In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 15‐2440 & 15‐2682
LIGHTSPEED MEDIA CORPORATION,
Plaintiff,
v.
ANTHONY SMITH, et al.,
Defendants‐Appellees,
Appeals of JOHN STEELE and PAUL HANSMEIER,
Appellants.
____________________
Appeals from the United States District Court for the
Southern District of Illinois.
No. 3:12‐cv‐889‐DRH‐SCW — David R. Herndon, Judge.
____________________
ARGUED FEBRUARY 18, 2016 — DECIDED JULY 19, 2016
____________________
Before WOOD, Chief Judge, and KANNE and SYKES, Circuit
Judges.
WOOD, Chief Judge. When last we considered John Steele
and Paul Hansmeier’s challenges to contempt sanctions im‐
posed on them, we gave them some friendly advice: stop dig‐
ging. See Lightspeed Media Corp. v. Smith, 761 F.3d 699 (7th Cir.
2 Nos. 15‐2440 & 15‐2682
2014) (Lightspeed I). Apparently they did not realize that we
meant what we said. Hoping to avoid paying additional sanc‐
tions, they dissembled to the district court and engaged in dis‐
covery shenanigans. Anthony Smith, a defendant in the un‐
derlying litigation, found out what was going on and moved
for yet more contempt and discovery sanctions against Steele,
Hansmeier, and Paul Duffy. (We occasionally refer to them
collectively as the Attorneys.) Although the district court ini‐
tially denied his request, it granted Smith the requested sanc‐
tions on a motion for reconsideration. Duffy is now deceased
and so beyond our jurisdiction. Hansmeier and Steele have
appealed, arguing that the district court erred in (1) revisiting
its initial ruling on Smith’s motion; (2) finding the Attorneys
in contempt; and (3) sanctioning the attorneys for discovery
misconduct. With regard to Steele, we affirm the district
court’s discovery sanction and vacate its contempt sanction.
We dismiss Hansmeier’s appeal.
I
For present purposes, only a précis of this case’s origin is
necessary. (A detailed account may be found in Lightspeed I.)
Hansmeier, Steele, and Duffy were the members of a shifting
and overlapping set of law firms and business entities that a
district court dubbed a “porno‐trolling collective.” Ingenuity
13 LLC v. John Doe, No. 2:12‐CV‐8333‐ODW (JCx), 2013 WL
1898633, at *1 (C.D. Cal. May 6, 2013). On behalf of Lightspeed
Media, a company that operates websites purveying online
pornography, the Attorneys sued a John Doe defendant in Il‐
linois state court under the Computer Fraud and Abuse Act,
18 U.S.C. § 1030, and state law. Lightspeed I, 761 F.3d at 702.
They then served ex parte subpoenas on several Internet ser‐
vice providers (ISPs), demanding that the ISPs hand over the
Nos. 15‐2440 & 15‐2682 3
personally identifiable information of more than 6,600 “co‐
conspirators” who, Lightspeed alleged, had violated the Act.
This suit was only one among many similar actions that the
Attorneys filed in courts around the United States. They evi‐
dently hoped to extract quick settlements from individual us‐
ers whose personal information was revealed; few defend‐
ants, they believed, would be willing to litigate their pornog‐
raphy consumption in open court.
But they overlooked a key vulnerability in their strategy:
the need for information held by ISPs. It turned out that the
ISPs were not willing to cooperate; to the contrary, in our case,
the ISPs filed motions to quash the subpoenas and sought a
protective order. The Illinois courts refused to compel compli‐
ance, after which the ISPs removed the case to the U.S. District
Court for the Southern District of Illinois. Id. at 702–03.
At that point, things started to unravel for our heroes. A
court in the Central District of California imposed sanctions
on them in a similar case. Id. at 703. Perhaps seeing the hand‐
writing on the wall, the Attorneys began voluntarily dismiss‐
ing cases across the country, including this one. Id. Shortly af‐
ter the district court granted Lightspeed’s motion for volun‐
tary dismissal, Smith filed a motion for attorney’s fees under
28 U.S.C. § 1927 and Federal Rule of Civil Procedure 54(d)(2).
Id. at 703–04. On November 23, 2013, the district court found
that the Lightspeed lawsuit was frivolous, baseless, and
“smacked of bullying pretense,” and imposed sanctions of
$261,025.11, jointly and severally, against Hansmeier, Steele,
and Duffy.
