Involuntary Bankruptcy Appeal Brief Doc 47

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CIVIL ACTION NO. 3:13-cv-03461-O 
 
IN THE UNITED STATES DISTRICT COURT 
FOR THE NORTHERN DISTRICT OF TEXAS 
Dallas Division 
 
 
JEFFREY BARON, 
Appellant 
 
v. 
ELIZABETH SHURIG, et. al. 
Appellees 
ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT 
FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION 
 
CONSOLIDATED REPLY OF APPELLANT TO OPENING  
BRIEFS OF INTERVENOR AND PETITIONING CREDITORS 
 
Comes  now Appellant  Jeffrey  Baron (“Baron”)  and  files  this  Consolidate  Reply to the 
Opening Briefs of Intervenor, John H. Litzler (the “Trustee”), and the petitioning creditors in the 
involuntary  bankruptcy  case  of  Baron  (collectively,  the  “Petitioning Creditors”).
1
  In support 
hereof, Baron would respectfully show the Court as follows: 
I.  Preliminary Statement 
Instead of demonstrating that they obtained final judgments against Baron through a fair 
trial—or at least rebutting that an interlocutory fee order is not akin to a final judgment under 
Federal  Rules  of  Civil  Procedure—the  Petitioning  Creditors  and  Trustee  make  repetitive 
arguments that Baron is a vexatious litigant, in an attempt to convince yet a fourth court that they 
are  entitled  to  extraordinary equitable  relief.    Setting  aside  that this allegation  is  baseless, as 
                                                
1
   Capitalized terms not otherwise defined herein have the same ascribed to them in Baron’s Brief in Support 
of Appeal of  Bankruptcy Court  Orders Granting Petitioning Creditors Partial Summary  Judgment and Order for 
Relief (Dkt. No. 25.) 
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demonstrated below, section 303 of the Bankruptcy Code contains absolutely no provision that 
allows alleged creditors to force an individual into bankruptcy because he or she is “vexatious.”  
Rather, section 303 requires petitioning creditors to hold claims that are not subject to bona fide 
dispute as to liability or amount.  And the reasoning behind this requirement makes perfect sense, 
as the Bankruptcy Code was not intended to be used as a tool by plaintiffs to obtain a litigation 
advantage over defendants by placing them  into bankruptcy.  For these and other reasons, the 
Involuntary Case should be dismissed. 
II.  Violation of Due Process 
Receivership Order Precluded Involuntary Case 
  The Trustee and Petitioning Creditors first contend that the reversal of the Receivership 
Order did not preclude the remedy of involuntary bankruptcy.   (Tr.  Br.  at  19; PC’s  Br.  at  11.) 
They  argue  that  “[a]  federal  court’s  equitable  power  to  appoint  a  receiver  in  order  to  restrict  a 
debtor’s  use  of  his  unencumbered  property  before  judgment  may  not  be  viable,  but  involuntary 
bankruptcy certainly provides a method for creditors to force a debtor into bankruptcy proceedings if 
certain  statutory  criteria  are  met.”    (Tr.  Br.  at  19.)    They are  fundamentally  incorrect  for  several 
reasons. 
  First,  the  Trustee  and  Petitioning  Creditors  mistake  the  different  effects  of  the  Reversal 
Opinion and the Fifth Circuit mandate in determining what remedies were available to the Petitioning 
Creditors at different points in time. At the time the Reversal Opinion was entered, the Petitioning 
Creditors  had  absolutely  no  right  to  commence  the  Involuntary  Case  because  the  original 
Receivership Order contained a broad injunction against the commencement of any such remedy.  As 
demonstrated  in  the  Baron’s  Motion  for  Reconsideration  [Dkt.  No.  40],  the  Receivership  Order 
banned the Petitioning Creditors from, among other things: 
  “[c]ommencing,  prosecuting,  continuing,  entering,  or  enforcing  any  suit  or 
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proceeding . . .;” 
  “taking or attempting to take possession, custody or control of any asset” 
  “[e]xecuting, issuing, serving or causing the execution, issuance or service of, any 
legal process . . . whether specified in this Order or not;” 
  “[d]oing any act or thing whatsoever to interfere with the Receiver taking custody, 
control,  possession,  or  management  of  the  assets  or  documents  subject  to  the 
receivership.” 
(See App. 6, 139-140.)  Federal Rule of Appellate Procedure 41, as well as the  Fifth  Circuit’s 
Clarification Order, ensured that this broad injunction remained in place when the Involuntary 
Case was commenced.  While Baron had an absolute right to the protections of the Receivership 
Order, this right was stripped away, without due process, when the Petitioning Creditors ignored 
it and pursued the illegal remedy of bankruptcy. 
  Second,  even  if  the  Receivership  Order  had  not  been  in  place—which  it  was—the 
Petitioning Creditors still had no remedy available to them regarding the Fee Order because that 
Order had been stayed by Judge Furgeson—at the instruction of the Fifth Circuit—six days after 
it was entered.  (App. 28,  p.214.)   Judge  Furgeson’s  initial  stay  order  unequivocally  provided 
that:  “[H]aving consulted with the Clerk of the U.S. Court of Appeals for the Fifth Circuit, the 
Court  advises  the  parties  that  it  is  STAYED  from  taking  any  action  in  the  various  matters 
[including the Fee Order (Dkt. No. 575)] involved in the instant appeal.” (Id.)  A month later, 
Judge Furgeson reiterated in another Order that he had “stay[ed] orders concerning . . . fees to 
be  paid  to  Baron  attorneys  pending  appeal.”  (App.  31,  p.  217.)    After  the  Fifth  Circuit 
mandate on the Reversal Opinion issued, Judge Furgeson then made the stay permanent—despite 
renewed requests by the Petitioning Creditors to be paid—stating “the Fifth Circuit found this 
Court could not order the payment of these fees from the Receivership estate.” (App. 34, p. 
0443.) Moreover, Judge Furgeson had no authority to ever enforce the Fee Order (a) after  the 
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Fifth Circuit mandate pursuant to established case law regarding reversed receiverships
2
 and the 
law of the case and mandate rule.
3
  Thus, the Petitioning Creditors never had any right to enforce 
the  Fee  Order;  rather  Baron  had  a  right  to  enforce  the  Fifth  Circuit  mandate  and  Judge 
Furgeson’s nullification of such Order. 
  Moreover, section 303(b) of the Bankruptcy  Code  itself  precluded any remedy for the 
Petitioning Creditors,  because  it  requires the Petitioning  Creditors  to  hold  claims  that  are not 
subject to a bona fide dispute.  While the Trustee and Petitioning Creditors spend an inordinate 
amount of time in their Opening Briefs arguing that the claims were not “contingent” (Tr. Br. at 
25-26; PC’s Br.  at 16-18), this argument misses the mark entirely, as section 303(b) separately 
requires  petitioning  creditors  to  hold  claims  that  are  not  subject  to  “bona  fide  dispute  as  to 
liability or amount.”  See 11 U.S.C. § 303(b).  And any reasonable person who reviews the Fee 
Order will notice that Judge Furgeson specifically acknowledged in his Order that Baron’s held 
claims against all of the Petitioning Creditors—and visa versa—that were preserved for future 
litigation.  In that Order, Judge Furgeson stated: 
[T]he  Court  understands  that  certain  of  the  claimants  of  the  Former 
                                                
