Deposition Reveals Prenda Law Business Model: Monetizing Squalid Douchebaggery

Law

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].

The cover by which Pietz lodged the deposition is here, the transcript itself is here, and the exhibits to the deposition (including the deposition notice) are here.

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.

Yeah, Okay.

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?

Not exactly.

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
asset.

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.

Also, Techdirt has a story up about the transcript.

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.

Last 5 posts by Ken White

129 Comments

125 Comments

  1. G Thompson  •  Mar 6, 2013 @11:41 pm

    I'm still trying to figure out how an Investigation (by lawyers, expert technicians *cough splutter* or others) into the who, what, might, where, and why of the IP address designating a specific individual doesn't keep contemporaneous notes (or any notes it seems from the reading) nor does it keep a record of who investigates what, their qualifications, and how it comes to it's vague conclusions. [p233]

    Though when you realise there is no consideration and everyone works for free because they are all just so good chummy friends you can't help but understand that old saying "You pay peanuts, you get monkeys".

  2. James Pollock  •  Mar 6, 2013 @11:41 pm

    I think you mis-spelled "disposition".

  3. nlbstr  •  Mar 6, 2013 @11:50 pm

    No. A deposition is where someone "deposes" him/herself.

    Deposition (noun): The process of giving sworn evidence.

  4. KC  •  Mar 6, 2013 @11:54 pm

    I just downloaded the file to my desktop and read it there so that I could see what was highlighted. Worked fine. My brain hurts from the content though. :)

  5. Alan Bleiweiss  •  Mar 6, 2013 @11:54 pm

    OMG when I saw the link in the comments on your last article earlier today I clicked through and since I'm neither an attorney nor someone who reads depositions for fun, shocked myself when I became engrossed in waiting for the shoe to drop. When I read the whole "Steele says Cooper's legit. But just let's cover our asses here" it was like BOOM as far as where this is heading if they all show up in Wright's courtroom.

    Sadly, even now, all these hours later, I'm only up to page 241! I am happy however, to note that several shoes have dropped reading this. There's so many side-tracks of "holy cannoli this is going to blow up in their faces" statements buried in this depo it's hilarious.

  6. zaq.hack  •  Mar 7, 2013 @12:13 am

    Dude. This is gold as a screenplay. Seriously. It's like watching Psyche and Lie To Me at the same time.

  7. AlphaCentauri  •  Mar 7, 2013 @12:15 am

    I have visions of this trial being moved into one of those huge courtrooms with galleries of spectators, like you see in the movies about Victorian murder trials,. They'll need to do something to accommodate all the lawyers who are planning to attend.

    @James Pollock I saw what you did ;)

  8. BNT  •  Mar 7, 2013 @12:27 am

    Highlighting displays fine for me. Viewing in Chrome, if that matters.

  9. Delvan  •  Mar 7, 2013 @12:40 am

    This has been a marvelous distraction. Clearly this beneficial trust with no beneficiaries, no name, nor any human controlling it is a sign that the shapeshifting lizardfolk are really keen on buying up pirated copyrights. Salt Marsh sounds like a really apropros D&D moniker for a lizardman, doesn't it?

    Also, perhaps I'm a glutton for punishment, but I'd actually be interested in what those three excruciating paragraphs were.

  10. Terry Towels  •  Mar 7, 2013 @12:40 am

    The disposition really causes reader fatigue. There's some juicy stuff at the end, but I'm too faded– (kudos @James Pollock ;-))

  11. BNT  •  Mar 7, 2013 @12:54 am

    I couldn't decide which was my favorite part:

    1) The fact that so many people are willing to work for free. Mark Lutz. Alpha Law Firm. John Steele. All happy to just, y'know, do a favor for their good friend AF Holdings.

    2) The astounding battle at the end as Hansmeier avoids giving any useful information to the relatively straightforward inquiry of what, if any, compensation Heartbreak [whatever] received in return for the copyrights. In addition to the masterful tapdance, this piques my interest because even with Pietz's flow chart, I can't figure out how this fits in.

    Then I looked at the exhibits. Easy answer: My favorite part is when Hansmeier looks at two nearly identical signatures and says, presumably with a straight face, that the one labeled "Paul Hansmeier" is his and he has no idea if the one labeled "Peter Hansmeier" is his brother's or not.

  12. That Anonymous Coward  •  Mar 7, 2013 @1:01 am

    Prenda (you understand its killing me to not use my trademarked term for them right?) has surpassed ACS:Law.
    ACS:Law was getting 80% of the take, not sure if their super secret IP tech firm was paid out of that pool or from the 20%.

    Prenda then outdid themselves, they acquired the copyrights for a song after showing a pitiful return to the rightholders for the campagin when the pornhouse was the client. Somewhere in my memory there was a pornhouse owner who was all excited over the $200 he was getting from each settlement… the demand letter for his content was THOUSANDS.

    So lawfirm cut, IP firm cut, and pennies to the rightsholder.
    When you own the IP firm your making more, but I guess Steele needed to pay off the $250,000 he claims it cost to build.

    If you can acquire or create the content yourself, you can get a huge paydays by just screening it once. Never even have to put it on the market. Think of the savings of not offering a DVD or stream… (seen it done actually). And boom your making bank when it "ends up" out in the wilds.

    I hope people can now understand why those of us from those evil anti-copyright blogs have such venom for Steele and the others. We never knew the depths they had sunk to, but this seems to vindicate the positions taken against them.

  13. Brad  •  Mar 7, 2013 @1:27 am

    Assuming that they continue their epic case of foot-in-mouth disease, when would Prenda Law and their alleged clients expect to welcome our fine friends at FBI/BI/CHP to EnCase anything with a CPU and memory?

    Obviously, I'd much rather see the incarceration that you've explained is not actually going to happen, but it's amazing what perps will leave on their hard drives, and I suspect that I'd have to be a heck of a lot more vindictive than I actually am to not be satisfied with the results of a good forensic analysis.

  14. David Josselyn  •  Mar 7, 2013 @1:35 am

    Oh my.

    This is epic. Absolutely epic.

  15. Tony J  •  Mar 7, 2013 @1:45 am

    I can't read the highlighted portions either. Firefox 19.0, if that matters. I haven't tried downloading it because I need to go to bed, and if I d/l it, I'll still be here in the morning, and I have a trailer to fix out in the snow.

    As someone else mentioned above, I'd be interested to know what those three excruciating paragraphs contained. I'm not an attorney, so I'll take your word for it there's a difference between "filed" and "lodged," but I read everything you write, and even gone back about three years. No tears, even.

  16. Noah Callaway  •  Mar 7, 2013 @1:58 am

    Man, the ending was fantastic. The whole thing was amazing.

    This was the first deposition I've read cover to cover. I have to assume they're all of this quality, and lawyers have been holding out on me this whole time!

  17. peej  •  Mar 7, 2013 @1:58 am

    I just read the whole depo and I have a better understanding of the phrase, "down the rabbit hole" now. My favorite part was the part where Rowsdower– I mean, Hansmeier–wasn't sure about stuff. Or maybe the "Well, shoot," part was the best part; I can't remember. Must be the headache. I think I shall lie down with a cold cloth on my head.

  18. princessartemis  •  Mar 7, 2013 @2:21 am

    I had no idea a legal deposition could be so interesting to read! Only a third of the way through it, and already all respect to Pietz and Ranallo for not resorting to pounding their heads against the desk in their valiant attempts at getting a straight answer.

    @Delvan, since the trust can sign paperwork, read, and understand things, I'd go with an advanced form of mimic. Or maybe some Far Realm corruption. That'd make about as much sense.

  19. Guns  •  Mar 7, 2013 @5:05 am

    @princessartemis: since the trust can sign paperwork, read, and understand things, I'd go with an advanced form of mimic. Or maybe some Far Realm corruption. That'd make about as much sense.

