Today Malibu Media (a litigation shell of a hardcore “barely legal” pornography producer X-Art), represented by its new counsel, Pillar Law Group, filed a lawsuit in Central District of California against its former counsel, Michael Keith Lipscomb and his firm, Lipscomb, Eisenberg and Baker (CACD 16-cv-04715). I reported about an apparent quarrel between X-Art and Lipscomb, but I did not know the details. Now we have an opportunity to peek into the reasons behind the breakdown and the specifics of the shakedown operation in general.

The complaint is embedded below. In short, the plaintiff alleges that Lipscomb stopped paying the ransom settlement cut to Malibu in the fall of 2015, and Malibu hired Pillar Law to investigate the accounting. It turned out that there was no accounting at all. Lipscomb had been pulling plaintiff’s leg for half a year, promising cash flow reports that he never delivered (Prenda at least had a spreadsheet). Finally, Lipscomb said that those lawsuits are not profitable any longer, that Malibu was facing sanctions and massive fees, so he bailed out.

A couple of observations

The accusations confirm an open secret: it was Lipscomb who scouted for porn “clients,” not the other way around as alleged in thousands of Malibu’s declarations:

Defendants initially contacted MM by telephone, email and text messages in order to solicit MM to engage Lipscomb and LEB as its copyright enforcement counsel.

Such conduct most certainly runs afoul of the Rules of Professional Conduct. The irony is that Lipscomb himself used to groundlessly accuse some defense attorneys of soliciting clients.

It is eye-popping that a multi-million shakedown operation lacked any documentation, literally no retainer of any kind, no contracts:

Upon information and belief, at the inception of their representation, LEB never provided MM with a written and signed retainer agreement setting forth the standards upon which LEB would provide legal services to MM and bill for those services, including whether LEB’s fee would be on a contingency, flat fee, or hourly basis, and which contained provisions for charges and apportionment of settlement amounts and costs.

Raul offers a plausible explanation to that:

The oral contingency arrangement has always been an issue because it is believed that originally it was a three-way split between Lipscomb, MM and Guardaley. If written and discovered in lawsuit discovery… well it becomes problematic as it taints the “expert.”

This conduct can actually cost Lipscomb his attorney license (emphasis added):

A contingent fee agreement shall be in writing and shall state the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer in the event of settlement, trial, or appeal, litigation and other expenses to be deducted from the recovery, and whether such expenses are to be deducted before or after the contingent fee is calculated. Upon conclusion of a contingent fee matter, the lawyer shall provide the client with a written statement stating the outcome of the matter and, if there is a recovery, showing the remittance to the client and the method of its determination.

(Rule 4-1.5(f)(1) of the Florida Rules of Professional Conduct.)

Lipscomb was supposed to do a fee statement for each of the 5,000+ lawsuits. He did not. It is a big deal. Part (2) of the rule is even worse, as it implicates the other lawyers in his firm, current or former (including Emilie Kennedy, who is Lipscomb’s adversary now).

Paragraph 30 indicates that there was a lawsuit filed by Lipscomb against Malibu Media, Pillar Law Group, and a couple of entities I never heard of:

On June 10, 2016, LEB and Lipscomb filed a lawsuit against MM and Pillar Law Group, APLC in Florida state court. In the lawsuit, LEB and Lipscomb revealed attorney-client privileged and confidential matters to the court and the public.

This lawsuit was filed in Miami-Dade County, and the complaint is sealed (i.e. the claim that privileged information was revealed to the public seems to be meritless). No doubt that the public interest in the material this complaint contains outweighs any privacy concerns, and there is a hope: I’ve been told that Florida’s Sunshine Law is pretty strong (the courts do not like sealing records unless to protect personal interest like children, nudity, etc.), and if a third party (i.e., a journalist) questioned the sealing, it is plausible that the seal would be lifted.

Raul observes:

To my reading, the complaint alleges a purposeful campaign to stall an accounting and then to hold the litigation campaign ransom for a release from liability. These are all, as alleged, purposeful acts. To my mind the only reason the negligence claim was alleged was to get the defendants’ malpractice insurance to the bargaining table which is always a smart move.

Overall, it is a positive development. This lawsuit will bring to light a lot of dirty laundry that the crooks tried to hide for a long time. The courts around the country are still under the spell that Bittorent lawsuits are legitimate, and more sunshine will definitely help King Théoden of Rohan to shake off Gríma Wormtongue‘s spell for good. In addition, I hope that Guardaley’s involvement (including an outright fraud: 200 forged declarations is not a joke) will spark interest of the alphabet agencies, if it has not already. Just look what is happening to Malibu’s cousin Prenda!

In the meantime, let vermin eat each other.

Coverage

• ArsTechnica: Porn studio that sued thousands for piracy now fighting its own lawyer
• TechDirt: Malibu Media Sues Its Former Lawyer Over Missing Funds, Breach Of Bar Rules
• XBiz: X-art.com Sues Longtime Attorney, Claims Negligence
• Morrison|Lee: Battle of the Trolls: Porn Company Sues Law Firm for Withholding Shakedown Money

Related

• Malpractice insurer alleges that Lipscomb lied on the application, sues to rescind the coverage

Updates

7/20/2016

Today, two days short of the deadline to answer the complaint, the defendants filed their ex-parte motion for extension, asking the court to extend the deadline to August 22. Mr. Lipscomb is seemingly conscious of not having a fool for a client, so he hired local attorneys: John W. Sheller and Wendy Wen Yun Chang, both listed as partners of a biglaw firm Hinshaw and Culbertson. The defendant states that plaintiff’s attorney Art Kalantar did not agree to an extension and is expected to file an opposition within 24 hours.

