United States v. Hansmeier

988 F.3d 428

UNITED STATES of America, Plaintiff - Appellee

v.Paul R. HANSMEIER, Defendant - Appellant

No. 19-2386

United States Court of Appeals, Eighth Circuit.

Submitted: October 23, 2020

Filed: February 10, 2021

Counsel who presented argument on behalf of the appellant was Andrew H. Mohring, AFPD, of Minneapolis, MN. The following attorney(s) appeared on the appellant brief; Eric Riensche, AFPD, of Minneapolis, MN.

Counsel who presented argument on behalf of the appellee was David J. MacLaughlin, AUSA, of Minneapolis, MN. The following attorney(s) appeared on the appellee brief; Lisa D. Kirkpatrick, AUSA, of Saint Paul, MN.

Before BENTON, SHEPHERD, and KELLY, Circuit Judges.

KELLY, Circuit Judge

Paul Hansmeier was charged in an 18-count indictment with mail and wire fraud, 18 U.S.C. §§ 1341, 1343 ; conspiracy to commit mail and wire fraud, 18 U.S.C. § 1349 ; conspiracy to commit money laundering, 18 U.S.C. § 1956(h) ; and conspiracy to commit and suborn perjury, 18 U.S.C. § 371. After the district court¹ denied his motion to dismiss the 17 fraud and money laundering counts, Hansmeier pleaded guilty to one count of conspiracy to commit mail and wire fraud and one count of conspiracy to commit money laundering. He was sentenced to 168 months’ imprisonment and ordered to pay restitution in the amount of $1,541,527.37.

Hansmeier presents two arguments on appeal. First, he claims that the district court erred in denying his motion to dismiss. Second, he contends that the district court's restitution award improperly included more than just the losses caused by his offense. We affirm.

I.

A.²

Paul Hansmeier was an attorney licensed to practice law in Minnesota. Along with his business partner John Steele, who was charged in the same indictment,³ Hansmeier operated the law firm Steele Hansmeier PLLC. Beginning around September 2010, the firm started representing organizations and individuals that owned the copyrights to certain pornographic movies. As part of their representation, Hansmeier and Steele pursued the following strategy, as described in the indictment:

Defendants and their agents monitored file-sharing websites and obtained IP Addresses of individuals who downloaded or attempted to download their clients’ movies. Defendants then filed copyright infringement lawsuits against these anonymous individuals, sometimes referred to as "John Does," and sought authority from the court—often referred to as "early discovery"—to subpoena internet service providers for subscriber information associated with the IP Addresses.

After receiving the subscriber information, defendants ... made phone calls and sent letters to the subscribers associated with targeted IP Addresses in which they threatened overwhelming financial penalties—the copyright statute permits plaintiffs to recover damages of up to $150,000 per infringement—and public disclosure unless the purported infringers agreed to pay a settlement of approximately $4,000. Many of the individuals who received defendants’ letters and phone calls agreed to pay the settlement rather than incur the expense of defending the lawsuit—which would undoubtedly exceed the settlement amount—or risk being publicly shamed for allegedly downloading pornographic movies.

The indictment alleges that Hansmeier and Steele started by monitoring file-sharing websites to look for potential infringers. Beginning in April 2011, however, the two men began directing their agents "to upload their clients’ pornographic movies to BitTorrent file-sharing websites, including a website named the Pirate Bay, in order to entice people to download the movies and make it easier to catch those who attempted to obtain the movies." Once Hansmeier and Steele identified potential infringers who downloaded the movies, they took the same steps of seeking early discovery, sending settlement demands, and receiving payments from alleged infringers. Hansmeier and Steele told neither the courts in which they sought discovery nor the alleged infringers that they were responsible for making the films available on the file-sharing sites.

Several months later, Hansmeier and Steele again modified their strategy. First, in November 2011, they "caused Prenda Law to be created." Though the firm was nominally owned by their associate, the two men exerted de facto control over it and used the firm to pursue their copyright infringement litigation. The indictment alleges that Hansmeier and Steele "on multiple occasions falsely denied to various courts any direct involvement with or control over Prenda Law." Next, they created the organizations AF Holdings and Ingenuity 13. Hansmeier and Steele represented to the courts that these organizations were owned and controlled by other individuals and used the names of an acquaintance and of a paralegal they employed. But in reality, Hansmeier and Steele controlled both. Under their direction, these organizations obtained copyrights to a number of pornographic films and then served as Hansmeier and Steele's clients as the two men pursued their copyright litigation. Unknown to both the courts and the alleged infringers, Hansmeier and Steele were thus the direct beneficiaries of all settlement payments made out to AF Holdings and Ingenuity 13.