    I think you're overanalyzing things a bit. Since the capacity to speak has yet to be demonstrated, it could be something as simple as an Awakened Pony.

  20. Nicholas Weaver  •  Mar 7, 2013 @5:25 am

    My personal favorite comes on page 134, when Pietz questions Gibbs about his signature on a document…

    Q. So Mr. Gibbs is not in-house counsel for AF Holdings?

    A. That's correct.

    MR. PIETZ: Well, shoot. I'm just going to ask you, Mr. Gibbs. Did you prepare and sign this document?

    MR. GIBBS: It's not my deposition. I'm not quite sure why I would be answering questions.

    MR. PIETZ: Well, there's an E-file document here with your signature on it that says you're in-house for AF Holdings. I thought I'd give you the opportunity as a courtesy to clarify for the record.

    MR. GIBBS: Okay.

    MR. PIETZ: You're not going to address it?

    MR. GIBBS: I don't think I need to address it.

    No wonder Gibbs, who is who Hansmeier laywered up with, is now lawyered up with a lawyer of his own.

    A hypothetical question: How easy is it to remove yourself as lawyer of record when you want to throw your co-conspirators under the bus but your currently stuck representing them?

  21. Mike  •  Mar 7, 2013 @5:26 am

    Highlighting fine for me too in Chrome.

  22. Nicholas Weaver  •  Mar 7, 2013 @5:28 am

    BNT:

    1) The fact that so many people are willing to work for free. Mark Lutz. Alpha Law Firm. John Steele. All happy to just, y'know, do a favor for their good friend AF Holdings.

    Yet AF holding is also owned by nobody it seems and makes no money, and doesn't seem to have any way to pay the Alpha Law Firm/Hansmeier for his work?!?

  23. MarkL  •  Mar 7, 2013 @5:40 am

    It seems clear, @Nicholas Weaver, that in the beginning the firm was void and without form. There were no clients. There were no funds. Just the law. The law had been intelligently designed, but it was designed poorly and needed to evolve. A certain spark was needed to bring forth the law into a profitable enterprise. So these wise bringers of the law exercised the law, forced the law to do things it had not yet done in order to build the firm. To create the clients and to create the funds. Knowing that one day, hopefully before judgment day, the world would look on and say, "this is good", while hopefully not noticing that the bringers of the law were slinking away, their pockets lined with filthy lucre.

  24. Raul  •  Mar 7, 2013 @6:00 am

    Thank you for your insightful synopsis of an infuriatingly long and, in my opinion, evasive deposition. While the recent antics of Prenda are by far the most outrageous in the realm of porn copyright trolling, other trolls are being called to the carpet. In Maryland District Court an infamous copyright troll, Malibu Media, which has 32 open lawsuits pending in that district is scheduled for 3-19 to answer a few hard questions. http://www.scribd.com/doc/128132487/13-cv-00360-Doc9

  25. Lizard  •  Mar 7, 2013 @6:29 am

    @Delvan — there was a D&D module called "The Sinister Secret of Saltmarsh". (https://en.wikipedia.org/wiki/The_Sinister_Secret_of_Saltmarsh) Hmm. That could be a good title for this case, too.

  26. Matthew  •  Mar 7, 2013 @6:36 am

    Delvan

    Salt Marsh sounds like a really apropros D&D moniker for a lizardman, doesn't it?

    http://en.wikipedia.org/wiki/The_Sinister_Secret_of_Saltmarsh

  27. tsrblke  •  Mar 7, 2013 @6:51 am

    So here's something I've been wondering.
    IANAL, but is it illegal to do what is alleged here about the owning of the rights.
    That is, can a team of lawyers (or a law firm) own the copyrights to something and sue people with those rights? I suppose it creates a conflict of interest and that would have to be disclosed.

    Furthermore I recognize this business model pretty immoral and certainly outside the spirit of copyright as I understand it (which protects the work so you can distribute it, not so you can keep it locked up and sue people every 10 minutes.) But I'm unclear about the legality of it.

    Of course I'm with BNT here, how they came into possession of these copyrights in the first place is still a bit unclear.

  28. mbp  •  Mar 7, 2013 @6:54 am

    Highly entertaining stuff please keep up these reports.

    I do have a question though as someone with no real knowledge of US law. If a hypothetical firm's business model was based entirely on suing people who pirate their intellectual property is there any legal problem with that?

  29. Windypundit  •  Mar 7, 2013 @6:59 am

    Seems to me the Prenda people are in trouble because they were lazy. It would have really closed the loop if the hosting company from which the porn was illegally downloaded was also owned by a mysterious unnamed trust with unnamed officers and no employees. I mean, why wait for somebody to download your off-brand porn from a third party porn site when server rental is so cheap these days, right? And it would have saved them the trouble of a subpoena to unmask John Doe, which seems to be what started this whole mess.

  30. Dan  •  Mar 7, 2013 @7:35 am

    I managed to read through 40+ pages and then skim to the 60's until I just couldn't bear it anymore. Bravo for slogging through this nonsense, Ken. I've taken depositions from a few pain-in-the-butt witnesses, but this guy wins the title for evasiveness. So many words used yet so little said.

  31. Zemalkop  •  Mar 7, 2013 @7:46 am

    "Mr Gibbs: I'm just objecting. Will you stop yelling. Please stop yelling."

    This stuff is hilarious.

  32. Windypundit  •  Mar 7, 2013 @7:57 am

    Oh, I see they probably had to subpoena the ISP, but still…

  33. babaganusz  •  Mar 7, 2013 @8:08 am
  34. babaganusz  •  Mar 7, 2013 @8:10 am

    @Lizard, Matthew – curse you for beating me to the punch under a later installment!

  35. babaganusz  •  Mar 7, 2013 @8:22 am

    we could follow through on Delvan's hunch if we progress through the Saltmarsh Trilogy [SPOILER ALERT] – in U2, though the lizard men aren't the real danger, they can be if dealt with tactlessly. if we stick with U1, though, the mastermind in the sea cave below the 'haunted' mansion is an illusionist…

  36. Mike  •  Mar 7, 2013 @8:26 am

    We need an org. chart for this depo.

  37. Nicholas Weaver  •  Mar 7, 2013 @8:37 am

    What I really don't understand is why the convoluted corporate structure.

    Since the corporate shell doesn't end up getting any money anyway, why not instead just have the lawyers be the employees of the corporation? Ideally with an appropriately, deliberately embarrassing name like "SkankTestular Productions"

    And at the same time, why not spend the few grand to set up a web store for DVDs (at $10 + s/h) and put a few clips on one of the porn youtube clones?

    That way, they wouldn't be susceptible to Rightshaven's problem of "only buying a right to sue", but rather actually able to say "see, we do offer for sale". And they wouldn't be subject to such wakki depositions.

  38. Matt  •  Mar 7, 2013 @8:37 am

    My favorite part was when the guy said that he was a lawyer, yet he had never been to a deposition before.

  39. Delvan  •  Mar 7, 2013 @8:40 am

    @Matthew, Lizard, babaganusz: You guys rock. I'm actually playing D&D tonight, I'll have to see if our DM has run people through that one before. Maybe he can give us some personal experience on the best way to deal with the illusionist in the sea cave.

  40. Charles  •  Mar 7, 2013 @8:41 am

    I finally tracked down Sunny Leone. She works with Luke Walker, Charles Stercane and Jeff Bowski.

  41. mojo  •  Mar 7, 2013 @8:47 am

    "It's cash. It comes in an envelope every month. That's all I know."

  42. Jeff  •  Mar 7, 2013 @8:52 am

    Ken, who highlighted the transcript? Was that you or Pietz?

  43. Kinsey  •  Mar 7, 2013 @8:53 am

    I've been fascinated by all this ever since Comcast notified me that they'd been subpoenaed to provide my info to Prenda in the Lightspeed Media case (which I think is dead now.)

    No one in my house downloaded whatever it was we were said to have downloaded, of course – mine was among hundreds of IPs they were targeting.

