Pg. 1 1 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF ILLINOIS 2 3 LIGHTSPEED MEDIA CORPORATION, ) 4 5 6 Plaintiff, vs. ANTHONY SMITH, ET AL., 7 8 9 10 Defendant. ) ) ) ) No. 12-cv-00889-DRH ) ) ) February 13, 2014 ) TRANSCRIPT OF PROCEEDINGS SHOW CAUSE HEARING BEFORE THE HONORABLE DAVID R. HERNDON CHIEF UNITED STATES DISTRICT COURT JUDGE 11 APPEARANCES: 12 For the Plaintiff: 13 14 15 John L. Steele, Esq. Paul Hansmeier, Esq. Steele Hansmeier PLLC 161 N. Clark St., Suite 4700 Chicago, IL 60601 (312) 880-9160 16 17 18 19 20 21 22 23 24 25 Paul A. Duffy, Esq. Prenda Law, Inc. 161 N. Clark St., Suite 3200 Chicago, IL 60601 (312) 880-9160 For the Defendant: SBC Internet Services Troy A. Bozarth, Esq. Hepler Broom LLC 130 N. Main Street Edwardsville, IL 62025 (618) 656-0184 Bart Westcott Huffman, Esq. Locke Lord LLP - Austin 100 Congress Ave., Suite 300 Austin, TX 78701 (512) 305-4746 Pg. 2 1 2 For the Defendant: ComCast Andrew G. Toennies, Esq. Lashly & Baer PC 714 Locust St. St. Louis, MO 63101 (314) 436-8347 For the Defendant: Anthony Smith Daniel G. Booth, Esq. Jason E. Sweet, Esq. Booth Sweet LLP 32R Essex Street Cambridge, MA 02139 (617) 250-8602 3 4 5 6 7 John D. Seiver, Esq. Davis Wright Tremaine LLP 1919 Pennsylvania Ave. NW Washington, DC 20006 (202) 973-4200 8 9 10 11 12 13 14 15 16 17 18 19 20 Court Reporter: Laura A. Blatz, CSR, RPR, CCR U.S. District Court 750 Missouri Avenue East St. Louis, IL 62201 (618) 482-9481 21 22 23 24 25 Proceedings recorded by mechanical stenography; transcript produced by computer. Pg. 3 1 (Court convened) THE COURT: 2 Let the record reflect that we're in We've called the case of Lightspeed Media vs. 3 open court. 4 Anthony Smith, 12-889. Who's on the phone? 5 MR. DUFFY: Paul Duffy. 6 THE COURT: Paul Duffy, I heard. 7 MR. HUFFMAN: 8 MR. SWEET: Jason Sweet for Anthony Smith. 9 MR. BOOTH: Dan Booth for Anthony Smith. 10 THE COURT: The one I kind of think I heard was 11 Bart Huffman. 13 Bart Huffman for AT&T. Was that the second person that spoke? MR. HUFFMAN: 12 Who else? Yes, Your Honor. Bart Huffman representing AT&T. THE COURT: 14 I think on the phone we have 15 Paul Duffy, Daniel Booth, Jason Sweet, and Bart Huffman, 16 correct? 17 UNIDENTIFIED SPEAKER: 18 THE COURT: 19 Who do we have in the courtroom to my left? 20 MR. HANSMEIER: 21 MR. STEELE: 22 MR. TOENNIES: 23 MR. BOZARTH: 24 THE COURT: 25 Correct, Your Honor. Paul Hansmeier. Your Honor, John Steele. Andrew Toennies for ComCast. Troy Bozarth, Your Honor, for AT&T. Okay. Mr. Bozarth's the only one I recognize out of the whole bunch. Pg. 4 1 Okay. So now, we've called this on Defendants' 2 motions for rule to show cause why Plaintiff's counsel 3 should not be held in contempt. 4 Judge Murphy, who's enjoying his golden years, now left us 5 behind, but not before he entered an order assessing certain 6 sanctions against Plaintiff's counsel. 7 argue on behalf of the motions? 8 more than one motion. 9 the motion? I inherited this case from So who's going to And we've got, I think, But who's going to argue on behalf of Let's take first the ComCast -- the 10 Anthony Smith ComCast and SBC motion at Doc. 107. 11 going -MR. BOZARTH: 12 13 Who's Judge, I'm going to start off on that one. THE COURT: 14 Make sure you speak into the 15 microphone, Mr. Bozarth, so everyone on the phone can hear 16 you. 17 MR. BOZARTH: 18 This is a joint motion brought on behalf of all Absolutely. Thank you, Judge. 19 Defendants that were assessed fees in Judge Murphy's 20 November 27th, '13 order. 21 THE COURT: 22 everybody hear Mr. Bozarth? 23 MR. DUFFY: 24 25 Let me just stop you right there. Your Honor, this is Paul Duffy. Can I cannot hear him. THE COURT: Make sure the green light's on on the Pg. 5 1 base there, Mr. Bozarth. 2 MR. BOZARTH: 3 Your Honor, this motion was brought on behalf of Green light's on. 4 all of the parties that were awarded fees under 5 Judge Murphy's 11/27/13 order. 6 probably aware, has quite a long history, and the 7 culmination, at least in this court before Judge Murphy, was 8 a hearing where we had all parties present, including 9 Mr. Hansmeier, Mr. Duffy, Mr. Steele, at least on the phone 10 or in person. 11 This case, as you're matter under advisement. 12 Judge Murphy heard argument and then took the On 11/2/0107, he entered his order. That order was 13 extremely clear, and it provided for fees and costs in an 14 amount certain to be paid to my client, to ComCast, and to 15 Mr. Smith as well. 16 that to occur. 17 filings, no payment. 18 perspective would be seeking to enforce that order with the 19 Court that entered it. 20 The order also provided for 14 days for The 14 days elapsed and there was no And clearly, the next step from our Under Seventh Circuit law this is clearly a case of 21 contempt. The order was clear. The order was not complied 22 with and there's been no excuse provided or even an 23 attempted excuse provided, so we would ask that the Court 24 enter a contempt finding and take steps necessary to insure 25 that the order is complied with. Pg. 6 1 2 THE COURT: All right. So is anybody else going to speak in favor of the motion for rule to show cause? 3 MR. TOENNIES: 4 here in the courtroom. 5 Judge, Andy Toennies for ComCast, One motion to stay was filed by Mr. Steele out of 6 time. 7 sanctioned. 8 obviously. 9 parties in this case. 10 11 Just the one motion. They did file an appeal, That's all that's been done by the sanctioned THE COURT: All right. So -- and Mr. Duffy, are you going to argue the opposing side? MR. DUFFY: 12 13 No bond was posted by the attorneys who were I think Mr. Hansmeier is going to take the lead. 14 MR. HANSMEIER: 15 The elements of civil contempt are well established Thank you, Your Honor. 16 in the Seventh Circuit. 17 attorneys disputes the fact that if Judge Murphy's order was 18 entered in the form of an equitable decree, we, as officers, 19 have an obligation to follow it to the extent we're able to 20 do so. 21 I think that none of the sanctioned I think what the points of contention are between 22 our side and their side boil down to two points. 23 point is: 24 made extensive argument to the effect that this is not an 25 equitable decree but that this particular sanctions order What does this order say? The first In our papers we have Pg. 7 1 was entered in the form of money judgment, and we point to 2 several different factors that would suggest that this is 3 the case. 4 The first factor we point to is the language of the For a total judgment of the 5 order itself where it says: 6 sanctions amount with interest as provided by law. 7 we read that order -- we read it and we continued to read it 8 as money judgment. 