Deposition Reveals Prenda Law Business Model: Monetizing Squalid Douchebaggery
Yesterday, friends and neighbors, I told you about how Prenda Law and its principals filed highly questionable defamation suits against their critics. Earlier today, I described the background of federal judge Otis Wright's pointed inquiry into Prenda Law in a post so long that it made Brian Tannebaum cry like a little girl. A few hours after that post a tipster let me know that Morgan Prietz — counsel for the John Doe defendant in the case that generated the judicial inquiry — had filed a deposition transcript for the court's review.
The deposition transcript is astounding.
The deposition came from a case in the Northern District of California — that is, federal court up in San Francisco. AF Holdings LLC — one of the cases that Prenda Law has represented, one of the plaintiffs Judge Wright is asking about — sued an alleged infringer up there. The defendant set a deposition of AF Holdings, LLC. How, you may ask, do you depose a non-human entity? Well, under Federal Rule of Civil Procedure 30(b)(6), you specify the subjects you want to ask about, and the entity has to designate someone to answer questions about those topics. This is sometimes called a "person most qualified" or "person most knowledgeable" deposition, although lawyers for entities will often present witnesses who are not qualified for much more than drinking coffee and excreting.
Anyway, Mr. Pietz — co-counsel for the defendant in the Northern District — scheduled the deposition and took it. AF Holdings designated Paul Hansmeier to answer questions. That's Paul Hansmeier the lawyer associated with Prenda Law, Paul Hansmeier the guy who — according to Brett Gibbs — gave Gibbs instructions on what do to in Prenda Law cases. AF Holdings and Hansmeier were represented by our friend Brett Gibbs, who is currently scheduled to surpass Garfield in not liking Mondays. Mr. Pietz has thoughtfully filed the depositions here in the case before Judge Wright for the judge's review before next Monday. OK, technically, he lodged the depositions. The distinction is crucial: it means that [three excruciating paragraphs removed].
In reviewing this deposition, bear Pietz' theories in mind. he alleges that (1) Prenda Law is secretly both lawyer and client — that its principals are behind the entities purportedly owning the copyrights it is suing upon, and that Prenda Law is concealing its lawyers' interest; (2) that Prenda Law has concealed who is actually running and directing its cases; (3) that Prenda Law is not actually vindicating copyrights of valuable properties, but is using copyright to extort defendants, and (4) that Prenda Law has defrauded courts with fabricated executives by, for instance, stealing the identity of "Alan Cooper" and using the identity as a fictitious client representative.
Consider those theories as you review the deposition. I could re-read it a dozen times and still discover more things about it. I will confine myself to some high points.
The Mysterious AF Holdings LLC: Under examination, Mr. Hansmeier — the man designated to answer questions about AF Holdings — displayed very little knowledge of it. He's not an owner or employee or officer. He says it's owned by a trust — an "undefined beneficiary trust." He hasn't reviewed the trust documents, and in fact doesn't doesn't know if the trust is memorialized in a document at all. He doesn't know the trust's name. He doesn't know who the trustee is, or who controls the trust. Confronted with a document suggesting the trust is called "Salt Marsh," he keeps his options open:
The owner of AF Holdings is a trust. The name
of the — the specific name of the trust, if it's Salt
Marsh, then yes, Salt Marsh is the owner of AF Holdings.
If it's something else — let me finish — if the name
of the trust is something else, then no, Salt Marsh
would not be the owner of AF Holdings, but if Salt Marsh
is the name of the trust on July 20, 2012, then, yes,
Salt Marsh is the owner of AF Holdings.
I'm glad that's cleared up.
There's That Mark Lutz Dude Again: Remember Mark Lutz, the guy who showed up in a Florida court coatless and tieless as the "corporate representative" of a company he knew nothing about? Yeah, Hansmeier identifies him as the CEO (or maybe "manager") — and sole employee — of AF Holdings, LLC. He doesn't know whether or not there are any records reflecting Mr. Lutz' employment. AF Holdings has not paid Mr. Lutz anything for his work, and Mr. Hansmeier is unaware of whether anyone else has paid Lutz. Perhaps that's why he can't afford a coat or tie. Mr. Hansmeier says that Mr. Lutz also caused AF Holdings to be created — but to his knowledge nobody told Mr. Lutz to do that.
Asked why, if Mr. Lutz is the only employee of AF Holdings, attorney John Steele would have been tasked to find a "corporate representative" to sign documents for the company, Mr. Hansmeier offers this:
Well, it would be speculation as
to why AF Holdings took one action or another. I would
say that, for example, you know, Mr. Lutz is an
individual. There are a certain number hours in a day
and for him to accomplish everything he's going to
accomplish in any given day, or for anyone in any
capacity in any business, you rely on third parties to
aid you to accomplish various tasks.
