All of Popehat's Prenda coverage is collected here.
Watchers of the Prenda Law saga have been waiting for United States District Judge Otis D. Wright II to issue an order in the wake of his apocalyptic hearing on proposed sanctions against Prenda Law, its putative client entities, and its lawyers. During that wait, doubt has set in. Could Judge Wright's order, after all this drama, possibly live up to expectations? Could any dry memorandum capture the jaw-dropping antics that have come before?
This afternoon Judge Wright issued an annihilating, hull-breaching order against Prenda Law, its principals, and its plaintiff entities. How does a federal judge assure that an already-dramatic situation is even more popcorn-worthy for an internet obsessed with it? He starts it with a Wrath of Khan quote:
“The needs of the many outweigh the needs of the few.”
—Spock, Star Trek II: The Wrath of Khan (1982).
From there, the Star Trek references come fast and furious. ("As evidence materialized, it turned out that Gibbs was just a redshirt.") Clean up in Aisle Geek!
There are two important elements to the order. The first is what Judge Wright concluded. The second is the remedy he chose.
Never Will You Find A More Wretched Hive Of . . . Wait, Wrong Franchise
Judge Wright's order begins with what can be interpreted as a full salvo against not just Prenda Law, but the entire Bittorrent download litigation model:
Plaintiffs1 have outmaneuvered the legal system. They’ve discovered the nexus of antiquated copyright laws, paralyzing social stigma, and unaffordable defense costs. And they exploit this anomaly by accusing individuals of illegally downloading a single pornographic video. Then they offer to settle—for a sum calculated to be just below the cost of a bare-bones defense. For these individuals, resistance is futile; most reluctantly pay rather than have their names associated with illegally downloading porn. So now, copyright laws originally designed to compensate starving artists allow, starving attorneys in this electronic-media era to plunder the citizenry.
But from there, Judge Wright quickly begins to assault Prenda in particular:
It was when the Court realized Plaintiffs engaged their cloak of shell companies and fraud that the Court went to battlestations.
Judge Wright goes on to make specific findings of fact. When a trial judge makes findings of fact, as opposed to law, those findings are given more deference on appeal. In other words, appellate courts freely second-guess decisions of law, but are less likely to second-guess findings of fact. Judge Wright's findings are brutal.
Steele, Hansmeier, and Duffy (“Principals”) are attorneys with shattered law practices. Seeking easy money, they conspired to operate this enterprise andformed the AF Holdings and Ingenuity 13 entities (among other fungible entities) for the sole purpose of litigating copyright-infringement lawsuits. They created these entities to shield the Principals from potential liability and to give an appearance of legitimacy.
Judge Wright goes on to describe what he concludes about Prenda Law's strategy, and about the role of local counsel like the unfortunate Brett Gibbs, member of the worst away party ever:
The Principals have hired willing attorneys, like Gibbs, to prosecute these cases. Though Gibbs is culpable for his own conduct before the Court, the Principals directed his actions. In some instances, Gibbs operated within narrow parameters given to him by the Principals, whom he called “senior attorneys.”
And Alan Cooper? Judge Wright concludes he is a victim, like a miscellaneous green chick callously banged and then shoved into the line of phaser fire:
The Principals stole the identity of Alan Cooper (of 2170 Highway 47 North, Isle, MN 56342). The Principals fraudulently signed the copyright assignment for “Popular Demand” using Alan Cooper’s signature without his authorization, holding him out to be an officer of AF Holdings. Alan Cooper is not an officer of AF Holdings and has no affiliation with Plaintiffs other than his employment as a groundskeeper for Steele. There is no other person named Alan Cooper related to AF Holdings or Ingenuity 13.
What of Prenda's constant refrain that Cooper's signature doesn't matter, because he's signing for the assignee, not the assignor? Judge Wright makes short work of that. The fraud is material — that is, it has a capacity to make a difference — because it is part of a larger concealment of facts that, if disclosed, would have put the Court on guard and made it scrutinize Prenda's demands more closely:
Then there is the Alan Cooper forgery. Although a recipient of a copyright assignment need not sign the document, a forgery is still a forgery. And trying to pass that forged document by the Court smacks of fraud. Unfortunately, other than these specific instances of fraud, the Court cannot make more detailed findings of fraud.
Nevertheless, it is clear that the Principals’ enterprise relies on deception. Part of that ploy requires cooperation from the courts, which could only be achieved through deception. In other words, if the Principals assigned the copyright to themselves, brought suit in their own names, and disclosed that they had the sole financial interest in the suit, a court would scrutinize their conduct from the outset. But by being less than forthcoming, they defrauded the Court. They anticipated that the Court would blindly approve their early-discovery requests, thereby opening the door to more settlement proceeds.
