No. 13‐10696
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
NETSPHERE, INCORPORATED; ET AL,
Plaintiffs,
vs.
JEFFREY BARON,
Defendant–Appellant,
QUANTEC L.L.C.; NOVO POINT, L.L.C.,
Movants–Appellants
vs.
PETER S. VOGEL,
Appellee,
Appeal from the United States District Court
for the Northern District of Texas, Dallas Division
Docket No. 3:09-CV-988
APPELLANTS, NOVO POINT LLC’S AND QUANTEC
LLC’S, OPENNING BRIEF
PAUL RAYNOR KEATING
173 Balmes 2o 2a, 08006 Barcelona,
Spain, Tel. (415) 937.0836, Fax. (415)
358.4450
Attorneys for Appellants, Novo Point LLC
and Quantec LLC
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i
No. 13‐10696
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
NETSPHERE, INCORPORATED; ET AL,
Plaintiffs,
vs.
JEFFREY BARON,
Defendant–Appellant,
QUANTEC L.L.C.; NOVO POINT, L.L.C.,
Movants–Appellants
vs.
PETER S. VOGEL,
Appellee,
CERTIFICATE OF INTERESTED PERSONS
Pursuant to Fifth Circuit Rule 28.2.1, the undersigned counsel of record for
Appellant, Jeffrey Baron, certify that the following listed persons have an
interest in the outcome of the case. These representations are made in order
that the Judges of this Court may evaluate possible disqualification or
recusal.
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ii
Appellants:
• Jeffrey Baron
Represented by:
Leonard H. Simon
William P. Haddock
Pendergraft & Simon, LLP
2777 Allen Parkway, Suite 800
Houston, TX 77019
Tel. 713-528-8555
Fax. 713-868-1267
• Novo Point, LLC
Paul Raynor Keating
173 Balmes 2/2
08006 Barcelona Spain
Tel. (415) 937.0836
Fax. (415) 358.4450
• Quantec, LLC
Paul Raynor Keating
173 Balmes 2/2
08006 Barcelona Spain
Tel. (415) 937.0836
Fax. (415) 358.4450
Appellee:
• Peter S. Vogel, Receiver for
Netsphere, Inc.
Represented by:
David J. Schenck
Dykema Gossett PLLC
1717 Main Street, Ste. 4000
Dallas, Texas 75201
Tel. 214-462-6455
Fax. 214-462-6401
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iii
Other Interested Parties:
• Daniel J. Sherman, Trustee
Represented by:
Raymond J. Urbanik
Munsch, Hardt, Kopf & Harr PC
500 N. Akard St., Ste. 3800
Dallas, TX 75201-6659
Tel. 214-855-7590
Fax. 214-978-4374
• Gardere Wynne Sewell LLP
Barry M Golden
Gardere Wynne Sewell LLP
Thanksgiving Tower
1601 Elm St
Suite 3000
Dallas, TX 75201-4761
Tel. 214-999-3000
Fax. 214-999-3422 (fax)
• Dykema Gossett PLLC
David J. Schenck
Dykema Gossett PLLC
1717 Main Street, Ste. 4000
Dallas, Texas 75201
Tel. 214-462-6455
Fax. 214-462-6401
• Munsch, Hardt, Kopf & Harr PC
Raymond J. Urbanik
Munsch, Hardt, Kopf & Harr PC
500 N. Akard St., Ste. 3800
Dallas, TX 75201-6659
Tel. 214-855-7590
Fax. 214-978-4374
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iv
• Gerrit M. Pronske, et al. (the “Pe-
titioning Creditors”)
Gerrit M. Pronske
Melanie P. Goolsby
Pronske, Goolsby & Kathman, PC
2200 Ross Avenue, Suite 5350
Dallas, Texas 75201
Tel. 214- 658-6500
Fax. 214- 658-6509
• Netsphere, Inc., et al.
John W MacPete
P.O. Box 224726
Dallas, TX 75222
Tel. 214/564-5205
/s/ Paul Raynor Keating
Paul Raynor Keating
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v
STATEMENT REGARDING ORAL ARGUMENT
The Appellant respectfully requests an oral argument under Fed. R. App.
P. 34(a). The Appellant believes this case meets the standards in Rule
34(a)(2) for oral argument in that:
a. This appeal is not frivolous;
b. Some of the dispositive issues raised in this appeal, in particu-
lar the unique issues of: (1) whether Receivership fees and ex-
penses can be charged against parties and assets that were not
within the jurisdiction of the trial court – namely Novo Point
and Quantec and who were not found to be culpable of any
complained of conduct or the alter ego of Baron; and (2) the re-
lated due process issues, have not been authoritatively decided
within this Circuit; and
c. As described in this brief, the decisional process may be signifi-
cantly aided by oral argument.
