Cas
2:12-cv-08333-ODW-JC Document 110 Filed 04/10/13 Page 1of21 Page ID #:2642
Timothy J. Halloran - 104498 Thomas P. Mazzucco - 139758
MURPHY, PEARSON, BRADLEY & FEENEY
88 Kearny Street, 10th Floor San Francisco, CA 94108-5530 Tel: (415) 788-1900
Fax: (415) 393-8087
Specially Appearing for JOHN STEELE
UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA
INGENUITY 13 LLC, Plaintiff,
W: JOHN DOE,
Defendants.
Case No.: CV-12-8333- ODW(JCx)
RESPONSE TO ORDER TO SHOW CAUSE WHY SANCTIONS SHOULD NOT BE LEVIED
Judge: Hon. Otis D. Wright, IT Courtroom: 11
Date: April 2, 2013
Time: 10:00 A.M.
Complaint Filed: September 27, 2012 Trial Date: None
RESPONSE TO ORDER TO SHOW CAUSE WHY SANCTIONS SHOULD NOT BE LEVIED
Case No.: CV-12-8333- ODW(JCx)
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TABLE OF CONTENTS Page I. ET EOIN sicarseeseacnpessesecesspnenazunteieanes atl ospnsdeneaennanensitasieladscnsnbeaitaneenaabosmeseceeoktuanes atenameneanaese 1 IL. STEELE RENEWS HIS OBJECTION TO JURISDICTION 0.0... eeeeeeneeeneeeseeeeeeeeees 2 I. THIS COURT’S AUTHORITY TO SANCTION STEELE IS LIMITED ..... ee 4 A. Limits On The Court’s Authority To Sanction Steele Under Rule 11... eee 4 B. Limits On The Court’s Authority To Sanction Steele Under 28 U.S.C. § 1927.0... 5 C. Limits On The Court’s Authority To Sanction Steele Under Its Inherent Powers .......... 6 1. Limits On The Court’s Authority To Sanction Steele Under WS Waal RUGS asietoonesuccnasasecaneacontaansapusnencesesiadantneaeaatoadeataxonsneascennnaandaadasnesnaaes fi 2 Limits On The Court’s Authority To Sanction Steele For Contempt.................. 7 IV. THE COURT MAY NOT SANCTION STEELE OR DRAW ADVERSE INFERENCES AGAINST HIM BASED ON HIS INVOCATION OF HIS 5TH AMENDMENT PRIVILEGE AGAINST COMPELLED TESTIMONY ....... eee 8 V. NOSANCTIONS SHOULD ISSUE AGAINST STEELE BASED ON ANY OF THE OSC ISSUES IDENTIFIED BY THIS COURT................ 0. cc eeeceee eee eee rene teres 9 A. Steele Cannot Be Sanctioned For The Alleged Lack Of Reasonable Investigation Of Copyright Infringement Prior To Filing Complaints In The Subject Cases ............... 9 B. Steele Cannot Be Sanctioned For Any Alleged Lack Of Reasonable Investigation Of Alleged Infringers’ Identities Prior To Naming Them In The SUSE CASES 5 neicincasctnicl diac iccsacnnddnyceanea shades has cde nacssacbacacendcecqusaseacianaeaceibtebaidesdaamicnass 9 C Steele Cannot Be Sanctioned For Any Alleged Failure To Comply With TISCOVER OCIS asics sax sdaneaeeGcactes ys consi beadeces natencdaanxa tua tenassvsaue isco aoe etaaaea! 10 [Bs Steele Should Not Be Sanctioned For Any Alleged “Fraud Upon The Court” ............. 10 E. Steele Cannot Be Sanctioned For Any Alleged Failure To Notify The Court Of All Parties That Have A Financial Interest In The Outcome Of Litigation... 11 F. Steele Cannot Be Sanctioned For Allegedly Misrepresenting The Nature And Relationship Of The Individuals And Entities Named in the OSCS ....... eee eeeeeeeees (2 G. Steele Cannot Be Sanctioned For Any Alleged Failure To File A Notice Of | oLEe al0 [hh Ue ee Omer ORE Ge een ee Tee er ere ee eee! 13 H. Steele Cannot Be Sanctioned For Any Alleged Failure To Make a Pro Hac Vice Appearance BD elore tie QU ais dtesict saccesas ccsetvintasiseedioadinciht cicesdedeaerenteueedinlanaasaaaedienceaes 1 I. Steele Cannot Be Sanctioned For Any Alleged Failure To Appear At The WT tie M2 Te AN a cst inc ache baccne ceeceaseasa eae eeee aieechaeacceccaptashaieageiedccace 14 Wi, SOINC IU STOIN ose tia heen pve ay eG ue alee gan DV Eat wo een ae Sh een ee ae 15 ace RESPONSE TO ORDER TO SHOW CAUSE Case No.: CV-12-8333- ODW(JCx)
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TABLE OF AUTHORITIES Page Cases
Chambers v. NASCO,
