Tag: bittorrent

Feelin’ Minnesota? Most Likely (Court Pierces Corporate Veil of Copyright Trolling Firm To Reach Lawyer’s Personal Assets)

After being widely lambasted for its heavy-handed and ethically ambiguous (challenged?) BitTorrent litigation tactics over the past few years, an incarnation of the infamous Prenda law firm was recently hit with a piercing the corporate veil judgment by a Minnesota state court.

In Guava, LLC v. Merkel, 2015 WL 4877851 (Minn. 2015), the plaintiff pornographic film producer, represented by the Alpha, LLC law firm (“Alpha”), filed a civil conspiracy suit and state wiretapping claim against various defendants whom plaintiff claimed illegally downloaded adult films owned by the plaintiff.

Alpha’s lone member is Minnesota attorney and Prenda alum Paul Hansmeier, who has garnered some negative press of his own both for his copyright trolling efforts and his more recent ADA violation suits against small businesses.  In October 2015, the Supreme Court of Minnesota instituted formal disciplinary proceedings against Hansmeier for various lawyer misconduct charges.

The Alpha firm’s litigation strategy in the Guava case followed the familiar script of issuing a subpoena blitz against some 300 internet service providers (ISPs) to learn the identity of the movie downloaders.  Many of the ISP customers fought back with motions to quash the subpoenas.

After assessing monetary sanctions against Alpha for bad faith conduct – trying to extract settlements from the ISP customers with no real intent to litigate – the trial court entered a money judgment against Alpha for the subpoena respondents and John Doe defendants.

Through post-judgment discovery, the subpoena defendants learned that Hansmeier had transferred over $150,000 from Alpha, defunding it in the process.

The judgment creditor defendants then moved to amend the judgment to add Hansmeier individually under a piercing the corporate veil theory. After the trial court granted the motion, Alpha and Hansmeier appealed.

Held: Affirmed

Rules/Reasoning:

In Minnesota, a district court has jurisdiction to take actions to enforce a judgment when the judgment is uncollectable and where refusing to amend a judgment would be inequitable.

A classic example of an equitable remedy that a court can apply to amend an unsatisfied money judgment is piercing the corporate veil. A Minnesota court will pierce the corporate veil where (1) a judgment debtor is the alter ego of another person or entity and (2) where there is fraud.

The alter ego analysis looks at a medley of factors including, among others, whether the judgment debtor was sufficiently capitalized, whether corporate formalities were followed, payment or nonpayment of dividends, and whether the dominant shareholder siphoned funds from an entity to avoid paying the entity’s debts.

The fraud piercing factor considers whether an individual has used the corporate form to gain an undeserved advantage. The party trying to pierce the corporate veil doesn’t have to show actual (read: intentional) fraud but must instead show the corporate entity operated as a constructive fraud on the judgment creditor.

Here, the defendants established both piercing prongs. The evidence clearly showed Alpha was used to further Hansmeier’s personal purposes, there was a disregard for basic corporate formalities and the firm was insufficiently and deliberately undercapitalized.

The court also found that it would be fundamentally unfair for Hansmeier to escape judgment here; noting that Hansmeier emptied Alpha’s bank accounts after it became clear that defendants were trying to enforce the money judgment against the Alpha firm.

Afterword:

While a Minnesota state court ruling won’t bind other jurisdictions, the case is post-worthy The case lesson is clear: if a court (at least in Minnesota) sees suspicious emptying of corporate assets when it’s about to enter a money judgment, it has equitable authority to modify a judgment so that it binds any individual who is siphoning the corporate assets.

The case is also significant because it breaks from states like Illinois that specify that piercing the corporate veil is not available in post-judgment proceedings. In Illinois and other states, a judgment creditor like the Guava defendants would have to file a separate lawsuit to pierce the corporate veil.  This obviously would entail spending time and money trying to attach assets that likely would be dissipated by case’s end.  The court here avoided what it viewed as an unfair result simply by amending the money judgment to add Hansmeier as a judgment debtor even though he was never a party to the lawsuit.

Moving for Default Judgment In Federal Court – Plausible Claims and Damage Calculations (A Brief Case Note)

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(photo credit: sociallyclean.com (via Google Images – 5.15.15)

Malibu Media, LLC v. Funderburg, 2015 WL 1887754 (N.D.Ill. 2015) discusses the governing standards for obtaining a default judgment in Federal court in a decidedly post-modern fact context.  The plaintiff adult film producer sued the defendant for copyright infringement based on the viewer defendant’s unauthorized movie downloads.

Defendant orchestrated hundreds of movie downloads over a span of about three months through the BitTorrent file sharing system.  BitTorrent basically allows a user to download component parts or “bits” of a file, send them to others (“peers”) who then splice the bits together to make a cohesive whole file. When Defendant failed to respond to the Complaint, the plaintiff sought a default judgment of $27,000 – triple the sum of minimum statutory damages under the Copyright Act.  See 17 U.S.C. s. 504.

The court granted the motion for default but only awarded a fraction of the damages sought.  In doing so, the court stated the operative Federal court default rules:

– Federal Rule of Civil Procedure 55 allows a court to enter a default judgment where a defendant fails to plead or otherwise defend a suit;

– On a default motion, the court takes as true, all well-pled allegations as to liability;

– A default judgment establishes as a matter of law that a defendant is liable for each of a plaintiff’s claims;

– A plaintiff seeking default judgment, must show a “plausible” claim;

– If plaintiff’s damages are easily calculable, he can usually get a money judgment based on an affidavit alone;

– A default judgment can enter against a minor or incompetent person only if represented by a guardian, conservator or other fiduciary;

– Since minors frequently use the internet for downloading movies, a plaintiff usually must do more than offer blanket assurances that the defendant isn’t a minor.

(**1-3).

Here, plaintiff stated a plausible copyright claim: (1) that it owned the copyright in the 12 movies in question; and (2) that defendant infringed the copyright.  Courts distinguish between Internet subscribers and infringers: just because someone is an account holder of a given IP address doesn’t mean the account holder is the one downloading files.

Here, though, the court noted that defendant was connected to the infringing IP address and that there were hundreds of file downloads over a short period of time.  Considered with plaintiff’s unchallenged complaint allegations, the court found that the defendant, an adult, was the proper defendant.

The Court reduced plaintiff’s damage claim.  Under the Copyright Act, an infringer is subject to statutory damages raising from $750 to $30,000 for any single infringed work.  17 U.S.C. s. 504(c).  Here, the court found that while the plaintiff probably wasn’t a “non-producing troll” (someone who enforces copyrights just to extort money from people who are too embarrassed to fight a Federal porn suit), the court still found that a damage award that was three times the statutory floor was excessive.

The court ultimately awarded damages of $9,000 – $750 for each (all 12) movie that was downloaded in addition to attorneys’ fees of over $2,000.

Take-away:

This case provides a good summary of basic requirements for obtaining default judgments in Federal court.  In a default case where a statute provides a range of damages, a default-seeking plaintiff will likely need to show intentional conduct to get damages that eclipse the statutory minimum;

While being tied to a specific IP address, alone, isn’t enough to definitively identify a defendant, it will go a long way in doing so; especially if there is other evidence connecting a defendant to a given address and the IP account holder doesn’t put up a fight (as was the case here).