Prenda Loses Again: Minnesota Appeals Court Upholds Sanctions

Legal Issues

from the we're-waiting-for-the-truth-to-come-out dept

Almost exactly a year ago, we wrote about Team Prenda being ordered to pay another $64k in attorneys’ fees in one of its many cases. This one involved Prenda, along with Paul Hansmeier’s “Alpha Law Firm” and local Minnesota lawyer Michael Dugas supposedly representing a company named Guava, suing a bunch of folks in Minnesota state court. The case had taken quite a twist when defendant Spencer Merkel revealed how he’d made a deal to take a dive in the case. That is, he’d been hit with a standard Prenda threat letter concerning “Hard Drive Productions” content, and when he told them he couldn’t pay, someone from Prenda made a “deal” with him in which he’d get sued, and would agree to give up hit Bittorrent logs during discovery and then have the case dismissed. Team Prenda needed the logs to find more people to shake down, and most likely wanted to use the case as an “example” that it was okay for them to get logs through these very, very questionable lawsuits.

Except, somewhere along the way the court noticed that it was a bogus lawsuit, and that resulted in the order to pay $64k. Team Prenda appealed, and… have lost again as the Minnesota state court of appeals has, like nearly every other court, seen right through the Prenda scam.

We have carefully reviewed the record, and we conclude that the district court did not abuse its discretion in imposing attorney-fee sanctions against appellants. The district court found that appellants initiated and pursued this litigation in bad faith, that the only purpose of the litigation was ?to harass and burden Non-Parties through obtaining IP addresses to pursue possible settlement rather than proceed with potentially embarrassing litigation regarding downloading pornographic movies.? This is an improper use of the judicial system.

As per usual, Team Prenda throws a lot of crap at the wall, hoping something will stick. None of it does. First, they claimed — as they always do — a failure of due process. The court brushes that aside and shows that there was plenty of due process, even if some of it could have been slightly clearer. Next, Team Prenda claims there’s not enough evidence for “bad faith.” The court has no problem rejecting that one quickly:

Although the record in this case was not fully developed because appellants voluntarily dismissed the underlying action before it could be considered on the merits, it includes sufficient evidence to support the district court?s finding. The evidence includes Merkel?s affidavit testimony that he received a letter from Prenda Law threatening suit on behalf of its client, Hard Drives; he made arrangements with someone named ?Michael? or ?Mike? at Prenda Law for an alternative settlement arrangement, including his consent to be sued in Minnesota; Prenda Law referred him to pro bono counsel; Hard Drives would dismiss the suit after Merkel provided his BitTorrent log; and he was surprised to be sued by Guava, rather than Hard Drives. The evidence also includes Morrison?s testimony that Merkel was referred to her by Hansmeier and Dugas; that she expected a lawsuit to be filed by Hard Drives, rather than Guava; and ?[t]here?s been some bait and switch you might call it in this case.? And the evidence includes the facts that (a) despite repeated questioning by the district court regarding Guava?s corporate status, appellants failed to file a certificate of authority or provide any evidence regarding Guava?s incorporation, its officers, or its business operations, and (b) despite Merkel?s alleged involvement in a hacking conspiracy, appellants sought no discovery from Merkel during the pendency of the litigation. This evidence, taken together, amply supports the finding that appellants had no good-faith basis for this litigation….

Appellants assert that the district court erred by relying on the communications between Merkel and Prenda Law relating to claims by Hard Drives, arguing that there is no evidence of a connection to this action. But the district court found a connection, and there is evidence in the record to support that finding. ?Michael? at Prenda Law offered to refer Merkel to Minnesota attorney, Morrison. Morrison testified that she received the referral from Hansmeier and Dugas; Hansmeier filed a notice of appearance identifying himself as ?of counsel? to Prenda Law, and Dugas submitted a declaration in this matter identifying himself as the only ??Mike or Michael?? at either Alpha Law Firm LLC or Prenda Law, Inc.? Dugas denied representing Hard Drives or being involved in the settlement agreement between Merkel and Hard Drives. But the district court rejected this assertion as incredible, and we will not disturb that credibility determination.

There’s a funny bit where Team Prenda tries to claim that originally the court thought the case was brought in good faith, so the later bad faith determination shouldn’t count. The appeals court is, again, not impressed:

We reject this argument as circular and unpersuasive. The district court?s initial determination that Guava demonstrated that the information it sought was relevant and material did not preclude it from later?on being made more fully informed of the facts?finding that appellants were acting in bad faith.

Team Prenda also protested the $64k amount. But, again, their arguments fall (mostly) flat. The court basically says the amount is enough, as is the requirement that the lawyers file a $10k bond before filing any more lawsuits, but there was one procedural issue, concerning filing a Minnesota “certificate of authority” that was improperly presented in the lower court ruling, so the appeals court fixes that. It’s a meaningless issue, though.

Finally, Team Prenda argues that sanctions can’t be applied because they had voluntarily dismissed the lawsuit already. No go:

Lastly, appellants assert that the district court was precluded from awarding sanctions after the action had been voluntarily dismissed, citing such a limitation in the district court?s authority [citing laws and caselaw that say] ?motions for sanctions brought after the conclusion of the trial must be rejected precisely because the offending party is unable to withdraw the improper papers or otherwise rectify the situation?). But the district court?s inherent authority to impose sanctions is not so circumscribed. See, e.g., Brickwood Contractors, Inc. v. Datanet Eng’g, Inc., 369 F.3d 385, 389 n.2 (4th Cir. 2004) explaining that ?failure to comply with the safe-harbor provisions would have no effect on the court?s authority to . . . impose sanctions within its inherent power?).

So, once again, an appeal by Team Prenda falls totally and completely flat. And they need to pay up.

Filed Under: michael dugas, minnesota, paul hansmeier, spencer merkel
Companies: af holdings, alpha law firm, guava, hard drive productions, prenda, prenda law