Request to Seek Limited Relief of Order clarifying Appl of Stay

   
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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 
 
Attorney for Jeffrey Baron, 
  On Appeal for Alleged Debtor 
 
 
UNITED STATES BANKRUPTCY COURT 
NORTHERN DISTRICT OF TEXAS 
DALLAS DIVISION 
 
IN RE: 
§ 
 
 
§ 
JEFFREY BARON, 
§ 
Bankr. No. 12-37921-SGJ 
 
§ 
 
Alleged Debtor.  § 
 
 
 
JEFFREY BARON’S REQUEST FOR LEAVE TO SEEK LIMITED RELIEF FROM 
ORDER CLARIFYING APPLICATION OF STAY TO CERTAIN APPEALS 
AND FOR LEAVE TO APPEAL 
 
Jeffrey Baron (the  “Alleged  Debtor”), by and through counsel, and pursuant to  the  Court’s 
Order Clarifying Application of Automatic Stay to Certain Appeals and for Leave to Appeal:  
(a)  [Doc. 111, the “Order 111”], Partial Summary Judgment Order; and 
(b)  [Doc.  112,  the  “Order  112”],  Order  Denying  Alleged  Debtor’s  Motion  To 
Dismiss For Lack Of Jurisdiction   (together, “The Orders”).  
A copy of the Orders are attached as Exhibit A. 
In support of his request for relief from the Orders, the Alleged Debtor provides a summary 
of the following issues: 
I.  Whether the court erroneously relied on a contingent order from the District Court? 
To obtain jurisdiction, this Court erroneously relied on the so-called Compromise Order, a non-
determinative order from the district court, which approved disbursements of former attorney claims 
including  Petitioning  Creditors’  by  the  Receiver.    In  the  Compromise  Order,  the  district  court 
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acknowledged that the motion requesting the order considered “a settlement and compromise of the 
Former Attorney Claims” id. at p. 5, ¶7, that his consideration was “summary” in nature, id. at pp. 6-
7, ¶11, and that  the  Receiver  was  not  required to  collect  or  offer evidence or make  arguments  to 
controvert the Former Attorney Claims,” referred to as “the Defense Obligation.” Id. at p. 5, ¶8. 
In  addition  to  the  clearly  non-determinative  language  of  the  district  court’s  ruling  in  the 
Compromise Order, the district court did not treat this order as a “final judgment” on the claims for 
FRCP Rule 54(a) purposes.  To wit, there was no “judgment” entered; there was no final disposition 
of any of  the  claims;  there  was  no  “severance”  of  the  claims  of  and  the  mandatory  procedure  for 
certification of fewer that all claims or all parties for finality in FRCP Rule 54(b) was not followed. 
Thus, it is impossible for the requirements under 11 U.S.C. §303 to have been met.  
Perhaps most critically, the Compromise Order to pay the claims was stayed by the district 
court, as further explained below. 
II.  Whether The Compromise Order was stayed by order of the District Court, 
and also upon the Fifth Circuit’s reversal of the receivership? 
 
It is well-established that where creditors possess a stayed order, their claims are subject to a 
bona fide dispute.  In re Norris, 183 B.R. 437, 453 (Bankr. W.D. La. 1995), aff’d, 114 F.3d 1182 (5th 
Cir. 1977); In re Raymark Industries, Inc., 99 B.R. 298, 299 (Bankr. E.D. Pa. 1989) (holding that  “a 
creditor who holds a stayed judgment holds a claim which is subject to a bona fide dispute, and hence, 
lacks standing to institute an involuntary bankruptcy case.”) This Court has defined a “stay” as “[a] 
stopping; the act of arresting a judicial proceeding by the order of a court. Also, that which holds, 
restrains, or supports. A stay is a suspension of the case or some designated proceedings within it. It is 
a kind of injunction with which a court freezes its proceedings at a particular point  Tesfamichael v. 
Gonzales, 411 F.3d 169 (5th Cir. 2005). 
On June 18, 2012, the district court entered the Stay of Compromise Order. Exhibit C. In the 
order, the district court ordered that “no funds be distributed to the former Baron attorneys until the 
completion of the appeal.”     Moreover, the district court expressly recognized that the claims were 
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subject to a dispute, and ordered that “Baron should be able to contest the decision before funds are 
distributed.”  Id.  at 3.  (emphasis added). 
In  addition  to  the  district  court’s  stay,  the  Fifth  Circuit  imposed  its  own  stay  in  its 
Receivership Stay order, even while acknowledging that the status quo, and all prior orders of the 
district court (including its stay order above) remained in force.  Document 00512097486. 
III.  The Fifth Circuit Court of Appeals Determined that Petitioning Creditors’   
Claims are Not Final.  
 
