Megaupload Files Reply Brief in Fourth Circuit Court of Appeals Asking for Reversal of Fugitive Disentitlement

Megaupload, Kim Dotcom, and others filed their reply brief today in the Fourth Circuit Court of Appeals urging the Court to reverse the trial court's finding of "Fugitive Disentitlement."

Here is an excerpt from the reply brief:

"The government asks this Court to affirm a forfeiture order that is purely advisory, was justified only by Claimants’ exercise of their right to oppose extradition, and was obtained without any opportunity to contest the government’s case on the merits. Our justice system requires more. Claimants have not been convicted of any crime, have not fled the jurisdiction, and have not been extradited. They stand ready to defend their property—located entirely in countries that have refused to enforce the U.S. forfeiture orders. But without considering the merits, the district court declared that property forfeited. That order contravenes fundamental jurisdictional requirements, statutory commands, and due process..."

Read the full reply brief.

Megaupload Opposes Server Data Destruction

Megaupload submitted a brief to the United States District Court in the Eastern District of Virginia on August 24th, 2015 asking to specially appear, to prevent destruction of Megaupload's server data so that it can be used as crucial defense evidence in pending civil and criminal copyright cases.

Megaupload also supports reasonable consumer access to legacy cloud storage data.

Below is an excerpt from the Megaupload brief.

Defendant Megaupload Ltd. (“Megaupload”) (owner of some data at stake herein, legal custodian of third-party data, and named but not served as a criminal defendant in these proceedings) seeks leave of Court to specially appear for the limited exigent purpose of responding to the instant “renewed” motion [D.E. 217-218] that will determine the preservation or destruction of crucial defense evidence stored on servers formerly leased from Carpathia (now “QTS”).1 The Court granted leave to specially appear and oppose the original motion [D.E. 87].

It is well-settled the Due Process Clause “standard of fairness” requires that “criminal defendants be afforded a meaningful opportunity to present a complete defense.” California v. Trombetta, 467 U.S. 479, 485 (1984). To that end, it is equally well-settled that “the government has a duty to preserve evidence that possesses ‘an exculpatory value that was apparent before the evidence was destroyed’ where ‘the defendant would be unable to obtain comparable evidence by other reasonably available means.’” United States v. Newsome, 322 F.3d 328, 334 (4th Cir.2003) (quoting Trombetta, 467 U.S. at 489). In such circumstances, the Government may have a duty “to take affirmative steps to preserve evidence on behalf of criminal defendants,” even where the evidence is not already (or not still) in the government’s control. See Trombetta, 467 U.S. at 486. In this action, Megaupload respectfully submits that the Government has a constitutional duty to preserve the “Carpathia Servers” as potentially exculpatory evidence that “might be expected to play a significant role” in the defense against the crimes alleged in the Superseding Indictment.

Moreover, since the original motion concerning these servers was filed, as discussed below, the Government filed a civil forfeiture action implicating the broad electronically stored information (“ESI”) preservation and eDiscovery cooperation mandates of the Federal Rules of Civil Procedure. The duty to preserve and cooperate in ESI preservation to prevent destruction begins not when litigation begins but when it was reasonably anticipated by the Government that it might occur. Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003); The Pension Committee of the University of Montreal Pension Plan, et al. v. Banc of America Securities LLC, et al., Amended Order, Case No. 05-cv-9016, 2010 U.S. Dist. LEXIS 4546, 2010 WL 184312 (S.D.N.Y. Jan. 15, 2010). The forfeiture civil action in combination with private civil copyright lawsuits related before this court act as an additional and separate basis on which Megaupload requests to be specially heard as an interested party in this proceeding. requests preservation of the Megaupload server data, which is important evidence in all the related cases.

A criminal defendant’s rights to present evidence, to confront witnesses and to obtain discovery are essential to a fair trial. Forfeiture alleged in this case in the Superseding Indictment [Dkt. 34, ¶¶ 106-116] was adjudged and ordered in Civil Action No.: I: I 4-cv-969, presently on appeal. Civil proceedings impose further requirements on preservation of evidence.

In this novel and complex case, the Government appears determined to prevent defendants from having a fair trial and appears determined to deprive defendants of due process rights protected by the United States Constitution. Distilled to its essence, the Government removed Megaupload’s server data from Megaupload’s control, will not give it back, and has taken active steps to prevent preservation of the data for use by Megaupload in its own defense.

Non-Party QTS/Carpathia confirms this in their renewed motion. The Government has controlled events for the manifest purpose of seeing such evidence destroyed in a case it has described as one of “the largest criminal copyright cases ever brought by the United States.”

