Author: Cathy Gellis

Prenda Law's Trip To San Francisco Turns Out Badly

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Last week we invited Cathy Gellis to guest-post her observations of a hearing in AF Holdings v. Navasca, a Prenda Law case. Today, she gets to guest-post the result: an order that may be the harbinger of how courts will treat Prenda Law and its associated Prendarasts. Cathy practices cyberlaw in the San Francisco Bay Area and maintains a blog at DigitalAgeDefense.org, exploring how criminal consequences have been attaching to technology use and development.

All of Popehat's Prenda coverage is collected here.

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Later this week it will be World Intellectual Property Day, the day that the World Intellectual Property Organization has selected for us to appreciate all that intellectual property has to offer us.

Might that include the welcome, and potentially expensive, come-uppance of those who have sought to unjustly abuse its laws for their own enrichment? We are speaking in this instance, of course, of Prenda Law and the latest news of its self-induced misadventures in the San Francisco federal court.

When we last left our heroes Paul Duffy had managed to appear in open court and yet somehow seemingly not directly inculpate himself in Prenda Law's affairs, at least no more than he had done so previously. He was there because Prenda Law is now running for the exits, seeking to dismiss AF Holdings' case against defendant Joe Navasca "without prejudice" — meaning, with the option to re-file. In this particular case it needed the court's permission to do so. As Judge Chen noted in his devasting-to-Prenda ruling today:

Under [Federal Rule of Civil Procedure] Rule 41, a plaintiff may voluntarily dismiss without a court order by filing a notice of dismissal before the defendant serves an answer or a motion for summary judgment. See Fed. R. Civ. P. 41(a)(1)(A). Here, because Mr. Navasca has filed an answer, see Docket No. 20 (answer), AF may dismiss only by an order of this Court and on terms that the Court considers proper. See Fed. R. Civ. P. 41(a)(2).

Prenda did get the order it sought to drop the case — but not on terms it asked for, and certainly not on terms it's going to like.

The judge is always Wright

The ruling began with a summary of the case thus far, a calm, methodical, and accurate recounting that serves to buttress Judge Chen's ultimate decision. Lest there be any doubt, he knew what had happened in Los Angeles. After first discussing how Prenda Law had apparently tried to stay discovery to prevent the (ultimately disastrous deposition of AF Holdings' representative), the court continued:

It is possible that AF was motivated to seek a stay of discovery not only to deprive Mr. Navasca of evidence to oppose AF’s anticipated motion to reconsider but also to prevent adverse information from being brought to light which could be used against it in a proceeding before Judge Wright of the Central District of California. Notably, on February 7 – i.e., the same day that AF filed its motion to stay – Judge Wright issued an order to show cause as to why sanctions should not be issued against AF’s counsel based on, inter alia, the Alan Cooper problem. (emphasis added, more on that later)

[As a wag on Twitter said, "the Alan Cooper Problem" would be an excellent name for a band. -- Ken]

The Judge Chen even noted in a footnote that Prenda Law asked for the stay that very evening. He then went on to note that "the day after Judge Wright’s order to show cause – or in the immediate days thereafter, AF and/or a related entity (Ingenuity 13) initiated voluntary dismissal of numerous copyright infringement cases that they had initiated in federal courts in California." For those cases Prenda Law was able to get out of them "without court intervention and without risk of liability for costs as the defendant had not answered or filed a motion for summary judgment.

But such a smooth escape was not an option here:

In the instant case, the Court finds that, if it were to dismiss AF’s action without prejudice, then Mr. Navasca would in fact suffer legal prejudice in that he would be deprived, at the very least, of the benefit of rulings favorable to him. In other words, the Court finds that AF is seeking to dismiss the case in order to avoid an adverse determination on the merits as well as the effect of other unfavorable, though not necessarily, dispositive rulings of this Court.

Judge Chen listed three examples of very real adverse rulings Prenda Law was facing, which I'll touch on in reverse order. One was that it was trying to avoid the consequences of the ruling requiring the undertaking (in other words, the ruling requiring them to post a bond to cover costs if it lost), like it had to face in the Trinh case. In that case Prenda Law's failure to make the undertaking allowed the defendant to move for an involuntary dismissal, thereby making it eligible for a fee award as a prevailing party. Given that Prenda Law really didn't want to pay for the undertaking in this, the Navasca case. Yet, as Judge Chen noted, Prenda was also unwilling to appeal the order requiring it to post the undertaking despite being given ample opportunity to. This case was therefore inevitably heading towards the same end as the Trinh one, a fate Prenda Law was now trying to dismiss itself out of in order to avoid.

