No. 15-10341
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
JEFFREY BARON, ET AL
Appellants
,
vs.
DANIEL J. SHERMAN, ET AL
Appellees
,
Appeal from the United States District Court
for the Northern District of Texas, Dallas Division
Docket No. 3:09-CV-988
APPELLANT, JEFFREY BARON’S BRIEF
P
ENDERGRAFT & SIMON,
LLP
Leonard H. Simon
Texas Bar No. 18387400
William P. Haddock
Texas Bar No. 00793875
2777 Allen Parkway, Suite 800
Houston, TX 77019
Tel. 713-528-8555
Fax. 713-868-1267
Attorneys for Appellant,
Jeffrey Baron
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i
No. 15-10341
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
JEFFREY BARON, ET AL
Appellants
,
vs.
DANIEL J. SHERMAN, ET AL
Appellees
,
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 per-
sons 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.
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
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ii
• Novo Point, LLC Paul Raynor Keating
173 Balmes 2/2
08006 Barcelona SPAIN
Tel. 34.93.368.0247
Fax. 34.93396.0810
• Quantec, LLC Paul Raynor Keating
173 Balmes 2/2
08006 Barcelona SPAIN
Tel. 34.93.368.0247
Fax. 34.93396.0810
Appellees:
• Peter S. Vogel
Represented by:
Christopher D. Kratovil
Dykema Gossett PLLC
1601 Elm Street, Ste. 3000
Dallas, Texas 75201
Tel. 214-462-6458
Fax. 214-230-2528
• Gardere Wynne Sewell LLP Debbie E. Green
Gardere Wynne Sewell LLP
1717 Main Street, Ste. 4000
Dallas, Texas 75201
Tel. 214-999-4285
Fax. 214-999-3285
Other Interested Parties:
• Daniel J. Sherman, Trustee
Represented by:
Lee Morris
Munsch, Hardt, Kopf & Harr PC
500 N. Akard St., Ste. 3800
Dallas, TX 75201-6659
Tel. 214-855-7521
Fax. 214-978-5322
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iii
• Dykema Gossett PLLC Christopher D. Kratovil
Dykema Gossett PLLC
1717 Main Street, Ste. 4000
Dallas, Texas 75201
Tel. 214-462-6455
Fax. 214-462-6401
• Munsch, Hardt, Kopf & Harr
PC
Lee Morris
Munsch, Hardt, Kopf & Harr PC
500 N. Akard St., Ste. 3800
Dallas, TX 75201-6659
Tel. 214-855-7521
Fax. 214-978-5322
• Netsphere, Inc., et al. John W MacPete
P.O. Box 224726
Dallas, TX 75222
Tel. 214/564-5205
/s/ Leonard H. Simon
Leonard H. Simon
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STATEMENT REGARDING ORAL ARGUMENT
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 par-
ticular the unique issues of: (1) whether Receivership fees
and expenses can be charged against parties and assets that
were not within the jurisdiction of the trial court; and (2) the
related due process issues, have not been authoritatively de-
cided within this Circuit; and
c. As described in this brief, the decisional process may be sig-
nificantly aided by oral argument.
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TABLE OF CONTENTS
Certificate of Interested Persons .......................................................................... i
Statement Regarding Oral Argument ............................................................... iv
Index of Authorities ............................................................................................. xv
Statement of Jurisdiction ....................................................................................... 1
Issues Presented ....................................................................................................... 2
Statement of the Case ............................................................................................. 4
A. Introduction ....................................................................................... 4
B. The Underlying Litigation ................................................................ 6
C. The Parties Settled All Controversies .............................................. 7
D.The unjustified and illicit attack upon Jeffrey Baron ..................... 9
E. The BC’s issuance of a show cause order against Baron
and its Report and Recommendation to the DC ............................ 11
F. Baron’s receivership was instituted and perpetuated
with malice and wrongful purpose on the part of
Sherman, Trustee, his attorneys and Vogel. .................................. 13
1. Sherman and MHKH hatched the receivership in
retaliation for Baron objecting to MHKH’s Fee
Application, and Vogel aided and abetted their
scheme ......................................................................................... 13
2. The meretricious circumstances surrounding the
entry of the Receivership Order on November 24,
2010. ............................................................................................ 14
3. Vogel immediately seized Baron’s files and fired
Baron’s AV rated lawyer. ........................................................... 17
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4. Vogel threatens Baron and then appoints himself
Baron’s counsel. .......................................................................... 17
5. Vogel dismisses Baron’s objection to MHKH’s fee
application. .................................................................................. 18
G.The DC authorizes Vogel to take control of the LLCs,
over which the DC had no subject matter jurisdiction. ................. 19
H.Vogel and the DC deny Baron the constitutional right
to hire competent legal counsel of his choosing and the
DC forces Baron to conduct a hearing on his Motion to
Vacate Order Appointing Receiver and in the
Alternative, Motion for Stay Pending Appeal without
adequate counsel. ............................................................................ 20
1. Events leading up to the entry of the Order Denying
Vacate or Stay Motion ................................................................ 21
2. Baron’s due process rights were violated when the
DC refused to permit him to engage competent
counsel ......................................................................................... 22
3. The Order Denying Vacate or Stay Motion was not
an appealable order, and it has no effect ................................... 23
I. Baron promptly appealed the receivership orders and
all fee orders, expeditiously prosecuted the appeals,
and never acquiesced in the payment of Receivership
expenditures. ................................................................................... 24
J. Sherman, Vogel and their Lawyers Branded Baron a
“Vexatious” Litigant in Retaliation for Objecting to
their Fee Applications and appealing the Receivership
Order and Fee Orders. .................................................................... 24
1. Baron’s success in his litigation has come at great
cost to him and his family. ......................................................... 25
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2. Despite Vogel and Sherman’s defamatory rhetoric
that Baron was vexatious, they never sought to
enforce any litigation abuse prevention statute or
rule. ............................................................................................. 26
3. Vogel and Sherman resort to making false
statements to deceive courts in an effort to denigrate
and destroy Baron. ...................................................................... 28
K.Vogel, Sherman and their legal professionals’ self-
serving efforts induce Judge Furgeson to extend the
receivership when the cash exceeded threefold the
amount of claims. ............................................................................ 28
L. This Court issued its
Netsphere I
Opinion on December
18, 2012, and found that the entry of the Receivership
Order was an abuse of discretion and reversed the
entry of the Receivership Order. .................................................... 32
M.Two hours after the Court issued the
Netsphere 1
Opinion, Baron was thrown into an involuntary
bankruptcy proceeding in an attempt by his opponents
to moot this Court’s ruling. ............................................................. 33
2. An Order for Relief is entered. ................................................... 34
3. The Appeal and reversal of the Order for Relief ....................... 34
N.The Netsphere I panel denies all pending motions and
issues 8 mandates ........................................................................... 35
O.The Advisory on past and pending Receiver
disbursements ................................................................................. 37
P. The DC puts the process of re-determining the
Receiver’s professional fees and expenses on an
exceedingly fast track. ..................................................................... 38
1. The 2013 Fee Applications ......................................................... 40
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2. The court consistently denies Baron’s
Requests/Motions to seek funding for attorney and
expert witness fees, for permission to conduct
discovery, and to continue the matter to enable him
to present a viable defense to the fee applications .................... 43
3. The Objections to the Fee Applications ..................................... 45
4. The hearing & post-hearing briefing on the 2013 Fee
Applications ................................................................................ 46
5. The DC enters the 5/29/2013 Final Fee Order .......................... 47
Q.$700,000 of additional fees and expenses paid out of
receivership assets were not re-evaluated by the DC as
required by
Netsphere I
. ................................................................. 48
R. Vogel Continues to Collect Appellants’ Property ........................... 48
S Vogel is Directed to File Additional Fee Applications
and An Accounting .......................................................................... 49
T. The DC gives control of the LLCs’ assets to non-party
Lisa Katz on grounds that Baron lacked standing to
object. ............................................................................................... 53
U.Vogel files the 2014 Fee Request and Final Accounting. .............. 57
V. The Vogel Final “Accounting” ......................................................... 58
W The Vogel Final Accounting Discloses $$11,404,021.72
in Expenditures ............................................................................... 61
X Vogel’s 2014 Fee Request Exceeds the Cap Imposed by
the
Netsphere I
Mandate. ............................................................... 62
Y The March 27, 2015 Memorandum Opinion and Order. ............... 63
Z While the Netsphere I Panel was deliberating the case,
Appellees were Frantically Selling Receivership
Property ........................................................................................... 65
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AA. Vogel’s Operation of Appellants’ Business and
Misconduct ....................................................................................... 67
BB. Vogel’s Fraud in Obtaining Fees ................................................ 68
Summary of the Argument .................................................................................. 70
argument ................................................................................................................. 72
I. The DC Violated Baron’s Fifth Amendment Due Process Rights ....... 72
A. The Right to Retain Counsel is Implicit in the Fifth
Amendment ..................................................................................... 74
B. The DC violated Baron’s due process rights by
initiating the receivership under dubious
circumstances. ................................................................................. 77
C Baron’s due process rights were violated when the DC
refused to allow him to engage competent counsel in
connection with the hearing on the Vacate or Stay
Motion. ............................................................................................. 77
D.Baron’s due process rights were violated when the DC
routinely granted motions filed by the opposition that
substantially effected Baron without permitting him to
respond. ............................................................................................ 78
E The DC violated Baron’s due process rights and abused
its discretion by forcing baron to defend the 2013 Fee
Applications and the 2014 Fee Request on an
unreasonably accelerated basis, refusing to allocate
funding to pay counsel or an expert witness, and
refusing to grant a continuance ...................................................... 78
1. The 2013 Fee Application ........................................................... 78
2. The 2014 Fee Request ................................................................ 81
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F. The deceit fostered by Vogel and Sherman before the
panel and then perpetuated in the opinions of this
Court deprives Baron of his life, liberty and property
without due process of law. ............................................................. 82
1. Many misrepresentations were adopted by the panel
in the
Netsphere I
opinion and by the DC. ................................ 82
2. The panel’s finding that Jeffrey Baron was a
“vexatious” litigant was a result of Sherman and
Vogel’s fabrications.. ................................................................... 87
3. The Netsphere panel was clearly erroneous in: (a)
finding that Baron’s actions increased the fees and
expenses of the Receiver. ............................................................ 88
4. The cumulative effect of these false representations
was to deprive Baron of his Fifth Amendment
Rights to Due Process. ................................................................ 89
G.The taking of Baron’s assets, including the LLC’s
assets, amounted to an unconstitutional taking of
property without due process.......................................................... 90
II. SEIZING AND DISBURSING PROPERTY NOT SUBJECT TO
A DISPUTE BEFORE THE COURT AND NOT WITHIN THE
COURT’S JURISDICTION VIOLATES THE FOURTH
AMENDMENT. .............................................................................................. 91
III. The Panel In Netsphere I Erred in Determining That The DC
Had The Equity Jurisdiction To Award Fees And Expenses
Against The Assets Of Baron or the LLCs, In Any Amount. ................ 93
A. Analysis of Facts and Law Decided in the Netsphere I
Case .................................................................................................. 93
B. Without subject matter jurisdiction, a DC is powerless
to assess a receiver’s professional fees and expenses
against assets illegally seized. ........................................................ 96
1. Fifth Circuit Precedent ............................................................... 97
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2. Supreme Court Precedent .......................................................... 98
C. The
Netsphere I
panel’s reliance upon Palmer v. Texas
was misplaced. ................................................................................. 99
D.The
Netsphere I
panel’s reliance on
Potts II
was
misplaced. ...................................................................................... 100
E. The Law of the Case Doctrine does not bar this Court
from reconsidering the ruling in part II of
Netsphere I
decision: a court can never be barred from questioning
subject matter jurisdiction. ........................................................... 100
1. It is a fundamental concept that a court not having
jurisdiction of the res and/or the parties cannot
affect the res or the parties by its decree. ............................... 101
2. Parts I and II of the
Netsphere I
opinion are
inconsistent and cannot be reconciled. .................................... 102
3. It would be manifestly unjust for this Court to
perpetuate this clearly erroneous legal conclusion
adopted in Part II of the
Netsphere I
opinion. ........................ 104
4. Appellees’ Demonstrable Fraud on the Court
Requires Reconsideration ......................................................... 104
5. Denial of Due Process Compels Reconsideration of
Netsphere I
. ............................................................................... 105
IV. The DC Failed to Follow This Court’s Mandates Issued In
Netsphere I. .................................................................................................... 105
A. The Mandate Rule prohibits a DC from straying from
an appellate court’s directive ........................................................ 106
B. Even if the DC had the equity jurisdiction to award
receivership fees and expenses, the DC failed to follow
the mandate of the Netsphere I panel in the exercise of
such equity jurisdiction. ................................................................ 107
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C. The standard for applying equity in instances of
improvidently appointed receivers has been clearly
established. .................................................................................... 108
D.The “discounts” ordered by the DC did not comply with
the law or the mandates issued in
Netsphere I
. .......................... 109
E. As a matter of law, the fees incurred by a losing party
to a litigation cannot be borne by the prevailing party. .............. 110
F. The 2013 Fee Applications and the 2014 Fee Request
violated the Court’s mandates. ..................................................... 113
G.The DC violated the mandates by failing to reconsider
all of the professional fees and expenses and failing to
reconsider payments made to other professionals. ...................... 114
H.The DC violated the mandates by awarding fees and
expenses in favor of Sherman’s attorneys, MHKH, in
the amount of $379,761.18. ........................................................... 115
1. In
Netsphere I
, this Court reversed the order
awarding the Ondova bankruptcy trustee’s fees and
expenses. ................................................................................... 116
2. The DC 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 ............................................................................... 117
3. The DC did a 180 degree turn, disavowing the
January 2, 2013 Advisory. ........................................................ 117
I The DC violated the mandates by awarding fees in
excess of the $1,600,000 fee cap. ................................................... 118
J. The DC violated the mandates by refusing to return
the assets of the LLCs to their rightful owner, and by
refusing to make a determination of the rightful owner
of the LLCs. ................................................................................... 122
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K.The DC violated the mandates of the panel in
Netsphere I
by granting broad and sweeping releases
to Vogel and others. ....................................................................... 125
1. Vogel and his professionals acted as trustees for
Appellants’ assets ..................................................................... 126
2. Vogel and his privies concealed their dealings with
Appellants’ assets ..................................................................... 128
L. The DC violated the Mandate Rule in
Netsphere I
by
creating exclusive jurisdiction over claims relating to
parties and assets over which the panel held that the
DC had no subject matter jurisdiction to begin with. ................. 129
M.The DC’s grant of broad, sweeping releases and
creation of an exclusive continuing jurisdiction
provisions not only violate the mandate but are in
conflict with the DC’s prior pronouncements............................... 130
N.The DC violated the mandates by refusing to order the
return of Appellants’ books and records seized by Vogel ............ 131
O.The DC approved a wholly deficient accounting.......................... 132
P. The DC violated the mandates by failing to
expeditiously wind-down the receivership and return
assets to Appellants ...................................................................... 133
V. The DC Abused Its Discretion By Awarding Fees Under
Patently Defective Fee Applications ........................................................ 133
A. Block billing practices rendered the Fee Applications
defective as a matter of law .......................................................... 133
1. A receiver and his lawyers must meet a high
standard before receiving compensation ................................. 134
2. Gardere’s fee application is wholly deficient ........................... 136
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xiv
3. Dykema’s fee application is just as deficient as
Gardere’s ................................................................................... 138
4. Vogel’s time entries are the most deficient. ............................ 139
5. Vogel’s 2014 Fee Request is deficient. ..................................... 140
C. A Receiver Has a Duty to segregate his expenditures ................ 140
D. Fees for work performed after receivership deemed
illegal are not compensable ........................................................... 141
E. Disgorgement Required for Breaches of Fiduciary
Duty................................................................................................ 141
VI. The DC Erred in Making Findings of Fact Unsupported by the
Record ............................................................................................................ 142
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xv
INDEX OF AUTHORITIES
Cases
Atlantic Trust Co. v. Chapman, 208 U.S. 360 (1908) ........................ 96, 98, 102
B.,Inc. v. Miller Brewing Co.,
663 F.2d 545, 548 (5th
Cir.1981). ........................................................................................... 129
Bank of Commerce & Trust Co. v. Hood,
65 F.2d 281 (5th Cir. 1933) .................................................................. 140
Bank of Commerce & Trust Co. v. Hood, 65 F.2d 281 (5th Cir.
1933) ................................................................................................... 140
Baronv.Schurig,
No.3:13‐CV‐3461,2014WL25519(N.D.Tex.Jan.2,2014) ................... 34
Baron v. Schurig
, No. 3:13-CV-3461, 2014 WL 25519, at *1
(N.D. Tex. Jan. 2, 2014, Lindsay, J) ................................................... 34
Baum v
.
Blue Moon Ventures, LLC
, 513 F.3D 181 (5
th
Cir.
2008) .................................................................................................... 27
Beach v. Macon Grocery Co., 125 F. 513 (5th Cir. 1903) ................... 96, 97, 102
Beaubouef v. Beaubouef
(In re Beaubouef ), 966 F.2d 174,
178 (5th Cir. 1992) ............................................................................ 142
Camara v. Municipal
Court of City and County of San
Francisco
, 387 U.S. 523, 528 (1967) ................................................... 92
Chambers v. Nasco, Inc.,
501 U.S. 32 (1991) ............................................................................... 26
Citizens Bank of Louisianna v. Cannon, 164 U.S. 319, 324 (1896) .................. 102
Cochrane v. W.F. Potts Son & Co., 47 F.2d 1026, 1029 (5th
Cir.1931) ....................................................................................... passim
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xvi
Collins v. Baptist Mem’l Geriatric Ctr
., 937 F.2d 190, 194
(5th Cir. 1991) ................................................................................... 143
Commodity Futures Trading Comm’n v. Morse
,
762 F.2d 60 (8th Cir. 1985) ................................................................. 93
Connecticut v. Doehr,
501 U.S. 1 (1991) ............................................................................. 79, 90
Crowe v. Smith
, 261 F.3d 558, 562 (5th Cir.2001) ................................ 106
Denius v. Dunlap
, 330 F.3d 919, 926 (7th Cir. 2003) ........................... 122
Deputy v. Lehman Bros., Inc.,
345 F.3d 494 (7th Cir. 2003) ................................................................. 106
Dodson v. Huff (In re Smyth), 207 F.3d 758 (5th Cir. 2000) ........................... 127
Fall v. Eastin
,
215 U.S. 1 (1909) ............................................................................... 101
Fed. R. Evid. 201(b)(2) ............................................................................ 122
First Nat. Bank v. Southern Cotton Oil Co., 86 F.2d 33, 34 (5th
Cir. 1936) ............................................................................................ 111
Garrett v. First National Bank & Trust Co. of Vicksburg,
Miss
,
153 F.2d 289, 292
(5th Cir.1946) ............................................ 132
Gene & Gene, L.L.C. v. BioPay, L.L.C.,
624 F.3d 698 (5th Cir. 2010) ................................................................. 101
General Universal Sys., Inc. v. Hal, Inc., 500 F.3d 444, 453 (5th
Cir. 2007) ............................................................................................ 106
Godfrey v. Powell, 159 F.2d 330 (5th Cir.1947) ............................................ 109
Goldberg v. Kelly,
397 U.S. 254 (1970) .......................................................................... 74, 80
Grupo Mexicano de Desarrollo
,
SA v. Alliance Bond Fund,
Inc.,
527 U.S. 308 (1999) ..................................................................... 92
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xvii
Hardt v. Reliance Standard Life Ins. Co.,
560 U.S. 242 (2010) .............................................................................. 111
Harris v. Sentry Title Co., Inc.,
806 F.2d 1278, 1279 (5th
Cir. 1987) ........................................................................................... 107
In re Blackwood Assoc., L.P
., 165 B.R. 108, 111 (Bankr.
