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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.