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TABLE OF CONTENTS
Certificate of Interested Persons ......................................................................... i
Statement Regarding Oral Argument ............................................................... v
Index of Authorities............................................................................................... x
Statement of Jurisdiction ...................................................................................... 1
Issues Presented ..................................................................................................... 2
Statement of the Case ............................................................................................ 3
A. The district court appoints a Receiver due to
unresolved claims .................................................................................... 4
B. The court authorizes the Receiver to take control of
Novo Point, LLC and Quantec, LLC without a finding
of alter ego. ............................................................................................... 5
C. The appeal of the Receivership Order and the Netsphere
I opinion directing the district court to review all prior
receivership fees and expenses and apply a
“meaningfully discount” ........................................................................ 6
D. The involuntary bankruptcy filing ....................................................... 7
E. The Advisory on past and pending Receiver
disbursements ........................................................................................ 10
F. This Court denies all pending motions and issues 8
mandates ................................................................................................. 11
G. The district court imposes an exceedingly fast track to
re-determine fees ................................................................................... 11
H. The Fee Applications ............................................................................. 12
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vii
I. Requests/Motions to seek funding for attorney and
expert witness fees, for permission to conduct limited
discovery, and to continue the matter, to enable
presentation of a viable defense to the fee applications
are repeatedly denied. .......................................................................... 16
a. Appellants Novo Point and Quantec Were Denied
Representation or Discovery. ............................................................... 16
b. Baron’s requests for fees and discovery are denied. ........................ 17
J. The Objections to the Fee Applications .............................................. 19
K. The hearing & post-hearing briefing on the Fee
Applications ........................................................................................... 20
L. The district court enters the Receivership Fee Order ....................... 21
Summary of the Argument ................................................................................. 22
Argument ............................................................................................................... 23
I. The district court abused its discretion by ignoring this
Court’s mandate in Netsphere I when it entered the Fee
Order ................................................................................................................ 23
A. Authorizing the Receiver to liquidate and/or use any
of the assets of Novo Point or Quantec to pay the
Receiver’s professional fees and expenses was an
abuse of discretion ................................................................................. 26
1. The district court lacked subject matter jurisdiction
over Novo Point, LLC and Quantec, LLC ................................... 27
2. The LLCs were neither alter egos of Baron nor
independently culpable and there has been no
determination to the contrary. ...................................................... 32
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viii
3. The Receiver and his professionals have been
improperly paid from the liquidation of assets
owned by, and cash generated by, Novo Point,
LLC and Quantec, LLC ................................................................... 34
4. Conclusion ........................................................................................ 36
B. As a matter of law, a non-receivership professional,
such as the Ondova bankruptcy trustee, cannot be
awarded fees and expenses, even where their services
might have benefitted the receivership estate ................................... 36
1. In Netsphere I, this Court reversed the order
awarding the Ondova Bankruptcy Trustee’s fees
and expenses .................................................................................... 37
2. The district court correctly ruled, on January 2,
2013, that no more fees and expenses would be
awarded to the Ondova Bankruptcy Trustee and
that disgorgement was in order .................................................... 38
3. The district court erred by doing a 180-degree turn
and disavowing the January 2, 2013 ruling. ................................ 38
C. As a Matter of Law, the Receiver and His Professionals
Should Not Be compensated For Defending the
Imposition of the Receivership ............................................................ 41
II. Even if authorized under the rules of equity, the district
court abused its discretion by entering the Fee Order ............................. 45
A. The district court erroneously awarded fees under
patently defective Fee Applications .................................................... 45
1. The Court Improperly Awarded the Receiver Fees. .................. 47
2. Block billing practices rendered the Fee
Applications defective as a matter of law ................................... 52
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ix
B. The district court made numerous unsupported
findings in the Fee Order ...................................................................... 56
1. There has never been an adjudication that any
appellant, or their counsel, are vexatious litigants,
and there are no facts in existence that would
support such a finding. .................................................................. 56
2. Appellants did not engage in discovery abuse .......................... 58
3. Conclusion ........................................................................................ 59
III. The district court abused its discretion and violated
Appellants’ due process rights by precluding their
participation in the Fee Applications proceedings and
proceeding on an unreasonably accelerated basis, refusing
to allocate funding to pay counsel and an expert witness,
and refusing to grant a continuance requested by Baron
who was the sole party then capable of objecting to the fee
requests on the LLC’s behalf. ....................................................................... 60
Conclusion & Prayer ............................................................................................ 65
Certificate of Service ........................................................................................... 69
Certificate of Compliance with Rule 32(a) ...................................................... 70
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x
INDEX OF AUTHORITIES
Cases
ASARCO, LLC v. Jordan Hyden Womble Culbreth & Holzer, P.C.
