All of Popehat's Prenda coverage is collected here.

It's been two months since I wrote about Prenda Law. Since then its fortunes — and the fortunes of its principals — have been on the wane. Prenda, John Steele, Paul Hansmeier, Paul Duffy, and Mark Lutz have been suffering devastating blows across the country. Any one of these developments would be grave for any normal lawyer or legal enterprise. Combined, they represent a swiftly accelerating rout. Each development makes it more and more plausible that Judge Wright's referral of Prenda's principals to federal prosecutors will yield a grand jury investigation and, eventually, federal criminal charges. To one side, career and financial ruin loom as multiple courts issue brutal and reputation-destroying sanctions; to the other side, the door to federal prison yawns open.

So what's been going on? Let's look at updates state by state, and then turn to last Thursday's big development in Los Angeles. Brace yourself; this is a long post.

Massachusetts

In the United States District Court for the District of Massachusetts, defendant Sandipan Chowdhury and his able lawyers from Booth Sweet LLP have been running rampant over a mostly absent Prenda. Prenda, through its entity AF Holdings, sued Chowdhury over alleged downloads of a movie called "Sexual Obsession." Chowdhury did not go quietly. Chowdhury filed a counterclaim setting forth Prenda's shady dealings and demanding cancellation of the copyright, and asked the court to order Prenda (through AF Holdings) to post a bond to continue. Prenda failed to do so. Prenda's local counsel sought and obtained leave to withdraw in an astonishing motion that suggests that the he had concluded that Prenda is engaged in fraud and wanted none of it. Chowdhury and his attorneys, not ones to pass up the opportunity to club a baby seal, asked the court to enter a default against Prenda, citing Prenda's failure to post the ordered bond and its failure to answer the counterclaim, as well as the emerging evidence of Prenda's misconduct and deceit. Crucially, Chowdhury asked the court to enter default against AF Holdings and its "known aliases." Prenda failed to respond once again. The court granted the motion, resulting in a default order that identifies Prenda Law, John Steele, Paul Hansmeier, and Paul Duffy as "aliases" of AF Holdings.1 Last week Chowdhury followed up with a request that the Court enter a final judgment based on the default order. Chowdhury's proposed final judgment would impose a sizable judgment against the whole Prenda team:

It is hereby ORDRED, ADJUDGED AND DECREED that Defendant Chowdhury recover jointly and severally from Plaintiff AF Holdings, Inc., Prenda Law, Inc., John L. Steele, Paul A. Duffy, Paul R. Hansmeier and Mark Lutz the principal amount of $21,393.60, with costs and attorney’s fees trebled pursuant to M.G.L. c. 93(A) §9 for a total judgment of $64,180.80 with interest as provided by law.

It remains to be seen whether someone from Team Prenda will finally show up to oppose this. If history serves Prenda's principals may revert to their "I wasn't served and didn't know about this" dodge. Even if they finally do show up, they're deep in the hole in this district.

tl;dr Prenda is abandoned by its local counsel in Massachusetts, ignores developments in a case, and suffers a default judgment that may result in a $64,180.80 judgment that adjudicates Paul Duffy, John Steele, Paul Hansmeier, Mark Lutz, Prenda Law, and AF Holdings to be "aliases" of each other.

Massachusetts Update October 23, 2013: Chowdhury's follow-up motion has been granted and judgment entered for $64,180.80 against Prenda, AF Holdings, Steele, Hansmeier, Lutz, Duffy as aliases.

Georgia

When last we spoke of Georgia, Defendant Rajesh Patel was in a brutal struggle with Prenda Law in the person of its rather excitable local counsel Jacques Nazaire. Prenda — through its shell AF Holdings — had sought to abandon its case against Patel, but Patel had sunk his teeth into Prenda and wanted sanctions. The United States District Court for the Northern District of Georgia permitted Patel limited discovery not on the merits of the dismissed case, but to gather information in support of a motion for sanctions, which is very rare and was not at all a good sign for Prenda. As you will see, the court now probably regrets that. Nazaire distinguished himself by arguing that the Georgia court should ignore Judge Wright's sanctions order against Prenda in California BECAUSE GAY MARRIAGE, ranting about Brett Gibbs and that notorious terrorist organization the Electronic Frontier Foundation, suggesting that Patel's court-permitted discovery into Prenda should be cut short because blogs are mean to Prenda and Nazaire, and resorting to mediocre "yo mamma" insults.

Patel and Prenda have been trading multiple accusations and demands for sanctions. Prenda has been asking the court to halt Patel's various discovery methods, and Patel has been asking the court to compel Prenda to answer that discovery. United States District Judge William C. O'Kelley has finally had enough and issued an order telling the parties to stop filing motions, that he would hold a hearing on sanctions based on the motions to date in due course, and generally saying STOP THAT RACKET OR I'LL PULL THIS CAR RIGHT OVER SEE IF I DON'T. Patel — who may be lost to buck fever — has filed a motion asking for leave to file more motions despite the court's rather unambiguous signal. Maybe Patel thinks the federal judge doesn't really mean it. Federal judges always really mean it.

