IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MISSOURI WESTERN DIVISION FEDERAL TRADE COMMISSION, ) Plaintiff, v. Case No. 14-CV-0815-W-BCW BF LABS INC., et al., Defendants. REPLY SUGGESTIONS IN SUPPORT OF APPLICATION OF KENNYHERTZ PERRY, LLC FOR THE ALLOWANCE OF COMPENSATION FOR PROFESSIONAL SERVICES RENDERED PRIOR TO RECEIVERSHIP Plaintiff Federal Trade Commission takes no issue with the reasonableness of Kennyhertz Perry’s requested fees and expenses. The FTC also does not object to Kennyhertz Perry “ultimately being compensated for the legal services it has provided Defendants.” (Doc. # 111). The FTC’s only basis for objection is that compensating Kennyhertz Perry now would utilize frozen assets. But allowing the FTC’s position to prevail would give it the unbridled authority to secure, ex parte no less, an asset freeze that would deprive the defendants of their ability to secure legal representation. Remarkably even today, the FTC boldly informs this Court that Butterfly Labs has “deceived[,| “defrauded[,]” and “victimized” consumers. (Doc. # 111, at pp. 1, 3). Denying Kennyhertz Perry’s fee application just because the FTC tells the Court this is so would set a dangerous precedent. See, e.g., Federal Sav. & Loan Ins. Corp. v. Dixon, 835 F.2d 554, 565 (5th Cir. 1987) (Court finding that it “cannot assume the wrongdoing before judgment.”’); Smith v. Copeland, 87 F.3d 265, 268 (8th Cir. 1996) (“under the Due Process Clause, a [defendant] may not be punished prior to an adjudication of guilt”). Arguments made by the FTC, even when Case 4:14-cv-00815-BCW Document114 Filed 10/27/14 Page1of5 camouflaged with words like “equitable,” fly in the face of due process. See Smith v. Copeland, 87 F.3d 265, 268 (8th Cir. 1996) (“under the Due Process Clause, a [defendant] may not be punished prior to an adjudication of guilt’). It would contravene the Court-approved Temporary Receiver’s interim budget, which involves further operations and manufacturing efforts. Rather than support the FTC’s allegations, the budget required the Temporary Receiver to determine in good faith that Butterfly Labs could be “lawfully operated.” (See Doc. #54 at p. 15, Section X.N.). Regardless, Defendants should be provided an opportunity to be heard on the merits before being deprived of access to legal counsel. See Dixon, 835 F.2d at 865. In presently seeking only fees and expenses incurred before this action was instituted, Kennyhertz Perry is attempting to take a reasonable approach to compensation and continued legal representation. Kennyhertz Perry could have sought the entire fees and expenses due and owing, and under legal precedent would have been warranted in doing so. See, e.g., FTC v. QT, Inc., 467 F. Supp. 2d 863, 866 (N.D. Ill. 2006) (Courts have consistently recognized that the decision to permit attorneys’ fees to be paid from receivership assets in an asset-freeze is well within the court’s discretion); FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1022 (7th Cir.1988) (the Court modified the temporary restraining order before the preliminary injunction hearing to allow $125,000 of frozen assets to pay for attorneys’ fees and $50,000 for litigation expenses). It has not done so. As stated in Dixon, “[t]he basis of our adversary system is threatened when one party gains control of the other party’s defense as appears to have happened here.” 835 F.2d at 865. Case 4:14-cv-00815-BCW Document114 Filed 10/27/14 Page 2 of5 Respectfully submitted, /s/ Braden M. Perry Braden M. Perry MO # 53865 KENNYHERTZ PERRY, LLC 420 Nichols Road, Suite 207 Kansas City, MO 64112 Direct: 816-527-9445 Fax: 855-844-2914 braden @kennyhertzperry.com Attorneys for Defendant BF Labs Inc., Darla Drake, and Sonny Vleisides Case 4:14-cv-00815-BCW Document114 Filed 10/27/14 Page 3of5 CERTIFICATE OF SERVICE I hereby certify that on October 27, 2014, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system which sent notification of such filing to the following: Helen Wong Teresa N. Kosmidis Leah Frazier Federal Trade Commission 600 Pennsylvania Ave., N.W. Mail Stop CC-10232 Washington DC 20580 hwong @ ftc.gov tkosmidis @ftc.gov Ifrazier @ftc.gov Charles M. Thomas Assistant United States Attorney Charles Evans Whittaker Courthouse 400 East Ninth Street, Room 5510 Kansas City, MO 64106 charles.thomas @ usdoj.gov Attorneys for Plaintiff Bryant T. Lamer Kersten L. Holzhueter Andrea M. Chase Katie Jo Wheeler Spencer Fane Britt & Browne LLP 1000 Walnut Street, Suite 1400 Kansas City MO 64106 blamer@spencerfane.com kholzheuter @ spencerfane.com achase @ spencerfane.com kwheeler@spencerfane.com Attorneys for Receiver Eric L. Johnson 4 Case 4:14-cv-00815-BCW Document114 Filed 10/27/14 Page 4of5 James D. Griffin Lisa M. Bolliger SCHARNHORST AST KENNARD GRIFFIN, PC 1100 Walnut, Suite 1950 Kansas City, Missouri 64106 Tel: (816) 268-9400 Fax: (816) 268-9409 jeriffin @ sakg.com Ibolliger@sakg.com Attorneys for Defendant Nasser Ghoseiri /s/ Braden M. Perr Attorney for Defendants Case 4:14-cv-00815-BCW Document114 Filed 10/27/14 Page 5of5