DOT SZ CIO I) sare uceasseacaaSuietinnRete nats Snaedpacaneesegsiatedeaadeatarn tessa Saree ia ase 6 Children’s Ctr. for Developmental Enrichment v. Machle,
ee Rr, QUT oS 3G OB oe ocacs reese co sch stassechscaatessgceyaraeecaws ans aoneaan ect ates eed ee eee 6 Douglas Furn. Co. of Calif., Inc. v. Wood Dimensions, Inc.,
9G Fup poo (CLC Gl, 1997 ) ai, crcvisincaiecasezaustaunte ateitectasheectuacq seat sie ittncasniotatanasssinaeadaniacdaspaceinssmuieaaes 3 Estate of Blas v. Winkler,
DT TO I cress cca pe 5 ee cecccsey cscs ec detts acceso Accepted icinee oS eay ue ciomaetoenentiane ae 5 FM Industries, Inc. v. Citicorp Credit Services, Inc.,
OT a 7 A scares a ester idea eas eave sas aes carapace aaa ena aes: 5 Gates Learjet Corp. v. Jensen,
T43 F2d 1325 (SU City VOBA) sicssntstesecanictianiehliuasacnivtanoiiisnasanideineunn pine caveledaiaebdoinsbnedtec@onalaveivinmarninceath Z Gompers v. Bucks Stove & Range Co.,
PUNT At NOI Vo a aisiessrensusenars stags meaaeeus treed ot tacos sotto tive Ga senta ecient eatin eta eeratint ee 8 Gonzales v. Texaco, Inc.,
944 Pods Appx, 204 COeiC ir, 2009 ) ac njstar interne uae em ae eee eae 8 Goodyear Dunlop Tires Operations, S.A. v. Brown,
DSA ACE. SRA (201M) a... csvacinaaveecbancancsantataanasensvasinudveaonecancsanedsanoabauinnavadeianoey seansonndawecarnsomnaseaviapsenneecth 3 GRiD Systems Corp. v. John Fluke Mfg. Co., Inc.,
SM Me US MS OU AID Vestas scnictipnce ss eecatad yess baesanceieus wanes aadoned tae oaseeedinessaeiooeayo ace dunsateteesaaMineiaads 5 Griffin v. California,
OO IS OD CVG) ec ican gba Races eree saa cas ane taas aa cara esae ae eames Leo eae: 8 In re Intermagnetics Am., Inc.,
926 2 S12 (OC ie, WOON), siacastsczacesenidstbcuneaius box nienada eegnannannnnacniabeeveeaynivdaceeulovectindedeamstcuatcuenicaeniviuanes 11 In re Keegan Mgmt. Co., Sec. Litig.,
Toe DA (ME POG) cs soc conespaeasdeea sad nce vansesunsdinntypacanc itenciy Aaiieaedine pia sdudatinieriamatiminane 5 In re Lehtinen,
S64 Pod T0529 Cir 2009 ).cucGeaincuee ea bue aus eae wa eaten: ‘|
-ii-
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TABLE OF AUTHORITIES (continued) Page
In re Peters,
a2 yd 3 2nd Cit POM) ac usca cess each ctcaestucantesiouacaca sie tes auc waeeeaeuuace eaisen ce ieedaeneeiressnereibene aia 6 Int’l Union, United Mine Workers of Am. v. Bagwell,
BU oo eos ep a areieurs coreg eaten ove Gor etwas eo ei eee 7,8 Lockary v. Kayfetz,
Med ia ie 2) ssp csteces Scarce roc arceiebus em haaeids ica wo cscs de sesnsie pi baetaaeotbviba seen pa asd wagered wu nasaeanaamea de 6 Mendez v. County of San Bernardino,
40.8350 1109 (9th Cir, 2008 crs tecciwnawacnniaennimennuenmiawhuma nue sunnmuen iene 6 Ohio v. Reiner,
ES Ig 2818) eee ce meee ne Pm Re cn S SPONMN ert RSE MERC ee oR eR So eR ete tent oRC a Tne aca eR err ne re 8 Pratt v. California,
TA AAD E59 1S th, DOW | ssa cpecess dea atsncs es vies cceiednnsandinacsts aduondayatiataedivelarauandeapedioniented aasadieadh Gok 5 Primus Automotive Fin’l Services, Inc. v. Batarse
(9th Car. 1997) 115 P30 644 iicnicenoteniedcceuminimo buena ueasaemuRAuaanie 6 Rachel v. Banana Republic, Inc.,
AG AUB) See yee 5 251 | eee og) Se Reena ne NR ne an gt ne ere em eet Co De Ne tee te ee 4 Roadway Express, Inc. v. Piper,
NT 1M OO) sce ctpuctinsastnasdeb acai deg asinateev as ea acscbaei ca nace sisted ot evtna soit oa ease enye ses panpanaoeaasaaalaaes 6, 7 SEC v. Ross,
S04 B30 TIS0 (Gt Ear QUOT czesxastececnpscaceraaheasennanccseratnecap ia eicaeeeage bi asta apace csateisdentaueaniaaeds 2 Shepherd v. American Broadcasting Cos., Inc.
2 3d TAG OIG ii GO) 5 cysseazacacevacenasteaaiae sovndvcesthnaeetneaede eta ean eer 6 Slochower v. Board of Higher Education,
#06 BIR. Mes By Ul lhS ke 6) eee teentene tent te ttt Ochs Cerner ao Meare Ret enna EERO neat are eee oT Ree ee enna ene erect 8 Winterrowd v. American Gen. Annuity Ins. Co.,
