Lightspeed Media Corp. v. Smith

• Decision Date: 31 July 2014
• Docket Number: 13–3801.,Nos. 14–1682,s. 14–1682
• Citation: 761 F.3d 699
• Parties: LIGHTSPEED MEDIA CORPORATION, Plaintiff, v. Anthony SMITH, et al., Defendants–Appellees, Appeal of Paul Duffy, John Steele, and Paul Hansmeier, Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

761 F.3d 699

LIGHTSPEED MEDIA CORPORATION, Plaintiff,

v.Anthony SMITH, et al., Defendants–Appellees,Appeal of Paul Duffy, John Steele, and Paul Hansmeier, Appellants.

Nos. 14–1682, 13–3801.

United States Court of Appeals,Seventh Circuit.

Argued April 7, 2014.¹

Decided July 31, 2014.

Paul A. Duffy, Chicago, IL, for Plaintiff.

Daniel Booth, Jason E. Sweet, Booth & Sweet LLP, Cambridge, MA, Hugh S. Balsam, Bart Wescott Huffman, Locke Lord LLP, Austin, TX, John D. Seiver, Davis Wright Tremaine, Washington, DC, Andrew G. Toennies, Lashly & Baer, P.C., St. Louis, MO, for Defendants–Appellees.

Before DIANE P. WOOD, Chief Judge, and KANNE and SYKES, Circuit Judges.

WOOD, Chief Judge.

The first rule of holes, according to an old saying, is to stop digging. The two appeals before us bring that to mind, for reasons that will become apparent. The first, No. 13–3801, comes to us from the district court's order granting a motion for attorneys' fees and costs under 28 U.S.C. § 1927 filed by SBC Internet Services, LLC (d/b/a AT & T), Comcast Cable Communications, LLC (collectively “the ISPs”), and Anthony Smith, defendants in the underlying litigation. The order imposed joint and several liability for the fees against Paul Duffy, John Steele, and Paul Hansmeier. They have appealed from that order. They did not, however, file a motion either to clarify the nature of the sanctions or to stay the order. Instead, they simply did not pay. The defendants then moved for an order to show cause why appellants should not be held in contempt for their failure to pay, or in the alternative for immediate contempt. After a hearing, the district court found that they had failed to pay and that there was no excuse for their behavior. It thus held them in civil contempt and ordered them to pay 10% of the original sanctions award to cover the defendants' additional costs for the contempt litigation. It also assessed a daily fine, in case payment was not forthcoming. The second appeal before us, No. 14–1682, is from the contempt proceeding.

I

A

Lightspeed Media operates online pornography sites. Our story begins when it brought suit in St. Clair County, Illinois, against one John Doe defendant, identified only through his IP address. (An IP, or Internet Protocol, address is the number assigned to a particular device on the Internet.) Doe's IP address was allegedly associated with the unlawful viewing of Lightspeed's content, made possible by the use of a widely shared, “hacked” password. Lightspeed then identified approximately 6,600 others (through their IP addresses only) as alleged “co-conspirators” in a wide-reaching scheme to steal passwords and content. The only conspiratorial act alleged was the use of the same password. Then, following what seems to be appellants' modus operandi, see, e.g., AF Holdings, LLC v. Does 1–1058, 752 F.3d 990, 993 (D.C.Cir.2014), Lightspeed, acting ex parte, served subpoenas on the ISPs (which at that point were non-parties) for the personally identifiable information of each of the 6,600 alleged co-conspirators, none of whom had been joined as parties. The ISPs refused to turn over the information and instead filed a motion to quash and for a protective order.

The state trial court denied the ISPs' motion, and so the ISPs sought appellate review. At the same time, Duffy called an attorney representing the ISPs and requested the name and title of each employee who decided that an ISP would not comply with the subpoenas. Steele then submitted an affidavit stating that the ISP attorney refused to provide that information. The Illinois Supreme Court ultimately ruled that the trial court erred by refusing to quash the subpoenas. Lightspeed responded by amending its complaint on August 3, 2012, and formally naming as co-conspirator parties the ISPs and unidentified “corporate representatives” of the ISPs. The complaint painted with a broad brush: it alleged everything from negligence, to violations of the Computer Fraud and Abuse Act, 18 U.S.C. §§ 1030 and 1030(g), to deceptive practices and aiding and abetting. “John Doe,” in the amended complaint, became Anthony Smith. Then, ignoring the fact that the Illinois Supreme Court had just rejected its request for the same information, Lightspeed issued new subpoenas seeking the personally identifiable information of Smith's purported 6,600 co-conspirators.