Then there was the second example:

AF also risks an adverse determination on the merits as a result of the investigation that Judge Wright has been conducting in the cases before him in the Central District of California. As Mr. Navasca points out, it is telling that, the day after Judge Wright issued his order to show cause, AF and/or Ingenuity began to initiate voluntary dismissal of a number of cases that it had filed in California. If these cases had validity or if AF had a good chance of prevailing on the merits, then it is hard to imagine that it would give up all these cases.

And then there was the first example.

The Alan Cooper Problem

AF is likely to face an adverse determination on the merits because of its apparent inability to prove standing to assert its claim of copyright infringement. Throughout the proceedings before the Court, AF has never offered a declaration from its representative “Alan Cooper” showing that he was a signatory to the assignment document that purportedly transferred ownership of the copyrighted material at issue to AF.

The Alan Cooper problem is at the heart of Prenda Law's current troubles. Supposedly at some point, an actual copyright holder transferred its copyright to the purported AF Holdings. Had this all worked the way Prenda Law claimed, AF Holdings would now be in the position to fully enforce any rights that copyright entitled to it, just as the predecessor owner would have been. Prenda Law "has staked its position on the argument that the Copyright Act only requires proper authorization for assignment by the copyright transferror, not the transferee," Judge Chen summarized. And proper authorization by the transferor is, indeed, important; we saw what happened in the Righthaven cases when the transfer was improperly done (they ended up getting dismissed). But transferring the copyright is only the first step: it shows that someone has a copyright. It doesn't show that someone has standing to come into court to enforce it. Given that Prenda Law has been unable to substantiate who that someone is, all of these cases have become suspect on that basis. Judge Chen noted:

[I]t is telling that AF moved for a voluntary dismissal only two days after its 30(b)(6) deposition was taken, [that's referring to the ridiculous deposition of Paul Hansmeier as the representative of AF Holdings] during which problems related to its standing were explored and exposed by Mr. Navasca.

And the band of tiny violins played on

As to Prenda Law's arguments for why dismissal was not improper, the court was unimpressed. The complaints of spoliation (that is, destruction of evidence) were not compelling, and, indeed, Judge Chen noted the magistrate's earlier caution to Prenda Law that “allegations of spoliation are extremely serious” and that it should “review the facts very carefully before pursuing this avenue based solely on an eHow.com article. In particular, [AF] should review the expert declaration that Navasca filed with his letter brief, to fully understand the purpose and effect of CCleaner.” (emphasis added)

However, there is no evidence to suggest that AF did that or any other investigation into whether CCleaner would in fact irrevocably destroy electronic files. Furthermore, as the Court noted at the hearing, even if CCleaner did irrevocably destroy electronic files, that might actually work in AF’s favor; in other words, the stronger the evidence of improper spoliation, the better the chance AF stood of obtaining, e.g., an evidentiary sanction or adverse inference in its favor based on the spoliation.

As to the complaint that the undertaking made the case too expensive, the court was also unmoved. First, Prenda Law could have appealed the order but chose not to. It also could have tried to demonstrate its claimed poverty, but it didn't do that either. Instead it claimed the expense made the case not worth pursuing, to which Judge Chen declined to cry them the river they sought.

[T]o the extent AF suggests that it may be financially able to pay, but the bond is simply more than the value of the case, see Mot. at 2 (arguing that Plaintiff cannot “afford to tie up nearly $50,000 in capital simply in order to proceed with its claims against a single infringer”), it ignores the fact that a bond may be required in any given case in California (based on California specific law). As the plaintiff which initiated the action, AF knew at the outset that a bond might be required. A plaintiff cannot invoke the benefits of the judicial system without being prepared to satisfy its obligations as a litigant.

The court then noted that Prenda Law had tried the same move in the Magsumbol case, trying to withdraw the case before it could get hit with an undertaking requirement, an effort that was denied there too.