Defendants submit that, unless the Court acts to preserve the Megaupload server evidence, the integrity of the criminal case and related proceedings will be irreversibly undermined.

The Court is familiar with the facts. On January 19, 2012, the Government executed search warrants as to Defendants at numerous locations around the world, including Carpathia's server-hosting facility in the Eastern District of Virginia.4 On January 27, 2012, the Government informed Megaupload that it had "copied selected Mega Servers and copied selected data from some of the other Mega Servers," without identifying specific data or selection criteria. [D.E. 32]. The Government expressly disclaimed any possession, custody or control over the Mega Servers.

Ensuing events contradicted Government disclaimers of control over the Mega servers.

On March 20, 2012, Non-party Carpathia Hosting Ltd. filed its Emergency Motion for Protective Order, which is renewed herein. [D.E. 38-39.] On March 30, 2012, Non-party Kyle Goodwin, represented by the Electronic Frontier Foundation, sought to appear to obtain access to files backed up on the Megaupload servers, which he needed because his hard drive had crashed. [D.E. 51-52.] Plaintiffs in related civil suits also appeared. [D.E. 53-55, 80.] The Government opposed Carpathia’s Motion. [D.E. 56.] After Megaupload filed papers [D.E. 67], the Government filed a response thereto. [D.E. 76.]

Evidence showed that Megaupload and Carpathia had reached an agreement for Megaupload to purchase the servers from Carpathia for $1,465,500 with payment deferred until final disposition of the criminal case against Megaupload. [D.E. 67, Exhibit C, ¶¶ 1.3, 1.4.] The deal would have given the Megaupload defense team cheap and easy access to the all data evidence and would have substantially alleviated evidentiary and due process issues in both the civil and criminal cases. As stated by Carpathia, the agreement was: “a much less expensive alternative than Mega making its own image of the servers. ... The government objected to that sale, apparently for the reasons described in its response brief: ‘The government ... is additionally concerned because it has not seen any detailed plans for appropriately transferring the Carpathia Servers to an entity that demonstrates reasonable and untainted resources for that purpose, provides sufficient safeguards regarding access, successfully deals with the specific concerns of victims, and deals appropriately with the contraband and other illegitimate files on the Carpathia Servers.’ (Govt Br. at n. 3). ” (Carpathia Rebuttal Memo [D.E. 70 at 7-8] quoting from D.E. 56.)

The Government’s stated concerns about safeguards, etc., were not based on fact. Contrary to Government objections, Megaupload wanted the servers to be preserved “ under a litigation hold.” Defense counsel and consultants would have “exclusive access to the Mega data hosted on the Mega servers” and “[a]ll uses of the data . . . [would] be for purposes of assisting Mega and co-defendants in criminal or civil litigation.” Defendants proposed that “consumer access to server content shall be prohibited and allowed only on such terms as shall be ordered by a UnitedStates District Court or agreed to in writing signed by the US Attorney's Office,” and that “Noelectronically stored materials may be materially altered, wiped, deleted, or destroyed in any manner.” [D.E. 67, Exhibit D.]

A hearing on the matter was held on April 13, 2012. [D.E. 86, 84, 87.] The Court ordered the parties to meet and confer in front of a magistrate judge and to report in two weeks if the matter was not resolved. [D.E. 87.] Resolution not having been achieved and a new Motion for Return of Property/Pre-Trial having been filed by Non-party Goodwin [D.E. 90-91], a secondhearing was scheduled for June 29, 2012, which led to further briefing. [D.E. 92, 98, 99, 105, 110.]

Thereafter, on October 2, 2012, the Court ruled that “the Court finds that it is unable to reach a conclusion as to this matter without an evidentiary hearing.” The Court ordered briefing and stated that: “The Court will consider the parties filings and designate a date for the hearing thereafter.” [D.E. 126, see also D.E. 130, extending time for briefing.] Further motions, briefs and documents were filed. [D.E. 131, 133-136, 139-141, 144, 149, 153, 155, 157-158, 161-164, 168-170, 174-189.]

In the meantime on or about February 1st 2013 the Government permitted the Megaupload server data located in the EU at Leaseweb in the Netherlands to be destroyed. Megaupload advised Judge Anderson of the development, see letter of July 3, 2013, attached hereto as Exhibit A, and asked to reconvene the meet and confer meetings ordered by the Court on April 18, 2012 [D.E. 87.] in order to preserve the server data located at Carpathia. The United States declined any meet and confer on data preservation.