9 was referenced by opposing counsel here was the 14-day time And when The point of ambiguity in the order that 10 for compliance that they referenced. 11 time for compliance mirrors Rule 62's 14-day time for stay 12 of the execution, and we read that -- or at least when we 13 read the order we interpreted that as the 14 days elapses 14 and they have their rights as provided under law that the 15 automatic stay expires and they have the ability to sieze 16 and sell assets as any judgment creditor does. 17 However, the 14-day Further lending to our interpretation of the order 18 of judgment as this being a money judgment versus an 19 equitable decree is the conduct of the counsel for the 20 moving parties themselves. 21 this Court and saying, Look, this is an order to pay, this 22 is an equitable decree, and contempt is appropriate, at the 23 same time they're taking steps to enforce the judgment just 24 as a judgment creditor would. 25 While they're appearing before Currently before the Court is a motion to quash, Pg. 8 1 which includes exemplars of the subpoenas they've been 2 issuing in order to enforce their judgment. 3 they've been holding themselves out to these third party 4 banks and other institutions from which they're seeking to 5 enforce the judgment with as judgment creditors, so on the 6 one hand appears calling this order a contempt but on the 7 other hand they're invoking the power and name of the court 8 to compel third parties to disclose information under the 9 rubric of a judgment creditor. 10 Furthermore, And finally, with respect to the final element, 11 ability to comply, if this Court does, in fact, interpret 12 the judgment or Judge Murphy's order as an equitable decree 13 versus a money judgment, I personally would ask for leave 14 from the Court to submit financial documentation under seal 15 so that I may show I do not, in fact, have a quarter of a 16 million dollars to satisfy this payment amount with. 17 certainly recognize my obligation to do everything in my 18 power, and I certainly fully intend to do so, but I simply 19 do not have $250,000, would simply ask for the opportunity 20 to present that to the Court so the Court can evaluate my 21 financial status. 22 23 THE COURT: So they acknowledge they haven't paid these monies, right? MR. HANSMEIER: 24 25 I myself. Your Honor, I can only speak for I have not paid the other side $250,000, that's Pg. 9 1 2 3 correct. THE COURT: The basis for the fee, the order to pay the fees, was 20 United States Code, Section 1927, correct? 4 MR. HANSMEIER: 5 THE COURT: That's correct, Your Honor. And in order to make such an order, the 6 Court would have had to make a finding that the actions of 7 counsel were unreasonable and vexatious, am I correct? 8 MR. HANSMEIER: 9 THE COURT: 10 11 12 13 That is correct, Your Honor. So the basis of the finding of the Court, in essence, would be a sanction? MR. STEELE: Your Honor, John Steele speaking. Yes, I agree with that. One thing that I personally am having trouble 14 understanding, and why the order doesn't appear clear to me, 15 as I'm trying to understand, under the applicable statute 16 and rule, the individual attorneys have to be allocated, 17 Okay, this is what you did vexatious and this is why you're 18 liable for this amount, and so on. 19 part of this case, given that I appeared merely for one oral 20 argument, what percentage of the $250,000 which covers the 21 entire case, that I'm responsible for. 22 I don't think anyone contests it. 23 think the three attorneys sanctioned weren't even in this 24 case, at least I know I wasn't, except the morning of one 25 oral argument which I shortly thereafter withdrew, so I I'm not clear as to what It's undisputed and Most of the people -- I Pg. 10 1 don't understand what portion that I should be responsible 2 for. 3 And it's clear, I think no one would dispute that 4 the statute's extremely clear that the Court has to say, You 5 are responsible for this action, you did this wrong, and 6 this is the amount of money you should pay, and this other 7 attorney over here, This is what you did wrong. 8 what you should pay. 9 This is And I'm confused, with all due respect, and I would 10 second Mr. Hansmeier saying, and hopefully -- in the 11 unfortunate event that this Court does rule it as an 12 equitable decree, I would also like to have the opportunity 13 to submit documentation under seal that I do not have the 14 ability to write a check for $250,000 on a case that I 15 stepped in for oral argument as a favor which I was not 16 compensated for in the first place. 17 THE COURT: Well, perhaps you are in complete 18 disagreement with Judge Murphy, but it seems that your -- 19 the answer to your question comes in the last sentence 20 before the conclusion where he says: 21 The Court finds that these men acted in concert 22 throughout the entirety of the proceedings in this 23 matter, shared total responsible for their actions 24 and are jointly and severally liable for the fees and 25 costs of Defendants. Pg. 11 1 MR. STEELE: I understand that. We didn't -- the 2 way that this proceeded was, I was not -- and I don't 3 believe Mr. Hansmeier, I don't know Mr. Duffy -- we didn't 4 even know this was occurring until after the judge had ruled 5 on the matter. 6 an opportunity to even contest this until today. 7 believe the record makes it clear -- I mean with all due 8 respect to Judge Murphy, the record is clear as to when I 9 appeared in this case, which was long after the case was I find it hard to believe that we've not had And I 10 filed, and the other -- at least one other attorney in this 11 case, actually the one that did file the case and the one 12 that was throughout the whole case, was found not to have 13 conducted any sanctionable conduct. 14 appeared with that counsel I'm found to be liable for 15 $250,000. 16 hearing to deserve that, and I'll respect Judge Murphy. 