These are the third and fourth appeals arising out of that
order. After the three failed to pay their sanctions, defendants
4 Nos. 15‐2440 & 15‐2682
Comcast, AT&T, and Smith moved for contempt. The Attor‐
neys repeatedly asserted that they had no money or assets
with which to satisfy the sanctions order. The district court
scheduled a show‐cause hearing for February 13, 2014.
Doubting the Attorneys’ claims of insolvency, Smith is‐
sued third‐party subpoenas to 12 of the Attorneys’ financial
institutions on January 16, 2014. He also served each of the
three with interrogatories and requests for production. Deny‐
ing receipt, they did not comply. On January 30, each attorney
moved to quash Smith’s subpoenas to his financial institu‐
tions. That same day, Steele faxed a copy of the motion to
quash to JPMorgan, but without revealing in what court it had
been filed or whether it had been granted. When JPMorgan
requested a court‐stamped copy, Steele did not reply.
At the hearing on February 13, 2014, the Attorneys insisted
that they could not pay the sanctions. The district court or‐
dered them to produce financial statements prepared by cer‐
tified public accountants; they did so, submitting the state‐
ments in camera. On February 19, the district court denied
Steele’s January 30 motion to quash Smith’s subpoenas. On
March 3, JPMorgan again requested a court‐stamped copy of
the motion to quash. Duffy sent it, but failed to disclose that
the motion had been denied.
On March 20, 2014, Smith filed a renewed motion for con‐
tempt based on the Attorneys’ financial statements, their rep‐
resentations to the court, and discovery interference with re‐
gard to JPMorgan. The district court held all three attorneys
in contempt on March 24, 2014, and ordered them to pay the
defendants $26,102.58, an amount equal to ten percent of the
original sanctions award. That day, Smith issued eight new
third‐party subpoenas to the Attorneys’ financial institutions.
Nos. 15‐2440 & 15‐2682 5
On April 4, 2014, the district court stayed the contempt or‐
der pending the Attorneys’ appeal. On April 11, Steele told
Smith’s counsel that he had informed the subpoenaed third
parties that “the action ha[d] been stayed and the subpoenas
must be withdrawn.” This was untrue: the stay order did not
apply to the subpoenas. That fact, however, did not stop
Steele on April 16 from faxing a copy of the stay order to Sa‐
badell United Bank and stating that the matter was stayed.
Two days later, Smith moved for sanctions against Duffy and
Steele for obstructing discovery.
On April 21, 2014, Hansmeier moved to quash Smith’s
March 24 subpoenas. The Attorneys’ third‐party financial in‐
stitutions continued to withhold production. On July 31, 2014,
we decided Lightspeed I, upholding the sanctions and con‐
tempt orders against Hansmeier, Duffy, and Steele.
On October 20, 2014, the district court denied Hansmeier’s
April 21 motion to quash. On November 12, 2014, the court
held a hearing on Smith’s motions for renewed contempt and
discovery sanctions. It denied them on November 18. In the
interim, Smith received Sabadell’s response to his March 2014
subpoena. It revealed that over the course of January and Feb‐
ruary 2014—just before and after the show‐cause hearing at
which he had claimed to be insolvent—Steele had withdrawn
$355,627.83 from a Sabadell account he shared with his wife.
Smith filed a motion for reconsideration on December 15,
2014, pointing to this new evidence justifying sanctions.
In February 2015, Smith received TCF Bank’s documents,
which included evidence that Hansmeier had control over an
entity named Monyet LLC, and records of transfers related to
Monyet’s Scottrade account. The records showed that Hans‐
meier had transferred $316,250.00 out of the Monyet account
6 Nos. 15‐2440 & 15‐2682
between the time when fees were itemized and the show‐
cause hearing. This amount was far more than the sanctions
owed under the district court’s order—the same sanctions that
Hansmeier had claimed he could not pay.
On June 5, 2015, the district court granted Smith’s motion
for reconsideration, awarding Smith (1) reasonable discovery
costs and (2) contempt sanctions of $65,263.00. It ordered the
contempt sanctions paid by July 15, 2015. On July 2, Smith
itemized $94,343.51 in discovery costs. The court ordered that
the latter costs be apportioned equally between Steele and
Duffy. The Attorneys filed their notice of appeal from the dis‐
covery sanctions on July 6; they filed their notice of appeal of
the contempt sanction on August 6.
