U.S. Judge Allows Megaupload to Seek Dismissal but Not Access to Funds

Kim Dotcom Mona Schmitz Leaving court - H 2012
Fairfax Media/Getty Images

Kim Dotcom Mona Schmitz Leaving court - H 2012

The U.S. federal judge overseeing the case against Megaupload founder Kim Dotcom has decided to allow his attorneys to argue for a motion to dismiss allegations against the company but also has decided for the moment against the unfreezing of assets to pay attorney costs.

The ruling came after a hearing in a Virginia court on Friday where two main issues were presented.

The first had to do with whether Dotcom's attorneys could make special limited appearances for the purpose of making motions in advance of a trial.

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The government objected, arguing that local criminal rules don't allow the defense to pick and choose the issues for which they would appear, that the proposed attorney from the Quinn Emanuel law firm had conflicts that prevented representation, that the fugitive disentitlement doctrine prevented any relief for Dotcom and others until they actually show up in court, and that forfeiture of assets including some $67 million inside the U.S. couldn't be used to retain an attorney.

Judge Liam O'Grady has made a split ruling.

On one hand, the judge agrees that it is "premature" to allow an appearance for the purpose of seeking access to seized funds. "These Defendants are currently challenging extradition abroad," reads the judge's short written order denying the request.

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But the judge is allowing a limited appearance to allow the defendants to argue that the case against Megaupload Limited be dismissed on jurisdictional grounds. The defendants assert that Megaupload as a corporate entity can't be served in a criminal matter because it is not located in the United States. The government counters that this "line of reasoning leads to the incredible conclusion that foreign corporations can commit crimes in the United States without risk of being brought to justice here."

The judge has ordered more briefing on this issue in the coming weeks.  A hearing will likely take place later this month to settle the issue of jurisdiction.

The other main issue presented at the hearing had to do with access to seized data from Megaupload servers. Kyle Goodwin, a video journalist, is petitioning to get his video files back, and he's being supported by the EFF and a former New York judge.

At the hearing, Judge O'Grady is reportedly considering a rule 41 search-and-seizure hearing to consider whether the data was improperly taken.

A prosecutor, however, told the judge that the government doesn't possess the property and that it resides on the servers of Megaupload's Virginia-based hosting provider.

But Goodwin's lawyers say the government has nevertheless interfered with access and also pointed to a ruling last week in New Zealand where a high court addressed the issue of seized property and found it to be "illegal."

“We’ll look at it a little further and issue an order shortly,” said the judge at the hearing's conclusion.

E-mail: eriq.gardner@thr.com

Twitter: @eriqgardner