17 sure he had a reason for saying this, but I don't -- And the one hearing I I don't know what I said during that 20-minute 18 THE COURT: 19 MR. HUFFMAN: I'm Well -Your Honor, this is Bart Huffman. If 20 the Court wants to entertain discussion on this, I'd be 21 happy to recount in detail Mr. Steele's involvement 22 throughout this proceeding, beginning in state court and 23 beginning with the Prenda law firm being primary counsel and 24 my interaction with local counsel as local counsel 25 throughout, but I agree with Your Honor that Judge Murphy Pg. 12 1 2 has already considered this issue. THE COURT: Well, I'm not going to entertain 3 argument on it. 4 Mr. Steele confuses me with the Seventh Circuit. 5 I'm not here to rehash this order entered by Judge Murphy. 6 And you're really getting away from the question that I 7 asked, which was the basis for Judge Murphy's ruling when 8 you look at the statute upon which he drew for his authority 9 here ultimately is that he's imposing a sanction. 10 What I was about to say is he can -You know, Now, as such, a sanction is not a money judgment. 11 The Seventh Circuit is clear on that. 12 like any way you slice this, even if you disagree with -- 13 even as you disagree with Judge Murphy's findings and 14 conclusions, what you have here is a sanction based on 15 unreasonable and vexatious conduct which he found you all to 16 share responsibility in, and he imposes a sanction. 17 amount that he found, and it results in a sanction, which 18 is, under Seventh Circuit jurisprudence, not a money 19 judgment. 20 MR. HANSMEIER: So it looks to me The Your Honor, may I present argument 21 on that very specific point? 22 THE COURT: 23 MR. HANSMEIER: Yes. I went back -- I think what the 24 Court is drawing its conclusion that a money judgment -- or 25 I'm sorry, that a sanction is clearly not a money judgment Pg. 13 1 might be the Cleveland Hair Clinic case presented in the 2 movant's reply brief. 3 Court is drawing its conclusion that Seventh Circuit 4 precedent is clear, my argument on that point would be that 5 in that case the Seventh Circuit doesn't say that a sanction 6 must take the form of an equitable decree. 7 And to the extent that's where the In that case the lower court had ordered the 8 attorneys to pay a sum of money to the other side, I believe 9 it was $174,000 or $100,000 forthwith. In other words, in 10 the case below it was clear that the order was imposing an 11 obligation on the attorneys to do something right now, right 12 away, no questions asked. 13 language cited by the movants in their brief, what I think 14 the Seventh Circuit was saying in that case was not that 15 this -- a sanction must be an equitable decree and District 16 Courts have no discretion whatsoever to issue a sanction in 17 the form of a money judgment. 18 Seventh Circuit was saying, well, in this case we have 19 what's clearly an equitable decree an order to do something, 20 and when that's occurring then it's not a money judgment, 21 it's not enforceable as a money judgment. 22 And if you read the very specific I think what the As further support for this proposition I looked at 23 some of the sanctions orders that underlie some of the 24 seminal 1927 Seventh Circuit decisions. 25 FM Industries vs. Citicorp Credit Services, if you review For example, in Pg. 14 1 the sanctions order that was entered in that case, it was in 2 the form of money judgment and it was enforced through writs 3 of execution, citations to discover assets and so forth. 4 And so I think it's not necessarily -- I guess to 5 sum up my argument, I think the Seventh Circuit has never 6 foreclosed the possibility and never limited a District 7 Court's very, very, very broad discretion to enter sanctions 8 however it chooses to do so, so for that reason I think it's 9 important to look at the language of the order rather than 10 arriving at the conclusion that because it's a sanction, 11 therefore, must be an equitable decree. THE COURT: 12 13 Mr. Bozarth, you have any additional argument? MR. BOZARTH: 14 No. Just -- I don't think that the 15 order could be any clearer, Judge. What we just heard 16 Counsel say was that it was an equitable decree in the 17 Cleveland Clinic matter because it said to pay forthwith, so 18 therefore, there was a time that they were supposed to do 19 something with immediacy. 20 days. 21 trying to. Our order here says pay within 14 I think it's even clearer than the case he was just 22 THE COURT: The part of the order that talks about 23 interest is provided by law. 24 provide as far as interest is concerned and what does that 25 do in this particular order as far as making it equitable What specifically does the law Pg. 15 1 versus a money judgment? 2 MR. HANSMEIER: 3 THE COURT: 4 MR. HANSMEIER: 5 MR. TOENNIES: Your Honor, I'm not familiar -- I was actually asking Mr. Bozarth. I apologize. I think it's 5 percent in Illinois 6 on a judgment, if I understand what you're asking. 7 order like this there would be 5 percent beginning on the 8 date of the order or the date that it began to run. 9 my understanding. 10 11 THE COURT: You say in Illinois. On an That's Are you applying an Illinois state statute or the federal interest? 12 MR. TOENNIES: 13 THE COURT: Illinois state. And why would you apply Illinois state 14 versus the federal procedural? 15 MR. TOENNIES: Just seemed to me that would be 16 applicable here, unless the Court chooses to apply the 17 federal statute, that's appropriate as well. 18 THE COURT: I thought the federal interest rate on 19 judgments had something to do with the prime interest rate 20 or something like that. 21 Mr. Hansmeier's argument, does that -- by operation of the 22 language of the order, does that take this from equity to a 23 money judgment because he specifically provided for interest 24 as provided by law? 25 MR. BOZARTH: But does that -- getting back to Judge, I don't believe so. I think Pg. 16 1 when you look at what Judge Murphy was trying to do in this 2 order, he was trying to make the aggrieved parties whole. 3 They had been engaged in litigation for a substantial amount 4 of time and he found that that litigation was frivolous and 5 should not have been brought. 6 federal judges around the country have found dealing with 7 these particular counsel, the fact that he chose to set an 8 amount certain, and then maybe fortuitously looking that 9 that amount might not be paid as we're sitting here today, 10 and wanted to create a mechanism that would increase that 11 amount over time. 12 into a judgment just because he is using that terminology. 