Nightmare on the Net

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Such foresight had prompted FACTNet's directors to take out two separate million-dollar insurance policies to help fund a defense in any litigation against the company. The premiums were almost more than their budget could handle, Wollersheim says. At the time of the raid, "we were one month away from not being able to make our insurance payment," he says. "We would have been dead in the water."

Wollersheim argues that the searches of his home and Penny's, authorized by federal judge Lewis Babcock, would never have occurred if Babcock had been fully informed about Wollersheim's history of litigation against Scientology, FACTNet's status as a nonprofit electronic archive, the intended use of the unpublished documents on their computers (which, he says, were part of a database being prepared for attorneys in another case against the church and weren't for public consumption) and other key factors. Yet one could also make a case that Wollersheim and Penny practically invited the raids by declaring FACTNet's support of Lerma's actions, urging more postings of the Fishman papers (which church attorneys regard as proof that the group was encouraging people to violate copyright laws) and other provocations.

"We leaked out that we had no insurance," Wollersheim says. "We had a plant in the organization, and I knew we were going to run out of money. I figured if it was going to happen, it should happen quickly. They bit the bait and came right in."

The ensuing litigation quickly became a tar baby for all concerned. In most copyright disputes, $2 million would represent an adequate war chest, but not in the FACTNet case, which has already produced more than 700 discovery requests and a ceaseless barrage of motions and pleadings; one motion by RTC's attorneys for summary judgment (recently denied by Judge Kane) was accompanied by a dozen boxes full of supporting exhibits. The million dollars from the first insurance policy was exhausted in less than six months.

The second carrier, Coregis Insurance, was reluctant to pay up, compelling the FACTNet defendants to file suit against the company that was supposed to be funding their defense. Although the exact terms of settlement of that suit are sealed, court records indicate that Coregis agreed to pay up to $925,000 to cover ongoing legal costs. By that point, FACTNet already owed nearly half that amount to the law firm of Faegre & Benson, which had been retained by the insurers to defend both the Virginia and Colorado cases and had run up bills in excess of $1.4 million by last April.

Wollersheim makes no secret of his feelings about the lawyers who were thrust upon him in the early months of the case. "We're going to be suing Faegre for malpractice and bad-faith litigation," he says. "The first week I asked them to remove themselves because they were incapable of handling this case. Plus, there was such antagonism between Tom Kelley and me that he had a conflict of interest trying to represent me. It got so bad that we wouldn't even talk to each other."

Kelley, a First Amendment specialist who frequently represents Denver media organizations, denies any mishandling of the case. "My relationship with some of the FACTNet people is not as good as it once was," he says. "I'm reluctant to talk about it. But I don't think there's any question that FACTNet and Mr. Lerma got the best representation available, and that was demonstrated by the result in the Lerma case."

The staggering cost of the litigation, Kelley adds, had a lot to do with the tactics employed by his opponents. "The Church of Scientology has proven to be a litigation machine that can drain the resources of an opponent," he says. "In the Lerma case, we had not only constant discovery but weekly motions--all of which required extensive briefing and argument. In Colorado, things have been less intense, but certainly the scorched-earth approach to litigation has been much the same."

Lerma and Wollersheim both say they clashed with the Faegre & Benson defense team over several issues--including the firm's seeming lack of experience in cyberspace, despite its claimed expertise in computer law.

"They're fakes," Lerma declares. "They were using us to learn the Net. We didn't even get an e-mail address from these clowns until they'd run up their first half-million in billings. If your own lawyers don't have a clue and won't listen to you, it's impossible to get the judge to understand what you're saying."

"It was a nightmare," Wollersheim says. "Tom Kelley had never been on the Internet, didn't know what an upload or a download was. We told them we had the expertise to handle the internal computer work and save money for the court case. They farmed it out and created a database with eighty-megabyte text files in a format that was totally unusable."

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Alan Prendergast has been writing for Westword for over thirty years. He teaches journalism at Colorado College; his stories about the justice system, historic crimes, high-security prisons and death by misadventure have won numerous awards and appeared in a wide range of magazines and anthologies.
Contact: Alan Prendergast