Porn Company Says Fla. Law Firm Breached Fiduciary Duty
By Nathan Hale

Law360, Miami (June 28, 2016, 11:47 PM ET) -- Miami law firm Lipscomb Eisenberg & Baker PL was sued Tuesday in California federal court by adult film production company Malibu Media LLC for alleged negligence, breach of fiduciary duty and fraudulent business practices related to its overseeing of the company's aggressive copyright enforcement program.
Malibu, the studio behind porn videos called X-Art, has filed more than 5,000 lawsuits since 2012 accusing Internet users of illegally downloading its videos — routinely accounting for more than 30 percent of all new copyright cases filed in the federal court system.

Malibu, which also named LEB partner Michael K. Lipscomb as a defendant, further accused the firm of disclosing information protected under attorney-client privilege in a lawsuit the firm filed June 10 against the company in Florida state court, and also requested that the California court order an accounting of the copyright enforcement program, saying the firm has failed and refused to provide full financial information.

“The amount of money due from defendants, and each of them, to plaintiff is unknown to plaintiff and cannot be ascertained without an accounting of all funds received and costs and expenses paid pursuant to the enforcement program from 2012 to the present,” Malibu said.

Reached Tuesday evening, Lipscomb said that Malibu's suit is a compulsory counterclaim to his firm's pending action in Florida against the company, its current counsel Pillar Law Group and two Florida entities, and said it should be dismissed under the doctrine of abstention.

“I will not comment on pending litigation except to say Malibu, Pillar and the Florida entities owe LEB and me an enormous amount of money,” he said. “And, the federal suit is a disgusting attempt to gain leverage to avoid paying LEB and me for the damages claimed under the existing Florida suit.”

He also noted that the Florida suit is sealed because it contains allegations of serious malfeasance and unethical conduct by Pillar and its attorneys.

According to Malibu's complaint, the company's relationship started in late 2011 when LEB contacted the company and offered its services as general counsel and lead litigation counsel to enforce Malibu's copyrights.

The copyright enforcement program involved mostly Malibu filing copyright suits in federal court against individuals who illegally downloaded the company's films from the BitTorrent file distribution network. With “rampant” violations, LEB was overseeing hundreds of cases across the country at any given time, serving as general counsel and in some cases as lead counsel for particular cases.

Malibu bases some of its claims on its holding that LEB never provided the company with a written retainer agreement establishing whether the firm would be paid on a contingency, flat fee or hourly basis, and other details.

Malibu says that it believes it was receiving a fixed percentage of total settlements obtained by LEB, but at some point the fixed percentage amount changed and LEB started charging Malibu filing costs for new cases.

The relationship began to sour around September 2015 when Lipscomb told Malibu that because of increasing operating costs for the enforcement program, LEB wanted to get litigation financing and “encumber the trust account.” The firm also said it wanted to “catch up and capitalize” the program by encumbering the program's future income, but never provided a written agreement explaining any terms of these changes, the complaint said.

Malibu said it stopped receiving funds from the copyright enforcement program soon afterward and then began asking for financial statements or other documents from LEB, but the firm did not provide sufficient information.

In February, Malibu hired Pillar Law Group to examine and investigate the enforcement program, it said.

In April, Lipscomb told Pillar that Malibu was winding down the program because it was no longer profitable but demanded an “engagement agreement” freeing LEB of forward liability or else it would withdraw without assisting with wind down. On April 18, LEB emailed all local counsel in Malibu's cases, informing them it had terminated its representation of the company effective that day.

Malibu argues that LEB was professionally negligent and breached its fiduciary duty on account of its withdrawal, citing several cases, including one where its says LEB's failure to ensure successor counsel led to an adverse judgment and pending motion for costs and attorneys' fees of more than $158,000.

Malibu also cites the lack of a written retainer agreement and says LEB improperly charged it for filing fees.

“As a result of LEB and/or Lipscomb’s sudden withdrawal, MM has been, and will be, foreseeably damaged in that new cases were unable to be filed for a period of time, which caused MM to be unable to protect its copyrights,” Malibu said.

Malibu Media is represented by Art Kalantar, Henrik M Mosesi and Anthony H. Lupu of Pillar Law Group APLC.

Counsel information for the defendants was not immediately available.

The case is Malibu Media LLC v. Lipscomb Eisenberg & Baker PL et al., case number 2:16-cv-04715, in the U.S. District Court for the Central District of California.

--Additional reporting by Bill Donahue. Editing by Philip Shea.