Alan Cooper's ghost

For all the aforementioned reasons, Prenda Law was granted its motion to dismiss, but with prejudice, thereby making the defendant, Mr. Navasca, a prevailing party able to pursue an award under the copyright statute for the fees he expended in having to defend himself in this case. However, although the ruling was issued today, April 23, it won't be entered (or put into effect) until April 29. That's because Prenda Law needs to do something first.

If you are just now tuning into coverage of this mess, Prenda Law's problem is that it sued ostensibly on behalf of an entity "AF Holdings," the entity that purportedly now owns the relevant copyright. But when called to account for who AF Holdings is, Prenda Law can't or won't do it, leading to the conclusion that it is none other than Prenda Law itself, which would at minimum violate court rules in bringing this litigation and may suggest even more wrongfulness given how it has obfuscated the ownership question. The Alan Cooper problem described above stems from certain paperwork allegedly "signed" by a Mr. Cooper that doesn't seem to exist, thereby creating a fundamental standing issue for all these cases, an which Judge Wright has diligently been exploring.

Ah, but Prenda Law has a workaround. See, AF Holdings is really owned by this trust, one apparently called "Salt Marsh." We learned from an angry, angry filing last week that "Salt Marsh" is arranged for the benefit of the as-of-yet hypothetical and unborn children of Mark Lutz, a former paralegal for Steele and Hansmeier. Who controls and speaks for Salt Marsh? That's not clear. But that didn't prevent Salt Marsh from having "signed" the ADR document earlier in this case. It was a pro forma filing, basically an attestation that each of the undersigned had read the court's rules about alternative dispute resolution (an option parties can often choose to pursue instead of full-on litigation). And it was signed by a "Salt Marsh," although one wonders how a non-human entity could possibly attest to reading anything. [Cathy is not a true geek and therefore doesn't know SHODAN. Forgive her. --Ken] There had to have been a human being behind that attestation. But whom?

That's what the court wants to know: Who actually signed?

Finally, the Court addresses Mr. Navasca’s request that it order AF to produce the original of an ADR certification that was e-filed by AF as Docket No. 8. The ADR certification that was e-filed does not contain any actual signature from an AF representative; rather, there is simply the following e-signature: “/s/ Salt Marsh, AF Holdings Owner.” Docket No. 8 (ADR certification). As Mr. Navasca points out, under the Civil Local Rules, AF’s counsel should have maintained a copy of the ADR certification containing the original signature as a part of its files. See Civ. L.R. 5-1(i)(3) (providing that, in the case of a Signatory who is not an ECF user, the actual filer of the document “shall maintain records . . . for subsequent production for the Court, if so ordered, or for inspection upon request by a party, until one year after the final resolution of the action (including appeal, if any)”). Because Mr. Navasca has asked the Court for relief encompassed by the Civil Local Rules, the Court grants the request. AF’s counsel is hereby ordered to produce the original of the ADR certification, containing the original signature of “Salt Marsh” by April 29, 2013. If AF’s current counsel does not have the original document, then it must contact former counsel to obtain the document. On April 29, AF’s current counsel shall also file a declaration with the Court, stating whether it was able to provide a copy of the original document and, if not, why not.

(emphasis added)

Like a con artist who's taken a few too many marks with his shell game, Prenda Law is being compelled by the court to reveal how its magic has worked. We'll see in a few days what it will say.

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Ken's postscript: Thanks to Cathy for following up on her observations of the Navasca case. This order is a body blow to Prenda Law. Judge Chen — who recently awarded substantial attorney fees against the infamous Charles Carreon in a case in which Cathy is co-counsel [edited: oops, no it wasn't -- that was a different judge] — is openly suggesting that Prenda's conduct suggests malfeasance and evasion of potential negative rulings. He invited Navasca to file a separate motion for fees, and this order strongly suggests that he will grant such a motion. Judge Chen's dismissal of Prenda's "it doesn't matter if Cooper's signature is forged" argument suggests that he suspects that Prenda's entire litigation strategy is premised on fraud — that Prenda has manufactured the dispute, and that AF Holdings is merely a front for Prenda Law lawyers. Finally, Judge Chen's order that Paul Duffy produce the original "Salt Marsh" signature presents a conundrum for Duffy. Brett Gibbs was Prenda's counsel in this case at the time when Prenda Law filed this case, and probably is the one with direct knowledge of the document purportedly electronically signed by Salt Marsh. Gibbs and Duffy are not currently on very friendly terms. If asked, what will Gibbs say? What can Duffy say under oath, in a declaration, about the Salt Marsh signature without digging himself deeper into this situation? It's bad, very bad, for Prenda — and like the transcript of the hearing before Judge Wright at which Prenda took the Fifth, you can expect attorneys across the country to file this order in Prenda Law's surviving cases.