(Matter Of ASARCO, LLC),
No. 12-40997 (5th Cir. April 30, 2014) .......................................................... 41
Atlantic Trust Co. v. Chapman,
208 U.S. 360 (1908) ............................................................................. 25, 26, 42
Bank of Commerce & Trust Co. v. Hood,
65 F.2d 281 (5th Cir. 1933) ....................................................................... 27, 32
Baron v. Schurig,
No. 3:13-CV-3461, 2014 WL 25519 (N.D. Tex. Jan. 2, 2014) ........................ 9
Beach v. Macon Grocery Co.,
125 F. 513 (5th Cir. 1903) ........................................................................ 23, 29
Bolloré S.A v. Import Warehouse, Inc.,
448 F.3d 317 (5th Cir. 2006) ...................................................................... 24, 30
Cochrane v. WF Potts Son & Co.,
47 F.2d 1026 (5th Cir.1931) ............................................................................. 27
Commodity Futures Trading Comm’n v. Morse,
762 F.2d 60 (8th Cir. 1985) .............................................................................. 24
Connecticut v. Doehr, 501 U.S. 1 (1991) ................................................................ 59
Deputy v. Lehman Bros., Inc.,
345 F.3d 494 (7th Cir. 2003) ............................................................................ 21
Gaskill v. Gordon,
27 F.3d 248 (7th Cir. 1994) .............................................................................. 42
Goldberg v. Kelly,
397 U.S. 254 (1970) ................................................................................... 57, 60
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xi
In re Marcuse & Co.,
11 F.2d 513 (7th Cir. 1926) .............................................................................. 39
In re Middle West Utilities Co.,
17 F.Supp. 359 (D.C. Ill. 1936) ....................................................................... 34
Johnson v. Georgia Highway Exp., Inc.,
488 F.2d 714 (5th Cir. 1974) ..................................................................... 43, 44
Kearney v. Auto-Owners Ins. Co.,
713 F.Supp.2d 1369 (M.D. Fla. 2010) ............................................................ 50
Lion Bonding & Surety Co. v. Karatz,
262 U.S. 640 (1923) .......................................................................................... 33
Maiz v. Virani,
311 F.3d 334 (5th Cir. 2002) ............................................................................ 30
Matthews v. Eldridge,
424 U.S. 319 (1976) ................................................................................... 59, 60
Netsphere, Inc. v. Baron,
703 F.3d 296 (5th Cir. 2012) ................................................................... passim
O'Sullivan v. Countrywide Home Loans, Inc.,
319 F.3d 732 (5th Cir. 2003) ............................................................................. 24
R.B. Potashnick v. Port City Construction Co.,
609 F.2d 1101 (5th Cir. 1980) .......................................................................... 57
S.E.C. v. Striker Petroleum, LLC,
3:09-CV-2304, 2012 WL 685333 (N.D. Tex. Mar. 2, 2012) .......................... 43
S.E.C. v. W.L. Moody & Co., Bankers (Unincorporated),
374 F.Supp. 465 (S.D. Tex. 1974), aff’d, 519 F.2d 1087
(5th Cir. 1975) .................................................................................................. 43
Seastrunk v. Darwell Integrated Technology, Inc.,
No. 3:05-CV-0531, 2009 WL 2705511 (N.D.Tex. Aug. 27,
2009) .................................................................................................................. 50
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xii
Speakman v. Bryan,
61 F.2d 430 (5th Cir. 1932) .............................................................................. 39
Texas Catastrophe Prop. Ins. Assoc. v. Morales,
975 F.2d 1178 (5th Cir. 1992) .......................................................................... 57
Texas State Teachers Ass’n v. Garland Indep. Sch. Dist.,
489 U.S. 782 (1989) .......................................................................................... 49
The Southern Company v. Dauben, Inc., No. 08-10248 (5th Cir.
2009) .................................................................................................................. 46
United States Catholic Conference v. Abortion Rights Mobilization,
Inc., 487 U.S. 72 (1988) .................................................................................... 25
United States v. Kellington,
217 F.3d 1084 (9th Cir. 2000) .......................................................................... 21
United States v. Larchwood Gardens, Inc.,
420 F.2d 531 (3rd Cir. 1970) ........................................................................... 39
Veeder v. Public Service Holding Corp.,
51 A.2d 321 (Del. 1947) ................................................................................... 34
Walker v. U.S. Dep’t of Housing & Urban Dev.,
99 F.3d 761 (5th Cir. 1996) .............................................................................. 50
Statutes
11 U.S.C. § 303 .......................................................................................................... 9
28 U.S.C. § 1291 ........................................................................................................ 1
Rules
Fed. R. App. P. 4 ...................................................................................................... 1
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1
TO THE HONORABLE JUDGES OF SAID COURT:
Appellants Novo Point LLC (“Novo Point”) and Quantec LLC (“Quan-
tec”) respectfully represent:
STATEMENT OF JURISDICTION
This is an appeal of a final Order on Receivership Professional Fees dated
May 29, 2013, awarding fees to Receiver, Peter S. Vogel, Receiver’s counsel,
Dykema Gosset, PLLC and others and setting forth the priority of payment.
This Court has jurisdiction under 28 U.S.C. § 1291.
This order was entered May 29, 2013, Notice of Appeal was timely filed
on June 28, 2013.
1
See Fed. R. App. P. 4.
1
The Notice of Appeal also seeks review of an associated Order Granting Receiver’s Fee
Application Regarding Certain Miscellaneous Receivership Professionals, signed May 23,
2013. (ROA.28113–114). As to this order, the Notice of Appeal was not timely. See Fed.
R. App. P. 4. Therefore, Appellants herein abandon the appeal as to such Order.
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2
ISSUES PRESENTED
1. Whether it was legal error to charge the estates of Novo Point
and Quantec
2
with any amount of Receivers’ fees and expenses,
particularly those related to other estates within the Receiver-
ship without findings of alter ego or direct culpability.
2. Whether the District Court abused its discretion in entering the
Fee Order in the amounts set forth therein and not allocating
same to specific estates within the Receivership.
