Appellants Objection and Response to Third Fee Application Doc 373

RESPONSE TO [DOC#323] AND [DOC#324]  - Page 1 
IN THE UNITED STATES DISTRICT COURT 
FOR THE NORTHERN DISTRICT OF TEXAS 
DALLAS DIVISION 
 
NETSPHERE, INC.,      §   
MANILA INDUSTRIES, INC., and  § 
MUNISH KRISHAN,       § 
  Plaintiffs.           § 
  § Civil Action No. 3-09CV0988-F 
  v.   §   
  § 
JEFFREY BARON, and      §   
ONDOVA LIMITED COMPANY,    § 
  Defendants.          § 
 
APPELLANT’S OBJECTION AND RESPONSE TO (1) THE RECEIVER'S 
THIRD FEE APPLICATION [DOC#323] AND (2) THE RECEIVER'S 
FIRM’S THIRD FEE APPLICATION [DOC#324]  
 
Appellant,  Jeffrey  Baron  makes  this  response  and  objection  to  (1)  The 
Receiver's  Third  Application  for  Fees  [DOC#323]  and  (2)  The  Receiver's  Third 
Application for Fees for his law firm, Gardere Wynne Sewell LLP [DOC#324]. 
1.  From the very start of the receivership,   Mr. Baron, through his counsel, 
has extended his hand to  the receiver in an offer  of full  cooperation and resolving 
the  need  for  any  receivership  by  agreement.      The  receiver  slammed  the  door  on 
cooperation and agreement, stating in no uncertain terms that there “is no first step 
to  reaching  any  agreement.”    The  receiver’s  fees  are  massive,  unreasonable,  and 
unnecessary.    Docket no. 364 is incorporated herein by reference in its entirety.  
2.  For further cause, if same is necessary: Mr. Baron has appealed the order 
appointing  the  receiver  [Doc  #136]  and  NovoPoint,  LLC  and  Quantec,  LLC 
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RESPONSE TO [DOC#323] AND [DOC#324]  - Page 2 
(“SouthPac’s  LLC  companies”)  have  appealed  from  the  order  including  the 
SouthPac LLC companies into the receivership [Doc #227]. 
3.  The  filing  of  a  notice  of  appeal  is  an  event  of  jurisdictional 
significance— it confers jurisdiction on the court of appeals and divests the district 
court of its control.  Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 
(1982).  The divesture of jurisdiction of the trial court involves those aspects of the 
case appealed.  Id. 
4.  The Court had no jurisdiction over the receivership order after Mr. Baron 
filed his appeal.  “A district court does not have the power to ‘alter the status of the 
case  as  it  rests before the  Court of Appeals’.”  Dayton  Indep. School Dist.  v.  US 
Mineral Prods. Co., 906 F.2d 1059, 1063 (5th Cir. 1990).   
5.  Accordingly,  the  order  to  alter  the  original  receivership  order  to  include 
SouthPac’s LLC companies is void for lack of subject matter jurisdiction. 
6.  The  order  including  SouthPac’s  LLC  companies  into  the  receivership  is 
also void for lack of personal jurisdiction over the owner of those LLC companies, 
SouthPac.   SourthPac is a serious and reputable trustee, recognized by US Courts 
of  Appeals.  The  bankruptcy  court  approved  SouthPac  to  act  as  trustee  and  take 
possession of the LLC companies.  SouthPac has not been served with any process 
in  this  case.    Accordingly,  by  law  this  Court  lacks  personal  jurisdiction  over 
SouthPac and is without jurisdiction to seize its property. 
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RESPONSE TO [DOC#323] AND [DOC#324]  - Page 3 
7.  The  order  including  SouthPac’s  LLC  companies  into  the  receivership  is 
also  void  for  lack  of  subject  matter  jurisdiction  on  the  further  but  significant 
grounds that the pleadings do not put their subject-matter at issue. See Cochrane v. 
WF  Potts Son & Co.,  47  F.2d 1026,  1029  (5th Cir. 1931) (since the court had no 
jurisdiction over these  properties,  its order appointing a receiver to  take charge  of 
them was void, in fact, “their proceedings are absolutely void in the strictest sense 
of the term”). 
8.   Moreover, the Fifth Circuit has ruled that the powers of the district court 
over  a  matter  appealed  from,  pending appeal  are  limited  to  maintaining the  status 
quo and do not to extend to the point that the district court can divest the court of 
appeals from jurisdiction while the issue is before the Court of Appeals on appeal. 
Coastal Corp. v. Texas Eastern Corp., 869 F.2d 817, 820 (5th Cir. 1989). 
9.  Accordingly,  pending  appeal  the  district  court  is  without  jurisdiction  to 
dispose of any of the assets which were seized by the receiver.  See e.g., Taylor v. 
Sterrett, 640 F.2d 663, 668 (5th Cir. 1981)  (“[T]he District Court was divested of 
jurisdiction  only  as  to  matters  relating  to  the  April  27  and  May  12  orders  and 
subsequent  orders and, for  that reason, fees cannot be recovered for work relating 
to these orders”).  
10. Further,  Mr.  Baron  has  no  responsibility  for  the  liabilities  or 
administrative  fees  or  costs  relating  to  any  other  receivership  entity,  and 
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RESPONSE TO [DOC#323] AND [DOC#324]  - Page 4 
SouthPac’s  LLC  companies  have  no  responsibility  for  the  liabilities  or 
administrative fees or costs relating to Mr. Baron’s assets.   Also, the scope of the 
receivership  extends  to  Mr.  Baron’s  exempt  property,  and  distribution  of  such 
exempt property would be unlawful. 
11.  Payment  to  the  receiver  with  respect  to  SouthPac’s  companies  is  also 
improper  because  the  receiver  acted  as  an  advocate  seeking  inclusion  of  the 
companies  in  the  receivership  order.    A  receiver  is  prohibited  from  seeking  to  be 
appointed  receiver  over  a  company and  then  charge  those  companies for  its  work 
as receiver.  Rather, by law a receiver must be disinterested. Booth v. Clark, 58 US 
322, 331 (1855).  Similarly, the receiver’s requested fees must be excluded because 
