Judge Decides The Prenda Buck Should Stop With John Steele And Paul Hansmeier

Legal Issues

from the another-shoe-drops dept

The latest ruling in the AF Holdings v. Navasca case has come out with Magistrate Judge Nador Vadas completely slamming Team Prenda, focusing mainly on John Steele and Paul Hansmeier, whom he thinks should clearly be directly liable for the attorneys’ fees already ordered on AF Holdings in the case, but which haven’t yet been paid (of course). This is in response to the hearing from a few weeks ago, in which Judge Vadas had made it clear that he wanted AF Holdings/Prenda to answer some very specific questions. Paul Duffy, representing AF Holdings, did not answer most of the questions, and the Judge noticed. He also noticed that AF Holdings did basically nothing to actually respond to most of the issues, other than trying to attack Brett Gibbs or Navasca’s lawyer Nick Ranallo.

Even after the excoriating decision Judge Wright issued in Ingenuity 13, and the troublesome findings Judge Chen made in his order awarding attorneys’ fees to Navasca, AF chose not to oppose the majority of the arguments in Navasca’s motion for sanctions. Instead, AF introduced immaterial issues in its opposition, attacked its former counsel Gibbs, and attacked Navasca’s counsel…. AF addressed the “Salt Marsh” issue and the working relationship between AF’s former counsel Gibbs and its CEO/manager/sole employee Lutz…. However, AF failed to oppose Navasca’s arguments that Steele and/or Hansmeier (1) manufactured Cooper’s involvement in AF and forged his signature; (2) were in cahoots with the computer forensic experts who identified the alleged illegal downloaders that AF then sued; and (3) themselves uploaded the Video to Pirate Bay to induce others to download the Video. AF failed to offer any evidence to rebut Navasca’s evidence establishing these points. AF’s counsel attacked the affidavit of Delvan Neville, who explains how he determined that John Steele or someone with access to Steele’s GoDaddy account uploaded the copyrighted works that form the basis of AF’s lawsuits to BitTorrent swarms in order to induce infringement…. But AF did not actually rebut the evidence Neville presents. Instead of grappling with these admittedly difficult accusations, AF “respectfully request[ed] that to the extent the Court deems one or more to be relevant in any respect, that it identify those matters and allow Plaintiff opportunity to respond and present evidence to contradict them.” …. AF’s counsel is apparently not familiar with the rules of federal procedure, or with basic principles of motion practice

That last sentence? Ouch. Later, the Judge restates the three straightforward questions he’d ordered Duffy and AF Holdings be prepared to answer, and then notes “AF chose not to present any witness at the evidentiary hearing, continuing its campaign of obfuscation.”

From there, the Judge notes that Judge Wright’s initial findings against Team Prenda were compelling and adopted in this case. He finds that Gibbs’ testimony concerning John Steele and Paul Hansmeier was convincing, and notes that Paul Duffy presented little evidence to counter any of it. The Judge also faults Steele and Hansmeier for claiming that they haven’t had “a full and fair opportunity to litigate these issues,” noting that’s not at all true, going back to the opportunity before Judge Wright.

The key point of all of this is to see if John Steele and Paul Hansmeier could be made personally liable to pay the attorneys’ fees ordered by Judge Chen in this case, and Judge Vadas is clearly convinced. Still, he notes that he’s unable to do so under some of the proposed theories. He can’t use the court’s inherent powers, since neither Steele nor Hansmeier technically appeared as attorneys in the case (even if Hansmeier was deposed as a corporate representative). Still, the court notes that there’s tons of evidence that Steele and Hansmeier deserve sanctions, but since they’re not officially part of the case, there’s just no jurisdiction.

However, that doesn’t let them off the hook. The court finds that it can add Steele and Hansmeier personally as debtors to the original judgment, noting that they are basically an “alter ego to the original debtor.” It then goes into a fair amount of detail about why this makes sense, highlighting the evidence that Steele and Hansmeier really controlled the lawsuit, that they had a financial interest in the ruling, and, most importantly, their near total failure to refute any of the evidence against them, despite multiple opportunities.

The evidence adduced at the August 28, 2013 evidentiary hearing confirms Judge Wright’s findings. AF’s failure to refute that evidence with any of its own also speaks volumes. Although the undersigned ordered AF to be prepared to explain at the hearing the money trail and provide an accounting of the funds it received from copyright infringement actions or settlements, AF failed to present a witness who could do so or documents that might shed light on these issues. During the evidentiary hearing, Duffy represented to the undersigned (but did not testify) that it was his belief that the settlement or litigation proceeds were held in IOLTA trust accounts by AF’s attorneys (including Prenda Law, formerly known as Steele Hansmeier). Duffy also represented as a “fact” to this court that a settlement check in another matter was written to Prenda Law…. However, no witness testified regarding whether any of the funds ever left Prenda’s trust account(s). Thus, there is no evidence before the undersigned that any settlement or litigation proceeds ever reached AF.

The end result is that Vadas has sent the case back to Judge Chen with a recommendation for yet another Order to Show Cause why Steele and Hansmeier shouldn’t be added as debtors to the original award for attorney’s fees. In short, Hansmeier and Steele now get to argue why they shouldn’t personally be liable for this debt. I’m sure their filings will be highly entertaining.

As a post script to this story, elsewhere we had noted that Mark Lutz had failed to show up at the hearing, despite Paul Duffy insisting that he knew Lutz was in town and would be present soon. A week later, Duffy finally filed with the court stating that Lutz had a good excuse, but wanted it to remain secret from the public. The court rejected two separate attempts to explain secretly why Lutz did so, and then just before Vadas’ ruling filed a statement from Lutz that claims he was detained at the airport for the entire day by federal officials and unable to contact anyone, including his lawyer. He does not explain why he was detained, other than that it “was not for any actions I took at the airport and had no way of knowing that I was going to be detained on that day until it happened.”

There are a number of oddities in this explanation, including the earlier claims from Duffy that he knew Lutz was apparently in town, when he wasn’t, as well as the claim that he was unable to contact his lawyer during the entire 16.5 hours that Lutz claims he was detained. That’s an awfully long time to be detained without access to one’s lawyers. It also doesn’t explain why it took Duffy a week to file anything with the court about this absence.

Filed Under: alan cooper, brett gibbs, edward chen, joe navasca, john steele, liability, mark lutz, nador vadas, nick ranallo, otis wright, paul duffy, paul hansmeier, sanctions
Companies: af holdings, ingenuity 13, prenda, prenda law