S56 Fad 815 (Oth Cir. 2009 )i:.cuacviennuniemii acme aula ue eue nea iue ean 13
Statutes
17 U.S.C.
TEE) acsecestscuteetonneeaapabtre eras tapea ia apaesiacceaesiccmno ance ose racic asetosica pia eiran sees nana acl oumaenaeprmate does tanadensannageninttes 11
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1 TABLE OF AUTHORITIES (continued) 2, Page 3 1} 18 U.S.C SA OH ces cacetatetta cess eacctaesecsususnvenacs eles eus eaeatae ees ssususasonnzoseesanin ees us sous eau beveueds ute oosuede eee eawaeaeanene zea a 4 5 28 U.S.C. 0 | OD Tisai sects Vos abst cetera vaccsuwisiaseatts Vosctivedsv ceive occu etsisdesits Ves chieisaseeevatese tu etviaseste tesctandsssasine desc dustviofeetese 4,5,6 6 Other Authorities 7 || 1993 Committee Notes on Amendments to Rule 11........cc...cccccececeeeeccccccccececeeeescnccccceceesecstnsececeeeeeeeentuaes 4 8 Rules 9 Federal Rules of Civil Procedure MRM oases cee pacees tx ee csheecdteaesvecs caeetsacusssveseushetaacnaveveseceetecdcussssieeeshes es vastvarseshite cena sevesueskeetsssesssodeass 4,5 10 Federal Rules of Civil Procedure it TRUE THB snsssdineashapvaconestcuasuhosnscenpndontasnnnmsbacnaisestcanea sineslantentusaagsnlacwadasshan ans shenca nie winsasnasennadtseeeaannsbueds otvomennans 4 12 Federal Rules of Civil Procedure 13 RUE 11 (D3) scccctssesvssdecksscdbeesacvasd ents vaetssauvasen dl ivestssteeisinetend eetiessanel vnash eid otivdesseteth eviseddtastiddevisiesvevetes! 9 14 || Federal Rules of Civil Procedure TRI Fe UIS V0I Vccnaehs cause sasoreataac sans tsiesbehas ueashancnectiadcneaneeaslecyetaadieasstavnaieitaducnanuianay i ubiaued ss vecesueeneinaneecoraaines 4 15 16 Federal Rules of Civil Procedure CHS TGC) 5) ose saserasnesncsistcasnncexcaannedncasnmstenasanmaenaad ouuacaheneuncsaupunanaadsbdaniuen sdtacaseomiaacveaniaanuasetatenteaiusaturtanadion 4 17 Federal Rules of Civil Procedure 18 Rule: 1 16C)(S)(B)acsieiesdesdecsvsedasvasdetasscetcdavitedentevestaluvetise erase ctuvelednatste te Woxtees vastsisabvtebewuseeetnecvteedeleveess 5 19 Local Rules for the Central District of California 20 Local Rule 7.12) cscaciecccfcvesdeesdanzccsevscshessesnsacvevceabeaedenasdeeeecseeseeaea studs veisie2ianiseedevcindsasaaiid ace esctedesancddseescihes 11 21 || Local Rules for the Central District of California LOCA RUE 31 ve. csveecaeseeceaoosvevcand over ccsoswersanasueedasu sven dane sudeacecsuseeadsdewesane shew dagd swumaceosmeneageaseesanusbuedeegseneatons 7 22 Local Rules for the Central District of California 23 TOCal Rule 83 = Qe. cevereceeivedsscaguvnse oavsvagbesavvussosavveslesSvedseeaviuuueeseuvasensvvnseessvvaseeavdveneei@evueesuavvaghesdeviseeaspenees 7 24 a ey Local Rules for the Central District of California 25 MSGGal Rae: 8 522.6 is.cceceeentesesdes ay decce sakes den sets ecueieatssavsns sect cabatecenssddececcetesdiwasdsScvestitaccnsievesveteatscusviste estates 7 26 || Local Rules for the Central District of California Local RUl6:83=3 vscesevcssissbecesadsscestdensvesitnesscesheastcdbensatcathessecdigeascesshesdteaiaesessentossvsaiaeieccesbeavtcauenastect donee 7, 10 27 28 -iv- RESPONSE TO ORDER TO SHOW CAUSE Case No.: CV-12-8333- ODW(JCx)
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1 TABLE OF AUTHORITIES (continued) 2, Page
3 |] Local Rules for the Central District of California LoGal Rule:8 323. WicDcecsectkseekheece teehee ike n ee neg eke ea ena 7
Nn WN
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I. INTRODUCTION
This Court has no jurisdiction, limited authority, and lacks sufficient evidence to sanction John Steele (“Steele”) pursuant to the Court’s Orders to Show Cause (“OSC”) issued on March 14, 2013 (Dkt 86) and February 7, 2013 (Dkt 48). The February 7, 2013 OSC was directed exclusively at Brett L. Gibbs (“Gibbs”) as counsel of record to Plaintiffs AF Holdings LLC and Ingenuity 13 LLC, based on his alleged conduct in five related cases: AF Holdings LLC v. Doe, No. 2:12-cv-6636-ODW(JCx) (C.D. Cal. filed Aug. 1, 2012); AF Holdings LLC v. Doe, No. 2:12-cv-6669-ODW(JCx) (C.D. Cal. filed Aug. 2, 2012); Ingenuity 13 LLC v. Doe, No. 2:12-cv-6662-ODW(JCx) (C.D. Cal. filed Aug. 2, 2012); Ingenuity 13 LLC v. Doe, No. 2:12-cv-6668-ODW(JCx) (C.D. Cal. filed Aug. 2, 2012); and Ingenuity 13 LLC v. Doe, No. 2:12-cv-8333-ODW(JCx) (C.D. Cal. filed Sept. 27, 2012)(hereinafter “the subject cases”). See Dkt 57, at 1:15-2:3.
The March 14" OSC amended the prior OSC to include the threat of sanctions against numerous other individuals and entities, including Plaintiffs AF Holdings LLC (“AF Holdings”); Ingenuity 13 LLC (“Ingenuity 13”); Prenda Law (“Prenda’’), who employed Gibbs in an ‘Of Counsel’ role; Prenda’s principal, attorney Paul Duffy (“Duffy”); Angela Van Den Hemel, a Prenda Law paralegal; Steele and Paul Hansmeier (“Hansmeier’’), attorneys who were also ‘Of Counsel’ to Prenda; Steele Hansmeier PLLC (“Steele Hansmeier’), Prenda’s predecessor; Peter Hansmeier, a technical consultant to Prenda and 6881 Forensics, LLC, his employer; Livewire Holdings LLC (“Livewire”), a purported parent company of Prenda; Mark Lutz (“Lutz”) the CEO of AF Holdings and Ingenuity 13; and Alan Cooper (“Cooper’’), a purported corporate representative of AF Holdings.
At the April 2, 2013 OSC hearing, the Court invited Steele to testify in response to the March 14" OSC, or not. Dkt 103, at 6:20-21. When Steele elected for the latter, relying on his Fifth Amendment privilege against compelled testimony, the Court indicated it would draw reasonable inferences against him and ended the hearing. Dkt 103, at 7:3-9:7. However, the reasonable inferences the Court may draw against Steele are limited, based on the lack of evidence against Steele before this Court. Moreover, because of the criminal nature of these proceedings, where the Court has raised and clearly made up its mind against Steele on questions of fraud and has threatened incarceration, Steele’s
invocation of the Fifth Amendment may not be used to formulate presumptions against him. By
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1 As further discussed below, the lack of evidence of Steele’s involvement in the subject cases
2 || leaves the Court lacking jurisdiction over Steele, and applicable law and the procedural posture of
3 |] those cases further dictates the Court’s statutory and inherent authority to issue sanctions against Steele
4 || is severely limited.
