Minnesota lawyer Paul Hansmeier, whose tactics prosecuting porn consumers have been openly criticized by judges nationwide, lost a major legal battle Friday when the Ninth U.S. Circuit Court of Appeals in California upheld stiff monetary sanctions against him and his business associates.
A three-judge panel upheld U.S. District Judge Otis D. Wright's orders awarding attorneys' fees, bonds and a punitive multiplier against Hansmeier and his associates in the defunct Chicago law firm, Prenda Law.
Hansmeier and his Prenda Law colleagues raked in millions of dollars in legal settlements from thousands of what the appeals court called "minor copyright infringement claims" that they had filed against people who allegedly downloaded copyrighted pornographic movies from the internet. Their practices fell apart after judges realized that the scheme misused the courts' subpoena power to engage in what's known as "copyright trolling."
The appellate court said the scheme operated this way:
Prenda Law set up shell companies that purchased copyrights to pornographic movies and made them available on the internet. After consumers downloaded the films, Prenda Law or a local attorney it hired filed lawsuits against the "John Doe" internet addresses that were captured during the download. They used early discovery procedures available in lawsuits to determine the identities of the people they alleged illegally downloaded the films, then threatened to sue the purported "John Does" unless they paid roughly $4,000 to "settle" the cases.
"Out of embarrassment and for economic reasons, many 'John Does' settled, regardless of whether they, or another family member, friend, or guest, infringed the copyright," the appellate panel wrote, noting that "Prenda Law never litigated a single copyright infringement case through to a merits judgment."
Wright described the tactics as a "legal shakedown" and "fishing expedition discovery."
He eventually determined that Prenda Law had set up dummy corporations to buy the copyrights so it could pursue claims. The judge awarded one defendant $40,659.86 in legal fees and an equal amount as a punitive multiplier.
Hansmeier and his Prenda Law associates — Chicago attorney John Steele and the late Paul Duffy — posted a surety bond pending appeal of that decision. Wright then required another bond of $135,333 to cover the John Doe legal costs pending appeal.
"Based on the myriad of information before it — including depositions and court documents from other cases around the country where the Prenda principals were found contradicting themselves, evading questioning, and possibly committing identity theft and fraud on the courts — it was not an abuse of discretion for Judge Wright to find that Steele, Hansmeier, and Duffy were principals and the parties actually responsible for the abusive litigation," the appellate court found. "The Prenda principals have engaged in abusive litigation, fraud on courts across the country, and willful violation of court orders. They have lied to other courts about their ability to pay sanctions."
Hansmeier filed for Chapter 13 bankruptcy protection last July seeking to reorganize his debts. The bankruptcy trustee forced him into Chapter 7 liquidation in December and in February filed an "adversary" lawsuit seeking to deny him protection from his creditors, citing alleged misrepresentations. That matter is pending.
Hansmeier and Steele also face complaints to sanction their law licenses in Minnesota and Illinois, respectively.
Dan Browning • 612-673-4493