E.D.N.Y.1994) ................................................................................... 138
In re Fredeman Litigation
, 843 F.2d 821, 824;
Gandy
Nursery, Inc. v. US
, 318 F.3d 631, 636 (5th Cir. 2003) ..................... 93
In re Imperial “400” National, Inc., 432 F.2d 232, 237 (3rd
Cir.1970) ............................................................................................. 134
In re Marcuse & Co.,
11 F.2d 513 (7th Cir. 1926) .................................................................. 112
In re Marcuse & Co., 11 F.2d 513, 516 (7th Cir. 1926) ......................... 109, 112
In re Middle West Utilities Co.,
17 F.Supp. 359 (D.C. Ill. 1936) ............................................................. 115
In re Southmark Corp.,
163 F.3d 925, 929 (5
th
Cir. 1999) ...................... 96
In United States v. Larchwood Gardens, Inc., 420 F.2d 531, 534–35
(3rd Cir. 1970) ............................................................................... passim
Kearney v. Auto-Owners Ins. Co.,
713 F.Supp.2d 1369 (M.D. Fla. 2010) ................................................... 134
Lion Bonding & Surety Co. v. Karatz, 262 U.S. 640, 641-2 (1923) 96, 98, 99, 102
LondonRecordsv.DeGolyer,
217F.2d574,(5thCir.1954) .................................................................. 23
Lopez v. Current Dir. of Tex. Econ. Dev. Comm’n
, 807 F.2d
430, 434 (5th Cir. 1987) .................................................................... 142
Matthews v. Eldridge,
424 U.S. 319 (1976) ................................................................................ 80
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xviii
Mosser v. Darrow, 341 U.S. 267, 272-73 (1951) and for failure
to pay taxes.
n re Texas Pig Stands, Inc
., 610 F.3d
937 (5th Cir, 2010) ............................................................................ 127
Neville v. Eufaula Bank & Trust Co. (In re U.S. Golf Corp.),
639 F.2d 1197(5th Cir. 1981) ................................................................ 137
New York Life Ins. Co. v. Brown, 84 F.3d 137, 143 (5th Cir. 1996) ................ 130
Nowell v. International Trust Co., 169 F. 497, 505 (9th Cir.1909) ................. 135
Pegram v. Herdrich,
530 U.S. 211, 224 (2000) ...................................... 128
Planned Parenthood of Greater Texas Surgical Health
Services v. Abbott II,
748 F.3d at 583, 604 (5
th
Cir.
2014) .................................................................................................. 142
Powellv.UnitedStates,849F.2d1576,1582(5thCir.1988) .......................... 74
PSL Realty Co. v. Granite Investment Co.,
395 N.E.2d 641
(Ill. 1979) ........................................................................................... 141
R.B. Potashnick v. Port City Construction Co.,
609 F.2d 1101 (5th Cir. 1980) ................................................................. 74
Reynolds v. Stockton
,
140 U.S. 254 (1891
)
........................................................................... 101
Reynolds v. Stockton
, 140 U.S. 254, 268–69 (1891) .............................. 101
Rhode Island v. Massachusetts
,
37 U.S. 657 (1838) ............................................................................. 101
SchurigJetelBeckettTackett,etal.v.Baron,FifthCircuit
AppellateCaseNo.14‐10092 ................................................................ 34
Seastrunk v. Darwell Integrated Technology, Inc.,
No. 3:05-CV-0531, 2009 WL 2705511 (N.D.Tex. Aug. 27,
2009) ................................................................................................... 134
Severance v. Patterson, 566 F.3d 490, 501 (5th Cir. 2009) ............................... 91
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xix
Smyth v. Asphalt Belt Ry. Co., 267 U.S. 326, 330 (1925) ............................... 102
Soldal v. Cook County Ill., 506 U.S. 56, 61 (1992) ........................................... 91
Speakman v. Bryan,
61 F.2d 430 (5th Cir. 1932) ................................................................... 109
Speakman v. Bryan, 61 F.2d 430, 431 (5
th
Cir. 1932) .............................. passim
Texas Catastrophe Prop. Ins. Assoc. v. Morales,
975 F.2d 1178 (5th Cir. 1992) ................................................................. 74
Texas State Teachers Ass’n v. Garland Indep. Sch. Dist.,
489 U.S. 782 (1989) .............................................................................. 134
Tucker v. Baker, 214 F.2d 627 (5th Cir. 1954) .............................................. 109
United States Catholic Conference v. Abortion Rights
Mobilization, Inc.
, 487 U.S. 72 (1988) .............................................. 101
United States Catholic Conference v. Abortion Rights Mobilization,
Inc., 487 U.S. 72, 77 (1988) ................................................................... 102
United States v. Becerra,
155 F.3d 740, 752 (5th Cir. 1998) ............... 106
United States v. Castillo
, 179 F.3d 321, 330 (5th Cir. 1999) ................ 106
United States v. Code Products Corp., 362 F.2d 669, 673 (3d
Cir.1966) ............................................................................................. 135
United States v. Jacobsen, 466 U.S. 109, 113 (1984) ........................................ 91
United States v. Jardine,
81 F.2d 747 (5th Cir. 1936) .................................................................. 102
United States v. Kellington,
217 F.3d 1084 (9th Cir. 2000) ............................................................... 105
United States v. Larchwood Gardens, Inc.,
420 F.2d 531 (3rd Cir. 1970) ................................................................ 112
Vaccarov.UnitedStates,461F.2d626,635(5thCir.1972) ............................ 75
Case: 15-10341 Document: 00513219780 Page: 20 Date Filed: 10/05/2015
xx
Veeder v. Public Service Holding Corp.,
51 A.2d 321 (Del. 1947) ....................................................................... 115
Woods v. City National Bank & Trust Co. of Chicago,
312
U.S. 262 (1941) .................................................................................. 141
World-Wide Volkswagen Cop. V. Woodson, 444 U.S. 286, 291
(1980) .................................................................................................... 73
No table of authorities entries found.Other Authorities
45 Am. Jur., Receivers § 278 (1956) ........................................................... 109
75 C.J.S., Receivers, § 389(a), p. 1064 ........................................................ 134
Fed. R. App. P. 4 ......................................................................................... 1
George G. Bogert et al
., The Law of Trusts and Trustees §
543, at 219 (2008) ...................................................................... 127, 132
Restatement (Third) of Trusts (Third) § 78 (2007) ............................. 127
Case: 15-10341 Document: 00513219780 Page: 21 Date Filed: 10/05/2015
1
TO THE HONORABLE JUDGES OF THE UNITED STATES COURT
OF APPEALS FOR THE FIFTH CIRCUIT:
Appellant Jeffrey Baron respectfully submits this Appellant’s Brief
showing the following in support of reversing the
Order on Receivership
Professional Fees
:
STATEMENT OF JURISDICTION
Appellant initiated this appeal by timely filing a
Notice of Appeal to
United States Court of Appeals for the Fifth Circuit
on April 16, 2015.
Record Excerpt 2. This appeal is from a final order of the District
Court. On March 27, 2015, the district court below (“DC”) issued a
Memorandum Opinion and Order and an Order administratively clos-
ing case. Record Excerpts 12 and 10, respectively. This constituted a
Final Order over which this Court has jurisdiction pursuant to 28
U.S.C. §1291. All of the interlocutory orders entered in this case are
now also final and appealable, including the orders in Record Excerpts
3-9 and 11.
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2
ISSUES PRESENTED
1. Whether the DC violated the Fifth Amendment when it pre-
vented Jeffrey Baron from accessing to his funds to pay coun-
sel during contentious, complex proceedings.
2. Whether charging fees against property that was wrongfully
seized without jurisdiction and without probable cause vio-
lates the Fourth or Fifth Amendments.
3. Whether the precedent of this Court and the Supreme Court
precludes charging expenses of an unlawful receivership
against property over which the court lacks subject matter
jurisdiction.
4. Whether the decision in
Netsphere I
was clearly erroneous in
determining that the DC had the equity jurisdiction to award
fees and expenses against the assets of Baron, Novo Point
and Quantec, where the Court had determined that the DC
lacked subject matter jurisdiction in the first instance
5. Whether the DC can ignore controlling precedent from the
Supreme Court and this Court in awarding fees to a vacated
receiver and his professionals without a showing that the fees
conferred a benefit to the estate.
6. Whether the DC is permitted to disregard this Court’s man-
date in
Netsphere, Inc. v. Baron
, in awarding excessive fees
and expenses to Vogel and the professionals hired by him and
to Sherman, the party who moved for the receivership.
7. Whether a vacated receiver, as a matter of law, can charge
the estate for work that he and his professionals performed
vindicating their personal interests, including services in-
volved in prosecuting fee applications to the DC and defend-
ing them.
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3
8. Whether the lower court, on remand, is permitted to engage
in proceedings and actions that are not specified in this
Court’s mandate
9. Whether, as a matter of law, fiduciaries can receive broad re-
leases of liability without an agreement for such releases and
without disclosure of their activities and when the lower
court lacks jurisdiction to grant such releases.
10. Whether the lower court violated the Fifth Amendment and
abused its discretion by forcing Jeffrey Baron to respond to
and defend over 16,000 pages of fee applications on a seven
day schedule while preventing him access to his funds to pay
counsel or experts.
11. Whether certain findings made by the DC, in the absence of
any supporting evidence, is an abuse of discretion.
12. Whether it was an abuse of discretion for the DC to award
fees under patently defective applications that do not satisfy
prevailing law on the requirement for proving up allowable
fees and expenses against receivership assets.
13. Whether the DC was clearly erroneous in adopting certain
enumerated findings of fact, many of which were made with-
out hearing any evidence or conducting a hearing, and based
on applications that are not verified.
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4
STATEMENT OF THE CASE
A. Introduction
Thiscasehasoftenbeendescribedasa“trainwreck”bymanyfamiliar
withitshistory.Whatbegan asasimple partnershipdisputewaspushed
off the tracks when a bankruptcy trustee of a corporate chapter 11 case,
DanielJ. Sherman(“Sherman”)andhisattorneys, Munsch,Hardt, Kopf&
Harr
PC (“MHKH”) dissatisfied with an effectuated settlement with Ap‐
pellantJeffrey Baron (“Baron”), met ex parte with District Judge Royal
Furgeson, under circumstances that are nearly unimaginable and con‐
vincedJudgeFurgeson,inanofftherecordexpartemeeting,tohaveallof
Baron’sassetsplacedintoareceivership,
1
despitethoseassetsnotbeingthe
subjectof the litigation,fortheexpresspurpose of preventing Baron from
objectingtotheirfeesandtheirlootingtheOndovabankruptcyestate.
1
After review, this Court reversed, holding that “a court lacks subject matter juris-
diction to impose a receivership over property that is not the subject of an underly-
ing claim or controversy.”
Netsphere,
at 703 F.3d at 306, 310.
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5
Thisrelativelysimpledisputewasmanipulatedinamyriadofwaysby
Sherman’s lead lawyer, Raymond Urbanik (“Urbanik”), who, Baron be‐
lieves,wasdesperatelyattemptingtogeneraterevenuesforhisfirmsothat
hecouldmaintain hisjobwithMHKH.
2
ThreedaysafterBaronlodgedan
object to the fee application filedbyMHKH intheOndovacase,Urbanik,
in a desperateattempt to blocksaidobjection and all future objectionsto
hisfirm’sfees,causedtobefiledanadmittedlyunlawfulappointmentofa
receiverovernotonlyall
oftheassetsofBaronbutalsooverBaronhimself.
After seizing over $10 million of Baron’s money,
3
using most of it to pay
themselves,Vogel,Sherman,MHKH,GardereandDykema Gossett PLLC
(“Dykema”)failedtopayasinglepennytoanycreditorinthereceivership
orintheOndovacase,whichisnowadministrativelyinsolvent.
Seekingtocorrectthiswrong,thisCourtcourageouslyreversedVogel’s
appointmentandthemillions
ofdollarsinfeepayments.Now,threeyears
2
Urbanik is no longer working for MHKH, and the “word on the street” is that Ur-
banik was forced to leave.
3
“Baron” is used shorthand here for Baron, Novo Point and Quantec.
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6
later,Baron has not receive d back any of his moneyorproperty,with the
exception of some exempt assets. The shocking story of how this could
haveoccurredisdiscussedherein.
B. The Underlying Litigation
AcontroversyaroseoverajointventurebetweenJeffreyBaronandre‐
lated entities, including Ondova Limited Company (“
Ondova”),
4
and
Munish Krishan and two of his related entities, including Netsphere, Inc.
(“NetsphereParties”).Litigationensued.
On May 28, 2009, the Netsphere Parties filed a suit against Bar‐
on/Ondova in thedistrict court below (“NetsphereDC Case”), alleging that
Baron/Ondova breached a settlement agreement.Baron/Ondova alleged
thatthe
NetspherePartieswereinbreachbyrefusingtopay the$4million
requiredunderthetermsthereof.
5
4
Ondova is a domain name registration company that maintains necessary infor-
mation for the operation of domain names on the internet.
5
ROA.139‐152
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7
NeitherNovoPoint,LLC nor Quantec, LLC (the “LLCs”) were named
parties in the Netsphere DC Case,
6
nor were there allegations as against
them.
Ondova filed chapter 11, and Sherman was appointed as the trustee.
Sherman hired the law firm MHKH, who designated Urbanik as lead
counsel.
C. The Parties Settled All Controversies
InJune2010,theparties reached a global settlement,whichwasdocu‐
mentedinaMutualSettlementandRelease
Agreement(the“GSA”).
7
The GSA provided for Baron’s affiliated companies to retain over
230,000incomeproducingInternetdomainnamesandadditionalrevenue,
8
anditwasintendedtoprovideBaronafreshstart,topayOndova’sadmin‐
istrativeandunsecuredcreditorsinfull,toresolvetheOndovaChapter11
6
708 F.3d 296, 311 (hereinafter
Netsphere I
)
7
ROA 1692-1841-entire GSA.
8
ROA.1696 ($1.250,00 + deferred payment of $600,000 to Village Trust); ROA.1700
(describing PokerStar Revenue which amounted to approximately $500,000);
ROA.1697 (describing division of approximately 700,000 domain names)
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8
Casethroughaconversion ordismissal,andtoreturncontrolofOndovato
Baron.
9
Most importantly for Baron, the GSA was intended to re solve the
NetsphereDCCaseandotherlawsuits throughjointstipulationsofdismis‐
salwithprejudice.
10
TheGSAannexedfourdismissalswithprejudice,one
of which, Exhibit “K”, was a “StipulatedDismissal WithPrejudice”of the
NetsphereDCCase.
11
TheGSAprovidedforpaymentstoOndovaintheapproximateamount
of $1,700,000.00, which, along with other funds onhand, was sufficient to
payalladministrativeclaimsandunsecuredcreditorsinfull.
12
TheGSAwasapprovedbytheBConJuly28,2010.
13
Thereafter,inAu‐
gust and September 2010, the assets were transferred and the cash was
9
ROA.4102 (Sherman’s counsel testified: “The negotiation was to pay the debts and
givethekeysbacktoBaron.Butthatdidn'thappen”.)
10
See See
ROA.1705 - requirement of MHKH to file the Stipulated Dismissal.
See
also:
ROA. 1788-1796.
11
See ROA.1804-1813 for a fully executed copy of Exhibit K.
12
ROA.1696, 1700 (payments from Village Trust to Chapter 11 Trustee); SROA.??
(Monthly Operating Report), ROA. In September 2010, after receiving payment un-
der the GSA Sherman held over $2 million in cash to pay the estimated $800,000 in
scheduled claims. Ondova should have emerged from bankruptcy with approximate-
ly $1 million in cash to finance its reorganized operations. )
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9
paid to Ondova. Baron and his affiliated entities fully complied with the
GSA.
14
All four dismissals were executed by the parties and del ivered to
MHKHnolaterthantheearlypartofSeptember2010.Undersection10of
theGSA,MHKHwasdirectedtofileallfourdismissaldocumentsprompt‐
ly after receipt of same.
15
MHKH, without explanation or authority,failed
tofilethedismissalastotheNetsphereDCCase.
D. The unjustified and illicit attack upon Jeffrey Baron
In October 2010, Sherman and Urbanik began aggressively soliciting
new claims
16
from other lawyers that had formerly represented various
parties in the Netsphere litigations.
17
Sherman invited lawyers who had
notmade claimsandhadbeenpaidinfull,tomakeclaimsintheOndova
13
ROA.1683-1689 (Order Approving Settlement Agreement)
14
See
ROA.24596, SROA??sherman testimony10-28-2010, ROA.26117-26118.
15
ROA.1704‐1705.
16
The bar date for making claims in the bankruptcy had long passed. ROA.1429-
1430.
17
The 10 year long dispute involved over 40 parties and over 100 lawyers.
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10
bankruptcyfor“substantialcontribution”totheOndovaestate.
18
Sherman
and Urbanik even recruited these lawyers to assist in the solicitation of
more lawyers.They eventually succeeded in getting two firms to make
claimsagainstBaronandOndova.Thiswasa“farcry”fromthedozensof
lawyersShermanandUrbanikrepresentedtotheBC,theDCandthe
Fifth
Circuit that Baron was “hiring and firing” without paying them.
19
These
representationswerefalse,andintheend,onlyonelawfirmmadeaclaim
thatwasactuallyallowedbythecourt.
20
InSeptember2010,ShermanandUrbanik begantomisrepresentbefore
theBCandDCthatBaronwas engagedindisruptiveconductandwasat‐
temptingtonullifytheGSA.
21
18
ROA.24588-24590 (declaration of Jay Kline and Blake Beckham).
19
(ROA.24654, 24649, 35392, 3898-“nineteen lawyers”, )
20
SROA.??(bankruptcy docket)
21
ROA.5979-5983;
See
Argument I-G-1, infra, at p __.
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11
E. The BC’s issuance of a show cause order against Baron and its
Report and Recommendation to the DC
Bankruptcy Judge Jernigan issued an order on September 17, 2010,
commandingBarontoappearandshowcausewhyhewasnotin contempt
of the BC’s order approving the GSA, which directed the parties to fulfill
alloftheirrespectiveobligationsundertheGSA.
On September 22, 2010,
the BC commenced a three ‐day evidentiary
hearing at which Baron and other parties, including Sherman, testified.
22
At the end of the hearing, the BC did not find that Baron was guilty of
breaching the GSA or moving assets offshore, and no order was entered
findingorconcludingthatBaronwasincontempt.
23
Ultimately,thisCourt
cametothesameconclusions.SeeArgumentI‐F‐1,infra,atp82.
During the course of the hearing, Sherman, Vogel and their lawyers
recommended to the BC that Vogel be appointed “mediator” to mediate
theclaimsthatShermansolicited.