Mr. Lutz is a busy man.
John Steele Is Sent To Look For Alan Cooper On The Underside Of A Bus: And what about Alan Cooper, man of mystery? Mr. Hansmeier is clear whom to blame for him: Hansmeier's partner, John Steel.
See, Mark Lutz sent John Steel to find a "representative" who could act as a buffer between AF Holdings and those awful people on the internet:
AF Holdings makes use of corporate
representatives to help prevent the — I guess the
officer, Mark Lutz, himself, from being targeted by
these individuals. The manner in which Mr. Cooper was
designated as a corporate representative was Marks Lutz
asked attorney John Steele to arrange for a corporate
representative to acknowledge the assignment agreement
on behalf of AF Holdings. Mr. Steele did so and
returned the assignment agreement to AF Holdings bearing
1the signature of Mr. Alan Cooper.
Mr. Hansmeier says that Steele assured AF Holdings that Cooper was real. That is, until he was asked whether "Alan Cooper" is the same guy who is complaining that John Steele stole his identity:
If you're talking about the guy who's in Minnesota and was
John Steele's former caretaker, all I can say is that AF
Holdings — the only person who knows who this Alan
Cooper is is John Steele and we asked Mr. Steele, is
this the same guy, is this not the same guy, is there
another Alan Cooper and Mr. Steele declined to respond
on the basis that Mr. Cooper has sued Mr. Steele and
they're actively involved in litigation.
By the way, Hansmeier testifies that he confirmed with the original holder of the rights to the movie that he did convey it to AF Holdings, and that the assignment was valid. They seem to be trying to set up an argument that if "Alan Cooper" is an invention or a stolen identity, then that fraud is not material — that it doesn't matter, because the rights really were assigned to AF Holdings, even if the signature accepting them is fake. That's creative.
Litigate Your Moneymaker: Okay. So. Are the porn movies owned by AF Holdings valuable? Does AF Holdings make a lot of money?
See, the business model of AF Holdings is a little odd. AF Holdings buys copyright to movies that aren't worth anything because they are pirated, and then tries to increase their value, by deterring pirates.
Now, AF Holdings' businesses model is to take
these copyrights or its strategy for — let me back up
for one second. So AF Holdings is creating a portfolio
of copyrights that basically have little to no value
right now, because instead of purchasing the copyrighted
works, people just simply like to steal them online.
And the only way to turn a copyright from very limited
value to having a much greater level of value, you know,
Circa 2003, 2004 is to stop people from stealing it.
Now, this is why I had to give you the
background to answer your question. AF Holdings
recognizes revenue when it believes that the value of
the copyright has increased, just like an investment
bank holding assets, mortgage-back securities, just like
a — I guess any investment fund, holding any form of
The — you know, the convention of
mark-to-market accounting says that you recognize
revenue when the value of the asset has increased. As
of right now, it's far too speculative for AF Holdings
to say that its campaign to stop people from stealing it
works, succeeded or not succeeded. So as of the now
the — it's been far too speculative for AF Holdings to
recognize revenue based of its copyrighted works.
Q. Have they recognized any revenue through any
sources other than litigation, for example, through
legitimate licensing of it?
A. No. The only source of revenue that AF
Holdings will have with respect to its copyrights are if
it increases in value.
Wow. That sounds like a tough business. Is anyone making money from this?
Well, generally speaking the revenues that AF
Holdings has received from settlements, AF Holdings does
not receive a distribution from the trust accounts of
the law firms. The reason being that AF Holdings is –
uses the money that remains in trust to pay for the
expenses of the litigation.
Ah. Ah yes.
The lawyers. Prenda Law.
In other words, AF Holdings — owned by a mysterious trust, and run by John Steele's former employee — buys the rights to movies and then sues people for downloading them illegally, which funds suing them for downloading the movie illegally.
There's a lot more like that, if you can stomach it. As I was reading the deposition, I had to ask myself repeatedly if I was being hoaxed, if this was some epic troll painstakingly created and uploaded to PACER. But it's not.
Judge Wright will, I trust, find this interesting.
Edited to add: I can read that transcript fine on my desktop, but for some reason, when I click on the uploaded version the highlights obscure the text. I'll try to figure it out in the morning.
Second Edit: The highlighting in the transcript is a problem if you open it in a browser — at least in Firefox — but works right if you download it or open it in Adobe Acrobat.
Third Edit: Today Mr. Pietz amended the lodging of the transcript on the grounds that it the copy he lodged included a home address. Though I am under no obligation to do so — it was a public document when filed, and I did not upload it to PACER — I have redacted the version hosted here.
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