LOS ANGELES—Members of the legal community and others watching the Prenda case unfold in Judge Otis Wright II’s Los Angeles courtroom have been waiting eagerly for his Order Issuing Sanctions, which was finally published yesterday. Interest has been palpable not only because the activity that has taken place before Wright has been so memorable, but because the fallout could be so significant.
As expected, the sanctions, which include references to possible RICO actions, are potentially very serious for the Prenda principals—identified by the judge as attorneys John Steele, Paul Hansmeier, Paul Duffy, Brett Gibbs, Michael Dugas and Peter Hansmeier, and various entities, including Media Copyright Group, 6881 Forensics, Steele Hansmeier PLLC, Prenda Law, Anti-Piracy Law Group, and the list goes on.
In his 11-page ruling, Wright starkly accused the Prenda team of running an enterprise that “relies on deception,” with a “web of disinformation… so vast that the Principals cannot keep track—their explanations of their operations, relationships, and financial interests constantly vary.”
As mentioned, the judge also concluded that the only enterprise to which he can compare the one operated by Prenda is a RICO enterprise, a finding that resulted in one of the more severe sanctions among several levied yesterday, namely, a vague promise (wrapped in a Star Trek reference) to the effect that “the federal agency eleven decks up is familiar with their prime directive and will gladly refit them for their next voyage.”
Other sanctions included a monetary award of $81,319.72, and, citing “moral turpitude,” the suggested referral of lawyers to “their respective state and federal bars” as well as to “the Criminal Investigation Division of the Internal Revenue Service “ and “all judges before whom these attorneys have pending cases.”
The IRS referral has to do with the judge's finding of fact that millions of dollars in "settlement funds resided in the Principals’ accounts and not in accounts belonging to AF Holdings or Ingenuity 13. No taxes have been paid on this income." The sanctions levied by Judge Wright are obviously designed to do critical, perhaps career-ending, harm to the Prenda principals.
In the face of such a damning indictment, however, one of them says he is already planning an appeal of the court’s findings to the appellate court. “I have faith in the appellate process,” attorney John Steele told AVN.
Steele also responded to a few specific claims made in Judge Wright’s findings of fact regarding his alleged financial interest in copyright-owning entities represented by the Prenda-organized group of lawyers and firms.
Specifically, Wright claims that Steele and his partners created a “copyright-enforcement crusade in about 2010, through Prenda Law, which was also owned and controlled by the Principals.
“Steele, Hansmeier, and Duffy (“Principals”) are attorneys with shattered law practices,” he added. “Seeking easy money, they conspired to operate this enterprise and formed 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.
“AF Holdings and Ingenuity 13 have no assets other than several copyrights to pornographic movies,” the judge also concluded. “There are no official owners or officers for these two offshore entities, but the Principals are the de facto owners and officers.”
Steele dissented, telling AVN, “The hearing regarding me in March was 12 minutes long and there was no evidence or testimony admitted. I have never had any ownership interest in AF Holdings, Ingenuity13, or Prenda Law and no evidence otherwise was ever presented. I am not an attorney in this matter, and have never practiced law in California. In fact the first time I heard of this case was when Mr. Gibbs told me he got an Order to Show Cause in February 2013 regarding this case.”
He continued, “I would also comment that the attorneys representing myself, Paul Hansmeier, Paul Duffy, and the others were not allowed to make argument nor were we allowed to present witnesses. And normally with orders regarding sanctions, the Court will point to evidence, testimony, or something to explain the sanction. In this order, there is nothing.”
However, as AVN previously reported, when Steele and other Prenda-affiliated attorneys appeared in Judge Wright's courtroom in early April, under threat of severe sanctions, during which proceeding Judge Wright had wanted to ask the assemblage several questions pertaining to Prenda’s legal strategies in copyright cases filed in courts around the nation, all of the attorneys asserted their Fifth Amendment right not to be witnesses against themselves. The judge, after assuring himself that no answers would be forthcoming, ended the hearing after less than 15 minutes.
Regarding the referral for sanctions imposed by Judge Wright, Steele said, “As far as the referrals to the various Bar associations, the Illinois Bar is well aware of this type of litigation. I have had inquiries from the office of the Illinois State Bar and have satisfied their requests in the past. I am confident that agencies like the IRS and the Illinois State Bar require actual evidence before taking action against someone.
“Most importantly,” he added, “hundreds of judges across the country have ruled on these same cases and have thrown out the crazy conspiracy theories of people like Mr. Pietz [Morgan Pietz, a defendant’s attorney in the case] and groups like the EFF (Electronic Frontier Foundation). Content producers are still winning the vast majority of hearings in piracy cases, but it is inevitable that an anti-piracy attorney would have a case in front of a judge such as Mr. Wright.”
The derogatory reference to “Mr. Wright” is no doubt an obvious expression of Steele’s belief that the judge is inherently biased against such copyright cases. Indeed, Judge Wright has been involved with at least five such cases, and in his order yesterday did come down very hard on the legal strategies used to prosecute these cases as they are practiced by the Prenda principals, calling them at one point “cottage-industry lawsuits.”
More revealing of the judge’s feelings, however, were the order’s very first sentences—immediately following an opening quote from "Spock" (yes, that Spock; the judge is a serious Trekkie), taken from 1982’s Star Trek II: The Wrath of Khan: “The needs of the many outweigh the needs of the few”—in which he describes in graphic terms his impression of Prenda.
“Plaintiffs have outmaneuvered the legal system,” he wrote. “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.”
One could take from that, as Steele has in fact implied, that Judge Wright either has an inherent bias against copyright litigation or porn, or both, or a misunderstanding of how copyright law works.
On the other hand, the judge in his order addressed just that issue, writing, “Plaintiffs do have a right to assert their intellectual-property rights, so long as they do it right. But Plaintiffs’ filing of cases using the same boilerplate complaint against dozens of defendants raised the Court’s alert. It was when the Court realized Plaintiffs engaged their cloak of shell companies and fraud that the Court went to battlestations.”
Steele, of course, is careful not to characterize Wright’s assessment of Prenda’s tactics as just another “crazy conspiracy theory” that “hundreds of judges across the country” have already “thrown out,” saying instead that he “respectfully” disagrees with the courts findings. But he doesn’t really have to group the judge in with EFF and Pietz. Saying instead that “it is inevitable that an anti-piracy attorney would have a case in front of a judge such as Mr. Wright” pretty much says it all.
The contempt goes both ways. In imposing the punitive fine of $81,319.72, the judge added a reference note to the amount which read, “This punitive portion is calculated to be just below the cost of an effective appeal,” an obvious rebuke of what the judge found was Prenda’s proclivity to negotiate settlement fees with alleged illegal downloaders just below what it would cost the individual to fight the case in court.
For his part, Steele told AVN that it is his understanding that Livewire Holdings, one of the entities identified by Judge Wright—by way of an actual Prenda relationship chart included in the order—as being a member of the Prenda family, “is filing multiple new cases this week."
“Hopefully,” he added defiantly, “the pirate that got away in this matter will be caught and brought to justice down the road.”
Judge Wright’s May 6 Order Issuing Sanctions can be read here.