    I was PISSED. IANAL but I am a law librarian and a former legal secretary and I've spent my entire adult working life in Big Law. I've never been involved in litigation, and hope never to be, but damned if I was going to let riffraff like that try to extort me.

    Called my best lawyer buddy, talked it over, and he kind of salivated at the idea of handling this for me. He said to ignore the Comcast letter, because at that point the case was still floating through the cesspool that is Illinois state court, and the judge assigned to the case was a buddy of Prenda's attorney and had been denying all motions to quash the subpoenas. So we figured we'd wait to see if I was even going to get served.

    I sat back in happy contemplation of hanging up on the bottom feeding scumsuckers who'd be calling to harass and intimidate me into settling, little suspecting that I'm a 49 year old librarian, writer and mommy with way too little real drama in her life and an intense, burning hatred of the sleazebags who are responsible for the popular perception of lawyers in this country, sleazebags who use the legal system against people unfamiliar with it like armed robbers use guns against people who live in Chicago, California, and other such benighted places. I had my "I have retained counsel, and we shall address your complaint as soon as I have been served. Good day, sir. Sir, I said good day!" all ready.

    And they never called me. Assholes.

  44. Ken  •  Mar 7, 2013 @8:54 am

    @Jeff: It was Pietz.

  45. Josh C  •  Mar 7, 2013 @9:07 am

    Will there be a director's cut of this post, with the excruciating paragraphs restored?

    Also, what's the deal with a lawyer having an interest in the case? I recall it's a bugaboo, but never understood why.

  46. John Thinkishness  •  Mar 7, 2013 @9:22 am

    Is there any remedy when a witness is so evasive at a deposition? Is there anyone there with the authority to impose sanctions for not answering questions?

    Also – are there any downrange consequences in which if the people deposed change their tune at a later date (say on Monday)?

  47. Matt  •  Mar 7, 2013 @9:29 am

    This reeks of "I'm not a lawyer, but I play one on TV."

  48. Ygolonac  •  Mar 7, 2013 @9:36 am

    Ladies and gentlemen, I'm afraid the ominous whistling and frantic bleatings and scrabblings of the doomed have so distracted the audience that the fresh buttered popcorn and refreshing beverages are now littering the floor, due to said audience not being able to insert them into their mouths as a result of the slack-jawed amazement and stupification from reading that disposition.

    Thus, the concession stand is now closed.

    And, since I doubt we're the only ones reading this ahead of Monday's docket…

    WET CLEAN-UP IN JUDGE WRIGHT'S CHAMBERS!

  49. eh  •  Mar 7, 2013 @9:58 am

    Windypundit: You can't sue people for unauthorized distribution if you're the source of the piracy.

  50. George William Herbert  •  Mar 7, 2013 @10:10 am

    John – The consequences are that, in all likelyhood, Judge Wright finds cause to believe all of the people involved perpetuated a fraud on the federal court system come Monday afternoon. At which point something unpleasant happens.

  51. delurking  •  Mar 7, 2013 @10:12 am

    eh,
    Does that matter? They are only suing downloaders anyway. And, it wouldn't surprise me at all if they are just suing anyone they think may have downloaded any porn from anywhere, expecting that those people will settle without checking who holds the copyrights to the stuff they actually did download.

  52. Kinsey  •  Mar 7, 2013 @10:13 am

    You can't sue people for unauthorized distribution if you're the source of the piracy.

    This. I mean, I don't know if this is correct as a matter of law – but I recall someone on the Fight Copyright Trolls or Die Trolls Die sites musing about whether Lightspeed – and maybe the other porno sites – deliberately left a back door (herr herr) open so that people could get in. IIRC, the "hacking" charge in Lightspeed was actually that people had posted confidential log in information for the Lightspeed sites, and then all these people with the supposed IP addresses had supposedly used the leaked logins to access all that terribly valuable porn. Over a period of months. During which the Lightspeed admins were apparently too stupid to notice and disable the compromised log ins.

  53. Nicholas Weaver  •  Mar 7, 2013 @10:17 am

    Oh, and here's Prenda's lovely subpoena to WordPress:
    http://dietrolldie.files.wordpress.com/2013/03/automatticworpresssubpoena_prenda.pdf

    It asks for ALL IPs that visited dietrolldie and fightcopyrighttrolls. Yet it does NOT ask for the IPs of commenters, either for specific comments or comments in general.

    So it is only useful for Prenda to target any of the blog readers seen in their BitTorrent scanning, but can not be used to enhance their case in Prenda v Godfread et al!

    Wow, that's sleazy…

  54. BNT  •  Mar 7, 2013 @10:23 am

    MarkL, I like your take. I only wonder if the law will manage to create the Alan Cooper who signed those documents for them. It's got until Monday.

  55. Dan Weber  •  Mar 7, 2013 @10:27 am

    "Mr Gibbs: I'm just objecting. Will you stop yelling. Please stop yelling."

    A friend of a friend is a lawyer and told me how she was in a deposition, and the other side was shouting and yelling, and her side objected, and the other side shouted "I'm not yelling!"

    The court reporter just types things up verbatim. No exclamation points. All the court reporter could do was write down the sentences.

    . . . But this court reporter, after the depo was over and the other side had walked out, told her that this session was being recorded, and she'd turn in the recording as well. :->

    What I really don't understand is why the convoluted corporate structure.

    Deliberate obfuscation for proceedings like this?

    Since the corporate shell doesn't end up getting any money anyway, why not instead just have the lawyers be the employees of the corporation?

    I think the idea is that the shell accumulates money and then issues it out as "expenses" so no one ever realizes a profit. This could be legit, or it could be tax fraud.

    My favorite part was when the guy said that he was a lawyer, yet he had never been to a deposition before

    Could be normal. Lawyers are very specialized.

  56. Kinsey  •  Mar 7, 2013 @10:32 am

    The never been to a deposition before is believable if the guy's not a litigator and has never been involved in litigation in a personal capacity. A corporate or some other kind of transactional lawyer might need directions to get to the courthouse, and a litigator might have no idea how negotiate a contract.

  57. Alan  •  Mar 7, 2013 @10:43 am

    Josh C- The reason it's a problem for lawyers to have an interest in the corporation is twofold:

    1. They are claiming they do NOT have an interest in the case, so that right there may be perjurious or a fraud on the court.

    2. I believe it is a universal or near-universal rule (and Ken or someone else more knowledgeable than me can correct me if this is not true under the federal rules) that a corporation must be represented by counsel. If you are an officer or employee of the corporation, you can't be its lawyer. Since Pietz's theory is that the profits are all going to the same place, they could all be considered to be employees of the same corporation, and therefore none of them could represent any of the shell corporations. This again assumes that it is in fact a federal rule that corporations can't self-represent.

  58. BNT  •  Mar 7, 2013 @10:51 am

    Some notes on technicalities:
    —-

    Based on Mr. Steele's representation, we have no reason to believe from what Mr. Steele said, at least, that the signature is a forgery or there's some sort of fraud going on with respect to the signature.

    Well, technically, that's true. Based on the fact that someone is suing Mr. Steele, claiming said signature is fraudulent, a reasonable person might have some concerns; but it's cool, we asked Steele, and he said it's fine.

    And technically, in a deposition where one of the topics is "individuals with a pecuniary interest in the outcome" of the litigation, I don't have to know anything about the trust that owns the company. Trusts are not individuals, see. A reasonable person might point out that trusts benefiting nobody do not appear out of thin air, but it's okay, I know who formed the trust. (It was the lady at Trust Services.)
    —-
    Given that tapdance, I find this particular line hilarious:

    Steele Hansmeier has never used software.

    Yes, I know what he meant, as would any reasonable person given the context of that answer. But technically, he just said, under oath, something that could not possibly be true unless Steele Hansmeier never used a functioning computer in the course of business. Possible — I mean, law firms existed prior to computers — but pretty freaking unlikely.

