Heather Isringhausen Gvillo Aug. 20, 2015, 3:36pm


U.S. District Judge David Herndon issued an order on Aug. 10 staying sanctions against three attorneys who he says obstructed discovery in a computer hacking case involving porn sites, pending an appeal by sanctioned attorney John Steele.

“In the light of John Steele’s pending appeal, the court will retain the $112,17175 pending the outcome of the appeal. Pending the outcome of the appeal, the party who is entitled to the money shall make an application to the court for its receipt,” he wrote.

Steele appealed to the Seventh Circuit on Aug. 7 following Herndon’s June 5 order sanctioning him and fellow attorneys Paul Hansmeier and Paul Duffy in Lightspeed v. Anthony Smith for engaging in “unreasonable, willful obstruction of discovery in bad faith.” The case was originally brought in St. Clair County and was later removed to federal court by AT&T.

Steele, Hansmeier and Duffy were partners at Prenda Law, a Chicago firm that dissolved in 2013 after U.S. District Judge Otis Wright of the Central District of California hammered the trio for deceiving the court in a copyright infringement case. He said the lawyers engaged in “brazen misconduct” with their attempts at “outmaneuvering” the legal system.

As of Thursday, nothing has been entered on the record addressing Duffy’s recent death from heart and alcohol-related conditions.

According to a Cook County Medical Examiner spokesperson, Duffy, 55, died on Aug. 10 at a Chicago hospital. The specific causes of death were atherosclerotic cardiovascular disease and chronic ethanolism.

Prior to the appeal in Herndon’s courtroom, Steele filed an objection to the sanction on July 17, arguing that the actual cost of third-party discovery should not have exceeded $531.40.

He likened defendant Smith’s attempt to receive "inflated" costs to fraud and wrote that his actions amounted to a Class A felony.

“There are some cases where attorneys attempt to push the boundaries, within reason, on what is recoverable. This is not one of those cases. The vast majority of the entries submitted by Smith are outright fraud in a case that is being closely-followed nationwide,” Steele wrote.

Herndon found Steele and Hansmeier to be in contempt and awarded Smith sanctions in the amount of $65,263.

Herndon also issued a separate sanction for Steele and Duffy, finding that they engaged in unreasonable, willful obstruction of discovery in bad faith. Herndon awarded Smith an undisclosed amount for the additional expenses incurred in conducting third-party discovery.

On July 23, Smith submitted his expense report itemizing the additional costs incurred as a result of what the court identified as Steele and Duffy’s discovery obstruction. He claimed $94,343.51 in incurred expenses for conducting third-party discovery. Steele and Duffy were ordered to pay the full amount, apportioned equally between the two.

So far, Steele has transferred funds to the court in the amount of $112,171.75.

In his objection, Steele argues that an “overwhelming majority” of the items Smith listed in his costs “have literally no relevance to what the court asked Smith to itemize.”

Steele wrote that his actions only caused Smith a minor delay in receiving information he ultimately received anyway.

“Smith should not be entitled to recover $94,343.51 for a potential one week delay in receiving these documents,” he wrote.

Steele argues that the aggregate amount of time associated with the relevant discovery obstruction is 1.3 hours, meaning Smith should only be allowed to recover $531.71. 

Steele claims that instead, Smith included 31 entries in his itemization that “predate the earliest act identified in the court’s June 5, 2015, order.”

“Smith’s attorneys should be referred to the U.S. Attorney for the Southern District of Illinois for prosecution for attempted fraud,” Steele wrote.

Steele claims the sanctions issued by the court caused Hansmeier to file for bankruptcy and says he will likely also have to declare bankruptcy as a result of the sanctions.

He argues that he is not re-arguing the matter and accepts the court’s decision to punish him.

“Steele is well aware of this court’s dislike for the plaintiff’s counsel in this case, and is well aware that this court gives little credence to anything filed by either Steele, Hansmeier or Duffy,” Steele wrote.

 “However, Steele is begging this Court to consider what costs were really incurred by Defense Counsel in regards to waiting an extra week to get Steele’s bank records. Steele respectfully submits that it is not justice to reward Defendant’s counsel with nearly $100,000 when it cost Defense counsel $531.40 in additional work.

“And while Steele understands that his Court has awesome and incredible power to punish Steele as extensively as it wishes, Steele pleads with this Court to exercise judicial restraint and limit the latest Defense counsel’s effort at sanctions to their actual cost of $531.40."

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