Prenda Law, A San Francisco Treat

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We invited Cathy Gellis to guest-post her observations of a Prenda hearing today. Hot on the heels from helping to secure an a hefty attorney fee award against the infamous Charles Carreon, Cathy Gellis went to court to check out the latest news from the Internet's other favorite lawyers. Cathy practices cyberlaw in the San Francisco Bay Area and maintains a blog at DigitalAgeDefense.org, exploring how criminal consequences have been attaching to technology use and development.

All of Popehat's Prenda coverage is collected here.

While most of the recent news involving Prenda Law has come from the case in front of Judge Wright in Los Angeles, it’s far from their only case. Apart from the Godfread/Cooper defamation cases and the Computer Fraud and Abuse Act cases the LA matter is just one of the hundreds of copyright cases the Prenda operation had deluged the courts with. But the LA case appears to be the case that has caused the entire Prenda Law house of cards to finally come crashing down. Like a high rise that has just been dynamited for demolition, the concussive force of its spectacular collapse is undermining the foundations of all its other cases as well.

Including this particular one in federal court in San Francisco.

The case so far

It began as a Prenda Law case usually begins: using questionable "forensics" to identify someone to target, first with threatening letters and then a lawsuit if they didn’t pay up. In this case, when Joe Navasca’s father didn’t capitulate, Prenda Law targeted the son instead. (Note: I’m including his name because it is now in the public record. And also to commend Mr. Navasca for standing up to these bullies.) Unfortunately for Prenda Law, the wheels of justice grind slowly, and some of its previous cases were starting to catch up with it just as this one began to lurch forward.

The default rule in American litigation is that everyone pays for their own lawyers. But some laws, the Copyright Act being one of them, have provisions so that the loser pays for both sides' lawyers. Fully denying all of Prenda Law’s allegations of infringement, and now aware of the allegations of malfeasance directed at the Prenda Law enterprise, Mr. Navasca reasonably expected Prenda Law to eventually lose the case it had brought against him and need to reimburse him for his attorney fees. But just because a judge may grant an award of attorney fees doesn't mean the money will ever be recovered; enforcing a judgment often presents its own expensive challenges, meaning a wronged defendant can still be saddled with the costs of his own defense. However the California Code of Civil Procedure has a provision, § 1030, to help mitigate that financial risk by allowing defendants in similar positions as Mr. Navasca to require plaintiffs to make an "undertaking;" that is, to post a bond that would guarantee, when the defendant inevitably wins his fees, that he would actually get the money. Citing that provision Mr. Navasca moved the court to require Prenda Law to make this undertaking. Naturally Prenda Law opposed this requirement in a filing I will leave to others to snark about that in order to continue the story.

Meanwhile, as the question of the undertaking was pending, the discovery stage of the case had begun. At first Prenda Law tried to hurry up and expedite the discovery over a very specious evidence spoliation concern, an attempt which got nowhere. (But note this topic for later.)

The day after rejecting the attempt to expedite discovery the court granted Mr. Navasca’s motion requiring Prenda Law to provide the undertaking, but agreed to stay the ruling (meaning, postpone whether it should be put into effect) in order to give Prenda Law a chance to move for the court to reconsider it, which it does not appear to have ever done. At this point Prenda Law decided that discovery was actually all happening way too fast and so moved to stay it (basically, to put it on pause) while the undertaking issue continued to pend. Mr. Navasca’s response to this motion basically boiled down to, "While we don’t necessarily have a problem with staying discovery generally, we do find it suspicious that you want to stay it right before we get to do our 30(b)(6) deposition of AF Holdings." The court denied Prenda Law’s motion to stay the discovery and the 30(b)(6) deposition of Paul Hansemeier went forward.

And what a deposition that turned out to be. (At today's hearing Judge Chen asked, "There was a 30(b)(6) depo. What happened?" but it seems clear he already knows.)