Patel may have overplayed his hand and eroded the court's goodwill and inclination to sanction Prenda. But it has not been in vain. Patel's subpoenas — permitted by the court as part of the discovery-to-support-sanctions process — uncovered crucial data that badly wounds Prenda. Among other things, Patel's papers discuss documents and recordings disclosed by GoDaddy demonstrating that: (1) John Steele's GoDaddy account was used to access a site registered to "Alan Cooper," (2) the same email address is used in connection with sites registered to "Alan Cooper," Mark Lutz, and John Steele, (3) recordings show the same male voice making tech support calls to GoDaddy and using the names John Steele, Alan Cooper, and Mark Lutz, (4) a purported "Alan Cooper" domain was registered using another John Steele email address. That information corroborates Alan Cooper's assertions that John Steele stole his identity and is powerful evidence that John Steele was far more involved in running the business than he has claimed in court.

More explosively, Patel's discovery to Comcast yielded IP address information showing that the same IP address (1) accessed John Steele's GoDaddy account, (2) accessed Prenda site wefightpiracy.com, (3) was assigned to Steele Hansmeier PLLC, John Steele and Paul Hansmeier's former firm, and (4) is the same IP address that, as others have shown, uploaded the copyrighted works to the internet before Prenda claims that various defendants illegally downloaded them. What does that last part mean? It's compelling evidence in support of a previous allegation that John Steele was using Prenda to run a "honeypot": that is, rather than protecting copyrighted works, he was deliberately posting them in places where they were likely to be downloaded, and then suing the downloaders as a revenue-generating scheme. If true, that necessarily involved fraudulent misrepresentations and omissions to courts and to defendants, and undermined Prenda's right to sue on the copyright. To learn more about the significance of that, and how people traced the IP to John Steele, you can read Joe Mullin or TorrentFreak. Prior to the release of the Comcast documents, John Steele hotly denied that he ran a "honeypot." Technically, I suppose that is not evidence that he did.

Finally, Patel's discovery campaign yielded an increasingly familiar result: Mark Lutz failed to show up for something. You may recall that Mark Lutz is — according to him and the other Prendarasts — formerly a paralegal for Steele and Hansmeier, a thoroughly useless "corporate representative," an alleged unpaid "manager" or "CEO" of Prenda Law entity AF Holdings. AF Holdings is owned by a trust called Salt Marsh, the beneficiaries of which are Lutz's own hypothetical and unborn children. Nothing suspicious about that! Anyway, Patel noticed Lutz' deposition, and — in what will be a pattern in this post — Lutz didn't show. Patel moved to compel him. Nazaire, who can keep a straight face through anything, said there is no legitimate reason to depose Lutz and that the only reason that Patel wants to depose Lutz is so that mean blogs can humiliate him:

Additionally, Mr. Lutz has every reason not to appear for a deposition. The deposition is sought out, not for seeking discoverable evidence, but rather to ridicule him.

That's a great argument, Mr. Nazaire, because if Patel is investigating whether AF Holdings is involved in a large-scale fraud scheme there's absolutely no reason to depose the CEO/manager of AF Holdings, the guy whose unborn children are the only beneficiaries of the mysterious trust that owns AF Holdings.

tl;dr: In Georgia, the court may have lost its patience with sanctions motions against Prenda, but discovery has yielded information substantially strengthening the fraud case against Prenda and its principals. Also, Mark Lutz is AWOL.

Illinois

I first started writing about Prenda Law when it blundered into my wheelhouse — frivolous defamation suits. John Steele, Paul Duffy, and Prenda law filed defamation suits simultaneously against Alan Cooper and his lawyer Paul Godfread in Illinois and Florida in retaliation for them revealing that Prenda had stolen Alan Cooper's identity. John Steele used those lawsuits in an attempt to threaten Alan Cooper and deter him from testifying. When last I wrote about those suits, Cooper and Godfread removed the Illinois cases to the United States District Courts in the Northern and Southern Districts of Illinois and filed counterclaims arising from the theft of Cooper's identity.

Since then the Illinois cases have not gone Prenda's way. First, The federal judge in the Southern District of Illinois transferred the Prenda law defamation suit to the Northern District where the Paul Duffy defamation suit is pending; now the same judge will hear both. Coordination and consolidation of cases won't help Prenda, because it will be easier to observe Prenda's misconduct across consolidated cases.

Second, Prenda ran a brief and unsuccessful scam in an effort to get one of the cases cases returned to state court, which would have been slower to recognize and punish its misconduct. You have to know a bit of federal civil procedure to understand the scam and how it failed. To file something in federal court, you need subject matter jurisdiction — that means either a federal claim or diversity of citizenship. "Diversity of citizenship" means that the plaintiffs and defendants are from different states. That basis for jurisdiction is a throwback to when we assumed a citizen of one state wouldn't get fair treatment in the courts of another state. Diversity must be complete; if any plaintiff is from the same state as any defendant, there is no diversity jurisdiction. In removing the Prenda and Duffy defamation cases to federal court — a far more defense-friendly forum — Cooper and Godfread had to rely on diversity as the basis for federal jurisdiction because the cases did not involve state claims.

