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Author Topic: Analysis of an Non-collectable Single-Image Default Judgment Against LLC  (Read 2432 times)

Matthew Chan

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I recently analyzed the outcome of a single-image copyright infringement case where the principals made the strategic decision to NOT defend it. It is the case of FameFlynet vs. Swish Suits LLC filed in the Central District of CA.

People always seem to think that every lawsuit has to be responded to and that you must hire a lawyer to respond to it. Often, that is true but in the case of smaller businesses, it is sometimes not financially feasible, practical, or economically wise to do so. Sometimes, it is just best to strategically "let it go" and "abandon" the corporate entity and let the state administratively dissolve it (don't pay the fees or file the annual documents).

Let the plaintiff spend the money and effort to obtain an noncollectable judgment. That is what Sanders and FameFlynet did and the principals did not contest their efforts.

FameFlynet foolishly allowed Sanders Laws to file suit against Swish Suits LLC over a single image. The business looks "big" because of their nice website but actually smaller than they look.

The principals of Swish Suits tried to negotiate a settlement with Sanders but no agreement occurred and Sanders/FameFly apparently wanted to teach Swish Suits a lesson by filing suit over the single image on Oct 27, 2015.

Swish Suits LLC was served but it appears they had made the decision to "let the LLC" go. In other words, they abandoned" the LLC and it was administratively dissolved by the state. They also shut down checking accounts bearing that name as that LLC was no longer beneficial to keep or maintain.

By the time Sanders/FameFly got to the end in January 2016 with their judgment, the LLC was functionally dead.

The default judgment for the one image was $2,500 plus $400 filing fee and $285 process server fees.  The original extortion letter was around $7,000.  The attorney fees were $7,160.  On paper, the total court judgment is a $10,000 judgment.

HOWEVER, is any of it really "collectible"? I would say, NO.  IN THEORY, it MIGHT be collectible if Sanders and Fameflynet wants to spend even more legal fees to file more motions or alternative lawsuits on whatever arguments they can dream of to try to find corporate assets.

It is very hard, if not impossible, to garnish bank accounts that don't exist in the party name of any lawsuit judgment.  It is also very hard to "take over" digital "assets" that can be recreated under a different name. And even if they "took over" the digital assets, who would be dumb enough to buy those digital assets in any auction? They would be functionally worthless to everyone except the original principals. But they could recreate such assets and launch another website with very little costs.

I am not necessarily recommending what the principals of Swish Suits LLC did to anyone but I do recommend being educated that it is an interesting strategic option that I would consider executing if circumstances warranted it.

This case also demonstrates that courts are "reasonable" and will not allow 5 or 6 figure judgments over mundane image infringements. And the only reason why the overall judgment even cracked $10K was the inflated and uncontested legal fees.

Again, it appears to be a non-issue because the LLC has been dissolved and the checking accounts closed.  FameFlynet foolishly followed the advice of Sanders Law who wanted to "look good" for their client. Well, their client aren't going to like receiving a legal bill for services that resulted only in a "paper win".

Again, it is conceivable FameFlynet might want to spend more money to try to find any corporate assets of a small online business. Good luck with that.
« Last Edit: November 05, 2016, 12:44:03 PM by Matthew Chan »
I'm a non-lawyer but not legally ignorant either. Under the 1st Amendment, I have the right to post facts & opinions using rhetorical hyperbole, colloquialisms, metaphors, parody, snark, or epithets. Under Section 230 of CDA, I'm only responsible for posts I write, not what others write.

zazen

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Re: Analysis of an Non-collectable Single-Image Default Judgment Against LLC
« Reply #1 on: November 10, 2016, 12:04:44 AM »
 Very encouraging post Matt, love your street legal sense of how to kick these clowns to the curb, in effect causing them to lose more, even when they 'win."
 
I've got another month before my SOL, and obsessively check Justia every day,  to see if they filed. Would you happen to know if a case will show up on Justia dockets, prior to them knocking on your door with papers ??
Just looking for an opportune time for a "vacation".. 

Mojo88

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Re: Analysis of an Non-collectable Single-Image Default Judgment Against LLC
« Reply #2 on: November 10, 2016, 11:27:31 AM »
....I am not necessarily recommending what the principals of Swish Suits LLC did to anyone but I do recommend being educated that it is an interesting strategic option that I would consider executing if circumstances warranted it.....

Matthew,

Interesting that you suggest this type of strategy. I am already implementing this very same strategy in Getty's claims against my LLC. Luckily (for me), my LLC's income had already been transferred many years ago. So my LLC now has virtually no income and zero assets. My LLC is a convenience, but not a necessity. The only reason I am keeping the LLC open is because Oscar said that if I close the LLC to avoid a suit, then there is a possibility of Getty going after me personally. I was not aware that the protective veil of an LLC could be pierced like that, so that's good advice from Oscar and may be worth adding to your post............

Regards, Dave F.

