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Prenda-watchers know that United States District Court Judge Otis D. Wright II has ordered multiple Prenda Law lawyers and clients to appear before him on April 2, 2013. As a reminder, Judge Wright's order required these people and entities to appear for the following purposes:
Thus, the Court amends its February 7, 2013 Order to Show Cause (ECF No. 48) to include sanctions against the persons and entities in subparagraphs a–m below:
a) John Steele, of Steele Hansmeier PLLC, Prenda Law, Inc., and/or Livewire Holdings LLC;
b) Paul Hansmeier, of Steele Hansmeier PLLC and/or Livewire Holdings LLC;
c) Paul Duffy, of Prenda Law, Inc.;
d) Angela Van Den Hemel, of Prenda Law, Inc.;
e) Mark Lutz, of Prenda Law, Inc., AF Holdings LLC and/or Ingenuity 13 LLC;
f) Alan Cooper, of AF Holdings LLC;
g) Peter Hansemeier, of 6881 Forensics, LLC;
h) Prenda Law, Inc.;
i) Livewire Holdings LLC;
j) Steele Hansmeier PLLC;
k) AF Holdings LLC;
l) Ingenuity 13 LLC; and
m) 6881 Forensics, LLC.
These persons and entities are ORDERED to appear on March 29, 2013, at 10:30 a.m., 1 TO SHOW CAUSE for the following:
1) Why they should not be sanctioned for their participation, direction, and execution of the acts described in the Court’s February 7, 2013 Order to Show Cause;
2) Why they should not be sanctioned for failing to notify the Court of all parties that have a financial interest in the outcome of litigation;
3) Why they should not be sanctioned for defrauding the Court by misrepresenting the nature and relationship of the individuals and entities in subparagraphs a–m above;
4) Why John Steele and Paul Hansmeier should not be sanctioned for failing to make a pro hac vice appearance before the Court, given their involvement as “senior attorneys” in the cases; and
5) Why the individuals in subparagraphs a–g above should not be sanctioned for contravening the Court’s March 5, 2013 Order (ECF No. 66) and failing to appear on March 11, 2013.
Judge Wright's order refers back to his February 7, 2013 Order to Show Cause. That order described the conduct that concerned him and included this ominous warning:
Based on the evidence presented at the March 11, 2013 hearing, the Court will consider whether sanctions are appropriate, and if so, determine the proper punishment. This may include a monetary fine, incarceration, or other sanctions sufficient to deter future misconduct. Failure by Mr. Gibbs to appear will result in the automatic imposition of sanctions along with the immediate issuance of a bench warrant for contempt.
As April 2 fast approaches, you might be asking yourself: what sorts of tools does Judge Wright have at his disposal if he finds that Prenda Law attorneys or clients have committed misconduct?
Judge Wright has many tools, and broad power, but that power is not unlimited. This post reviews some of the tools at his disposal.
Part I: Things Judge Wright Could Ask Others To Do
First up, as a federal judge, Judge Wright has vast influence over others who might take action against Prenda Law lawyers, principals, and entities.
State Bars: If Judge Wright believes that any attorney affiliated with Prenda Law has committed misconduct, he could refer the matter to the state bar of each state in which that attorney is admitted. State Bars tend to be underfunded, understaffed, and underpowered, at least compared to the ubiquity and mendacity of modern lawyers. There are too many reports of misconduct and too few people to investigate them. But referrals from judges tend to move to the front of the line. If Judge Wright makes a referral couched in the sort of blunt language he has uttered to date, he'll probably inspire immediate and vigorous State Bar investigations of the named lawyers. Such investigations can lead to state bar proceedings that might eventually result in probation, suspension, or disbarment.
United States District Court and Circuit Court Bars: Membership in a state bar doesn't automatically confer the right to appear in federal court in that state. Instead, most of the 94 federal judicial districts (including the United States District Court for the Central District of California, where Judge Wright sits) have their own process for admitting lawyers. So do the 12 circuits that hear appeals. Most of their courts have their own system for addressing attorney misconduct. You can be suspended or disbarred from the bar of a federal district or circuit even if you aren't disciplined by your state bar. For anyone whose practice focuses on federal court, that would be catastrophic. Local Rule 83-3 of the Central District of California, for instance, provides for a disciplinary process. If Judge Wright refers his conclusions to each district and circuit where the Prenda Law attorneys are admitted, they will probably face investigations of their conduct, and could face suspension or disbarment from practice before those courts.