On August 9, 2012, the ISPs removed the case to the District Court for the Southern District of Illinois. See 28 U.S.C. § 1446(b)(3). Lightspeed immediately filed an emergency motion in advance of the routine Rule 26(f) conference, see Fed.R.Civ.P. 26(f), asking the federal court to order the ISPs to produce the same “co-conspirators' ” personally identifiable information. At the same time, Hansmeier submitted a motion for pro hac vice admission; he did not identify a law firm on the form. Steele entered an appearance in which he listed his firm as Prenda Law. The firm affiliations, however, turned out to be provisional, to put it kindly. At the emergency motion hearing, Steele identified his firm as Steele Hansmeier PLLC, Duffy said that he was with Prenda Law, and Hansmeier was with something called Alpha Law Firm. Steele Hansmeier and Prenda are listed at the same street address, 161 North Clark Street, in Chicago, in different suites.

Addressing the discovery motion at the emergency hearing, Steele spoke at length about the dire need for the requested information. Unconvinced, the district judge denied the motion, stating in passing that he was “skeptical about how this case could ever be put on, but my feet are not set in stone on it. I've seen some cases that didn't look too hot at the start that got better with time. This may be one of those cases.” Defendants then submitted both a motion to dismiss and a motion to stay discovery pending a ruling on the former motion. In November 2012, Hansmeier submitted a motion to withdraw without indicating which firm he was with; in March 2013, Steele withdrew.

This was not the only case Duffy, Steele, and Hansmeier had at the time. While the motion to dismiss was pending in the Southern District of Illinois, a court in the Central District of California held a hearing for the express purpose of exploring the role this trio, operating often as “Prenda Law,” played in some underlying copyright infringement litigation. That hearing did not go well for them; sanctions were imposed on all three (among others) and the matter referred to a variety of state and federal authorities. See Ingenuity 13 LLC v. John Doe, No. 12–cv–8333, 2013 WL 1898633 (C.D.Cal. May 6, 2013). For our purposes the relevant fact is that the district court there found that Steele, Hansmeier, and Duffy owned and controlled Prenda Law. The court went on to say that they

demonstrated [a] willingness to deceive not just [that] Court, but other courts where they have appeared. [Their] representations about their operations, relationships, and financial interests have varied from feigned ignorance to misstatements to outright lies. But this deception was calculated so that the Court would grant [their] early-discovery requests, thereby allowing [them] to identify defendants and exact settlement proceeds from them.

Id. at *3. After the show-cause order was entered in the Central District of California but before any sanctions were imposed, Duffy, Steele, and Hansmeier (along with others from Prenda) began voluntarily to dismiss similar cases filed across the country, including the one now before us. Fourteen days after the district court granted Lightspeed's motion for voluntary dismissal, defendant Smith filed a motion for attorney's fees under Fed.R.Civ.P. 54(d)(2) and 28 U.S.C. § 1927. Duffy filed a response; Steele and Hansmeier did not.

In October, the district court granted Smith fees and costs pursuant to section 1927. The order ran jointly and severally against each appellant. Taking into account both the record in the case before it and the rulings in other districts, the court found that the litigation against Smith “smacked of bullying pretense.” The court said that its decision to impose sanctions was particularly informed by the emergency motion for discovery. The next day, Hansmeier filed a motion to vacate or reconsider, and a few days later Steele and Duffy did the same. Hansmeier and Steele alleged that while Duffy received notice that sanctions were being sought, they did not.

After the district court granted fees and costs for Smith, the ISPs filed a motion requesting the same. Hansmeier and Steele opposed the motion, and so the district court held a hearing to deal with both the motion to reconsider the fees awarded Smith and the new ISP motion. On November 27, 2013, the district court denied the motion to reconsider (which had been filed on behalf of all three appellants) and awarded attorneys' fees to the ISPs. Appeal No. 13–3801 followed.

B

1. Notice and Opportunity to be Heard

Steele and Hansmeier contend that their due process rights were violated because they never received proper notice of Smith's motion for sanctions. The record, however, does not support them. First, as the district court concluded, even if we assume that they did not have notice originally, that defect was cured when the district court granted rehearing on the sanctions issue. Indeed, in their briefs before this court, Steele and Hansmeier seem to concede as much. Their complaint has shifted to one focusing on the adequacy of their opportunity to respond. It is too late to change theories, however, and in any event, the district court correctly ruled that whatever procedural flaw there may have been was fully corrected by affording a new opportunity for a hearing. Finally, they received adequate notice in the first place.

Due process requires “notice ‘reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to...