22
ROA.24660
23
ROA.24654-24662
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12
On October 13, 2010, the BC issued a Report and Recommendation to
theDC.Notably,despite Appellees’misrepresentationstotheDCandthis
Court, the BC did not recommend the appointment of a receiver, and
ShermanandhisattorneyswerenotunderanymandateoftheBCtopur‐
sueanyreceivershipaction.
24
Thesedeceptionsunderminedtheefficacyof
thedecisionoftheCourtinNetsphereI.SeeArgumentI‐F‐1,infra,atp82.
OnOctober19,2010,theDCenteredanorderadoptingtheBC’sReport
andRecommendation,
25
andappointedVogelasamediator.
26
Baron complied with the DC’s order to mediate the former attorneys’
allegedclaims.However,ShermanandVogelallegedBaronwasnotcoop‐
eratingwiththemediatorandwasobstructingthemediationefforts.These
allegationsweresubsequentlydebunkedbySherman,himself.
27
24
ROA.1842-1852
25
ROA.1027
26
ROA.1028 (Order amended on Mary 25, 2010 – ROA.1032)
27
ROA.26083; ROA.3986-3988.
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13
F. Baron’s receivership was instituted and perpetuated with
malice and wrongful purpose on the part of Sherman, Trustee, his
attorneys and Vogel.
1. Sherman and MHKH hatched the receivership in retaliation for
Baron objecting to MHKH’s Fee Application, and Vogel aided
and abetted their scheme
TheideaofplacingBaron intoareceivershipwasconceivedbyUrban‐
ik,VogelandShermanwhen,onNovember19,2010,Baronobjectedtothe
Third Fee Application filed by MHKH in the Ondova chapter 11.
28
That
sameday,inretaliation,Urbanik,incooperationwithShermanandVogel,
spent2½hoursdraftingthemotiontoputBaronintoreceivershipandto
specifically appoint Vogel, who was then special master and mediator in
thecase.
29
28
ROA.24650 (See docket 521); ROA.10659-10660. At the point in time Sherman decided to
place Baron into a receivership, there were enough funds in the Ondova bankruptcy estate to pay
in full all Administrative Claims, Priority Claims and Unsecured Claims. However, as we sit
here today, not one creditor in the Ondova case has been paid with the exception of MHKH and
Sherman, Sherman’s accountant and certain other administrative creditors. The Ondova estate is
and has been administratively insolvent for over 3 years..
29
ROA.317;ROA.10659‐10660.
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14
Thenextday,onNovember23,2010,insteadofseekingthefurtherin‐
volvementoftheBCandgivingBaronanopportunitytobeheard,Urbanik
and Sherman, in conspiracy with Vogel, unilaterally spent two and a half
hoursplanningtoplaceBaronintoareceivership.
30
2. The meretricious circumstances surrounding the entry of the
Receivership Order on November 24, 2010.
OnNovember24,2010,UrbanikandShermanhadanexpartemeeting
with Judge Furgeson, sometime before 1:15 p.m.
31
at which he signed the
OrderAppointingVogel Receiver(the“ReceivershipOrder”).
32,
However,
theDC’sdocketsheetsdonotreflectthatahearingeveroccurred.
33
Itwas
anexparte,off ‐the‐record,secretmeeting,unreportedtothepublic.Unex‐
30
ROA.10659–10660.
31
ROA.10659-60,;For email sent by Mr. Ubanik to ICANN reporting time Receiver-
ship Order entered
See
ROA.14569-71. Urbanik, another lawyer from MHKH,
Sherman and probably Vogel met Judge Ferguson sometime before 1:15 p.m. With
no motion on file, and without notice being given to Baron or his counsel, these law-
yers presented Judge Ferguson with the Receivership Order, and Judge Ferguson
signed it, apparently at 1:15 pm. (ROA.14736–37).
32
ROA.1136-1149. Billing Statements of MHKH. ROA.6778-6779 – See entries of
RJU and DLR for 11/24/10. The time records indicate that Urbanik and another
lawyer at MHKH attended a hearing on the Receivership Motion
33
ROA.36
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15
plainably,theMotiontoAppointaReceiverhadnotevenfileduntilseveral
hours later, without any notice to Baron or a hearing.
34
The metadata in‐
formationonthepdfversionoftheReceivershipMotionfiledwithPACER
showsthatthe motionwascreatedat2:07p.m,nearly50minutesafterthe
ReceivershipOrderwasapparently presentedtoandsignedbyJudgeFur‐
geson.
35
AccordingtothePACERtimestamp,themotionwasfiledat3:40
p.m.CST,atleast2½hoursafterthesecretmeetingwithJudgeFurgeson
occurredandtheReceivershipOrderwassigned.
36
TheReceivershipMotionwasunverified,wasunsupportedbyanydec‐
larations or affidavits, and was filed as an “emergency” motion, notwith‐
standing that there were no emergency circumstances that existed or that
34
ROA.1033‐1037.
35
See
Unsworn Declaration of Gary N. Schepps describing forensic examination of
the documents. ROA.14569. This can be independently verified by downloading a
copy of the Receivership Motion from PACER, going to “Properties” in the “File” tab
of Adobe Acrobat.
36
At 3:54 p.m., Urbanik sent an email to ICANN, the international internet regis-
try, in which he reported that, at 1:15 p.m. CST on November 24, 2010, the Receiv-
ership Order had been signed by the DC and Vogel had been appointed receiver.
ROA.14736–38.
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16
wereevenreportedinthemotion.
37
Notranscriptofanyhearingor meet‐
inginchamberswithJudgeFurgesonexists.NonoticewasgiventotheBC
ortoBaron.Norecordofsuchexpartemeetingorhearingappearsonthe
docket.Theseeventsarebothextraordinaryandtroubling.
Inthe exparte motionfor
theappointment ofareceiver,Shermanand
UrbanikdisingenuouslyarguedthatbecauseBaronwasviolatingtheDC’s
mediation order and breaching the GSA, and that the DC needed to ap‐
pointVogelasreceivertosothatVogelcould“stepintotheshoes”ofBar‐
on and perform the obligations
that Baron was supposedly breaching.
38
Sherman later admitted under oath that he manufactured these asser‐
tions, and that Baron never even had any obligation to Sherman or
Ondova.BothShermanandVogelknewthatthelawyerscausedthemedi‐
ationtofail,butdeliberatelymisledtheDCintobelievingthatitwasBaron
whohad
causedthemediationtofail.
39
37
ROA.1033‐1037.
38
ROA.1036.
39
ROA.26113-26114, 26118, 26083; ROA.3986-3988.
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17
3. Vogel immediately seized Baron’s files and fired Baron’s AV
rated lawyer.
In a “blitzkrieg”,Vogel immediately seizedall of Baron’s funds‐‐more
than$1.9million,
40
impoundedhisexemptassetsaswell,confiscatedallof
hislegaldocumentsandseized26entitiesthatwereallegedtobeownedor
controlledbyBaron.
41
Atthesametime,VogelfiredBaron’s“AV ” ratedtri‐
alcounsel.
42
4. Vogel threatens Baron and then appoints himself Baron’s
counsel.
IncrediblyGarderesentBaronathreateningemailonDecember
2,2010,stating:
The receiver is furthermore instructing you as follows: First,
you are expressly prohibited from retaining any legal counsel.
Shouldyouretainanylegalcounsel,VogelmaymovetheCourt
tofindyouincontemptofthereceivership
Order.
ROA.29040
40
By March 2011, Vogel had confiscated approximately $1,900,000 in Baron’s
personal cash, and about $600,000 of the LLCs’ cash. SROA.??
41
ROA.1169‐1172
42
ROA.3348‐3351.
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18
Incredibly, Vogel then instructed Baron that Vogel himself was ap‐
pointedbythecourttobeBaron’slawyer
43
andmandatedthatBaron’sre‐
questto thecourtforindependenttrial counselbedenied.
44
Asabsurdas
thisseemed,Sherman’scounsellaterexplainedtothecourt
“Andthereason whytheCourthasputinplaceareceivership
is to address Baronʹs desire for due process which is a pretty
extremedesirefordueprocess.”
ROA.34877
5. Vogel dismisses Baron’s objection to MHKH’s fee application.
Meanwhile,onDecember1,2010,one
weekafterVogelwasappointed,
heaccompaniedShermantotheBC,whereheannouncedthathehadsup‐
planted Baron and his interests, and withdrew Baron’s objection to
MHKH’s fee application.
45
MHKH and Urbanik had achieved their objec‐
tive: Baron’s objection to their fee application was removed, and Baron
43
At an on-the-record meeting with Baron, Vogel proclaimed “I am the counsel for
Jeff Baron. And that is what the judge said.” ROA.29048.
44
In response to request for Baron to have counsel, Vogel stated: “Fine. You re-
quested. Request denied.” ROA.29049.
45
The “fix” was obviously in; ROA.3928.
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19
would never again be permitted to object to MHKH’s fees in the Ondova
case.
G. The DC authorizes Vogel to take control of the LLCs, over
which the DC had no subject matter jurisdiction.
When Vogel confiscated the LLCs’ assets, they owned approximately
230,000 valuable domain names, which, according to Sherman, had value
inexcessof$100,000,000.00.
46
Seeking additional assets for his receivership, Vogel moved the DC to
“clarify”theReceivershipOrdertopersuadetheDCthatithadintendedto
include the LLCs despite no indication that the DC had such intentions.
47
The DC granted the order and Vogel took possession and control of the
LLCs.
48
Both companies are limited liability companies formed under the
laws of the Cook Islands, and they are in good standing. Both companies
areownedentirelybytheVillageTrust,whichisatrustcreatedunderthe
46
ROA.2145
47
ROA.1175.
48
ROA.3392‐3399.
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20
laws of the Cook Islands.Baron is a primary beneficiary of the Village
Trust.TheLLCsformtheprincipalassetsoftheVillageTrust;therefore,the
valueoftheLLCsareofsubstantialimportance toBaron,formingthecor‐
pusfromwhichhehopestoderiveanybenefitoutofthe
VillageTrust.
H. Vogel and the DC deny Baron the constitutional right to hire
competent legal counsel of his choosing and the DC forces Baron
to conduct a hearing on his Motion to Vacate Order Appointing
Receiver and in the Alternative, Motion for Stay Pending Appeal
without adequate counsel.
ManyofthecriticismsofBaronmadebytheNetsphereIpanelarebased
on an Order Denying Emergency Motion to VacateOrderAppointingRe‐
ceiverandintheAlternative,MotionforStayPendingAppeal(the“Order
DenyingVacateorStayMotion”),enteredby
theDConFebruary4,2011.
49
49
ROA.4881-4901
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21
1. Events leading up to the entry of the Order Denying Vacate or
Stay Motion
VogelconfiscatedBaron’sassets,legaldocumentsandrecordsimmedi‐
ately upon his appointment as receiver and fired his trial counsel. Mean‐
while, Vogel and Gardere threatened Baron with contempt if he even
attempted to engage trial counsel and told Baron that Vogel, himself was
theonlyattorneythat
Baronwaspermittedtohave.
50
Nevertheless,shortlyaftertheReceivershipOrderwasentered,Baron’s
volunteer appellate counsel, Gary Schepps, filed an Emergency Motion to
VacateOrderAppointingReceiverandintheAlternative,MotionforStay
PendingAppeal(the“VacateorStay Motion”),
51
whichtheDCsetforhear‐
ing in early January 2011. Schepps promptly advised the DC that he was
notequippedtohandlethematterandthatBaronneededexperiencedand
specialized counsel to conduct discovery and prepare to defend the very
50
ROA.1169-1172; ROA.3348-3351; ROA.29040; ROA.29048.
51
ROA.1160-1172;
see also
ROA.1169–1172 (Declaration of Jeff Baron).
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22
seriouschargesthatwerebeingassertedbySherman.ROA.2176‐2180.Said
motionwasdenied.ROA.3013–3016.
ThehearingontheVacateorStayMotionwas heldonJanuary4,2011.
ROA.34447.Scheppsappearedat the hearing with an associate, Peter Bar‐
rett, who assistedSchepps and agreedthat he would not
be compensated
forhisefforts.BarrettrefusedtomakeanappearanceforBaron.Then,after
a very unusual colloquy between Barrett and the DC, the DC unilaterally
declaredthat.Barrettwasthereforallpurposes.
52
BarrettattemptedtorepresentBaronwhiletellingtheDCthatthiswas
oneofthemostcomplexlitigationshehadeverseeninhislifeandthathe
wasnotequippedtohandleit.(ROA.34670).
2. Baron’s due process rights were violated when the DC refused
to permit him to engage competent counsel
Deprived of all his assets, forbidde n from entering into agreements,
forbidden from hiring
counsel, and the DC having denied his requests to
engage counsel, Baron, at this very stressful and important hearing, was
52
ROA.34462; ROA.34462-34466; ROA.34466
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23
forcedtoaccepttherepresentationofalawyerwhowas,byhisownadmis‐
sion, incompetent, and incapable of providing an adequate defense for
Baron.
3. The Order Denying Vacate or Stay Motion was not an
appealable order, and it has no effect
Following the hearing, the DC entered the Order Denying Vacate or
StayMotiononFebruary3, 2011,whichincludedvitriolic findingsoffact,
mostly
unsupportedby therecord,andoccasionallysupportedbytestimo‐
nyatthehearing,whereBaronwasdenieddueprocess.
53
Thepanel inNetsphereI seizedupon thisinterlocutoryorder asabasis
for determining that Baron engaged in “vexatious” litigation tactics.
Netsphere,703F.3dat304.However,theorder was neither appealable nor
beforetheCourt.E.g.,LondonRecordsv.DeGolyer,217F.2d574,574–75(5th
Cir.
1954).Infact,theorderwasnever appealed,andwasnotripeforcon‐
siderationbytheCourtNetsphereI.
53
ROA.4881–48923
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24
I. Baron promptly appealed the receivership orders and all fee
orders, expeditiously prosecuted the appeals, and never
acquiesced in the payment of Receivership expenditures.
Baron promptly appealed the Receivership Order and over the course
ofthenexttwoyears,filedtenadditionalappealsplusonepetitionforwrit
of mandamus promptly appealing from numerous orders entered by the
DC,predominantlydealingwiththeawardoffeesandexpensestoVogel,
Sherman and their
respective professionals, as set forth in the Table at‐
tached as Appellants’ Record Excerpt 16. These eleven appeals and one
originalproceedingwereconsolidated,andresolvedonDecember18,2012,
whenthisCourtreleaseditsopinioninNetsphere.
J. Sherman, Vogel and their Lawyers Branded Baron a
“Vexatious” Litigant in Retaliation for Objecting to their Fee
Applications and appealing the Receivership Order and Fee
Orders.
Appellees immediately embarked upon a malevolent effort to brand
Baron a “vexatious litigant”.However, the only conduct Baron was
“guilty” of engaging in was to contest MHK H’s fee application with the
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25
BC,appealtheReceivershipOrder,andobjectto the fee applications filed
by Sherman, Vogel and their respective retinue of professionals.
54
In all,
Baronappealed69unfavorableandimprovidentdecisionsoftheDC,allof
whichwerereversedbythisCourtinNetsphereI.
1. Baron’s success in his litigation has come at great cost to him
and his family.
Like a persistent whistleblower, Baron has withstood a seemingly im‐
possible struggle, and he and his family have been unjustly vilified and
havesufferedimmensely.
Baronhasbeencastigated,defamedandbludg‐
eonedrepeatedlyandrelentlesslybyaretinue ofhighlycapable large‐firm
lawyers, Vogel, Gardere, Sherman, and MHKH, who were paradoxically
Baron’sfiduciaries.BecauseBaronhadthetemeritytodefytheirwill,these
sophisticatedandviciousprofessional litigantspunished Baronforhisde‐
fiancebyfalselybrandinghima“vexatiouslitigant”.
Without money or adequate counsel, Baron’s efforts to combat these
professionallitigants’liesandmisrepresentationshasbeennearlyimpossi‐
54
Peter Vogel is a partner in Gardere.
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26
ble. However, despite their relentless and scurrilous attacks on Baron for
fouryears,theyultimatelyfailed.
2. Despite Vogel and Sherman’s defamatory rhetoric that Baron
was vexatious, they never sought to enforce any litigation
abuse prevention statute or rule.
While Appellees manufacturedcontroversyaftercontroversy to blame
on Baron in order to provide cover while they breached their obligations
undertheGSAanddepletedBaron’sassetstopaytheirfees,theirlies
were
unsupportable.Like wailing banshees, Appellees groused and whined
aboutBaronandhisallegedvexatiousbehavior,butneveroncefiledasin‐
glemotionrequestingthattheDCorBCdeterminethatBaron’scounselvi‐
olated 28 U.S.C. §1927, by engaging in vexatious conduct, or th at Baron
and/orhiscounsel
engagedinconductsanctionableunderFederalRule11,
orthatBaronand/orhiscounselengagedinthekindofconductthatwould
justifytheimposition of sanctionsutilizing the inherentpower of a DC or
BCtosanctionlitigantsunderChambersv.Nasco,Inc.
55
Likewise,Appellees
55
501 U.S. 32 (1991).
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27
neverattemptedtohave Baron designated as a “vexatious litigant” under
Chapter 11 of the Texas Civil Practice & Remedies Code.
56
Indeed, Baron
has never been held to be in contempt of any order of any court.
57
In the
absenceofanyrecordcitationsto“badbehavior”onBaronorhiscounsel’s
part,intheabsenceofanyorderholdingBaronincontempt,andintheab‐
sence of any attempt tohavetheseissuesproperly adjudicated under any
ofthelitigationabusepreventionstatutesandrules
availabletoAppellees,
theseallegationscannotbe,andnevershouldhavebeen,takenseriouslyby
thepanelinNetsphereI.
Sherman,MHKHandVogelinvokedareceivershipoverBaron,oneof
themostdraconianremediesavailableunderlaw,withoutevenattempting
56
The purpose of a “vexatious litigant “designation is to prevent litigants who file
repeated frivolous lawsuits, as plaintiff, to continue doing so, as explained by this
court in
Baum v
.
Blue Moon Ventures, LLC
, 513 F.3D 181, 189 (5
th
Cir. 2008).
Baron has not been accused of filing a single lawsuit. Instead he has only defended
himself. The fact that he was forced to hire numerous lawyers to defend against the
multitude of complex proceedings brought against him in numerous jurisdictions,
does not meet the standards required by this court for a litigant to be charged with
being “vexatious litigant”.
57
The panel in
Netsphere I
recognized this fact (“At oral argument in the appeal, it
seemed conceded that no clear order existed”).
Netsphere,
703 F.3d at 311.
See
Sec-
tion E,
supra,
at __.
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alessersanctionorseeking theadviceandconsentofthe BC.HadAppel‐
leescomplaintshadanounceoflegitimacy,theywouldhavesoughtrelief
throughanyofthewidearrayofremediesavailabletothem,insteadofby
meansof anex partemeetingwithadistrict judgeunder
dubious circum‐
stances,whereBaronhadnoopportunitytobeheardorotherwise defend
himselfagainstthefalsecharges.
3. Vogel and Sherman resort to making false statements to
deceive courts in an effort to denigrate and destroy Baron.
ShermanandVogelresortedtomanufacturing alitanyofdemonstrable
liestothisCourt,theDCandtheBCwhicharechronicledingreaterdetail
inArgumentI‐F,
infra,atp82.
K. Vogel, Sherman and their legal professionals’ self-serving
efforts induce Judge Furgeson to extend the receivership when
the cash exceeded threefold the amount of claims.