There have been several significant developments since
Hansmeier and Steele filed their notices of appeal. On July 13,
2015, Hansmeier filed for bankruptcy in Minnesota. The dis‐
trict court had ordered Steele and Duffy to pay discovery
costs before August 10, 2015. On the appointed day, Steele
wired $47,171.75 (his half of discovery sanction) and
$65,000.00 (all but $263 of the contempt sanction) to the dis‐
trict court. Duffy’s portion never arrived; he died that very
day. On December 3, 2015, Hansmeier’s bankruptcy was con‐
verted to Chapter 7.
II
The district court’s decisions in this case are all reviewed
for abuse of discretion. See Miller v. Safeco Ins. Co. of Am., 683
F.3d 805, 813 (7th Cir. 2012) (motion to reconsider under Rule
59(e)); Blockowicz v. Williams, 630 F.3d 563, 567 (7th Cir. 2010)
(contempt); Greviskes v. Universities Research Ass’n, Inc., 417
F.3d 752, 760 (7th Cir. 2005) (discovery sanctions). As usual,
Nos. 15‐2440 & 15‐2682 7
legal conclusions are reviewed de novo, and factual findings
for clear error. Blockowicz, 630 F.3d at 567.
A
Before we begin our analysis of the Attorneys’ appeal, we
must iron out an additional wrinkle. As we just noted, Hans‐
meier’s bankruptcy is now proceeding under Chapter 7. “In
liquidation proceedings, only the trustee has standing to pros‐
ecute or defend a claim belonging to the estate.” Cable v. Ivy
Tech State Coll., 200 F.3d 467, 472 (7th Cir. 1999), overruled on
other grounds by Hill v. Tangherlini, 724 F.3d 965 (7th Cir.
2013). Hansmeier therefore is not authorized to pursue this
appeal, and so we dismiss it with regard to him. No such com‐
plication affects Steele’s appeal, to which we now turn.
B
Steele argues that the district court abused its discretion
by granting Smith’s motion to reconsider. During the course
of litigation, however, district courts need no special authority
to revisit their rulings; indeed, the purpose of contemporane‐
ous objection rules is to allow them to fix problems promptly,
thereby avoiding wasteful appeals. If there was no final judg‐
ment, the court needed no special authority to reconsider its
earlier decision. Sanctions against nonparties, however, are fi‐
nal enough to be appealable immediately. See U.S. Catholic
Conf. v. Abortion Rights Mobilization, Inc., 487 U.S. 72, 76 (1988).
That is a good description of the district court’s decision in
this case. We therefore assume, generously to the Attorneys,
that reconsideration was possible only insofar as Federal Rule
of Civil Procedure 59(e) permits. That rule requires the mo‐
vant to “demonstrate a manifest error of law or fact or present
8 Nos. 15‐2440 & 15‐2682
newly discovered evidence.” Boyd v. Tornier, Inc., 656 F.3d 487,
492 (7th Cir. 2011).
After failing to persuade the district court to impose dis‐
covery sanctions, Smith presented newly discovered docu‐
ments about Steele and Duffy’s misleading communications
with JPMorgan and Sabadell. As we noted before, some of
those documents showed that Steele had withdrawn more
than $300,000 in funds from his Sabadell account in the period
immediately before and after the show‐cause hearing. The
district court evaluated these documents in light of other evi‐
dence that Steele had lied when he said that he could not pay
the sanctions order.
Steele offers only the weak argument that Smith should
have obtained and submitted this evidence earlier, and that
Smith’s lack of diligence should cut off this line of inquiry. See
Caisse Nationale de Credit Agricole v. CBI Indus., Inc., 90 F.3d
1264, 1269 (7th Cir. 1996) (quoting Engelhard Indus., Inc. v. Re‐
search Instrumental Corp., 324 F.2d 347, 352 (9th Cir. 1963)).