3. Whether the District Court abused its discretion and violated
appellants’ rights by excluding it from the Fee Application pro-
cess and proceeding on an accelerated basis and denying funds
with which to pay counsel and experts and by denying discov-
ery.
2
Novo Point and Quantec are hereinafter sometimes jointly referred to as the “LLCs”.
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3
STATEMENT OF THE CASE
On May 28, 2009, Netsphere, Inc. and others, filed a lawsuit against Jef-
frey Baron and Ondova Limited Company (“Ondova”) in the United States
United States District Court for the Northern District of Texas, Dallas Divi-
sion, Cause No. 3:09-CV-988 (“Netsphere DC Case”). (ROA.135–148). On July
24, 2009, Ondova filed a voluntary petition under Chapter 11 of the United
States Bankruptcy Code (“Ondova Bankruptcy”); Daniel J. Sherman was
appointed as Trustee for Ondova. (ROA.642). At all times, Ondova’s bank-
ruptcy case was pending in the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division.
Neither Novo Point nor Quantec was named as a party in the Netsphere
DC Case. The complaint contains no allegations as against them. Neither
Novo Point nor Quantec were named parties to the Ondova Bankruptcy.
The Netsphere DC case settled, assets were transferred and stipulated
dismissal documents were fully executed by all parties including the bank-
ruptcy trustee, Sherman at the end of July 2010, after the protracted settle-
ment negotiations spanning six months. (ROA.1803-1812; 1691-1840 –
entire Global Settlement Agreement; and 34789 – “The current status is that
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4
parties are all complying with settlement agreement provisions in terms of
payments and other activities, so there has been no problem”).
A. The district court appoints a Receiver due to unresolved claims
Despite the settlement, on November 24, 2010, Ondova’s Trustee filed
an Emergency Motion for Appointment of a Receiver Over Baron.
(ROA.1032–60). On the same date, the district court, in the Netsphere DC
Case, entered an order (“Receivership Order”) establishing an equity receiv-
ership over Baron’s assets, and appointed Peter S. Vogel as the receiver
(“Receiver”). (ROA.1135–48).
Pursuant to the Receivership Order, and the court’s subsequent clarifi-
cation orders, the Receiver, took possession and control over all of Baron’s
assets, including creditor-exempt assets (“Baron Personal Assets”).
The asserted purpose of the Receivership was to stop Baron from hiring
and firing attorneys and delaying the resolution of the Netsphere DC Case
and secure funds to pay non-judgment claims of unspecified attorneys.
(ROA.4762). It quickly broadened to become a means of resolving liquidity
issues in the Ondova Bankruptcy
3
and the payment of the non-judgment
3
Via payment of Trustee fees using funds from Novo Point and Quantec.
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5
claims of the Petitioning Creditors they asserted against Baron.
B. The court authorizes the Receiver to take control of Novo Point,
LLC and Quantec, LLC without a finding of alter ego.
Pursuant to an Order Granting the Receiver’s Motion to Clarify the Receiver
Order With Respect to Novo Point, LLC and Quantec, LLC, (ROA.3391–98) the
Receiver took possession and control of Novo Point and Quantec, whose
assets consisted almost entirely of cash and Internet Domain Names (“Do-
mains”) which generated substantial revenues (“LLC Assets”). (see e.g.
ROA.4749).
During the hearing on December 17, 2010, which led to the inclusion of
the LLCs, moving counsel admitted there was no motion asserting that the
LLCs were alter egos of Baron but that the reason for inclusion was liquidi-
ty. (ROA.4758). The Court disclosed its goal to use the assets of Novo Point
and Quantec to pay the debts of Baron. (ROA.4762).
Novo Point and Quantec are LLCs formed, and in good standing, un-
der the laws of the Cook Islands
4
and owned entirely by, and form the
4
There is no evidence to the contrary in the ROA.
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6
principal assets of, The Village Trust
5
, a trust created and existing under
the Cook Islands. As the principal beneficiary of the Village Trust, the val-
ue of Novo Point, LLC and Quantec, LLC are of substantial import to Bar-
on, forming the corpus from which he may benefit as a beneficiary.
6
C. The appeal of the Receivership Order and the
Netsphere
I
opinion
directing the district court to review all prior receivership fees
and expenses and apply a “meaningfully discount”
Twelve appeals to this Court were taken regarding the Receivership
Order and related orders that were entered in the Netsphere DC Case.
7
These and other matters were resolved December 18, 2012, when this Court
released its opinion in Netsphere, Inc. v. Baron. 703 F.3d 296 (5th Cir. 2012)
(“Netsphere I”).
5
See e.g. ROA.4758.
6
The Trust, not Baron, owns and directs the LLCs. The statement in Netsphere I that
they were “owned or controlled by Baron” is not a finding of alter ego.
7
Eleven appeals were taken, and were consolidated into Appellate Case No. 10-11202.
The Appellate Cases consolidated into Case No. 10-11202 were Appellate Case Nos. 11-
10113, 11-10289, 11-10290, 11-10390, 11-10501, 12-10003, 12-10444, 12-10489, 12-10657, 12-
10804, and 12-11082.