Althoughthecash thatVogelseizedfrom Baron attheonset of the re‐
ceivership exceeded threefold the total amount of claims, Vogel, Sherman
and their respective legal counsel consistently obstructed and thwarted
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29
Baron’s numerous attempts to secure payment for the receivership claim‐
ants by placing sufficient money into the registry of the court and termi‐
nate the receivership. The examples below are a small sample of such
malicious,self‐servingefforts.
Four months after the institution of the Receivership, in March, 2011,
Vogel had $1.9 million of Baron’s personal funds plus $900,000belonging
to the LLCs, while the total claims against the Receivership amounted to
$926,160.53.
58
Recognizingthis,theDCembarkedupon a course to terminatethere‐
ceivership,andsuasponteorderedVogel“toshowcausewhy theReceiver
shouldnotplacethemonies[Vogel]gainedaccesstointheregistryofthe
Court and terminate the receivership over Baron.”
59
On March 2, 2011,
JudgeFurgesonnoted:
Additionally,itisreportedthatthusfarVogelhasgainedaccessto
20outofthe25accountscontainingtheBaronFunds,totalingap‐
proximately$1.9million....TheprimarypurposeoftheCourtʹsRe‐
58
SROA.??(vacated order)ROA.5360,
59
(SROA.?? vacated order).
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30
ceivershipOrder,wastogainaccesstoBaronʹsfundstoensurethat
theunpaidattorneysclaimsagainsthimcouldberesolvedsothatthe
bankruptcyactioncouldbeclosedandthepartiesʹsettlementcould
becompliedwith.ItappearsthatVogelhasgainedaccesstoan
amountthatwilllikely
coveralloftheoutstandingunpaidattorneys’
claims.
Id.
60
At a hearing on the order to show cause on March 11, 2011, Urbanik
andShermanvehementlyobjectedtoterminatingthereceivership,making
ahostofargumentswhichhavebeenlargelyfoundtobefalse.
61
Ultimately,JudgeFurgeson,inthefaceoftheselargefirmlawfirmma‐
chines making largely unanswered, vociferous arguments, obviously did
not have the courage of his convictions to carry through with what he
knew was the right thing to do: pay any legitimate creditors for whose
benefit the receivership
had allegedly been implemented, and dismiss the
60
Id
. At that time, after payments of over $500,000 in professional fees to himself
and MHKH, Sherman still held $1,275.080.59 for the Ondova estate and receivables
net of doubtful accounts amounted to $756,379.73; ECF Doc 586, Case No. 09-
34784-SGJ, at 6 (SROA.??)
61
ROA.34788, 34796.-34799, 34803, 34813,34827, 34831 (hearing transcript of
march 2011). Baron did not have adequate counsel, properly funded, to counter
these vicious attacks and help Judge Furgeson to carry out his intended course of
action.
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31
receivership, and based largely on these false, self‐serving arguments, the
DC reversed course and decided to allow the receivership to co ntinue in‐
definitely.
62
Meanwhile,Vogel andhiscounsel,Gardere,filedmotionsto sellmore
oftheLLCs’assetsandtoliquidate Baron’sexemptIRA accounts,
63
which
they fervently argued was necessary in order to obtain even more money
forthemselves.
Baron then offered another solution.He offered to obtain a loan to
fundtheclaimsandendthereceivership.Accordingly,Baronrequestedthe
DC for permission to obtain a loan.
64
The DC initially granted Baron’s re‐
questonMay9,2011but,againVogelandGardereobjectedtoBaron’sat‐
tempt to resolve the Receivership, moving the DC to reconsider—
62
ROA.5763.
63
ROA.5593, SLROA (Docket 480).
64
ROA.7829-7830.
See
also ROA.6859-6868.
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32
incredibly,filingsuchmotionexparte,underseal.
65
Again,theDCreversed
itselfuponVogelandSherman’srelentlessurging.
L. This Court issued its
Netsphere I
Opinion on December 18,
2012, and found that the entry of the Receivership Order was an
abuse of discretion and reversed the entry of the Receivership
Order.
ThePanelinNetsphereIheldthattheimpositionofthereceivershipwas
anabuseofdiscretion.ThepenultimaterulingoftheCourtwasthat:
ThejudgmentappointingthereceiverisREVERSEDwithdirec‐
tions to vacate the receivership and discharge the receiver, his
attorneysandemployees,and
tochargeagainstthecashinthe
receivershipfundtheremainingreceivershipfeesinaccordance
withthisopinion.
NetsphereI,703F.3dat315.
65
ROA.8099-8101; SLROA (docket 581); Baron’s objection to the ex parte, sealed order
is found at ROA.9130-9135.
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33
M. Two hours after the Court issued the
Netsphere 1
Opinion,
Baron was thrown into an involuntary bankruptcy proceeding in
an attempt by his opponents to moot this Court’s ruling.
Approximately two hours after this Court issued its Opinion in
Netsphere—long before the issuance of the mandates on April 19, 2013—
andinviolationoftheReceivershipOrder,whichwasnotimmediatelydis‐
solvedfollowingtheNetsphereOpinion,eightoftheattorneyparticipantsin
thereceivershipaction(the“Petitioning
Attorney s”),ledbyGerritPronske,
filedaninvoluntarybankruptcypetitionunderChapter7oftheBankrupt‐
cyCode,againstBaron(“BaronInvoluntaryBankruptcy”).
66
NotwithstandingtheNetsphere Opinionandmandate,TheDCordered
thatnoassetsofBaronwouldbereturnedtoBaronduringthependencyof
theBankruptcy.
67
66
ROA.1147-1148 (injunction against bankruptcy); (SROA.?? Invol docket). The case
was filed in the United States BC for the Northern District of Texas, Dallas Divi-
sion under case no. 12-37291.
67
ROA.27906-27907. 27670-27671.
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34
2. An Order for Relief is entered.
OnJune26,2013,theBCenteredanOrderforReliefintheBaron Invol‐
untaryBankruptcy,whichwasreversedonJanuary,22014.
68
Thus,asare‐
sultoftheBaronInvoluntaryBankruptcyCase,Baronremainedinfinancial
lockdown.
3. The Appeal and reversal of the Order for Relief
Baron perfected an appeal of the Order for Relief to the DC on July 8,
2013. The DC entered a final judgment on January 2, 2014, reversing the
OrderforRelief,accompaniedby
anAmendedMemorandumOpinionand
Order.
69
ThisjudgmentandopinionwasappealedtothisCourt.SeeSchurig
JetelBeckettTackett,etal.v.Baron,FifthCircuitAppellateCaseNo.14‐10092.
The“thejudgmentofthe[DC]wasaffirmedwithregardtovacatingthefee
order and reversed with regard to dismissing theinvoluntary‐bankruptcy
action,”
andwas“remandedtoDCforremandtoBCforatrialonwhether
68
Baron v. Schurig
, No. 3:13-CV-3461, 2014 WL 25519, at *1 (N.D. Tex. Jan. 2,
2014, Lindsay, J). Baron would ask this Court to take judicial notice of this opinion,
which is included in Appellants’ Record Excerpt 20.
69
Id.
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35
a bona‐fide dispute exist[ed] as to creditorsʹ fees.”In the Matter of Jeffrey
Baron,593Fed.Appx.356,362(5
th
Cir.2014).Thepartiesultimatelysettled,
andthisCourtdismissedtheappealasmoot.
70
N. The Netsphere I panel denies all pending motions and issues 8
mandates
This Court denied all petitions for rehearing on April 4, 2013, and is‐
sued eight Mandates on April 19, 2013, which were filed with the DC on
April24,2013.
71
TheDCwasobligedtofollowthefollowingmandateofthisCourt:
1. the DC would be required to meaningfully discount receivership
professional fees from what would have been reasonable under a
proper receivership;
2. the amount of all fees and expenses would have to be reconsid-
ered by the DC;
3. any other payments made from the receivership fund might also
be reconsidered as appropriate;
70
See
ECF Doc 00512912971 in Appellate Case No. 14-10092. Baron would ask this
Court to take judicial notice of this order, which is included in Appellants’ Record
Excerpt 21,
See
footnote __, supra.
71
Each of the Mandates dealt with one or more of the 11 consolidated appeals in
Netsphere I
. ROA.27774-27788.
See
Chart included as Appellants’ Record Ex-
cerpt16.
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36
4. the new determination by the DC of reasonable fees and expens-
es to be paid to the receiver, should the amount be set at more
than has already been paid, would be paid from the $1.6 million
in cash on hand as of November 2012;
5. to the extent the cash on hand was insufficient to satisfy fully
what is determined to be the reasonable charges by Vogel and
his attorneys, those charges would go unpaid;
6. no further sales of domain names or other assets would be per-
mitted;
7. non-cash assets in the receivership were to be “expeditiously re-
leased to Baron or the entity owning same
72
under a schedule to
be determined by the DC for winding up the receivership; and
8. The judgment appointing the receiver was reversed with direc-
tions to vacate the receivership and discharge the receiver, his
attorneys and employees, and to charge against the cash in the
receivership fund the remaining receivership fees in accordance
with this opinion
Netsphere I,
703 F.3d at 313-314 & 315.
72
On December 31, 2012, the
Netsphere I
panel issued an order of clarification
(“Order of Clarification”). In the Order of Clarification, the panel stated:
“Our utilization of a shorthand reference to Baron did not in any way af-
fect the ownership of assets that were brought into the receivership. As-
sets are to be returned as appropriate to Baron or other entities that
were subject to the receivership.”
ROA.26174
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37
O. The Advisory on past and pending Receiver disbursements
OnJanuary2,2013,twoweeksaftertheissuanceoftheNetsphereOpin‐
ion,theDCissued,sua sponte, an Advisory on Past and Pending Receivership
Disbursements(“Advisory”)intheNetsphereDCCase.
73
TheDCspecifically
statedandconcludedthefollowing:
‐ ThefeesincurredbyVogelandtheGarderelawfirminrep‐
resentingVogelashiscounselwill be re‐evaluated andpaid
atfiftypercent(50%).
‐ The fees incurred by the Dykema law firm in representing
Vogel will be reevaluated
and paid at ninety‐five percent
(95%).
‐ All payments to the Trustee or Trustee’s counsel will be en‐
tirelydisgorgedandmustbepaidbacktotheReceivership.
‐ Allother miscellaneousrequestsforpayments, including for
experts, will be reviewed on an individual basis at a later
date.
73
ROA.26284–26286.
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38
(ROA.26285).PriortotheAdvisory,nobriefing was requested, no sta‐
tusconferencewasheldorevidenceconsideredinahearing.
74
P. The DC puts the process of re-determining the Receiver’s
professional fees and expenses on an exceedingly fast track.
Judge Furgeson’s retirement was imminent. With his last day on the
federal bench—May 31, 2013—quickly approaching, Judge Furgeson put
there ‐determinationoffeesmatteronanexceedinglyfasttrack.
75
OnApril
5,2013,JudgeFurgesonenteredaSchedulingOrder, whichsetthefollow ‐
ingdeadlines:
1. All final fee applications had to be filedon or before Wednes‐
day,April17,2013(the“2013FeeApplications”)..
2. Baronwasgiveneightdaystofileobjectionstothesame.
76
3. The pre‐trial hearing on the fee applications was set for April
29,2013.
74
ROA.102–105.
75
As Judge Furgeson stated to the parties on May 9, 2013, “Of course you know—all
of you know why I’m wanting to do this now given I won’t be on the bench at the
end of this month and given I have lived with this case for so long. I think I have a
perspective that would be very difficult for any judicial officer to pick up, and so
that’s why I think I need to do this.” ROA.35303 at ll.20-21; ROA.27978.
76
This was subsequently extended to May 6, 2013. (ROA.119).
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39
4. ThetrialonthefinalfeeapplicationswassetonMay8,2013.
ROA.26962.
Atthesametime,Baronwasdirectedtocomplywiththeabovesched‐
ule,the DC, in conjunction withtheBC,had ordered Baron andall ofthe
parties in the Netsphere DC Case and
in the Baron Involuntary Case to a
complex multi‐party mediation.
77
Ultimately the parties spent approxi‐
mately three weeks in intensive mediation during April and early May
2013—in‐personandbytelephone.
78
Additionally,Baron wasunderorders
from the BC to prepare for a trial on the Involuntary Bankruptcy Case,
which was, at that time, scheduled to go to trial in the latter part of May
2013.
79
77
ROA.26979
78
ROA.26979.35293.
79
SROA.?? (
See involuntary bankruptcy docket, ECF Doc. 77)
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40
1. The 2013 Fee Applications
80
The Sherman, Trustee Fee Application.Despite not being employed
by the receivership, Sherman filed his final fee application on April 17,
2013,requestingatotalamountof$1,219,775.68,consistingof$1,203,329.50
in professional fees and $16,446.18 in reimbursable expenses, of which
$379,761.18 had already beenpaid by the Receiver.
81
This Fee Application
totaled301pages.
The Gar dere Fee Application.On April 17, 2013, the Vogel’s former
generalcounselandcurrentemployer,Garderefiledafinalfeeapplication
requesting a total amount of $2,010,862.22, consisting of $1,956,737.00 in
professional fees and $54,125.42 in reimbursable expenses, of which
$1,479,571.95 had already been paid by Vogel.
82
This Fee Application in‐
corporated19priorFeeApplications,thustotaling15,775pagesofFeeAp‐
80
The fee applications described in this Section ___are collectively referred to herein
as the “4/17/2013
Fee Applications
.”
81
ROA.26980‐26981.
82
ROA.27286‐27317.
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41
plications.
83
Gardere makes no attempt to advise theCourt or Baron as to
the total amount of fees and expenses incurred and paid for each task
Gardere undertook for the Receiver, and no attempt to segregate the ex‐
pendituresbywhichoftheAppellants’estatestheyareassociated.
Dykema Fee Application.
On April 17, 2013, Vogel’s current general
counsel, Dykema Gossett PLLC (“Dykema”), filed a “final” fee application
requestingatotalamountof$1,550,776.00throughMarch2013(netofvol‐
untary and court‐directed 5 percentreduction), consisting of $1,526,694.00
in professional fees and $24,082.00 in expenses, of which $737,276.73 was
83
ECF no. 193 (ROA.3470-3486) – 16 pages; ECF no. 258 (ROA.4573-4673) – 100
pages; ECF no. 324 (ROA.5379-5530) – 151 pages; ECF no. 418 (ROA.6307-6480) –
173 pages; ECF no. 491 (ROA.7212-738)] – 170 pages; ECF no. 493 (ROA.7517-
7666) – 149 ECF no. 606 (ROA.8946-9128) – 182 pages; ECF no. 648 (ROA.9758-
10167) – 409 pages; ECF no. 678 (ROA.11513-12001)– 488 pages; ECF no. 698
(ROA.12703-13152)– 449 pages; ECF no. 713 (ROA.13622-14101) – 479 pages; ECF
no. 750 (ROA.15335-15846) – 511 pages; ECF no. 781 (ROA.16678-17218]) – 520
pages; ECF no. 840 (ROA.17861-18442) – 581) pages; ECF no. 853 (ROA.18903-
19366)– 463) pages; ECF no. 877 (ROA.20239-??– 10,515 pages; ECF no. 879
(ROA.20762-20911) – 154 pages; ECF no. 993 (ROA.23800-24014) – 214 pages; ECF
no. 1035 (ROA.24545-24565) –20 pages. This totals 15,775 pages of Fee Applications
filed by Gardere, including the Fee Application filed on April 17, 2013.
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42
onhandinDykema’strustaccount,and$398,893.91hadbeenpaidby Vo‐
gel.
84
ThisFeeApplicationtotaled103pages.
Vogel’sFeeApplication.Claiming thathewasexemptfromtheestab‐
lishedrequirementsofdisclosurerequiredbyattorneybillings,Vogel filed
“final” applications requesting approval of the fees and expenses of him‐
self,thefeesandexpensesofformergeneralcounselforVogel,thefeesand
expensesofVogel’scurrentgeneralcounsel,Dykema,andthefeesandex‐
pensesofnumerousother
professionals.
85
ThisFeeApplicationtotaled245
pages.
Thetotalfeesandexpensesrequestedaresetforth ontheTableinclud‐
edinAppellants’RecordExcerpt14.
TheDCaffordedBaronaminisculeamountoftimetoreviewandana‐
lyze over 16,000 pages of fee applications covering a time period
that
spanned29monthsandcoveredthousandsoftimeentries.
84
ROA.27564‐27667.
85
ROA.27318‐27563
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43
Importantly, the DC did not reevaluate of additional expenses in the
approximate amount of $5,500,000.00 purportedly paid to the LLCs, but
neverevaluatedbytheDC.
86
2. The court consistently denies Baron’s Requests/Motions to
seek funding for attorney and expert witness fees, for
permission to conduct discovery, and to continue the matter
to enable him to present a viable defense to the fee
applications
AtthehearingonApril4,2013,whichresultedintheentryofaSched‐
uling Order on April 5, 2013, Baron’s counsel requested funding for the
purposeofpayinghisattorneyfeesandexpertwitnessfeesneededtocon‐
test the attorneys’ fees.
87
Deprived of his assets and without any proper
fundingtomountadefensetorespondtothe2013FeeApplications,Baron
filedamotionwiththecourt,onApril 17,2013,attemptingtoseekfunding
topayhisprofessionalfeesnecessarytoproceedforwardwithhisdefense
86
A chart identifying expenditures disclosed in Vogel’s “final accounting” is included
as Appellants’ Record Excerpt 14.
87
ROA.27679.
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44
of the 2013 Fee Applications.
88
The next day the court summarily denied
hisrequestwithouthearing.
89
Two day s later, on April 19, 2013, Appellant Baron filed a Motion for
Discovery,forContinuance and toReconsiderFunding forJeffreyBaron’sCoun‐
sel.
90
Thecircumstancesdescribedinthemotionweregraveandmeritedre‐
lief.IntheMotion,Baron’scounselexplainedthathewasrelativelynewto
the case and could not possibly prepare for the hearing involving thou‐
sandsifnottensofthousandsofbillingentriesonsuchshortnotice,with‐
out
funding and withoutfunds for an expert. Baronreasonably requested
funding from the receivership estate, which held his assets, including his
exempt property assets, to pay his counsel and to hire an expert witness,
requested permission to conduct limited discovery, and requested a con‐
tinuancetoprepareforthehearing,
88
ROA.27282–27284.
89
ROA.27670‐27671.
90
ROA.27679–27698.
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45
JudgeFurgesondeniedtheMotionwithoutahearing.
91
ThusBaronwas
deprivedofafairandreasonable opportunitytopresentadequatelyhisob‐
jections to over $5 million in fee applications, all of which had been and
wereexpectedtobepaidoutofpropertythatwaswrongfullyseizedbythe
DC,withoutjurisdiction.
OnMay8,2013,
thefirstdayofthehearing,SteveCochell,Baron’sun‐
paidcounsel,orallymovedforacontinuancecitingcompellingreasonsfor
such request, which included the fact that the parties had spent the prior
twoweeksinamediationorderedbythe DCandBCinwhichthe parties
were
attemptingtosettletheentirecase.
92
Thecourtdeniedthemotion.
93
3. The Objections to the Fee Applications
Thepartiesfiledthefollowingobjectionstothe2013FeeApplications:
1. The Receiver’s Objection to Trustee’s Fee Application.
ROA.27732‐27734.
91
ROA.27718–27724.