On  December  18,  2012,  the  Fifth  Circuit  Court  of  Appeals  issued  an  opinion  vacating  a 
receivership imposed over Petitioner and  all of his  assets  (hereinafter “Opinion”).   In the Opinion, 
the Fifth reversed the appealed orders and remanded the case to the District Court in Netsphere, Inc., 
et al. v. Jeffrey Baron, et al., Civil Action No. 3:09-CV-0988-F, instructing the District Judge to wind 
down the receivership. Document no. 00512087819.   
The  Fifth  Circuit’s  Opinion  stated  that  the  Petitioning  Creditor’s claims  had  “not  yet  been 
reduced to judgment” (Id. at pp. 20-21) and further found that “establishing 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”.  (Id.  at  p.  18.).    Moreover,  this  court  found  that  “the  claims  had  not  been 
reduced to judgment” (emphasis added). (Id. at p. 18).  This Court ordered that the assets be returned 
to their owners through a wind-down procedure.   
The Fifth Circuit Court of Appeals held that the district court was not allowed to establish a 
receivership to secure payment for an unsecured creditor, and stated that:   
Baron’s former attorneys were free to make claims against the bankruptcy 
estate.    Many  had  done  so.    Alternatively,  to  the  extent  that  they 
represented Baron or his  companies  in  matters unrelated to the Ondova 
bankruptcy,  the  attorneys  could  file  suit  in  a  court  of  appropriate 
jurisdiction to collect the fees owed, which many had done.  Establishing 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. 
 
5
th
 Cir. Opinion at 18 (emphasis supplied). 
 
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On December 18, 2012, the very day that the Fifth Circuit issued its Opinion, the involuntary 
bankruptcy petition was filed against Mr. Baron by receivership participants with the claims that the 
Fifth Circuit had determined were not final and had not been adjudicated.    
IV.  Claims Under 11 U.S.C. §303  are required to be non-contingent  
 
On December 18, 2012, the very day that the Fifth Circuit issued its Opinion, the involuntary 
bankruptcy petition was filed against Mr. Baron by receivership participants with the claims that the 
Fifth Circuit had determined were not final and had not been adjudicated.    
The Petitioning Creditors’  claims under 11 U.S.C. §303 against a debtor with more  than 12 
creditors and the Court's jurisdiction thereunder, requires and is contingent upon a petition by three or 
more entities, each of which holds a claim against such debtor "that is not contingent as to liability or 
the subject of a bona fide dispute as to liability or amount". 11 U.S.C. §303(b)(l).  Entities alleging a 
debt which is contingent or the subject of a bona fide dispute as to liability or amount lack standing to 
petition for the commencement of an involuntary case under §303 of Chapter 11.  A person seeking to 
invoke the jurisdiction  of the court must establish the requisite standing to  sue. E.g.,  Whitmore v. 
Arkansas, 495 U.S. 149, 154 (1990). 
V.    Res Judicata Bars the Petitioning Creditors Claims. 
 