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7
Concerning the Receivership Order, this Court held that the Reciver’s
appointment was improper and an abuse of discretion. Id. at 302, 310-11,
315. As to the LLCs this Court specifically found subject matter jurisdiction
lacking. As this Court explained: “A court lacks jurisdiction to impose a
receivership over property that is not the subject of an underlying claim or
controversy.” Id. at 310. This Court then held:
“The receivership also included business entities owned or con-
trolled by Baron, including Novo Point, LLC and Quantec,
LLC. Although Novo Point and Quantec were listed as parties
on the global settlement agreement, they were never named
parties in the Netsphere lawsuit or the Ondova bankruptcy. We
conclude the district court could not impose a receivership over
Baron's personal property and the assets held by Novo Point
and Quantec.”
Id.
Following its conclusion that the imposition of the receivership was an
abuse of discretion, this Court instructed the district court in unmistakably
clear and unambiguous language to reconsider and meaningfully discount all
fees and expenses previously paid by the Receiver. Id. at 313.
D. The involuntary bankruptcy filing
From the day the Receivership’s initiation on November 20, 2010, until
this Court reversed and vacated the Receivership Order on December 18,
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8
2012, the LLCs, along with Baron, were in a financial lockdown of epic
proportions, prohibited from conducting any business, and deprived of
civil liberties. Novo Point and Quantec were prohibited from engaging le-
gal counsel to defend themselves from the wrongful actions being under-
taken by the Receiver and the Ondova Trustee.
Stay requests were denied, meaning, unfortunately, that the steamroll-
ing impact of the Receivership and the wholly improper erosion of the
LLCs’ assets continued unabated. By the time this Court issued its opinion
in Netsphere I, approximately $4 million in fees and expenses had been dis-
tributed to the Receiver, the Ondova trustee, and their attorneys, most of
which came out of the assets of Novo Point and Quantec, two entities that
were never litigants in the Netsphere DC Case or Ondova bankruptcy and
were not owned by Appellant Baron.
8
Approximately two hours after this Court issued its opinion in
Netsphere—long before the issuance of the mandates on April 18, 2013—
8
The Village Trust was and is the owner of Novo Point, LLC and Quantec, LLC. Baron
was and is the primary beneficiary of said trust. However, Baron did not own these en-
tities, there was never a finding of alter ego by the District Court, and inclusion of these
entities in the Receivership and the dissipation of such entities’ cash and non-cash assets
to pay the Receivership fees and expenses was beyond the jurisdiction of the District
Court.
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9
and in violation of the Receivership Order, (ROA.1146–47),
9
eight of the
former attorneys (the “Petitioning Creditors”), led by Gerrit Pronske, filed
a Chapter 7 involuntary petition against Baron in the United States Bank-
ruptcy Court, Northern District of Texas, Dallas Division, case no. 12-37291
(“Baron Involuntary Bankruptcy”).
10
On June 26, 2013, the bankruptcy court entered an order for relief
11
in
the Baron Involuntary Bankruptcy. Baron perfected an appeal to the Dis-
trict Court on July 8, 2013 resulting in a final judgment with Amended
Memorandum Opinion and Order by the District Court on January 2, 2014,
reversing the Order for Relief. Baron v. Schurig, No. 3:13-CV-3461, 2014 WL
25519 (N.D. Tex. Jan. 2, 2014).
12
This judgment and opinion has been ap-
pealed to this Court and the briefing completed. See Schurig Jetel Beckett
9
Not immediately dissolved following Netsphere I (ROA.26366)
10
United States Bankruptcy Court for the Northern District of Texas, Dallas Division
under case no. 12-37291. On December 19, 2012, the Petitioning Attorneys filed in an
emergency motion in the Bankruptcy Court to appoint an interim trustee over Baron's
entire estate, attempting to block this Court’s Opinion. The orders and appeal followed.
11
See 11 U.S.C. § 303 (describing the steps to obtain an order for relief in an involuntary
bankruptcy case).
12
The underlying claims were asserted based entirely upon a District Court order is-
sued in the course of the Receivership that the District Court, on appeal from the Baron
Involuntary Bankruptcy, held to be improper in light of Netsphere I. Baron v. Schurig,
No. 3:13-CV-3461, 2014 WL 25519 (N.D. Tex. Jan. 2, 2014).
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10
Tackett v. Baron, No. 14-10092.
As a result of the Baron Involuntary Bankruptcy, the LLCs and Baron
remained in financial lockdown through January 2014, when the district
court declined to issue a stay pending appeal. It was during this period that
the district court commenced an expedited process of re-determining the
Receivership fees and expenses, which led to the Fee Order and this ap-
peal.
E. The Advisory on past and pending Receiver disbursements
On January 2, 2013, two weeks after the Netsphere I opinion, the district
court, issued, sua sponte, an Advisory on Past and Pending Receivership Dis-
bursements (“Advisory”) in the Netsphere DC Case. (ROA.26477–79).
13
The
Advisory specifically stated:
- The fees incurred by the Receiver and his counsel, the
Gardere law firm would be re-evaluated and paid at fifty
percent (50%).
- The fees incurred by the Dykema law firm in representing the
receiver would be reevaluated and paid at ninety-five percent
(95%).
