Prenda hammered: Judge sends porn-trolling lawyers to criminal investigators | Ars Technica

Aurich Lawson

US District Judge Otis Wright has no love for the lawyers who set up the copyright-trolling operation that came to be known as Prenda Law. But Wright at least acknowledges their smarts in his long-awaited order, released today. Wright's order is a scathing 11 page document, suggesting Prenda masterminds John Steele and Paul Hansmeier should be handed over for criminal investigation. In the first page, though, the judge expresses near admiration for the sheer dark intelligence of their scheme—it's so complete, so mathematical in its perfection. 

"Plaintiffs have outmaneuvered the legal system," Wright begins. He goes on:

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.

And yes, if reading "resistance is futile" rattles something in your brain, Wright's order is thoroughly peppered with Star Trek references.

The plaintiffs have a right to assert their intellectual property rights, "so long as they do it right," Wright acknowledges. That's not what happened here, though. Prenda lawyers used "the same boilerplate complaints against dozens of defendants," without telling the judge. Instead, defense lawyers like Morgan Pietz flagged the dozens of related cases. "It was when the Court realized Plaintiffs engaged their cloak of shell companies and fraud that the court went to battlestations," states Wright. 

A harsh fact-finding

At a hearing last month, the lawyers behind Prenda finally showed in court up as Wright ordered them to. But when they were confronted with Wright's questions, they clammed up and pled the Fifth Amendment. They wouldn't answer simple questions, like who owned their shell companies and where the settlement money (rumored to be in the millions) was going.

"Well, if you say answering those kinds of questions would incriminate him, I'll take you at your word," Wright said to Hansmeier's lawyer at the time.

The three lawyers Wright refers to as the "Principals"—lawyers Paul Hansmeier, John Steele, and Paul Duffy—refused to describe their own behavior in court. Now, just as he said he would, Wright has assumed the worst.

In today's order, Wright finds that:

• Prenda shell companies like AF Holdings and Ingenuity 13 were created "for the sole purpose of litigating copyright-infringement lawsuits." They have no assets other than the pornographic movies they sue over. And despite their legal trickery using offshore vehicles, "the Principals [Steele, Hansmeier, and Paul Duffy] are the de facto owners and officers."
• Their strategy of identifying IP numbers, issuing subpoenas to ISPs, and sending demand letters offering to settle for about $4,000 "was highly successful because of statutory-copyright damages, the pornographic subject matter, and the high cost of litigation." Steele, Hansmeier and Duffy got "proceeds of millions of dollars due to the numerosity of Defendants." And Wright added, "No taxes have been paid on this income."
  
• The Prenda lawyers engaged in "vexatious litigation designed to coerce settlement." They showed little desire to actually fight when a "determined defendant" showed up. "Instead of litigating, they dismiss the case," notes Wright. "When pressed for discovery, the Principals offer only disinformation—even to the Court."
• Local California lawyer Brett Gibbs sued on behalf of Prenda and then tried to back away from their scheme to testify against them, but he's still in trouble. Wright states, "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.'"
• Finally, the allegations of identity theft look legitimate. Steele, Hansmeier, and Duffy conspired to fraudulently sign the copyright assignment for the adult movie Popular Demand using Alan Cooper's signature, pretending he was an officer of AF Holdings.
• Wright concludes: "Plaintiffs’ representations about their operations, relationships, and financial interests have varied from feigned ignorance to misstatements to outright lies. But this deception was calculated so that the Court would grant Plaintiffs’ early-discovery requests, thereby allowing Plaintiffs to identify defendants and exact settlement proceeds from them. With these granted requests, Plaintiffs borrow the authority of the Court to pressure settlement."

Sanctions range from merely expensive to criminal

In the final section of his order, before proceeding to the actual sanctions, Wright begins with an example of Prenda attorney Gibbs skirting the truth.

All Prenda has in the way of evidence is a "snapshot" showing that an IP address was seen online in a torrent swarm. "Without better technology, prosecuting illegal BitTorrent activity requires substantial effort in order to make a case," says Wright. "It is simply not economically viable to properly prosecute the illegal download of a single copyrighted video."

Instead of owning up to other possibilities—such as an outsider using someone's home Wi-Fi signal—Gibbs deceptively downplayed them, according to Wright. Gibbs characterized one defendant's property as "a very large estate consisting of a gate for entry and multiple separate houses/structures on the property." The problem for Gibbs is that Judge Wright knows how to use Google: he pulled up a Google Street View scene of the address and found a modest home in West Covina, a Los Angeles suburb. "It is a small house in a closely packed residential neighborhood," says Wright. "There are also no gates visible. Gibbs's statement is a blatant lie."

The "large estate" of one LA-area Prenda defendant.

Judge Wright once used the word "fraud" when confronting Prenda lawyers, a statement they later cited when they pled the Fifth. But beyond the certain instances like Gibbs' description of the house or the Alan Cooper deception—"a forgery is still a forgery," notes Wright—there's little hard evidence of lies under oath. (Although Prenda is up against a deadline in another case to produce a hard signature of a trust identified as "Salt Marsh.") 

Wright suggests the Prenda enterprise as a whole is a kind of lie of omission: 

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.

As for penalties, they begin with attorneys' fees. Prenda will have to pay these to the two defense lawyers who have been instrumental in this case: Morgan Pietz and Nicholas Ranallo. Wright awards $36,150 in fees to Pietz, $1,950 in fees to Ranallo, as well as legal costs (copying and filing fees, for example) to both. He then doubles the amount "as a punitive measure," arriving at $81,319.72. In a footnote, Wright says that the sum "is calculated to be just below the cost of an effective appeal"—a final dig at the Prenda business model of settlement offers just below the cost of defense. The Prenda folks have 14 days to pay up.

The harshest penalties are saved for last. First, Judge Wright suggests the Prenda lawyers should be disbarred, writing "there is little doubt that Steele, Hansmeier, Duffy, [and] Gibbs suffer from a form of moral turpitude unbecoming an officer of the court." In many states, including California, crimes reaching the standard of "moral turpitude" lead to automatic disbarment. Wright will be referring the four lawyers to every state bar in which they are admitted to practice.

Wright also suggests the Prenda scheme went far enough to warrant criminal investigation. And Brett Gibbs—the Prenda accomplice who portrayed himself as a low-level attorney and who tried to distance himself from the core group—doesn't get any kid-glove treatment. The judge concludes:

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 [court] 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.