United States Attorney's Office: Both Judge Wright's written orders and his comments during the March 11 hearing suggest he suspects that Prenda Law attorneys and principals are involved in fraud on the court — including, but not limited to, fraudulent misuse of Alan Cooper's identity and fraudulent misrepresentation of the true ownership and control of the Prenda plaintiff entities. Based on that conclusion, he could refer the case to the U.S. Attorney's Office — just 11 floors above him — for a criminal investigation. That would be as easy as picking up the phone and calling the Chief of the Criminal Division.
To be frank, the sort of fraud that Judge Wright apparently suspects — the sort of fraud that Prenda Law foes have alleged — is not the sort of fraud that would normally attract the attention of federal prosecutors. The resources of the U.S. Attorneys' Offices across the country are limited, and after 9/11 they've been diverted away from white collar crime in favor of terrorism, drugs, guns, gangs, and immigration — with occasional objectionable diversions into "computer fraud." The allegations against Prenda Law amount to penny-ante stuff compared to the high-dollar fraud that usually concerns federal prosecutors. But a direct referral from a federal judge carries very substantial weight. If Judge Wright refers the case, the U.S. Attorney's Office will allocate resources to start a grand jury investigation.
What would they investigate? Well, Judge Wright's orders and comments suggest that he is entertaining theories that Prenda Law attorneys (1) misappropriated Alan Cooper's identity, (2) created entities like AF Holdings and Ingenuity 13 to conceal their own financial interests in the cases they brought, and (3) lied to and concealed facts from both defendants and federal courts. Any investigation might focus on whether Prenda Law's attorneys engaged in conspiracy to violate federal law, false statements to the federal government, mail fraud, wire fraud, obstruction of justice, subornation of perjury, and — if the feds are in a particularly bring-out-the-gimp mood — money laundering. Moreover, unlike state bar and federal bar remedies — which by necessity only threaten consequences to lawyers — a criminal investigation could focus on non-lawyers like Mark Lutz and even on non-human entities like Prenda Law, AF Holdings, and Ingenuity 13. The feds are quite adept at flipping lower-level figures in an investigation against higher-ups. Some of the figures in this case seem ripe for that treatment.
So: merely by sending a letter or even picking up the phone, Judge Wright could easily generate state and federal bar investigations against Prenda Law's lawyers and a federal criminal investigation of everyone involved.
But Judge Wright has his own powers, too.
Part II: Things Judge Wright Could Do Himself
As a district court judge, Judge Wright has numerous tools with which he can address misconduct before him, including Rule 11 of the Federal Rules of Civil Procedure, federal statute, his inherent authority, local rules, and the contempt power. Each tool has its own limits.
Rule 11: Rule 11 of the Federal Rules of Civil Procedure requires that every pleading filed in federal court be signed by a lawyer. By signing, the lawyer is representing to the court that the document isn't filed for an improper purpose (like harassment or delay) and that its factual and legal allegations have an adequate basis. Whether claims in a document have an adequate basis is tested not based on the attorney's subjective intent, but on the objective reasonableness of the claims. A party may file a motion alleging a Rule 11 violation against another party (a regrettably involved process) or the judge may make an inquiry on his or her own initiative. A judge finding a Rule 11 violation may impose sanctions against attorneys or, in some cases, parties; those sanctions can be monetary or non-monetary, and can be designed to deter similar conduct.
However, Rule 11 has important limits. First, it applies only to documents filed by an attorney in federal court, not to out-of-court conduct. Second, under Rule 11(c)(5)(B), because Prenda dismissed this particular case before Judge Wright issued his February 7, 2013 Order to Show Cause, he can't impose monetary sanctions under Rule 11 — though he can impose monetary sanctions with other tools discussed below, and can impose them in any cases in which he issued his OSC before Prenda dismissed. Third, although Judge Wright can probably impose Rule 11 sanctions against Prenda Law attorneys and parties who did not sign documents filed in court but directed them to be filed (according to Brett Gibbs and Paul Hansmeier's testimony, that would include John Steele and Mark Lutz, for instance), the law on that point is a bit cloudy.
So: Rule 11 may not be the best tool for Judge Wright here.
Title 28, United States Code, Section 1927: 28 U.S.C. section 1927 gives federal judges another tool for imposing sanctions:
Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.