5 || IL. STEELE RENEWS HIS OBJECTION TO JURISDICTION
6 In federal court, challenging jurisdiction does not constitute an appearance and is not consent to
7 || personal jurisdiction. “[W]here a party has filed a timely and unambiguous objection to the court’s
8 |] jurisdiction, . . . the party has not consented to jurisdiction . . . even if the party has preserved its own
9 || options by simultaneously asserting whatever claims or defenses it has ...” SEC v. Ross, 504 F3d 1130, 10 |] 1149 (9th Cir. 2007) citing Gates Learjet Corp. v. Jensen, 743 F.2d 1325, 1330 n. 1 (9th Cir. 1984). 11 |} Steele’s former counsel filed an Ex Parte Application challenging personal jurisdiction immediately 12 |] after Steele was first made aware of the Court’s March 5 Order requiring his appearance at the March 13 }} 11, 2013 OSC hearing, thereby preserving Steele’s jurisdictional objection for appeal throughout the 14 |] proceedings that followed. 15 In objecting to this Court’s jurisdiction, Steele declared under oath that he did not live in 16 |] California or perform legal services in California. Dkt 83 at (3. Regardless, on March 14, this Court 17 |} denied Steele’s Ex Parte Application, finding that: “Based on the papers filed and the evidence 18 |] presented during the March 11, 2013, hearing, the Court concludes there is at least specific jurisdiction 19 |] over [Steele] because of [his] pecuniary interest and active, albeit clandestine participation in these 20 |} cases.”” See Dkt 86, at 1:18-21. However, no evidence was presented at the March 11 hearing or 21 || beforehand that can support a conclusion that Steele actively (or clandestinely) participated in the 22 || subject cases, nor that Steele has or had a pecuniary interest in any of these cases. 23 In determining whether jurisdiction exists, this Court should not rely on the irrelevant evidence 24 |] presented by Morgan Pietz (“Pietz”) regarding Steele’s alleged participation in two matters from the 25 |} Northern District which predated the filing of all the subject cases by nearly a year or more, and
26 || predated the existence of Prenda Law. See e.g. Dkt 108-5, at 66:6-68:16 (admitting, over Gibbs’
' The lack of evidence before this Court relating to Steele’s alleged pecuniary interest is addressed 28 || more fully in Section IV, below.
ae
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counsel’s objection, declarations regarding Steele’s alleged involvement in two Northern District cases). Such minimal contact with California cannot constitute the type of “continuous and systematic” contacts that render a defendant essentially “at home in the forum State” and thereby subject to general jurisdiction here. Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846, 2851 (2011). Nor do these alleged contacts create specific jurisdiction. See /d., at 2855 (“minimum contacts” exist when the claim arises out of defendant’s forum-related activities and the defendant purposefully availed him or herself of the privilege of conducting activities locally); see also Douglas Furn. Co. of Calif., Inc. v. Wood Dimensions, Inc., 963 F.Supp. 899, 902 (CD Cal. 1997) (finding the mere act of sending letters threatening legal action, without more, did not constitute “purposeful availment’’).
Similarly, Prenda attorney Brett L. Gibbs’ testimony fails to support a finding of jurisdiction over Steele, as his testimony lacks specificity regarding Steele’s involvement in the subject cases or any California cases, and is otherwise inconsistent or contradicted by others.” For example, although Gibbs claimed he was supervised by Steele and Hansmeier at Prenda Law, when pressed for specifics about the degree of supervision he received, Gibbs only offered that Steele and Hansmeier gave him authority to file certain cases here. See Dkt 108-5, at 77:8-24. Gibbs’ further testimony has revealed he had significant autonomy in handling the cases. See Dkt 108-5, at 77:25-78:4 (claiming Steele and Hansmeier “gave me certain parameters [pursuant to] which I could settle the case myself.’’); see also Dkt 108-5, at 79:1-5 (regarding the decision to dismiss cases in this Court Gibbs noted: “As counsel of record here, I just kind of broke down like a cost benefit analysis of those cases. And they said, basically, go ahead and dismiss them.’’); see_also Dkt 58, at {5 (claiming Steele and Hansmeier provided him with “guidelines”’).
Faced with this weak evidence, even Pietz was left grasping at straws when arguing for this Court’s jurisdiction over Steele. See Dkt 52 at 19:8-10 (claiming Steele remained “heavily involved”
in Prenda by referencing Steele’s LinkedIn profile, which makes no mention of Prenda); see also /d.
* See Dkt 108-5 at 94:3-9 (wherein Gibbs’ opposing counsel in another matter Jason Sweet tells the Court he had a conversation with Gibbs in October 2012 wherein Gibbs claimed he was “national counsel for AF Holdings and that any settlement negotiations were to be made through him.’’)
Pie ae
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(mischaracterizing a Forbes article as linking Prenda to Steele, when the article actually references only Steele Hansmeier as “his firm,” and describes Prenda Law as “another firm that pursues these types of case [sic].”’)
Il. THIS COURT’S AUTHORITY TO SANCTION STEELE IS LIMITED
This Court has both statutory and inherent authority to issue sanctions. Statutorily, the Court may impose sanctions under FRCP Rule 11 and 28 U.S.C. $1927, as well as under this Court’s Local Rules, which are generally coextensive with the Court’s inherent powers to sanction conduct before it. However, under each of these sources of power, the Court’s authority is limited, as discussed below.
A. Limits On The Court’s Authority To Sanction Steele Under Rule 11
Rule 11 imposes an affirmative duty on a party or counsel to investigate the law and facts before filing. Rachel v. Banana Republic, Inc., 831 F.2d 1503, 1508 (9th Cir. 1987). Specifically, Rule 11(b) mandates that any pleading submitted to the Court is deemed certified by the filing attorney that after a reasonable inquiry, the pleading (1) is not being presented for an improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; (2) the claims, defenses and other legal contentions are warranted by existing law; (3) the factual contentions have evidentiary support. Rule 11(c)(1) and (3) allows the Court to issue an order to show cause regarding perceived violations of Rule 11(b), and to impose an appropriate sanction on any attorney, law firm, or party that the Court finds violated the rule or is responsible for the violation, following notice and a reasonable opportunity to respond.
