PASADENA, Calif. — A 9th U.S. Circuit Court of Appeals panel today heard an appeal made by the now-defunct “copyright trolling” Prenda Law Firm, which two years ago was ordered to pay $81,000 in sanctions after a federal judge ruled that it engaged in fraud while coercing those who allegedly downloaded porn videos illegally into financial settlements.
The appeal has its roots in an order made by U.S. District Judge Otis Wright, who said in a May 2013 opinion that Prenda Law, along with attorneys John Steele, Paul Duffy and Paul Hansmeier, “outmaneuvered the legal system" in their porn piracy cases representing adult companies AF Holdings LLC and Ingenuity 13 LLC, purportedly started up by the law firm.
Wright in his May 2013 order said he found evidence of forgery in the assignee of the copyrights of the adult entertainment movies.
His lower court ruling said that Prenda Law and its attorneys should not only be sanctioned but also held accountable over possible federal racketeering violations and probed over their tax returns, among other disciplinary measures.
In today’s hour-long oral argument, Daniel Voelker, Prenda Law’s appellate attorney, said that the copyright trolling firm was denied due process with the $81,000 in punitive sanctions by Wright.
Prenda Law, with the appeal, posted a $250,000 bond that will go to defense attorney Morgan Pietz and a John Doe client if it loses. Voelker has asked the 9th Circuit to either dismiss the case involving the sanctions or remand the case back to the lower court without sanctions.
In his argument, Voelker said that Wright punished the firm and its attorneys for invoking their 5th Amendment right.
But 9th Circuit Judge Harry Pregerson said that Wright “got on it and started thinking about” Prenda Law’s “clever scheme.”
“He smelled a rat, didn’t he?” Pregerson asked Voelker about Prenda Law’s operations.
Pregerson noted that Wright went through five similar cases involving Prenda Law and “found the same operation going on” and he probably said, “'Things don’t look right' … and one thing leads to another. He’s an old Marine Corps drill instruction, and he was checking things out and hit on it.”
Pregerson early on began reading Prenda Law’s threat letters to porn downloaders that had been entered into evidence. The letters asked for a $3,400 payment in order to avoid being named in a federal lawsuit over the content.
"This was a very clever scheme they were involved in,” Pregerson said. “Buy several copyrighted [adult movies], then seed the Internet and find addresses. Then they used our court system for illegal purposes to extort money; they used our discovery system."
Voelker said that Prenda Law should prevail in the appeal and that the sanctions should be thrown out entirely because the firm wasn’t given the opportunity to defend themselves after its attorneys invoked the 5th Amendment. He said that Wright imposed criminal contempt penalties without extending criminal contempt procedural protections.
"The entire proceeding was tainted," Voelker said. "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.
"My clients want their day in court, with procedural protections. There was no due process.”
Pietz, in his arguments before the three-judge panel, said that testimony from Lutz wouldn’t have amounted to very much.
"Lutz was a paralegal for [Prenda Law]," said Pietz. "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."
Listen to today’s appellate hearing in Paul Hansmeier vs. John Doe here.