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