  59. Joe Pullen  •  Mar 7, 2013 @11:27 am

    Regarding the WordPress subpoena mentioned by NicholasWeaver, I thought they had to provide proof of damages/losses, etc. before they could attempt to go on a fishing expedition for IP addresses of commentors much less IP addresses of people who just "visited" the blog. It seems like an attempt to intimidate others into being silent or at the very least act as a distraction.

  60. Nicholas Weaver  •  Mar 7, 2013 @11:30 am

    Actually, I think it was "hope that wordpress says okeydoke", since WordPress, unlike the ISPs, haven't been having to deal with the Prenda shakedown crew as much.

  61. Alan Bleiweiss  •  Mar 7, 2013 @11:36 am

    @Nicholas – thanks for linking to the subpoena –

    Now I'm even more confused. Because one of the names listed is still Alan Cooper. So as of February 25th, was that before the real Cooper sued or after?

    And on a side note, why are some of these guys living in Marin county California? I used to live there. And now I feel like their sleeze has rubbed off on me somehow.

  62. Lucy  •  Mar 7, 2013 @11:38 am

    There is a handy chart of who's who involved with who under what name at this link:

    http://arstechnica.com/tech-policy/2013/03/angry-judge-calls-porn-trolls-bluff-orders-entire-firm-to-court/

  63. perlhaqr  •  Mar 7, 2013 @11:47 am

    Windypundit: That's gloriously evil!

    Host the content yourself, put up torrent links on Pirate Bay, and then sue the people who download it!

    My god, it's full of stars!

  64. Ygolonac  •  Mar 7, 2013 @12:05 pm

    Update: new list of supoenaed individuals frm Prenda/SF Holdings/et cetera:

    Not Me
    Who Me (unrelated to the above)
    Ida Know
    Nobody
    Sir Not Appearing In This Film
    Sumdood

  65. James Pollock  •  Mar 7, 2013 @12:44 pm

    "This again assumes that it is in fact a federal rule that corporations can't self-represent."
    Typically, this rule is embedded in the state statutes that authorize the creation and maintenance of corporation.

    Two other reasons the lawyer and the corporate entity can't be financially intertwined like this:
    First, you have a potential conflict of interest if the lawyer representing the entity has a financial interest in the company (unless the corporation is wholly owned by the lawyer).

    Second, the lawyer for any party cannot be a witness.

    Neither of these is subject to the supervision of the trial court, but rather are properly the domain of the state's Supreme Court's authority to regulate practice of law, as implemented by the bar's disciplinary mechanisms.
    However, fraud on the court is definitely within the trial court judge's scope of authority.

  66. Lucy  •  Mar 7, 2013 @1:05 pm

    Steele refuses to comment or answer to anyone about Alan Cooper because Cooper has filed against him. This leads me to believe there is only one Alan Cooper, and not two of course because he would answer about the other who has not filed against him. He doesn't answer about either.

    Monday's updates are going to be fantastic no matter what goes down. If they show, the tap dancing…. if they don't, the wrath.

  67. EdH  •  Mar 7, 2013 @1:13 pm

    I don't think I've ever been this interested in a court case in my life! Any chance of getting this whole shebang collated under one tag, like you guys did with the Carreon/Oatmeal saga?

  68. mojo  •  Mar 7, 2013 @1:30 pm

    I have a procedural question: if not all of the people ordered to appear actually appear (unable to contact, short notice, etc etc) can the judge issue bench warrants (for non-appearance, I assume) and have the missing people brought in?

  69. Andrew  •  Mar 7, 2013 @1:38 pm

    @James Pollock The relevant rules, statutes, and reasoning almost certainly vary by jurisdiction. In Minnesota state court, relevant case law is Nicollet Restoration, Inc., v. Turnham, 486 N.W.2d 753 (Minn. 1992). The reasoning appears to be that, while certain actions (such as appearing in court on behalf of a corporation you own) may not constitute the crime of Unauthorized Practice of Law under Minn. Stat. § 481.02, the legislature is not permitted under the Minnesota Constitution to tell the judiciary how to run its courts. There's more to it than that, of course, and other case law is cited. Read the opinion if you're interested, though it's not nearly as interesting as the deposition we're all reading today.

  70. Alan Bleiweiss  •  Mar 7, 2013 @1:40 pm

    If any of them leave the country, does that escalate the potential for criminal charges?

  71. Luke  •  Mar 7, 2013 @1:46 pm

    I am kind of shocked that Paul didn't have to check his records to be sure he had a brother.

    Is that level of evasiveness/avoidance common in depositions?

  72. Anglave  •  Mar 7, 2013 @1:51 pm

    Wouldn't it have been so much easier, and lazier, to host the torrents themselves?

    How do we know they didn't?

  73. Jeff  •  Mar 7, 2013 @2:34 pm

    Mojo: you bet. If the judge issued an order to appear, and folks don't appear, then the judge can issue a bench warrant.

    Will they try to make personal jurisdiction arguments? Yeah, probably, but if the Court thinks a fraud is being perpetrated on it, it generally has pretty broad discretion.

  74. Matthew Cline  •  Mar 7, 2013 @2:51 pm

    We have this rule:

    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.

    And then this from that designated "someone":

    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.

    Given that he's not an owner or employee or officer, how could Hansmeier possibly be a valid answer to rule 30(b)(6)? Shouldn't AF Holdings be held in contempt (or something) for sending someone with so little knowledge?

  75. Kat  •  Mar 7, 2013 @4:00 pm

    I just finished reading the whole deposition, and might I ask, is this level of tap dancing/evasion normal? Do you guys deal with it often? Because if I were in the position of trying to make someone answer simple, straightforward questions like this for seven hours, day in day out, I would lose my goddamned mind. Please tell me this is unusual, for the sake of my sanity.

    Props to both Pietz and Ranallo. I tend to count myself as a pretty patient, tolerant, measured person, but if were them, I wouldn't have walked out of the courtroom because my head would have exploded long since. At one point it's even mentioned that Ranallo is smirking and Hansmeier got his fee-fees all hurt, but goddamn. Ranallo would have had to be fucking superhuman to avoid it.

    "Given that he's not an owner or employee or officer, how could Hansmeier possibly be a valid answer to rule 30(b)(6)? Shouldn't AF Holdings be held in contempt (or something) for sending someone with so little knowledge?"

    I would also like to know this. It really seems like they ought to be held accountable, but with our broken system, it could go either way really.

  76. Kat  •  Mar 7, 2013 @4:01 pm

    As a side note, this whole thing distracted me from my morning sickness for a while, which is good. I'm looking forward to the next update.

  77. JR  •  Mar 7, 2013 @4:08 pm

    It depends on what your definition of "is" is. Ah, nostalgia.

  78. Kat  •  Mar 7, 2013 @4:28 pm

    @John Thinkishness: "Is there any remedy when a witness is so evasive at a deposition? Is there anyone there with the authority to impose sanctions for not answering questions?"

    My guess based on some things said at the very end of the deposition is that if it is perceived that the witness will not cooperate, then the court gets involved and starts compelling answers from the witness. To quote the relevant section:

    "MR. PIETZ: I'm proposing one of two solutions here. If the deponent — rather if AF Holdings is willing to explain the financial arrangement with the document request three days from now, that's fine. We'll agree to wind this deposition down today. If on the other hand, AF Holdings is standing on its objection that disclosing the financial arrangement is not a proper subject because it wasn't properly noticed today, then I'm suspending the deposition and we're going to get the court involved about whether AF Holdings should be compelled to answer that question. It's one of the two options and it's your choice."

    Disappointingly, I would guess (based on the above) that sanctions would only apply if they were compelled by the court and then didn't answer. This is a shame, because practically the whole deposition was a farce.