As set out in pleadings and oral argument on the Creditors’ Motion for Partial Summary 
Judgment, the Alleged Debtor maintains that Judge Furgeson’s order in Docket No. 575 was not 
final  as  the  District  Court  specifically  held:  (a)  that  Mr.  Baron  had  a  right  to  litigate 
counterclaims against all claimants; (b) entered an order stating that funds to be paid under the 
Compromise Order could  not  be  paid  until the Fifth Circuit ruled on  the appeals; and  (c) the 
Order did not state that it was final.   The Fifth Circuit held that the Compromise Order was not 
a final determination of the rights of these claimants and that final and binding on the parties 
Based on the doctrine of res judicata or collateral estoppel, this finding by the appellate court 
precludes any claim that there is no bona fide dispute as to the Petitioning Creditors’ claims. 
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The doctrine of res judicata (claim preclusion) requires the following elements:  (1) The 
parties are identical or in privity; (2) the judgment in the prior action was rendered by a court of 
competent jurisdiction; (3) the prior action was concluded to a final judgment on the merits; and 
(4) the same claim or cause of action was involved in both actions.   Swate v. Hartwell, 99 F.3d 
1282, 1286 (5th Cir.1996).  The Fifth Circuit expressly held that the claims were not decided on
 
 
the merits, and ruled that the appointment of the Receiver - - pursuant to which authority the 
Compromises embodied in that order were reached - - was improper.  Thus, the Alleged Debtor 
maintains  that  res  judicata  or  the  doctrine  of  collateral  estoppel  must  be  applied  against 
Petitioning  Creditor’s  to  preclude  Petitioning  Creditors’  allegations  that  their  claims  are 
undisputed. 
VI.  The Bankruptcy Ruling Conflicts with the Fifth Circuit Decision.  
As a practical matter, this Court’s ruling is in direct conflict with the Fifth Circuit’s decision 
holding that the claims of the attorney claimants in the receivership were not determined  by  the  
district  court  on  the  merits.   This places the  Bankruptcy  Court  in  the anomalous  position  of 
actually  or  effectively  overruling  a  decision  by  the  Fifth  Circuit  by  holding  that  a 
Compromise  Order  entered  by  the  District  Order  somehow  supersedes  an  order  of  the  Fifth 
Circuit.       
VII.  Whether  the  bankruptcy  court’s  exercise  of  jurisdiction  interferes  with  the  Fifth 
Circuit’s jurisdiction over the assets? 
 
The exercise of this  Court’s  jurisdiction  interferes  with  the  ability  of  the  Fifth  Circuit  to 
issue a mandate that can be carried out.  After over two years of litigation, the Fifth Circuit held that 
the assets should be returned to the original owners—not turned over to an involuntary bankruptcy 
trustee after the Fifth Circuit held that the claims were disputed and were not determined on the 
merits by the district court in the Netsphere case.  Proceeding forward on an involuntary bankruptcy 
despite  the  Fifth  Circuit’s  holding  in  Netsphere  undermines  and  essentially  nullifies  the  Fifth 
Circuit’s mandate and further encroaches on the power of the Fifth Circuit to render a meaningful 
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judgment in the Netsphere case.   In effect, the bankruptcy court proceedings prevent the district 
court  from  carrying  out  the  mandate---to  return  property  to  the  original  owners---and  therefore 
prevents winding down of the receivership as ordered by the Fifth Circuit. 
WHEREFORE,  the  Alleged  Debtor  requests  an  Order  Granting  Relief  from  Partial 
Summary Judgment Order (Docket 111) and Order Denying Alleged Debtor’s Motion To Dismiss  
For Lack Of Jurisdiction (Docket 112) and granting leave to appeal the Orders. 
 
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 SERVICE 
 
  This is to certify that, on April 19, 2013, a copy of this Response was served on all counsel 
through the Court’s ECF system.   
 
/s/ Stephen R. Cochell 
Stephen R. Cochell 
 
 
 
 
 
 
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