13
Issued without briefing, evidence or hearing. (ROA.128–30).
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11
- All prior payments to the Trustee or Trustee's counsel would
be disgorged and returned to the Receivership.
- All other miscellaneous requests for payments, including for
experts, would be reviewed on an individual basis at a later
date.
(ROA.206478).
F. This Court denies all pending motions and issues 8 mandates
On April 4, 2013, this Court denied all petitions for rehearing, and on
April 19, 2013 issued eight Mandates, each filed with the district court on
April 24, 2013.
14
(ROA.27967–81). This Court’s opinion in Netsphere I was
left unmodified; therefore, the district court held a mandate to wind-down
the receivership, re-determine all fees and expenses (including those previ-
ously approved), apply a meaningfully discount to the receivership fees
and expenses in a manner consistent with the Opinion, and thereafter, re-
turn the receivership assets to the rightful owners.
G. The district court imposes an exceedingly fast track to re-
determine fees
14
Each of the Mandates dealt with one or more of the twelve Consolidated Appeals.
Case: 13-10696 Document: 00512704339 Page: 24 Date Filed: 07/18/2014
12
The retirement of Judge Royal Ferguson, the presiding judge in the
Netsphere DC Case, was imminent (ROA.31094) and his last day on the
case was quickly approaching.
15
Judge Ferguson put the re-determination
of fees matter on an exceedingly fast track. On April 5, 2013, Judge Fergu-
son entered a Scheduling Order (ROA.27155), which set the following
deadlines:
1. All fee applications had to be filed on or before Wednesday,
April 17, 2013.
2. Baron was given eight days to file objections.
3. The pre-trial hearing on the fee applications was set for April
29, 2013.
4. The trial on the fee applications was set for May 8, 2013.
(ROA.27155).
H. The Fee Applications
16
On April 17, 2013, Ondova Trustee Daniel J. Sherman, filed his fee ap-
plication requesting $1,219,775.68, consisting of $1,203,329.50 in profession-
15
Judge Ferguson’s announced retirement was to be effective on May 31, 2013, and that
was his last day as the presiding judge on the case. (ROA.28171).
16
The fee applications described in this Section G are collectively referred to herein as
the “Fee Applications.”
Case: 13-10696 Document: 00512704339 Page: 25 Date Filed: 07/18/2014
13
al fees and $16,446.18 in expenses, of which $379,761.18 had already been
paid by the Receiver. (ROA.27173–27474).
On April 17, 2013, Receiver’s former general counsel, Gardere Wynne
Sewell, LLP, filed a fee application requesting $2,010,862.22, consisting of
$1,956,737.00 in professional fees and $54,125.42 in expenses, of which
$1,479,571.95 had already been paid by the Receiver. (ROA 27479–27510).
This Fee Application incorporated 19 prior Fee Applications, thus totaling
15,775 pages of Fee Applications.
On April 17, 2013, Receiver’s current general counsel, Dykema Gossett
PLLC (“Dykema”), filed a fee application requesting $1,550,776.00 through
March 2013 (net of voluntary and court-directed 5 percent reduction), con-
sisting of $1,526,694.00 in professional fees and $24,082.00 in expenses, of
which $737,276.73 was on hand in Dykema’s trust account, and $398,893.91
had been paid by the Receiver. (ROA.27757–27860). This Fee Application
totaled 103 pages.
On April 17, 2013, the Receiver filed an application requesting approval
of the fees and expenses of the Receiver, the fees and expenses of former
counsel for the Receiver, Gardere Wynne Sewell, LLP, the fees and expens-
es of the Receiver’s current counsel, Dykema Gossett PLLC, and the fees
Case: 13-10696 Document: 00512704339 Page: 26 Date Filed: 07/18/2014
14
and expenses of numerous other professionals. (ROA.27511–27756). This
Fee Application totaled 245 pages.
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15
In all, fees and expenses were requested as follows:
Claimant
Total Amount
Requested
Amount
Previously
Paid Amount Owed
Peter S. Vogel, Receiver $1,250,680.00 $708,926.00 $527,576.00
Gardere Wynne Sewell, LLP
17
2,010,832.22 1,479,571.05 531,290.27
Dykema Gossett, PLLC
18
1,550,776.00 1,136,170.64
19
354,777.69
13 law firms outside of Texas 19,559.41 19,559.41 0.00
Thomas Jackson 69,007.50 69,007.50 0.00
Joshua Cox 61,968.75 53,235.60 8,733.15
James Eckels 64,787.50 61,637.50 3,150.00
Jeffrey Harbin 13,913.62 13,913.62 0.00
Gary Lyon 16,462.50 16,462.50 0.00
Grant Thornton, LLP 121,390.53 109,301.53 12,089.00
Martin Thomas 95,285.52 95,285.52 0.00
Damon Nelson 306,262.92 287,962.92 18,300.00
Matt Morris 54,572.50
0.00 54,572.50
Total $5,635,498.97 $4,051,033.15 $1,510,488.61
17
Gardere Wynne Sewell, LLP filed a separate fee application that was duplicative.
(ROA.27479–27510).