13 I think he can make an equitable decree and set an amount 14 certain and then increase that amount as it goes forward if 15 it's not paid, if it's not complied with. 16 really kind of the first contempt type push, as judges often 17 do, to try to get these things paid. 18 Frankly, as many other I don't think it automatically turns it THE COURT: In essence that's So that's where the part comes in, the 19 sanction on top of the sanction where you ask in your prayer 20 for relief that I impose an additional sanction of so much 21 in addition to the interest, so much per day, or every day 22 it's not paid, a thousand dollars or something like that? 23 MR. BOZARTH: That's something that other judges 24 have done in particular cases with these lawyers to try to 25 get these paid. I don't know if we specifically asked for Pg. 17 1 it but I think also would be appropriate, the time that the 2 counsel has spent trying to get it paid and preparing for 3 this hearing today and our motion because it's not 4 insignificant and there has been no basis whatsoever put 5 forward, a motion for clarification, some -- anything. 6 just, We aren't paying it. 7 THE COURT: It's Now, on the subject that Mr. Hansmeier 8 and Mr. Steele brought up about if I do find them, as well 9 as Mr. Duffy, in contempt, they make a personal plea for 10 time or for me to look at their net worth statements in 11 camera. 12 statements relevant? 13 the California situation and did they, in fact, pay there? 14 $100,000 or something? My question is, one: And two: 15 MR. STEELE: 16 MR. BOZARTH: Are their net worth Were they ordered to pay in Your Honor, I can answer what we paid. I think -- I was not in that 17 litigation. 18 phone and these parties that could probably answer. 19 20 I think there's probably other counsel on the THE COURT: So answer the relevance part. Answer the question I have about relevance. 21 MR. BOZARTH: 22 THE COURT: 23 MR. STEELE: I don't think it's relevant. So what did you pay there? Your Honor, just clarification, some 24 earlier comments. The only time there's been a contempt I'm 25 aware of in these kind of issues was in DC, which was a Pg. 18 1 different case, which we won, and the ISP'sSP's were found 2 in contempt, and the judge stated, pending their appeal, 3 which is currently pending. 4 the judge, you know, issued sanctions order which we 5 appealed and filed a bond for, even though the sanctions 6 order was -- the request was $40,000. 7 $250,000 bond, which I still don't quite understand why, but 8 just to be able to appeal that matter, and we understand 9 that certain judges have looked at that California order and 10 11 So as far as California goes, We had to file a sort of adopted it, but many have not. And the insinuation that every judge in the country 12 who's ever dealt with any of these cases has found against 13 us is completely wrong. 14 said this is not improper and vexatious, so I don't want 15 this -- it's important to point out to the Court, this is 16 not some situation where there's a universal agreement. 17 fact, there's very, very large disagreement between the 18 various judges, some who are in favor, and the exact same 19 counsel that's on the phone today is appealing it and some 20 courts have ruled against us. 21 There's been many judges that have In But I don't want to get into my motion to stay, but 22 as far as what we paid, we've paid $250,000 bond in 23 California so that we could appeal that matter, just like 24 we've appealed this matter. 25 that have dismissed motions for sanctions and so on in But this matter -- the courts Pg. 19 1 various states like Arizona and Illinois and whatnot, we 2 haven't had to, obviously, post any bond or whatever the -- 3 the matter has been thrown out. 4 has been a sanctions order issued. 5 without us knowing about it, like on an ex parte basis like 6 here, but I do think it's very relevant how much money we're 7 able to post for, or pay for the sanction or post for a bond 8 because inability to pay is most certainly a prong of the 9 sanctions order. 10 And one or two courts there Normally it's done With all due respect to opposing counsel, it's 11 extremely important because if the Court issues sanction 12 order for, I don't know, a billion dollars, we can't pay it. 13 And I don't believe that there's any case law to establish 14 that -- there's not a debtor's prison. 15 pay it, we can't pay it. 16 MR. HUFFMAN: I mean if we can't I do think it's very important. Your Honor, if I can just interject 17 that Mr. Steele is incorrect that the ISP's were ever found 18 in contempt. 19 UNIDENTIFIED SPEAKER: Judge Howell, two years ago, 20 denied a Motion to Quash. That is pending appeal. 21 Mr. Steele has withdrawn from that case. 22 case, we would argue incorrect as of the timing and 23 certainly incorrect under today's standards, but that would 24 be shown in the -- but the ISP's were certainly never, ever 25 found in contempt of any -- And frankly, that Pg. 20 1 MR. STEELE: Your Honor, I was personally there 2 while Mr. Huffman asked the Court to issue a 50-dollar 3 sanction, de minimis sanction, so that he could appeal it 4 without having to incur liability of his client. MR. HUFFMAN: 5 Well, yes, we asked for a friendly 6 contempt perhaps in the alternative, but that wasn't 7 necessary because the Court granted the interlocutory 8 appeal. 9 somehow in his favor, but that has no basis for reality. I understand Mr. Steele's trying to twist things 10 THE COURT: 11 Okay. Okay. Thanks, Mr. Huffman. Well, Mr. Duffy, you're on the phone. You 12 haven't paid anything toward the -- with respect to the 13 order? 14 MR. DUFFY: Well, Your Honor, I would just like to 15 amplify the judge did include interest. 16 there would be post-judgment interest to be added to it, to 17 the amounts referenced in the order, and Judge Murphy did 18 refer to it. 19 to the award that he mentioned in his order, so I think 20 there's -- you know, there's evidence suggesting that 21 Judge Murphy himself intended that to be a judgment in 22 connection with the case. 23 that litigation, and he addressed it by what he himself 24 referred to as a judgment in connection with a 1927 order. 25 That would suggest He used the term "judgment" when he referred THE COURT: It was the last issue pending in So that's a "yes"? You haven't paid Pg. 21 1 anything? MR. DUFFY: I'm sorry, Your Honor. 