Prenda's scam worked like this – they demanded that the federal court send the Prenda Law defamation complaint back to state court because just before Cooper and Godfread removed it to federal court, Prenda added the Alpha Law Group as an additional plaintiff. Since Alpha Law Group is a Minnesota entity, and since Cooper and Godfread are from Minnesota, there would be no diversity jurisdiction. What does Alpha Law Group have to do with the case? Absolutely nothing. Prenda changed nothing substantive about the case and only added Alpha as a plaintiff to destroy diversity. That's the scam.

But Prenda got caught in deceit. See, under Illinois law, once Prenda and Duffy served Cooper and Godfread with the lawsuit, they couldn't amend it without leave of the Illinois court. They had served Cooper and Godfread — indeed, as is noted above, Steele called Cooper to gloat and threaten him immediately after that service. Steele also called Godfread to gloat about serving him. So how did they file the amended complaints adding Alpha Law Firm? They did it by telling the Illinois court clerk that the suits had not been served. Godfread and Cooper submitted a declaration from an Illinois court clerk who says that she asked the Prenda Law local counsel how he could amend the complaint without a court order, and he claimed the complaint hadn't been served. The amended complaint was therefore filed only because of a false statement, and filed in violation of Illinois law: it was a nullity and couldn't defeat diversity jurisdiction.

Faced with this evidence, Paul Duffy withdrew the motion to remand. But it was too late: the scam was revealed. Prenda claims that the lackey attorney who went to the clerk's office didn't know that the complaint had been served on Cooper and Godfread. That may excuse the lackey, but it makes no sense as to Duffy and Team Prenda — they knew the complaint had been served and they knew they had no court permission to file an amended complaint and they filed amended complaint anyway, fraudulently adding the irrelevant plaintiff Alpha in an effort to stay out of federal court. Cooper and Godfread have filed a strong motion for sanctions on that basis, putting Prenda's conduct in the context of the multiple sanctions levied against it across the nation. We'll see how Prenda responds.

Moreover, Cooper and Godfread have filed very strong amended counterclaims against Duffy and Prenda for identity theft and abuse of process.

Even if Team Prenda somehow defeats the motion for sanctions, the Illinois cases represent nothing but an opportunity for their strongest critics to conduct invasive discovery into their entire operation. They have literally no upside. The defamation complaints — filed in a feckless attempt to intimidate Alan Cooper — have backfired disastrously.

tl;dr: In Illinois, Prenda faces sanctions after a clumsy attempt to fake a reason to send its bogus defamation case back to state court.

Minnesota (State Court)

In Minnesota state court, Prenda — in the form of one of its shell entities, Guava LLC — has been sanctioned yet again for litigation misconduct.

The saga is detailed in Judge Tanya M. Bransford's sanctions order: Guava LLC sued Spencer Merkel in Minnesota state court for alleged illegal downloads despite neither Guava nor Merkel having an significant connection to the state. Guava was represented by Michael Dugas of the Alpha Law Firm — yes, the same Alpha Law Firm that Prenda tried fraudulently to add to the Illinois case, as described above. Paul Hansmeier and John Steele also appeared at various times for Guava. Dugas and Hansmeier swiftly used the case as a vehicle to seek orders directing ISPs to disclose subscriber information on various IP addresses. When subscribers objected, things fell apart, the center could not hold. Under scrutiny John Steele could not explain coherently why Guava sued in Minnesota, and could only describe Guava vaguely as a Nevis entity with offices in Las Vegas. Does that sound familiar? It should — it's the same thing Team Prenda said about another one of its entities, Ingenuity 13. Moreover, Spencer Merkel — the defendant — described what sounds like a scheme to set up a fake case in Minnesota, with a willing defendant and a Prenda-provided defense lawyer, as a ruse to obtain subscriber information from ISPs:

In the affidavit Merkel stated that he was a Beaverton, Oregon resident and that he received a September 26, 2012 letter from Prenda’s Paul Duffy (“Duffy”), claiming that Merkel had illegally downloaded a movie named Amateur Allure – MaeLynn 2 and that Merkel could pay Prenda $3,400 by October 11, 2012 to avoid being named in the lawsuit, Hard Drive Productions, Inc. v. Does 1-1,495, which had been filed in the United States District Court for the District of Columbia. Merkel Aff. at ¶ 1; Exhibit A. Before the deadline, Merkel states that he called Prenda Law and spoke with someone named Mike or Michael. Id. at ¶ 2. Merkel attests that he informed“Michael” that he was unable to pay thesettlement amount butinquired if they couldsettle the case.Id. According to the affidavit,“Michael” told Merkel that to settle he would have to agree to the following: Merkel would be sued, Merkel had to provide a bit-torrent log from his computer, and Prenda would dismiss the claim against Merkel after receiving the bit-torrent information. Id. at ¶ 3. During the discussion with“Michael,” Merkel states that he was told that a pro-bono attorney may be willing to takethe case in Minnesota and that “Michael” did not know any pro-bono attorneys in Oregon. Id. at ¶ 4. Merkel states he agreed to be sued in Minnesota because he could not afford an attorney and obtained his attorney, Trina Morrison, based upon the information he received from Prenda. Id. Merkel also attests that he had never heard of Guava LLC or Alpha Law Firm LLC until this lawsuit; he believed that the opposing parties would be Prenda and Hard Drive Productions, Inc. Id. at ¶ 5-6. On January 15, 2013, Merkel received a voicemail from someone at Prenda stating that he “needed to make payment arrangements or [he] would be sued.” Id. at ¶ 8. According to Merkel, Guava had not requested either his bit-torrent log information or the names of any alleged co-conspirators. Id. at ¶ 9.3 Merkel’s counsel testified that she graduated from law school with Guava’s counsel Dugas and that she was approached to represent Merkel on a pro-bono basis after informing Mr. Dugas and Mr. Hansmeier that she may be interested in taking on a case pro-bono to gain experience. (See Hr’g Tr. At 17-20). (emphasis added)