On July 29, 2014, the Government filed a civil forfeiture action targeting all the revenues and user conduct arising out of Megaupload’s global cloud storage services including revenues arising out of the server data evidence in the Netherlands and revenues arising out of the server data evidence in the United States.

No hearing on the server data preservation matter was scheduled until QTS/Carpathia filed the instant renewal Motion. Defendants again request that the Court intervene and permit the transfer of the Megaupload servers in a manner and method that preserves the integrity of the data such that it can be used in the civil and criminal case and to preserve the integrity of due process...

Megaupload Files Appeal to the Fourth Circuit Arguing Fugitive Disentitlement Violates Due Process

Megaupload, Kim Dotcom, and other interested parties filed their opening appellate brief today in Fourth Circuit Court of Appeals opposing the United States DOJ's attempt to use the Fugitive Disentitlement Doctrine as a procedural method of taking all of Kim Dotcom's and the other Megaupload parties' assets prior to trial and without any hearing on the merits of the underlying criminal claims.

According to Megaupload Appellate Counsel Michael Elkin from Winston & Strawn “the Megaupload defendants were branded by the DOJ as 'fugitives' for lawfully fighting extradition in New Zealand (where they reside with their families).  The district court's denial of their basic rights to defend against asset forfeiture under a 'fugitive disentitlement' doctrine amounts to a violation of basic due process and we filed a brief today with the U.S. Fourth Circuit Court of Appeals seeking to reverse the injustice visited upon Megaupload and others who have been impacted by the Government's overreach."

According to Ira Rothken, Lead Global Counsel for Kim Dotcom and Megaupload “with our appeal today we are asking the Fourth Circuit to rule in favor of fairness, natural justice, and due process by stopping US efforts to take Kim Dotcom's global assets for doing nothing more than lawfully opposing extradition to the United States—a country he has never been to. The DOJ in our view is trying to abuse the Fugitive Disentitlement Doctrine by modifying it into an offensive weapon of asset forfeiture to punish those who fight extradition under lawful treaties, and a provocation for international discord. Today we ask the Court of Appeals for justice.”

//

Megaupload and Kim Dotcom filed their opening appellate brief in the Fourth Circuit Court of Appeals today - here is an excerpt below:

In a separate criminal case, the government indicted several foreign defendants on copyright-related allegations. Instead of following typical extradition procedures—bringing the defendants to the United States pursuant to international law and then proving its case at trial before seeking forfeiture—the government took a much more aggressive approach. It brought this civil forfeiture case against foreign property owned by the defendants and others (collectively, “Claimants”) and, relying on the seldom-used “fugitive disentitlement” statute, argued that the owners’ claims to their foreign property should be stricken and the property immediately forfeited. According to the government, Claimants’ participation in extradition proceedings—and failure to immediately leave their homes, families, and busi- nesses to travel to the United States—rendered them “fugitives” seeking “to avoid ... prosecution.” 28 U.S.C. §2466(a)(1) (Addendum-A-2).

Accepting this argument, the district court disentitled Claimants from defending their rights to their property, based solely on their “non-appearance” in the separate criminal case and the government’s allegation that they are thereby “fugitives.” Without any hearing on the merits, the court then adjudged the property— all located abroad—immediately forfeited. In so doing, however, the court committed several reversible errors.

For starters, this Court’s precedent makes control over the defendant property a prerequisite to exercising in rem jurisdiction, and the district court lacked control over this foreign property. Further, the Claimants are foreign citizens and residents who would not be in the United States regardless of the criminal case. Yet, relying on both a misreading of §2466’s intent requirement and an improper assessment of an undeveloped evidentiary record, the court held that Claimants’ intent necessarily was “to avoid prosecution.” Finally, even if these hurdles could be overcome, allowing the government to seize Claimants’ property without an adversarial hearing would be unconstitutional. Claimants have been convicted of no crime; they are asserting established procedural and substantive rights abroad; and the government has never proved that their property should be forfeited.

In sum, the decision below upsets fundamental jurisdictional principles, misapplies the fugitive disentitlement statute, and violates both due process and the Supremacy Clause. If affirmed, that decision would hand the government unprecedented power. By stacking allegations of fugitive status on top of allegations of forfeitability, the government would obtain a roving worldwide license to indict residents of foreign countries who have never lived or worked in the United States and to take their foreign property—all without proving any wrongdoing. That is not how our justice system works. The judgments below should be vacated and the case either dismissed or remanded for trial on the merits...

Read the full appellate brief here.