4 THE COURT: You have not paid anything toward the 5 order Judge Murphy ordered? 6 MR. DUFFY: 2 3 I couldn't hear you. I have not. And I would like, if the 7 Court does term it's an equitable order, the opportunity to 8 submit financial information demonstrating my inability to 9 pay it. 10 THE COURT: Is there a reason why none of the three 11 of you have submitted your financial affidavits regarding 12 your financial assets prior to now? 13 MR. HANSMEIER: Your Honor, I can only speak on 14 behalf of myself, but I think they point to the fact that 15 none of the money's been paid, that no one's complying with 16 this order and so forth, but up until this point I've had a 17 genuine belief that this is a judgment. 18 believe it's a judgment, and that, frankly, that's one of 19 the reasons or one of the elements of contempt is how clear 20 the order is. I continue to 21 And it does feel like a little bit of a bait and 22 switch on the one hand for the order to say a judgment of 23 this amount of money with interest provided by law as every 24 other judgment I've read has always stated, and then to come 25 in and find out now this is actually going to be an Pg. 22 1 equitable decree. 2 and rules, we have a duty and absolute obligation to comply, 3 but until we were able to receive clarification of what this 4 order actually is, it's hard to know how to actually respond 5 to or deal with the order. 6 And if that's how the Court interprets And so in direct answer to your question, why 7 haven't we submitted financial affidavits, the reason is we 8 still don't know how the Court is going to interpret this 9 order, and certainly once the order becomes clear and 10 there's no ambiguity as to what it says -- and I would argue 11 it's clear that's the judgment. 12 what it is, we have an obligation to comply with it or show 13 why we can't comply, and so that's the reason I personally 14 have not submitted a financial affidavit. 15 to find out what this order is, and when I do, I will 16 fulfill my obligations to pay what I can, but I can't pay 17 what I don't have. 18 MR. HUFFMAN: But once it becomes clear I'm still waiting Your Honor, just briefly. The 19 judgment -- they aren't parties. They were sanctioned as 20 attorneys, officers of the court that have caused other 21 parties to needlessly incur expense. 22 awarded -- we weren't awarded a money judgment against an 23 opposing party, so in the first instance makes sense that 24 this would be a judgment because they're sanctioned 25 attorneys. They weren't Pg. 23 1 Secondly, these are lawyers that they've made 2 millions of dollars across the country and when they were 3 sanctioned per day in Judge Wright's court in situation, 4 they went ahead and posted the bond at that time and somehow 5 had the money to do so, so I think we know what's really 6 going on. 7 MR. HANSMEIER: I would ask Mr. Huffman to point 8 out the publication where I have publicly touted millions of 9 dollars that I've made. 10 MR. DUFFY: Your Honor, I would like to say that 11 that statement is simply false as pertains to me. 12 never made any statement -- 13 UNIDENTIFIED SPEAKER: I've I think Mr. Steele was in 14 Forbes.com describing the enterprise which you all have been 15 repeatedly found to be intimately involved. 16 MR. STEELE: No, absolutely, I never did, and I 17 resent being told that I've said something that's not true. 18 If Mr. Huffman would like to present something that I 19 personally made money of a certain amount, feel free, but it 20 will never come, Your Honor. 21 The behavior of the opposing parties indicate that 22 they believe it's a judgment too; otherwise, if they do 23 believe it's an equitable relief, simultaneously subpoenaed 24 every bank, me, my family, and my former clients, and 25 everyone that possibly has, and they're treating it like a Pg. 24 1 judgment. 2 judgment from day one and simultaneously argue it's not a 3 judgment in front of you. 4 5 It seems a bit disingenuous to treat it like a UNIDENTIFIED SPEAKER: -- any subpoenas in contrast hasn't either. 6 THE COURT: Okay. 7 MR. SWEET: Your Honor, this is Jason Sweet, 8 attorney for Anthony Smith. 9 So -- I would just note that in Mr. Steele's motion to 10 stay, the criteria he sets forth for the stay is for 11 injunctive relief, not for a money judgment. 12 little disingenuous for him to stand up and argue that they 13 think it's a money judgment when in their pleadings they're 14 arguing for injunctive relief. 15 MR. STEELE: So it's a Your Honor, if we want to -- I'm 16 assuming that we would deal with my motion to stay after 17 this, but if Your Honor would like to begin discussing that, 18 of course I can address those questions. 19 it's important to address the motion to stay for the reasons 20 I outlined in my motion, but again, the point is that I'm 21 not familiar with an equitable judgment -- an equitable 22 order that states things such as interest rates and uses the 23 word "judgment" and so on. 24 25 And I do believe To the extent if this Court were to find that somehow, you know, we're just obligated to pay a quarter Pg. 25 1 million dollars in 14 days, then I would believe that it's 2 very important to allow me to argue and the other side to 3 address my motion to stay. 4 THE COURT: Okay. So first of all, the finding of 5 this Court is that Judge Murphy's order is not a money 6 judgment; it is a judgment based on a sanction, and, 7 therefore, was equitable in nature. 8 the -- that Mr. Duffy, Mr. Hansmeier, and Mr. Steele, 9 jointly and severally, were to pay $261,025.11 no later than The order required that 10 14 days after the entry of that order, which was 11 November 27th, 2013. 12 The question remains whether the Respondents are 13 guilty of a civil contempt, and, therefore, subject to 14 sanction by the Court. 15 issue, must look at these factors: 16 probable; effectiveness of such a sanction; the contemptors' 17 financial resources and the burden of sanctions may impose; 18 and the contemptors' willfullness in disregarding the 19 Court's orders. 