Now, Dugas says that's not true. Judge Bransford made short work of that: "[t]his Court finds that Dugas lacks any credibility with this Court based upon the actions he has taken in this matter." Ultimately Judge Bransford concluded "Plaintiff Guava LLC and its counsel Michael K. Dugas of Alpha Law Firm LLC acted in bad faith and without a basis in law and fact to initiate this action in Minnesota State District Court," and sanctioned them $63,367.52 to pay the attorney fees and costs of the objectors.

tl;dr: A Minnesota court sanctioned a Prenda entity and a Prenda local counsel for creating a fake case to discover ISP subscriber information.

Minnesota (Federal Court)

You think that Prenda only has problems with open cases? They should be so lucky.

In the United States District Court for the District of Minnesota, upon reviewing Judge Wright's apocalyptic sanctions order against Team Prenda, a magistrate judge issued an order re-opening five cases and ordering Prenda shell AF Holdings to show cause whether Judge Wright's finding of fraud is binding on the Minnesota cases. Michael Dugas — the lawyer sanctioned by the Minnesota state court — was AF Holdings' lawyer in those cases. Paul Hansmeier filed a brief strugling mightily to convince the court that Judge Wright was wrong and that his order was misguided and not binding. Just to make things worse for Prenda, Alan Cooper (represented by Paul Godfread) sought and obtained leave to submit evidence that Cooper's signature had been forged in the Minnesota cases.

This led to a contentious hearing pitting Cooper and Godfread on one side and Hansmeier and Steele on the other. You can read a description of the hearing here at TechDirt or here at Ars Technica. As before, Prenda tried to portray Cooper as a disturbed man who had, in fact, agreed that his name could be used in Prenda's porn copyright enterprise. Steele, in particular, claimed that Cooper gave Mark Lutz permission to sign documents on Cooper's behalf, thus explaining Cooper's signature on various documents.

That argument suffered from (among other things) a glaring flaw: the absence of Mark Lutz. The Minnesota court had directed AF Holdings to produce a witness representing it and capable of authenticating the Cooper signatures. Yet Lutz was nowhere to be seen. Hansmeier, always the good soldier, did what he could:

Hansmeier said that Lutz was planning to come, and is the sole officer of AF Holdings, and did make it to an earlier conference in this case in person, but that he wasn't present today, and that Mr. Hansmeier hadn't been able to reach him by phone or email. He voluntarily elaborated that Steele and Lutz had been booked on the same flight from Miami, that Steele had gone to Lutz's apartment to meet him (because Steele had Lutz's boarding pass), but found him not home. Steele had then, according to Hansmeier, driven around Miami looking for Lutz, and even encountered some of Lutz's friends who said Lutz had told them the night before that he had to make an early night of it because he was traveling to this court in the morning.

If "looking for Lutz on the streets of Miami" isn't already on Urban Dictionary, representing some uncomfortable sexual practice, I shall be quite put out.

Hansmeier sought, and received, permission to file a supplemental declaration explaining what happened to Lutz. When he did so, it was rather less than observers expected:

Mr. Lutz was traveling with another witness to the Hearing. The witness indicated that Mr. Lutz was not on the flight from Fort Lauderdale, Florida. I have attempted to contact Mr. Lutz but have been unable to reach him as of the time of this declaration. Based on my prior experience with Mr. Lutz, including Mr. Lutz’s prior in-person attendance before this Court on August 5, 2013, I believe that Mr. Lutz will be able to provide a good-faith reason for failing to make his flight to Minnesota.

So. The court ordered AF Holdings to produce an officer and someone who could authenticate documents. Mark Lutz, who is the unpaid CEO/manager of AF Holdings (in addition to a former paralegal of Steele and Hansmeier) and whose ungotten and unborn children are the beneficiaries of the mysterious trust that owns AF Holdings, and who allegedly received permission to sign for Alan Cooper in the manner that is the key issue in this entire hearing, didn't show up, and hasn't explained why, but Paul Hansmeier is confident he had a good reason. Well okay then. I'm sure that wont have any impact on Team Prenda's credibility.

