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2015-03-27 order terminating discharging receiver and receivership doc 1447

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
NETSPHERE, INC.; §
MANILA INDUSTRIES, INC.; AND §
MUNISH KRISHAN, §
§
Plaintiffs, §
§
v. § Civil Action No. 3:09-CV-0988-L
§
JEFFREY BARON AND §
ONDOVA LIMITED COMPANY, §
§
Defendants. §
MEMORANDUM OPINION AND ORDER
Before the court is The Receiver’s Request for Approval of Final Accounting, Application
for Payment, and Request for Order of Final Discharge (Doc. 1397), filed April 4, 2014; and The
Receiver’s Supplemental Application for Payment (Doc. 1398), filed April 15, 2014. The court refers
collectively to the Receiver’s initial and supplemental applications as “the Receiver’s Application.”
The Receiver’s Application is submitted by Receiver Peter S. Vogel (the “Receiveror “Vogel”) on
behalf of himself, his counsel, Dykema Gossett PLLC (“Dykema”), and the Receiver’s other
professionals. After considering the Receiver’s Application, objections to the Receiver’s
Application, evidence submitted in support of the Receiver’s Application, and record, and in light
of the court’s familiarity with this case, the receivership (“Receivership”) established in this case,
and the litigation in related cases, the court grants in part and denies in part the Receiver’s
Application (Docs. 1397 and 1398) as herein set forth.
Memorandum Opinion and Order - Page 1
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I. The Receiver’s Request for Payment of Receivership Expenses
A. Reasonableness of the Professional Fees and Expenses Sought
In ruling on a request for attorney’s fees, the court first calculates the “lodestar” fee by
multiplying the reasonable number of hours expended on the case by the reasonable hourly rates for
the participating lawyers. See Hensley v. Eckerhart, 461 U.S. 424, 433 (1983); Louisiana Power &
Light Co. v. Kellstrom, 50 F.3d 319, 324 (5th Cir. 1995). The court next considers whether the
lodestar figure should be adjusted upward or downward depending on its analysis of the twelve
factors established in Johnson v. Georgia Highway Express, Incorporated, 488 F.2d 714, 717-19
(5th Cir. 1974), abrogated on other grounds by Blanchard v. Bergeron, 489 U.S. 87, 91-92 (1989).
The twelve factors include: (1) the time and labor required for the litigation; (2) the novelty and
difficulty of the questions presented; (3) the skill required to perform the legal services properly; (4)
the preclusion of other employment by the attorney due to acceptance of the case; (5) the customary
fee; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the
circumstances; (8) the amount involved and the result obtained; (9) the experience, reputation, and
ability of the attorney; (10) the “undesirability of the case; (11) the nature and length of the
professional relationship with the client; and (12) awards in similar cases. Cobb v. Miller, 818 F.2d
1227, 1231 n.5 (5th Cir. 1987) (citing Johnson, 488 F.2d at 717-19). “Many of these factors usually
are subsumed within the initial calculation of hours reasonably expended at a reasonable hourly rate
and should not be double-counted.” Jason D.W. ex rel. Douglas W. v. Houston Indep. Sch. Dist., 158
F.3d 205, 209 (5th Cir. 1998) (internal citations omitted).
The Receiver seeks approval of a final payment in the amount of $907,100.62 for
receivership fees and expenses incurred from May 1, 2013, through May 15, 2014, pursuant to this
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court’s February 28 and March 3, 2014 orders and the Fifth Circuit’s opinion in Netsphere, Inc. v.
Baron, 703 F.3d 296, 317 (5th Cir. 2012). The amount sought is for the following amounts that were
actually invoiced and incurred by the Receiver and his professionals from May 2013 through March
2014, plus $40,000 for Dykema’s anticipated fees and expenses through the close of the
Receivership:
1. Joshua Cox $20,904.30
2. Damon Nelson $49,275.00
3. Dykema $632,219.25
(includes additional $40,000)
4. Receiver $197,485.21
5. Henjum Goucher $829.56
6. Corona Court Reporting $1,174.80
7. James Eckels $5,212.50
Total: $907,100.62
The following chart sets forth the hourly rates, number of hours billed, and total dollar
amounts billed for fees and expenses by attorney or other Receivership professionals as calculated
by the court using the invoices submitted:
Receivership Professional Hourly Rate Hours Billed Fees Billed Expenses
Billed
Joshua Cox $290 165 $20,625.00 $279.30
Receiver
Karri S. Speck
$800
$220
240.9
18.2
$192,724.00
$4,004.00
$761.21
James Eckels $125 41.7 $5,212.50
Damon Nelson $100 492.75 $49,275
Henjum Goucher N/A N/A $829.56
Corona Court Reporting N/A N/A $1,174.80
Dykema Gossett PLLC
Jeffrey R. Fine $560 475.4 $266,224.00
Christopher D. Kratovil $505 59.7 $30,148.50
David J. Schenck $570 419.8 $239,286.00
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Alison R. Ashmore $320
$335
45.2
38
$14,464.00
$12,730.00
Alexa L. Parnell $235
$245
50.5
8
$11,867.50
$1,960.00
William B. Finkelstein $620 3 $1,860.00
Michael J. Ringelheim $295 22 $6,490.00
Steven M. Baker $290 9.5 $2,755.00
Maria M. Razo $125 2 $250.00
Dykema additional
anticipated fees
$40,000.00
Dykema expenses $4,054.48
Total Fees $901,879.36
Total Expenses $5,094.99
Total Fees & Expenses $906,974.35
1
Vogel served as special master in this case prior to the creation of the Receivership. When
the Receivership was created, Senior United States District Judge Royal Furgeson (“Judge
Furgeson”) appointed Vogel as the Receiver due to his recognized expertise in technology law and
the Internet. Vogel has served in this capacity since the Receivership Order issued on November 24,
2010, to the present. Vogel’s fee application covers the fees of various Receivership professionals,
including himself and his paralegal Karri S. Speck. The fees charged by attorney James Eckels are
for his management of Quasar services and support of the Receiver’s day-to-day operations.
