Apr 212013

I wrote about one of the recent chapters in the Prenda Law saga at the Popehat blog last week. For posterity, and people who read this blog but not that one, here’s what I wrote.

While most of the recent news involving Prenda Law has come from the case in front of Judge Wright in Los Angeles, it’s far from their only case. Apart from the Godfread/Cooper defamation cases and the Computer Fraud and Abuse Act cases the LA matter is just one of the hundreds of copyright cases the Prenda operation had deluged the courts with. But the LA case appears to be the case that has caused the entire Prenda Law house of cards to finally come crashing down. Like a high rise that has just been dynamited for demolition, the concussive force of its spectacular collapse is undermining the foundations of all its other cases as well.

Including this particular one in federal court in San Francisco.

The case so far

It began as a Prenda Law case usually begins: using questionable “forensics” to identify someone to target, first with threatening letters and then a lawsuit if they didn’t pay up. In this case, when Joe Navasca’s father didn’t capitulate, Prenda Law targeted the son instead. (Note: I’m including his name because it is now in the public record. And also to commend Mr. Navasca for standing up to these bullies.) Unfortunately for Prenda Law, the wheels of justice grind slowly, and some of its previous cases were starting to catch up with it just as this one began to lurch forward.

The default rule in American litigation is that everyone pays for their own lawyers. But some laws, the Copyright Act being one of them, have provisions so that the loser pays for both sides’ lawyers. Fully denying all of Prenda Law’s allegations of infringement, and now aware of the allegations of malfeasance directed at the Prenda Law enterprise, Mr. Navasca reasonably expected Prenda Law to eventually lose the case it had brought against him and need to reimburse him for his attorney fees. But just because a judge may grant an award of attorney fees doesn’t mean the money will ever be recovered; enforcing a judgment often presents its own expensive challenges, meaning a wronged defendant can still be saddled with the costs of his own defense. However the California Code of Civil Procedure has a provision, § 1030, to help mitigate that financial risk by allowing defendants in similar positions as Mr. Navasca to require plaintiffs to make an “undertaking;” that is, to post a bond that would guarantee, when the defendant inevitably wins his fees, that he would actually get the money. Citing that provision Mr. Navasca moved the court to require Prenda Law to make this undertaking. Naturally Prenda Law opposed this requirement in a filing I will leave to others to snark about that in order to continue the story.

Meanwhile, as the question of the undertaking was pending, the discovery stage of the case had begun. At first Prenda Law tried to hurry up and expedite the discovery over a very specious evidence spoliation concern, an attempt which got nowhere. (But note this topic for later.)

The day after rejecting the attempt to expedite discovery the court granted Mr. Navasca’s motion requiring Prenda Law to provide the undertaking, but agreed to stay the ruling (meaning, postpone whether it should be put into effect) in order to give Prenda Law a chance to move for the court to reconsider it, which it does not appear to have ever done. At this point Prenda Law decided that discovery was actually all happening way too fast and so moved to stay it (basically, to put it on pause) while the undertaking issue continued to pend. Mr. Navasca’s response to this motion basically boiled down to, “While we don’t necessarily have a problem with staying discovery generally, we do find it suspicious that you want to stay it right before we get to do our 30(b)(6) deposition of AF Holdings.” The court denied Prenda Law’s motion to stay the discovery and the 30(b)(6) deposition of Paul Hansemeier went forward.

And what a deposition that turned out to be. (At today’s hearing Judge Chen asked, “There was a 30(b)(6) depo. What happened?” but it seems clear he already knows.)

The deposition took place on February 19. On February 20, Paul Duffy moved to substitute for Brett Gibbs in the Navasca case, which the court granted on the 26th. Also on the 26th Prenda Law moved to “voluntarily dismiss” the case, whining about the judge’s ruling on the undertaking, clearly hoping that would be the end of it and it could scurry off into the shadows.

Not so fast, responded Navasca’s attorneys, Nick Ranallo and Morgan Pietz, in a brief whose table of contents alone is eviscerating. You can’t just dump an expensive, unmeritorious lawsuit on an innocent defendant, certainly not by committing fraud on the court, and then simply walk away from it. You are at least going to need to pay us the fees we had to expend defending against it.