The judge has taken the motion under submission and will rule in "due course." There's no telling how long that will be, though I note that the hearing was weeks ago and orders saying "there is insufficient evidence to conclude fraud occurred and this matter is closed" don't take much time. Moreover, nothing in the descriptions of the judge's demeanor offered much hope.

An amusing coda: at the hearing, John Steele and Paul Hansmeier discovered through Alan Cooper's testimony how he learned that his signature was being used: John Steele's mother-in-law allegedly tipped him off by text. Joe Mullin offers this deathless line:

At this point, Steele exhaled loudly.

Team Prenda has subsequently offered new evidence claiming that John Steele's mother-in-law wasn't accusing anyone of fraud, and to the contrary Cooper had admitted to her husband that he knew his signature was being used. We'll see how that plays out. I note that the affidavit relies on hearsay statements by the father-in-law but oddly fails to include an affidavit from him.

tl;dr: In Minnesota federal court Mark Lutz fails to appear at a hearing at which he is a crucial and required witness, and family drama increases popcorn consumption.

San Francisco, California

Up in San Francisco, Prenda has been in full retreat, attempting to extricate itself from cases without sanctions. Cathy Gellis previously guest-blogged for us and described how Team Prenda struggled — unsuccessfully — to dismiss AF Holdings v. Navasca "without prejudice," meaning with leave to re-file if they so desired. United States District Judge Edward M. Chen rejected that approach, dismissed the case with prejudice (meaning, permanently), and gave defense attorneys Nick Ranallo and Morgan Pietz leave to make a motion for attorney fees as the prevailing party.

Pietz and Ranallo did so. Judge Chen granted the motion, awarding $22,531.93. Judge Chen's order explicity concludes that the Alan Cooper signatures are forgeries, and that AF Holdings has litigated in a way that is "frivolous or objectively unreasonable," and that Prenda's motivation was not to protect copyright but "to sue people for downloading pornography in order to coerce settlements." Judge Chen also considered evidence that Prenda was itself uploading the copyrighted materials to pirate sites to troll for defendants. He not only concluded that evidence was credible — he pointed out that Team Prenda quibbled with the evidence but failed to rebut it meaningfully:

But notably, what AF has not done is offer any counterevidence such as a declaration from Mr. Steele in which he denies that he is “sharkmp4” or other evidence that AF did not take steps to induce users to download the subject works. This evidence could easily have been offered by AF as a part of its opposition brief. AF’s failure to submit any factual denial under oath is telling.

Bear in mind that was Judge Chen's conclusion even before the Comcast data was revealed in Georgia, as is discussed above. The case for Prenda itself uploading the materials to troll for defendants is now even stronger.

But the Northern District wasn't done with Team Prenda yet.

Pietz and Ranallo filed a new motion for sanctions, this time arguing that Judge Chen should make the sanctions payable by John Steele and Paul Hansmeier, not just the shell AF Holdings. In support of that proposition they offered a new declaration from Brett Gibbs, who talked about how Steele and Hansmeier had supervised his work for AF Holdings. Team Prenda — through Paul Duffy — predictably ranted, raved, and attacked Gibbs' credibility. Judge Chen assigned the motion to United States Magistrate Judge Nandor Vadas for hearing. In advance of the hearing, Magistrate Judge Vadas issued an extraordinary order detailing what he wanted to see at the hearing. That order called back to Paul Hansmeier's utterly bizarre performance when he appeared at a deposition to testify on behalf of AF Holdings, the plaintiff in the case. Why, Judge Vadas wanted to know, did Hamsmeier show up to testify for AF Holdings if Mark Lutz was the CEO and Hansmeier was so pig-ignorant about the details? Why couldn't he explain where the money from this enterprise goes? Who actually owns AF Holdings? Why did AF Holdings represent in court filings that it had no related parties if it was owned by the trust "Salt Marsh?" Vadas demanded that AF Holdings be prepared to answer those questions, and answering them clearly required the presence of CEO/manager Mark Lutz, and you already know what's going to happen, don't you?

The day of the hearing, Mark Lutz was a no-show. Steele and Hansmeier didn't show up, either. Paul Duffy carried the water for Prenda Law, and carried it badly. Pietz and Ranallo called Brett Gibbs, who testified that Steele and Hansmeier directed Team Prenda's litigation activities. Gibbs also testified that the voice on the GoDaddy customer service call tapes — revealed in the Georgia litigation, discussed above — was that of John Steele, notwithstanding that he identified himself as Alan Cooper and Mark Lutz in the calls. Finally, Gibbs testified that John Steele had said that "Salt Marsh" was an actual person who had signed documents in the case, an issue that Judge Chen had asked about. On cross-examination, Duffy flailed away, drawing questions from Judge Vadas about what he was trying to accomplish with his line of questions.

But Mark Lutz didn't appear.

