CHICAGO — Attorneys John Steele and Paul Duffy, who in June were ordered to pay $65,000 in sanctions for obstructing discovery proceedings in a case they filed on behalf of adult company Lightspeed Media Corp., were ordered today to pay an additional $29,000 in additional legal expenses to the case's defendant who was sued for copyright infringement.
For Steele and Duffy, today’s order represents another big defeat in federal court for the lawyers who ran the now-dissolved Prenda Law, which was notorious for exacting payments from porn piracy defendants through court-approved subpoenas.
U.S. District Judge David Herndon today approved sanctions of nearly $94,000 against Steele and Duffy, equally, saying that the defendant in the case spent more than a year defending against “obstructionist tactics” and engaging in extensive discovery to obtain proof of Duffy and Steele’s misconduct.
The $94,000 in ordered sanctions were a result of the defendant’s attorney unearthing evidence that Prenda Law attorneys made misrepresentations regarding their inability to pay the original sanctions in the case — $261,000 — which swelled to $287,000 including interest.
In the original case, Lightspeed Media’s attorneys fingered defendant Anthony Smith as the ringleader of a hacking gang involving 6,600 users who allegedly obtained stolen passwords to break into about 40 porn sites. The firm sued him and others for copyright infringement.
Prenda Law made additional claims beyond Smith, alleging that corporate executives at AT&T and Comcast Cable Communications 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.
The firm later told the court in a motion that Lightspeed Media intended to drop the suit — a move that 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, the court ordered the firm to pay 10 percent more as a fine.
Today, Herndon said that from the outset, Lightspeed Media’s case has been “entirely frivolous” and that Prenda Law attorneys’ “falsehoods and obstructionist tactics have created significant costs for Smith.”
The federal judge noted that Steele objected to the submitted expenses and asked for a stay last week.
But, Herndon said, “Steele’s objections are not well taken. As is customary for Steele, his objections minimize his misconduct and distort the facts of the case. [T]he court finds that all of the submitted expenses are reasonable and recoverable.”
Herndon in June said that 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, the attorneys 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 took 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.
In June, 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.
Steele did not respond to an XBIZ call for comment on today’s order; however in his motion to stay sanctions last week, Steele noted he had a “strong prospect of success on the merits of his pending appeal.”