92
ROA. 26963, 26965 35297-35298.
93
ROA.35298.
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46
2. TheReceiver’sSupplementalResponseandObjection,objecting
totheOndovaTrustee’sFeeApplication.ROA.27735‐27740.
3. The Petitioning Creditors’ Omnibus Comment to Receivership
Professionals’FeeApplications.ROA.27791‐27797.
4. Baron’s Preliminary Objections to Trustee, Trustee’s Counsel,
ReceiverandReceiver’sCounselFeeClaims.ROA.27798‐27812.
5. Netsphere Parties’ Objections to the
Attorney Fee Requests in
ConnectionWiththeWind‐UpoftheReceivership.ROA.27821‐
27825.
4. The hearing & post-hearing briefing on the 2013 Fee
Applications
From May 8, 2013 through May 10, 2013,
94
the court held hearings on
the2013FeeApplications,andfollowingthehearingsonthe2013FeeAp‐
plications,thepartiesfiledthefollowingbriefs:
1. Vogel and Dykema Consolidated Post‐Hearing Brief.
ROA.27826‐27835.
2. ShermanLetterBrief.ROA.27886‐27889.
3. Baronfiledthefollowingpost‐hearingbriefs:
94
The Transcript for the May 8, 2013 hearing is located at ROA.35290-34546 (This
Transcript is erroneously dated May 9, 2013 on the first page, but this is the date of
the hearing as reflected on the Docket Sheet-ROA.127).
For May 9, 2013, the Transcript is at ROA.35493-35593.
For May 10, 2013, the Transcript is at ROA.31583–31668.
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47
a. Response to the Receiver’s Post‐Hearing Briefing.
ROA.27890‐27902.
b. ReplytoTrustee’sLetterBrief.ROA.27903‐27904.
c. SupplementalArgumentonFees.ROA27916‐27919.
4. The Petitioning Creditors filed a Supplemental Objection to
the2013ApplicationforAllowanceandSubsequentPayment
ofCompensationforServicesandReimbursementof Expens
‐
es to Dykema Gossett PLLC, as Attorneys for Peter S. Vogel.
ROA27922‐27.
5. The DC enters the 5/29/2013 Final Fee Order
On May 29, 2013, the DC entered its Order on Receivership Professional
Fees(“5/29/2013Final FeeOrder”).
95
ThedecisionoftheDCinthe2013Final
Fee Order provided for discounts that were not meaningful and that vio‐
latedthe mandateoftheCourt.ThediscountsapprovedbytheDCareset
forthontheTableincludedasAppellants’RecordExcerpt17.
95
ROA.27931‐76
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48
Q. $700,000 of additional fees and expenses paid out of
receivership assets were not re-evaluated by the DC as required
by
Netsphere I
.
Vogel’s2013FeeApplicationincludedfeesandexpensesofadditional
professionalsrepresentedat least $957.310.68paid out of the receivership
estate,noneofwhichwerereevaluatedinthe2013FeeOrderorinanyoth‐
erorder,inviolationoftheNetsphere1mandate.
96
R. Vogel Continues to Collect Appellants’ Property
Inviolation,oratleastinignoranceofthemandates’directive,theDC
failedto wind‐downthereceivershipfor overtwomore yearsandcontin‐
uedtopermitVogeltocontinuecollectingmoneybelongingtoAppellants.
96
ROA.27320; The only mention to these fees in the 2013 Final Fee Order is a sin-
gle sentence: “To the extent that the Court has authorized payment to these profes-
sionals in the past, the Court finds that these were also appropriate and need not be
reduced in any way.” ROA.27964. In the 2013 Final Fee Order, the court makes
note of its interlocutory Order Granting Motion for Fee Application for the Receiver
in Regard to Certain Miscellaneous Receiver Professionals, granting full payment of
118,125.55.without any findings of reasonableness, necessity or whether these fees
benefited the estate.ROA.27920.
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49
In fact, Vogel continued to collect approximately $250,000.00 per month,
whichbelongedtooneormoreofAppellants.
97
S Vogel is Directed to File Additional Fee Applications and An
Accounting
DespiteVogelandhisprofessionalsalreadyhavingbeenpaidinexcess
ofthecapimposedbythisCourtinNetsphereI(the“FeeCap”),onJanuary
6, 2014, the DCentered an order directing Vogel to file a finalaccounting
and an application for additional payments of fees, and
further ordering
Vogel to advise the court if he would be unable to return the assets by
March 7, 2014 nearly two yearsafter the Netsphere I panel issued its man‐
datesinNetsphereI.
98
Despite his employing over 25 lawyers and two accounting firmsdur‐
inga3½yearperiodatfeesofover$5.5million,VogelfiledaPreliminary
StatusReportonJanuary24,2014averring,interalia,that:1)hecouldnot
97
ROA.30563‐30566; ROA.29606, ROA.29690‐29708, ROA.30591‐30594. Although Vogel
blames thefailure onBaron, Vogel was amoving force behind the continuation ofthe
receivershipandtheimpositionoftheInvoluntaryBankruptcy,asexplainedinfra.
98
ROA.28974-28975
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50
determinewhowastheownerofth eLLCs,;2)hepossessedvoluminous
receivership records and requested a show cause process where Baron
would have to provethathe is entitled tothereturn of the documents;3)
he had accumulated “more than 800” Third Party Actions against the do‐
main
name assets, which would overwhelm the recipient of those assets;
and4)theCourtshouldpayadditionalprofessionalfeestohisprofession‐
alsandestablishadate ofMarch1,2014forhimselfand his professionals
tofile“final”feerequests.
99
After the DC entered an order on February 4, 2014 requiring Baron to
fileanyresponsebyFebruary11,2014,Baroncomplied,asserting,interalia,
that1)VogelhasneverattemptedtoprotectBaronandthereceivershipas‐
sets from specious claims of the involuntary bankruptcy or any others;
2)
theDCshouldexpeditiouslywind‐upthereceivershipandreturnallassets
anddocuments toBaronandthemanageroftheLLCs;3)800intellectual
propertyclaimsagainsttheLLCs’createdduringVogel’stenureshouldbe
stayedforoneyear;4)SincethisCourt’scaponfeesmandatedinNetsphere
99
ROA.28981-28982; ROA.28983; ROA.28985
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51
Ihadbeenreached,Vogelandhisprofessionalsshouldnotbeawardedany
additional fees; 5) The LLCs’ assets should be returned to their rightful
ownerandnottoLisa Katz;and6)SinceVogelhadalreadybeenpaidap‐
proximately $5.2 million after representing to the DC that he completely
fulfilled his duties and obligations to marshal assets and fully inv estigate
theirsource (which Vogel determinedwas Baron),no further proceedings
to determine whether Lisa Katz had any rights to these assets was re‐
quired.
100
Baronfurtherpointedoutinasur‐replythattherewasnoreal contro‐
versyastotheownershipoftheLLCsbecauseVogelhadalreadyreported
that:
TheNovoPointandQuantecentitiesareLLCsultimatelyowned
andcontrolledbytheVillageTrust.Inthetrustdeedestablishing
the
Village Trust it is incontrovertible that Baron is identified as
boththesettlorandthebeneficiaryoftheVillageTrust.
ROA.29024; ROA.29025-29050.
100
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52
Vogel then filed his Status Report on Feb 28, 2014, again complaining
that he could not comply without joining additional parties, engaging in
extensivediscovery andhearings because,asheclaimed:“Despite theRe‐
ceiver’sbesteffortstoinvestigatethelawfulownershipofcertainReceiver‐
shipAssets,Vogelhasbeen
unabletoconclusivelydeterminetowhom or
what entities certain of the Receivership Assets should appropriately and
lawfully be returned”,
101
and needed to make additional payments to an
accounting firm to complete the required accounting.
102
This is incredible
since Vogel represented to the DC that he had already employed over 25
lawyers,workingover10,000hoursinthiscaseforfouryearsatachargeto
the receivership estate of over $5.5 million, thoroughly examining every
minute detail about the receivership assets and their ownership,
and yet
when it came time to returning the assets, Vogel claimed that he did not
knowtowhomtheybelong.
101
ROA.29122
102
ROA.29125, 29122: ROA.28976-28986, 29121
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53
AccordingtoVogel,hewasfurtherimpededfromeffectuatingawind‐
downbecausehisaccountingfirmallegedlyrequiredpaymentinadvance
to complete the accounting, despite his already having employed two ac‐
counting firms which had been paid at least $121,390.153.
103
As explained
infra, Vogel’s accountants received the additional payment that Vogel re ‐
quested,butneverperformedabonafideaccounting.
T. The DC gives control of the LLCs’ assets to non-party Lisa Katz
on grounds that Baron lacked standing to object.
The DC entered its order on February 28, 2014
104
, rejecting Baron’s re‐
quests, ruling,inter alia, that: 1) Vogel’s request to conduct a show cause
proceedingtodeterminetheownershipoftheLLC’sassetswasdenied;
105
2)theassetsofNovoPointandQuantecwouldbeturnedovertonon‐party
LisaKatz despiteherclearlackofauthority;
106
3)Vogelwouldonlyreturn
103
ROA.28976‐28986,29121;27320‐‐seeentryforGrantThornton;;29125
104
ROA. 29135-29146,
105
ROA.29143,
106
Id
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54
Baron’s non‐cash assets to Baron, excluding return of any of Appellants’
cash;and4)Vogelcouldsubmitadditionalfeeapplicationstorecoveraddi‐
tionalfees,despiteVogelalreadyhavingbeenpaidin excessoftheFeeCap
determined by the panel in Netsphere I.
107
Moreover, the DC (Lindsay, J)
statedthathewouldenteranorderreleasingVogelandallpersonsassoci‐
ated with him from “further liabilities” despite never having even dis‐
closed many of the activities he engaged in while acting in his trustee
capacity.
108
Concerning Katz—despite ruling that “the court will not considerevi‐
denceorconductproceedingsregardingtheownershipofNovoPointLLC
or Quantec LLC or the companies’ assets that are at issue” and that “any
such determination is outside of the court’s jurisdiction.”, the DC deter‐
mined that all of
Novo Point and Quantec’s assets would be given to the
custodyofLisaKatz,overthe objection ofBaron.Thiswas outrageousin
lightofthisCourts’repeatedstatementsinNetsphereIthattheseLLCassets
107
ROA.29145
108
ROA.29144
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55
wereindirectlyownedbyBaronthroughbeingtheprimarybeneficiaryof
theVillageTrust,andthattheassetstransferredtotheLLCsundertheGSA
wereforthebenefitofBaron.
109
Baron filed a motion for reconsideration,
110
requesting that the DC re‐
consideritsorder,explainingthat:1)Ms.Katzhadneverprovidedanyev‐
idence that she had any authority to act as an agent for the LLCs; 2) this
Court’s Mandate in Netsphere required Vogel to return Baron’s assets to
Baron; and 3) the DC
lacked jurisdiction to provide sweeping releases to
Vogelandhispriviesinthereceivershipinthewakeofareceivershiporder
109
For example, the Court stated that “[t]hese consolidated interlocutory appeals
arise from the district court's appointment of a receiver over Jeffrey Baron's person-
al property and entities he owned or controlled.”
Netsphere I,
703 F.3d at 301 (em-
phasis in bold added). The Court further stated that under the GSA, “[t]he odd-
numbered names were assigned to Quantec, LLC, for Baron's benefit.”
Id.
at 303
(emphasis in bold added). Again the Court stated that “[t]he receivership also in-
cluded business entities owned or controlled by Baron, including Novo Point, LLC
and Quantec, LLC.”
Id.
, at 310 (emphasis in bold added). In describing the Village
Trust, the Court stated that it was “a Cook Islands entity which owned Novo Point,
LLC and Quantec, LLC. Its trustee is SouthPac, which is also a Cook Islands entity,
and Baron is the trust's sole beneficiary.”
Id.
at 303 (emphasis in bold added). The
DC had no basis for disregarding Baron’s objections.
110
The Motion was made on an emergency basis because the LLC’s assets were
about to be transferred to the control of Lisa Katz, who lacked any authority and
was working against the interests of the LLCs.
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56
thatthepanelinNetsphere1hadorderedvacated,therebynullifyingitsex‐
istenceandeffectiveness.
111
Additionally,BaronremindedtheDCthatVogelhadalreadybeenpaid
morefeesthanthe$1.6millioncapimposedinNetsphereI.
112
TheDCdeniedBaron’smotiontoreconsiderthedisposalofBaron’sas‐
sets to Katz on grounds that Baron did not have standing, despite the
court’sseizureoftheLLCsassetsbasedon thegrounds thattheassetsbe‐
longed to Baron,
113
and notwithstanding that Vogel had admitted Baron
wastherightfulowneroftheassets.
114
OntheissueraisedbyBaronregard‐
ing this Court’s mandated fee cap, the DC, at that time, confirmed that it
would not deviate from the Netsphere I mandate, statingʺIn accordance
withtheFifthCircuit’sdirective,anyfurtheramountspaidforreceivership
111
ROA.29165‐29176.
112
ROA.29174.
113
ROA.29201.
114
See
ROA.28977 - fn 2 (Vogel’s counsel stated: “The Novo Point and Quantec enti-
ties are LLCs ultimately owned and controlled by the Village Trust. In the trust
deed establishing the Village Trust it is incontrovertible that Baron is identified as
both the settlor and the beneficiary of the Village Trust.”).
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57
expenses will be paid from and limitedto the $1.6 million in receivership
cashassetsonhandasoftheFifth Circuit’sDecember18,2012opinion.”
115
However,asexplainedinfra,theDClaterreversedcourse.
Regarding the issue of releasing Vogel and his professionals, the DC
stated that it would be “fatuous” not to provide full releases for all acts
performed while acting “within the scope of authority” of the court’s or‐
ders, without even excepting
liability for wrongful acts such as breach of
fiduciaryduty,withoutrecognizingthatthisCourtdeterminedthattheDC
hadnosuchauthority
116
),andnotwithstanding thatthepanelinNetsphereI
mandatedthevacationoftheReceivershipOrder,thusleavingVogelwith‐
outtheprotectionofactingpursuanttovalidordersoftheDC.
U. Vogel files the 2014 Fee Request and Final Accounting.
OnApril 14,2014,afterbeing paid $5 million, Vogel filed his Request
for Approval of Final
Accounting, Application for Payment and Request
115
ROA.29201-29202.
116
ROA.29202.
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58
for Order of Final Discharge (the “2014 Fee Request”), seeking additional
payment of fees to himself and his professionals in the amount of
$$907,100.62(ROA.30962)andsubmittingwhathepurportedtobea“final
accounting” for three years of financial activity inall of the receivership’s
affairs (“the Vogel Final Accounting”)
117
The following day, Vogelfileda
Supplementthereto(the“2014FeeRequestSupplement”).
118
Vogel’sre‐
quest was unverified and unquestionably exceeded the cap on fees im‐
posedbythisNetsphereIpanel.
V. The Vogel Final “Accounting”
TheVogelFinalAccountingconsistedmostlybankstatementsandlittle
else.For example, the accounting for Baron’s assets consisted entirely of
twoscanttablesof Baron’sbankaccounts, containingonly
twofiguresfor
each account, namely, the original balance and the balance as of July 12,
117
ROA.30700‐30959.
118
ROA.30960to30984.
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59
2013.
119
The Vogel Final Accounting did not even identify Baron’s assets,
except bank account balances, and did not contain a profit/loss, balance
sheet or similar accounting report.
120
Further, the Vogel Final Accounting
containednomentionwhatsoeveroftheactivitiesofthe26additionalenti‐
tiesthatVogelhadpossessionofduringthereceivership.
TheVogelFinalAccountingfortheLLCsconsistsofasinglepage,titled
“AccountingSnapshot”,whichsummarizedthebankingactivity forasin‐
gle
month along with a single page printout of the online bank account
statement.
121
. It too did contain any of the components of a bona fide ac‐
counting,not containingprofit/loss figures,notcategorizing orsummariz‐
ingexpensesorrevenues,andnotevenidentifyingtheassetsoftheLLCs.
Indeed, Baron filed objections to the 2014 Fee Request and Vogel
Final Accounting, and on July 23, 2014 and filed a supplement to the
119
ROA.29337-29340.
120
Vogel also submitted what he labeled “supporting documents” to his “account-
ing”, consisting of bank statements and other miscellaneous data, this is only a doc-
ument dump of raw data that is neither explained nor verified, and is not
categorized in any manner in which useful information can be deduced.
121
ROA.29346-29347
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60
objections (the “Baron’s Objections to 2014 Fee Request and Account-
ing”).
122
InBaron’s Objections to 2014 Fee Request and Accounting,Bar‐
on objected on grounds that the Vogel Accounting Report, which
encompassedfeesandexpensesinexcessof$11million:
a. was,inreality,merelyanindecipherabledocumentdumpof
1,500 pages of mostly bank statements, fundamentally
flawed by pervasive inconsistencies and unidentified ex‐
pensesandrevenues;
b. didnotprovideasummaryofrevenueorexpenses;
c. didnotprovideasummaryofrevenueorexpensesbycate‐
gory;
d. did notprovide a summaryofrevenueor expenses bypay‐
ee;and
e. didnotsegregaterevenuesorexpensesbyreceivershipenti‐
ty.
ROA. 31607-31612; 30995-31178,
122
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61
W The Vogel Final Accounting Discloses $$11,404,021.72 in
Expenditures
According to the Vogel Final Accounting and a supplement containing
proof of additional payments to Vogel, Vogel spent $11,404,021.72
123
of
cash belonging to Baron and the LLCs (the “Total Expenditures”)
124
of
which $5,581,445.46 was been paid to Vogel and his professionals.
125
The
remaining$5,822,576.26(the“RemainingExpenditures”)hadnotprevious‐
lybeendisclosedtoAppellantsandhasneverbeenreevaluatedbytheDC
inviolationofthisCourt’smandateinNetsphereI.
126
123
See
Table included as Appellants’ Record Excerpt 15.
124
See
Id.
(Becauseofthelackof informationandorganizationof theVogel FinalAc‐
counting, Baron can only represent that these figures are based solely upon the infor‐
mationcontainedtherein.)
125
SeeTableincludedas Appellants’RecordExcerpt14.
126
See
Table included as Appellants’ Record Excerpt 15.
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62
X Vogel’s 2014 Fee Request Exceeds the Cap Imposed by the
Netsphere I
Mandate.
Afterbeing paid over $5 million in fees,
127
Vogel and his professionals
requestedanadditional$901,888.12inprofessionalfees.
128
Inhis2014Final
Fee Request, Vogel justified exceeding the cap imposed by this Court’s
mandate in Netsphere I by alleging that this Court mistakenly excluded
itemssuch asthevalueofclaimsagainstthirdpartiesanddiscountstofee
payments in this Court’s definition of “cash”. Vogel argued that
these
clearly non‐cash items should be counted as cash for the purposes of ex‐
ceedingthe$1.6millioncap,whileatthesametimeadmittingthatthees‐
tate’s“cashonhand”inDecember2012excludedtheseitems.
129
Moreover,
thes2014FeeRequestwasunverifiedandnohearingonthematterwasev‐
erheld.
127
Inclusive of professionals, including MHKH.