Days later, Team Prenda filed an affidavit from Lutz in which he claimed that he didn't come to the hearing because he was mysteriously detained at the airport in Miami. Duffy asked for permission to file that under seal to protect Lutz from people saying hurty things about him. DENIED. Duffy asked to supplement the record with a declaration from Lutz about the substance of the hearing. DENIED. Judge Vadas pointed out that Team Prenda was attempting to insulate Lutz from cross-examination and called Duffy's requests "gamesmanship."

Soon thereafter Judge Vadas issued his order recommending findings of fact and conclusions of law to Judge Chen. It's exceptionally difficult to imagine how it could have gone worse for Team Prenda. Judge Vadas concluded:

That though Judge Chen could not immediately sanction Steele and Hansmeier — because they were not parties to the action — Judge Chen could and should issue an order to show cause forcing them to explain why they shouldn't be added to the attorney fee judgment as alter egos of AF Holdings;

That Team Prenda failed to address the points Judge Vadas told them to address, failed to introduce witnesses with relevant knowledge, failed to rebut — or sometimes even to address — the allegations against them, and that their attempt to start to do so only after the hearing showed that Duffy "is apparently not familiar with the rules of federal procedure, or with basic principles of motion practice";

That Judge Chen should adopt Judge Wright's conclusions about the relationship among AF Holdings, Steele, and Hansmeier, since they had an opportunity to litigate it but failed to do so;

That Duffy on behalf of Team Prenda failed to rebut the evidence that Prenda uploaded the videos at issue to the internet themselves, or the evidence that Prenda was "in cahoots" with the forensic "experts" who identified the downloaders, or that Prenda forged Alan Cooper's signature.

Judge Vadas, in short, found sufficient facts to prove that Team Prenda did everything that Pietz and Ranallo accused them of doing, and that Team Prenda utterly failed to rebut that evidence, or in some cases even to respond to it.

In short order, after some ineffectual objections from Team Prenda, Judge Chen acccepted Judge Vadas' recommended findings of fact and law and ordered Steele and Hansmeier to appear and show cause why they should not be added to the attorney fee judgment in the case, making them liable for that $22,531.93. The findings of fact are far more harmful to Steele and Hansmeier than that potential award. Judge Chen also rejected AF Holdings' objections, considering them even though Duffy filed them late. In doing so Chen made some telling points:

Rather than Steele and Hansmeier objecting to the proposed findings of fact and law, AF Holdings objected for them — including to the finding that Steele and Hansmeier control AF Holdings. Yeah, chew on that one for a minute.

AF Holdings' argument amounted to "well, Gibbs should have done an independent investigation and not relied on Steele and Hansmeier." But that does nothing to contradict the proof that Steele and Hansmeier controlled AF Holdings and directed Gibbs.

Judge Chen demolished, point by point, Team Prenda's suggestions that the evidence was insufficient to support Judge Vadas' conclusions. He emphasized repeatedly that AF Holdings, Steele, and Hansmeier had a full opportunity to subpoena witnesses (Cooper, for instance) , appear themselves and testify, or otherwise present evidence, but suspiciously failed to do so.

So Judge Chen set a hearing, and made it clear that if Steele and Hansmeier want to have their assertions taken seriously, they had better show up and present live testimony:

While the parties and Mr. Steele and Mr. Hansmeier may submit declarations in support of their respective papers, the Court hereby forewarns all persons or entities involved that such declarations (or affidavits) will be given little to no weight because the Court shall be conducting an evidentiary hearing on the order to show cause on Thursday November 21, 2013. Thus, any testimony in a declaration (or affidavit) that a party or nonparty deems important, significant, or critical must be presented at the evidentiary hearing by a live witness, subject to cross-examination. [boldface and indicia of imminent annihilation in original]

Judge Chen subsequently moved that date to December 19, 2013 and issued elaborate requirements for serving Steele and Hansmeier so they cannot pull their typical "I never got notice" routine.

The attorney fee number is modest, but this series of orders is perhaps the worst development for Team Prenda in this post — so far. It represents one more court making detailed findings of fact about Team Prenda's fraudulent activities. Moreover, there is no way that Team Prenda can make a credible argument that they lacked a fair opportunity to contest the issues.

tl;dr: A federal court in San Francisco held a hearing about Team Prenda's behavior, Team Prenda bizarrely failed to contest the issue competently, Mark Lutz failed to show up again, and the court make factual findings accepting nearly every material accusation of bad conduct levied at Team Prenda.

Los Angeles, California



That brings us to last week, in Los Angeles.

Last Thursday, in the case before Judge Wright that yielded so much drama, Brett Gibbs filed a curious document styled a "Motion for an Indicative Ruling" seeking to amend Judge Wright's order and eliminate the sanctions against him. Gibbs, representing himself, spilled more details about Team Prenda and revealed tantalizing documents, all in service of the argument that Judge Wright should reconsider his findings about Gibbs and sanctions against him.

I don't think Gibbs will be successful in vacating the sanctions against him. This is really a motion for reconsideration, and it's both untimely and procedurally improper — Gibbs offers some facts and evidence he could have offered before, which is not a valid basis for reconsideration. Moreover, the sanctions order is on appeal before the Ninth Circuit; Gibbs may have a difficult time convincing Judge Wright that he has jurisdiction to alter the order while it's on appeal.