Although the 1993 Committee Notes on Amendments to Rule 11 suggest that the court may consider ordering sanctions against non-filing persons, such as other attorneys in the firm, co-counsel, or a party personally, sanctions against non-filing persons should be reserved for cases where “substantial restrictions” are imposed “on the discretion of individual [filing] attorneys,” and, “the court must, to the extent possible, limit the scope of the sanction proceedings to the record.” See Comm. Notes on Am. to Fed. R. Civ. P. 11 (1993). As further discussed in Sections IV herein, whatever minimal evidence may be cited to support a conclusion that Steele imposed any restrictions whatsoever on Gibbs is undermined by Gibbs own testimony, and otherwise does not satisfy the
‘substantial restriction’ standard. _4-
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In addition, although the Court retains jurisdiction to award sanctions even after voluntary dismissal of actions, monetary sanctions under Rule 11 may not be imposed sua sponte by the court following dismissal, unless the Court’s OSC Re: Rule 11 Sanctions was issued prior to dismissal. FRCP 11(c)(5)(B). Here, the Court’s initial OSC Re: Rule 11 Sanctions was issued on February 7, 2013, after all five of the actions referred to in the OSC were already voluntarily dismissed. Under these circumstances, monetary sanctions under Rule 11 cannot be issued against Steele or anyone else
referenced in the Court’s OSCs.
B. Limits On The Court’s Authority To Sanction Steele Under 28 U.S.C. § 1927
Sanctions under 28 USC §1927 are limited to attorney misconduct for “multiplying the proceedings in any case unreasonably and vexatiously.” By its own terms, §1927 only applies to unnecessary filings and tactics once a lawsuit has begun; §1927 cannot be applied to sanction an attorney for filing a Complaint. In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431, 435 (9th Cir. 1996). Moreover, sanctions under 28 USC §1927 “must be supported by a finding of subjective bad faith.” Id., at 436. “Bad faith is present when an attorney knowingly or recklessly raises a frivolous argument, or argues a meritorious claim for the purpose of harassing an opponent.” /d., quoting Estate of Blas v. Winkler, 792 F.2d 858, 860 (9th Cir.1986)). A filing is frivolous if it “is both baseless and made without a reasonable and competent inquiry.” Jn re Keegan Mgmt. Co., Sec. Litig., supra, at 434. No evidence before this Court suggests any post-Complaint filings were made with the requisite level of subjective bad faith by anyone, much less with Steele’s input.
§1927 sanctions are also only applicable to direct violations by counsel of record, and aren’t imposed for vicarious liability. Pratt v. California, 11 F. App’x 833, 836 (9th Cir. 2001) (sanctions awarded under §1927 against co-counsel because they were also counsel of record for plaintiff); see also FM Industries, Inc. v. Citicorp Credit Services, Inc., 614 F3d 335, 340-341 (7th Cir. 2010). Thus, “Section 1927 cannot reach conduct of a party who is not involved in an action before the sanctioning court at the time of the conduct.” GRiD Systems Corp. v. John Fluke Mfg. Co., Inc., 41 F3d 1318 (9th Cir. 1994). Here, Steele was not counsel of record, nor does the evidence show that he was involved in
any actions before the Court which multiplied the proceedings unreasonably and vexatiously. Thus,
re
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the Court should not sanction Steele under §1927.
C. Limits On The Court’s Authority To Sanction Steele Under Its Inherent Powers
As the Supreme Court has emphasized: “because inherent powers are shielded from direct democratic controls, they must be exercised with restraint and discretion.” Roadway Express, Inc. v. Piper, 447 US at 764, 100; In re Peters, 642 F3d 381, 384 (2nd Cir. 2011)(‘‘when court is accuser, fact finder and sentencing judge all in one, restraint and discretion required”). Thus, when the conduct in question is addressed by sanctioning powers such as Rule 11, the court ordinarily may not rely on its inherent powers. Chambers v. NASCO, 501 U.S. 32, 51-52 (1991) (only if the court determines other rules are not “up to the task,” may the court rely on its inherent sanctions power).
As with sanctions under 28 USC §1927, in order to impose sanctions under its inherent powers, the Court must make a specific finding that the attorney acted in “bad faith.” Primus Automotive Fin’l Services, Inc. v. Batarse (9th Cir. 1997) 115 F3d 644, 650. The “bad faith” requirement is supposed to present “a high threshold.” Mendez v. County of San Bernardino, 540 F3d 1109, 1131-1132 (9th Cir. 2008). Moreover, a “clear and convincing” evidentiary standard should apply to such findings. See Shepherd v. American Broadcasting Cos., Inc. 62 F3d 1469, 1477 (DC Cir. 1995).
In addition, the Court’s inherent power to sanction is generally not extended to litigation conduct occurring in other venues. See Children’s Ctr. for Developmental Enrichment v. Machle, (6th Cir. 2010) 612 F3d 518, 524 ("Such a conclusion would infringe on the power of other judges to manage their own affairs."). Similarly, inherent power sanctions are generally based on the sanctioned party’s own individual conduct, without regard to misconduct by other parties or attorneys (see Primus Automotive Fin’l Services, Inc. v. Batarse, 115 F3d 644, 650 (9th Cir. 1997)), and sanctions may only be imposed on non-parties or counsel of record if that person or entity controls the litigation and is responsible for the abusive conduct. Lockary v. Kayfetz, 974 F2d 1166, 1169 (9th Cir. 1992).
As further discussed in Section IV below, whatever evidence can be cited to support a conclusion that Steele controlled the litigation of the subject cases or was responsible for alleged abusive conduct in those case is disputed by Gibbs own testimony, and otherwise does not constitute
‘clear and convincing’ evidence to establish bad faith on Steele’s part. Accordingly, this Court should
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not sanction Steele under its inherent power.
1. Limits On The Court’s Authority To Sanction Steele Under The Local Rules
Because the Court’s authority to issue sanctions under the Local Rules stems from the Court’s inherent authority, all of the limitations addressed above also apply to sanctions under the Local Rules. Local Rule 83-3 is silent regarding who may be a proper subject of sanctions under the Rule. However, Local Rules 83-1 and Rule 83-2 form the foundation for Rule 83-3 sanctions. These underlying rules include the disclaimer that any attorney who appears for any purpose submits to the discipline of the Central District in all respects pertaining to the conduct of the litigation. See Rule 83- 2.6. In addition, Rule 83-3.1.2 provides that the standards for professional conduct from the California State Bar Act, the California Rules of Professional Conduct, and “the decisions of any court applicable thereto,” provide the basis for disciplinary action. In short, the Local Rules govern only the conduct of members of the USDC for the Central District of California, which Steele is not. Because discipline imposed under Local Rule 83-3 must be directed to an attorney admitted to practice before the Central
District, sanctions against Steele under the Local Rules are not appropriate.