20 The Court, in reviewing such an Harm from noncompliance, So since I don't know the financial resources of 21 Messrs. Duffy , Hansmeier and Steele, I will give them seven 22 days to submit affidavits regarding their financial 23 resources and take the matter of the contempt -- the 24 petition for rule to show cost or motion for rule to show 25 cause under advisement. Pg. 26 1 Are the Defendants prepared to talk about 2 Mr. Steele's Motion for Stay? 3 MR. BOZARTH: 4 Your Honor, if you would like to take that up. 5 THE COURT: 6 So Mr. Steele, clearly you filed your motion quite 7 late. Do you not think it's an untimely motion? MR. STEELE: 8 9 Mr. Bozarth says "yes". Well, Your Honor, the IPF's filed their Motion for Sanctions nine months after the case was 10 closed. 11 matter has been the IFP's sudden Motion for Sanctions. 12 think the motion to stay, if it's appropriate, is 13 appropriate whenever -- I guess I don't want to repeat 14 myself -- whenever it's appropriate. 15 reasons outlined -- I don't want to repeat, you know, the -- 16 I think that the only untimely filing in this THE COURT: I I think that for the Your motion to stay -- regardless of 17 when they filed their Motion for Sanction, your Motion for 18 Stay is related apparently to Judge Murphy's order, which 19 was entered on November the 27th. 20 filed -- when was it filed? 21 which was over a month after the Motion for Contempt was 22 filed. 23 MR. STEELE: Yes. Your motion to stay was It was filed January the 29th, I reached out -- during that 24 time immediately after the order was issued, I did reach out 25 to the ISP's and tried -- you know, and made an effort to Pg. 27 1 try to resolve this matter in some way, which was 2 unsuccessful. 3 Contempt was filed, my options to seek relief from this 4 Court pending the appeal, which had already been filed, was 5 to ask for a stay, and I do believe that a motion to stay is 6 appropriate at any time as long as the criteria for a stay 7 is met. 8 9 And you know, obviously, once the Motion for Quite frankly, you know, there are many times in which it's just to have a stay -- it's not necessarily 10 appropriate to have a stay at one point but yet later on it 11 would be appropriate. MR. HANSMEIER: 12 Your Honor, if I may just add -- I 13 also requested the alternative relief of a stay in my 14 motion. 15 referenced the point that it's 30 days after or roughly 30 16 days after the Motion for Contempt was filed. 17 of a product of their own making because I think there's 18 reference to Mr. Duffy's brief, the -- our opening brief to 19 the U.S. Court of Appeals for the Seventh Circuit was due 30 20 days after they filed their motion, which I think is one of 21 the reasons that explains the timing of their motion. 22 I would say that the timing of the stay -- you That is a bit So certainly you want to seek a stay as soon as you 23 possibly can to minimize any form of prejudice to the 24 opposing party. 25 requested alternative relief because the interim I was But in this case we did file -- I mean I Pg. 28 1 working very diligently on that opening brief. And I'm not 2 aware of a specific timing for seeking a stay. I would 3 suppose that, unless I'm wrong, and there is a specific 4 deadline for seeking a stay, I suppose it would be, you look 5 to the equities. 6 respondent parties of a stay would be at this time, 7 specifically since they're seeking to hold people in 8 contempt. 9 10 And I'm not sure what the prejudice to the THE COURT: Mr. Bozarth? MR. BOZARTH: Well, Judge, the parties, defendants 11 have not filed a specific response to this motion, and one 12 of the reasons why we have not is because we don't feel that 13 their request has been perfected. 14 put up a bond. 15 stay inappropriate, but to point went out I think the -- 16 They haven't issued or There's multiple issues that we think make a UNIDENTIFIED SPEAKER: Your Honor, I'm sorry. 17 John Seiver. Could the Court ask everyone to speak up. 18 It's very difficult to hear the last two speakers. 19 MR. BOZARTH: Sorry, John. 20 What we're dealing with, Judge -- and I think 21 you're beginning to get a fairly clear picture of what my 22 client has been dealing with for a number of years -- is 23 really a legal shell game. 24 presumably some affidavits that are going to say something 25 about the financial condition of these gentlemen. You're going to get shortly, What Pg. 29 1 relevance that has and what accuracy that has I think is 2 rightly potentially in question. 3 With regard to the motion to stay itself, I think 4 the fact that it was brought extremely late after they were 5 put to the task of having to comply with the order is a bit 6 telling. 7 order meant but are waiting until today to do something 8 about it. 9 to pay. 10 They tell you that they are not sure what the That's some 60-plus days after they were ordered When you look at just the factors of the motion 11 itself, which we've already dealt with several of them, 12 Judge Murphy talks about the due process that was afforded 13 in his order. 14 likelihood of success, that they were not afforded due 15 process. 16 That's one of the things that -- their Judge Murphy deals with that in the order. I think the failure to perform the inquiry about 17 individual acts, Judge Murphy, as you pointed out, has dealt 18 with that, that they acted in concert, that these actions 19 were not baseless. 20 essence -- and we haven't really dealt with this too much, 21 but Judge Murphy found that their likelihood of success on 22 the merits at the appeal is somewhere between slim and less 23 than none. 24 25 Again, from my client's perspective, in Now, they actually sued my client in this case, which was removed to federal court, for exercising its Pg. 30 1 rights in getting a subpoena quashed in the Illinois Supreme 2 Court. 3 alleged to have been undertaken by my client. 4 look at all of it in totality and what they've done, that's 5 the reason I think why Judge Murphy entered the order that 6 he did. 7 courts around the country have entertained it, my client has 8 not been sued as a co-conspirator in an effort to extract 9 discovery, which was what happened in this case and what 10 That's basically the conspiratorial conduct that was So to say that this was not baseless, and other Judge Murphy found. MR. STEELE: 11 12 And when you Your Honor, I haven't had an opportunity to even -- 13 THE COURT: 14 Please. 15 Stop talking over other people. talking. 16 17 I will -- stop talking over other people. MR. STEELE: Apologize, Your Honor. that he was still talking. He's I didn't know I thought he was finished. 18 MR. BOZARTH: 19 again is just trying to rehash. 