The deposition took place on February 19. On February 20, Paul Duffy moved to substitute for Brett Gibbs in the Navasca case, which the court granted on the 26th. Also on the 26th Prenda Law moved to "voluntarily dismiss" the case, whining about the judge's ruling on the undertaking, clearly hoping that would be the end of it and it could scurry off into the shadows.

Not so fast, responded Navasca’s attorneys, Nick Ranallo and Morgan Pietz, in a brief whose table of contents alone is eviscerating. You can’t just dump an expensive, unmeritorious lawsuit on an innocent defendant, certainly not by committing fraud on the court, and then simply walk away from it. You are at least going to need to pay us the fees we had to expend defending against it.

Paul Duffy's rocks and hard places

Paul Duffy has a problem. He's counsel of record for AF Holdings, to the extent that AF Holdings even is a client separate and distinct from Prenda Law. But in between the time he filed the motion for voluntary dismissal and now, the April 2 hearing in Los Angeles happened where he (among other Prenda Law people) plead the Fifth Amendment in refusing to answer questions about AF Holdings. This act put him in a bind: if he opened up his mouth in San Francisco to talk about AF Holdings it could inculpate him in its affairs. You can't assert the Fifth Amendment in some contexts and waive it in others, that's not the way it works. Anything he says about AF Holdings in some proceedings can and will be used against him in others.

On the other hand, as counsel to a purportedly separate and distinct client, he can't just blow off the hearing, even if that might be the best option for saving his own skin. AF Holdings, whoever it is, is staring down the barrel of a judgment on the order of tens of thousands of dollars against it. If it were truly a separate client it should be able to count on him to try to prevent such a judgment. Note: this doesn't mean the client could expect him to prevail, but it could expect him to at least give it the ol' college try. That meant that he couldn't just not show up (which apparently was what he did — or, er, didn't do — at a hearing yesterday in Illinois). He couldn't just withdraw as counsel, either, because that generally requires the court's permission once a lawsuit is underway in order to make sure a client isn't being left high and dry (see, for example, the earlier motion to substitute Duffy for Gibbs, which they needed the court to approve). Nor could he choose to just not argue, or purposefully argue badly, without abrogating his ethical duties to the client. But it was unclear what he could argue that wouldn't further implicate him in the misdealings of the Prenda Law enterprise.

The ol' college try

The above sets the stage for today's hearing, which was the third matter on Judge Chen's afternoon calendar. I've never appeared before Judge Chen, but I've now observed quite a few of his hearings (not just today, but also when I waited to serve Charles Carreon…). His demeanor is not terrifying; for the well-behaved attorneys appearing before him he seems to play a role almost like a mediator, efficiently absorbing facts, managing case logistics, and isolating areas of contention. For the less well-behaved his countenance appears to remain much the same, as he allows both sides ample time and opportunity to present all facts and arguments for his consideration. But should his calm patience ever delude counsel into taking him for a fool, a stinging pointed question, albeit very calmly made, will serve as notification of their error.

Duffy did, in fact, appear in person, despite his absence yesterday. Unfortunately he mumbled so much that even though I was in the front row of the gallery I didn't catch everything he said. The court reporter was much closer and presumably caught all of his equivocation, but there did seem to be an awful lot he didn't know. Which was particularly notable when confronted with questions about AF Holdings. "I have no personal knowledge," Duffy said in response to one such question, prompting Judge Chen to ask, "Well, what do you know?" and Mr. Ranallo to observe that, "There's been a pattern of no one knowing anything when the time comes" for them to give answers.

Duffy did, however, continue the pretense of being separate, disinterested counsel for this mysterious AF Holdings entity, despite all evidence of it, and him, being rolled up in the Prenda Law enterprise. And for what it's worth, his personal behavior was never really at issue today. The issue, as Judge Chen announced at the top of the proceeding, was whether the dismissal should be granted, and if so, whether it should be with prejudice (meaning AF Holdings would have essentially surrendered on the merits and could never refile this lawsuit ever again), and whether any attorney fees should be awarded to compensate the defendant for having been put through it.

(Actually, even before that Judge Chen began the proceeding with the more ominous, "I asked you to come here today in light of all the things that have happened.")