128
ROA.30724-30726
129
ROA.30962—
see
footnote 4; Vogel incorrectly alleged this amount appropriately
includes … and withholdings from Domain Holdings Group of monthly monetizer
payments of approximately $150,000.00 for the month of December 2012);
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63
In objecting to the 2014 Final Fee Request, Baron explained that the
Netsphere I panel’smandate required thatVogel’s feeswere limited to the
cash on hand in December 2012, and that since Vogel had taken an addi‐
tional $1,579,953.88 in cashsince theissuanceof the Netsphere Imandates,
he could not possibly be paid any more fees.
130
. Baron further explained
thatVogelshouldnotbepaidadditionalmoneyforfeeshechargedforin‐
volvement in the involuntary bankruptcy since Vogel was a primary pro‐
ponentofthebankruptcy,andthenmassivelybilledBaron’sestatewhenit
failed.
131
Y The March 27, 2015 Memorandum Opinion and Order.
Based on Vogel’s unverified 2014 Fee Request, and without holding a
hearingadducingevidence,theDCentereditsMemorandumOpinion and
Order of March 27, 2015 (the “3/27/2015 Memorandum Opinion and Or‐
130
ROA.30999-31001.
131
Vogel billed a combined rate of over $1,900 per hour for four senior level attor-
neys to sit in a room for days during mediation when one attorney would have been
sufficient. Similarly Vogel overstaffed status conferences and hearings with three or
four senior level attorneys when a single attorney would have been sufficient.
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64
der”),grantingadditionalfeestoVogel.
132
TheDCdefiedthemandatesis‐
sued by the Netsphere I panel in numerous respects, disregarding the Fee
CapsetbytheNestphereIpanel(ROA.33580),strangely applyingaformula
that included adding a $600,000 uncollectable accounts receivables
(ROA.33581)totheamountofcashonhand,andsubstitutingthisfigure
for
theFeeCapdeterminedinNetsphereI,therewithprovidingjustificationfor
exceeding the cap. After doing so, the DC paradoxically ordered that it
wouldnotreducethe$600,000claimtojudgment.
133
With only vague comments about its adequacy, the court granted Vo‐
gel’s request for approval of the Vogel Final Accounting
134
. Further, with‐
out acknowledging any of the existing or potential claims against Vogel
andhisprofessionalsforsuchactsasbreachoffiduciarydutyorfraud,the
132
ROA.33572-33593—entire order: ROA.33589—fee award; In justifying the rea-
sonableness of the fees, the DC nappropriately stated,
inter alia
, “[]the Receiver,
and the Receiver’s professionals, have received a fair amount of unwarranted nega-
tive publicity and treatment at the hands of Baron and his supporters” and “Baron’s
conduct hiring and firing numerous attorneys [without paying them]”. The DC had
no verified or unverified pleadings before it where such allegations were asserted,
held no hearing, received no evidence regarding such matters..ROA.33577.
133
ROA.33586
134
ROA.33590
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65
DC granted sweeping releases of all liability, except for gross negligence,
not only to Vogel, but also to a broad categor y of third parties including
“independent contractors”.
135
The DC alsocreateda new continuing juris‐
dictionschemeoverallclaimsevertobemadebyanyparty regardingthe
receivershipundercircumstanceswherethisCourthadpreviouslyheldin
NetsphereInosuchjurisdictionexisted.
136
Additionally, theDC overruledall of Baron’s objections, including his
requestforVogeltoreturnBaron’spersonalandbusinessdocuments.
137
Z While the Netsphere I Panel was deliberating the case,
Appellees were Frantically Selling Receivership Property
In the fall of 2012, as this Court was preparing to issue its Opinion in
Netsphere I, Appellees and Sherman intensified their efforts to dismantle
Baronandthe LLCsandmoottheappeal,franticallyarrangingliquidation
135
ROA.
Id
136
ROA.33592
137
ROA.33591-33592; 29146
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66
of all of Appellees’ remaining assets and billing the receivership estate at
anastounding$$300,000permonth.
138
This Court enjoined Vogel and Sherman from completing the sale
(ROA.25589‐25590),butnotbefore theVogel‐Shermanteamrackedupover
$700,000inbilling fortheirfeverishandfailedattempttofiresaleallofthe
remaining assets in the receivership, precisely during the time that the
NestphereI
Panelwasdeliberatingitsdecision.
139
,
140
Intheend,theDCawardedAppelleesapproximately$600,000inaddi‐
tionalfeesforthisastonishingwasteofAppellantsassets.
141
138
ROA.25928
139
ROA.25540‐25545; ROA.25597‐25606; ROA.25500-25515 (3d Dykema Motion for
Atty Fees), ROA. 25742-25762 (4
th
Dykema Motion for Atty Fees), ROA.25928-
25948 (5
th
Dykema Motion for Atty Fees).
140
For additional examples of Vogel, Sherman and their legal teams’ efforts liqui-
dating Appellants’ remaining assets
See
ROA.25796-25805, 25502, 25507-25513,
25843-25845, 25857, 25934-25981, 25919-25925.defici
141
ROA.?
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67
AA. Vogel’s Operation of Appellants’ Business and Misconduct
On November 24, 2014, Baron and the LLCs filed suit against Vo-
gel and Gardere complaining about their gross misconduct. Baron re-
quests that the court take judicial notice of said complaint as amended
in
Baron et al v. Vogel et al
, No. 3:2015cv00232 - Document 32 (N.D.
Tex. 2015).
The complaint asserts that,after Vogel moved to have the LLCs
added to the receivership and seizing approximately $1 million in cash
and over $100 million in assets, he proceeded to engage in intentionally
and/or recklessly harmful management actions with respect to the LLCs
and their assets including but not limited to:
a) VogelandGardere’sconcealedsalesofAppellants’assetstoinsiders
atpenniesonthedollar.
142,,143
b) VogelandGardere’sfailuretouseduediligenceindestroyingover
$50,000,000oftheLLCs’assetsbyavoidingthepaymentofrenewal
142
Vogel filed numerous
sealed ex parte
Motions to sell Appellants assets. These
documents are located in the Sealed Record on Appeal to which Appellants do not
have access.
143
ROA.22031, 17481‐17507, 17520, 17514, SROA.?? (Case:11‐10501 Document:
00511742749 Page: 12 Date Filed: 01/31/2012); ROA.2145—Sherman admitted “These
names have both high revenue potential and can be sold individually – sometimes
for in excess of $1 million a piece.”.
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feesontheirassets,inordertopaythemselvesadditionalfeesusing
Plaintiff’sseized,scarcecashresources.
144
c) VogelandGardere’sconspiracywithShermanto:1)enableSherman
tobepaidover$1milliondollarsofPlaintiffs’moneyintheBCand
DC;2)enableSherman,VogelandGarderetopromoteandsponsora
liquidatingplan,wherebyallofAppellants’assetswouldbeliquidat‐
edforthe
primarybenefitprimarilyofAppellees.
145
d) EngagingiswrongfulintentionallytortiousactivitiestosupportVo‐
gelandGardere’slootingoftheLLCsandtheirassetsaswellasBar‐
on’sassets.
e) FailedandrefusedtopayapennyintaxesasrequiredbytheInternal
RevenueCode
BB. Vogel’s Fraud in Obtaining Fees
Judge Furgeson awarded fees to Vogel and his professionals based
on the belief that Vogel had obtained assets from 17 business around
the country and has been managing those 17 nationwide businesses for
the past two years.
146
. Vogel’s subsequent filings in which he includes a
“final accounting” and “complete receivership inventory” are wholly in-
144
ROA.3400.(Vogel’s Report which lead to this order ROA.??)
145
ROA.24874-24919
146
ROA.27957.
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consistent with such facts and contain no information concerning the 17
entities that Vogel claimed to have been managing.
Judge Furgeson also believed that Vogel had been incredibly suc-
cessful in defending the third party domain names disputes (referred to
as UDRP complaints) and that Vogel prevailed on every case, believing
Vogel’s statements that “Gardere and the other attorneys it hired to ac-
complish this task were incredibly successful and no names were lost
during their representation”.
147
Then, in subsequent filings, Vogel admitted to failing to defend 800
“pending and threatened Third Party [domain name disputes]” (which
resulted in losing some UDRP disputes by failing to offer any defense on
the merits of any of the claims).
148
Accordingly, it appears that Vogel’s prior representations about
acquiring the assets of 17 entities around the country, operating those
147
ROA.27957-27958; ROA.35811.
148
ROA.28983-28984
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businesses and vigilantly defending hundreds of domain name disputes
are demonstrable frauds on the court.
SUMMARY OF THE ARGUMENT
The DC violated Baron’s Fifth and Fourth Amendment rights by
(a) refusing to permit Baron to use his funds to retain counsel and ex-
perts to defend himself in critical and complex proceedings, (b) granting
complex, opposed motions filed by Baron’s adversaries without permit-
ting Baron time to respond or by providing negligible time to respond,
and (c) failing to return his seized assets under highly questionable cir-
cumstances while the court lacked the requisite subject matter jurisdic-
tion and personal jurisdiction.
Baron’s constitutional rights were further inadvertently abridged by
the panel in
Netsphere I
making findings that were based on false rep-
resentations made to them by Baron’s adversaries, Appellees herein.
The Panel In
Netsphere I
erred in determining that the DC had the
equity jurisdiction to award fees and expenses against the assets of
Baron or the LLCs, in any amount, where the panel had also deter-
mined that the DC lacked subject matter jurisdiction in the first in-
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stance. Parts I and II of the
Netsphere I
opinion are in conflict, and
cannot be reconciled. The law of the case doctrine does not prevent re-
lief here since the error concerns subject matter jurisdiction, and it
would be manifestly unjust to perpetuate this conflict and the error it
has caused.
The DC failed to follow the mandates issued by the panel in
Netsphere I
by (a) failing to “meaningfully discount” the professional
fees and expenses, (b) failing to order Vogel and his professionals to
present billing statements that segregated by task the fees and expens-
es incurred, and by failing to segregate the fees and expenses on an es-
tate by estate basis, (c) failing to require the professionals to show that
their services benefited the various estates and failing to require the
professionals to show that such fees and expenses would have been in-
curred by the owners had the receivership not been instituted, (d) fail-
ing to reconsider all of the fees and expenses of the various
professionals, (e) awarding fees and expenses to Sherman and his at-
torneys when same, by admission of the DC, were not allowable under
the law, (f) failing to abide by the mandated fee cap, (g) granting broad
and sweeping releases without jurisdiction, (h) creating exclusive juris-
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diction retention provisions where, as admitted by the DC, no subject
matter jurisdiction existed, (i) refusing to return the assets of the LLCs
to their rightful owner, (j) refusing to return to Baron his books and
records, and (k) failing to expeditiously wind down the receivership pro-
ceeding and return Baron’s assets to him.
The DC abused its discretion by awarding fees under patently defec-
tive fee applications.
Finally, the DC made findings of fact that were clearly erroneous
under egregious circumstances. In many cases, no hearings were held
and no evidence, sworn or unsworn, was considered by the DC.
Argument
ARGUMENT
I.
THE DC VIOLATED BARON’S FIFTH AMENDMENT DUE PROCESS
RIGHTS
FIFTH AMENDMENT
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“NO PERSON … [SHALL BE] DEPRIVED OF LIFE, LIB-
ERTY, OR PROPERTY WITHOUT DUE PROCESS OF
LAW;”
The guarantee of due process for all citizens requires the government to
respect all rights, guarantees, and protections afforded by the U.S. Consti-
tution and all applicable statutes, before the government can deprive a per-
son of life, liberty, or property. Due process essentially guarantees that a
party will receive a fundamentally fair, orderly, and just judicial proceed-
ing.
Due process requires that a party must be subject to the personal juris-
diction of a court before a court may adjudicate said party’s rights or take
such party’s assets. World-Wide Volkswagen Cop. V. Woodson, 444 U.S. 286,
291 (1980). In effect, the panel in Netsphere I held that the DC never ob-
tained personal jurisdiction over the LLCs.
149
The DC violated Mr. Baron’s right to due process of law by, among oth-
er things, seizing all of his property on November 24, 2010, under highly
unusual circumstances; prohibiting him from engaging counsel; failing to
provide cash from his own assets at critical stages in the receivership pro-
149
Netsphere I,
703 F.3d at 310.
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ceeding so that he could engage adequate counsel and experts, and depriv-
ing him of adequate notice of motions and a reasonable opportunity to be
heard regarding the sale and disposition of his property and of hearings
regarding fee applications.
A. The Right to Retain Counsel is Implicit in the Fifth Amendment
This Court has held that “the right to retained counsel in civil litigation
is implicit in the concept of the fifth amendment due process.” R.B. Potash-
nick v. Port City Construction Co., 609 F.2d 1101, 1117 (5th Cir. 1980). Coun-
sel can help delineate the issues, present the factual contentions in an
orderly manner, conduct cross-examination, and generally safeguard the
interests of the recipient. Goldberg v. Kelly, 397 U.S. 254, 270–71 (1970). The
right to counsel in civil matters “‘includes the right to choose the lawyer
who will provide the representation.’” Texas Catastrophe Prop. Ins. Assoc. v.
Morales, 975 F.2d 1178, 1181 (5th Cir. 1992) (quoting McCuin v. Texas Power
& Light Co., 714 F.2d 1255, 1257 (5th Cir. 1983)).
When a party is denied the opportunity to be heard and present evi‐
dencetosupporttheircontentions,theresultingerrorisnotharmless.Pow‐
ellv.UnitedStates,849F.2d1576,1582(5thCir.
1988).ThisCourthasruled
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thatbasicconstitutionalrights to a fair trial can neverbe treatedasharm‐
less error. Vaccaro v. United States, 461 F.2d 626, 635 (5th Cir. 1972). These
rightsinclude,forexample,therighttocounsel,andanimpartialjudge.Id.
at635n.47.
Baronwasprohibitedfrom
transactinganybusiness,keeping anymon‐
ey that he earned, cashing any checks that he received, using any credit
cards,incurringanydebtandfromremovinganyofhispropertyfromthe
Northern District of Texas.Such constitutional rights were unlawfully
suspendedfromNovember24,2010,toatleastJanuary2014
whenthe DC
acknowledgedthattheinvoluntarybankruptcy againstBaronwasprohib‐
ited and established a timetable for winding down the voided receiver‐
ship.
150
Duringthisentiretime,BaronwasthreatenedwithcontemptbyVogel
and Gardere, if he attempted to engage trial counsel, while, at the same
150
See
Section F-3 of the Statement of the Case, at p 17.
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time,beingsubjectedtoalitigationonslaughtbyarmiesoflawyersfunded
byover$8,000,000.00belongingtoAppellantsandOndova.
151
Baron’sunpaidappellate counselrepeatedlyexplainedthedue process
crisistothecourt,
152
andlikewise,Baronmovedforaccesstohismoneyin
ordertopaycounseltorepresenthim.
153
However,theDCrejectedvirtual‐
lyeveryeffort.
154
The DC refused to allow Baron’s appellate counsel to be paid during
thependencyofthereceivershipappeal,
155
and,attherequestofanoppos‐
151
See
Section F-4 of the Statement of the Case, at p 17.
152
ROA.4862-4869; ROA.4865-4866.; For more examples,
see
ROA.34755-34756,
ROA.24994-24998.
153
ROA.2178, ROA.4865-4866; ROA.4862-4870.;ROA.6600, 6613; ROA.10435-
10437, 26928-26930.
154
E.g., ROA.3013-3016, 5129.
155
ROA.2178, 34647-34648; ROA.4865-4866; ROA.5129; Gary Schepps made a lim-
ited appearance and advised the court that Baron did not have the ability to pay
counsel, expert witnesses, or conduct discovery because all of his assets were tied up
in the receivership. ROA.7713-7715, 34867-34869.
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ingparty,sealedBaron’smotioninwhichherequestedfundstopaycoun‐
sel.
156
B. The DC violated Baron’s due process rights by initiating the
receivership under dubious circumstances.
The bizarre nature of the circumstances surrounding the appointment
of Vogel as receiver on November 24, 2010 are set forth in detail in Sections
F-1 and F-2 of the Statement of the Case, supra, at pp 13-17.
C Baron’s due process rights were violated when the DC refused
to allow him to engage competent counsel in connection with the
hearing on the Vacate or Stay Motion.
The events leading up to the entry of the Order Denying Vacate or Stay
Motion have been addressed in Section H of the Statement of the Case, su-
pra, at p 20-24.
156
ROA.34647-34648; ROA.8210.
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D. Baron’s due process rights were violated when the DC
routinely granted motions filed by the opposition that
substantially effected Baron without permitting him to respond.
In over 100 instances, the DC denied Baron an opportunity to respond
to opposed motions and requests for relief against Baron’s interests, rou-
tinely granting such requests within hours or within a few days of being
filed by the opposition.
157
See chart included as Appellants’ Record Excerpt
19, which analyzes opposed motions granted in under 21 days.
E The DC violated Baron’s due process rights and abused its
discretion by forcing baron to defend the 2013 Fee Applications
and the 2014 Fee Request on an unreasonably accelerated basis,
refusing to allocate funding to pay counsel or an expert witness,
and refusing to grant a continuance
1. The 2013 Fee Application
Baron was not only forced to defend against the 2013 Fee Applications
on an incredibly accelerated basis, but also was simultaneously forced to
defend himself in a multi-party/multi-day mediation of the receivership
157
Local Rule 7.1 (e) of the Northern District of Texas provides for 21 days to respond to
an opposed motion
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case and the involuntary case, and to defend himself in a complex involun-
tary bankruptcy trial that was set to be heard in the middle of May 2013,
against yet another team of highly skilled lawyers—all this while Baron
was deprived of the use of any of his funds to hire counsel.
158
(ROA.27475–
77, 27872–99, 27911–17, 27156–58, 31088–89).
The issues were extraordinarily complex, and the documents and evi-
dence were voluminous. As noted at Section P of Statement of the Case,
supra, at p _, Vogel and Sherman and their counsel presented over 16,000
pages of Fee Applications, in excess of $5 million in billings, incorporating
substantial hours of time and a myriad of time entries. To defend against
the Fee Applications on the accelerated time schedule set by the DC re-
quired a team of experienced lawyers familiar with the issues along with
testifying experts.
There can be no doubt that the procedural protections mandated by the
Due Process Clause of the Fifth Amendment were violated. See, e.g., Con-
necticut v. Doehr, 501 U.S. 1, 11–12 (1991) (holding that due process protec-
158
Except for $25,000 release by the DC to pay for a retainer for bankruptcy counsel
after Baron’s bankruptcy counsel of choice was denied his requested retainer of
$100,000 by the BC.
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tion is merited when there is deprivation of property and deprivation need
not be “complete, physical, or permanent” to merit protection but that
“even the temporary or partial impairments to property rights that attach-
ments, liens, and similar encumbrances entail are sufficient to merit due
process protections.”).
Baron was entitled to a meaningful opportunity to be heard in his de-
fense of the 2013 Fee Applications, and to have had the use of his assets to
engage the proper professionals necessary for such defense. See, e.g., Mat-
thews v. Eldridge, 424 U.S. 319, 333 (1976) (The right to be heard “before be-
ing condemned to grievous loss of any kind . . . is a principle basic to our
society” and the “fundamental requirement of due process is the right to
heard at a meaningful time and in a meaningful manner”).
