Judge finds Prenda attorneys in contempt for failing to pay $261K sanction; adds on $26K and hints at possibility for more

By Bethany Krajelis | Mar 26, 2014

HerndonThree lawyers with ties to the now-dissolved Prenda Law firm were hit with more sanctions Monday after a federal judge found them in contempt for failing to pay more than a quarter of a million dollars in attorney’s fees and costs to the defendants in a southern Illinois computer hacking case.U.S. Chief Judge David Herndon ordered Paul Duffy, Paul Hansmeier and John Steele to pay the three defendants

Three lawyers with ties to the now-dissolved Prenda Law firm were hit with more sanctions Monday after a federal judge found them in contempt for failing to pay more than a quarter of a million dollars in attorney’s fees and costs to the defendants in a southern Illinois computer hacking case.

U.S. Chief Judge David Herndon ordered Paul Duffy, Paul Hansmeier and John Steele to pay the three defendants a total of $26,102.58 -- 10 percent of the original sanction amount – in addition to the $261,102.58 in previously ordered sanctions by March 31.

And it didn't take long for at least one of the three attorneys to ask Herndon to think about it again.

While he's submitted documents for the trio in the past, Hansmeier, a Minnesota attorney, on Wednesday filed an emergency motion seeking reconsideration of the contempt order and additional sanctions on behalf of himself.

"The contempt is currently running and will begin imposing even more financial
penalties in five days, on March 31, 2014," the emergency request states. "Hansmeier’s ability to maintain his license to practice law is under threat due to the Contempt Order."

Hansmeier's motion focuses on his contention that his financial records prove he does not have the ability to pay the previously-ordered sanction. Inability to pay is a defense in contempt proceedings, but it has to be proven.

As of Wednesday evening, neither Duffy, a Chicago attorney, nor Steele, a former Chicago attorney who now lives in Florida, had filed any documents with the court.

In his order granting the defendants’ contempt motion, Herndon also reminded Duffy, Hansmeier and steele they also owe interest on the sanction that since-retired Judge G. Patrick Murphy handed down in November in Lightspeed Media v. Anthony Smith, et al., a case that was voluntarily dismissed in March 2013.

The order states that the three attorneys must pay interest on that sanction at a rate of .13 percent from Dec. 11 to the date of compliance. If they don’t comply, it goes on to say they will be fined $500 per day per attorney for up to 30 days, after which time the daily fine will jump to $1,000.

Herndon notes that while the attorneys may pay the defendants in full or file a motion to stay and an accompanying supersedeas bond of the full amount, bonds or partial payments “will not be considered compliance with this court’s order.”

And if that wasn’t enough of a blow, Herndon decided that he will consider a renewed motion for contempt filed by the defendants last week “as a motion for an additional sanction for contempt since it relates directly to representations made in Court and in the financial statements by plaintiff’s counsel.”

Duffy, Hansmeier and Steele have until April 20 to respond to that motion, which was submitted when Herndon finishing up the final draft of Monday’s order. It is sealed from the public for some reason, most likely because it deals with the parties' personal financial information, and includes several attachments.

Once the judge reviews it, he said he “will consider whether to require another hearing and the range of sanctions that [he] may be considering if any.”

The financial statements Herndon mentioned were submitted to the court in private, the order states. He ordered them after the Prenda attorneys indicated their inability to pay the sanction at a February hearing, when they had to show cause as to why they shouldn’t be held in contempt.

Herndon’s order cites Hansmeier as saying, “I can’t pay what I don’t have,” and states Steele said “[I]t’s extremely important because if the Court issues a sanction order for, I don’t know, a billion dollars. We can’t pay. And I don’t believe that there’s any case law to establish that – there’s not a debtor’s prison. I mean if we can’t pay, we can’t pay it.”

The financial statements the plaintiff’s attorneys showed were “incomplete, and to say the least suspicious,” the judge wrote in his order, adding that they failed to back up statements alleging an inability to pay.

Herndon’s memorandum and order comes about two weeks before arguments are slated to take place in the Seventh Circuit Court of Appeals over the trio’s appeal of Murphy’s sanction.

This isn’t the only sanction order these three attorneys have been hit with or are appealing.

In what has become a frequently-cited order known for its Star Trek theme, U.S. Judge Otis Wright II in California sanctioned the attorneys and others for engaging in “brazen misconduct and relentless fraud.”

Wright said in his May order that the Prenda attorneys “outmaneuvered the legal system” with their practices, which some judges and defense attorneys say includes creating sham corporations to bring litigation so they can exploit the court’s subpoena powers and coerce defendants into settling.

The sanction in that case --Ingenuity 13 LLC v. John Doe – eventually reached more than $200,000 and was paid by the Prenda attorneys, who then appealed the order to the Ninth Circuit Court of Appeals, where it remains in the briefing stage.