the receiver is not entitled to compensation from receivership assets for his role as 
an advocate against a party. 
12. The  fees  run  up  by  the  receiver  and  his  law  firm  are  unreasonable  and 
include fees and charges prohibited by law.  For example, the receiver and his law 
firm have  charged for executing upon  property exempt  from execution as a matter 
of law, such as Mr. Baron’s Roth IRAs.   
13. The  fees  are  also  excessive  and  unnecessary.    Mr.  Baron  complied  with 
this  Court’s  injunction  order  with  respect  to  his  assets,  even though  it was  issued 
without  notice,  without  supporting  affidavit,  and  without  supporting  findings,  in 
violation of the law and rules of procedure.  There was no necessity to run up fees 
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RESPONSE TO [DOC#323] AND [DOC#324]  - Page 5 
to  obtain  the  information  on  Mr.  Baron’s  accounts—he  provided  the  information 
and bank statements to the receiver. 
14.  The  billing  rate  charged  by  the  receiver’s  law  firm  are  excessive,  the 
attorneys working on the matter do  not have sufficient experience working on this 
particular type of matter, and their hourly fees are excessive.   
15.  Mr.  Baron  is  an  individual;  his  only  material  assets  are  some  banking 
accounts and two small apartments, one of which is his home. The receiver and his 
firm  are  running  up  fees  at  the  rate  of  almost  $10,000.00  per  business  day.    The 
amount  is  grossly  excessive,  unreasonable  and  inequitable.    The  entire  ‘estate’  of 
Mr.  Baron  involved  some  US  accounts  which  Mr.  Baron  himself  provided 
statements for. 
16.  The receivership was brought on behalf of no claimant to the property of 
Mr. Baron.  Accordingly, the receivership in place for this Court’s personal desire 
to pay attorneys fees from Mr. Baron’s money, is akin to a governmental action to 
recover  a  debt.    Accordingly,  the  maximum  statutory  fee  allowed  in  such 
circumstances–  5  percent  of  the  sums  received  by  the  receiver  (which  themselves 
are  limited by law to non-exempt assets)–  should set the maximum equitable fees 
allowed. See 28 U.S.C. §3103(g)(1). 
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RESPONSE TO [DOC#323] AND [DOC#324]  - Page 6 
17.  Moreover,  the  entry  of  a  receivership  without  due  process  and  subject 
matter  jurisdiction  over  the  property  placed  into  receivership  is  unconstitutional 
and void ab initio.  The great mass of weight of clear and controlling Fifth Circuit 
and  Supreme  Court  precedent  extending  back  for  more  than  a  century  that 
establishes the unlawful and unconstitutional nature of the receivership order – and 
the absence of  any controlling precedent to support the receivership order– signed 
without  notice,  without  hearing,  without  affidavits,  without  supporting  findings, 
and  without  lawful  cause–  makes  the  receiver’s  action  under  the  order 
unreasonable  and  a  violation  of  the  receiver’s  fiduciary  and  legal duties  to  inform 
the  Court  of  the  illegality  and  unconstitutionality  of  the  receivership  order  and 
process by which it was entered. 
18.  For further grounds, should same be necessary, the receiver and his firm 
are  estopped  from  entitlement  to  payment  for  fees  because  at  the  time  he  was 
appointed receiver in this Court’s order, he was employed by your honor as a special 
master in this very case.  See Docket #37.   Notably, Peter Vogel’s appoint as special 
master was itself done in clear violation of the Federal Rules of Civil Procedure.    
19.  The receiver himself recognized that holding both roles was inappropriate 
and sought termination of his employment as special master on December 10, 2010. 
See  Docket#147.    Post  appointment  termination  of  his  employment  as  special 
master, however, is not sufficient.  Pursuant to 28 U.S.C. 958, Mr. Vogel was legally 
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RESPONSE TO [DOC#323] AND [DOC#324]  - Page 7 
ineligible to be appointed as receiver.  28 U.S.C. 958 mandates that a person holding 
employed by any judge of the United States may not at the same time be appointed a 
receiver. Id. 
20.  Similarly,  Mr. Vogel  undertook to act as a mediator with respect to this 
case,  and was  provided confidential information  of Mr. Baron  with respect to that 
mediation.  Accordingly, to then act as an adversary against Mr. Baron in the very 
same  proceedings  and  concerning  the  same  subject  matter,  is  a  violation  of  Mr. 
Vogel’s  fiduciary  duties  as  a  mediator  in  the  case.    Pursuant  to  state  law,  Mr. 
Vogel  and  his  law  firm,  are  not  entitled  to  profit  from  the  fiduciary  violation  and 
any fee must be forfeited. 
 
 
 
 
                          Respectfully submitted, 
 
                          /s/ Gary N. Schepps       
                          Gary N. Schepps 
                          State Bar No. 00791608 
                          Drawer 670804 
                          Dallas, Texas 75367 
                          (214) 210-5940 
                          (214) 347-4031 Facsimile 
                          APPELLATE COUNSEL FOR  
                          JEFFREY BARON 
 
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RESPONSE TO [DOC#323] AND [DOC#324]  - Page 8 
 
CERTIFICATE OF SERVICE 
This  is  to  certify  that  this  was  served  on  all  parties  who  receive  notification 
through the Court’s electronic filing system. 
/s/ Gary N. Schepps       
                          Gary N. Schepps 
 
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