1
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
NETSPHERE, INC., Et. Al. §
Plaintiffs, §
vs. § Civil Action No. 3-09CV0988-F
§ HEARING REQUESTED
JEFFREY BARON, Et. Al. §
Defendants §
MOTION FOR APPOINTMENT AS COUNSEL TO OPPOSE CREATION OF
LIQUIDATING TRUST, TO DETERMINE COMPENSATION AND, IN THE
ALTERNATIVE TO FILE A DECLARATON UNDER SEAL FOR IN CAMERA
INSPECTION
Stephen R. Cochell (“Movant”) moves for appointment as counsel for Jeffrey Baron to
oppose the creation of a liquidating trust and further moves for an order determining
compensation. As set out below in more detail, Movant requests the Court to review a
Declaration of Jeffrey Baron in camera and under seal if the issues raised in this Motion are
disputed by opposing counsel. In support of this motion. Movant states:
I. Procedural History and Background
1. On or about July, 2010, this action was fully and finally settled in a
‘Global Settlement Agreement’. [Dkt. 151 Ex. 9]
2. On November 24, 2010, the Vogel receivership was imposed on Jeffrey
Baron personally and over various companies including two Cook Islands
LLCs owned by SouthPac Trust International, NovoPoint LLC and
Quantec LLC. Neither the Bankruptcy Court nor this Court have
determined that the Cook Islands entities were, or could be found under
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 1 of 12 PageID 60671
2
Cook Islands law to be alter egos of Ondova, L.L.C. Cook Islands law
appears to preclude such a finding as a matter of law.
3. At paragraph 15, the “Global Settlement” provided a full release by
Ondova for all possible liability, past, present, and future, of Mr. Baron, as
well as of NovoPoint LLC and Quantec LLC. Accordingly, as a matter of
substantive Texas law, any possible alter ego liability was fully released.
It also appears that there is no basis under the law for the assets of Mr.
Baron or the Cook Island LLC entities to be donated to the Ondova
bankruptcy estate.
4. Mr. Baron is currently unrepresented in this action. It also appears that
Mr. Baron was not, in practice, represented in the bankruptcy court
proceedings and did not, in fact, receive legal advice or representation by
Mr. Thomas. Mr. Baron did not have an advocate representing him in the
courtroom, and did not have an advocate and counselor researching,
advising, and protecting Mr. Baron’s rights with respect to the bankruptcy
proceeding.
a. In a phone discussion with Martin Thomas on September
24, 2012, he consented to substitution as counsel in the bankruptcy
case.
5. Mr. Thomas made it clear that his representation of Mr. Baron in the
bankruptcy case was limited only to serving as an intermediary between
the Receiver and Mr. Baron, and that he was not authorized to file
objections to issues affecting Mr. Baron’s assets including, but not limited
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 2 of 12 PageID 60672
3
to the issue of creating a liquidating trust, or any other matter in the
litigation.
6. Given Mr. Thomas’ view of the limitations on his representation, it is now
clear why Mr. Thomas simply acceded to all motions filed by the Trustee
and apparently had no input as to whether a liquidating trust should be
created.
7. Thus, it appears that Mr. Thomas has not provided Mr. Baron any legal
advice regarding the bankruptcy action, and has not served as an advocate
for Mr. Baron in the Bankruptcy Case. In light of a flat fee payment of
$5,000 per month, such an arrangement would appear to be a waste of
money.
8. At the same time, however, it does not appear that there is any support in
the record for Mr. Thomas’ conclusions that his representation of Mr.
Baron was limited in scope.
a. On December 17, 2012, this Court verbally stated:
THE COURT: Well, stay right here. My goal --
Frankly, I don't want to penetrate into the bankruptcy
court and what the great Judge Jurnigan is doing. So
actually I would rather you stay in the bankruptcy court.
I would rather you assert whatever needs to be asserted if
anything does need to be asserted. That would be sort of
my goal, and I would not want the receivership order to
prevent you from representing Mr. Baron in the court so
long as it's appropriate with the settlement that's been
reached and so forth. (emphasis supplied).
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 3 of 12 PageID 60673
4
b. Counsel has reviewed numerous orders in the
record, but has been unable to locate an order that limits
Mr. Thomas’ representation of Mr. Baron.
c. Mr. Baron stands ready to file the Declaration of
Jeffrey Baron under seal for the Court’s in camera
review, which supports the statements made by Mr.
Thomas, which support the conclusion that Mr. Baron
was not effectively represented and did not receive
effective legal advice or representation by Mr. Thomas
regarding core issues in the bankruptcy litigation.
d. Because the Court’s order directing that Mr.
Baron be represented to “assert whatever needs to be
asserted” apparently has either been misunderstood,
disregarded, or even violated, substitution of Mr.