    If I'm wrong, I'd love to know it. :)

  79. Kat  •  Mar 7, 2013 @7:04 pm

    Mmkay, last post in this thread today, sorry for not consolidating. This one is long and includes accounting information, so if that's not your cup of tea I recommend skipping to the TL;DR and then skimming back up for pertinent links to back up things that sound wonky to you. :)

    I think a little bit of about the author is pertinent here: I have a lower-level degree in psychology, but right now I'm studying accounting and have been through my intermediate accounting courses. I'm currently studying for my bachelor's, and I one day aim to get my CPA license and work with an auditing firm before switching over to a forensic accounting firm. (There are a few reasons why I have a psychology degree; the most relevant one is that it's surprisingly useful to have that knowledge in the auditing field. See #10 in http://money.cnn.com/2000/12/08/career/q_degreepsychology/)

    So I have some amount of education on the subject of accounting schemes and what is and is not legal for businesses when they are doing their books. Not enough to give advice or anything, but certainly enough to provide a little more information for the curious. I will also back up my assertions by appropriate documents that allow you to judge whether what I'm saying is accurate or not. :)

    So a lot of people find that Hansemeier being unable to answer questions about the books at the company very odd. But how odd was it really?

    Short answer: not terribly odd at all. So long as the company is not publicly traded, they are not legally obligated to follow the Generally Accepted Accounting Principles (GAAP), or the rules that govern publicly-traded companies, which most people would associate with well-kept books. So when we think of companies that keep books but aren't publicly traded, understand that the books of a private company can be quite messy and dysfunctional and the company can often get away with this.

    The only time that a company would run into problems is if they need something from an outside company. A good example of this would be if the company needs to obtain a loan, they would need to keep their books well enough to convince the loan company that giving them a loan is a good idea. Another possible pertinent example is when details related to the books come up in a legal matter.

    One option that private companies with messy books can pursue is having an auditor review and attest to the level of financial healthiness found in the company being reviewed. If the case moves forward and the judge believes that concerns over payment and worth of the company are important enough to the case, I suspect that this is what will happen; I sincerely doubt that the judge would go with Lutz's expertise on the matter, since he's not a professional accountant and doesn't have any relevant experience in the field. Note that it's not illegal for Lutz to do his own books, but that for purposes of the court being able to follow payment amount and the worth of the company, it would just be better and more efficient to bring a professional in to attest to this.

    Now, is it a good idea to keep messy books? No. It's just utterly stupid business sense, and it does potentially open them to problems related to fraud and the like, because any time the books aren't kept properly there is a big chance of fraud on one side or another, period. (For example, who makes sure that Lutz isn't embezzling? Normally that would be the job of the person keeping the books or the CFO. Who watches the watchman?)

    It should be mentioned that the FASB, the Financial Accounting Standards Board (basically the most powerful board in charge of setting acceptable standards for companies in the U.S.), is currently debating what standards small companies should be held to. http://www.cricpa.com/PrivateGAAP.aspx Right now, small companies are basically held to no standards at all, you can basically mess in your own pool and so long as you aren't hurting somebody, nobody really cares outside of stakeholders. Caveat emptor would definitely apply here–if you get financially involved with a company that is obviously screwy, unless you can prove that the company made false statements of fact to induce you to become involved, you're out luck.

    This does not apply to employees because if you are employed, you are expected to be paid a fair wage no matter what and there are laws that back up this expectation.

    The moment you have 500 or more shareholders (http://www.investopedia.com/terms/1/500-investor-rule.asp#axzz2MuDZP2EC), however, you are legally required to produce accurate financial statements–meaning a balance sheet, statement of cash flows, income statement, and retained earnings statement. You are also required to produce various other documents, like management evaluation statements, information on pending litigation or recent outcomes of litigation, invitation to stockholders' meetings (with expected agenda), proxy statement (so that stockholders can exercise voting rights without needing to physically travel to a stockholder's meeting), statements that disclose executive compensation packages, disclosures pertaining to the auditing firm used, who owns the most stock, etc. etc. etc. An example of a properly prepared set of financial statements can be found on any publicly-traded company's investor relations website, but if you don't feel like looking one up, you can see EA's latest annual filing here: http://investor.ea.com/annuals.cfm Just select the Annual Report and Proxy Statement listed at the top.

    Just skimming over this, you can see that all of this would be extremely burdensome to a small mom & pop store, hence why small businesses are exempted. Most of the time, the information that a big company includes in its SEC filings is neither needed nor wanted for a small company. Most of the time.

    A public company is also required to have an outside firm inspect the internal controls that prevent fraud and attest that they are adequate as management has presented them. The last bit–the fact that it must be verified–is thanks to the Sarbanes-Oxley Act of 2002, section 404(b) (http://www.aicpa.org/Advocacy/Issues/Pages/Section404bofSOX.aspx). There are a whole lot of exemptions that were tacked on to 404(b) which make this not apply to every large company. Alarmingly, they would not apply to this company if the company had less than $75 million in public float (issued stock that is owned by members of the public, as opposed to employees/owners), which this company assuredly would not have. But it's a private company, so that's a moot point.

    Now, what would make this not a moot point, is that if the lawyers involved are being compensated in a way other than monitarily–i.e. through stock benefits–then that would potentially give them a majority ownership interest in AF Holdings. This would entangle the accounting in such a way that if any of the law firms with a majority ownership interest prepare financial statements, then they would need to include certain parts of AF Holdings' financial statements as well. This could be a potential method of discovering what exactly is going on financially in AF Holdings. However, there was no evidence to support such an application given at the deposition; the witness on p. 114 lines 5-6 that the firm received no compensation of any kind. The rest would be speculation. This may still become important later on.

    Now, here's an interesting point. What Hansemeier describes when he talks about the trust is blatantly wrong. The trust cannot legally own anything–assets, cash, etc.–at all, ever. The beneficiary of the trust is the one who owns the assets that are being held in trust. In this case, per the evidence, the people who are receiving benefits from the trust are the lawyers. Ergo, the lawyers/law firms are beneficiaries, and they own the assets. Saying 'there are no beneficiaries' is just asinine to the extreme. http://www.step.org/publications/leaflets/trusts_explained.aspx The beneficiary always owns the assets that are held in trust. This isn't just in the U.S., this is a worldwide standard that doesn't have any legal exemptions. Trusts need to be formally set up and when they are set up, a beneficiary has to be defined, even if it's a vague definition. For example, a charitable fund for cancer research might list 'researchers' as a beneficiary and have a very broad ability to define who gets what and when. But someone had to be defined. If it's not a legally defined trust, then the money is being held illegally, and you can bet that tax officials will be alllllll over that.

    Per the above, trusts that are not charitable in nature do not tend to receive tax breaks or benefits. If there is a trust, it had better be paying taxes and doing so properly for the type of trust it's defined as. If it's not paying taxes, that will likely also be discovered during the course of these proceedings. Since we don't know anything about the trust at all, that's all I will say.

    It's not evident that the company follows even some GAAP principles. The relevant information here begins on p. 199. Hansemeier notes that they aren't "very complete" or "well-labelled" Excel spreadsheets. This should send up red flags to any professional accountant. An Excel spreadsheet is a tool that can be used in a limited capacity to help prepare financial statements; it should not be the extent of the books in a well-run company. (Sigh.)

    On p. 202 Hansemeier objects that "That not a way people do accounting." This statement is actually partially accurate. The accountant in question would need to have a timeframe established and would also need time to virtually close the books and prepare the statements/information requested for the time period specified. Now, should this information have been prepared for the deposition? I would argue yes. But that is a fair statement, that he can't just give a number off the top of his head because that is not how books are done and accounts are kept. The reason why can be complicated, but suffice to say that accounts are not like a single bank account in this context; transactions cannot just be combined into one big statement because the various accounts need to be kept separate for reporting purposes. It takes time and effort to combine them.

    It is not true that the number cannot be established by any means; it would take time and effort, but it can definitely be established.

