MADISON - ST. CLAIR RECORD

Lawyers who file suits so they can identify pornography fans as potential sources of hush money must pay one of their targets $65,263, U.S. District Judge David Herndon ruled on June 5.

Herndon sanctioned John Steele of Chicago and Paul Hansmeier of Minneapolis for “contemptuous statements in court.”

Herndon had previously denied sanctions because the lawyers claimed insolvency, but changed his mind after defendant Anthony Smith contradicted their claim.

Herndon wrote that last year, Steele deposited more than $300,000 into a new account at Sabadell Bank.

His order also stated that within a month of asking leave to show his insolvency, Steele wrote checks totaling nearly $200,000 for home renovations.

The value of Steele’s home more than doubled from April 2013, when he purchased it, to last October, when it was on the market.

Hansmeier transferred nearly half a million to a company he set up as a trust fund for his son.

Herdon further wrote that Hansmeier had access to those funds before and after he pleaded insolvency to the court.

He calculated the sanction as 25 percent of a $261,025 sanction that former district judge Patrick Murphy imposed in 2013.

Herndon himself imposed an additional 10 percent sanction last year.

“A pattern is developing whereby the contemnors could find their way back to the full sanction Judge Murphy ordered for their original wrongdoing if they continue their misdeeds before this court,” he wrote.

He separately sanctioned Steele and Paul Duffy of Chicago in the amount of Smith’s costs, for “unreasonable, willful obstruction discovery in bad faith.”

Herndon found Steele called a JP Morgan banker and said he would file a motion to quash a subpoena from Smith, when a judge had already denied the motion.

He found Steele sent Sabadell United Bank email that discovery of his records had been stayed when he knew it had not been stayed.

He noted that Duffy failed to respond to Smith’s motions, and he deemed Duffy’s failure as an admission of the merits of the motions.

Adult entertainment provider Lightspeed Media filed the suit in St. Clair County circuit court in 2011, against alleged hacker John Doe.

Kevin Hoerner of Belleville, Lightspeed’s local counsel, issued subpoenas on communication companies to identify customers at 6,600 addresses.

When the companies resisted, Circuit Judge Robert LeChien ordered compliance.

The companies petitioned the Illinois Supreme Court for relief, and the Justices directed LeChien to quash the subpoenas.

Hoerner amended the complaint on Aug. 3, 2012, not only substituting Smith for John Doe but also adding AT&T and Comcast as defendants.

He issued the same subpoenas that the Supreme Court had blocked.

On Aug. 10, 2012, AT&T removed the action to federal court.

Smith learned of the suit 10 days later from a process server who gave him Steele’s number and told him, “You’re in a lot of trouble.”

The process server said Steele was an important lawyer from Washington, D.C., who had no interest in the case but could help resolve it.

On that date, Hoerner, Duffy, Steele and Hansmeier all appeared before Murphy on an emergency motion to expedite discovery.

Steele said 1,495 hackers had entered Lightspeed since the previous Friday.

“We are asking for people’s identifying information as to who had a certain IP address at a certain time, just their contact information so that we may proceed against them,” Steele said.

“How can we go after people? We don’t know who they are.”

Steele said revenues were down 60 percent since the litigation started.

Murphy said, “You can get IP addresses but what you might find is you might have some 14 year old kid that wants to get on mom’s computer and download porn.”
“I wouldn’t be too much of a mind to fine mom and dad because the 14 year old kid got on the computer and got titillated watching some private porn club, so it is a very, very careful balance that has to be reached here before we proceed,” Murphy said.

For AT&T, Troy Bozarth of Edwardsville said plaintiffs didn’t intend to bring 6,600 customers into the complaint.

“This is to harvest information so that they can then go and try to obtain settlements from that mother or father of the 14 year old boy,” he said.

“When they receive a letter that says pay us three thousand dollars to make this case go away, you have to decide whether you are going to hire yourself a lawyer and fly to the Southern District of Illinois and sit in front of Judge Murphy and defend yourself.”

Murphy asked Steele, “What is the emergency?”

Steele said, “My client is literally under attack on a minute by minute basis.”

He said hundreds or thousands of hackers targeted his client including subscribers of AT&T and Comcast.

Murphy said, “You are never going to know who is doing it. You are never going to know which computer it comes from.”

He said Lightspeed would go through regular discovery like everyone else.

AT&T, Comcast and Smith then moved to dismiss the suit, with Smith proclaiming himself innocent of hacking.

They moved to defer discovery pending a decision on the motions to dismiss, and Murphy granted the motion on Nov. 7, 2012.