Why are you asking for this case to be dismissed, he first asked Duffy. There's two reasons, Duffy responded, one being that the $50,000 undertaking was too expensive. He argued the same in his reply to the opposition to dismiss the Navasca case, which basically whined that Prenda Law should not have to be burdened with needing to round up $50,000 in order to pursue a copyright case against a single infringer. Never mind that the court had previously been unimpressed by Prenda Law’s earlier pleas of poverty, the reality is that litigation is expensive. It’s expensive even for truly-wronged plaintiffs, who often can’t afford to sue to vindicate legitimate injuries, and it’s certainly expensive for innocent defendants. In the "Joys of Yiddish" Leo Rosten illustrated "chutzpah" as someone who has killed his parents asking the court for mercy because he’s an orphan. Were Mr. Rosten alive today I think he might update his book with Prenda Law's brief.

The other reason, he said, was that there was a problem of evidence spoliation, which I referred to briefly above. The defendant had been running a piece of software called CCleaner on his computer, and Duffy complained that it destroyed the evidence it needed to be able to prosecute the infringement claim.

At first blush, these complaints may sound quite reasonable (although, as Mr. Ranallo noted, neither had been raised in Prenda Law's initial motion to dismiss). But they are worth further scrutiny. For one thing, CCleaner had been running on the defendant's machine for more than a year before the lawsuit had been filed, a fact that alone deflects claims of spoliation. Secondly, its operation has no effect on the sorts of evidence Prenda Law might want to collect. Although the question of spoliation hadn't been fully adjudicated earlier because Prenda Law's complaints had been couched in a premature motion to compel, the magistrate ruling on the motion had looked into the issue and indicated the concerns appeared unfounded (note the exhibits to the filings linked above). In any case, as Judge Chen honed in on later in the hearing, usually a plaintiff is happy for there to be spoliation problems. "Normally if you argue spoliation, you win the case!" It seemed very strange, he observed, to give up because you are claiming spoliation (and, he asked later, if it really were such a problem, why did you wait to withdraw the case and not do so as soon as you learned of it?). In response Duffy fell back on the, "well, at $50,000 it was too expensive to continue the case" argument. But bear in mind, it's just a $50,000 undertaking, not a $50,000 forfeit. You get it back if you win.

But Prenda Law may have realized it wasn't going to win, and Judge Chen pointedly asked about that. "Why is this attempt to dismiss not simply an attempt to avoid adverse rulings?"

And that was the crux of the hearing as it in some ways went around and around in circles, with Duffy either arguing "it was too expensive to continue!" or "spoliation!" whenever he was losing ground on one or the other, trying to make it seem perfectly innocent to be dropping the case now and avoid all consequences for having pursued it. But Judge Chen did also seem curious about the ownership issues. Who is Salt Marsh, he asked at one point. Mr. Ranallo responded with a reference to the April 2 hearing when Mr. Duffy and others took the Fifth. "That tells us a lot about why this case is ending now." (To which Duffy protested, "This is a civil matter, that was a criminal one. You can't make inferences.") [Ken's note: Ars Technica heard some comments about Salt Marsh as well.]

Judge Chen's questions then turned to fees. Citing a case whose name I didn't fully catch but I think is this, he asked Mr. Ranallo about what portion of his claimed fees applied solely to defending this case and what could be leveraged in other cases. "There will be no subsequent suits," he answered. "Standing is blown." ("That's pure speculation as to the intent of the plaintiff," countered Duffy.)

Mr. Ranallo continued. Nearly all AF Holdings case have been dismissed in the same two weeks, even cases that had no undertaking requirement, and even a case where it had already won a default judgment. (Totally innocent, Duffy explained. It's simply because Gibbs had decided to quit.) The few cases that remain active are the Magsumbol case, where a voluntary dismissal had been denied, and the Trinh case, also in San Francisco, where a $40,000 undertaking had been required, but because Prenda Law hadn't posted it, the case got dismissed with prejudice, thereby making it the losing party and vulnerable to a fee order under the Copyright Act. The nightmare, and potentially very expensive, situation for Prenda Law is that either outcome happens here.

Ultimately, Judge Chen took the matter under submission — meaning that he could rule at any time.

Final thoughts

In one sense it was somewhat disappointing that there was no Perry Mason moment, but as Ken has noted those moments rarely happen. The devil is in the little details and their implications as they are slowly revealed. The wheels of justice grind slowly, it's true, but as we continue to see, they do grind forward.