Internet E-Commerce Sites Successfully Defend Against a Federal RICO Action

Generally this internet e-commerce lawsuit, in which Ira P. Rothken represented the defendants, relates to a purported web traffic referral agreement under which plaintiff was allegedly paid only $5,000 of the millions it was owed for brokering referrals to defendants' websites. The relevant background was recounted in substantial detail in the Court's January 28, 2015 Order, which dismissed the First Amended Complaint with leave to amend.

In dismissing the Federal case in an Order dated May 18th, 2015 the Federal Court stated that:

"The plaintiff apparently believes a series of vague instant messages—sent over the course of two days, relating to a single purported scheme, and evincing no clear threat of repetition—constitutes a pattern of racketeering activity under the statute. The Court disagrees. See H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 242 (1989) ("Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy [the continuity prong of the pattern] requirement: Congress was concerned in RICO with long-term criminal conduct."); Turner v. Cook, 362 F.3d 1219, 1229 (9th Cir. 2004) ("[W]hile two predicate acts are required under the Act, they are not necessarily sufficient."). Each discrete instant message at issue was sent over a short period of time in the course of communications between one sender and one recipient. Each involved—at most—another link in the chain of an alleged fraud, whereby defendant ... attempted to induce the plaintiff to deliver referrals in the absence of any intent on the part of [defendant] to provide the promised compensation in return. Such allegations are insufficient to establish RICO liability..."

The Court Ordered the case dismissed.

Megaupload and Kim Dotcom File Supplemental Brief Seeking to Dismiss Government's Forfeiture Action

Megaupload and Kim Dotcom filed a supplemental brief in the United States District Court in Virginia today.

Here is an excerpt from the brief:

 The Government’s reply (Dkt. 48-2) in support of its Motion to Strike (“Government’s MTS”) evidences an obvious misconception about the role and scope of fugitive disentitlement. By the Government’s account, the doctrine amounts to a magic button that, whenever pressed, results in immediate, incontestable forfeiture of any and all foreign assets the Government may seek from a foreign national who is contesting extradition while asserting ownership interests at home—no matter the facts, law, equities, or procedures, rights, and courts engaged abroad.

Further still, the Government wants to use its expansive reading of fugitive disentitlement as a global sword for cutting off foreign proceedings that are not to its liking. This comes through loud and clear from its briefing. See, e.g., Dkt. 48-2 at 36-37 (“More than $6 million of the restrained property in New Zealand has already been dissipated . . . and additional imminent requests for release are expected” while “[r]estrained property in Hong Kong remains under constant attack.”); Dkt. 65 at 4 (“As of December 2014, more than NZ$1 million (currently US $770,000) in restrained funds were released to the Dotcoms as ‘living expenses’ by the New Zealand courts.”).

 

To be clear, the Government’s grievance is not directed just against the Claimants—who are generally detained abroad, whose assets are restrained abroad, and who are using their assets only to the extent that the foreign courts now presiding over them see fit to award limited relief—so much as it is directed against the foreign courts that are continuing to have their fair say, if occasionally inconsistent with what the U.S. Government would prefer them to say. Although courts in New Zealand and Hong Kong are friendly to the United States, they have their own laws and their own views about, for instance, the import of binding treaty provisions, the presumption of innocence attaching to criminal defendants, and the imperative of funding adequate legal defense in a sprawling international case (or, more precisely, ever- expanding series of cases) that the Government years ago called one of “the largest criminal copyright cases ever brought by the United States.”1

The United States is thus trying to abuse the doctrine of fugitive disentitlement, transmogrifying it into an offensive weapon, a cover for precipitous, unjustified forfeiture, and a provocation for international discord. What fugitive disentitlement is actually meant to do, as the statute states, is simply to authorize a U.S. court—at its discretion, in appropriate cases, upon making necessary findings—to prevent someone who is actively out to avoid the reach of the United States “from using the resources of the courts of the United States.” Thus, fugitive disentitlement is properly called upon for the sake of preserving “efficient, dignified operation of the courts,” as the Supreme Court has said. Degen v. United States, 517 U.S. 820, 824 (1996). That is all it is meant to do. It is not meant to gratify a prosecutor’s sudden perceived need for speed by superseding otherwise applicable timelines, procedures and rights. It is not meant to supply a substantive warrant for forfeiture where there is otherwise none. It is not meant to coerce a criminal defendant into buckling to extradition and surrendering valid defenses otherwise pending abroad. And it is certainly not meant to trump foreign courts and usurp foreign proceedings. In all of these respects, the United States Government appears badly mistaken and in need of correction.