Hansmeier then withdrew from the case, and Steele withdrew four months later.

On March 21, 2013, Duffy moved to dismiss the case without prejudice. Murphy granted the motion the next day.

Two weeks later Smith’s lawyers, Jason Sweet and Dan Booth of Cambridge, Mass., moved for an award of attorney fees.

They wrote that Lightspeed’s lawyers named Smith as a defendant with no basis greater than a name on a cable bill.

“Only Smith’s good luck or good instincts saved him from speaking to Steele without representation, as untold numbers of other similarly situated ISP subscribers may have done, which would have allowed Steele to immediately engage in improper ‘settlement’ discussions,’” they wrote.

They wrote that plaintiff’s counsel dropped out after Murphy stayed discovery.

They wrote that identification of subscribers was the sole purpose of the suit.

“In some cases, plaintiff’s counsel has evidently arranged for straw defendants who avoid paying their settlement demands by agreeing to be sued as a named defendant in a case plaintiff’s counsel use as a springboard to subpoena the names of alleged co-conspirators,” they wrote.

“In other cases, plaintiff’s counsel has evidently conjured up sham plaintiffs so it could skip the middleman, settling claims without any need to split the proceeds with a client.”

They wrote that in a California court, Steele, Duffy and Hansmeier exercised their Fifth Amendment right against self incrimination.

They wrote that Smith’s Internet provider and others handed over identifying information in compliance with LeChien’s subpoenas.

“The court should not allow this case to be another opportunity for plaintiff’s counsel to make a mockery of the courts and laugh all the way to the bank,” they wrote.

Murphy awarded Smith $70,000 in legal fees, but Lightspeed’s lawyers moved to vacate the order.

Murphy held a hearing on Nov. 13, 2013, days away from retirement.

When Hansmeier interrupted him, he said, “Ordinarily around this place, for the next week, when I talk everybody just listens. I’m still talking. Listen.”

On defense, Booth said Internet providers became reluctant to share discovery because lawyers used it as a shakedown racket.

Booth said they chose Smith out of thousands.
“They wanted a scapegoat but they got the wrong suspect. Their hunch was wrong,” Booth said.

Murphy said, “Your fellow just happened to be in the line of fire and he got hit?”

Booth said, “Absolutely.”

Murphy described the fees as pretty modest.

Hansmeier said, “They’re not modest for me. That 70 thousand is an extremely large amount of money.”

Murphy said, “You haven’t seen anything yet. The other defendants haven’t filed theirs yet. That’s what you call bargain rates around here.

“We’ve got a defendant in this case who is put through the grinder...This was abusive litigation. This is simply filing a lawsuit to do discovery to find out if you can sue somebody.”

Steele said he didn’t file the case. Murphy said he entered an appearance, and Steele said that was right.

Murphy said, “Do you think it makes a difference if you enter your appearance in a case that’s pointless, worthless, a sham?”

Steele said the judge in state court sided with Lightspeed’s arguments.

Murphy said, “Mr. Steele, you are in the United States court in Southern District of Illinois.”

Murphy told him his chance of success was between slim and below zero.

Two weeks later, Murphy ordered the lawyers to pay $72,367 to Smith, $119,637 to AT&T, and $69,021 to Comcast, for a total of $261,025.

Smith served a subpoena for their financial records, and they asked Herndon to quash the subpoenas.

At a hearing in February 2014, all three said they couldn’t pay.

AT&T counsel Bart Huffman of Austin, Texas, said, “They have made millions across the country.”

Herndon told them they could have filed affidavits about their finances.

“I don’t want your affidavit,” Herndon said. “I want your asset statements from a certified public accountant. I don’t want it from you.

“The community is worried about guys like you.”

They produced financial records, which Herndon found incomplete and suspicious.

In March 2014, he issued a sanction at 10 percent of the original sanction.

Smith filed two more motions for sanctions last year, one claiming the lawyers were fully capable of paying and one claiming they misrepresented the status of the proceedings to third parties.

At a hearing in November, the lawyers denied that they misrepresented their finances or the status of the proceedings.

Taking them at their word, Herndon denied the motions.

Smith moved for reconsideration in December, claiming he found new evidence.

He described Steele’s communications with JP Morgan and Sabadell Bank, and his expenses and movements of money.

He claimed that Steele pleaded insolvency last Nov. 12, yet represented a month later in divorce proceedings that his assets approached $1.3 million.

The new evidence persuaded Herndon to hold Steele and Hansmeier in contempt, at a cost of $65,263.

He set no dollar amount on the sanction against Duffy and Steele for obstructing discovery, ordering Smith to submit reasonable costs by July 3.