But I'm not sure that Brett Gibbs cares. As he says in his conclusion:

While Gibbs is asking the Court to vacate the sanctions imposed upon him in its May 6 order, he is not asking the Court to withdraw the referrals the Court made to the U.S. Attorney, the Central District Disciplinary Committee, the State Bar and the Internal Revenue Service. Gibbs wants these investigations to proceed and will continue to cooperate fully with them. If the monetary sanctions against Gibbs are vacated, Gibbs will withdraw his appeal—which the Ninth Circuit has consolidated with the appeals of Prenda, the Principals and Plaintiffs. This will not prevent him from testifying about the actions and statements of the Principals in this or other cases.

I think Brett Gibbs may be trying to redeem himself and trying to put things right, and to gain a measure of justice against the low people who betrayed and abandoned him. Good for him.

Gibbs' brief and exhibits are very damaging to Team Prenda's narratives:

Team Prenda says that John Steele was not involved in directing the Prenda litigation or operating Prenda Law. Yet when Gibbs wrote to Steele seeking Prenda Law's malpractice policy, Steele immediately provided information about the policy. Why would Steele be involved or have that information if he wasn't running Prenda Law?

Team Prenda says that Prenda Law's clients have nothing to hide. So why was Paul Duffy threatening Gibbs to try to keep him silent about the Prenda Law shell entities?

Team Prenda says that Gibbs was responsible for any misconduct, that he's not reliable, and that he's lied about Team Prenda. So why, after Judge Wright issued his devastating May 6, 2013 sanctions order, did Steele and Hansmeier try to convince Gibbs to sign ridiculously one-sided agreements under which Steele and Hansmeier would pay for the appellate bond staying the sanctions order, and Gibbs would represent them on the appeal, agree to say that Steele had no involvement in a Florida case (something that Gibbs says is not true), and accept a "fiduciary relationship" with Steele and Hansmeier probably calculated to prevent him from testifying about them? Steele and Hansmeier also demanded, as the price of this epically ridiculous deal, that Gibbs promise to pay all sanctions arising from Judge Wright's order and that Gibbs waive all claims against them. Seriously? Also, if Steele and Hansmeier think that Gibbs is so awful, why are they demanding that he represent them in their desperate appeal of a life-destroying sanctions order?

And, perhaps most astoundingly, Team Prenda says that Steele and Hansmeier have no ownership interest in Prenda Law, AF Holdings, Ingenuity 13, or the various other Prenda shells. Yet Gibbs submits Prenda Law financial records — records which Prenda Law shrewdly shared with Gibbs via DropBox. Those records seem to show that in 2012, when Prenda Law took in almost $2 million from its litigation exploits, it distributed nearly 70% of that to Steele and Hansmeier directly and through an entity called "Under The Bridge" — perhaps a coy reference to their chosen life of trolling. That percentage doesn't include payments to Steele's wife, payments to Paul Duffy, and payments of extravagant travel, meals, and entertainment. Every IRS Criminal Investigation Division agent looking at those spreadsheets — and I promise you there are some — just had a Stimulating Personal Moment. Check out the coverage of the financials from Joe Mullin or Mike Masnick. This was big money, and Team Prenda's coyness or evasions to the contrary, these records suggest Steele and Hansmeier got most of it. I guess Mark Lutz' unborn kids are shit out of luck.

Brett Gibbs' brief is better written and more convincing than anything Paul Duffy, John Steele, and Paul Hansmeier have produced since Judge Wright's order. It may not succeed in lifting the sanctions against Gibbs, but it's good lawyering.

The financial records, in particular, are very bad news for Team Prenda. They are exactly the sort of thing that federal law enforcement likes to use as a jumping-off point for an investigation. If this disclosure isn't worse for Team Prenda than Judge Chen's order, discussed above, it is at least a tie.

tl;dr: In Los Angeles Brett Gibbs has filed a new motion releasing documents showing where the money went — and, despite Team Prenda's claims, it went to Steele and Hansmeier.

So What Does All Of This Mean?

So what does all of this mean? Well, first it means that Team Prenda faces more imminent hearings at which its members will have to make difficult choices between incriminating themselves or defending themselves. Those hearings include the show cause hearing in December before Judge Chen and any hearing Judge Wright chooses to hold on Brett Gibbs' motion. Moreover, Team Prenda faces imminent rulings on under-submission rulings in Georgia and Minnesota. They have little cause to hope those rulings will go their way.

Prenda's Civil Prospects

Civilly, the problems mount not just for the Prenda entities, but for Prenda figures Steele, Hansmeier, Lutz, and Duffy. Judges will evaluate each case individually — as a formal matter. But practically speaking, each sanctions order, each order rejecting Team Prenda's arguments, each order finding members of Team Prenda to be less than credible, and each finding of misconduct creates momentum against Prenda, makes judges more receptive to sanctions motions they might normally not consider, makes it more likely that judges and their staff will come into cases familiar with Prenda's history, and substantially increases the chances that Team Prenda will lose any particular dispute. At some point judges will start to treat Team Prenda's misconduct as so well established that they will resolve disputes in rather summary fashion against them.

