Judge orders takeover of controversial Minneapolis lawyer's assets

A federal judge ordered the liquidation of Minneapolis lawyer Paul Hansmeier's assets Thursday, finding that he had sought bankruptcy protection with one purpose: "to thwart the collection efforts of his creditors."

The U.S. bankruptcy trustee overseeing Hansmeier's petition to reorganize $2.49 million in debts had asked the court to reject the lawyer's proposal to pay them off over five years, calling his proposed reorganization "an end run" and a possible misuse of the court.

Michael R. Fadlovich, an attorney representing the trustee, said that Hansmeier "has this history of just being a bad actor" and that his representations to the court couldn't be trusted.

Fadlovich pointed to a 43-page petition filed last month by the state board that investigates ethics complaints against Minnesota lawyers that he said spells out "in excruciating detail" Hansmeier's pattern of misleading various courts around the country, which has led to serious sanctions. The lawyers' board seeks to suspend or disbar Hansmeier, who built a career suing thousands of people nationwide for downloading Internet porn, then turned to filing what some call "nuisance lawsuits" against small businesses that allegedly fail to comply with disability-access laws.

Barbara May, Hansmeier's lawyer, had argued against liquidation, saying that creditors had a rare chance to be paid in full once his downtown condominium sells for $1.2 million this month to an undisclosed buyer. "I know he's a bad actor," May said of her client. But she said at this point, Hansmeier "has come to Jesus."

Converting it to an involuntary liquidation will only prolong the case, she said, adding that she doesn't want to see it end up in what she called "five years of Heckerization."

May represented former Twin Cities auto dealer Denny Hecker, who's serving a 10-year federal prison sentence for bankruptcy and wire fraud. His bankruptcy case was filed in 2009, and some issues remain unresolved, she said.

"The argument that somehow there's going to be a payment in full, your honor, just doesn't ring true," Fadlovich said.

He argued that Hansmeier has made at least 19 financial transfers totaling more than $590,000 that likely are "fraudulent conveyances."

Ed Sheu, a lawyer representing several creditors, said that while he'd like to take the money upon the sale of Hansmeier's condo, rather than see it go into an account managed by the bankruptcy trustee, "I don't think it's the right thing to do at this point."

Sheu said that Hansmeier has made a number of questionable transfers and that many questions remain unresolved, including a payment to a company that manages beachfront property in Florida. After deposing Hansmeier twice, Sheu said, "I really can't believe a thing that comes out of his mouth." He said Hansmeier's wife, intellectual property lawyer Padraigin Browne, also was evasive when questioned.

U.S. Bankruptcy Judge Kathleen H. Sanberg ordered Hansmeier's case converted to a liquidation, citing what she called his pattern and practice of dishonesty with the court, both before and after filing bankruptcy.

Dan Browning • 612-673-4493