    It's also not true that the books are not complicated. They are complicated. Whether they are complicated or not and whether Lutz should be keeping better records or not is not actually pertinent (sadly) because as a private company it is their perogative to keep sloppy books if they want. So long as the trust keeps adequate records, they're fine.

    Hansemeier mentions that AF Holdings keeps 'inputs, outputs,' and expenses and the like; this is a statement of cash flows. If they are keeping a statement of cash flows, then they should be able to estimate how much cash they have on hand at any given time. But, it's evident that Hansemeier doesn't have any useful information because he had no idea what he was looking at. Lutz will have to give more information about what financial statements, if any, are prepared. (But again, if he keeps sloppy books, that's his perogative; it's not illegal.)

    So, from what I've seen in the deposition, the books are an absolute shoddy disgrace, but it's not Hansemeier's fault and Lutz is not required to keep good books so long as the trust is keeping good books–which is why the trust is so important.

    So to sum up this exceptionally long comment in a less long TL;DR:

    1. As a non-public, small company, AF Holdings is not legally held to any accounting standard and can keep shoddy books if it wants.
    2. The trust has to have been defined and should be paying taxes.
    3. The beneficiaries always own the assets that are held in trust. The trust does not own anything.
    4. If AF Holdings is not keeping good books, the trust had better be doing so or there will be trouble. This will undoubtedly be an important point if not now, then later (after the dust has cleared).
    5. Hansemeier was correct on some counts but wrong on others. He clearly has no idea how the books work at AF Holdings.
    6. Majority ownership of stock may become an important issue during the proceedings.
    7. An auditor might be called in to clear up the various financial squick seen in the case so far.

    and

    8. AF Holdings is evidently shoddily run at best.

    (But we already knew that.)

  80. George William Herbert  •  Mar 7, 2013 @7:20 pm

    Er…

    Has Prenda's website always returned "This website is incompatible with your browser" for every browser type, or have they been hacked?

  81. Alan Bleiweiss  •  Mar 7, 2013 @7:23 pm

    Kat

    That's a great write-up on how its possible to not have a cleanly set up set of books and thus get an accounting of things.

    Except it completely ignores the reality that these games players are playing. I'm betting it will be proven or shown that Hansmeier, Steele, and Gibbs are all in collusion, they all know damned well exactly how much money has come in and where it all is.

    Lutz is a putz because he's just one of the pawns they use. Salt Marsh is one of their aliases, along with Alan Cooper. It's beyond epic to even think, for one minute that these guys are not aware of how much they're bringing in or pushing out.

  82. Alan Bleiweiss  •  Mar 7, 2013 @7:27 pm

    George, first, I need to laugh at the fact that when I search for Prenda Law the first two pages of results are nothing but the sites following the Prenda story. So it took me a bit to find a site supposedly owned by Prenda Law. The first site that comes up is a Tumblr subdomain and that works in my Firefox browser on PC. From there, I found the WeFightPiracy site (linked from their Twitter account) and that too works in my Firefox browser. Are either of those sites the one you're referring to?

  83. George William Herbert  •  Mar 7, 2013 @7:37 pm

    The wefightpiracy one worked fine; when I clicked through from there to the linked http://www.prendalawfirm.com/ I get "This Site is not Compatible With Your Browser" as the only output, for Windows Chrome, IE, and Firefox. And Safari on an iPhone.

  84. Matthew Cline  •  Mar 7, 2013 @7:48 pm

    Here's an interesting tidbit: googling for the phrase "undefined beneficiary trust" shows that the only hits are for articles relating to this deposition. Googling for the phrase "undefined beneficiary" plus the word "trust" shows that charitable trusts have an undefined beneficiary. Is there any sort of trust besides a charitable trust which has an undefined beneficiary? I'm pretty sure that the trust which owns AF Holdings isn't a charity, since the same person who created the trust was also the person who incorporated AF Holdings.

  85. Matthew Cline  •  Mar 7, 2013 @7:55 pm

    @Kat:

    Now, here's an interesting point. What Hansemeier describes when he talks about the trust is blatantly wrong. The trust cannot legally own anything–assets, cash, etc.–at all, ever.

    But wasn't the trust created in the Federation of St. Kitts & Nevis? So wouldn't the Federation's laws about trusts apply?

  86. Kat  •  Mar 7, 2013 @8:39 pm

    "Except it completely ignores the reality that these games players are playing. I'm betting it will be proven or shown that Hansmeier, Steele, and Gibbs are all in collusion, they all know damned well exactly how much money has come in and where it all is.

    Lutz is a putz because he's just one of the pawns they use. Salt Marsh is one of their aliases, along with Alan Cooper. It's beyond epic to even think, for one minute that these guys are not aware of how much they're bringing in or pushing out."

    Innocent until proven guilty. While I definitely have some serious *suspicions* regarding whether they are all colluding or not, for simplicity's sake and for the sake of being fair in a legal sense, I'm opting for an analysis that assumes good faith for now. To me it seems pretty clear that Hansemeier had no clue what he was looking at, and without hearing clear and compelling evidence that would suggest more specific ways that they are colluding, I'm just not going there.

    @Matthew Cline:

    After more research, you're right that charities can have undefined beneficiaries. Bleh! Sorry about that. It is still true that the trust never owns assets; the assets are always meant for someone else's benefit (that's the whole point of a trust). Also, even though foreign trusts can have undefined beneficiaries, it still wouldn't count because of the below.

    There are some laws which recently came into effect that basically simplify the taxation of trusts with beneficiaries that reside in the U.S. (The HIRE Act of 2010, in case you're curious.) The specific language that applies is found in section 532 and essential grants the U.S. jurisdiction over taxation of the trust if there is a beneficiary in the U.S. There is a beneficiary in the U.S. in this case; ergo, they need to pay U.S. taxes on it. http://hodgen.com/new-foreign-trust-tax-rules-part-6-all-foreign-trusts-have-u-s-beneficiaries/

    This applies if the trust amounts to over $50,000. While I'm not certain of the amounts involved, with the huge number of legal actions they have going, it would have to be a number much bigger than this to cover the costs. $6,000 a month is going to one firm alone. Even if it's the only firm paid, they would only be able to retain this firm's services for 8 months, *assuming* that further legal fees are negligible–which they are not. So, it's reasonable to assume that they would be required to file with the IRS and that they would have to pay taxes, since they aren't a charitable trust.

    But yes, charitable trusts do not have to name beneficiaries.

  87. Alan Bleiweiss  •  Mar 7, 2013 @8:58 pm

    Ah okay I get that same message. My gut reaction is this is less likely a programming bug and more likely plain text someone wrote or a script specifically designed to generate that statement. There are three pages listed in the Google index – the home page, an "experts" page, and a "toys for tots" page. Neither of those works but they give a "404" not found error and not a "this site is not compatible" error.

  88. Kat  •  Mar 7, 2013 @9:00 pm

    Finally, re: anomalous trusts that are still valid, some purpose trusts can be enforced, but these are generally for extremely specific and defined purposes. Those purposes are basically a trust to maintain a tomb or monument and trusts that care for specific animals. The rest of the trusts that I found that were anomalous but still counted were extremely old and had tradition going for them; they aren't considered a valid precedent for forming a new type of exempted trust. I didn't see anything along the lines of a trust for a legal fund being included in specific exemptions allowed. But, it's possible that they would set a precedent. My gut instinct is that the case such a mess that this will not happen.

  89. z!  •  Mar 7, 2013 @9:43 pm

    Interesting… http://www.prendalawfirm.com/ says isn't even compatible with lynx. Now *that* takes work :).

  90. George William Herbert  •  Mar 7, 2013 @10:46 pm

    Hey, Z. Even better, it appears even *telnet* incompatible…

  91. Matthew Cline  •  Mar 8, 2013 @12:45 am

    From the deposition:

    Q. How was 6681 Forensics paid in AF Holdings' litigation?

    A. 6681 Forensics is paid a flat monthly fee to do monitoring service.

    Q. And what's the flat fee?

    A. … the current number is $6,000 per month.

    Q. And that is payable by whom?

    A. It is payable by — are you asking for the exact precise financial transaction? AF Holdings owes that money to 6681 Forensics.

