Prenda Law, currently in a death spiral with an unplanned stop in Los Angeles this afternoon, may have violated the same rule that caused a Federal judge in Nevada to benchslap copyright troll Righthaven. And that can likely be established before Prenda’s involuntary appointment with Judge Wright .
If you haven’t been following along, Ken at Popehat has a good rundown of why Prenda Law is in a precarious state.
In a deposition (again, h/t Popehat) of Prenda lawyer Paul Hansmeier, he is grilled about who owns and controls AF Holdings, the corporate plaintiff represented by Prenda lawyers in a sprawling array of copyright cases. Hansmeier, speaking on behalf of AF Holdings deflects most of the questions, but concedes that the corporation is owned in its entirety by a trust. But he doesn’t know who owns that trust, except that former Prenda paralegal Mark Lutz started the trust.
Questions as to who, exactly, owns the trust will likely prevail in today’s hearing in Los Angeles, assuming the jurisdictional issues are resolved.
But who ultimately owns the trust that owns AF Holdings might almost be an afterthought. From the testimony that has so far been revealed, I believe that Prenda and its client(s?) erred by not disclosing the existence of the trust itself.
Federal Rule of Civil Procedure (FRCP) 7.1 requires that, at a party’s first appearance in a case — or whenever the information changes – the party must file a disclosure statement that:
(1) identifies any parent corporation and any publicly held corporation owning 10% or more of its stock; or
(2) states that there is no such corporation.
Rule 7.1 is important: it allows judges to, at the outset of a case, determine whether they should recuse themselves right away because of a conflict of interest involving one of the parties before the court. Indeed, the prospect that Prenda or its clients have run afoul of Rule 7.1 is one of the concerns highlighted in Morgan Pietz’s Notice of Related Cases (hat-tip: Popehat).
But the language here arguably might not apply to Prenda’s client, AF Holdings. After all, its parent owner is a trust of some form — not a “corporation.” (Sidenote: a “trust” is the holding of legal title to property for the benefit of another, meaning the trustee — whoever runs the trust — ‘owns’ property, but manages it for someone else. The trust which owns AF Holdings is apparently a “[title of trust]” and has no ascertainable beneficiaries. In the U.S., that would in most cases mean it’s not a trust at all. How this works in Saint Kitts and Nevis is beyond me. But it’s curious.)
Whether FRCP 7.1 applies, however, is largely irrelevant. Federal District Courts have adopted their own Local Rules in addition to the Federal Rules of Civil Procedure, and most (if not all) of the Local Rules contain a variation on FRCP 7.1 — and most are more expansive than what Rule 7.1 requires.
For example, in the Central District of California — where Prenda and its revolving door of counsel and clients(?) will soon face Judge Wright — Local Rule 7.1-1 requires a listing of
all persons, associations of persons, firms, partnerships, and corporations (including parent corporations, clearly identified as such) that may have a pecuniary interest in the outcome of the case…
That’s pretty expansive. Unlike FRCP 7.1, it’s not limited to a showing that a party or entity does have a financial interest in the outcome, just that it’s possible. To be sure, this iteration doesn’t explicitly require a “trust” to be disclosed, but a trust is by its very nature an association of persons. It requires (usually) two or more people, or it’s just someone holding property for himself. (And even that guy has to be disclosed.) Local Rule 7.1-1 would likely require disclosure of not only the trust itself, but the beneficiaries (if any) to that trust.
But, in cases filed in the Central District of California — or anywhere – I can’t find a disclosure statement naming the trust. Nor is it disclosed in the very case Judge Wright is presiding over. Perhaps ominously, a brief review of RCFExpress.com‘s history of the dockets of the most recent AF Holdings cases suggests that Prenda and its clients stopped filing any type of disclosure statements (e.g., in this Tennessee case).
Ruh Roh, Rhaggy.
Rule 7.1 appears to put the burden on a party to make the disclosure. While lawyers have a duty of candor to the court, I’m not sure the Federal rules explicitly require the attorney to investigate a client’s corporate disclosure statement. However, if Prenda lawyers are themselves interested parties, or they were aware of the fact that there were other interested parties (perhaps their former paralegal, Mark Lutz, for example), that would most assuredly be some type of fraud on the court.
And that’s why today’s hearing is important. It’s the classic Nixon question: what did Prenda and its lawyers know, and when did they know it?
Not only is this landmine avoidable, it was foreseeable. A lawyer pursuing BitTorrent claims and keeping abreast of developments in that area of litigation should have known that defendants could and would hammer plaintiffs over Rule 7.1 disclosures. Righthaven was hammered on this in widely-covered proceedings in Nevada, where AF Holdings and Prenda have also filed cases.
For now, I’m en route to the courthouse. I’ll probably tweet about it. For now, I need to go file a Statement of Interested Parties, as corn futures have a serious stake in today’s hearing.