9th Circuit Panel Takes On Prenda Lawyers in Copyright Cases

PASADENA, Calif.—It's now been two years and one month since the attorneys who reportedly have operated the Prenda Law firm—John Steele, Paul Hansmeier and Paul Duffy—as well as the principals of several alleged shell companies that Prenda operated, appeared before U.S. District Judge Otis D. Wright II. As a result of the attorneys and principals refusing to provide Wright with the factual evidence regarding claims of extortion by Prenda that he had called the firm's alleged principals before him to present, Wright ordered the Prenda firm to pay more than $81,000 in legal fees to people they had sued over alleged porn piracy, and issued sanctions against a total of 13 persons and entities. Guess what? They appealed. A Ninth Circuit panel composed of Circuit Judges Richard Tallman, Harry Pregerson and Jacqueline Nguyen heard argument yesterday from attorney Daniel Voelker, who claimed that Steele and Hansmeier were denied due process in Judge Wright's court, and said that the fact that the Prenda attorneys and principals had invoked their Fifth Amendment rights in response to Judge Wright's questions had led directly to the sanctions being imposed. "The entire proceeding was tainted," Joe Mullin of the Ars Technica website reported Voelker as saying to the panel. "Mark Lutz, the CEO of Ingenuity 13, was not allowed to testify. As soon as they asserted their 5th amendment rights, the judge stopped the proceeding. He can't use that against them." Ingenuity 13 is one of the firms that is alleged to be a shell corporation, existing for the sole purpose of hosting adult videos, which company, when the videos were downloaded by various individuals, became the plaintiff in a number of "copyright trolling" lawsuits commenced by the Prenda Law firm. "Plaintiffs have outmaneuvered the legal system," Judge Wright said at April 2, 2013, hearing. "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." Judge Pregerson echoed those thoughts at yesterday's hearing, where he said from the bench, "This was a very clever scheme they were involved in ... They used our court system for illegal purposes to extort money—they used our discovery system. They bought these pornographic films, and seeded the Internet with them. This is going to be written about, for years and years." But Voelker's argument didn't deal with the alleged copyright trolling, but rather his claim that Judge Wright had begun an "indirect criminal contempt" proceeding against Prenda and its principals as a result of having accused the Prenda attorneys of fraud. "Explain to me in simple English how this operation worked—from the beginning," Judge Pregerson then asked. "How did they make their money? Who ran this operation?" "I don't know," Voelker replied. "You don't know anything, do you?" Pregerson said. "I know Mr. Lutz was the CEO, and he wasn't allowed to testify," Voelker responded. However, according to attorney Morgan Pietz, who appeared representing one of the trolling victims, "Lutz was a paralegal for Steele, Hansmeier. This notion that he went from a humble paralegal at Prenda, to the mastermind overseeing shell companies, and overseeing 20 lawyers across the country—it doesn’t hold water." "They should have taken the 5th, because they were engaged in extortion," Pregerson said to Voelker. "They sent out thousands of extortionate letters." But then Pregerson threw what he undoubtedly assumed was a curveball at Voelker. "Let's say you're right," said Pregerson. "Do you want us to send this back and have this turn into a criminal contempt proceeding?" "Absolutely, your honor," said Voelker. "My clients want their day in court, with procedural protections." "With a potential penalty of life in prison for criminal contempt?" asked Tallman. "They're prepared to run that gauntlet?" But Voelker told the panel that that's exactly the message his clients wanted him to deliver. Pietz, on the other hand, argued to the panel that it could both uphold Judge Wright's sanctions against the attorneys and allow them to challenge criminal contempt charges in a separate trial. It is unknown what the panel will decide, opr when they will decide it, but at present, any cases begun by Prenda Law in California are on hold, and it's unclear if they will be allowed to continue, at least until the matter concerning the Prenda attorneys is settled.