Judge reopens Minnesota copyright cases over concern about fraud

A federal magistrate judge in Minneapolis has taken the unusual step of reopening a handful of copyright cases, voluntarily dismissed in September, in an effort to determine whether they were filed for improper purposes and constituted a fraud on the courts.

The cases all involve a plaintiff called AF Holdings, an offshore firm that filed lawsuits in Minnesota and around the country against thousands of "John Doe" defendants who, it claimed, had illegally downloaded its copyrighted pornography on the Internet. A group of attorneys with connections to Minnesota filed those lawsuits and many others seeking the identities of the defendants from Internet service providers, then contacted the defendants and demanded settlements of a few thousands dollars apiece.

U.S. District Judge Joan Ericksen had allowed AF Holdings to issue subpoenas for the Internet subscriber information, but required its attorney to notify her within one day of any settlement offers and to provide copies of all communications with the defendants.

In an order issued Thursday, Magistrate Judge Franklin Noel said the firm's attorney provided the required transcripts but failed to turn over the terms of the settlements that were reached.

But most of Noel's order addressed a growing controversy involving the principal attorneys behind the copyright cases: Paul Hansmeier of Minneapolis and John Steele and Paul Duffy, who are licensed in Illinois.

A federal judge in California has found that the lawyers were behind the creation of various entities "for the sole purpose of litigating copyright-infringement lawsuits" and to shield themselves from potential liability. He said they stole the identity of Steele's former cabin caretaker, Alan Cooper of Isle, Minn., and fraudulently held him out to be an officer of some of the plaintiffs.

Hansmeier, Steele and Duffy each invoked their Fifth Amendment right not to incriminate themselves when Judge Otis D. Wright II tried to question them. In May, Wright ordered them to pay $81,300 in defense costs and penalties, and referred them to the IRS and the U.S. attorney in Los Angeles for possible criminal prosecution. He also notified other jurisdictions where they had filed similar lawsuits, and referred them to a number of lawyer disciplinary boards.

Noel said this week it appears that the plaintiff "relied on forged documents in securing multiple court orders authorizing the discovery of information that, in turn, led to settlements" in the Minnesota cases.

Michael K. Dugas, 29, filed the AF Holdings cases in Minnesota, as well as six similar lawsuits on behalf of another offshore firm called Guava LLC. He voluntarily withdrew the Guava cases in March. Dugas has worked at or through several firms associated with Hansmeier, Steele and Duffy. He did not respond immediately to requests for comment.

Noel gave Dugas five days to file a declaration under seal, under penalty of perjury, identifying any individuals or their attorneys who were contacted in the Minnesota cases; explicit terms of any settlements; who was paid, and how; and a certification that the John Doe defendants and their attorneys had been served with both a copy of the order, and Judge Wright's order imposing sanctions.