What constitutes a “meaningful” opportunity to be heard varies with
the circumstances and the interest at stake. Due Process, “unlike some legal
rules, is not a technical conception with a fixed content unrelated to time,
place and circumstances.” Mathews, 424 U.S. at 334; see also Goldberg, 397
U.S. at 268–69 (“the opportunity to be heard must be tailored to the capaci-
ties and circumstances of those who are to be heard”). In the present litiga-
tion, however, the effect of the DC’s rigid freeze on funds for Baron’s
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defense including funds to his counsel, for experts and other costs and ex-
penses precluded Baron from mounting all but a minimal defense and pre-
vented him from having any meaningful opportunity to be heard.
In sharp contrast to Baron’s complete deprivation of funds to defend
himself, Baron’s well-financed adversaries were represented by over 25
highly paid lawyers with large and prestigious law firms, and accounting
firms engaged by Vogel.
159
2. The 2014 Fee Request
With respect to the 2014 Fee Request, Baron was given eight days to
prepare an objection to the Vogel Final Accounting and 2014 Fee Request.
The “accounting” contained 20 exhibits and 1365 pages, and the 2014 Fee
Request contained 34 pages of argument and eight exhibits containing 260
pages. Both were unverified, and no sworn evidence was attached. Fur-
ther, there was no time to take depositions or for discovery, and the DC did
not conduct a hearing to hear oral arguments or receive evidence. In sec-
tion VII of Baron’s 4/22/2014 Objection, Baron objected and requested ad-
159
Interested parties are entitled to the opportunity to rebut the proof offered by the
receiver. 65
Am. Jur
. 2d Receivers § 275
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ditional time.
160
Again, Baron’s due process rights were trampled upon by
the DC.
F. The deceit fostered by Vogel and Sherman before the panel
and then perpetuated in the opinions of this Court deprives Baron
of his life, liberty and property without due process of law.
Allowing Vogel, Sherman and Gardere’s litany of fabrications to be
perpetuated in the opinions of this Court deprives Baron of his life, liberty
and property without due process of law. .
1. Many misrepresentations were adopted by the panel in the
Netsphere I
opinion and by the DC.
Vogel and Sherman misrepresented that Bankruptcy Judge Jernigan
had recommended the institution of the receivership, and that they simply
carried out her wishes. An example of this appears in Vogel’s 2013 Fee Ap-
plication. ROA.27511.
Sherman made similar fabrications to provoke the receivership.
(ROA.22336-7).
160
ROA.31016.
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Baron was harmed by such false statements because in Netsphere I, the
panel erroneously found and/or concluded that “no party ‘provoked‘ the
receivership” because “the BC recommended a receiver, and the trustee
then moved in DC for the appointment as recommended.”
161
In fact there is nothing in the bankruptcy record of Ondova where
Bankruptcy Judge Jernigan ever made such a recommendation. More to
the point, Bankruptcy Judge Jernigan has now denied that she recom-
mended a receivership. In a hearing on February 11, 2015, Judge Jernigan
stated:
“ . . . So you correctly clarified what yes, it's frustrated me a time
or two when I've read it in a Fifth Circuit opinion. I didn't rec-
ommend it.”
SROA.___.
This erroneous finding made in the Netsphere I panel opinion not only af-
fected the panel’s decision, but it has been used repeatedly to deprive Bar-
on of his constitutional right to pursue causes of action against Vogel,
Sherman and their counsel for wrongfully invoking the receivership as
161
Netsphere I,
703 F.3d at 312.
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against him. Incredible as it may seem, this Court, in a recent opinion in
Appellate Case No. 13-10696 repeated this falsehood yet again.
162
Similarly, Sherman misrepresented that he was obligated to move for
the appointment of a receiver over Baron because Baron continued to hire
and fire lawyers after Judge Jernigan’s Report and Recommendation.
163
However, this too was false, as the Ondova docket sheets reflect that there
were no substitutions of counsel or appearances of new counsel from and
after the BC entered the Report and Recommendation on October 12, 2010.
(ROA.24843–47).
164
Nevertheless, the panel in Netsphere, adopted Sherman’s falsification
when it stated:
“Baron continued to hire and fire attorneys, causing the bank-
ruptcy trustee to move for the appointment of a receiver over
162
See
Opinion in Appellate Case No. 13-10696, filed August 14, 2015, ECF Doc
00513155610. On page 3 of the Opinion, the Panel, citing Netsphere I, again con-
cluded:
“Eventually, on the recommendation of the BC, the DC appointed Peter
S. Vogel as receiver over Baron.”
163
ROA.1033-1037.
164
See
Ondova docket sheets, (ROA24842–47). There is no indication that Baron
had fired counsel or hired counsel from October 12, 2010 to November 24, 2010, as
had been represented by Sherman, Trustee in the Receivership Motion and to this
Court.
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Baron, followed soon by the DC's ex parte appointment of a re-
ceiver.”
Netsphere, 703 F.3d at 308.
Clearly, the Netsphere I panel was presented with a formidable task,
sorting out Vogel and Sherman’s numerous fabrications and innuendos.
For example, Sherman and Vogel falsely represented that Baron was shift-
ing assets offshore beyond the jurisdiction of the BC in an effort to support
their decision to put Baron in a receivership. However, the panel complete-
ly debunked this additional oft-repeated accusation stating:
“there [was] no record evidence brought to [the court’s] attention
that any discrete assets subject to the settlement agreement were
being moved beyond the reach of the court,”
Netsphere I, 703 F.3d at 307.
Vogel and Sherman also repeatedly accused Baron of failing to transfer
the domain names in accordance with the GSA. Again panel debunked
this oft-repeated accusation stating:
“[n]either the trustee nor Vogel . . . pointed to record evidence
that Baron failed to transfer the domain names in accordance with
the agreement,”
Id., 703 F.3d at 307.
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Vogel and Sherman repeatedly misrepresented before all tribunals that
Baron was threatening to nullify the GSA. Again the panel stated:
“We do not, though, find evidence that Baron was threatening to
nullify the global settlement agreement by transferring domain
names outside the court’s jurisdiction.”
Id., 703 F.3d at 307–8.
Vogel and Sherman also invented the falsehood that Baron had been
repeatedly held in contempt by the courts below. However, this too was
debunked by the panel:
“If the DC entered a sufficiently specific order, it could have held
Baron in contempt, imposed a fine or imprisoned him for “diso-
bedience ... to its lawful ... command.” 18 U.S.C. § 401. At oral ar-
gument in the appeal, it seemed conceded that no clear order
existed. Instead, the receiver and trustee cited only to hearings at
which the DC admonished Baron not to hire or fire any more at-
torneys.”
Id., 703 F.3d at 311.
Further, at Sherman’s provocation, the BC held a hearing on its Order
to Show Cause Why Jeffrey Baron Should Not be Held Contempt, span-
ning several days, where Baron was subjected to examination by the Bank-
ruptcy Judge, numerous lawyers and law firms (ROA.24845-28450). No
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contempt was found and no order holding Baron in contempt was ever en-
tered.
165
Again and again, Vogel and Sherman and their lawyers repeated these
falsehoods to the BC, the DC and this Court. These repeated, false repre-
sentations evoked behavior of the judges below that was calamitous to
Baron and violated his constitutional rights. As an example of this behav-
ior, see Judge Furgeson’s comments at ROA.30450–51, explaining that the
proceeding would inevitably “bring Mr. Baron to a penurious condition”.
2. The panel’s finding that Jeffrey Baron was a “vexatious”
litigant was a result of Sherman and Vogel’s fabrications..
Perhaps the most scurrilous accusation made by Vogel and Sherman
and adopted by the panel in Netsphere I is that Baron was a “vexatious” liti-
gant. For the reasons stated in Section J of the Statement of the Case, supra,
at pp 24-28, this was untrue.
165
ROA.24845–50
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3. The Netsphere panel was clearly erroneous in: (a) finding that
Baron’s actions increased the fees and expenses of the
Receiver.
The panel in Netsphere found that “to a large extent, Baron's own ac-
tions resulted in more work and more fees for Vogel and his attorneys,”
166
and then concluded that “[f]or these reasons, charging the current receiver-
ship fund for reasonable receivership expenses, without allowing any addi-
tional assets to be sold, is an equitable solution.” Netsphere, 703 F.3d at 313.
However, the publishing of such statement, in and of itself, violates Baron’s
due process rights. The only actions Baron ever took were to file objections
to the Receivership Order in the form of the Vacate or Stay Motion, file ob-
jections to the DC’s award of attorney fees to the Receiver, the Trustee and
their respective professionals, file objections to the DC’s approval of sales
of assets owned by the LLCs, and to appeal 70 orders improvidently en-
tered by the DC, 69 of which were reversed by this Court in Netsphere I.
Baron should not be punished because this caused more work and more
fees for Vogel and his attorneys. Baron’s actions were appropriate, and he
166
Netsphere,
703 F.3d at 313.
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was doing nothing more than partaking in his constitutional right to de-
fend himself on the trial court level, and his statutory right to appeal the
orders of the DC. Moreover, Baron did everything humanly possible to
terminate the receivership under circumstances where sufficient funds
would be made available to fund the payment of the alleged claims of the
attorneys, for whose benefit the receivership was instituted in the first in-
stance. See Section K of the Statement of Case, supra, at pp 28-32.
In United States v. Larchwood Gardens, Inc., 420 F.2d 531, 534–35 (3rd Cir.
1970), the receiver and his professionals made similar arguments, which
were unequivocally rejected.
4. The cumulative effect of these false representations was to
deprive Baron of his Fifth Amendment Rights to Due Process.
Standing alone, perhaps one of these false representations might not
have violated Baron’s Fifth Amendment constitutional rights. However,
the false statements were numerous, and they were repeatedly made before
the BC, the DC and this Court. These false representations tarnished the
image of Baron in the eyes of the courts he was before. When combined
with Baron’s inability to engage legal counsel to defend against these at-
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tacks, and experts needed at critical junctures in this multi-year litigation,
the threats of contempt if he even attempted to engage trial counsel, the
confiscation of his legal documents and the total depletion of his cash and
non-cash assets, this conduct has undeniably resulted in a deprivation of
Baron’s Fifth Amendment right to due process.
G. The taking of Baron’s assets, including the LLC’s assets,
amounted to an unconstitutional taking of property without due
process.
The Fifth Amendment to the United States Constitution provides that
private property shall not be taken without providing due process. Con-
necticut v. Doehr, 501 U.S. 1, 11–12 (1991) (holding that due process protec-
tion is merited when there is deprivation of property and deprivation need
not be “complete, physical, or permanent” to merit protection but that
“even the temporary or partial impairments to property rights that attach-
ments, liens, and similar encumbrances entail are sufficient to merit due
process protections.”).
For all of the reasons stated above, Baron was deprived of his constitu-
tional due process rights every step of the way.
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91
Additionally, the DC’s grant of broad and sweeping releases and provi-
sions for retention of jurisdiction over all claims and causes of action Baron
might assert against nearly anyone remotely related to this failed receiver-
ship to seek redress of the wrongs that have been done to him and for the
losses he has suffered is yet another example of how Baron’s property
rights have been eviscerated without due process. See Argument IV-L & M,
infra, at pp 129-131.
II.
SEIZING AND DISBURSING PROPERTY NOT SUBJECT
TO A DISPUTE BEFORE THE COURT AND NOT WITHIN
THE COURT’S JURISDICTION VIOLATES THE FOURTH
AMENDMENT.
The Fourth Amendment protects persons’ property against unreasona-
ble seizure. Severance v. Patterson, 566 F.3d 490, 501 (5th Cir. 2009). The
Court defined “seizure” of property as occurring when “there is some
meaningful interference with an individual’s possessory interests in that
property.” Id quoting from United States v. Jacobsen, 466 U.S. 109, 113
(1984); Soldal v. Cook County Ill., 506 U.S. 56, 61 (1992). Baron’s assets and
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those of the LLCs were arbitrarily seized without just cause by a DC having
no subject matter jurisdiction to do so, in violation of the Fourth Amend-
ment. Camara v. Municipal
Court of City and County of San Francisco
,
387 U.S. 523, 528 (1967). The Supreme Court has cautioned that the
exercise of court power over property not subject to a dispute pled before
the court “would place the whole rights and property of the community
under the arbitrary will of the Judge”.
Grupo Mexicano de Desarrollo
,
SA v. Alliance Bond Fund, Inc.,
527 U.S. 308, 332 (1999).
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93
III.
THE PANEL IN
N
ETSPHERE
I
E
RRED
IN DETERMINING THAT
THE DC HAD THE EQUITY JURISDICTION TO AWARD FEES
AND EXPENSES AGAINST THE ASSETS OF BARON OR THE
LLCS , IN ANY AMOUNT.
The Court should applies a de novo standard for questions of law and
an abuse of discretion standard for the discretionary aspects of fee allow-
ances.
167
A. Analysis of Facts and Law Decided in the Netsphere I Case
In Section I of Netsphere I opinion, entitled “Propriety of the Receiver-
ship Order,”
168
the panel determined, based on its prior opinion in Cochrane
v. W.F. Potts Son & Co., 47 F.2d 1026, 1029 (5th Cir.1931) (Potts I), that “equi-
ty does not allow a receivership to be imposed over property that was not
the subject of the underlying dispute,” and that “a court lacks subject mat-
167
See
In re Fredeman Litigation
, 843 F.2d 821, 824;
Gandy Nursery, Inc. v. US
,
318 F.3d 631, 636 (5th Cir. 2003);
Commodity Futures Trading Comm’n v.
Morse
, 762 F.2d 60, 63 (8th Cir. 1985).
168
Netsphere I,
703 F.3d at 305-11.
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94
ter jurisdiction to impose a receivership over property that is not the sub-
ject of an underlying claim or controversy.”
169
Appellee Gardere has con-
ceded this point.
170
Relying on Potts I, the panel in Netsphere I concluded that “the district
could not impose a receivership over Baron’s personal property and the as-
sets held by Novo Point and Quantec.” Netsphere I, 703 F.3d at 310.
In Section II of the Netsphere I opinion, the panel looked to the second
Potts decision, W.F. Potts Son & Co. v. Cochrane, 59 F.2d 375, 377–78 (5th Cir.
1932) (Potts II) as well as other precedent in the Fifth Circuit, to support its
conclusion that “equity is the standard” in assessing costs in the case of an
improperly created receivership.
171
In Potts II, recognizing that: 1) the DC
had jurisdiction over some of the property; 2) The circumstances surround-
ing the appointment of the receiver amounted to “almost a public calami-
169
Id.,
703 F.3d at 306, 310.
170
Appellee Gardere stated in its principal brief filed in Appeals Case 13-10696, on
October 27, 2014, Document: 00512816545, page 27:
“While this court agreed that the DC did not have jurisdiction to impose a
receivership over assets held by Novo Point and Quantec—and indeed
over any of Baron’s personal property”
171
Netsphere I, 703 F.3d
at 312.
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95
ty”; 3) the interested parties acquiesced to the receivership for nearly six
months; and 4) the receivership had paid certain expenses that “inured di-
rectly to its benefit”, such as repairs and additions to the property, this
Court determined that the estate should be charged some costs, but only
those costs that either “inured directly to its benefit” or “those rightfully in
charge of it would have had to pay” had a receiver not been appointed
. Id
at 379.
As supported by the authorities below, the panel in Netsphere I erred
when it determined that: 1) the DC had the equity jurisdiction to award
fees and expenses of the receivership against the assets of Baron and the
LLCs, in any amount, where the panel had also determined that the DC
lacked subject matter jurisdiction in the first instance, and 2) the DC could
equitably charge Baron and the LLCs with costs without demonstrating
that those costs “inured a benefit to the relevant estate”.
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96
B. Without subject matter jurisdiction, a DC is powerless to assess
a receiver’s professional fees and expenses against assets illegally
seized.
The jurisdiction issues in this case are paramount and should not be
disregarded by this Court. As this Court has stated, “no pussy-footing
around is allowed on jurisdictional issues.”
172
This Court need only review its decisions in Beach v. Macon Grocery Co.,
125 F. 513 (5th Cir. 1903) and Speakman v. Bryan, 61 F.2d 430, 431 (5
th
Cir.
1932), and the Supreme Court decisions in Atlantic Trust Co. v. Chapman,
208 U.S. 360 (1908) and Lion Bonding & Surety Co. v. Karatz, 262 U.S. 640,
641-2 (1923) for controlling authority in this case. Based on the heavy
weight of this precedent, this Court must reverse and render, and hold that
the DC, having found that it lacked subject matter jurisdiction over the per-
sonal assets of Baron and the LLCs, had no authority to award receivership
professional fees and expenses to be paid out of the assets of such illegally
attached assets.
172
In re Southmark Corp.,
163 F.3d 925, 929 (5
th
Cir. 1999).
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97
1. Fifth Circuit Precedent
In 1903, in the Beach case, this Court considered the same issue that is
presented in the instant appeal. In Beach, the property of a nonparty, Miss
Dixon, was seized in a receivership imposed because of conduct of Mr.
Beach. The receivership was reversed and vacated. However, the receiver
incurred expenses which he wanted paid. As an equitable solution, the trial
court allowed some receivership expenses to be paid out of Miss Dixon’s
property. The panel in Beach reversed and ruled as follows:
“[T]he receiver has, by no law, been imposed upon the defend-
ant. Neither is there any equitable principle which should re-
quire him to pay, before he can secure a return of his property,
the expenses of the unlawful proceeding by which it has been
taken and withheld from his possession. To require that pay-
ment from him or his property would be a wrong which the
court has neither the power nor the disposition to inflict upon
him. It may be a hardship upon the receiver himself, but it is
one of the risks which he has voluntarily assumed.”
173
Beach, 125 F. at 515 (emphasis in bold added).
In 1932, this Court spoke again. After reviewing the prior precedent in
this Court and the Supreme Court concerning invalid receivers, the panel
in Speakman v. Bryan reaffirmed the same principles and held:
173
Id
. (emphasis added).
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98
We think it cannot be doubted as established that, except where
the court appointing a receiver is entirely wanting in jurisdic-
tion as a court (Lion Bonding Co. v. Karatz, 262 U. S. 640, 43 S.
Ct. 641, 67 L. Ed. 1151) the costs, expenses, and disbursements
incurred by a receiver whose appointment was improvidently
made, or who has taken wrongful possession of property, will,
upon equitable principles, be charged by the court of jurisdic-
tion against the property to the extent that they have inured to
its benefit. State of Missouri v. Angle (C. C. A.) 236 F. 644; Palmer
v. State of Texas, 212 U. S. 118, 29 S. Ct. 230, 53 L. Ed. 435; Burn-
rite Coal Co. v. Riggs, 274 U. S. 208, 47 S. Ct. 578, 71 L. Ed. 1002;
In Re Zier & Co. (D. C.) 127 F. 399; Id. (C. C. A.) 142 F. 102; W. F.
Potts Son & Co. v. Conchrane (C. C. A.) 59 F.(2d) 375.”
Speakman v. Bryan, 61 F.2d at 431 (emphasis in bold added). In the case at
bar, the DC lacked subject matter jurisdiction, and, therefore, there was no
basis for applying equitable principles to charge against the property
wrongfully seized the fees and expenses of Vogel and his professionals.
2. Supreme Court Precedent
In 1908, in Atlantic Trust Co. v. Chapman, the Supreme Court enunciated
the fundamental principle of receivership law that a court is prohibited
from using property of an entity not a party to the receivership or related
lawsuit to pay a receiver’s expenses. The Court said:
“If he [the receiver] has taken property into his custody under an
irregular, unauthorized appointment, he must look for his com-
pensation to the parties at whose instance he was appointed, and
the same rule applies if the property of which he takes possession
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99
is determined to belong to persons who are not parties to the ac-
tion, and is taken from his possession by paramount authority. As
to such property his appointment as receiver was unauthorized
and conferred upon him no right to charge it with any expenses.”
