of Chicago’s federal court granted a request for sanctions from Minnesota attorney Paul Godfread and his client, Alan Cooper, who are  defendants in the consolidated defamation suit Prenda and Duffy brought last year.

In his order, Darrah called out Prenda and Duffy for lying and engaging in duplicitous behavior regarding remand motions filed in southern Illinois’ federal court and before him, as well as for “grasping at straws” in their unsuccessful arguments against sanctions.

He also mentioned alleged misrepresentations that Hoerner made prior to the case’s removal to federal court that attempted to get an amended complaint filed in the St. Clair County Circuit Clerk’s office without permission from the court.

The amended complaint named Alpha Law Firm in Minnesota as a plaintiff, an addition that would have destroyed the defendants’ diversity argument and potentially allowed the plaintiffs to remand the suit to circuit court.

The defendants’ attorneys, Erin Russell of Chicago and Sweet of Massachusetts, filed an itemization of fees last week, asking Darrah to make Prenda and Duffy pay them at least $26,452.50 for the 60-plus hours they spent working on the sanctions motion, as well as fighting Prenda’s remand requests.

Darrah has not yet attached a dollar figure to his sanctions order as Duffy and Prenda have until Feb. 20 to submit a response to the defendants’ itemization of requested fees.

Given the firm’s track record of appealing sanctions order, it would not be unlikely that Prenda and Duffy appeal this one to the Seventh Circuit.

Besides these three sanctions order, it also appears that federal judges in California have ordered Prenda-affiliates to pay nearly $10,000 attorneys’ fees in AF Holdings v. David Trinh and about $22,000 in AF Holdings v. Joe Navasca.

And last year, records show a state judge in Minnesota ordered plaintiff Guava LLC, its attorney Michael Dugas, and Alpha Law to pay more than $63,000 in attorneys’ fees in Guava LLC v. Spencer Merkel.

Court records show Dugas also represents Prenda-client AF Holdings in Minnesota’s federal court, where he sought to withdraw as counsel in the case last year.

An August 2013 order denying his request states his withdrawal would delay the progress of the case and noted he signed the complaint that allegedly forged documents were attached to. Records show he continues to represent AF Holdings, along with Hansmeier, in that suit.

Dugas did not return a message.

Although his request to withdraw didn’t appear to include a reason, he isn’t the only attorney involved in Prenda litigation who has tried to get out.

In an August 2013 motion seeking to withdraw as counsel in AF Holdings v. Sandipan Chowdhury, attorney Daniel Ruggiero told a Massachusetts federal court that “there are several things that have come to light regarding plaintiff and its related owners, officers and lawyers since counsel agreed to file and represent plaintiff in this case.”

“For the sake of brevity,” Ruggiero directed the court to read Wright’s sanctions order and added that “under the circumstances here, I believe the Rules of Professional Conduct are highly relevant here.”

He then cited rules stating that a lawyer should not represent a client or should withdraw as counsel if “the representation will result in violation of the rules of professional conduct or other law” and “the client has used the lawyer’s services to perpetrate a crime or fraud.”

Pointing to Wright’s findings, Ruggiero wrote in his withdrawal request that “it is clear that continued representation of” AF Holdings puts him at “a compromised risk.”

In addition, Gibbs, the San Francisco attorney who was sanctioned in the Ingenuity case in California, testified in March that he eventually left his position as of counsel to Prenda and the now-dissolved Steele Hansmeier firm in Chicago.

He told Wright that anything that may have been improper in these cases was done under the direction of his superiors and in response to a question from the judge over whether he felt like he was duped by Steele and Hansmeier, Gibbs said, “In a way, yes.”

This is the final story in a three-part series on Prenda's litigation practices. The first story can be read here and the second story here.

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