Attorney Joshua Cox continued to assist with the handling of actual or threatened cybersquatting
The court’s calculation of the total amount for professional fees and expenses varies slightly from the amount
1
sought by the Receiver because, in reviewing Dykema’s invoices for attorney’s fees and expenses, the court came up with
a total amount of $632,088.98 [$588,034.50 (fees) + $40,000 + $4,054.48 (expenses) = $632,088.98], which it will use
for purposes of ruling on the Receiver’s Application. The court attributes the slight discrepancy between its calculation
of $632,088.98 and the total amount requested by Dykema ($632,219.25) to the calculation of Dykema’s expenses.
According to the Receiver’s Application submitted by Dykema, the total amount of attorney’s fees requested by Dykema
reflects a voluntary downward adjustment or reduction of approximately four percent. It appears to the court, however,
that the amount billed before the referenced adjustment is what is being sought by Dykema in the Receiver’s Application.
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claims or claims under the Uniform Domain Name Dispute Resolution Policy (“UDRP”). Damon
Nelson, who was familiar with the Receivership portfolio before the Receivership was put in place,
managed the Receivership estate portfolio and worked closely with the Receiver, the Receiver’s
counsel, Cox, and third parties in overseeing the Receivership assets and UDRP complaints.
Dykema was retained and substituted in as counsel for the Receiver on July 6, 2012, several months
before Jeffrey Baron’s (“Baron”) former attorneys (“Petitioning Creditors”) filed the involuntary
bankruptcy against him to recover for services performed on behalf of Baron and his companies.
Extensive litigation, that involved appeals to this court and the Fifth Circuit, regarding the
involuntary bankruptcy and the impact of that bankruptcy proceeding on the Receivership continued
throughout the time that Dykema acted as counsel for the Receiver. The appeal to the Fifth Circuit
involving the involuntary bankruptcy was only recently dismissed on January 23, 2015, by agreement
between Baron and the Petitioning Creditors. The following Dykema attorneys provided legal
services on behalf of the Receivership: Jeffrey R. Fine, Christopher D. Kratovil, David J. Schenck,
Alison R. Ashmore, Alexa L. Parnell, William B. Finkelstein, Michael J. Ringelheim, Steven M.
Baker. Dykema professional Maria M. Razo provided paralegal services. Corona Court Reporting
and Henjum Goucher provided court reporting services for two depositions taken at the request of
the Receiver or the Receiver’s counsel.
The court has significant experience in awarding attorney’s fees in various matters and is
familiar with rates charged by attorneys in the North Texas area. The rates charged by the attorneys
who performed legal services on behalf of the Receivership are reasonable and customary for
attorneys with their level of ability, experience, and skill. Additionally, except for some duplication
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of effort in the review of pleadings and the high hourly rate of $220 charged for paralegal Karri S.
Speck, for which the court deducts 10% from the total amount requested by the Receiver, the record
reflects that the hours expended by the Receiver and Receivership professionals, including the
additional amount requested by Dykema, were reasonable and necessary in the management of the
Receivership and Receivership estate, particularly given the novelty and difficulty of the
Receivership and bankruptcy issues; the complex and litigious nature of the Receivership and related
bankruptcy proceedings; the skill necessary to handle these difficult receivership and bankruptcy
related issues; the amount of time required to manage the Receivership and the domain assets; and
the undesirability of the case. In determining the reasonableness of the professional fees incurred,
2
the court also takes into account the disruptive conduct of Receivership parties Jeffrey Baron
(“Baron”), Novo Point LLC (“NovoPoint”), and Quantec LLC (“Quantec”) (collectively, “LLCs”),
which continued after the order establishing the Receivership was reversed and increased the
Receivership expenses to which Baron now objects.
3
The Receiver downplays the significance of this last factor in his Application, which the court determines is
2
relevant to the fees and expenses incurred in this case during the time in question, as the Receiver’s current counsel
agreed to substitute in as counsel late in the case despite the morass surrounding the Receivership that spilled over into
the bankruptcy proceedings filed by and against Baron. Moreover, this case, and those involved in the case, including
Judge Furgeson, United States Bankruptcy Judge Stacey G. C. Jernigan (“Judge Jernigan”), the bankruptcy trustee, the
Receiver, and the Receiver’s professionals, have received a fair amount of unwarranted negative publicity and treatment
at the hands of Baron and his supporters. Baron and the LLCs have also sued various persons and entities involved in
this case or satellite litigation. One such suit against the Receiver and his former counsel pertaining to the Receivership
in this case is pending before this court in Civil Action No. 3:15-CV-232-L.