2 Limits On The Court’s Authority To Sanction Steele For Contempt
This Court is apparently contemplating issuing sanctions pursuant to its contempt power. See 2/7/13 OSC at 1:22, 8:5, 11:3-4; see also 3/14/13 OSC at 1:25-28. This power is also limited. The power to punish contempt and to coerce compliance with issued orders is based on statutes and the Court’s inherent authority. Int’) Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 831 (1994); see also 18 U.S.C. 8401. However, this power must be exercised with restraint. See Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-65 (1980). Unconditional sanctions (i.e. where the contemnor has no opportunity to reduce or avoid the fine through compliance) are considered “criminal” sanctions, even if only comprised of a small fine. See In re Lehtinen, 564 F3d 1052, 1059 (9th Cir. 2009). Because of their punitive (rather than coercive) character, criminal sanctions “may not be imposed on someone who has not been afforded the protections that the Constitution requires of such criminal proceedings.” Bagwell, supra, 512 US at 826. Except in limited circumstances, i.e. those
involving “direct contempt” committed in the Court’s presence, or the imposition of “petty” fines, due oT
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process for criminal contempt requires the full range of procedures applicable to criminal trials, such as an independent prosecutor, cross-examination, a jury trial, proof beyond reasonable doubt, etc. /d., at 838-839.? Because the Court has not afforded these procedural protections to Steele and civil
contempt sanctions do not appear to be at issue, contempt sanctions against Steele are not appropriate.
IV. THE COURT MAY NOT SANCTION STEELE OR DRAW ADVERSE INFERENCES AGAINST HIM BASED ON HIS INVOCATION OF HIS 5°" AMENDMENT PRIVILEGE AGAINST COMPELLED TESTIMONY
When Steele elected to exercise his Fifth Amendment right against compelled testimony at the April 2, 2013 OSC hearing, the Court indicated it would draw reasonable inferences and ended the hearing. Dkt 103, at 7:3-9:7. As discussed below, the reasonable inferences the Court may draw against Steele are limited based on insufficient evidence regarding Steele before this Court. Moreover, because of the criminal nature of these proceedings, wherein the Court has made allegations of fraud, tax evasion, and threatened potential incarceration’, Steele’s invocation of the Fifth Amendment may not be used to formulate presumptions against him. The Supreme Court has made clear that an inference of guilt may not be drawn from a defendant’s failure to testify about facts relevant to his case. Griffin v. California, 380 U.S. 609 (1965). Rather, “[t]he privilege serves to protect the innocent who otherwise might be ensnared by ambiguous circumstances.” Slochower v. Board of Higher Education, 350 U.S. 551, 557-558 (1956); see_also Ohio v. Reiner, 532 U.S. 17 (2001). Accordingly, Steele is permitted, as he did, to invoke his 5" Amendment rights against compelled testimony, while maintaining a claim of innocence regarding all charges against him.
Further, because the court initiated these sanction proceedings, they are “akin to contempt” proceedings, and Steele’s conduct must be judged in that light. That is, the “reasonableness” of Steele’s conduct is not at issue, only whether it was contemptuous. See Gonzales v. Texaco, Inc., 344 Fed. Appx. 304, 308-09 (9th Cir. 2009). Aside from the lack of evidence against Steele to support a finding of contempt, as discussed above, because this Court has failed to provide Steele with the
procedural protections necessary to impose criminal contempt sanctions, such sanctions are
: Notably, the 5"" amendment privilege against self-incrimination can be invoked when one is facing “criminal” contempt sanctions. Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 444 (1911).
* See, e.g., Dkt 48 at pp.9-11; Dkt. 86 at pp. 1-3; and Dkt 108-5 at 15:9-11 and 15:17-18. -8-
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unavailable against Steele.
V. NO SANCTIONS SHOULD ISSUE AGAINST STEELE BASED ON ANY OF THE OSC ISSUES IDENTIFIED BY THIS COURT
A. Steele Cannot Be Sanctioned For The Alleged Lack Of Reasonable Investigation Of Copyright Infringement Prior To Filing Complaints In The Subject Cases
Although the Court is contemplating issuing sanctions under Rule 11(b)(3) based on the alleged filing of the subject Complaints without a factual foundation (Dkt 48, at 4:12-5:10), it is clear the Court’s position is based on a misapplication of applicable law to the subject BitTorrent technology. See /d., (criticizing use of an “IP snapshot,” erroneously concluding partial downloads are unusable, and requiring pre-filing evidence showing that Defendants downloaded the entire copyrighted work). These misunderstandings are addressed in Prenda Law’s Response to the OSC, so those arguments will not be repeated by Steele and are hereby joined. See Dkt 108, at 14:15-21, 24-25, 15:1-21:22; 108-1.
More importantly, the evidence and argument submitted does not reference Steele’s involvement in the pre-filing investigation of the subject cases; only Gibbs’ and Peter Hansmeier’s involvement is referenced. See Dkt 49, at 12:8-14:2, 16:21-18:2, 20:18-21:27, and Dkt 58, {7-8. Accordingly, sanctions cannot be imposed upon Steele in relation to the filing of Complaints in the
subject cases.
B. Steele Cannot Be Sanctioned For Any Alleged Lack Of Reasonable Investigation Of Alleged Infringers’ Identities Prior To Naming Them In The Subject Cases
Similarly, the Court is contemplating issuing sanctions under Rule 11(b)(3) based on the alleged lack of reasonable investigation of actual infringers’ identities in the subject cases prior to naming them as Doe Defendants. Dkt 48, at 2:18-4:11; 5:11-7:26. Again, Prenda Law/Duffy/Van Den Hemel’s Response to the OSC addresses numerous problems with the Court’s conclusions and
suggestions” regarding what constitutes a reasonable investigation of a BitTorrent infringer’s identity,
> The Court’s suggestion that “old-fashioned stakeout may be in order” overlooks the crucially important fact that the subject infringement would have necessarily happened many months prior to the stakeout (i.e. prior to the filing of a Complaint, the initiation of discovery, and obtaining the IP address holder’s home address from the ISP). It is therefore puzzling how the Court could conclude that persons within the subscriber’s home many months later may be correlated with tracking data from many months before to assist with a “determination of who would have been in the subscriber’s home
when the download was initiated.” =<Hix
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and Steele joins those arguments by reference. See Dkt 108, at 14:25-27, 23:10-27:25; 108-1.