18
Dykema Gossett, PLLC filed a separate fee application that was duplicative.
(ROA.27757–27860).
19
Dykema Gossett, PLLC filed a separate fee application that was duplicative.
(ROA.27757–27860)
Case: 13-10696 Document: 00512704339 Page: 28 Date Filed: 07/18/2014
16
Claimant
Total Amount
Requested
Amount
Previously
Paid Amount Owed
(ROA.27513-14).
The district court’s schedule provided only 8 days to review over 16,000
pages of Fee Applications incorporating thousands of time entries over a
time period that spanned 29 months.
I. Requests/Motions to seek funding for attorney and expert wit-
ness fees, for permission to conduct limited discovery, and to
continue the matter, to enable presentation of a viable defense
to the fee applications are repeatedly denied.
a. Appellants Novo Point and Quantec Were Denied Representa-
tion or Discovery.
The District Court did not include Appellants as an interested party in
the context of the May 28 2014 Order on Receivership Professional Fees.
20
This continued a trend established as early as February 10, 2011, when the
court limited the LLC’s “authorized counsel” to Mr. Jackson and Mr. Cox,
20
ROA.28124. The Order references the parties as “All parties in interest have respond-
ed … including: the Receiver and Dykema Gossett LLP ("Dykema") … the Petitioning
Creditors ... Jeffrey Baron ... and Netsphere. With the permission of this Court, the Trus-
tee filed a post-trial brief”). Nowhere was there a mention of an appearance on behalf
of the LLCs.
Case: 13-10696 Document: 00512704339 Page: 29 Date Filed: 07/18/2014
17
stating that he “wouldn’t expect to receive any motions on behalf of the
LLC’s except for those people” and would not “recognize the authority” of
any other counsel for the LLCs.
Both Mr. Jackson and Mr. Cox were there-
after retained by Receiver’s counsel; they represented the interests of the
Receiver and not the LLCs.
21
The absence of counsel actually representing
the LLCs is reflected in the District Court’s Docket, which is devoid of fil-
ings by the LLC’s other than those pertaining to appeals.
b. Baron’s requests for fees and discovery are denied.
The preclusion of the LLCs left Baron as the only voice against the
storm. At the hearing on April 4, 2013, which resulted in the District
Court’s Scheduling Order of April 5, 2013, Baron requested fees for attorneys
and experts to contest the coming fee applications. (ROA.27872). Cut off
from his assets and without funding to mount a defense to the voluminous
fee applications, Baron filed a motion on April 17, 2013, attempting to seek
funding from the Receivership estate to pay the professional fees necessary
to proceed forward with his defense of the fee applications. (ROA.27475-
21
As reflected in the Fee Application For Receiver And Receivership Professionals
ROA.27511–27756.
Case: 13-10696 Document: 00512704339 Page: 30 Date Filed: 07/18/2014
18
77). The District Court summarily denied his request. (ROA.27863-64).
On April 19, 2013, Baron filed a Motion for Discovery, for Continuance and
to Reconsider Funding for Jeffrey Baron’s Counsel. (ROA.27872-99). On April
22, 2014, the court denied the motion. (ROA.27911-17). In denying the re-
quest for fees, the District Court attempted to differentiate between the
right to “retain” counsel and the right to “pay” counsel, finding that the
right to “retain” counsel alone was sufficient even though there was no
means to pay.
22
The District Court found that it could not “fairly” allow a
payment for Baron’s attorney (a solo practitioner) and experts and not the
others. This of course ignored the fact that all those making fee applica-
tions had previously received millions in fees and cost reimbursements.
Discovery was denied. Although the other parties had a long history of ob-
jecting to Baron’s discovery, the court found the motion improper for want
of a statement that a formal pre-motion conference had actually been held.
(ROA.27872-99).
Such a sudden desire for equity fails to resonate given the overall histo-
ry of this case and the abuse of the innocent non-party LLCs by stripping
22
This is puzzling; Baron’s not paying his attorneys was the basis for the Receivership.
Case: 13-10696 Document: 00512704339 Page: 31 Date Filed: 07/18/2014
19
their assets in an effort to satisfy debts and cash needs of third parties to
whom they owed no obligation.
23
On May 8, 2013, the first day of the hearing, Steve Cochell, Baron’s
counsel, orally moved for a continuance citing compelling reasons, includ-
ing that the parties had spent the prior two weeks in court ordered media-
tion attempting to settle the entire case. (ROA.27156, 27158, 31088–89). The
motion was denied. (ROA.31089).
J. The Objections to the Fee Applications
The parties filed the following objections to the Fee Applications:
1. Receiver’s Objection to Trustee’s Fee Application. (ROA.27925–
27).
2. Receiver’s Supplemental Response and Objection, objecting to
the Ondova Trustee’s Fee Application. (ROA.27928–33).
3. Petitioning Creditors’ Omnibus Comment to Receivership Pro-
fessionals’ Fee Applications. (ROA.27984–90).
4. Baron’s Preliminary Objections to Trustee, Trustee’s Counsel,
Receiver and Receiver’s Counsel Fee Claims. (ROA.27991–
28005).