This approach has little but chutzpah—a quality that Steele
and his compatriots have long demonstrated—going for it. To
begin with, it was Steele and Hansmeier’s actions that pre‐
vented Smith from obtaining the necessary evidence in time
for the November 12, 2014 hearing. (Indeed, Steele and Hans‐
meier maintained at the hearing that Smith should receive no
further discovery because he already had all the relevant doc‐
uments in his possession.) Steele’s misrepresentations and
Hansmeier’s motion to quash delayed Sabadell’s production
regarding Steele’s finances until November 17, 2014. The dis‐
trict court denied Smith’s motion the next day. Meanwhile,
Smith first sought discovery regarding Monyet from TCF
Nos. 15‐2440 & 15‐2682 9
Bank on March 24, 2014. Because of Hansmeier’s second mo‐
tion to quash and initially incomplete production, Smith was
unable to obtain it until February 2015.
Steele nonetheless says that Smith should have found the
relevant documents earlier because Monyet’s existence was
“public record” in 2010, and the relevant documents were at‐
tached as exhibits to a debtor’s exam in a Minnesota bank‐
ruptcy case in June and July 2014. The fact that Monyet’s ex‐
istence was public record is of little import: Smith had no rea‐
son to know of its existence, let alone any way to know of
Hansmeier’s control of the company or the transfers Hans‐
meier made from its Scottrade account. Moreover, Smith was
not a party to the Minnesota bankruptcy case. The district
court did not abuse its discretion in granting Smith’s motion
to reconsider.
C
The district court found that Duffy and Steele obstructed
discovery through their communications with JPMorgan and
Sabadell. Steele contends that he did not engage in discovery
misconduct, and in the alternative, that the amount of the dis‐
covery sanction is excessive and unjustified.
1
As we noted earlier, in January 2014 Smith issued third‐
party subpoenas to the Attorneys’ financial institutions; he
also served interrogatories and requests for production on the
Attorneys themselves. None of the recipients complied, and
on January 30, the Attorneys moved to quash the subpoenas.
Steele faxed that motion to JPMorgan without a file‐stamp.
His fax not only implied that the matter was stayed, but it also
10 Nos. 15‐2440 & 15‐2682
made it nearly impossible for JPMorgan to check the case,
date, or even court in order to learn the fate of the motion.
On February 3, 2014, JPMorgan requested a court‐
stamped copy of the motion to quash. Although the district
court denied Steele’s motion to quash on February 19, Steele
did not notify JPMorgan of this development. On March 3,
JPMorgan again requested a court‐stamped copy of the mo‐
tion to quash. Duffy complied literally by sending JPMorgan
a court‐stamped copy of the motion, but he too did not bother
to disclose that the motion had been denied. The district court
found that, through this behavior, Steele had intentionally
misled JPMorgan about its production obligations. The evi‐
dence supports this finding.
The district court also found that Steele obstructed discov‐
ery on April 16, 2014, when he sent Sabadell a copy of an or‐
der staying the original contempt sanctions pending appeal.
This submission, combined with the accompanying cover let‐
ter, gave the impression that Sabadell should not comply with
Smith’s subpoenas. What Steele failed to note was that the stay
applied only to the original sanctions, not discovery. This
communication’s only conceivable purpose was to mislead
Sabadell as to its obligation to comply with the subpoenas.
The district court acted well within its discretion in finding
that Steele obstructed discovery on this occasion.
2
Steele complains that the amount of the discovery sanction
is “grossly excessive.” He argues that the costs for work be‐
fore his January 30 communication to JPMorgan cannot be
justified, as they were not tied to his obstructive conduct. The
Nos. 15‐2440 & 15‐2682 11
district court explained its conclusion to the contrary by not‐
ing that “[t]hese expenses were incurred as a direct result of
Lightspeed’s counsel’s refusal to pay the original sanctions or‐
der and false assertions of insolvency related thereto. Steele
and Duffy used a variety of measures to obstruct the January
2014 discovery efforts (and the March 2014 discovery ef‐
forts).”