Baron began interfering with the winding down of the Receivership immediately after the Fifth Circuit’s
3
December 18, 2012 opinion issued (and before the mandate issued in April 2013) by advising third-party monetizer
Domain Holdings Group (“Domain Holdings”) that the Receivership order had been vacated and requesting Domain
Holdings to stop transferring funds to the Receiver or anyone acting pursuant to the Receivership order, including those
acting on behalf of Receivership parties Novo Point and Quantec pursuant to such order. See Receiver’s Mot. (Doc. 1148
and attachments); Order (Doc. 1155). As a result, Domain Holdings stopped making monetizer payments for a period
of time. While Baron’s statement that the Fifth Circuit’s December 18, 2012 opinion vacated the Receivership order
was technically correct, it gave the false impression that the Receivership itself had been vacated or dissolved. Baron
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Further, a large portion of the attorney’s fees incurred by the Receiver’s counsel Dykema is
directly attributable to the involuntary bankruptcy filed against Baron by his former attorneys. Like
the Receivership, the involuntary bankruptcy proceeding came about as a result of Baron’s conduct
in hiring and firing numerous attorneys and ultimately prolonged the Receivership because of the
numerous and complex disputed issues that arose regarding the impact of the involuntary bankruptcy
persisted in his efforts to seize control of the domain assets that were still subject to the Receivership and to redirect
payments by Domain Holdings away from the Receivership that were needed by the Receiver to continue paying domain
name fees to maintain the Receivership assets pending dissolution of the Receivership. In doing so, Baron disregarded
Judge Furgeson’s December 20, 2012 order that the Receiver would continue to maintain all Receivership assets and
pay all domain name renewals pending dissolution of the Receivership, as well as the Fifth Circuit’s December 31, 2012
clarification, that its opinion did not dissolve the Receivership, and that the process for ending the Receivership would
be managed by the district court on remand. As a result, Judge Furgeson threatened to impose sanctions against Baron
by requiring him to pay the Receiver’s and the Receiver’s attorney’s fees.
Baron and others acting on his and the LLCs’ behalf engaged in similarly disruptive conduct before and after
this court announced in January 2014 that it would begin the process of winding down the Receivership. Baron hired a
new attorney who began filing materials on behalf of Baron before filing a notice of appearance and before being
substituted as Baron’s counsel. In an attempt to manipulate the manner in which the Receivership assets were returned
to the Receivership parties, Baron contended that the court should return the LLCs’ Receivership assets to a yet-to-be
designated representative of purported Village Trust trustee RPV Limited (“RPV”). After the court declined to do so
and ordered the LLCs’ assets returned to Lisa Katz (“Katz”), who was hired in 2011 by the former trustee of the Village
Trust to act as the manager of Novo Point, the LLC with the most valuable domain name assets, Baron or others acting
on his and the LLCs’ behalf undertook last-minute efforts to change the manager of the LLCs to David McNair
(“McNair”) and terminate Katz, although Baron and the LLCs had never previously objected to Katz prior to this time,
and they were uncooperative in proceedings requested by the Receiver and conducted by Judge Furgeson and Judge
Jernigan in an effort to determine whether Katz or others had authority to act on behalf of the LLCs. Baron then
requested the court to reconsider its prior order and return the LLCs’ assets to McNair, the LLCs’ newly appointed
manager. In support of this request, Baron submitted an affidavit from McNair and trust documentation that, prior to this
time, were conveniently unavailable. In the meantime, Baron and his counsel requested the Receiver to disregard the
court’s orders and transfer the LLCs’ Receivership domain name assets to Baron’s designee or delay in turning over the
LLCs’ assets to Katz. In addition, McNair contacted Fabulous.com, the internet domain name registrar, insisting that he
was the duly appointed manager of the LLCs despite the court’s orders requiring the return of the LLCs’ assets to Katz.
Doc. 1378. McNair also contacted Domain Holdings in an attempt to take control of the Receivership assets. Id. When
this failed, Baron’s attorney and others acting on behalf of Baron or the LLCs resorted to threatening litigation against
third parties, including Domain Holdings, if they provided Katz with access to the Receivership domain name accounts
in accordance with the Receiver’s instructions and this court’s orders. Doc. 1380-1. This and other similar conduct by
Baron and the LLCs in 2014 resulted in a significant amount of motion practice in this case and related cases,
unnecessarily delayed the dissolution of the Receivership and discharge of the Receiver, increased the amount of
Receivership expenses, and has given rise to yet more litigation in newly filed civil actions assigned to the court.
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case on the winding down of the Receivership. The court nevertheless discounts the total amount
of fees and expenses requested in the Receiver’s Application (after the 10% reduction to the amount
requested by the Receiver as noted above) by an additional 15% in light of the Fifth Circuit’s
determination that imposition of the Receivership was the wrong remedy to address Baron’s
disruptive and vexatious conduct. With these deductions, the total amount of requested professional
fees and expenses that remains is $754,141.97. The court finds that this amount is reasonable and
necessarily incident to the Receiver’s duties performed in this case and related proceedings.
B. “Cash on Hand” as of December 18, 2012
As recognized the Receiver, the total amount that the court may award for remaining
Receivership fees and expenses turns on its interpretation of the following directive in the Fifth
Circuit’s December 18, 2012 opinion regarding the payment of remaining Receivership expenses:
[E]verything subject to the receivership other than cash currently in the receivership,
which Baron asserts in a November 26, 2012 motion amounts to $1.6 million, should
be expeditiously released to Baron under a schedule to be determined by the district
court for winding up the receivership. The new determination by the district court of
reasonable fees and expenses to be paid to the receiver, should the amount be set at
more than has already been paid, may be paid from the $1.6 million. To the extent
the cash on hand is insufficient to satisfy fully what is determined to be the
reasonable charges by the receiver and his attorneys, those charges will go unpaid.
