The US Court of Appeals for the 7th Circuit has found for the second time that the mastermind of the Prenda Law "porno-trolling" scheme should be made to pay sanctions to a defendant.
In an opinion (PDF) published yesterday, a three-judge panel upholds most, but not all, of the lower court's finding that John Steele, Paul Hansmeier, and Paul Duffy should pay more than $90,000 in sanctions. However, they also sided with Steele on one key issue.
Here's a brief recap of the Lightspeed v. Smith case: in 2012, Prenda Law filed a bizarre anti-hacking lawsuit against Anthony Smith, then served subpoenas to ISPs asking for identifying information of more than 6,600 users, whom they dubbed "co-conspirators." The ISPs did not comply, moved the case to federal court, and fought the subpoena.
In the spring of 2013, Prenda's business began falling apart, following a strongly worded sanction order from US District Judge Otis Wright in California. The firm moved to dismiss Lightspeed v. Smith and other lawsuits around the country. Smith's attorneys demanded legal fees. They won $261,025, and the sanctions were upheld on appeal.
The case went back to district court, where the judge overseeing it found Hansmeier and Steele in contempt, ruling that they had hidden their assets to avoid paying the original sanction. The court tacked on a contempt sanction and another fine for violating discovery rules. The Prenda duo appealed again, resulting in this week's order.
Can’t “Stop Digging”
"When last we considered John Steele and Paul Hansmeier’s challenges to contempt sanctions imposed on them, we gave them some friendly advice: stop digging," wrote Circuit Judge Diane Wood, who authored the unanimous 16-page opinion. "Apparently they did not realize that we meant what we said. Hoping to avoid paying additional sanctions, they dissembled to the district court and engaged in discovery shenanigans."
The appeals court agreed with the lower court judge's finding that Steele had moved his money around to hide it, withdrawing more than $300,000 from a Sabadell bank account just before and after a show-cause hearing. That's more than enough to uphold the lower court's discovery sanction, which amounted to $94,343.51, divided equally between Hansmeier and Steele.
"Both the district court and we are entitled to evaluate Steele’s entire pattern of vexatious and obstructive conduct," wrote Wood. "Viewed in this light, the sanctions amount is easy to justify."
In Wood's view, Steele has nothing more to offer than the "weak argument" that Smith and his lawyers should have found evidence of his obstruction earlier. "This approach has little but chutzpah—a quality that Steele and his compatriots have long demonstrated—going for it," the judge writes.
However, the sanction for contempt of court must be reconsidered. That's because the 7th Circuit agrees with Steele's argument that he should have received due process because the contempt sanction amounts to a criminal punishment.
The contempt sanction was punitive in nature and represents a "flat, unconditional fine," unconnected to compensation needs, Wood writes. All of those factors suggest that the fine of $65,263 seems more like a criminal than a civil punishment.
Of course, that might not get Steele off the hook. The sanction has been vacated, but the district court could re-consider a civil punishment or impose a criminal contempt punishment after offering due process.
Two of the Prenda lawyers are out of the action now for different reasons, so yesterday's opinion only relates to John Steele. Paul Hansmeier can't pursue the appeal since he's in Chapter 7 bankruptcy and recently agreed to suspend his law license. Paul Duffy passed away last year.
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