Section 1927 “provides only for excess costs caused by the
plaintiffs’ attorneys’ vexatious behavior and consequent mul‐
tiplication of the proceedings, and not for the total costs of the
litigation.” Roadway Express, Inc. v. Piper, 447 U.S. 752, 756 n.3
(1980) (quoting Monk v. Roadway Express, Inc., 599 F.2d 1378,
1383 (5th Cir. 1979) (emphasis in original)). But sanctions are
reviewed “not in isolation but in light of ‘the entire procedural
history of the case.’” e360 Insight, Inc. v. Spamhaus Project, 658
F.3d 637, 643 (7th Cir. 2011) (quoting Long v. Steepro, 213 F.3d
983, 986 (7th Cir. 2000)). Courts “weigh not only the straw that
finally broke the camel’s back, but all the straws that the re‐
calcitrant party piled on over the course of the lawsuit.” Id.
Likewise, Rule 37(a) sanctions “should encompass all ex‐
penses, whenever incurred, that would not have been sus‐
tained had the opponent conducted itself properly.” Tamari v.
Bache & Co. (Lebanon) S.A.L., 729 F.2d 469, 475 (7th Cir. 1984)
(quoting Aerwey Labs., Inc. v. Arco Polymers, Inc., 90 F.R.D. 563,
565–66 (N.D. Ill. 1981)).
As a result, both the district court and we are entitled to
evaluate Steele’s entire pattern of vexatious and obstructive
conduct. Viewed in this light, the sanctions amount is easy to
justify. The district court granted the defendants’ motion for
sanctions on October 30, 2014. By November 13, 2014, the dis‐
12 Nos. 15‐2440 & 15‐2682
trict court had denied the Attorneys’ motion for reconsidera‐
tion, Smith had submitted his itemized fees, and the court had
forecast that the remaining defendants’ costs would be “a cou‐
ple of hundred thousand bucks each.” The Attorneys were
aware of the general amount of sanctions, and no later than
November 22, 2013, when the last defendant submitted its
costs, they knew the full amount of the sanctions. The district
court entered its order formally imposing $261,025.11 in sanc‐
tions on November 27, 2013.
This was the very time when Steele and Hansmeier were
emptying accounts they controlled of sums vastly in excess of
the sanctions they owed. This was obviously egregious be‐
havior, and a flat violation of the district court’s order. Their
actions necessitated Smith’s litigation over their ability to pay
the sanctions. Smith’s compensable expenses reasonably
reached back to his first round of third‐party subpoenas, is‐
sued on January 16, 2014, as the district court found.
D
Steele argues that the contempt sanction the district court
levied against him was actually criminal, rather than civil, in
nature. Based on that premise, he contends that the court’s use
of the rules for civil contempt violated the due process clause
of the Fifth Amendment. Given the criminal nature of the
sanction, it should instead in his view have followed the pro‐
cedures outlined in Federal Rule of Criminal Procedure 42.
And the procedures do differ in significant ways: civil con‐
tempt may be imposed if proven by clear and convincing ev‐
idence, and without the full criminal procedural process,
United States v. Dowell, 257 F.3d 694, 699 (7th Cir. 2001), while
criminal contempt may be imposed only after the subject of
the contempt proceeding has “been afforded the protections
Nos. 15‐2440 & 15‐2682 13
that the Constitution requires of such criminal proceedings,”
Hicks ex rel. Feiock v. Feiock, 485 U.S. 624, 632 (1988); Int’l Union,
United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 826 (1994).
In determining whether contempt is civil or criminal, “the
critical features are the substance of the proceeding and the
character of the relief that the proceeding will afford.” Hicks,
485 U.S. at 631. Civil contempt relief is either coercive or re‐
medial. Dowell, 257 F.3d at 699. It is “designed either to com‐
pel the contemnor into compliance with an existing court or‐
der or to compensate the complainant for losses sustained as
a result of the contumacy.” Id. Criminal contempt sanctions
are punitive: they are meant “to vindicate the authority of the
court.” Id. (quoting Gompers v. Bucks Stove & Range Co., 221
U.S. 418, 441 (1911)).
A contempt fine is generally “remedial when it is paid to
the complainant, and punitive when it is paid to the court.”