No further sales of domain names or other assets are authorized.
Netsphere, Inc. v. Baron, 703 F.3d 296, 313-14 (5th Cir. 2012). Based on this language, the
4
Receiver contends that the court has authority and discretion to order payment to the Receiver and
The Fifth Circuit subsequently clarified that all Receivership assets other than cash currently in the
4
Receivership should be returned, as appropriate, to Baron, the LLCs, or the persons/entities from whom the assets were
obtained.
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his professionals from the cash assets remaining in the Receivership as of December 18, 2012, even
though the establishment of the Receivership was held to be improper. The court agrees.
As the Fifth Circuit explained:
[W]e hold, based on this record, that in creating the receivership “there was no
malice nor wrongful purpose, and only an effort to conserve property in which [the
court] believed” it was interested in maintaining for unpaid attorney fees and to
control Baron’s vexatious litigation tactics. We recognize that the district court was
dealing with a conundrum when it decided to appoint the receiver—the problem was
great, but standard remedies seemed inadequate. We also take into account that, to
a large extent, Baron’s own actions resulted in more work and more fees for the
receiver and his attorneys. For these reasons, charging the current receivership fund
for reasonable receivership expenses, without allowing any additional assets to be
sold, is an equitable solution.
Id. at 313 (citation omitted and emphasis added). Thus, the court must determine the amount of
“cash on hand” or “cash currently in the receivership” as of December 18, 2012, and whether this
amount should be limited to the $1.6 million referenced in the Fifth Circuit’s opinion. Id. at 313-14.
The Receiver asserts that the Fifth Circuit’s reference to $1.6 million is not conclusive of the
amount of cash on hand because, as reflected in the Fifth Circuit’s opinion, this amount was derived
from Baron’s unsupported assertion that $1.6 million in cash assets remained in the Receivership
as of November 26, 2012. According to the Receiver, the amount of cash in the Receivership as of
December 18, 2012, actually ranged from $2.3 million to $4.1 million, depending on how the court
construes the term “cash.” Receivers’s Appl. (Doc. 1397) 15. The Receiver requests that the court
construe “cash on hand” or “cash currently in the receivership” as of December 18, 2012, as
including the following amounts:
the cash in Receivership accounts ($1,196,744.31); Accounts Receivable (totaling
$1,147,761.18 including the 2012 Netsphere Settlement Payment ($600,000.00), the
estimated amount due from the Ondova Bankruptcy Trustee for the disgorgement of
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a prior payment ($379,761.18), and withholdings from Domain Holdings Group of
monthly monetizer payments of approximately $150,000.00 for the month of
December 2012); and the value of Mr. Baron’s IRAs and brokerage accounts that
were subject to and under the control of the Receivership ($1,761,509.59).
Id. at 4 n.8. The Receiver maintains that inclusion of these assets as “cash on hand” comports with
the “letter and spirit” of the Fifth Circuit’s opinion and takes into account the differing evidence on
remand. The Receiver asserts that an exception to the “mandate rule” applies when, as here, the
evidence is different upon remand. Receiver’s Appl. 16.
In prior orders, the court was previously operating under the mistaken assumption that the
amount of cash or money in the Receivership was a fairly static amount of either $1.6 million or
another amount as of December 18, 2012, because it was not aware that money was coming into the
Receivership as monetizer payments and being paid out for domain fees. Black’s Law Dictionary
defines “cash” as “[m]oney or its equivalent . . . [c]urrency or coins, negotiable checks, and balances
in bank accounts.” Black’s Law Dictionary 260 (10th ed. 2014). Merriam-Webster’s Collegiate
Dictionary defines “cash” similarly as “money or its equivalent” or “ready money.” Merriam-
Webster’s Collegiate Dictionary 191 (11th ed. 2003). Neither of these sources defines “cash on
hand”; however, the court located the following definition of “cash on hand” from another source:
“Cash on hand” is a term used to describe the current liquid assets of a
company or individual. This includes actual cash as well as accessible balances in
checking, savings, money market, and other such accounts. In some cases, available
credit funds may also be included. These assets differ from total assets, which
additionally include things such as equity in real estate and equipment, and can
include invoiced monies as well.
The main point of difference between cash on hand and other types of assets
is the immediacy of access. The funds generally do not need to be physically present
on the premises to be considered “on hand.” As long as the business or individual has
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access within a fairly immediate time frame, the funds are considered part of this
category.
Further, funds considered “cash” do not have to be physical money.
Electronic funds, such as those present in bank accounts, also count. In addition, the
funds in credit accounts such as credit cards or home equity lines of credit may
sometimes be included, provided they can be accessed quickly.