Paul Duffy’s rocks and hard places

Paul Duffy has a problem. He’s counsel of record for AF Holdings, to the extent that AF Holdings even is a client separate and distinct from Prenda Law. But in between the time he filed the motion for voluntary dismissal and now, the April 2 hearing in Los Angeles happened where he (among other Prenda Law people) plead the Fifth Amendment in refusing to answer questions about AF Holdings. This act put him in a bind: if he opened up his mouth in San Francisco to talk about AF Holdings it could inculpate him in its affairs. You can’t assert the Fifth Amendment in some contexts and waive it in others, that’s not the way it works. Anything he says about AF Holdings in some proceedings can and will be used against him in others.

On the other hand, as counsel to a purportedly separate and distinct client, he can’t just blow off the hearing, even if that might be the best option for saving his own skin. AF Holdings, whoever it is, is staring down the barrel of a judgment on the order of tens of thousands of dollars against it. If it were truly a separate client it should be able to count on him to try to prevent such a judgment. Note: this doesn’t mean the client could expect him to prevail, but it could expect him to at least give it the ol’ college try. That meant that he couldn’t just not show up (which apparently was what he did — or, er, didn’t do — at a hearing yesterday in Illinois). He couldn’t just withdraw as counsel, either, because that generally requires the court’s permission once a lawsuit is underway in order to make sure a client isn’t being left high and dry (see, for example, the earlier motion to substitute Duffy for Gibbs, which they needed the court to approve). Nor could he choose to just not argue, or purposefully argue badly, without abrogating his ethical duties to the client. But it was unclear what he could argue that wouldn’t further implicate him in the misdealings of the Prenda Law enterprise.

The ol’ college try

The above sets the stage for today’s hearing, which was the third matter on Judge Chen’s afternoon calendar. I’ve never appeared before Judge Chen, but I’ve now observed quite a few of his hearings (not just today, but also when I waited to serve Charles Carreon…). His demeanor is not terrifying; for the well-behaved attorneys appearing before him he seems to play a role almost like a mediator, efficiently absorbing facts, managing case logistics, and isolating areas of contention. For the less well-behaved his countenance appears to remain much the same, as he allows both sides ample time and opportunity to present all facts and arguments for his consideration. But should his calm patience ever delude counsel into taking him for a fool, a stinging pointed question, albeit very calmly made, will serve as notification of their error.

Duffy did, in fact, appear in person, despite his absence yesterday. Unfortunately he mumbled so much that even though I was in the front row of the gallery I didn’t catch everything he said. The court reporter was much closer and presumably caught all of his equivocation, but there did seem to be an awful lot he didn’t know. Which was particularly notable when confronted with questions about AF Holdings. “I have no personal knowledge,” Duffy said in response to one such question, prompting Judge Chen to ask, “Well, what do you know?” and Mr. Ranallo to observe that, “There’s been a pattern of no one knowing anything when the time comes” for them to give answers.

Duffy did, however, continue the pretense of being separate, disinterested counsel for this mysterious AF Holdings entity, despite all evidence of it, and him, being rolled up in the Prenda Law enterprise. And for what it’s worth, his personal behavior was never really at issue today. The issue, as Judge Chen announced at the top of the proceeding, was whether the dismissal should be granted, and if so, whether it should be with prejudice (meaning AF Holdings would have essentially surrendered on the merits and could never refile this lawsuit ever again), and whether any attorney fees should be awarded to compensate the defendant for having been put through it.

(Actually, even before that Judge Chen began the proceeding with the more ominous, “I asked you to come here today in light of all the things that have happened.”)

Why are you asking for this case to be dismissed, he first asked Duffy. There’s two reasons, Duffy responded, one being that the $50,000 undertaking was too expensive. He argued the same in his reply to the opposition to dismiss the Navasca case, which basically whined that Prenda Law should not have to be burdened with needing to round up $50,000 in order to pursue a copyright case against a single infringer. Never mind that the court had previously been unimpressed by Prenda Law’s earlier pleas of poverty, the reality is that litigation is expensive. It’s expensive even for truly-wronged plaintiffs, who often can’t afford to sue to vindicate legitimate injuries, and it’s certainly expensive for innocent defendants. In the “Joys of Yiddish” Leo Rosten illustrated “chutzpah” as someone who has killed his parents asking the court for mercy because he’s an orphan. Were Mr. Rosten alive today I think he might update his book with Prenda Law’s brief.

