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Lightspeed Media Corp. v. Smith

United States Court of Appeals, Seventh Circuit

July 31, 2014

ANTHONY SMITH, et al., Defendants-Appellees, Appeal of PAUL DUFFY, JOHN STEELE, and PAUL HANSMEIER, Appellants

Argued April 7, 2014 [1]

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[Copyrighted Material Omitted]

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Appeals from the United States District Court for the Southern District of Illinois. No. 12 CV 00889 -- G. Patrick Murphy, Judge, and David R. Herndon, Chief Judge.

For Lightspeed Media Corporation, Plaintiff (13-3801, 14-1682): Paul A. Duffy, Attorney, Chicago, IL.

For Paul A. Duffy, Paul Hansmeier, John L. Steele, Plaintiffs (13-3801, 14-1682): Daniel J. Voelker, Attorney, Voelker Litigation Group, Chicago, IL.

Paul A. Duffy, Plaintiff (13-3801, 14-1682), Pro se, Chicago, IL.

Paul Hansmeier, Appellant (13-3801, 14-1682), Pro se, Minneapolis, MN.

John L. Steele, Appellant (13-3801, 14-1682), Pro se, Miami Beach, FL.

For Anthony Smith, Defendant - Appellee (13-3801, 14-1682): Daniel Booth, Attorney, Jason E. Sweet, Attorney, Booth & Sweet Llp, Cambridge, MA.

For Sbc Internet Services, Llc, formerly known as: SBC INTERNET SERVICES, INC., doing business as: AT& T INTERNET SERVICES, At& T Corporate Representative No. 1, Defendants - Appellees (13-3801, 14-1682): Hugh S. Balsam, Locke Lord Llp, Chicago, IL; Bart Wescott Huffman, Attorney, Locke Lord Llp, Austin, TX.

For Comcast Cable Communications Llc, Comcast Corporate Representative No. 1, Defendants - Appellees (13-3801, 14-1682): John D. Seiver, Attorney, Davis Wright Tremaine, Washington, DC; Andrew G. Toennies, Lashly & Baer, P.C, St. Louis, MO.

Before WOOD, Chief Judge, and KANNE and SYKES, Circuit Judges.


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Wood, Chief Judge.

The first rule of holes, according to an old saying, is to stop digging. The two appeals before us bring that to mind, for reasons that will become apparent. The first, No. 13-3801, comes to us from the district court's order granting a motion for attorneys' fees and costs under 28 U.S.C. § 1927 filed by SBC Internet Services, LLC (d/b/a AT& T), Comcast Cable Communications, LLC (collectively " the ISPs" ), and Anthony Smith, defendants in the underlying litigation. The order imposed joint and several liability for the fees against Paul Duffy, John Steele, and Paul Hansmeier. They have appealed from that order. They did not, however, file a motion either to clarify the nature of the sanctions or to stay the order. Instead, they simply did not pay. The defendants then moved for an order to show cause why appellants should not be held in contempt for their failure to pay, or in the alternative for immediate contempt. After a hearing, the district court found that they had failed to pay and that there was no excuse for their behavior. It thus held them in civil contempt and ordered them to pay 10% of the original sanctions award to cover the defendants' additional costs for the contempt litigation. It also assessed a daily fine, in case payment was not forthcoming. The second appeal before us, No. 14-1682, is from the contempt proceeding.



Lightspeed Media operates online pornography sites. Our story begins when it brought suit in St. Clair County, Illinois, against one John Doe defendant, identified only through his IP address. (An IP, or Internet Protocol, address is the number assigned to a particular device on the Internet.) Doe's IP address was allegedly associated with the unlawful viewing of Lightspeed's content, made possible by the use of a widely shared, " hacked" password. Lightspeed then identified approximately 6,600 others (through their IP addresses only) as alleged " co-conspirators" in a wide-reaching scheme to steal passwords and content. The only conspiratorial act alleged was the use of the same password. Then, following what seems to be appellants' modus operandi, see, e.g., AF Holdings, LLC v. Does 1-1058, 752 F.3d 990, 993 (D.C. Cir. 2014), Lightspeed, acting ex parte, served subpoenas on the ISPs (which at that point were non-parties) for the personally identifiable information of each of the 6,600 alleged co-conspirators, none of whom had been joined as parties. The ISPs refused to turn over the information and instead filed a motion to quash and for a protective order.