Any asset considered a part of cash on hand must be liquid. This means that
it does not require the sale or transfer of a physical or intangible item in order to
access its full or partial worth. For this reason, equity in a home, physical items of
value, and stocks or shares are not considered to be either “cash” or “on hand.”
http://www.wisegeek.com/what-is-cash-on-hand.htm. An online article in the small business section
of the Houston Chronicle defines cash on hand similarly as follows: “Cash on hand is the total amount
of any accessible cash. According to ‘Entrepreneur’ magazine, it refers to any available cash
regardless of whether it is in your pocket or your bank account. Investments that you can convert to
cash in 90 days or less are typically included when calculating your cash on hand.”
http://smallbusiness.chron.com/difference-between-petty-cash-cash-hand-51922.html.
The court finds these definitions instructive and consistent with the Fifth Circuit’s directive
that remaining Receivership expenses be paid from funds in the Receivership as of December 18,
2012, without selling any additional domain names or other Receivership assets. Netsphere, Inc.,
703 F.3d 313-14. Accordingly, applying this definition of “cash on hand” and the Fifth Circuit’s
express directive precluding the sale of additional Receivership assets after December 18, 2012, the
court concludes, based on the Receiver’s report and Inventory of Assets (Doc. 1161), filed January
8, 2013, that the following assets totaling $1,946,444.31 qualify as “cash on hand” in the
Receivership as of December 18, 2012:
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Receiver’s Comerica Checking Account $147,565.74
Quantec BBVA Bank Account $364,610.86
Novo Point BBVA Bank Account $665,563.51
Baron Capitol One Savings Account $4,025.68
Baron Capitol One Checking Account $141.84
Baron Woodforest National Checking Account $573.49
Baron American Century Investments Prime Money Market Account $3,115.56
Comerica Investigating Netsphere check $7,711.72
TD Ameritrade Money Market Account $3,035.91
Manassas D. Comerica Bank Account $100.00
Domain Holdings Group (monetizer payment for December 2012) $150,000.00
Netsphere Settlement Payment under GSA $600,000.00
$1,946,444.31
All but two of the above listed assets represent amounts in checking, savings, money market,
and similar bank accounts that would not require the sale of stock or other assets to liquidate.
5
Domain Holdings’ monetizer payment of $150,000 for December 2012 is also included. The court,
however, does not include any monthly monetizer payments that were made by Domain Holdings or
due after December 18, 2012, because it determines that any monetizer payments to be made on a
monthly basis by Domain Holdings after December 18, 2012, fall outside the scope of that permitted
by the Fifth Circuit.
Based on the information available to it, the court also determines that the $379,761.18
previously paid to the Ondova bankruptcy trustee does not qualify as “cash on hand” and therefore
was not included in the court’s calculation. The Receiver’s justification for including the $379,761.18
The court determines for purposes of its analysis that the brokerage and IRA accounts listed in the Receiver’s
5
inventory and valued at approximately $1.7 million would require a sale of assets to liquidate the accounts. The value
of these accounts was therefore not included as “cash on hand.” Moreover, the Receiver does not include this amount
as “cash on hand” as of December 18, 2012.
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previously paid to the Ondova bankruptcy trustee as “cash on hand” is not entirely clear. The
Receiver indicates in his inventory that this is the “estimated amount[] due” from the trustee for
“disgorgement of [a] prior payment.” Receiver’s Inventory (Doc. 1161 at 6). From this, the court
concludes that $379.761.18 was awarded and paid to the trustee prior to December 18, 2012, but
never disgorged. It is unclear from the Receiver’s Application, however, why the Receiver believes
that the amount paid is “due” from the trustee or subject to disgorgement. Id. The court is not aware
of any order as of December 18, 2012, that required the trustee to disgorge the $379,761.18 previously
awarded by the district court. While the Fifth Circuit directed the district court to reconsider all fees
and expenses previously paid from the Receivership, it did not specifically order the district court to
disgorge the $379,761.18 previously paid to the trustee. See Netsphere, Inc., 703 F.3d at 313.
Moreover, in light of the Fifth Circuit’s directive to reconsider all fees and expenses previously paid,
Judge Furgeson subsequently revisited, on May 29, 2013, whether the $379,761.18 paid to the trustee
and his attorneys should be reduced, and he determined, for equity considerations, that it should not,
even though he indicated sometime earlier in 2013 that he might require the trustee to return the
amount awarded. May 29, 2013 Order (Doc. 1287 at 25). Inclusion of this amount as “cash on hand”
as of December 18, 2012, is therefore inappropriate.
The court, on the other hand, agrees with the Receiver that the $600,000 payment under
“Netsphere Global Settlement” referenced in the Receiver’s Application should be counted as “cash
on hand” as of December 18, 2012. The “Netsphere Global Settlement” refers to the Global
Settlement Agreement (“GSA”) dated July 2, 2010, that resolved domain name and creditor claims
in this case and other cases, including the bankruptcy filed by Baron on behalf of his company
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Ondova Limited Company (“Ondova”). Pursuant to the settlement, Manila Industries, Inc.
(“Manila”), a Plaintiff in this case, agreed to pay the Village Trust, the Cook Islands entity that owns
Novo Point and Quantec, $600,000, together with simple interest, on or before the second anniversary
of the Transfer Date, which the GSA defines as: “the later of: (i) the date which is thirty (30) days
after the Settlement Date or ninety (90) days after a 9019 motion is filed with the Bankruptcy Court
to approve this Agreement.” Ondova Bankruptcy (Doc. 368-1 at 5). The GSA was to become
effective on the “‘Settlement Date,’ which was defined as ‘the day after the date on which the
Bankruptcy Court’s order approving this Agreement becomes a Final Settlement Order.’” Netsphere,
Inc., 703 F.3d 303. On July 28, 2010, the bankruptcy court approved the GSA and ordered the
settlement to be fully executed by July 30, 2010. Id. Thus, according to the GSA, the $600,000
payment was due no later than September 30, 2010 (90 days after the trustee filed his 9019 motion
on July 2, 2010). The $600,000 payment, however, was never made.