    Q. And how is it paid?

    A. The exact bookkeeping for the payment — I'm trying to refresh my recollection. I believe it's paid from Prenda Law to 6681 Forensics from the proceeds of settlements

    And further:

    So Mr. Lutz is not going to go case by case and say, Oh, let's sue this guy. Let's sue that guy, but this guy or not this guy or that guy. He delegates some of that to Prenda Law to assist him in not spending all of his day focusing on litigation, but instead trying to focus on business opportunities.

    So AF Holdings has outsourced pretty much everything to Prenda, and the only thing AF Holdings actually does is buy copyrighted works?

  92. TheGeek  •  Mar 8, 2013 @1:30 am

    With all the mental gymnastics that these guys go thru I'm amazed that their heads haven't esploded.

  93. Michael S.  •  Mar 8, 2013 @2:42 am

    I have a feeling we're now getting to the sit and wait portion of this story that's going to absolutely drive me berserk. Like Christmas, or my birthday, I'm sure the presents are there but I can't touch them on pain of broken extremities; helpless but to wait for the appointed date and time to come.

  94. Anonymous  •  Mar 8, 2013 @3:43 am

    Just to throw a little more kindling on the fire being prepared for Prenda, in their latest brilliant ploy to subpoena WordPress for the IP addresses of every visitor to the anti-copyright-troll blogs fightcopyrighttrolls.com and dietrolldie.com since January 2011, Prenda's principal Paul Duffy apparently failed to remember that he did not incorporate the company until November of 2011.

    After that deposition transcript I suppose we shouldn't be surprised by anything these guys fail to remember about their own companies but suffice to say it must have been quite a feat for those bloggers to defame Prenda before it existed; no wonder they are so fearful of this community of Internet magicians.

    Unfortunately the Illinoise LLC database sucks so bad I can't link directly to their record but you can go here and type in "Prenda."

    http://www.ilsos.gov/corporatellc/

  95. Nicholas Weaver  •  Mar 8, 2013 @6:02 am

    So AF Holdings has outsourced pretty much everything to Prenda, and the only thing AF Holdings actually does is buy copyrighted works?

    Not quite, since it doesn't appear that AF Holdings actually pays for the work it buys!

  96. Nicholas Weaver  •  Mar 8, 2013 @8:12 am

    Is it just me, or are other people surprised that we haven't gotten filings yet of "Can't attend because of X/Y/Z" or "Want to attend by phone"?

  97. G Thompson  •  Mar 8, 2013 @8:38 am

    @Nicholas Weaver: Any idea who, or what company is being referred to as the provider of the 'forensic' software on page 174 (line 12) called "Alena (phonetic) or something like that".

    I've never heard of anyone doing anything that is called similar to that from my travels and the only one I know that comes anywhere near that is 'Athena Forensics' except they are in the UK, actually certified, and wouldn't be caught dead being a part of this. Then again neither would anyone else is actually certified (and wants to keep it) and has the experience and knowledge in actual evidential procedures dealing with real digital forensics techniques and the tools that we all use that must meet certain standards (or higher)

  98. Nicholas Weaver  •  Mar 8, 2013 @9:35 am

    @G Thompson: No clue.

  99. Sharon  •  Mar 8, 2013 @9:42 am

    Now we can guess why Mark Lutz has to take those "corporate representative" gigs for Sunlust, going into court for a company he can't answer any questions about: his own company, AF Holdings, has yet to cut him a paycheck.

    I'm curious now, how many of these cases has Mark Lutz been there to represent the company filing the suit? And have any (other than the Florida case that was dismissed) resulted in him being questioned about his role, his relationship, or the company itself?

    … maybe that'll be something else we'll get a semi-answer to on Monday …

  100. the other alan  •  Mar 8, 2013 @11:56 am

    Just to play devil's advocate for moment. Does Hansmeier have anything to lose by engaging in these evasions? I mean, if you were suing somebody, and now they are deposing you, wouldn't you want to give them as little useful information as possible without being held in contempt? Not a lawyer, just curious how unusual all this obfuscation is in a deposition like this.

  101. Nicholas Weaver  •  Mar 8, 2013 @12:45 pm

    One thought and one question:

    Thought: Is Brett Gibbs's Object to Everything and Anything (e.g. it seems like he'd object to the statement "The sun rises in the east") basically waving a red flag at the bull?

    Question: Anyone know what the status is on the WordPress subpoena?

  102. David Nieporent  •  Mar 8, 2013 @12:48 pm

    I am kind of shocked that Paul didn't have to check his records to be sure he had a brother.

    Well, he was played a recording, and claimed he couldn't figure out whether it was his brother's voice.

    Is that level of evasiveness/avoidance common in depositions?

    Only when someone has done something very wrong. But usually it's not quite as lawyerly — it's usually just straightforward "I don't know/remember."

  103. Nicholas Weaver  •  Mar 8, 2013 @12:56 pm

    Only when someone has done something very wrong. But usually it's not quite as lawyerly — it's usually just straightforward "I don't know/remember."

    Part of the problem is there was a list of topics where he is supposed to be the corporate representative who KNOWS the answer. So I don't know doesn't cut it.

  104. jh  •  Mar 8, 2013 @1:55 pm

    Just thought you'd be interested that there's an aspect that's hit Slashdot now as well:

    http://yro.slashdot.org/story/13/03/08/1919244/copyright-trolls-order-wordpress-to-disclose-critics-ip-addresses

  105. John Thinkishness  •  Mar 8, 2013 @2:02 pm

    @Ken:"Disappointingly, I would guess (based on the above) that sanctions would only apply if they were compelled by the court and then didn't answer. This is a shame, because practically the whole deposition was a farce."

    Dammit, that's what I was afraid of.

    Thanks for taking the time to respond.

  106. Matthew Cline  •  Mar 8, 2013 @2:47 pm

    Part of the problem is there was a list of topics where he is supposed to be the corporate representative who KNOWS the answer. So I don't know doesn't cut it.

    Though this is just a guess, it seems to me that interpreted the noticed topics as narrowly as he thought he could get away with, and only researched those narrow interpretations. "One of the topics is employees of AF Holdings, but it doesn't specifically mention records the company keeps about employees, so I'm not going to bother reading those records".

    ——-

    On another topic: if a deposition fails to get an answer that the questioner wants, how do they proceed from there? In this case, would they send a subpoena to AF Holdings demanding the name of the owning trust and the identity of "Salt Marsh"? Or would they schedule another deposition with those being noticed topics?

  107. David Nieporent  •  Mar 8, 2013 @4:05 pm

    Part of the problem is there was a list of topics where he is supposed to be the corporate representative who KNOWS the answer. So I don't know doesn't cut it.

    Right; he tried to address that by arguing that everything was outside the scope of the 30(b)(6) notice, but his contortions were not particularly convincing. If I were the other attorneys, I'd be moving for sanctions.

    I really can't fathom why Prenda et al. have allowed themselves to get put into this situation. Are they that incompetent or arrogant? Their business model may be sleazy, but it's generally not illegal; there's no reason they need to hide behind imaginary Nevis trusts. (Or why, if they insist on that sort of structure, they couldn't do it legitimately, with an actual human being involved.)

  108. David Nieporent  •  Mar 8, 2013 @4:07 pm

    On another topic: if a deposition fails to get an answer that the questioner wants, how do they proceed from there? In this case, would they send a subpoena to AF Holdings demanding the name of the owning trust and the identity of "Salt Marsh"? Or would they schedule another deposition with those being noticed topics?

    Either of those may be appropriate, depending on timing issues. Or they could move for sanctions.