2
   See Jacksonsville, T. & K. W. RY. CO. v. American Const. Co., 57 F. 66 (5
th
 Cir. 1893); Coskery v. Roberts 
&  Mander Corp., 189  F.2d 234 (3rd Cir.  1951);  Coburn v.  Hill, 103  F. 340,  340-41  (6
th
 Cir.  1900);  Sclafani  v. 
Sclafani, 870 S.W.2d 608,611 (Tex. App.-Hous. [1 Dist.] 1993); Christie v. Lowrey, 589 S.W.2d 870, 873 (Tex. Civ. 
App.-Dallas 1979, no writ). 
3
   Given that the only assets that were the subject of the Netsphere Litigation were the domain names that 
were to be transferred to Netsphere under the settlement agreement between Ondova and Netsphere (R. 183), the 
Fifth Circuit unequivocally ruled that Judge Furgeson did not have subject matter jurisdiction to impose a receiver 
over property—the personal assets of Baron, Novo Point and Quantec—that was not the subject of the Netsphere 
Litigation.  (R. 179; see also R. 185-86, 188.) (“The receiver was granted exclusive control over assets, including 
Baron’s personal property, that were not at issue in the underlying litigation over the domain names. We find no 
authority to permit establishing a receivership for this purpose.”)  The Fifth Circuit further held that “[e]stablishing a 
receivership to secure a pool of assets to pay Baron’s former attorneys, who were unsecured contract creditors, was 
beyond the court’s authority.” (R. 185-86.) These rulings were binding on Judge Furgeson.  See United States v. 
Lee, 358 F.3d 315, 321 (5th Cir.2004) (“Absent exceptional circumstances, the mandate rule compels compliance on 
remand with the dictates of a superior court and forecloses relitigation of issues expressly or impliedly decided by 
the appellate court.”); see also Demahy v. Schwarz Pharma, Inc., 702 F.3d 177, 184 (5
th
 Cir. 2012) (the mandate rule 
“’provides  that  a  lower  court  on  remand  must  implement  both  the  letter  and  the  spirit  of  the  appellate  court’s 
mandate and may not disregard the explicit directives of that court.”) (quoting United States v. Matthews, 312 F.3d 
652, 657  (5
th
 Cir. 2002)).   Thus, Judge Furgeson had no authority  to ever enforce the Fee Order after the Fifth 
Circuit mandate issued.  
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Attorney  Claims  are  claiming  that,  in  addition  to  the  amounts  of  the 
Former  Attorney  Claims,  they  are  entitled  to  bring  Punitive  Claims.  
Furthermore,  the  Court  understands  that  eight  of  the  claimants  of  the 
Former  Attorney  Claims  are  seeking  the  amounts  that  are  not  being 
awarded  to  them  because  of  the  Fee  Cap  Reduction  (and  which  these 
claimants have a right to challenge through  motion before this Court or 
through an appeal).  The Court also understands that Baron claims that 
certain of the claimants of the Former Attorney Claims are allegedly 
liable  for  legal  malpractice  or  other  civil  claims (collectively,  “Baron 
Claims”). 
 
(R.  1327)  That  is  precisely  why  Judge  Furgeson  stated  that  “[t]hrough  this  Order,  Baron 
maintains any and all rights to bring, after the end of the Receivership, the Baron Claims.” (R. 
1328.)  This ruling is consistent with the representations made by the Receiver and Petitioning 
Creditors during the Summary Proceeding—in arguing