Based on the Fifth Circuit’s December 18, 2012 opinion, Judge Furgeson entered an order on
January 2, 2013, requiring Netsphere, Inc. (“Netsphere”) to deposit with the Receiver all monies due
and owing to Baron under the GSA through December 31, 2012. On March 8, 2013, the Receiver
sought to compel payment in accordance with Judge Furgeson’s order. In response, Netsphere
acknowledges that the $600,000 payment was owed by Manila under the GSA but contends that
Manila’s performance was excused because Baron and Ondova, Defendants in this case, materially
breached the GSA. Netsphere also contends that the involuntary bankruptcy filed against Baron on
December 18, 2012, automatically stayed the proceedings in this case.
Memorandum Opinion and Order - Page 14
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The $600,000 payment was due under the GSA long before the involuntary bankruptcy was
filed and before the Receivership was established in November 2010. According to the bankruptcy
court, Baron’s and the LLCs’ actions interfered with the full implementation of the GSA. Baron and
the LLCs, however, have recently taken the position that the GSA is enforceable, and that the assets
assigned to the Village Trust under the GSA should be used to settle claims in the Ondovoa
bankruptcy. See February 9, 2015 Mot. to Confirm Settlement Auth. (Doc. 1198 at 4), Case No. 09-
34784-sgj11 (“In an effort to resolve these seemingly never-ending proceedings that have been
ongoing since 2009, Jeffrey Baron and the LLCs would welcome the opportunity to assist this Court
in winding up the affairs of Ondova by filing a plan of reorganization designed to recover valuable
assets that were assigned to the Village Trust pursuant to the GSA.”). In light of Baron’s and the
6
LLCs’ contention that the GSA is enforceable and the deadline for the payment under the GSA, the
court concludes that it is appropriate to consider the $600,000 payment or receivable as “cash on
hand” as of December 18, 2012. Because Plaintiffs Netsphere, Manila, and Munish Krishan
(“Krishan”) (collectively, “Plaintiffs”) contend in this case and allege in their amended pleadings that
their performance under the GSA was excused due to Defendants’ breaches, however, the court will
not reduce the $600,000 to judgment against Netsphere or Manila in favor of the Receiver as
requested by the Receiver. The court instead only considers the $600,000 in calculating the amount
of “cash on hand” as of December 18, 2012, for purposes of determining the maximum amount of
remaining Receivership fees and expenses that can be awarded.
The motion by Baron and the LLCs was withdrawn on March 17, 2015, after sanctions were sought in the
6
bankruptcy against them, and this court remanded a related case to state court involving the LLCs and the issue as to
whom has authority to manage the LLCs.
Memorandum Opinion and Order - Page 15
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C. Funds Available to Pay Remaining Receivership Fees and Expenses
As previously noted, the Fifth Circuit directed the district court on remand to reevaluate the
Receivership fees and expenses to be paid and held that the amount of Receivership fees and expenses
ultimately awarded must not exceed the amount of cash on hand in the Receivership as of December
18, 2012. Netsphere, Inc., 703 F.3d at 313-14. To the extent that the cash on hand was insufficient
to fully satisfy the amount of reasonable charges determined by the district court, the Fifth Circuit
ordered that those charges would go unpaid. Id. at 314. Receivership expenses totaling
$1,414,676.05 for the period of December 2012, through April 2013 were approved by Judge
Furgeson in May 2013. In addition, this court approved $18,917.53 in additional Receivership
expenses to be paid to accounting firm Lain Faulkner & Co., P.C., to enable the Receiver to prepare
the final report requested by the court. The total amount of Receivership expenses approved and paid
since December 18, 2012 therefore totals $1,433,593.58.
Subtracting this amount from the remaining cash on hand in the Receivership as of December
18, 2012 ($1,946,444.31), the court arrives at an amount of $512,850.73. Thus, by the court’s
calculation, any payment of remaining Receivership expenses from assets in the Receivership cannot
exceed $512,850.73, even though the requested fees and expenses in the Receiver’s Application
exceed this amount. According to the Receiver, $424,857.76 in cash assets remain in the
Receivership as of the date the Receiver’s Application was filed. This amount is insufficient to pay
all of the Receivership expenses that the court has determined were reasonably and necessarily
incurred by the Receiver and his professionals in managing the Receivership in this case under the
unusually difficult circumstances presented. Additional amounts that the court awards for remaining
Memorandum Opinion and Order - Page 16
Case 3:09-cv-00988-L Document 1447 Filed 03/27/15 Page 16 of 22 PageID 70424
Receivership expenses to be paid from Receivership assets is necessarily constrained by the Fifth
Circuit’s December 18, 2012 directive and the court’s interpretation of that directive.