Judge Wright also thinks that Prenda Law hasn't bothered with a proper scan before firing. Taking up his assertion that Prenda sued people without adequate inquiry into who actually downloaded content, he concludes:
Enter Plaintiffs and their cottage-industry lawsuits. Even so, the Court is not as troubled by their lack of reasonable investigation as by their cover-up. Gibbs argued that a deep inquiry was performed prior to filing. Yet these arguments are not credible and do not support Gibbs’s conclusions. Instead, Gibbs’s arguments suggest a hasty after-the-fact investigation, and a shoddy one at that.
But wait! I thought Brett Gibbs said Prenda conducted a good investigation!
Gibbs’s statement is a blatant lie. His statement resembles other statements given by Plaintiffs in this and their other cases: statements that sound reasonable but lack truth. Thus, the Court concludes that Gibbs, even in the face of sanctions, continued to make factual misrepresentions to the Court.
It's not a good thing for a lawyer's career to have a federal judge say that.
Finally, how does Judge Wright figure that all these people connect? Ultimately, he adopts Moargan Pietz' Prenda Org Chart, finding that Prenda's own deception precludes a clearer answer:
The Principals also obfuscate other facts, especially those concerning their operations, relationships, and financial interests. The Principals’ web of disinformation is so vast that the Principals cannot keep track—their explanations of their operations, relationships, and financial interests constantly vary. This makes it difficult for the Court to make a concrete determination.
Still, the Court adopts as its finding the following chart detailing Plaintiffs’ relationships. Though incomplete, this chart is about as accurate as possible given Plaintiffs’ obfuscation.
They're Screwed, Jim
So. What penalty does Judge Wright impose?
In the end he does many of the things I suggested he might.
- Judge Wright declines to impose Rule 11 sanctions because Prenda dismissed the key case before he could issue his Order to Show Cause Re: Sanctions. That's probably the right call.
- However, using his inherent authority, he awards sanctions in the form of attorney fees to be paid to Morgan Pietz and Nicholas Ranallo:
Therefore, the Court awards attorney’s fees and costs in the sum of $40,659.86to Doe: $36,150.00 for Pietz’s attorney’s fees; $1,950.00 for Ranallo’s attorney’s fees; $2,226.26 for Pietz’s costs; and $333.60 for Ranallo’s costs. As a punitive measure, the Court doubles this award, yielding $81,319.72.5 This punitive multiplier is justified by Plaintiffs’ brazen misconduct and relentless fraud. The Principals, AF Holdings, Ingenuity 13, Prenda Law, and Gibbs are liable for this sum jointly and severally, and shall pay this sum within 14 days of this order.
"Liable jointly and severally" means that each is equally responsible for the whole sum, and can be pursued for it.
But we haven't gotten to the real action yet.
- Judge Wright says he is referring Steele, Duffy, Hansmeier, and Gibbs to their respective state bars and federal bars, and asks Morgan Pietz to identify those bars.
- And then:
Third, though Plaintiffs boldly probe the outskirts of law, the only enterprise they resemble is RICO. The federal agency eleven decks up is familiar with their prime directive and will gladly refit them for their next voyage. The Court will refer this matter to the United States Attorney for the Central District of California. The will also refer this matter to the Criminal Investigation Division of the Internal Revenue Service and will notify all judges before whom these attorneys have pending cases.
Referring to the U.S. Attorney's Office and the IRS's CID is like siccing both the Klingons and the Romulans on Prenda, except that the Romulans have a somewhat better grasp of due process than IRS CID.
This order is catastrophic to Prenda and its attorneys. It will be filed in every case in which they are fighting sanctions across the nation, and cannot help but have a galvanizing effect on those proceedings. The U.S. Attorney's Office will very likely launch a grand jury investigation, and the IRS CID will assist. Federal grand jury investigations are very slow, but represent experienced practitioners bringing almost unlimited resources to bear against their targets. State bars and federal bars will launch their own investigations. Prenda Law's principals will face dangerous, expensive, relentless attacks from all sides, and it is entirely possible they will face criminal charges if the feds agree with Judge Wright's conclusions.
Can they appeal? Certainly. That, too, will be protracted and expensive. An appeal filed this week might be briefed in October 2013 and heard by the Ninth Circuit in, say, May 2014. The other courts won't wait to rule on sanctions, and state and federal bars likely won't delay. The U.S. Attorney's Office and IRS CID certainly won't. They may take many months, or even years, but they grind. Oh, do they grind.
Judge Wright's order, with its Star Trek references, shows imagination. But all the imagination in the galaxy couldn't produce a much worse result for Prenda, Steele, Hansmeier, Duffy, and Gibbs.
If they are smart, they're talking to their lawyers about flipping on each other right now.
Edited to add: Several people on Twitter pointed to something I missed, something that illustrates how outraged Judge Wright is. Note he concluded that Prenda's model was to demand settlement "a sum calculated to be just below the cost of a bare-bones defense." In footnote 5, explaining the amount of sanctions he imposed, he says "This punitive portion is calculated to be just below the cost of an effective appeal." Daaaaayuuuum.
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