Thomas is appropriate and counsel appointed to
safeguard Mr. Baron’s legal interests.
9. Previously, this Court, on May 3, 2012, this Court entered an order
requiring that Mr. Baron retain counsel by or before June 1, 2012 to assist
him in addressing contested issues in the Netsphere case, which would
have cleared the way for the Court to close the receivership proceedings.
10. Mr. Baron requested the undersigned counsel to represent him in these
proceedings at that time. Mr. Baron requests the Court appoint the
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 4 of 12 PageID 60674
5
undersigned counsel to represent him in this matter and to represent him in
the Bankruptcy Court proceedings.
11. The Court heard the matter and on July 13, 2012 entered an order
appointing counsel for the limited and narrow purpose of assisting Mr.
Baron in securing health care insurance coverage, and abating all other
requests for authorization to represent Mr. Baron. With respect to that
representation, Mr. Baron has secured health care coverage, However,
there is some remaining uncertainty as to whether the carrier is going to
cover Mr. Baron’s pre-existing illnesses and conditions. Counsel will
keep the Court advised of further progress on this issue.
12. On June 18, 2012, the Court entered an order that no funds be distributed
to the former Baron attorneys until the completion of the appeal. This
Court ordered that the funds then available be segregated and set aside by
the Receiver until a decision is made by the Court of Appeals. [Doc. 987].
13. On June 18, 2012, the Court also entered an order in case 3:12-cv-00416
stating that once the Receivership is dissolved, all property under its
control will be returned to Baron.
14. The traditional touchstone of the core duties of a receiver is impartiality
and unquestioning obedience to the directives of the Court. See e.g.,
Bosworth v. St. Louis Terminal Railroad Assn., 174 U.S. 182, 187 (1899)
(“Neither can he question any subsequent order or decree of the court
distributing the estate in his hands between the parties to the suit. It is
nothing to him whether all of the property is given to the mortgagee or all
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 5 of 12 PageID 60675
6
returned to the mortgagor. He is to stand indifferent between the parties,
and may not be heard either in the court which appointed him, or in the
appellate court, as to the rightfulness of any order which is a mere order of
distribution between the parties”).
15. On September 10, 2012, a Plan of Reorganization was filed with the
Bankruptcy Court proposing the creation of a liquidating trust, which
would directly controvert the rulings of this Court and would call for the
donation of the receivership assets to the Ondova bankruptcy Estate. In
addition to using the receivership assets to fund obligations of the Ondova
bankruptcy estate, the plan would directly controvert the Court’s order that
no funds be distributed to the former Baron attorneys until the completion
of the appeal. Oral argument on the appeal is set for hearing before the
Fifth Circuit in approximately one month. The Trustee and Receiver’s
‘Plan‘, thus appears to be a rush to end-run the prior rulings of the Court.
16. On September 11, 2012, a Notice of Hearing was issued setting a hearing
on the matter for September 28, 2012.
17. On September 14, 2012, the Trustee filed a Motion for Entry of Orders (I)
Approving the Receiver Entering into the Plan Settlement; and (II)
Approving the Auction Procedures; and (III) Break-Up Fee.
18. Counsel renews his prior motion and further seeks appointment as counsel
for Mr. Baron on the issues raised in the instant matter.
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 6 of 12 PageID 60676
7
19. A preliminary review of the Reorganization Plan, and the Receiver’s
request that the Court approve a plan to create a liquidating trust suffers
from serious and fatal deficiencies, as set out below.
II. Jurisdiction Pending Appeal Properly Rests in the Appellate Court.
Liquidation of all of Mr. Baron’s assets is a substantive and not an “administrative”
matter and should not be determined while his appeal of this Court’s orders are pending appeal.
See Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58, 103 S.Ct. 400, 74 L.Ed.2d 225
(1982).
III. The Receivership Assets Are Not Part of Ondova’s Bankruptcy Estate.
Under the Bankruptcy Code, the retained assets of the bankruptcy estate may be
transferred to a liquidating trust. Section 1123(a)(5)(B) provides that; “("[A] plan shall ...
provide adequate means for the plan's implementation, such as ... transfer of all or any part of the
property of the estate to one or more entities, whether organized before or after the confirmation
of such plan." (emphasis supplied). See e.g., Torch Liquidating Trust Ex Rel. Bridge Assoc., LLC
v. Stockstill, 561 F.3d 377,387 (5th Cir. 2009). If the assets are not part of the “estate”, it is clear
that a transfer cannot be made.
In the instant case, Mr. Baron disputes that the assets are part of the estate. The disputed
assets are owned by different entities and pursuant to the Bankruptcy Code, may not be
transferred into a bankruptcy estate without a finding and determination of Ondova’s claim to
ownership of the assets. It does not appear that either the Receiver nor the Trustee raised a claim
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 7 of 12 PageID 60677
8
that Ondova owns part or all of the assets. Thus, raising a claim at this point will directly violate
the Global Settlement Agreement.
