Bethany Krajelis Aug. 22, 2013, 12:14pm

CHICAGO -- A federal judge this week set the stage for potential sanctions in Prenda Law’s libel lawsuit.

In a one-paragraph order issued Tuesday, U.S. District Judge John Darrah set a Sept. 4 deadline for the defendants to file a Rule 11 petition. He also granted Prenda Law's request to withdraw a motion to remand its suit back to St. Clair County.

Rule 11 allows courts to impose sanctions on attorneys, law firms or parties if it is determined they made misrepresentations to the court.

Chicago attorney Erin Kathryn Russell, who represents the defendants in the suit, said today that “when a judge invites a party to file a Rule 11 petition, it seems like the court believes misrepresentations have been made.”

Prenda Law sued Minnesota attorney Paul Godfread and his client, Alan Cooper, as well as 10 potential John Doe defendants, in February in the St. Clair County Circuit Court, claiming they made false and defamatory statements in a Minnesota lawsuit and on various websites.

Among other allegations, the firm contends that the defendants accused it and some of its attorneys of “criminal offenses; want of integrity in the discharge of employment; lack of ability in its profession; and the commission of fornication and adultery.”

The defendants filed a counterclaim in which Cooper alleged he was a caretaker for property owned by attorney John Steele and eventually learned his name was being used as an officer or director of AF Holdings, a client of Prenda Law, without his knowledge or consent.

The firm’s suit was transferred to southern Illinois’ federal court shortly after it was filed and again in June to the U.S. District Court for the Northern District of Illinois, where a nearly identical complaint was pending at the time. The two have since been consolidated.

At a hearing held last week, Darrah granted Prenda Law’s motion to dismiss the counterclaim and denied the defendants’ motion to dismiss the suit under Minnesota’s Anti-SLAPP Act.

He also allowed briefing to move forward on the firm’s renewed motion to remand.

Prenda Law attorney Paul Duffy appeared at the hearing on behalf of his firm and asked Darrah to remand the suit back to St. Clair County, arguing that it couldn’t proceed in federal court because diversity of citizenship didn’t exist between the parties.

He told Darrah that Prenda Law filed an amended complaint when the suit was pending at the circuit court level that added Alpha Law Firm as a plaintiff. That firm, Duffy said, is based in Minnesota, which he claimed destroys diversity of citizenship since Godfread and Cooper are also from Minnesota.

Russell, however, told Darrah at last week’s hearing that Prenda Law’s amended complaint “should never have been filed” because the firm didn’t asked for leave to file the amended complaint and no order granting leave was ever filed in St. Clair County Circuit Court.

Instead, Russell told Darrah that Prenda Law’s local counsel, Belleville attorney Kevin Hoerner, made false representations to an employee with the clerk’s office in order to get the amended complaint filed.

She said that an affidavit from Judy Kent, an employee of the St. Clair County clerk’s office, proves her claim.

In her affidavit, Kent states that she file stamped an amended complaint on Feb. 21 in the suit and that there was no motion seeking leave to file an amended complaint or an order granting such relief in the record.

“I was informed by Mr. Hoerner, one of Prenda Law’s attorneys, that no one had been served with the original complaint, which is why I file stamped the amended complaint without a motion for leave,” Kent states in her affidavit. “I verified on my computer that my office had not received a return as of February 21, 2013.”

At that time, however, Russell asserts that both Godfread and Cooper had been served. Exhibits attached to one of her previous court filings show that Godfread had been served on Feb. 15 and that Cooper was served on Feb. 20.

Russell further claims that Prenda Law knew her clients had been served because Steele left a message with Godfread about an hour after he was served, saying “I understand you just got served” and asked whether he would be representing Cooper.

At the end of last week’s hearing, Darrah asked Russell to provide him with “any supporting information regarding the docket in St. Clair County” in her response to the firm’s renewed motion to remand.

She did so on Tuesday, but, by that time, Duffy had already filed a motion to withdraw his firm’s remand request. He submitted that motion a few hours after last week’s hearing came to a close.

He wrote that “Plaintiff vehemently disagrees with representations made by Defendants counsel at the August 14, 2013 hearing regarding its Motion, but nevertheless due to the apparent confusion arising from Plaintiff’s Motion, Plaintiff seeks to withdraw its motion.”

Duffy added in the motion to withdraw that “Rather than renew its motion, Plaintiff intends to, at the appropriate time if any, amend its complaint to add Alpha Law Group LLC as a Plaintiff.”

In his order that granted the firm's withdrawal request, Darrah gave Russell until Sept. 4 to file a Rule 11 petition and set a Sept. 11 deadline for Prenda Law to file its response with the defendants' reply due by Sept. 18. He also scheduled a status hearing for Nov. 26.

Darrah’s recent order setting the stage of potential sanctions isn’t completely new to Prenda Law.

In May, U.S. District Judge Otis D. Wright II of the Central District of California ordered Prenda Law attorneys to pay about $81,300 in sanctions to defense attorneys in a computer hacking suit there. That figure eventually jumped to about $237,000.

Wright determined that Duffy, as well as Steele and Paul Hansmeier of Steele Hansmeier in Chicago and Brett Gibbs of San Francisco, engaged in “brazen misconduct and relentless fraud” and created business entities for the sole purpose of bringing these suits.

He also referred these attorneys to the criminal investigation unit of the Internal Revenue Service, the U.S. Attorney’s Office and the state and federal bars where they are admitted to practice.

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