The southern Illinois case, however, is set to go before the Seventh Circuit on April 7.

The Prenda attorneys filed an appeal over Murphy’s order on Dec. 12, the day after they were supposed to pay up. Murphy called the trio out for showing “a serious and studied disregard for the orderly process of justice,” as well as a “relentless willingness to lie to the Court on paper and in person.”

The sanction and contempt orders stem from a lawsuit Prenda’s client, Lightspeed, brought in the St. Clair County Circuit Court against a potential John Doe defendant. It was amended complaint in August 2012 to name Anthony Smith, AT&T and Comcast as defendants.

The suit, which was eventually removed to the federal court, accused Smith of computer fraud and abuse and the Internet Service Providers (ISPs) of allowing their subscribers to hack into its website and interfering with its efforts to identify alleged hackers through Internet Protocol (IP) addresses.

Prior to the complaint being amended and removed to federal court, the circuit court granted Lightspeed’s request to subpoena AT&T and Comcast in its attempt to obtain personally identifiable information about thousands of IP addresses.

The Illinois Supreme Court, however, told the circuit court to quash the subpoenas after the defendants filed an emergency motion for a stay with the high court in June 2012. Lightspeed in March 2013 voluntarily dismissed the suit.

Smith the following month asked the federal court to award him attorney’s fees, asserting that the claims levied against him were baseless. Murphy agreed in an October order that stated “the litigation smacked of bullying pretense.”

Murphy also granted fee requests from AT&T and Comcast, which spurred Duffy, Hansmeier and Steele to file motions to vacate or reconsider the order. They argued that Lightspeed’s claims were not frivolous, the defendants’ attorneys routinely filed baseless motions for fees and that they weren’t given proper notice or the chance to be heard.

In a Nov. 27 order, Murphy rejected their arguments and set specific amounts for the attorneys to pay each of the defendants that totaled more than a quarter of a million of a dollars.

After the Prenda trio appealed, defense counsel asked Herndon to hold the trio in contempt for not paying the sanction, arguing that contempt was appropriate because the plaintiff’s attorneys didn’t join their appeal with a motion to stay the order’s obligations or a supersedeas bond.

In response, Duffy, Hansmeier and Steele claimed, among other arguments, that Murphy’s order was a money judgment and as such, was not enforceable through contempt proceedings. They told the court their confusion was the main reason they didn’t comply with the order.

Herndon, however, didn’t buy the argument, which he dubbed “disingenuous” in his Monday order.

He noted that at the Feb. 13 show cause hearing, “plaintiff’s counsel admitted on the record to noncompliance, each stating that they had not paid the sanction amount to defendants or otherwise sought a supersedeas bond.”

“There is no debate as to whether plaintiff’s counsel significantly violated Judge Murphy’s November 27, 2013 order,” Herndon wrote, adding that they should have asked Murphy for clarification if they were that confused.

The failure of the plaintiff’s attorneys to comply with Murphy’s order, Herndon wrote, created significant harm in regards to not only the defendants’ legal costs, but to “the integrity of the Court.”

Saying that he “cannot ignore the behavior of the plaintiff’s counsel … at the show cause hearing,” Herndon included a footnote in his order to provide an example of the attorneys’ behavior at that hearing.

In the footnote, Herndon wrote that Steele objected to a statement that AT&T’s attorney, Bart Huffman, made about Steele saying he had made millions of dollars. Steele asked Huffman where he said that and Huffman said he thought Steele said that in a Forbes article.

Steele, according to Herndon’s order, responded, “No, absolutely, I never did, and I resent being told that I’ve said something that’s not true. If Mr. Huffman would like to present something that I personally made money of a certain amount, feel free, but it will never come, Your Honor.”

“After a quick Google search,” Herndon wrote that “the Court quickly” came across an Oct. 15, 2012 Forbes article titled, “How Porn Copyright Lawyer John Steele Has Made A ‘Few Million Dollars’ Pursuing (Sometimes Innocent) ‘Porn Pirates.”

In that article, Steele responded to the author’s suggestion that he made $15 million settling computer hacking and copyright infringement suits by saying, “Maybe a little less. We don’t track the amount we’ve recovered. More than a few million.”

“[W]hile it is true this is not a ‘certain amount’, it is disingenuous to imply destitution given the statement and, at the very least, the Court deserved a full, truthful explanation of the statement,” Herndon wrote.

Also in regards to the show cause hearing, Herndon said in his order that while he “was unable to nail down any specific lies due, in significant part, to plaintiff’s counsel excellent ‘attorney speak’, the misrepresentations and half-truths presented indicate plaintiff’s counsel’s clear disrespect of the Court.”

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

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