Prenda Law Attorneys Found in Contempt, Ordered to Pay $65,000

Rhett Pardon

CHICAGO — A federal judge in Chicago today found Prenda Law attorneys John Steele and Paul Hansmeier in contempt, ordering them to pay $65,000 for obstructing discovery proceedings in a case they filed on behalf of adult company Lightspeed Media Corp.

Today’s order for the sanctions does not include two other sanctions totaling $287,000 against the two attorneys in the same case.

U.S. District Judge Herndon, ordering Steele and Hansmeier to pay up the $65,000 in five weeks, said that Steele, along with Prenda Law attorney Paul Duffy, had “engaged in unreasonable, willful obstruction of discovery in bad faith.”

Now dissolved, Prenda Law for years had been prolific in exacting payments from porn piracy defendants through court-approved subpoenas.

The additional award of sanctions acted on Friday stemmed from a case against a man named Anthony Smith, who was alleged to have been the ringleader of a hacking gang involving 6,600 users who obtained stolen passwords to break into about 40 Lightspeed Media porn sites.

At the behest of Lightspeed Media, Prenda Law made additional claims against corporate executives at AT&T and Comcast Cable Communications that they aided, abetted and conspired with the hackers to steal content because they refused to comply with subpoenas and turn over subscriber data based on IP addresses.

Prenda Law later told the court in a motion that Lightspeed Media intended to drop the suit. That motion spurred Smith’s attorneys into action with requests for reimbursement of attorneys fees because the suit was based on "frivolous claims.”

As a result, the lower court ordered Prenda Law attorneys to pay sanctions for Smith ($72,000), AT&T ($120,000) and Comcast ($69,000).

After missing deadlines to pay the $261,000 in sanctions, a lower court ordered the firm to pay 10 percent more as a fine.

Prenda Law attorneys Duffy, Steele and Hansmeier later appealed; however, the 7th Circuit rejected their contention that the sanctions were not appropriate, as well as their appeal holding them in civil contempt and imposing the fine.

The new $65,000 in sanctions are a result of Smith’s attorney unearthing evidence that the Prenda Law attorneys made misrepresentations regarding their inability to pay the original sanctions of $261,000.

Herndon said that new evidence revealed by Smith’s attorneys showed that Duffy and Steele mislead subpoenaed banking institutions during discovery over the issue of the inability to pay.

Smith’s attorneys also provided the court with newly discovered financial evidence to support his assertion that, despite their pleas of insolvency, Steele and Hansmeier had sufficient assets to satisfy the sanctions, Herndon said.

“Specifically, Smith presents new information pertaining to Steele and Duffy’s communication with JP Morgan/Chase. This new information demonstrates that on Jan. 29, 2014, Steele informed JP Morgan he intended to file a motion to quash subpoenas issued by Smith requesting Lightspeed’s counsel’s financial records,” Herndon said in his order.

“The following day, Steele sent a copy of said motion to JP Morgan without a file stamp. Several days later, JP Morgan requested a file stamped copy from Duffy. Duffy finally supplied a file stamped copy of the motion to quash on March 3, 2014 — two weeks after the court had denied the motion and allowed discovery to proceed."

Herndon said that the court takes Duffy’s actions as “intentionally obstructive,” as he had reason to know the motion to quash had been denied at the time he relayed it to the bank.

The judge also pointed to new evidence that reveals that, in the two months before he filed his memorandum on Jan. 29, 2014, Steele deposited over $300,000 into a new bank account.

“Moreover, within a month of asking the court for leave to show his insolvency, Steele wrote checks totaling nearly $200,000, some of which were written to himself, for expenses related to home renovations. Between April and September of that year, Steele had deposits in that account totaling over $100,000,” the judge wrote.

“Further, on Nov. 12, 2014, Steele still pled insolvency. Yet, just one month later, he represented in his divorce proceeding that his assets approached $1.3 million.

“As to Hansmeier, Smith presents evidence that, in the years leading up to the judgment against him, Hansmeier had transferred nearly half a million dollars to a company called Monyet LLC,” the judge noted. 

View today's ruling