Without exception, all of the argument and evidence submitted on this issue refers exclusively to Gibbs’ own personal investigation of the infringers’ identity. See Dkt 49 18:3-20:15, 22:1-24:7; Dkt 50, 926-39, 42; Dkt (3/11) 97:23-101:25. Accordingly, sanctions cannot be imposed upon Steele in
relation to naming the alleged infringers in the subject cases.
C. Steele Cannot Be Sanctioned For Any Alleged Failure To Comply With Discovery Orders
The Court’s initial OSC invokes the Court’s contempt power and Local Rule 83-3 when discussing Gibbs’ alleged violation of two orders requiring Plaintiffs to cease discovery efforts relating to previously issued subpoenas to Verizon Online LLC, an ISP. Dkt 48, at 8:1-28. As noted above, the Court may not sanction Steele for contempt because Steele was not provided the procedural safeguards required for imposing contempt sanctions, and sanctions are unavailable against Steele under the Local Rules because he is not a member of the Central District of California bar.
Furthermore, in response to the Court’s OSC, Gibbs testified that he “caused the Order to be served on the registered agents for service of process of Verizon Online LLC to ensure that Verizon Online LLC had notice not to respond to the subpoenas that had already been served.” Dkt 50, at (21. At the March 11 hearing, Gibbs’ attorney added that “Gibbs had a conversation with Mr. Hansmeier and told him that he thought that this order should be served on the ISP’s. Mr. Hansmeier advised Mr. Gibbs that would be done. Mr. Hansmeier later advised Mr. Gibbs that his request had been taken care of.” Dkt 108-5, at 9:23-10:2. Gibbs then testified consistently with his attorney’s representations. Dkt 108-5, at 102:6-12. These representations made to this Court do not involve or implicate Steele at all, nor does any other evidence before this Court suggest Steele had anything to do with any alleged disobedience of this Court’s discovery orders. Accordingly, the Court may not impose sanctions upon Steele based on Gibbs’ alleged failure to comply with the Court’s discovery orders.
D. Steele Should Not Be Sanctioned For Any Alleged “Fraud Upon The Court”
The Court’s February 7, 2013 OSC raised three concerns regarding a suspected “fraud on the
Court” involving Alan Cooper’s renouncement of any involvement with AF Holdings and accusation
that his purported signature on assignment agreements attached to Complaints in the subject cases was
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not genuine’. The Court stated: “First, with an invalid assignment, Plaintiff has no standing in these cases.” Dkt 48, at 9:8. Apparently re-articulating the same concern, the Court added: “Second, by bringing these cases, Plaintiff's conduct can be considered vexatious, as these cases were filed for a facially improper purpose.” Dkt 48, at 9:9-10. As both Gibbs and Prenda/Duffy/ Van Den Hemel noted in their Responses To The OSC, the Court is mistaken about the law in this regard; the signature of the assignee is irrelevant to the validity of the assignment, so long as the assignor signs. See Dkt 49, at 25:9-26:19; Dkt 108, at 11:24-12:9.; see also 17 U.S.C. 204(a). Lastly, the Court stated: “the Court will not idle while Plaintiff defrauds this institution.” Dkt 48, at 9:10-11. However, even if the Court were to discount the evidence submitted impugning Cooper’s credibility and blame Steele for this “fraud,” it hardly rises to the level of fraud upon the court recognized by the Ninth Circuit, i.e., “a fraud perpetrated by officers of the court so that the judicial machinery cannot perform in the usual manner its impartial task of adjudging cases that are presented for adjudication.” Jn re Intermagnetics Am., Inc., 926 F.2d 912, 916 (9th Cir. 1991).
Regarding any other alleged fraud the Court may consider, as Section III above makes clear, except in rare circumstances not present here, this Court is not empowered to sanction Steele or anyone else based on conduct occurring entirely outside of the subject cases and the Central District. Based on its prior statements, the Court may have erroneously felt otherwise before. Dkt 108-5, at 29:14-22 (over Gibbs’ counsel’s objection that the Court’s inquiry about non-Central District cases was “beyond the scope of the OSC,” and “not what this OSC is about,” the Court responded: “Well, it has become
about it. It has become about fraudulent filings in federal court” generally).
E. Steele Cannot Be Sanctioned For Any Alleged Failure To Notify The Court Of All Parties That Have A Financial Interest In The Outcome Of Litigation
Apparently, the Court is considering sanctioning Steele and others based on an alleged violation of Local Rule 7.1-1 which is designed “[t]o enable the Court to evaluate possible
disqualification or recusal,” and requires litigants to “list all persons, associations of persons, firms,
° Regarding this issue, Steele joins the argument of Prenda Law/Duffy/Van Den Hemel at Dkt 108, pgs. 10:27-11:23.
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partnerships, and corporations (including parent corporations, clearly identified as such) that may have a pecuniary interest in the outcome of the case.”
First, as noted in Section III. 3.a. above, this Court may not sanction Steele for violating the Central District Local Rules. Second, sanctioning anyone for a technical violation of a Local Rule intended solely to allow the court to determine whether recusal is warranted would be improper, as Judge Wright’s potential recusal has never been at issue in the subject cases. Indeed, because Judge Wright believes the attorneys purportedly involved in the subject cases may be the persons omitted from the Certification Of Interested Parties, he would have already recused himself had _ his relationship with those attorneys so required. See Dkt 108-5, at 17:7-14. Third, and most importantly, no evidence has been presented to this Court suggesting Steele had any involvement with the preparation of the Certification of Interested Parties. See Dkt 108-5, at 79:6-17 (when asked whether he had a discussion with Steele regarding the Certificate Of Interested Parties, Gibbs eventually
responds “I don’t know”). Accordingly, Steele is not subject to sanctions on this issue.
