A Minnesota court has ordered Paul Hansmeier, one of two lawyers considered the creators of the Prenda Law copyright-trolling scheme, to pay sanctions in a case where he and his colleague John Steele were accused of trying to collude with a defendant.

An order published Monday by a Minnesota appeals court describes how Hansmeier tried to dodge a $64,000 judicial sanction in the Guava LLC v. Spencer Merkel case by moving money out of his Alpha Law Firm then dissolving it. A district court previously found that Hansmeier's actions and inconsistent explanations warranted a piercing of the "corporate veil," and that court ruled that Hansmeier should be held personally responsible for the debt. Now, an appeals court has agreed (PDF) with that conclusion.

Show us your "co-conspirators"

The Guava LLC v. Spencer Merkel case was filed in early 2013. The lawsuit accused an Oregon man, Merkel, of downloading a porn movie entitled Amateur Allure—MaeLynn. Merkel called Prenda Law and admitted he did the downloading, but the man said he didn't have the $3,400 they were asking for as compensation.

Merkel was offered an alternative, he explained in a later affidavit: Prenda would arrange for him to get a free lawyer if he agreed to hand over the information on his computer. Then Prenda lawyers launched a wave of subpoenas on bizarre anti-hacking claims, saying they needed to gather customer information from hundreds of ISPs to find Merkel's "co-conspirators."

Shortly after that, Prenda was subject to sanctions and started falling apart. Guava, along with Hansmeier's Alpha Law Firm, was sanctioned $64,000.

"The district court ... found that Hansmeier was using Alpha as a facade to perpetrate fraud on the court," the appeals judges noted. Alpha had become Hansmeier's alter ego. "The court discredited Hansmeier's testimony as to these matters, noting the inconsistencies in Hansmeier's testimony and that Hansmeier had failed to provide responsive information to the court."

Within two weeks of the January 2013 motion to quash in the Merkel case, Hansmeier moved $65,970 from Alpha Law to his new enterprise, the Class Action Justice Institute. A week after the order to show cause—when Hansmeier was clearly in trouble—he siphoned out another $80,000 and moved it into his personal account.

"Hansmeier abused the corporate-liability shield to avoid paying sanctions in a bad-faith lawsuit for which he was responsible," the court concluded.

Hansmeier and his colleague John Steele have both been subject to numerous sanctions, a few of which are still awaiting rulings from an appeals court. They were also referred to criminal investigators. The status of that investigation, including whether it is ongoing, is unclear.