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Lightspeed Media Corp. v. Smith

United States District Court, S.D. Illinois

November 23, 2016

ANTHONY SMITH, et al., Defendants.


          HERNDON, District Judge


         This matter is before the Court on the matter of John Steele's civil contempt. Based on the record and the following, the Court ORDERS as follows:


         In 2012, Lightspeed Media Corporation, the operator of online pornography sites, filed an anti-hacking suit in state court against defendant Anthony Smith. The suit alleged that Smith's IP (Internet Protocol) address was associated with the unlawful viewing of Lightspeed's content and that Smith was part of a scheme to steal passwords and content from Lightspeed. Lightspeed, represented by attorneys Paul Duffy, John Steele and Paul Hansmeier (collectively, the attorneys), identified approximately 6, 600 other individuals (through their IP addresses only) as Smith's Co-conspirators. Then, acting ex parte, Lightspeed served subpoenas on the ISPs (Internet Service Providers) seeking the personally identifiable information for each of the alleged co-conspirators. The ISPs, who were non-parties at the time, fought the subpoenas and eventually won before the Illinois Supreme Court. Lightspeed responded by amending its complaint (adding the ISPs as parties) and reissuing the subpoenas. The ISPs refused to comply, removed the action to the Southern District of Illinois and continued to fight the subpoenas.

         Apparently, this was standard operating procedure for Lightspeed and its attorneys. Beginning in 2010, Lightspeed's attorneys began filing hundreds of suits across the country against thousands of individuals for allegedly illegally downloading porn. The nationwide scheme “consisted of monitoring BitTorrent download activity of their copyrighted pornographic movies, recording IP addresses of the computers downloading the movies, filing suit in federal court to subpoena Internet Service Providers (“ISPs”) for the identity of the subscribers to these IP addresses, and sending cease-and-desist letters to the subscribers, offering to settle each copyright infringement claim for about $4, 000.” Ingenuity 13 LLC v. John Doe, 2013 WL 1898633, *2 (C.D. Cal. May 6, 2013) (Wright, J.). In the spring of 2013, a California District Judge described the litigation strategy as exploitive and sanctioned the attorneys for misconduct. Id.

         Shortly after being sanctioned in California, perhaps seeing the writing on the wall, Lightspeed voluntarily dismissed all claims in the instant litigation (Doc. 59). Thereafter, the Court found the Lightspeed lawsuit was frivolous, baseless, and “smacked of bullying pretense.” Accordingly, the Court sanctioned the attorneys pursuant to 28 U.S.C. § 1927 and ordered them to pay defendants' attorney fees and expenses totaling §261, 025.11 (Doc. 100).

         Rather than pay, the attorneys insisted they were insolvent (See Doc. 101, 115, 127; see also the Attorneys' 2014 in camera filings). For failing to comply, the Court sanctioned the Attorneys for civil contempt, ordering them to pay an additional $26, 102.58 (Doc. 136). The Seventh Circuit affirmed both sanctions awards on August 22, 2014 (Doc. 183-1, 183-2). Smith then collected on a supersedeas bond that had been posted by Steele (Doc. 189 p. 5 n.1; Doc. 222 p. 5;2-3).

         The attorneys' claims of insolvency and misconduct in furtherance of those claims are the cause of the current dispute. Smith, suspecting the attorneys' claims were baseless, issued subpoenas to the attorneys' financial institutions. The attorneys then utilized various misleading and obstructive tactics to block Smith's subpoenas. Eventually, despite the attorneys' misconduct, Smith managed to obtain relevant financial records and began the painstaking task of detangling the attorneys' web of lies. As it turned out, while the attorneys were claiming insolvency, “Steele and Hansmeier were emptying accounts they controlled of sums vastly in excess of the sanctions they owed.” Lightspeed Media Corp. v. Smith, 830 F.3d 500, 508 (7th Cir. 2016).

         A slew of briefing and argument before the Court followed. Ultimately, after reviewing the available evidence, the Court issued an order finding that Duffy and Steele engaged in unreasonable, willful obstruction of discovery in bad faith.” (Doc. 199). The Court imposed discovery sanctions, payable to Smith, in the amount of $94, 343.51 (Smith's discovery costs) (Doc. 210). The monetary sanction as to Steele and Duffy was to be “apportioned equally” between the two attorneys (Doc. 210, p. 2, 4). Hereinafter, the Court will refer to this sanction as the Discovery Sanction.

         The Court also found Steele and Hansmeier in contempt for misleading the Court by claiming insolvency in relation to the Section 1927 Sanctions Order. The Court ordered Steele and Hansmeier to pay contempt sanctions of $65, 623. Hereinafter, the Court will refer to this sanction as the Contempt Sanction.

         Hansmeier noticed an appeal from the contempt sanction on July 6, 2015 (Doc. 204). A week thereafter, he filed for bankruptcy (Doc. 228-1 p. 6). Steele noticed an appeal on August 7, 2015 (Doc. 211). Duffy died on August 10, 2015, without having filed a notice of appeal (Doc. 228-1 pp. 2 & 6).

         On or about August 10, 2015, Steele transferred funds to the Court via two separate wire transfers: One wire transfer in the amount of $65, 000 (apparently in relation to the Contempt Sanction on behalf of himself and Hansmeier)[1] and a second wire transfer in the amount of $47, 171.75 (one-half of the Discovery Sanction).

         Because an appeal was pending, the Court entered a minute order stating that it would “retain the $112, 171.75 pending the outcome of the appeal.” (Doc. 216). Further, pending the outcome of the appeal, the Court directed the party entitled to the ...

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