  109. George William Herbert  •  Mar 8, 2013 @4:15 pm

    David:
    I really can't fathom why Prenda et al. have allowed themselves to get put into this situation. Are they that incompetent or arrogant? Their business model may be sleazy, but it's generally not illegal; there's no reason they need to hide behind imaginary Nevis trusts. (Or why, if they insist on that sort of structure, they couldn't do it legitimately, with an actual human being involved.)

    Keep in mind how many people have gone to jail for coverups related to acts that were not by themselves proven to be criminal…

    Failing to recognize that there's a time and place to stop obfuscating or deceiving is a very human failing.

  110. Kat  •  Mar 8, 2013 @6:18 pm

    @John Thinkishness: That was my comment. :) I might still be wrong! (I hope I am in that case, in fact.)

  111. Matthew Cline  •  Mar 8, 2013 @6:47 pm

    Whoa, whoa, whoa! The deposition was taken February 19th. Also filed on that day was this written document by Gibbs. On page 3 of the document, paragraph 9, lines 24 to 26:

    Livewire Holdings LLC recently purchased AF Holdings LLC . AF Holdings LLC thereafter became a wholly owned subsidiary of Livewire Holdings LLC .

    But in the deposition which is the subject this post, it was said that AF Holdings is owned by a trust. Am I making some sort of mistake, or confusing one entity with another?

  112. Ken  •  Mar 8, 2013 @6:50 pm

    Wow. Great catch Matthew.

  113. G Thompson  •  Mar 8, 2013 @11:34 pm

    Just read that illuminating Declaration of Gibbs filed 19Feb2013 and well let me start.

    From the declaration Gibbs graduated law in Dec 2007 then worked in a small TAX firm called "Taggart & Hawkins PC" who is now no longer but used to according to Karen Hawkins (now Director, Office of Professional Responsibility, IRS) do "Civil and criminal tax defense- federal and state; complex procedural issues are a specialty; nationally recognized expertise in "innocent spouse" defense" he then "was abruptly terminated" [at 6] in July 2008 after a total of 18 months practising law, lets be specific – tax law, as a fresh new graduate with NO experience and basically a gopher.

    The reasons he was abruptly terminated was due to an "inoperable/incurable Grade III/IV brain cancer" which thankfully for Mr Gibbs seemed unlike what he states not inoperable or incurable since he was operated on and subsequently cured [at 6] so he decided he wanted back into the realm of law and was subsequently scooped up (due to his huge experience in all things about copyright law no doubt) as an 'of counsel' independent contractor in March 2011 by Steele Hansmeier PLLC. After an absence of nearly 3 years for those counting..

    In June 2011 he filed his first case EVER approx 1 month after hiring.

    So after all this Gibbs has been practising some type of law for approximately 3 and a bit years after a huge absence with his formulative years of practical training still highly ongoing.

    With all that one can understand the scepticism when you see statements within the Declaration of things like his "custom and practice [at 15] to confirm that the verification of the authorised agent of the client existed" – 6 months and 2 clients (if that) does not a custom nor practice make IMHO.

    Though it all makes sense in regards to the niavete and lack of practical experience when you consider the best statement I have ever read towards a court by a lawyer after admitting [at 24] he conducted an 'informal' investigation towards infringer's when the court explicitly ordered that NO investigation was to occur to then state towards the court in this matter after the court finding out and ordering a complete recitation of all specific steps taken to identify the infringer's (in the informal investigation) the following amazing and petulant sentence .. "I did not appreciate that the Court" [at 25, emphasis added because it must be]

    I'm not sure about any of you, but Gibbs must be an Amazing whizkid.. completed o fey with ALL matters of law, jurisprudence and court procedures – the guys a verifiable Genius and having been cured of the incurable a walking talking miracle of law is the law.

    No wonder Paul Hansmeier had Gibbs appearing as his counsel in the latest deposition by Peitz and Ranallo…. Wouldn't you?

  114. Matthew Cline  •  Mar 9, 2013 @1:41 am

    A couple of amusing things about LiveWire Holdings:

    1) Mark Lutz is the CEO of LiveWire. (I wonder if he does that for free as well)

    2) If you only had LiveWire's website to go by, you'd think that they had nothing whatsoever to do with copyright lawsuits, but instead were a company that provides services to other web companies. Though one has to wonder why a holding company would directly be in such a business, rather its subsidiaries providing such services.

    3) Given that they claim to be a company which provides website related services, it's rather strange that their own website is a minimally modified template. Indeed, the photos which are purportedly of Mark Lutz and the chairman of the board haven't been changed from what's found in the template. (See here for details)

  115. George William Herbert  •  Mar 9, 2013 @2:09 am

    Matthew Kline wrote in part:
    2) If you only had LiveWire's website to go by, you'd think that they had nothing whatsoever to do with copyright lawsuits, but instead were a company that provides services to other web companies. Though one has to wonder why a holding company would directly be in such a business, rather its subsidiaries providing such services.

    If you are looking at Livewire Hosting (not *holdings*), they ARE a web services / hosting company, unrelated to the Prenda mess.

  116. Matthew Cline  •  Mar 9, 2013 @2:18 am

    If you are looking at Livewire Hosting (not *holdings*), they ARE a web services / hosting company, unrelated to the Prenda mess.

    Nope, I'm definitely talking about LiveWire Holdings, since it has Mark Lutz as the CEO; says so right on the front page.

  117. Alan Bleiweiss  •  Mar 9, 2013 @2:42 am

    Livewire Holdings. AKA LW Systems.

  118. Kat  •  Mar 9, 2013 @5:41 am

    Wow. This case keeps getting stranger.

    A trust company can still be sold, but only if the trust contract is flexible and the beneficiaries agree to it. I'm increasingly thinking that the trust does not exist and never existed. I mean, it's still possible. But this is rather suspicious.

  119. Alan Bleiweiss  •  Mar 9, 2013 @6:06 am

    There are no beneficiaries in that trust. So all of the relevant parties prayed for authorization. The clouds parted, the heavens opened up, and by immaculate decree, God deemed it valid.

  120. gramps  •  Mar 9, 2013 @9:09 am

    From early on I have noted that the Prenda "business model" involving settlement offers as an opening move — called shake-down by the judge, amongst others — is strikingly similar to the disability access suits being brought against businesses in northern CA. [If I had the skill to add a link I probably would, but alas, that skill does not live here.]

  121. Kat  •  Mar 9, 2013 @9:59 am

    @Alan Bleiweiss: An immaculate trust conception?

    BRB . . . too many giggles.

  122. Alan Bleiweiss  •  Mar 9, 2013 @4:04 pm

    Well Kat, I was going for immaculate conception except that's what happened when the first trust was born. :-)

  123. Anony Mouse  •  Mar 10, 2013 @1:01 am

    I'm so confused.

    I can only assume that this is intentional, and they're hoping this bizarre smoke screen of bullshit will keep anyone from digging too deep. Otherwise, you have a bunch of people working together while working at different companies who all know each other and don't know each other while working for companies nobody knows anything about.

  124. Alan Bleiweiss  •  Mar 10, 2013 @1:59 am

    This reminded me of a silly nonsensical "story" we used to say when we wanted to completely confuse our friends or family. It started with "I come before you to stand behind you, to tell you something I know nothing about…"

    Except in this case, these people say this crap as if it's the most serious truth ever known. :-)

  125. Ricky Maveety  •  Apr 7, 2013 @4:43 pm

    @Kat and others: Correction, the beneficiaries do not own the assets in a trust. The trustee actually holds title to all of the assets, the beneficiaries have a beneficial interest (that may be at the discretion of the trustee).

    It is possible to have unidentified beneficiaries, and for the trust to still be a legitimate trust, since the beneficiaries may be current or future members of a particular class group.

    I have been a trust attorney for 25 years, so I do know what I'm saying on this point. Also, in those 25 years, the only depos I attended were regarding suits I brought on my own account (got reamed by a big rig for example).

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