Trustee says Minneapolis lawyers bankruptcy filed in bad faith

The state board that investigates ethics complaints against Minnesota lawyers filed a petition Monday seeking to suspend or disbar Minneapolis lawyer Paul Hansmeier, who built a career suing thousands of people nationwide for downloading Internet porn, then turned to filing what some call “nuisance lawsuits” against small businesses that allegedly fail to comply with disability access laws.

The 43-page petition by the Minnesota Lawyers Professional Responsibility Board follows a move by the U.S. Bankruptcy Court trustee to liquidate Hansmeier’s assets forcibly, arguing that he sought court protection from creditors in “bad faith.”

Those words and harsher ones were sprinkled through the lawyers’ board petition with the Minnesota Supreme Court, recounting Hansmeier’s actions related to his so-called “porn trolling” cases. In recommending discipline, the board cited numerous legal rulings against Hansmeier characterizing those suits as “vexation litigation designed to coerce settlement,” as false statements made in court, in depositions and on state documents under penalty of perjury.

Hansmeier and his associates in the porn trolling cases were hit with hundreds of thousands of dollars in court-ordered sanctions. He now makes a living suing bars, restaurants, stores and other small businesses on allegations that they fail to comply with disability access laws, a practice denounced by Chambers of Commerce and some politicians.

As Hansmeier’s creditors closed in, he filed for bankruptcy protection seeking to reorganize more than $1.5 million in debts, taxes and court sanctions. He has asked the federal bankruptcy court to let him restructure his debts so that he can move on with his life.

Neither his creditors nor the bankruptcy trustee think that should happen. They filed more than 500 pages of documents late last week objecting to his plan, arguing that Hansmeier filed for bankruptcy protection “in bad faith.”

U.S. Bankruptcy Trustee Daniel McDermott characterizes Hansemeier’s financial disclosures as incomplete and misleading. McDermott alleges that Hansmeier made fraudulent transfers of assets to his wife, Padraigin Browne, and that they’re selling their condo in The Carlyle, a downtown Minneapolis luxury high rise, without court approval. They now rent a home in Woodbury.

Colin Kreutziger, an attorney representing the trustee, wrote that Hansmeier’s conduct leading up to bankruptcy indicates that he filed his petition solely to keep his creditors at bay.

“The underlying conduct giving rise to most of the debtor’s debts is nothing short of egregious,” Kreutziger wrote. He said that Hansmeier and Browne, who also is a lawyer, don’t have the wherewithal to pay their creditors as promised under the proposed plan.

Neither Hansmeier nor his attorney responded to messages seeking comment.

Hansmeier’s troubles began when he and another University of Minnesota law school graduate named John Steele started a lucrative practice suing what they called Internet pirates who illegally download copyrighted pornography. But the way they went about it — suing “John Doe” defendants to extract the identities behind the Internet addresses used to access the porn, then demanding settlements — drew rebukes and huge sanctions from judges. One denounced Hansmeier and his associates for their “relentless willingness to lie to the court on paper and in person.”

A federal judge in California referred them to criminal investigative authorities, though no charges have resulted.

Patrick Burns, a spokesman for the lawyers board, said it was aware of the bankruptcy trustee’s allegations, which closely mirror those in the board’s complaint. Burns said the disciplinary process can take up to a year to play out if Hansmeier, 34, contests the matter.

Meanwhile, the Illinois Attorney Registration and Disciplinary Commission filed a complaint in August against Steele alleging “conduct involving dishonesty, fraud, deceit, or misrepresentation” in the copyright cases. That complaint is pending.

Lawyers representing several of Hansmeier’s creditors filed a joint motion objecting to his debt restructuring plan. They said Hansmeier’s lawyer informed them that he intends to close soon on the sale of his condo for $1.2 million. If allowed, they said proceeds should be used to pay down his judgments immediately rather than over the course of five years as Hansmeier proposed in his plan.

The creditors argued that Hansmeier filed his bankruptcy petition in July “to avoid discovery into his fraudulent transfers of assets to his wife and his new law firm, Class Justice,” which he uses to litigate the disability access cases.

They noted that the bankruptcy petition was filed just a day before a Hennepin County judge was scheduled to hold a hearing on whether Hansmeier should be found in contempt for failing to disclose financial records that were being sought by his creditors.

The creditors say that Hansmeier and his wife have not been truthful in their deposition testimony and feigned lack of knowledge or understanding of their financial affairs. They also have refused to provide documents that would show the location and amounts of their assets, the creditors say.

Court records and financial records show that Hansmeier “transferred more than $500,000 among his various entities and personal and business accounts before he filed his petition,” the creditors said in court papers.

They allege that Hansmeier filed his bankruptcy petition to avoid the discovery of assets that were transferred “to insiders, specifically the debtor’s wife,” to his current law firm, and to two entities designed to protect those assets, the creditors wrote. They said that records they have obtained show that Hansmeier uses corporate entities for his personal expenses, such as liquor, travel, and his own legal fees.

Similar allegations also were cited in the lawyers board complaint.

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