Team Prenda's prospects for turning that trend around are grim for four reasons:

They are being outlawyered across the nation. Despite their pretenses to being the "big leagues," their written work and courtroom performance is mediocre. They continue to rely on Paul Duffy for hearings, and — as the San Francisco hearing shows — Paul Duffy is not much of a courtroom lawyer. Of course, in his defense, he's got the clients from hell.

Team Prenda still hasn't picked a coherent and consistent narrative and stuck with it. Consider the Minnesota state case described above. Called upon at a hearing to explain the origin of Guava LLC and its connection to the forum, John Steele offered ambiguities and half-answers when the situation (an angry judge investigating accusations of misconduct) called for concise, specific, evidence-backed answers. Misfortune ensued.

Team Prenda keeps touting Mark Lutz as the responsible answer man, but Mark Lutz keeps failing to appear at hearings where is presence is crucial to Prenda's case.

Finally, the facts are against them — the emerging evidence described above and in the various sanctions motions rather convincingly demonstrates an ongoing fraud scheme.

Prenda's Criminal Prospects

If you want federal prosecutors to launch a grand jury investigation, or federal agencies to investigate a fraud scheme, you need three things. You need a valid theory of a crime supported by some credible evidence, you need alleged misconduct serious enough (often as measured in dollars) to merit federal attention, and you need a spark — an X-factor. You need those things because federal prosecutors and federal agents have limited resources, and prefer to spend those resources by doing slow and (compared to local police) thorough investigations of fewer crimes rather than many short and slapdash investigations of more crimes. The FBI and U.S. Attorney's Office are awash with reports of fraud schemes; it takes something special to get their attention.

Judge Wright's order was something special. A direct criminal referral by a federal judge is unusual and powerful. But based on my experience with federal criminal law — both as a prosecutor and defense attorney — the developments above have significantly increased the chance that federal prosecutors and federal agencies will investigate Team Prenda. First, the increasing number of judicial findings makes the case against Team Prenda more credible from the outset. Second, the financial evidence Gibbs has now released is the sort of thing that makes the feds drool. The spreadsheets show large amounts of money moving around in a way that seems to contradict Team Prenda's claims about their operation; that will interest the IRS. Third, the evidence that Team Prenda uploaded the videos in question and then pretended to be outraged that they were pirated — thus defrauding courts and defendants — is exactly the sort of sexy x-factor that makes federal investigators and prosecutors pick a case out of a pile. Is federal criminal prosecution certain? No. But it's considerably more likely than it was when Judge Wright ruled.

When will it happen? Not soon. The feds have a competitive advantage — the ability to conduct methodical investigations over years, gather documents from multiple sources using grand jury subpoenas, and flip lower-level bad guys against higher-level bad guys. It wouldn't surprise me if we saw no reliable indication of a federal criminal investigation this year. But I suspect we'll see indications next year.

Credible evidence is piling up, and federal judges are accepting it. That evidence suggests that Team Prenda has (1) uploaded its films to pirate sites and then sued people for downloading them without disclosing their role in the uploading, (2) made misrepresentations under oath about the structure, financing, and operation of Team Prenda, (3) orchestrated fake cases to provide an opportunity to conduct ISP discovery, and (4) conducted questionable transactions with the proceeds of these activities. The feds, looking at all that, may investigate wire fraud, mail fraud, money laundering, obstruction of justice, perjury, and false statements to the government. If Team Prenda has done the things that Judge Chen and Judge Wright have found, you may rest assured that the feds will find an approach to charging them for it. Federal criminal law is broad and malleable to an unprincipled degree. That's not a good thing in general for society, and in particular it's a bad thing for Prenda.

What can Team Prenda do about it? They can get competent federal criminal defense attorneys to advise them. I suspect Steele, Hansmeier, and Duffy are too swollen with hubris to do that.

Are the other current or former members of Team Prenda smart enough? Maybe. Brett Gibbs seems eager to cooperate. Even if he has personally engaged in criminal conduct — and it's not clear to me that he has — as an early and important cooperator he could very plausibly avoid charges completely. Mark Lutz, if he flipped early, might avoid charges or at least minimize his exposure and avoid jail time. Local counsel, if they believed they had been used to advance a fraud scheme, could work with prosecutors to seek judicial determinations that the crime-fraud exception permits them to disclose their communications with Team Prenda.

I suspect nobody with Team Prenda is fond of me. But if any one of them would like a recommendation of a capable federal criminal defense attorney, I will give one. I would expect such an attorney to make no assumptions, and to evaluate carefully what course is in the best interests of the client, whether it is shutting up or cooperating. In Mr. Gibbs' case, out of respect for his attempts to make amends, I would pledge to use my best efforts to use my contacts to find an exceptional federal criminal defense attorney to represent him pro bono.

tl;dr: We thought Team Prenda's troubles couldn't get worse. We were wrong.

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