Bethany Krajelis Sep. 8, 2014, 1:18pm

CHICAGO (Legal Newsline) – After issuing two warnings and reminding attorney Paul Duffy why he and Prenda Law were sanctioned in the first place, a Chicago federal judge on Thursday denied the embattled firm’s motion to stay payment of the $11,000-plus sanctions award in the defamation case the duo brought last year.

“Mr. Duffy, this is not a game,” U.S. District Judge John Darrah. “Do you understand that?”

Duffy, who attended Thursday's brief status hearing by phone, told Darrah he did. Minutes earlier, the judge asked Duffy “to be extra cautious in the representations you make to this court” after the defendants’ attorney, Erin Russell, said he was “mistaken” about a statement he made.

Russell attended the hearing in person to ask Darrah to grant her clients’ motion for a default judgment in a pair of defamation cases that Prenda and Duffy filed in February in St. Clair and Cook counties against Minnesota attorney Paul Godfread and his client, Alan Cooper.

The defamation cases were consolidated and removed to Chicago’s federal court last summer. Since then, the parties have spent a considerable amount of time fighting over a remand request that was eventually rejected, counterclaims that have been twice amended and a motion for sanctions that was approved earlier this year.

At today’s hearing, Darrah denied motions from both sides: the defendants’ request for a default judgment, as well as Prenda and Duffy’s motion for a stay of payment. He also issued some strong warnings to Duffy and ordered him to attend the next hearing on Sept. 18 in person, as opposed to by phone.

Prenda, a now-dissolved Chicago law firm, and the three attorneys behind it – Duffy, John Steele and Paul Hansmeier – may not have the best reputation among judges.

In the past year or so, they have been the subject of sanction orders from courts across the nation and have been accused of creating sham corporations, exploiting the courts’ subpoena powers and extorting defendants into settling copyright infringement and computer hacking suits.

Cooper and Godfread sought sanctions against Prenda and Duffy in September 2013, claiming they lied to an employee of the St. Clair County Clerk’s Office to get an amended complaint filed in the defamation case and lied to Darrah about what U.S. Chief Judge David Herndon said in denying their remand request when one of the cases was still before southern Illinois’ federal court.

Darrah approved their request at a hearing in late January and in June, ordered Prenda and Duffy to pay $11,758.20 in legal fees as sanctions for the misrepresentations they made in their remand motion to remand and before him.

At an August status hearing, Duffy said he planned to file a motion to stay payment of the sanction due to inability to pay. Darrah gave him until late August, but it appears he got an extension because he didn’t file it until Tuesday.

Duffy said in the motion that “Prenda does not have assets with which to pay it. Indeed, it appears that the only asset that Prenda now has are the proceeds, if any, that it may derive from this lawsuit and other litigation that it may initiate.”

The motion was filed by Duffy, who is representing his now-dissolved firm, but was only filed on behalf of Prenda, not Prenda and Duffy. It also stated that the request was being made in regards to the $11,000-plus sanction the court imposed “upon Prenda on or about June 12, 2014.”

Russell brought up these points up at today’s hearing, telling Darrah that Duffy previously said the sanction order is only against Prenda and doesn’t apply to him.

Duffy said he made that statement based on Darrah’s June memorandum opinion order that set the specific amount of sanctions.

While it notes the judge sanctioned Prenda and Duffy for their misconduct, the conclusion of the opinion states that “Sanctions are awarded to Defendants against Prenda Law Inc.”

Russell said the mention of Prenda, as opposed to Prenda and Duffy, was probably because in the opinion, Darrah denied Prenda’s motion opposing the requested legal fees. She said only Prenda, not Duffy, filed an opposition to her itemization of legal fees sought as sanctions.

In the order Darrah handed down in February, which approved the motion for sanctions and requested an itemization of legal bills, Darrah wrote “sanctions are awarded to defendants against Prenda Law Inc. and Paul A. Duffy pursuant to the Court’s inherent authority to sanction.”

“I misunderstood,” Duffy told Darrah, noting his statement was based on the June opinion that only listed Prenda.

“I cautioned you about making these types of statements,” Darrah said, reminding Duffy it was these types of statements that led him to impose sanctions in the first place. “What you just said is wrong.”

“I apologize,” Duffy said.

Darrah made his ruling denying Prenda’s motion to stay payment from the bench, just two days after the motion was filed and without any written response from the defendants.

During their discussion on Prenda’s motion, Darrah asked Russell if she wanted to file a motion for rule to show cause and gave her until the Sept. 18 hearing to do so.

Russell said after today’s hearing she was “pleased and pleasantly surprised” with Darrah’s decision on Prenda’s motion for a stay, which said was the “right ruling.”

Although ruling to deny the motion to stay payment of the sanction marked a victory the defendants, they suffered a loss when Darrah rejected a request they made for a default judgment.

The motion for default was filed last week in relation to Prenda and Duffy’s failure to respond to the defendants’ second amended counterclaims.

In their counterclaims, Cooper and Godfread basically alleged they were sued for defamation in retaliation for filing a lawsuit in Minnesota against Prenda and its principles for the alleged theft Cooper’s identity in violation of Minnesota’s SLAPP Act.

Cooper claims his name had been used as an officer of director of AF Holdings – one of Prenda Law’s clients that a few judges have dubbed as sham corporations created to benefit the attorneys representing them – without his consent.

Russell told Darrah she submitted her clients’ second amended counterclaims in April and that Duffy in May said he planned to file a motion to dismiss them. She said the court gave Duffy and Prenda until May 23 to do so, but that they never did and never filed a response.

Duffy said via phone Thursday that as he recalls, the court struck the counterclaims. Russell said he was wrong and gave the timeline and history regarding her clients’ counterclaims.

Darrah in August 2013 granted Prenda and Duffy’s motion to dismiss the defendants’ original counterclaims, noting that they were poorly drafted and didn’t explain Duffy’s role in the matter. He gave them 30 days to file amended counterclaims, which they did.

In March, Darrah struck their amended counterclaims, but gave the defendants leave to replead them to conform to federal rules, including one that requires paragraphs to be numbered. He dismissed Prenda and Duffy’s request to toss the amended counterclaims as moot.

Duffy told Darrah he intended to refile his motion to dismiss and admitted he never filed a response to the second amended counterclaims. He then told the judge he “would like the opportunity to stand” on his previous motion to dismiss.

Darrah said he couldn’t do that, but gave him seven days to do so and denied the defendants’ motion for a default entry “at this time” before issuing another warning to Duffy.

“It must be on file in seven days,” Darrah told Duffy, adding that “failure to do so will invite another motion from” Russell and said that one might end in a favorably ruling to the defendants.

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