The End of Prenda – Sanctions and Contempt Order Affirmed by Seventh Circuit


Duffy v. Smith :: Seventh Circuit :: US Courts of Appeals Cases :: US Federal Case Law :: US Case Law :: US Law :: Justia.

This ruling, affirming the sanctions and contempt orders against the Prenda Lawyers, was no surprise as the oral argument went poorly for them. See my post of April 8, 2014. The ruling may prove to be a troublesome one for lawyers who are named in sanctions motions after they withdraw form litigation. I have only discussed the issues that are important to the appeal and to lawyers. I have ignored many of the arguments and defenses raised by the Prenda Lawyers.

Prenda Law, according to the Seventh Circuit, consisted of Paul Duffy, John Steele and Paul Hansmeier. All three were Illinois lawyers. Prenda would file a lawsuit against unknown individuals and would then subpoena their internet provider for information identifying particular individuals. Then, Prenda would contact those people and would claim that they had wrongfully downloaded pornographic movies and would extract settlements from them.

In this particular case, Lightspeed Media Corporation, which operates pornography sit, sued Anthony Smith and other defendants. The case began in the State Court, where Lightspeed claimed that one John Doe defendant (identified through his IP address). Lightspeed then identified 6,000 other IP addresses and then served subpoenas on two internet service providers (ISPs) seeking the identity of the owner of each of the 6000 IP addresses. In the state court the ISPs refused to turn over the information. The trial court denied the motion to quash the subpoenas. The ISPs appealed and the Illinois Supreme Court held that the trial court erred by refusing to quash the subpoenas.

On August 3, 2012, Lightspeed amended the complaint and claimed that the ISPs were co-conspirators of those defendants who had wrongfully downloaded the pornographic movie. In the amended complaint the defendant John Doe’s name was revealed to be Anthony Smith.

On August 9, 2012, the ISPs removed the case to the District Court for the Southern District of Illinois. Lightspeed filed emergency motions to require the ISPs to produce personally identifiable information for each of the 6,000 alleged co-conspirators. The district judge denied the motion. The ISP defendants then submitted a motion to dismiss the case and a motion to stay discovery (stop discovery) while the motion to dismiss was pending. See Opinion at 4.

In November 2012, Hansmeier moved to withdraw. In March 2013, Steele moved to withdraw.

In May 2013, a California district court entered a rule to show cause against Duffy, Hansmeier, and Steele. That court also made a finding that Duffy, Hansmeier and Steele controlled Prenda Law. See Seventh Circuit Opinion at 5.

After the show-cause order was entered in California, Prenda moved to voluntarily dismiss the Lightspeed case. After the voluntary dismissal was granted, Smith (within 14 days) moved for sanctions pursuant to 28 U.S.C. Section 1927. Duffy responded but Hansmeier and Steele did not file responses. In October 2013, the district court granted the motion for sanctions. The lawyers moved for reconsideration. The court granted the request for a rehearing.

Then the ISPs became involved. They sought attorney frees from Steele, Hansmeier and Duffy.  After rehearing, the district court upheld its original order of sanctions to Smith and granted the ISP’s motion for sanctions. The district court assessed fees against the lawyers jointly and severally. The district court found that the lawsuit was frivolous and that the litigation “‘smacked of a bully pretense.'” The district court also ruled that the lawyers “were engaged in ‘abusive litigation…simply filing a lawsuit to do discovery to find out if you can sue somebody. That’s just utter nonsense.'” Opinion at 17-18.  The three lawyers then appealed.

Were Steele and Hansmeier given notice and an opportunity to be heard?

Steele and Hansmeier argued that they did not receive notice of the motion for sanctions. The Seventh Circuit disagreed because, first even if they did not have notice of the original motion, “the defect was cured when the district court granted rehearing on the sanctions issue.”  Second, Steele and Hansmeier did have notice of the original motion. The court explained that “[g]iven the close connections among the lawyers, it was reasonable for the court to conclude that service on Duffy would suffice to give notice to Steele and Hansmeier as well.”  This holding is supported by the common address used by the three lawyers and the impression they gave to the outside world that they were a team acting together. The Seventh Circuit also held that Steele received actual notice via email.

Did the Defendants Delay Too Long Before Seeking Section 1927 Sanctions?

Smith’s motion for sanctions was filed 10 days after the case was voluntarily dismissed, which was not too late for the court to lose jurisdiction. However, the ISPs did not seek sanctions until October 2013 (after Smith’s Motion for Sanctions was granted).

Was Joint and Several Liability Appropriate?

The lawyers argued that Section 1927 liability is direct and that it was wrong to hold the lawyers vicariously liable for each others’ actions. Opinion at 24. Here, the Seventh Circuit rejected the argument because the district court held a hearing and held them liable after determining that each one was individually liable.

The Seventh Circuit also affirmed a contempt holding for the failure to pay the sanctions promptly.

Conclusion

This case means the end of the Prenda enterprise and the careers of the lawyers who were involved in this appeal. The case may be more important to future lawyers defending themselves against sanctions motions. Lightspeed means that a lawyer can be sanctioned long after the lawyer withdraws from the litigation. Lightspeed also means that, in the future, there will be requests to sanction both the principal lawyer involved and anyone who helped that lawyer with the case.  The ugly spectre of joint and several liability will be raised again and again in future sanctions proceedings. Most importantly, Lightspeed will probably be read to mean that you can get notice of a sanctions motion by email. (This is also very scary for lawyers).

Thus, the Lightspeed case is a great victory for those who were fighting Prenda Law. They deserve congratulations. However, the case has introduced or reintroduced some scary doctrines into the law of sanctions including (a) sanctions after you withdraw; (b) service by email; and (c) joint and several liability.

Edward X. Clinton, Jr.

www.clintonlaw.net

 

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