The other reason, he said, was that there was a problem of evidence spoliation, which I referred to briefly above. The defendant had been running a piece of software called CCleaner on his computer, and Duffy complained that it destroyed the evidence it needed to be able to prosecute the infringement claim.

At first blush, these complaints may sound quite reasonable (although, as Mr. Ranallo noted, neither had been raised in Prenda Law’s initial motion to dismiss). But they are worth further scrutiny. For one thing, CCleaner had been running on the defendant’s machine for more than a year before the lawsuit had been filed, a fact that alone deflects claims of spoliation. Secondly, its operation has no effect on the sorts of evidence Prenda Law might want to collect. Although the question of spoliation hadn’t been fully adjudicated earlier because Prenda Law’s complaints had been couched in a premature motion to compel, the magistrate ruling on the motion had looked into the issue and indicated the concerns appeared unfounded (note the exhibits to the filings linked above). In any case, as Judge Chen honed in on later in the hearing, usually a plaintiff is happy for there to be spoliation problems. “Normally if you argue spoliation, you win the case!” It seemed very strange, he observed, to give up because you are claiming spoliation (and, he asked later, if it really were such a problem, why did you wait to withdraw the case and not do so as soon as you learned of it?). In response Duffy fell back on the, “well, at $50,000 it was too expensive to continue the case” argument. But bear in mind, it’s just a $50,000 undertaking, not a $50,000 forfeit. You get it back if you win.

But Prenda Law may have realized it wasn’t going to win, and Judge Chen pointedly asked about that. “Why is this attempt to dismiss not simply an attempt to avoid adverse rulings?”

And that was the crux of the hearing as it in some ways went around and around in circles, with Duffy either arguing “it was too expensive to continue!” or “spoliation!” whenever he was losing ground on one or the other, trying to make it seem perfectly innocent to be dropping the case now and avoid all consequences for having pursued it. But Judge Chen did also seem curious about the ownership issues. Who is Salt Marsh, he asked at one point. Mr. Ranallo responded with a reference to the April 2 hearing when Mr. Duffy and others took the Fifth. “That tells us a lot about why this case is ending now.” (To which Duffy protested, “This is a civil matter, that was a criminal one. You can’t make inferences.”) [At the Popehat blog Ken noted that Ars Technica heard some comments about Salt Marsh as well.]

Judge Chen’s questions then turned to fees. Citing a case whose name I didn’t fully catch but I think is this, he asked Mr. Ranallo about what portion of his claimed fees applied solely to defending this case and what could be leveraged in other cases. “There will be no subsequent suits,” he answered. “Standing is blown.” (“That’s pure speculation as to the intent of the plaintiff,” countered Duffy.)

Mr. Ranallo continued. Nearly all AF Holdings case have been dismissed in the same two weeks, even cases that had no undertaking requirement, and even a case where it had already won a default judgment. (Totally innocent, Duffy explained. It’s simply because Gibbs had decided to quit.) The few cases that remain active are the Magsumbol case, where a voluntary dismissal had been denied, and the Trinh case, also in San Francisco, where a $40,000 undertaking had been required, but because Prenda Law hadn’t posted it, the case got dismissed with prejudice, thereby making it the losing party and vulnerable to a fee order under the Copyright Act. The nightmare, and potentially very expensive, situation for Prenda Law is that either outcome happens here.

Ultimately, Judge Chen took the matter under submission — meaning that he could rule at any time.

Final thoughts

In one sense it was somewhat disappointing that there was no Perry Mason moment, but as Ken has noted those moments rarely happen. The devil is in the little details and their implications as they are slowly revealed. The wheels of justice grind slowly, it’s true, but as we continue to see, they do grind forward.

Edit 5/1/13: I’ve posted an update.

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