This statute is even more limited than Rule 11. First, it only applies to conduct that prolongs litigation and increases the other side's attorney fees, not to pre-litigation conduct or conduct that doesn't have the effect of prolonging litigation. Second, courts are split on whether it applies to attorneys other than counsel of record in the case. Third, sanctions are limited to the amount of fees caused by the other wrongful conduct.
Inherent Authority: Federal judges have inherent authority to sanction bad faith conduct before them or violation of their orders. That authority extends to conduct that can be punished under Rule 11 or Section 1927, and beyond to other conduct. A judge's inherent authority is more flexible in that it isn't restricted by all of Rule 11's procedural limits (for instance, it can be wielded even after a plaintiff has dismissed a case) and less flexible in that it only applies to bad faith conduct — that is, conduct that not merely objectively unreasonable, but subjectively done with bad intent. Moreover, many courts have held that their inherent power can be used to sanction "fraud on the court" — the phrase Judge Wright has invoked repeatedly. A judge's inherent authority reaches beyond the lawyer appearing in court to lawyers or parties who direct the litigation, and can include conduct outside of court — though it can't include conduct in another district.
Judge Wright's inherent authority is probably the most flexible and effective tool he has.
Local Rules: Local Rules — rules enacted by the judges of a particular district — can also confer sanction power. For instance, Local Rule 83-7 permits sanctions for violations of the rules that apply to proceedings in the Central District of California where Judge Wright sits. Those local rules require, for instance, adherence to the California Rules of Professional Conduct. However, this power is somewhat limited — the local rules can't confer sanctions power broader than statutes and the Federal Rules of Civil Procedure allow, and a court must make a finding of intentional or grossly negligent violation of rules to support sanctions. Because the local rules incorporate the California Rules of Professional Conduct — including prohibitions on fraud — Rule 83-3 may be a useful tool.
Contempt Power: Federal judges also have the power to hold people in contempt — based both on their inherent power and on federal statute. Contempt can include fines or imprisonment. Contempt is complicated, and this is a very abbreviated description. Contempt is divided into two types — civil contempt and criminal contempt. Often, it's not perfectly clear whether a judge is invoking civil contempt or criminal contempt.
Civil contempt is an exercise of the contempt power intended to coerce (as when a judge threatens to fine someone $100 a day until they comply with an order) or to compensate (as when a judge holds a misbehaving party in contempt and orders them to pay the attorney fees incurred by the opposing party as a result of the misconduct). Criminal contempt, on the other hand, is an exercise of the power to punish or deter.
The contempt power isn't as broad as the sanctions power. Contempt coerces obedience to a court order or punishes disobedience; it doesn't address misconduct in the abstract. It requires proof of an unambiguous order and knowing disobedience of it. Here, if Judge Wright thinks that Prenda Law deliberately violated his discovery order by continuing to seek the identity of downloaders after he ordered them not to — or if he thinks they improperly defied his order to appear on March 11 — he might invoke the contempt power. But he couldn't invoke it, for instance, to punish what he sees as improper failure to disclose financial interests or notify the court of related cases.
Moreover, invocation of the contempt power requires more due process than invocation of the sanction power. A judge may summarily invoke the contempt power summarily for direct conduct that appears immediately before him or her — as in the case of an attorney who swears at the judge in court. Otherwise, the judge invoking criminal contempt power over indirect conduct outside of court must give notice, an independent prosecutor, notice of the charges, counsel, and the right to confront witnesses. Invocation of the civil contempt power for indirect conduct outside of court requires only notice and an opportunity to be heard — though in some cases, where extremely complex factfinding is necessary, it may require procedures more like criminal contempt.
I have dramatically oversimplified Judge Wright's contempt power. Suffice it to say that he could probably hold attorneys and parties in civil contempt at the April 2 hearing if he finds a knowing violation of one of his orders. He can't find them in criminal contempt without further proceedings.
How will Judge Wright wield these powers?
If I were a betting man, I'd bet that he won't make a ruling on April 2. Rather, I suspect he'll offer a carefully-worded order with findings of fact. If the participants in the April 2 hearing fail to answer his questions to his satisfaction, I think he will make referrals to state and federal bars. I suspect he'll also, at a minimum, sanction the Prenda Law attorneys under his inherent authority. Beyond that? I wouldn't guess.