Transfer of the assets, as proposed by the Receiver/Trustee, must be raised in an
adversary proceeding. Part VII of the Bankruptcy Rules. Rule 7001 defines an "adversary
proceeding" as: [A] proceeding in a bankruptcy court (1) to recover money or property, except a
proceeding under § 725 of the Code, Rule 2017, or Rule 6002, (2) to determine the validity,
priority, or extent of a lien or other interest in property, other than a proceeding under Rule
4003(d). See In re Simmons, 765 F. 2d 547, 552 n. 5 (5th Cir. 1985).
Further, preliminary review of the assets in the Receivership does not support a claim
against the LLCs and their assets. In determining which law to apply, Texas courts look to the
jurisdiction of incorporation of the target company. Counsel understands that Cook Islands law
does not recognize alter ego liability with respect to Cook Islands LLCs. Even assuming that an
alter-ego claim could be made by Ondova, the Global Settlement Agreement released all claims
against Baron and the LLC’s. Ondova received substantial funds in consideration for the release
of claims against Ondova. The Trustee cannot rely on the Global Settlement Agreement as
authority for creating the liquidating trust but then raise arguments that were released as a result
of the Global Settlement Agreement.
The Trustee and the Receiver apparently wish to side-step the prior orders of the Court in
favor of creating a liquidating trust by court fiat, which frustrates the relief sought by Mr. Baron
on appeal and circumvents any need to resolve issues of subject matter jurisdiction and
ownership of the assets.
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 8 of 12 PageID 60678
9
IV. The Court Should Appoint Counsel to Fully Analyze the Issues Raised
in a Liquidating Trust.
Mr. Baron is not represented by counsel in the district court and it appears that he is not
represented in the Bankruptcy Court. In his Notice, the Receiver asserts that bankruptcy counsel,
Martin Thomas, reviewed the proposed liquidating trust. At the time of this submission, it does
not appear that any objections were filed on behalf of Mr. Baron by counsel nor does it appear
that Mr. Thomas has been allowed to act to protect Mr. Baron’s interests.
1
At best, it appears that
Mr. Thomas’ “representation“ of Mr. Baron is, at best, a misnomer. Continued representation of
Mr. Baron by Mr. Thomas would, in any event, be inappropriate, as Mr. Thomas is adverse to
Mr. Baron with respect to issues pending on appeal, including Mr. Thomas’ fees which have
been contested by Mr. Baron on appeal. The Court should appoint the undersigned counsel to
represent Mr. Baron’s interests on these issues. Counsel should be allowed sufficient time to
fully research the relevant legal standards, and become readily familiar with the legal and factual
issues and detailed history of the proceedings.
Hearing on this Motion is requested for September 27, 2012.
WHEREFORE, Movant requests the Court enter an order that appoints counsel in the
District Court, enter an order directing that the Bankruptcy Court allow the substitution of the
undersigned counsel in the Bankruptcy proceeding, and direct that the Bankruptcy Court remove
the Motion to Approve the Liquidating Trust from its hearing docket and reschedule the matter
for briefing, allowing the undersigned counsel sufficient time and resources to provide further
research and argument on the issues. Counsel alternatively requests that, if the Court believes
1
No trial counsel has been allowed to represent the interests of the Cook Islands LLCs.
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 9 of 12 PageID 60679
10
that it needs further proof regarding the adequacy of Mr. Baron’s representation in the
Bankruptcy Court, or on the issue of the creation of a liquidating trust, that counsel be permitted
to file under seal the Declaration of Jeffrey Baron, with accompanying exhibits.
Very respectfully,
/s/ Stephen R. Cochell
Stephen R. Cochell
The Cochell Law Firm, P.C.
Texas Bar No. 24044255
7026 Old Katy Rd., Ste 259
Houston, Texas 77096
(713)980-8796 (phone)
(713)980-1179 (facsimile)
srcochell@cochellfirm.com
CERTIFICATE OF COMPLIANCE
This is to certify, that on September 25, 2012, the undersigned contacted Jeffrey Fine by
email and generally sought his concurrence in the relief sought. Mr. Fine was apparently unable
to return the phone call.
/s/Stephen R. Cochell
Stephen R. Cochell
CERTIFICATE OF SERVICE
This is to certify that, on September 25, 2012, a copy of this Motion was served on all
counsel through the Court’s ECF system.
/s/ Stephen R. Cochell
Stephen R. Cochell
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 10 of 12 PageID 60680
11
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 11 of 12 PageID 60681
12
Case 3:09-cv-00988-F Document 1054 Filed 09/25/12 Page 12 of 12 PageID 60682