The state trial court denied the ISPs' motion, and so the ISPs sought appellate review. At the same time, Duffy called an attorney representing the ISPs and requested the name and title of each employee who decided that an ISP would not comply with the subpoenas. Steele then submitted an affidavit stating that the ISP attorney refused to provide that information. The Illinois Supreme Court ultimately ruled that the trial court erred by refusing to quash the subpoenas. Lightspeed responded by amending its complaint on August 3, 2012, and formally naming as co-conspirator parties the ISPs and unidentified " corporate representatives" of the ISPs. The complaint painted with a broad brush: it alleged everything from negligence, to violations of the Computer Fraud and Abuse Act, 18 U.S.C. § § 1030 and 1030(g), to deceptive practices and aiding and abetting. " John Doe," in

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the amended complaint, became Anthony Smith. Then, ignoring the fact that the Illinois Supreme Court had just rejected its request for the same information, Lightspeed issued new subpoenas seeking the personally identifiable information of Smith's purported 6,600 co-conspirators.

On August 9, 2012, the ISPs removed the case to the District Court for the Southern District of Illinois. See 28 U.S.C. § 1446(b)(3). Lightspeed immediately filed an emergency motion in advance of the routine Rule 26(f) conference, see Fed.R.Civ.P. 26(f), asking the federal court to order the ISPs to produce the same " co-conspirators'" personally identifiable information. At the same time, Hansmeier submitted a motion for pro hac vice admission; he did not identify a law firm on the form. Steele entered an appearance in which he listed his firm as Prenda Law. The firm affiliations, however, turned out to be provisional, to put it kindly. At the emergency motion hearing, Steele identified his firm as Steele Hansmeier PLLC, Duffy said that he was with Prenda Law, and Hansmeier was with something called Alpha Law Firm. Steele Hansmeier and Prenda are listed at the same street address, 161 North Clark Street, in Chicago, in different suites.

Addressing the discovery motion at the emergency hearing, Steele spoke at length about the dire need for the requested information. Unconvinced, the district judge denied the motion, stating in passing that he was " skeptical about how this case could ever be put on, but my feet are not set in stone on it. I've seen some cases that didn't look too hot at the start that got better with time. This may be one of those cases." Defendants then submitted both a motion to dismiss and a motion to stay discovery pending a ruling on the former motion. In November 2012, Hansmeier submitted a motion to withdraw without indicating which firm he was with; in March 2013, Steele withdrew.

This was not the only case Duffy, Steele, and Hansmeier had at the time. While the motion to dismiss was pending in the Southern District of Illinois, a court in the Central District of California held a hearing for the express purpose of exploring the role this trio, operating often as " Prenda Law," played in some underlying copyright infringement litigation. That hearing did not go well for them; sanctions were imposed on all three (among others) and the matter referred to a variety of state and federal authorities. See Ingenuity 13 LLC v. John Doe, No. 12-cv-8333, 2013 WL 1898633 (C.D. Cal. May 6, 2013). For our purposes the relevant fact is that the district court there found that Steele, Hansmeier, and Duffy owned and controlled Prenda Law. The court went on to say that they

demonstrated [a] willingness to deceive not just [that] Court, but other courts where they have appeared. [Their] representations about their operations, relationships, and financial interests have varied from feigned ignorance to misstatements to outright lies. But this deception was calculated so that the Court would grant [their] early-discovery requests, thereby allowing [them] to identify defendants and exact settlement proceeds from them.

Id. at *3. After the show-cause order was entered in the Central District of California but before any sanctions were imposed, Duffy, Steele, and Hansmeier (along with others from Prenda) began voluntarily to dismiss similar cases filed across the country, including the one now before us. Fourteen days after the district court granted Lightspeed's motion for voluntary dismissal, defendant Smith filed a motion for attorney's fees under Fed.R.Civ.P. 54(d)(2)

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and 28 U.S.C. ยง 1927. Duffy filed a response; Steele and ...

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