Anticipating that there would be insufficient Receivership funds, the Receiver requests that
the remaining Receivership fees and expenses be awarded under the bankruptcy code as a sanction
against Baron’s former attorneys who, according to the Receiver, filed the involuntary bankruptcy
in violation of the Receivership order entered by Judge Furgeson. The court acknowledges that a
majority of the fees and expenses sought was incurred as a result of the involuntary bankruptcy
proceedings. The court is also aware that, after the involuntary bankruptcy was filed against Baron,
the Receiver was ordered to remain in possession of the Receivership assets and continue maintaining
the assets until an order of relief was entered by the bankruptcy court. The bankruptcy court
ultimately concluded that the involuntary bankruptcy proceeding created an “intervening
circumstance” that required the turnover of the Receivership assets to the bankruptcy trustee in
accordance with section 543 of the bankruptcy code because, “in a typical situation of a receivership
predating a bankruptcy case, the protocol is clear: the receiver is superseded by a bankruptcy trustee
and simply turns over the receivership assets to the bankruptcy trustee pursuant to Section 543 of the
Bankruptcy Code.” July 26, 2013 Sua Sponte Report of Bankruptcy Court (Doc. 1304-1 at 4-5). This
court, however, subsequently determined that application of section 543 of the bankruptcy code was
inappropriate because it is premised on the existence of a valid receivership, whereas the Receivership
in this case was determined to be improper. For this reason, the court concludes that awarding
Receivership fees and expenses under the bankruptcy code sections relied on by the Receiver would
not be appropriate.
Memorandum Opinion and Order - Page 17
Case 3:09-cv-00988-L Document 1447 Filed 03/27/15 Page 17 of 22 PageID 70425
Accordingly, the court awards the Receiver a total of $424,857.76 for Receivership fees and
expenses incurred from May 2013 through the close of the Receivership, which shall be paid from
the remaining cash assets in the Receivership. The professional claims shall be paid in the same
manner previously ordered by Judge Furgeson with payment to Dykema before other claimants. See
May 29, 2013 Order (Doc. 1287 at 45). The Receiver’s request for additional fees and expenses in
excess of $424,857.76 is denied.
II. The Receiver’s Request for Approval of Final Accounting and Order of Final Discharge
and Release
The Receiver requests that the court, upon final termination of the Receivership, enter an order
approving his final accounting and discharging the Receiver and his professionals from their duties
and from any and all liability that may have been incurred in the course of the Receivership. In
support of this request, the Receiver contends that receivers have qualified immunity from personal
liability for actions that are taken with their receivership authority. Receiver’s Appl. 32 (citing
Morrison -Knudsen Co. v. CHG Int’l, 811 F.2d 1209, 1222 (9th Cir. 1987)).
The Receivership order entered by Judge Furgeson contains the following limitation of
liability provision that excludes acts of gross negligence:
[E]xcept for an act of gross negligence, the Receiver and the [Receiver’s]
Professionals shall not be liable for any loss or damage incurred by any of the
Receivership Parties, their officers, agents, servants, employees and attorneys or any
other person, by reasons of any act performed or omitted to be performed by the
Receiver and the Professionals in connection with the discharge of his or her duties
and responsibilities. Additionally, in the event of a discharge of the Receiver either
by dissolution of the receivership or order of this Court, the Receiver shall have no
further duty whatsoever.
Memorandum Opinion and Order - Page 18
Case 3:09-cv-00988-L Document 1447 Filed 03/27/15 Page 18 of 22 PageID 70426
Order Appointing Receiver (Doc. 130 at 8-9). The court grants the Receiver’s request for approval
of final accounting and order of final discharge and release, except for acts of gross negligence, in
accordance with the foregoing limitation of liability provision. The court approves the Receiver’s
final accounting and report; confirms that the Receiver has complied with the orders of the court; and
concludes that the Receivership was operated and concluded in keeping with the mandate of the Fifth
Circuit and prior orders of this court and the bankruptcy court.
7
The further orders as follows:
1. The Receiver, his agents, employees, members, officers, independent contractors; the
Receiver’s current and former attorneys, including without limitation, the firm Dykema Gossett,
PLLC and attorneys David J. Schenck, Jeffrey R. Fine, Christopher D. Kratovil, and Alison R.
Ashmore; the firm Gardere Wynne Sewell, LLP and attorneys Peter Lo, Barry Golden, Richard
Roberson, Diedre Ruckman, John David Blakley, Michael Newman, and Evan Baker; and the
Receiver’s retained or appointed professionals, including without limitation, Joshua Cox, James
Eckels, Damon Nelson, Grant Thornton, Jeffrey Harbin, Matt Morris, Dickman Davenport,
Equivalent Data, and Domain Holdings Group, and their respective agents and representatives
(“Receiver Released Parties”) shall be discharged and relieved of any and all further duties,
In approving the Receiver’s final accounting and report, the court considered the Receiver’s supplemental
7
filings regarding the status of certain Receivership domain assets, the Receiver’s efforts in returning these assets, and
the obstacles that the Receiver encountered in returning the assets. The court is aware that the Receiver’s efforts in
turning over the Receivership assets to Baron and the LLCs were disrupted to a large extent as a result of the dispute as
to whom has authority to manage the LLCs and their assets that arose after the court first announced that it would begin
winding down the Receivership, and Baron undertook efforts to terminate Katz’s employment and replace the manager
of the LLCs. The court, however, is satisfied that the Receiver and his professionals undertook reasonable efforts to
return the Receivership assets in accordance with the court’s orders, despite the difficult circumstances created by Baron,
the LLCs, and their lawyers. Accordingly, the court overrules the various objections asserted regarding the manner in
which the Receivership assets were turned over.