7/21/2016

As promised, the plaintiff filed its opposition to the extension, arguing that because Lipscomb didn’t waive service, he is not entitled to the relief.

Here, Defendants’ demand to extend their response deadline by 31 days violates Local Rule 8-3 in that it extends the deadline more than a cumulative total of thirty days. Had Defendants requested a reasonable extension such as 7 or 10 days, Plaintiff would have stipulated. However, here, Plaintiff could not stipulate to such an extension even if it wanted.

This is not a very complicated case. The complaint contains 57 paragraphs and four causes of actions. The fact that there is another lawsuit filed by Lipscomb in Florida against Plaintiff’s counsel and Plaintiff and other unrelated defendants, should play absolutely no role in this Court’s decision to grant defendants an extension of 31 additional days within which to plead. Lipscomb and LEB knew that they were going to be sued for their actions against Plaintiff. The fact that Lipscomb filed a frivolous and pre-emptive lawsuit in Florida state court should be of no consequence to this Court’s decision to grant this extension request.

It is unusual for lawyers to be that stubborn over a simple (and the first) extension request. Seems to me that the Pillar attorneys are confident that the amount of dirt they have on Mr. Lipscomb gives them the upper hand.

7/22/2016

No order on motion to extend time today. And no Lipscomb’s answer. Instead, the defendant filed a motion to dismiss

[…] pursuant to the doctrine of abstention set forth in Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 815, 96 S.Ct. 1236, 1245 (1976), because the parties and issues raised in the present action are substantially similar and should be asserted as a compulsory counterclaim to those raised in previously filed separate litigation pending in Florida state court […].

The requested motion hearing date is 9/6/2016.

7/28/2016

In the Miami-Dade state action, Pillar filed a motion to dismiss for lack of personal jurisdiction. The motion was filed by specially appearing local attorneys Therese A. Felth and Alistair McKenzie from McKenzie Law Firm, PA. While the documents were filed on 7/20, they became available only today.

8/24/2016

Miami-Dade action:

On 7/28 (available 8/10), two mysterious defendants, Digital Analytics Inc. (DAI) and Digital Content Inc. (DCI), via Miami attorneys from Schlesinger and Associates, answered Lipscomb’s complaint. I correct myself: only DCI answered, while DAI moved to dismiss the breach of contract claim against it — arguing that while it was a successor of DCI (which was dissolved in 2014), all the obligations to Lipscomb had been fulfilled prior to the predecessor’s dissolution.

On 8/1 (available 8/17), two proofs of service — of Pillar and Malibu — were filed. Both were served on 7/1.

California action:

On 8/16, Malibu/Pillar filed an opposition to Lipscomb’s motion to dismiss, and on 8/23 Lipscomb replied to that opposition. No breathtaking revelations, although a thorough reader will find some new tidbits. Two new names found in Lipscomb’s declaration attached to the latter filing (page 13): Steve Kovacks and Eric Woldoff, DCI’s financial manager and CEO. I don’t know if it is the same Eric Woldoff who, among others, was sued by FTC for deceptive collection practices ten years ago. Given that the copyright shakedown enterprise in question is a borderline scam, it very well may be the same person.

Also, we learn that not only Jessica Fernandez joined Pillar, but Emilie also managed to lure two former Lipscomb’s paralegals — Alejandra Albuerne and Crystal Sebastian — to work for Malibu from home in Florida.

8/30/2016

In the California case, Lipscomb substituted his California attorneys with Barry Z. Brodsky of Kaufman Dolowich Voluck LLP (which employs Andrew Waxler, who represented Prenda’s Brett Gibbs in the widely publicized Ingenuity case).

New documents in the Miami-Dade case:

• 8/23/2016: First request for production: Pillar Law Group
• 8/23/2016: First request for production: Digital Content, Inc.
• 8/23/2016: First request for production: Digital Analytics, Inc.
• 8/23/2016: Notice of deposition of Pillar Law Group (10/6/2016)
• 8/23/2016: Notice of production/Subpoena: Emilie Kennedy
• 8/23/2016: Notice of production/Subpoena: Jessica Fernandez
• 8/23/2016: Notice of production/Subpoena: Crystal Sebastian
• 8/23/2016: Notice of production/Subpoena: Alejandra Albuerne

A new name: Thomas Hein, who worked as an account manager for German American Services, which is, according to his LinkedIn page,

German American Services is a Sales Service Provider for several Anti Piracy Service Providers, located in Germany, United Kingdom and U.S.A, offering copyright protection for content holders in the music, movie and software industry.

9/13/2016

On 9/6/2016, Judge Manuel Real granted Lipscomb’s motion to dismiss. So, the CACD case is over. The Miami-Dade case continues.

Florida: Two days later, Lipscomb moved for entry of a default as to Malibu Media, the only defendant that didn’t respond to the Miami-Dade lawsuit in any form.

9/30/2016

New documents on the Miami-Dade case:

• 9/9/2016: Court declined to enter of a default
• 9/10/2016: Notice of appearance for Malibu (McKenzie Law Firm, PA)
• 9/10/2016: Malibu’s motion to quash service
• 9/21/2016: DAI’s motion to stay discovery
• 9/21/2016: DCI’s notice of production
• 9/23/2016: Pillar’s motion to stay discovery — ironically, Pillar accuses Lipscomb of a fishing expedition while the entire Malibu Media shakedown campaign relies on fishing expeditions due to lack of admissible evidence available at the time when each lawsuit is commenced.