In May 2012, Hansmeier and Steele began creating pornographic films themselves. Contracting with adult film actresses, Hansmeier and Steele produced multiple short films and transferred the copyrights to Ingenuity 13. They did not distribute the movies commercially, but instead posted them exclusively on file-sharing websites and monitored the downloads. Using these entities and films, Hansmeier and Steele continued to pursue their settlement-focused litigation strategy. In doing so, they failed to disclose their involvement to either the courts or the alleged infringers.

The indictment alleges that, in order to carry out their litigation strategy, Hansmeier and Steele deceived both the courts in which they sought discovery and the alleged infringers they sued. Specifically, the indictment accuses Hansmeier and Steele of deliberately concealing from the courts "their role in distributing the movies, as well as their significant personal stake in the outcome of the litigation." This concealment, the indictment alleges, was done with the purpose of gaining access to downloaders’ identifying information, in order to "garner quick settlements from individuals who were unaware of the defendants’ role in uploading the movie, and often either too embarrassed or could not afford to defend themselves." The indictment also characterizes the threatened lawsuits as legally baseless, suggesting that Hansmeier and Steele had provided legal authorization to download the movies when they caused them to be uploaded to file sharing sites. Accordingly, the indictment claims, any representations Hansmeier and Steele made to the courts or the alleged infringers that they and their clients had legitimate copyright infringement claims or had suffered damages from that infringement were also false.

Around October 2012, "after courts had begun limiting the discovery [they] could obtain through copyright infringement suits," Hansmeier and Steele developed a new way to seek copyright settlements. This involved the creation of three new organizations: Guava, Livewire Holdings, and LW Systems. As with AF Holdings and Ingenuity 13, though Hansmeier and Steele represented that these companies were owned by other individuals, Hansmeier and Steele actually controlled each company. Under their new strategy, Hansmeier and Steele filed lawsuits alleging that certain John Does had hacked these companies’ computer systems. This, the indictment claims, was a lie: while the John Does in question had apparently downloaded the pornographic films, they had not hacked into any computer systems. Indeed, the companies had no computer systems to hack.

In reality, according to the indictment, Hansmeier and Steele brought these lawsuits in a renewed attempt to learn the identities of alleged infringers and to send them settlement demands. In this effort, Hansmeier and Steele recruited "ruse defendants." These defendants were people Hansmeier and Steele had caught downloading movies for which they (or their purported "clients") possessed copyrights. In exchange for Hansmeier and Steele waiving their copyright claims against them, the ruse defendants agreed to be sued for hacking the companies’ computer systems. This then allowed the two men to seek discovery about the ruse defendants’ alleged co-conspirators in the computer hacking. In reality, these "co-conspirators" were just other downloaders of copyrighted movies whose IP addresses Hansmeier and Steele identified through the file sharing sites. Once Hansmeier and Steele gained subpoena authority for the supposed co-conspirators’ information, they sent them the same copyright-based settlement demands described above.

Eventually, courts grew suspicious of Hansmeier and Steele's litigation techniques and started denying their subpoena requests, dismissing their lawsuits, imposing sanctions, and notifying state attorney disciplinary bodies and other courts. The indictment includes language from a federal district court order imposing sanctions against both men, in which the court states that the two "have demonstrated their willingness to deceive not just this Court, but other courts where they have appeared" and that their "deception was calculated so that the Court would grant [their] early-discovery requests, thereby allowing [them] to identify [alleged copyright infringers] and exact settlement proceeds from them." The responses from the courts effectively ended Hansmeier and Steele's operation. But between 2011 and 2013, before they faced this increased scrutiny, Hansmeier, Steele, and their entities received more than $6 million in copyright settlement payments, half of which went to Hansmeier and Steele themselves.

B.

On December 14, 2016, a...