Matthew Chan

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Re: Analysis of an Non-collectable Single-Image Default Judgment Against LLC
« Reply #3 on: November 12, 2016, 01:40:39 AM »
I come from the scrappy world of real estate investing.  You will find people who work in the rough and tumble world of real estate to adopt a very tough, street-wise approach to solving problems. We use a combination of legalistic/streetwise strategies and tactics to accomplish goals. Not meaning to get into politics but Trump took that attitude/approach to politics and slaughtered everyone.  He was in the world of NY real estate development/management and it made him very tough and ruthless.

The idea is to not to be low-hanging fruit. Some people have the stomach and gumption for it, others don't.  The ones that don't have "it" can go spend lots of money on lawyers and do it that way.

Justia is one way, Pacer is another way. You can register for a free account and check it that way.

I have been threatening to write a "how to" manual of how to be "judgment/lawsuit proof". I think a lot of people would be interested.  Lots of great strategies for scrappy entrepreneurs so that you don't become low-hanging fruit for anyone.

Very encouraging post Matt, love your street legal sense of how to kick these clowns to the curb, in effect causing them to lose more, even when they 'win."
 
I've got another month before my SOL, and obsessively check Justia every day,  to see if they filed. Would you happen to know if a case will show up on Justia dockets, prior to them knocking on your door with papers ??
Just looking for an opportune time for a "vacation"..
I'm a non-lawyer but not legally ignorant either. Under the 1st Amendment, I have the right to post facts & opinions using rhetorical hyperbole, colloquialisms, metaphors, parody, snark, or epithets. Under Section 230 of CDA, I'm only responsible for posts I write, not what others write.

Matthew Chan

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Re: Analysis of an Non-collectable Single-Image Default Judgment Against LLC
« Reply #4 on: November 12, 2016, 02:08:52 AM »
The mistake people make is that people look for absolute answers.  There are no absolute answers, only probabilities.

I agree with Oscar to keep the LLC active on paper. It makes good sense. But honestly, the only thing (in a practical sense) that keeps an LLC active is simply paying the annual state fees. So, the minute a lawsuit hits the LLC, YOU don't "shut down", "close", or dissolve the LLC.  You let the state dissolve it for you which generally happens automatically when you don't pay your state registration fees within a specific period of time.

Meanwhile, you go start an other LLC and operate from there.  Or at least have it ready on standby in case you need to move quickly. Most people are not very creative thinkers.  People can have multiple LLC's, corporations, etc. registered at the same time.  Yes, it costs a bit more in annual registration fees but it is cheap insurance. It also allows you to maneuver much easier.

Most lawyers are not very creative either and tend to think very linearly. They also have certain professional rules that are binding upon them that are not binding upon civilian non-lawyers.  And they always harp about piercing the corporate veil.  What they don't tell you is that it isn't automatic, it isn't always easy, and it costs money to do so.

And even if you got sued personally, there is a strategy to deal with that.  You create an LLC and transfer all your funds and "invest" all your money into your business and become "personally broke".  I have a friend who ran his business and personal finances for years using a variety of corporate entities simultaneously. He made himself personally broke by not having much in his personal name. Essentially, he had no money in any personal savings or checking accounts.  IRA's and other retirement accounts are not touchable.

There are also corporate entities that can own other corporate entities. There are also trusts that can be used.  There can also be "partnerships" of an individual with a corporate entity. There can be "partnerships" between 2 or more corporate entities.

Obviously, for most small entrepreneurs, it is impractical to execute some of this due to cost, complexity, and reporting issues but in theory, a LOT can be done if one is determined to not be victimized by a copyright extortionist or any other litigious party.

What I discuss here are NOT recommendations for anyone.  They are DISCUSSIONS of interesting strategies designed to broaden your mind.  They come with both pros and cons. There is theory and there is street tactics.  I try to make sure whatever theory I operate on is grounded in street execution and street results as well.

Matthew,

Interesting that you suggest this type of strategy. I am already implementing this very same strategy in Getty's claims against my LLC. Luckily (for me), my LLC's income had already been transferred many years ago. So my LLC now has virtually no income and zero assets. My LLC is a convenience, but not a necessity. The only reason I am keeping the LLC open is because Oscar said that if I close the LLC to avoid a suit, then there is a possibility of Getty going after me personally. I was not aware that the protective veil of an LLC could be pierced like that, so that's good advice from Oscar and may be worth adding to your post............

Regards, Dave F.
I'm a non-lawyer but not legally ignorant either. Under the 1st Amendment, I have the right to post facts & opinions using rhetorical hyperbole, colloquialisms, metaphors, parody, snark, or epithets. Under Section 230 of CDA, I'm only responsible for posts I write, not what others write.

Mojo88

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Re: Analysis of an Non-collectable Single-Image Default Judgment Against LLC
« Reply #5 on: November 12, 2016, 12:50:48 PM »
....Meanwhile, you go start an other LLC and operate from there.  Or at least have it ready on standby in case you need to move quickly. Most people are not very creative thinkers.  People can have multiple LLC's, corporations, etc. registered at the same time.  Yes, it costs a bit more in annual registration fees but it is cheap insurance. It also allows you to maneuver much easier.......

Yep, that's what I did. It's a bit of a pain in the ass, and additional expense, but I just do NOT want to pay Getty Extortionists anything at all. I'd rather give money to state and Fed and my accountant.

Thanks for all the tips and ideas!

 

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