Memorandum Opinion and Order - Page 19
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obligations, and responsibilities in connection with the Receivership and Receivership estate upon
termination of the Receivership estate.
2. Upon termination of the Receivership estate, the Receiver and Receiver Released Parties
shall be discharged and released, except for acts of gross negligence, from all claims and liabilities
arising out of or pertaining in any way to the Receivership and from all claims and liabilities that were
asserted or could have been asserted in the Receivership or in connection with the Receiver’s
administration of the Receivership, including without limitation (a) all claims for relief and causes
of action pertaining in any way to the Receivership that were asserted in or that could have been
asserted by any of the parties to this case or their current or former counsel; (b) all claims for relief
and causes of action pertaining in any way to the Receivership that were asserted in or that could have
been asserted in or in connection with the involuntary bankruptcy against Baron; and (c) all claims
for relief and causes of action that could have been asserted against the Receiver by creditors,
claimants, consumers, consultants, experts, vendors, purchasers (actual or prospective), clients, and
any other persons arising out of the Receiver’s activities or those of his professionals in connection
with the Receivership.
3. In the light of pending litigation involving the Receivership, the Receiver shall store and
maintain all books and records of the Receivership estate under his control until otherwise ordered
by the court.
8
Baron previously requested that the court direct the Receiver to return all books and records pertaining to the
8
Receivership assets in the Receiver’s possession or control. Such request was denied by order dated February 28, 2014.
See Order (Doc. 1368 at 5-7 and 12) (summarizing the relief requested by Baron as to the return of records and stating:
“All other requests not expressly addressed herein are denied.”).
Memorandum Opinion and Order - Page 20
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4. The court shall retain exclusive jurisdiction of this case over any disputes that may arise
concerning this or any earlier order, the wind down of the Receivership estate, and the relief provided
under this order, or any controversy that arises from or relates to the Receivership or actions of the
Receiver or his professionals.
5. The court authorizes the release of the surety and the surety bond posted by the Receiver
in the amount of $1,000 (Doc. 131).
6. All other requests or relief not expressly addressed herein is denied.
III. Objections to the Receiver’s Application
A number of objections were asserted to the Receiver’s Application. To the extent that the
objections asserted are inconsistent with the determination made in this memorandum opinion and
order, they are overruled.
9
The court set a deadline of April 22, 2014, for objections to the Receiver’s Application. A number of
9
objections was filed after this deadline. Some objections were filed months after the deadline set by the court. The court
does not consider these untimely objections, all of which were filed without leave of court. As far as the court is
concerned, as leave was not sought from the court to file the untimely objections, the right to object was waived or
forfeited by those who filed untimely objections. Moreover, the court’s refusal to consider the untimely objections serves
as a sanction for not complying with a valid court order. Additionally, the court did not authorize Baron, the LLCs, or
related persons or entities to file separate multiple objections. The multiple filings by different lawyers, whether in the
name of Baron, the LLCs, the Village Trust, or other offshore entities connected to the trust and Baron has been an
ongoing tactic conveniently employed to delay, confuse, manipulate, and disrupt the proceedings in this case, the
bankruptcies, and related cases, and the court strongly suspects, based on its familiarity with the record in this, the
bankruptcies, and other related cases, that Baron and those acting on his behalf are the source of this disruptive conduct.
Accordingly, the court does not consider the additional objections to the Receiver’s Application that were filed after
April 22, 2014, by or on behalf of Baron or the LLCs without leave of court, including those filed by RPV Limited
(“RPV”) on May 28, 2014, as trustee of the Village Trust, whose only assets are those of the LLCs. The record in this
and other related cases filed by the LLCs indicates that the Village Trust has been aware of an involved in the
Receivership proceedings from the beginning, and that RPV, as trustee for the Village Trust, and those acting on its
behalf were aware of the proceedings in this case, as well as the court’s orders pertaining to the winding down of the
Receivership. The court similarly concludes that Baron’s former attorneys, who initiated the involuntary bankruptcy
(“Petitioning Creditors”), were aware of the April 22, 2014 deadline imposed by the court on March 3, 2014, because
the court’s electronic court filing (“ECF”) system’s records indicate that Pronske & Patel, P.C; Gary Lyon; and Powers
Taylor, LLP all received notice via ECF of the court’s March 3, 2014 order. Accordingly, the court does not consider
the objection filed by Gerrit Pronske on behalf of the Petitioning Creditors without leave of court on May 5, 2014.
Memorandum Opinion and Order - Page 21
Case 3:09-cv-00988-L Document 1447 Filed 03/27/15 Page 21 of 22 PageID 70429
IV. Conclusion
For the reasons explained, the Receiver’s Application (Docs. 1397 and 1398) is granted in
part and denied in part. The Receiver is awarded $424,857.76 in professional fees and expenses,
which shall be paid from the remaining cash assets in the Receivership. The Receiver’s request for
additional fees and expenses in excess of this amount is denied. Upon payment of the Receivership
fees and expenses approved by the court, the Receivership estate shall terminate; the Receiver and
Receiver Released Parties are hereby discharged from any further duties, obligations, and
responsibilities; and the surety bond paid by the Receiver and the sureties shall be released.
It is so ordered this 27th day of March, 2015.
_________________________________
Sam A. Lindsay
United States District Judge
Memorandum Opinion and Order - Page 22
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