20 kind of a run-out-the-clock scenario, which is why it's so 21 important for this matter to not be stayed and for this 22 order to be entered compelling them to do the things that 23 they're supposed to do. So to state that this claim had merit What we're dealing with is 24 I can tick through the rest of them, but one of the 25 things I think, again, that Mr. Steele put in his motion was Pg. 31 1 public interest and he only showed up at one hearing. 2 Your Honor, this litigation had gone on for approximately a 3 year in state court before it was removed. 4 in court all the time. 5 only showed up for one hearing as a favor, Your Honor, what 6 judges have found, these gentlemen are not giving courts the 7 true story, and you can -- I can cite you to orders. 8 They're in our papers. 9 in front of the judge that they're looking at that day to Mr. Steele was To tell this Court, I was only -- I It's literally a say or do anything 10 try to get out of it, and it just has to stop sometime. 11 client has paid exorbitant amounts of money to their 12 attorneys, and that needs to be -- so this should not be 13 My stayed, Judge. 14 THE COURT: 15 MR. STEELE: 16 Obviously, I disagree with the concept that anyone Mr. Steele, talk into the microphone. Yes, Your Honor. 17 is misleading this Court, from either myself or the other 18 people subject to the sanctions motion, and it's simply just 19 not the case that there's some unanimity amongst federal 20 judges that this is somehow improper. 21 that other Illinois federal judges had said the proper way 22 to do this type of litigation is to actually name the ISP's. 23 The July in the Northern District of Illinois, Judge Baker, 24 said in his order we have had judges that have ruled in our 25 favor. It's simply a fact It's simply a fact from the record. So the idea Pg. 32 1 that this is just some universally accepted fact that we've 2 done something improper is simply not true. 3 would -- you know, in arguing my motion to stay, I mean with 4 all due respect to Judge Murphy, it's not -- I don't think 5 it's fair -- if we're appealing the process by which the 6 sanctions order was issued to rely on the actual judge we're 7 appealing from to determine it was okay and thus my motion 8 to stay is improper seems a bit circular. 9 judge did something improper such as under -- clearly under 10 Seventh Circuit case law the judge is required to show what 11 I did wrong and how I should be -- and I mean obviously the 12 judge decided not to follow that, and that's fine. 13 that's his -- he's obviously the judge. 14 valid point to appeal. 15 And so I I mean if the I mean But that's a very I mean and the fact that there were certain 16 terminations made mostly before I knew there was a motion 17 for sanctions in this case, because I was no longer in the 18 case at the time it was filed, it doesn't seem at all fair 19 and due process. 20 does not mean I did, and so I think it's important for this 21 Court to -- of course, its duty to make sure that the orders 22 are just, that the process has been followed and not simply 23 say, Well, someone else says the process was followed 24 properly so I'm not going to second guess that. 25 it's -- certain things are on the record. Simply saying that I received due process I mean It's just a fact Pg. 33 1 that whether or not I filed the complaint in this case, 2 whether I appeared in state court in a different case, how 3 is that relevant to my conduct in this case I'll never 4 understand. 5 pick certain orders from one or two judges that are also 6 under appeal doesn't seem to be a fair way of analyzing my 7 motion to stay. And so trying the lump things in and cherry 8 We have to look at several prongs, including harm. 9 I know we're looking at bankrupting attorneys that have not 10 been disciplined by any bar association whatever, for the 11 conduct. 12 one of ours is already cleared, one of the attorneys in this 13 matter, I believe Mr. Duffy. 14 is simple, that this Court could, on one hand, bankrupt 15 various people that are clearly crying out that they did not 16 even get due process here, and I think that's very 17 dangerous, versus several Fortune 50 companies that probably 18 aren't going to really go under if they don't get this for a 19 few months when the Seventh Circuit is going to rule on 20 this. 21 believe the original defendant in this case, hasn't even 22 been billed by his attorneys, from our understanding, and 23 hasn't paid any money, so I don't see any harm there either. 24 25 I think that's important to understand. In fact, So the point is that the harm They have -- and from what I understand, Mr. Smith, I All we're asking for -- all I'm asking for, and I believe Mr. Hansmeier and Mr. Duffy also, is simply to stay Pg. 34 1 this pending the determination by the appellate court for 2 the already filed appeal that we have been very timely on. 3 We have burned midnight oil, so to speak, to get as fast as 4 we can to appeal this matter, to appropriately address this, 5 to contact the other side. 6 not hiding out or not addressing these issues. 7 concerning. 8 me, but I'm sure for several other people here, and this is 9 something that's very, very serious, and to simply say, Well 10 you were afforded due process because the person that you're 11 claiming didn't give it to you said he did. 12 enough, with all due respect to this Court. 13 I'm not -- I know personally I'm This is very This is literally life changing, for not only That's not good If you review my motion to stay, it lays out very 14 clearly the harm and it also lays out the serious defects in 15 how this has progressed. 16 guess -- I know this is not a Motion Reconsider. 17 asking this Court to entertain a Motion to Reconsider. 18 fact, obviously, it's on appeal so it can't be changed. 19 all I'm asking for is -- there are other judges, there are 20 other districts that have ruled in our favor. 21 judges that have denied their Motion for Sanctions. 22 believe they even agreed to that simple statement. 23 certainly provide it to the Court, orders denying their 24 Motion for Sanctions on the same issues. 25 And I don't want to second I'm not In But There's I I can And so my point is, there's a disagreement amongst Pg. 35 1 judges. 