F. Steele Cannot Be Sanctioned For Allegedly Misrepresenting The Nature And Relationship Of The Individuals And Entities Named in the OSCs
Although the Court has not specified the sanctionable misrepresentations it is referring to, the Court has apparently concluded such misrepresentations have occurred. See Dkt 86, at 1:28- 2:2 (“it appears that these persons, and their related entities, may have defrauded the Court through their acts and representations in these cases.”); Dkt 108-5, at 58:21-25 (wherein the Court implies officers of the court have knowingly made misrepresentations to the court). Disturbingly, the Court’s apparent conclusions about the relationships between the persons and entities named in the March 14, 2013 OSC wholly ignores evidence to the contrary. Compare, e.g., Dkt. 69-1, pp. 21:18-2, 38:22-39:15, 40:8-12 (regarding who owns AF Holdings) with Dkt 108-5, at 114:5-8 (I do have the picture, and I know who the client is. We have talked about the client, and the client has been running everything. Yeah, I know who the client is’’); see also Dkt 108-5Sat 19:15-18 (suggesting Prenda law is “controlled by Mr. Steele.”)
However, Steele cannot be sanctioned for any of these alleged misrepresentations made to this
Court regarding the relationships among the parties and entities named in the Court’s March 14 OSC i re
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because Steele has taken no actions nor made any representations to this Court of any kind, nor is there any evidence before this Court that he acted or was otherwise involved in anyone else’s alleged
misrepresentations to this Court.
G. Steele Cannot Be Sanctioned For Any Alleged Failure To File A Notice Of Related Cases
Because this Court did not identify the alleged failure to file a Notice of Related Cases as a potential basis for sanctions in any of its OSCs, sanctions against anyone on this issue would be improper. Regardless, Gibbs testified that he believed the Northern District of California and “almost every court ... told us in no uncertain terms that these [types of] cases weren’t related. Therefore, that informed my belief in terms of whether we wanted to relate [the subject cases] or not.” Dkt 108-5, at
81: 2; see also 108-8 (Northern District order finding 25 of Plaintiffs’ cases unrelated). These contrary
judicial decisions indicates reasonable minds can differ on this subject, and that Gibbs cannot be sanctioned for his good faith belief a Notice of Related Cases was not warranted. Gibbs also testified he didn’t know whether Steele was involved in any discussion regarding whether to file a Notice of Related Cases or not. See Dkt 108-5, at 84:6-12. Because there is no evidence before this Court
suggesting Steele was involved with this issue, he cannot be sanctioned on this basis.
H. Steele Cannot Be Sanctioned For Any Alleged Failure To Make a Pro Hac Vice Appearance Before the Court
An out-of-state attorney must apply for pro hac vice admission in a case if that attorney appears in court, signs pleadings, or is the exclusive contact with the client or opposing counsel in a case. Winterrowd vy. American Gen. Annuity Ins. Co., 556 F3d 815, 825 (9th Cir. 2009). The evidence before the Court does not demonstrate Steele appeared in any of the subject cases, signed any pleadings in any of the subject cases, or was the exclusive contact with the client or opposing counsel in any of the subject cases. Instead, as the Court docket for each of the subject cases demonstrates, Gibbs was counsel of record in each of the subject cases and signed all the pleadings in each of the subject cases on behalf of Prenda, and Gibbs testified that he had contact with both clients. See Dkt 58, at J§[7-8; Dkt 108-5, at 78:9-14, 90:2-8 (Gibbs testified that he had contact with Mark Lutz, who Gibbs
knew to be CEO of both Ingenuity 13 and AF Holdings). So, even assuming arguendo that Steele
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had some degree of involvement in the subject cases, the evidence demonstrates he did not have exclusive contact with the client in those cases, and no evidence suggests Steele had any, let alone exclusive, contact with opposing counsel in any of the subject cases. Thus, Steele cannot be
sanctioned for failing to make a pro hac vice appearance before the Court.
I. Steele Cannot Be Sanctioned For Any Alleged Failure To Appear At The March 11, 2013 Hearing
On March 5, 2013, this Court issued an Order that Steele would have to appear before this court on March 11, 2013. But, as Steele previously argued, this Court lacked jurisdiction to order him to appear because he resided outside California, was not a party to any of the subject cases, had not appeared in any of the subject cases, and was not counsel of record to any party in any of the subject cases.’
Moreover, Steele did not receive reasonable notice of the nature of the proceedings he was ordered to appear in on March 11, nor what was expected of him besides his appearance. In fact, the Order did not even require that the appearance had to be personal rather than telephonic. Further, Steele received insufficient notice to accommodate cross-country travel or information regarding who would pay for such travel. In fact, he was not served until late Wednesday, March 6, 2013, less than three business days before the hearing. Based on these factors, the Court’s Order for Steele to appear on Monday, March 11, 2013 at 1:30 P.M. was improper.
Notwithstanding the pending question regarding the Court’s jurisdiction over him as a witness, out of respect for the Court and its Order, Steele made himself telephonically available for the approximately three-hour long hearing on the afternoon of March 11, 2013. Although the Court and the parties were advised of his availability, nobody requested that Steele provide any information. So, that he was available to appear telephonically, rather than personally, had no impact on the proceedings and further appeared on April 2, 2013.
In summary, Steele had justification for not appearing in person on March 11, 2013. Yet, he
still specially appeared. His telephonic availability had no impact on the proceedings given that he was
’ Steele hereby joins section IV(B)(6) of the Prenda Law/Duffy/Van Den Hemel and does not restate the arguments contained therein.
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1 |] never called to testify. As such, it would be both inappropriate and inequitable to issue sanctions 2 || against him based on any determination that he failed to comply with the order to appear.
3 || VI. CONCLUSION
4 Respondent Steele respectfully request that sanctions not be imposed against him based upon 5 || the foregoing authority and the evidentiary record before this Court.
6 || Dated: April 10, 2013 7
MURPHY, PEARSON, BRADLEY & FEENEY
8 By /s/ Timothy J. Halloran 9 Timothy J. Halloran
10 Attorneys for JOHN STEELE
tt. 12 20567691_2[1].docx 14 15 16 ie 18 19 20 21 22 23 24 25 26 21
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