23
Nothing in the Netsphere I Opinion suggested Baron should be precluded from con-
ducting discovery or deprived of funding to pay counsel and expert witness fees in or-
der to adequately prepare for and present his defenses in connection with the Court’s
mandate. Netsphere I, 703 F.3d at 296.
Case: 13-10696 Document: 00512704339 Page: 32 Date Filed: 07/18/2014
20
5. Netsphere Parties’ Objections to the Attorney Fee Requests in
Connection With the Wind-Up of the Receivership.
(ROA.28014–18).
K. The hearing & post-hearing briefing on the Fee Applications
The court held hearings on the Fee Applications from May 8–10, 2013
24
.
The Receiver, Dykema and the Ondova Trustee filed the following post-
hearing briefs:
1. Receiver and Dykema filed a Consolidated Post-Hearing Brief
addressing some of the legal issues raised at the fee application
hearing. (ROA.28019–28).
2. The Ondova Trustee filed a Letter Brief. (ROA.28079-82).
Baron filed the following post-hearing briefs:
1. Response to the Receiver’s Post-Hearing Briefing. (ROA.28083–
95).
2. Reply to Trustee’s Letter Brief. (ROA.28096–97).
3. Supplemental Argument on Fees (ROA 28109–12).
The Petitioning Creditors filed a Supplemental Objection to the Final
Application for Allowance and Subsequent Payment of Compensation for
24
The Transcript is at ROA.31081–21256. It bears the date May 9, 2013 on page one, but
the date of the hearing is reflected on the Docket Sheet as May 8. (ROA.120).
For May 9, 2013, the Transcript is at ROA.31284–31367.
For May 10, 2013, the Transcript is at ROA.31583–31668.
Case: 13-10696 Document: 00512704339 Page: 33 Date Filed: 07/18/2014
21
Services and Reimbursement of Expenses to Dykema Gossett PLLC, as At-
torneys for Peter S. Vogel, Receiver. (ROA 28115–120).
L. The district court enters the Receivership Fee Order
On May 29, 2013, the District Court entered its Order on Receivership Pro-
fessional Fees (“Receivership Fee Order”). (ROA.28124–69). The Receivership
Fee Order differs from the Advisory (ROA.26477–79) in the following re-
spects:
25
Applicant Advisory Receivership Fee Order
Ondova Bankruptcy Trustee Disgorgement of all prior
payments, and no award of
unpaid fees and expenses
No disgorgement of prior
payments, and no award of
unpaid fees and expenses
Receiver, Peter S. Vogel Meaningful Discount: 50% of
all prior payments and
discount of 50% unpaid fees
and expenses
Meaningful Discount: 30% of
all prior payments and
discount of 50% unpaid fees
and expenses
Gardere Wynne Sewell, LLP Meaningful Discount: 50% of
all prior payments and
discount of 50% unpaid fees
and expenses
Meaningful Discount: 27% of
all prior payments and
discount of 27% unpaid fees
and expenses
25
Comparing ROA.28124–69 with ROA.26477–79.
Case: 13-10696 Document: 00512704339 Page: 34 Date Filed: 07/18/2014
22
Applicant Advisory Receivership Fee Order
Dykema Gossett, LLP Meaningful Discount: 5% of
all prior payments and
unpaid fees and expenses
Meaningful Discount: 2% of
all fees and expenses from
7/6/2012–12/18/2012; 10%
of all fees and expenses from
12/18/2012–4/4/2013; and
5% of all fees and expenses
during month of April 2013
SUMMARY OF THE ARGUMENT
This appeal stems from a Fee Order approving fees and expenses to be
charged against the Receivership. In approving fees, the court did not (1)
hold evidentiary inquiry into Baron’s conduct post entry of Receivership or
post Netsphere I, (2) hold evidentiary inquiry or make findings attributing
conduct of Baron to the LLCs or inquire into the issue of alter ego or culpa-
bility of the LLCs, (3) require the fee applicants to allocate amounts to the
various estates within the Receivership as required by Bank of Commerce &
Trust Co. v. Hood; Bank of Commerce & Trust Co. v. Hood, 65 F.2d 281, 283-4
(5th Cir. 1933), (4) require the fee applicants to satisfy the requirements of
Moody and Johnson as applicable, (d) allocate awarded amounts to specific
estates as required by Bank of Commerce & Trust Co, but rather allowed all
Case: 13-10696 Document: 00512704339 Page: 35 Date Filed: 07/18/2014
23
amounts to be paid by the LLCs; or (5) inquire into any of the prior fees or
expenses paid by the Receivership to any other person except as to those
presented by the Ondova Trustee, Receiver, and Receiver’s counsel, alt-
hough instructed to do so in Netsphere I.
The Court further compounded its errors by (1) precluding Novo Point
and Quantec from participating in the Fee Application process or being
represented by counsel and (2) conducting the Fee Application process on
an unfairly rapid time-schedule while denying Baron, the only opposing
party allowed to be present, fees with which to pay counsel and experts
and a right of even limited discovery, all in violation of the due process
rights of Novo Point, Quantec and Baron.
ARGUMENT
I.
The district court abused its discretion by ignoring this Court’s
mandate in
Netsphere I
when it entered the Fee Order
The manner in which the lower court enforces an appellate court’s