Hicks, 485 U.S. at 632. The recipient of the fine is not, however,
the sole determinant of whether the contempt is civil or crim‐
inal. Rather, the distinction depends on something more fun‐
damental: what the relief is meant to achieve. Because condi‐
tional penalties are “specifically designed to compel the doing
of some act,” they are coercive and therefore qualify as civil
contempt. Id. at 633. Similarly, “[a] monetary penalty for a
wrong committed in federal court is civil in nature[] if the
payment is designed to compensate for harm done.” Dowell,
257 F.3d at 699 (quoting In re Maurice, 73 F.3d 124, 127–28 (7th
Cir. 1995)). But contempt is criminal “if its purpose is to pun‐
ish the contemnor, vindicate the court’s authority, or deter fu‐
ture conduct.” Id. A “flat, unconditional fine” that is not
meant to compensate for actual harm is a sanction for criminal
contempt. Hicks, 485 U.S. at 633.
14 Nos. 15‐2440 & 15‐2682
Examining the nature of Steele’s fine and its justification,
we are convinced that it falls on the criminal side of the line.
It was an unconditional fine that did not reflect actual costs
caused by the attorneys’ conduct. The district court justified
the fine of $65,263.00 solely by reference to the attorneys’
“contemptuous statements in court.” This number, the court
commented, was “twenty‐five percent of Judge Murphy’s
original sanction.” It added that a “pattern is purposefully de‐
veloping whereby the contemnors could find their way back
to the full sanction … for their original wrongdoing if they
continue their misdeeds before this Court.” This justification
most naturally supports a fine meant to vindicate the author‐
ity of the court and deter future misconduct, not an award de‐
signed to be compensatory or coercive.
It is also telling that the amount of the fine was not con‐
nected to any cost imposed on either Smith or the district
court. The court meant instead to punish past behavior and to
deter future contemptuous conduct. Nor was the fine tied to
any specific future action. While Lightspeed I found a fine
quantified without reference to billing statements to be a civil
contempt, the fine there “corresponded to attorneys’ fees and
costs incurred by defendants during the course of litigating
the contempt motion.” 761 F.3d at 712. That is not the case
here: the district court said nothing about Smith’s costs. It had
taken care of the costs attributable to the separate discovery
sanctions in a separate part of its order.
Smith points us to Ingenuity13 LLC v. Doe, Nos. 13‐55859 et
al., 2016 WL 3212176, at *3 (9th Cir. June 10, 2016) (nonprece‐
dential), in which the Ninth Circuit held that a sanction la‐
beled a “punitive multiplier”—as luck would have it, also
against Hansmeier, Duffy, and Steele—could nonetheless
Nos. 15‐2440 & 15‐2682 15
qualify as a civil contempt. In addition to being nonpreceden‐
tial, that decision is inapposite. Like the sanction in this case,
the sanction in Ingenuity13 was quantified with reference to
the amount of a previous sanction. Unlike this case, however,
the Ingenuity13 sanction was “remedial[] and for the benefit
of the complainant,” and “did not vindicate the authority of
the court but instead ‘compensate[d] [the defendants] for
losses sustained.’” Id. (quoting Bagwell, 512 U.S. at 829). (Spe‐
cifically, the amount was meant to cover the cost of defending
the anticipated appeal. Ingenuity 13, 2013 WL 1898633, at *5
n.5.) Here, although the district court ordered the Attorneys
to pay the contempt sanction to Smith, we can detect no loss
for which it meant to compensate him.
This is enough to show that we must vacate the existing
contempt order and remand for further proceedings. We
make no comment on what type of contempt Smith may wish
to seek, whether the court might re‐consider the possibility of
civil contempt, or whether criminal contempt could be justi‐
fied once the proper procedures are followed. We are confi‐
dent that the district court will take a fresh look at these ques‐
tions in light of this opinion.
III
Hansmeier is in Chapter 7 bankruptcy and has no stand‐
ing to appeal the sanctions against him. His appeal is there‐
fore DISMISSED. Because the contempt sanction imposed
against Steele was a criminal contempt imposed without the
process required by the Fifth Amendment to the U.S. Consti‐
tution, it is VACATED. Finally, the district court acted within its
discretion by imposing the discovery sanction against Steele,
and so that part of its order is therefore AFFIRMED.
16 Nos. 15‐2440 & 15‐2682
Lastly, we have before us Smith’s Motion for Damages, At‐
torneys’ Fees and Costs Pursuant to Federal Rule of Appellate
Procedure 38 and 28 U.S.C. § 1927. In light of the fact that we
are remanding the contempt portion of the district court’s or‐
der, we DENY this motion. Each party will bear its own costs
on appeal.