2 Howell in DC, that -- I don't remember the judge's name in 3 Arizona, but there's other courts that have said, No, 4 they're right, and, of course, they're appealing those 5 decisions right now, at least the one in DC. 6 fine, but with this disagreement, how can Judge Baker in the 7 Northern District say, Well, to do this properly you have to 8 name and serve the ISP's. 9 in that district, but down here doing that causes me to be 10 liable for a quarter million dollars in sanctions by just 11 appearing for oral argument. 12 It's simply a fact of the court record that Judge And that's That's the way you got to do it So I believe that there are very serious equitable 13 reasons to look at this and say, okay, what's the harm of 14 waiting a couple more months to let the appellate court 15 review this? 16 going to be unduly harmed by a brief stay. 17 fact that I will be incredibly harmed, and I believe, 18 talking to some of the other attorneys, that this is 19 literally a life-changing in a negative way event. 20 I doubt that AT&T and, you know, ComCast are Obviously I can go on. I know for a I do not want to waste this 21 Court's time but I do want to make it very clear that this 22 constant insinuation that we are somehow misleading the 23 Court is, simply, I don't believe accurate, and I think that 24 my arguments that I raised -- that I will not obviously go 25 through point-by-point because obviously this Court has read Pg. 36 1 my motion to stay -- points out the serious issues, the 2 serious due process questions, the fact that, you know, the 3 Court even asked the attorneys if they'd like to actually go 4 back and fix the service problem that they had, and they 5 said, No, we'll just be fine with this, that there are so 6 many problems with finding a sanction order of such a 7 magnitude, such an amount, against people that were not even 8 in the case at the time it was filed, and there's absolutely 9 no evidence that I'm aware of that we received notice on all 10 11 these things. I do not want to argue and rehash and have a motion 12 to reconsider impromptu. I'm very respectful to the Court 13 and I do not want the Court to think I'm trying to do that. 14 The motion to stay is simply an analysis of the prongs 15 necessary motion to stay, whether it's likelihood of success 16 on the merits, the harm, and obviously the public. 17 Obviously, if someone can file a Motion for Sanctions 18 against somebody and they never even know that there's a 19 current pending Motion for Sanctions, that's a real problem, 20 I believe, for our judicial system. 21 So I do think all the prongs necessary for a motion 22 to stay have been met here, and there's interest accruing on 23 it, so obviously -- I believe it's a judgment. 24 this Court just recently said it doesn't believe its a 25 judgment, but there's an interest accruing on whatever this Obviously Pg. 37 1 is going to be called, and so if we're wrong and somehow it 2 doesn't matter that -- well, I don't want to characterize 3 the -- if it's wrong then we'll -- 4 THE COURT: I've got another setting at 10, so -- 5 the problem with your motion is it should have been -- if 6 you didn't understand the order, first of all, why didn't 7 you file a motion to clarify with Judge Murphy? 8 order -- your motion to stay should have been filed in 9 conjunction with your notice of appeal and you should have Your 10 been talking about a bond. You guys were afraid of a bond 11 because you've already filed a bond in another jurisdiction. 12 You didn't want to file a bond, so you didn't file a motion 13 to stay, didn't file a bond. 14 You didn't think about a motion to stay until this contempt 15 motion came in, so that's why you were too late. 16 likelihood of success on the merits is next to nil. 17 not going to win your appeal. You didn't want to touch that. Your You're 18 When you're talking about harm, if you wanted to 19 talk about harm you'd have filed your profits and loss or 20 your net worth statement with your motion to stay. 21 haven't provided me with the advantage of being able to look 22 at what you're talking about in terms of what harm this is 23 going to do to you. 24 about what you need to provide me so that I can decide the 25 contempt motion. You And let me revise what I said earlier I don't want your affidavit. I want your Pg. 38 1 assets statement from a certified public accountant. 2 don't want it from you. 3 order, I want that from a certified public accountant. 4 want a certified profits and loss or certified net worth 5 statement. 6 I After looking at Judge Murphy's I So with respect to talking about the community, the 7 community has to worry about lawyers who file unreasonable 8 and vexatious claims. 9 community is when you talk about harm to the community. That's where the harm to the The 10 community is worried about lawyers, worried about lawyers 11 that file these kind of lawsuits. 12 Judge Murphy is right -- and for the time being until the 13 Seventh Circuit says something differently, I have to assume 14 he is -- the community is worried about guys like you. 15 that's where we are with the community. 16 stay is denied. 17 So if, in fact, So So your motion to You did everything wrong when you're talking about 18 a motion to stay. If you'd have done it right I probably 19 would have been in a very good position to say, well, I got 20 some question about whether or not you're going to prevail 21 on appeal, but as far as the playing field is concerned 22 here, maybe we'll do the motion to -- maybe we'll stay this 23 thing and see what the Seventh Circuit says. 24 do it right, which leads me to believe that Judge Murphy was 25 right all along. But you didn't So motion to stay is denied. Pg. 39 1 Now, since you've got to go to a certified public 2 accountant I'll give you ten days instead of seven for that 3 certified statement as to your net worth, but get that to me 4 so that I can decide this other thing. 5 under advisement. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 This hearing is adjourned. (Court adjourned) * * * * I have to take that Pg. 40 1 2 3 4 5 6 REPORTER'S CERTIFICATE I, Laura A. Blatz, RPR, Official Court Reporter for the U.S. District Court, Southern District of Illinois, do hereby certify that I reported in shorthand the proceedings contained in the foregoing 39 pages, and that the same is a full, true, correct, and complete transcript from the record of proceedings in the above-entitled matter. Dated this 27th day of February, 2014. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 /s/ _______________________________ LAURA A. BLATZ, RPR