208 U.S. at 373–74 (quoting Ephraim v. Pacific Bank, 62 P. 177, 178 (Cal.
1900)).
In 1923, the Supreme Court again reaffirmed this principle in Lion Bond-
ing, where the court held:
“This court is without power to grant any part of the re-
lief sought. The DC was without jurisdiction as a federal court
to appoint receivers in, or otherwise to entertain, the Karatz
suit. For this reason, among others, the Hertz suit, a dependent
bill, was dismissed. As the lower federal courts lacked jurisdic-
tion, they are necessarily without power to make any charge
upon, or disposition of, the assets within their respective dis-
tricts.
FN1
”
Id., 262 U.S. at 641-2.
C. The
Netsphere I
panel’s reliance upon Palmer v. Texas was
misplaced.
In Lion Bonding, the Supreme Court specifically ruled that the holding
in Palmer v. State of Texas, 212 U.S. 118, 132 (1909) did not apply where the
trial court lacked the jurisdiction to impose the receivership, stating:
“The case at bar is unlike Palmer v. Texas, 212 U.S. 118, 132, up-
on which the receivers rely. In that case the costs and expenses
of a receiver erroneously appointed by the federal court were
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100
directed to be paid out of funds realized in that court. There,
the Circuit Court had jurisdiction as a federal court; but the de-
cree appointing the receiver was reversed, because it was erro-
neous.”
Id., 262 U.S. at 642.
D. The
Netsphere I
panel’s reliance on
Potts II
was misplaced.
A careful analysis of Speakman and Potts II reveals a fundamental flaw
in the Court’s analysis in Netsphere I. The Potts II panel did not distinguish
between the series E bonds, over which the Potts I panel found there was
subject matter jurisdiction, and the other bonds, over which the Potts I pan-
el found there was no subject matter jurisdiction. However, in Speakman,
issued shortly after Potts II, the Court clarified that the reason equity was
employed in Potts II was a result of the DC’s affirmative jurisdiction over
the Series E Bonds.
E. The Law of the Case Doctrine does not bar this Court from
reconsidering the ruling in part II of
Netsphere I
decision: a court
can never be barred from questioning subject matter jurisdiction.
The law of the case doctrine provides that “an issue of law or fact de-
cided on appeal may not be re-examined either by the DC on remand or by
the appellate court on a subsequent appeal.” Gene & Gene, L.L.C. v. BioPay,
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101
L.L.C., 624 F.3d 698, 702 (5th Cir. 2010). However, there are three excep-
tions to the law of the case doctrine. A court of appeals can reexamine an
issue previously decided on appeal if “(i) the evidence on a subsequent tri-
al was substantially different, (ii) controlling authority has since made a
contrary decision of the law applicable to such issues, or (iii) the decision
was clearly erroneous and would work a manifest injustice.” Gene & Gene,
624 F.3d at 702.
1. It is a fundamental concept that a court not having
jurisdiction of the res and/or the parties cannot affect the res
or the parties by its decree.
Very early on, the Supreme Court enunciated the oft repeated funda-
mental principles that subject matter jurisdiction is required in order to
“exercise any judicial power,”
174
and that a “court, not having jurisdiction
of the res and/or the parties, cannot affect the res or the parties by its de-
cree.”
175
174
Rhode Island v. Massachusetts
, 37 U.S. 657, 718 (1838);
see also Reynolds v.
Stockton
, 140 U.S. 254, 268–69 (1891);
United States Catholic Conference v. Abor-
tion Rights Mobilization, Inc
., 487 U.S. 72, 77 (1988).
175
Fall v. Eastin
, 215 U.S. 1, 11 (1909).
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102
More recently, in United States Catholic Conference v. Abortion Rights Mo-
bilization, Inc., 487 U.S. 72, 77 (1988), the Supreme Court stated:
“The challenge in this case goes to the subject matter jurisdic-
tion of the court and hence its power to issue the order.… [this]
is not a mere nicety of legal metaphysics. It rests instead on the
central principle of a free society that courts have finite bounds
of authority, some of constitutional origin, which exist to pro-
tect citizens from the very wrong asserted here, the excessive
use of judicial power.”
Indeed, there is long-standing, unwavering precedent out of both the
Supreme Court and of this Court - that a federal court that lacks subject
matter jurisdiction, lacks the power to award costs. Citizens Bank of Louisi-
anna v. Cannon, 164 U.S. 319, 324 (1896); Smyth v. Asphalt Belt Ry. Co., 267
U.S. 326, 330 (1925); Atlantic; Lion Bonding, Beach, Potts I, Speakman; and
United States v. Jardine, 81 F.2d 747, 747–78 (5th Cir. 1936).
2. Parts I and II of the
Netsphere I
opinion are inconsistent and
cannot be reconciled.
In part I of the Netsphere I the panel recognized that the receivership
remedy is an equitable one, and determined that “equity does not allow a
receivership to be imposed over property that was not the subject of the
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103
underlying dispute.” Netsphere, 703 F.3d at 306. Then, citing Potts I,
176
the
Netsphere panel determined that “[a] court lacks jurisdiction to impose a re-
ceivership over property that is not the subject of an underlying claim or
controversy.” 703 F.3d at 310. It then concluded:
We conclude the DC could not impose a receivership over
Baron's personal property and the assets held by Novo Point
and Quantec.”
In part II of the Netsphere I opinion, the panel concluded that equity
controls when addressing the costs created by an improper receivership.
The Netsphere I panel found that Potts II and Palmer were dispositive on this
issue. However, the Netsphere I panel failed to address the later decision of
this Court in Speakman, where the Court made it clear that equitable princi-
ples cannot be applied where the court finds that there is a want of subject
matter jurisdiction—the precise conclusion reached by the panel in part I of
the Netsphere I.
Id.
176
47 F.2d at 1029.
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104
3. It would be manifestly unjust for this Court to perpetuate this
clearly erroneous legal conclusion adopted in Part II of the
Netsphere I
opinion.
In effect, Part I of the the Netsphere I opinion was internally inconsistent
with Part II of the opinion. Therefore, it would be manifestly unjust for this
Court to perpetuate this clearly erroneous legal conclusion adopted in Part
II of the Netsphere I opinion.
4. Appellees’ Demonstrable Fraud on the Court Requires
Reconsideration
The holdings in Netsphere I, was based largely on Vogel and Sherman’s
misrepresentations of fact to this Court. Indeed, one of the Court’s funda-
mental premises in Netsphere I was that Bankruptcy Judge Jernigan rec-
ommended the appointment of a receiver, and that Sherman was merely
following her orders when he dutifully sought such appointment. As ex-
plained supra in Argument I-F-1, supra, at pp 82-87, Judge Jernigan denied
having made such recommendation.
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105
5. Denial of Due Process Compels Reconsideration of
Netsphere
I
.
This court has already held that the receivership was illegal and that
all property seized was done so wrongfully. To allow the use of illegally
seized property to pay fees once again denies Mr. Baron of his property
without due process of law. The DC’s continued failure to release this
property, as he was required to do by this court’s order, further exacerbates
the denial of Mr. Baron’s constitutional rights and should be remedied by
this court.
IV.
THE DC FAILED TO FOLLOW THIS COURT’S MANDATES ISSUED
IN
N
ETSPHERE
I.
The manner in which a lower court enforces an appellate court’s man-
date is reviewed de novo. United States v. Kellington, 217 F.3d 1084, 1092
(9th Cir. 2000). Lower courts are obligated to execute the terms of the man-
date. Where, on remand, the trial court is ordered to conduct a hearing and
enter findings of fact, such findings are reviewed on a like standard of re-
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106
view as required for findings of fact made in the original hearing. See Depu-
ty v. Lehman Bros., Inc., 345 F.3d 494, 509 (7th Cir. 2003).
A. The Mandate Rule prohibits a DC from straying from an
appellate court’s directive
This Court holds that a DC is prohibited from taking any action not
expressly directed by the Court.
United States v. Castillo
, 179 F.3d 321,
330 (5th Cir. 1999), rev'd on other grounds, 530 U.S. 120 (2000).
See al-
so,
Crowe v. Smith
, 261 F.3d 558, 562 (5th Cir.2001). A DC must
"'implement both the letter and spirit of the [appellate court's] man-
date,' and may not disregard the 'explicit directives' of that court."
United States v. Becerra,
155 F.3d 740, 752 (5th Cir. 1998) (internal
quotations omitted). More to the point, “[t]he mandate rule requires a DC
on remand to effect the [circuit court’s] mandate and to do nothing else.”
General Universal Sys., Inc. v. Hal, Inc., 500 F.3d 444, 453 (5th Cir. 2007) (cita-
tions omitted).
Where, as here, further proceedings in the DC "'are specified in the
mandate [of the Court of Appeals], the DC is limited to holding such as
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107
are directed.'"
Harris v. Sentry Title Co. Inc.,
806 F.2d 1278, 1279 (5th
Cir. 1987).
B. Even if the DC had the equity jurisdiction to award receivership
fees and expenses, the DC failed to follow the mandate of the
Netsphere I panel in the exercise of such equity jurisdiction.
In Section II of Netsphere I,
177
the panel, relying principally on the Potts
II decision, concluded that “charging the current receivership fund for rea-
sonable receivership expenses, without allowing any additional assets to be
sold, [would be] an equitable solution.”
178
Without defining “reasonable re-
ceivership expenses”, the mandates directed the DC to accomplish the
eight directives set forth in Section N of the Statement of the Case, supra, at
pp 35-37.
Beyond these generalized directives, the panel also provided guidance
on how to apply such equitable considerations by citing and relying upon
prior precedent of the Court and the Supreme Court, namely Potts II and
Palmer. The DC failed to follow these decisions.
177
Netsphere I
, 703 F.3d at 311 – 314.
178
Id.,
703 F.3d at 313.
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108
C. The standard for applying equity in instances of improvidently
appointed receivers has been clearly established.
In Potts II, the Court limited the allowance and payment of receivership
expenditures to those expenditures that the owners of the property would
have had to pay themselves had the receivership not been instituted, or ex-
penditures that resulted in an actual benefit to the receivership estate.
179
Likewise, in Palmer, the Supreme Court employed a similar equitable
standard for paying costs of an improperly imposed receivership. There,
the Supreme Court held that the receiver could only recover costs from the
funds that were created (“realized”) by the receiver.
One year later, in, Speakman, this Court reviewed the existing precedent
of the Supreme Court and this Court, including Potts II and Palmer, held
that “the costs, expenses, and disbursements incurred by a receiver whose
appointment was improvidently made, or who has taken wrongful posses-
sion of property, will, upon equitable principles, be charged by the court of
jurisdiction against the property to the extent that they have inured to its
benefit”. Speakman, 61 F.2d at 431 (emphasis in bold added).
179
Potts II,
59 F.2d
at 378–79.
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109
Two decades later, in Tucker v. Baker, 214 F.2d 627 (5th Cir. 1954), the
Court reinforced this construct, and disallowed the fees and expenses of
the receiver, “except to the extent that it is made to appear that the receiv-
er's actions and activities have enured to the benefit of the estate,” citing
Potts II. Id., at 632.
Indeed for the past 70 years, this Court, unequivocally has held that "[a
Receiver’s] allowances of fees and expenses must rest on facts showing ac-
tual benefits" Godfrey v. Powell, 159 F.2d 330 (5th Cir.1947).
The corollary to this principle is that a receiver is not entitled to com-
pensation from the estate for defending his own actions. See cases cited at
45 Am. Jur., Receivers § 278 (1956); Larchwood Gardens, 420 F.2d at 535; In re
Marcuse & Co., 11 F.2d 513, 516 (7th Cir. 1926).
D. The “discounts” ordered by the DC did not comply with the
law or the mandates issued in
Netsphere I
.
Among all of the fee applications considered by the DC after this
Court’s mandate in Netsphere I, the DC approved most of the fee amounts
requested by Vogel and his professional and wholly failed to reconsidered
any of the Additional Expenditures, expressly approving $5,581,445.46 to
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110
be paid directly to Vogel and his professionals and failing to even mention
the Additional Expenditures of $5,822,576.26
180
explained Record Excerpts
14‐15. In doing so, the DC failed to employ any of the requirements im-
posed by precedent, namely, that Vogel’s reimbursable fees and expenses
must inure a benefit to the estate or that such fees and expenses would
have been borne by Appellants if Vogel had not been appointed.
In fact, in presenting thousands of pages of fee applications and nu-
merous motions and arguments, Vogel and his professionals wholly failed
to show that their fees and expenses met any of such requirements. See Ar-
gument V, infra, at pp 133-14111.
E. As a matter of law, the fees incurred by a losing party to a
litigation cannot be borne by the prevailing party.
The 2013 Fee Applications and the 2014 Fee Request, which were ap-
proved by the DC, consist of time entries that are mainly for self-advocacy
services: work advocating Appellees’ positions to sustain the appointment
180
See
See
Charts included as Appellants’ Record Excerpts 14 &15.
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of Vogel on appeal, prosecuting their own fee applications and other self-
serving activities.
Aside from the clear precedent prohibiting reimbursement for such ex-
penditures in a failed receivership, this Court has held that attorney fees
may not be justly awarded out of an appellant’s funds under any circum-
stance. First Nat. Bank v. Southern Cotton Oil Co., 86 F.2d 33, 34 (5th Cir.
1936). Moreover, the Supreme Court has repeatedly reaffirmed the efficacy
of the “American Rule,” which provides that each party in a lawsuit must
bear its own attorney fees, win or lose, unless there is express statutory au-
thorization to the contrary. Hardt v. Reliance Standard Life Ins. Co., 560 U.S.
242, 252–53 (2010).
181
No statutory provision exists for the shifting of pro-
fessional fees here in favor of Vogel or Sherman, who were not the prevail-
ing parties in this receivership litigation. Allowing Sherman and Vogel to
recover their professional fees and expenses from the receivership estate,
which are Appellants’ assets, would, in effect, violate the “American Rule”
181
Paradoxically, the DC awarded $5,253,821.70 in fees and expenses to Vogel and
his professionals, in part, as a penalty for Baron successfully appealing the DC’s or-
ders, stating that Baron “swamped the Fifth Circuit with questionable appeals, the
Court finds that it would be entirely inequitable to deny these fees. Accordingly, the
Court sees no reason not to charge the Receivership estate for the additional ex-
penses incurred by Baron and Schepps's conduct.” ROA.27939.
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112
and force Appellants to pay for Vogel and Sherman’s professional fees
where they were not the prevailing parties, and in the absence of any statu-
tory basis for fee shifting.
Other circuits have addressed this issue as well. For example, the Third
Circuit applies the “American Rule” requiring that each party pay his own
expenses including receivers in defense of receivership fees. Larchwood
Gardens, 420 F.2d at 535. Likewise, the Seventh Circuit has refused to au-
thorize receivership fees when the receiver is engaging in controversy as a
litigant advocating a position where he is not acting as a neutral. In re Mar-
cuse, 11 F.2d at 516.
The fees and expenses charged by Vogel, Sherman and their respective
attorneys or other professionals in prosecuting their own fees and in de-
fending the receivership are not proper charges against, and payable out of,
the receivership estate. Such expenditures conferred no discernable benefit
upon, or enhancement of, property of the receivership estate, nor would
such expenditures have been incurred had the receivership not been insti-
tuted.
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113
F. The 2013 Fee Applications and the 2014 Fee Request violated
the Court’s mandates.
The 2013 Fee Applications
182
and the 2014 Fee Request
183
violated the
Court’s mandates. These fee applications did not allocate the fees and ex-
penses of such professionals to each separate litigation and non-litigation
matter handled by Vogel and each of the receivership professionals.
184
Fur-
ther, neither Vogel nor his professionals made any effort to divide the fees
requested into tasks performed.
185
These fee applications employed block
billing practices, which have been frowned upon by the courts.
186
In the 2014 Fee Request, Vogel requested additional fee payments in the
amount of $901,882.12. In the 3/27/2015 Memorandum Opinion and Or-
der, the DC granted Vogel an additional $424,857.76 in fees, which was the
entirety of the remaining assets in the receivership estate and exceeded the
182
See
section P-1 of the Statement of the Case, supra, at pp 40-43 . (the “4/17/2013
FeeApplications”)
183
See
section U of the Statement of the Case, supra, at pp__ . (the “4/14/2014Fee
Request”)
184
See
Argument V, infra, at p 57.
185
Id.
186
See
section H-2 of the Statement of the Case, supra, at p 22.
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114
fee cap set by this Court in Netsphere I. See sections V and W of the State-
ment of the Case, supra, at 57-58.
Additionally, the court never addressed the Additional Expenditures as
identified in Appellants’ Record Excerpt 15. In total, the receivership pro-
fessionals have liquidated $11,404,021.72 s of Baron and the LLCs’ cash to
pay themselves $5,581,445.46 in fees and expenses, even while the Netsphere
I panel found that it was an abuse of discretion to have created the receiv-
ership in the first instance.
187
G. The DC violated the mandates by failing to reconsider all of
the professional fees and expenses and failing to reconsider
payments made to other professionals.
Vogel’s 2013 Fee Application
188
included fees and expenses of 13 law
firms outside of Texas, and the fees and expenses of the following addi-
tional professionals: Thomas Jackson, Joshua Cox, James Eckels, Jeffrey
Harbin, Gary Lyon, Grant Thornton, LLP, Martin Thomas, Damon Nelson
and Matt Morris. These additional fees and expenses represented at least
187
Netsphere I,
703 F.3d at 302.
188
See
section P-1 of the Statement of the Case, supra, at pp40-43.
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$700,000 paid out of the receivership estate (ROA.27320), but none were
reevaluated by the DC, as required by Netshpere 1. Instead, the court only
reconsidered the fees and expenses of four professionals, Vogel, MHKH,
Dykema, and Gardere. (ROA.27320–27321, 27173–27474), not including
numerous fees and expenses that had been paid, but not included in the
Receiver’s fee application. (ROA.13246–58, 13943–57, 14177–91, 15661–76,
15917–32, 17146–63, 18504–23, 18239–58, 19222–40, 19456–76, 24106–43).
H. The DC violated the mandates by awarding fees and expenses
in favor of Sherman’s attorneys, MHKH, in the amount of
$379,761.18.
Where, as here, the interests of a receivership estate are adequately rep-
resented by receivership counsel, unnecessary action by others allegedly on
the receivership's behalf should not be compensated. Veeder v. Public Service
Holding Corp., 51 A.2d 321, 325–26 (Del. 1947). Even where such non-
receivership professionals make suggestions and recommendations and
render services of value to the receivership estate, unless they are receiver-
ship professionals, they cannot be paid out of the receivership estate. In re
Middle West Utilities Co., 17 F.Supp. 359, 371 (D.C. Ill. 1936). In the present
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116
case, Sherman sought the imposition of the unlawful receivership. One can
only assume that in a case where there is a wrongful receivership, the rule
prohibiting the payment of non-receivership professionals would be a
much greater hurdle to overcome, and one can only assume that when the
non-receivership professional seeking compensation is the party that insti-
tuted the wrongful receivership such hurdle would be impossible to over-
come.
1. In
Netsphere I
, this Court reversed the order awarding the
Ondova bankruptcy trustee’s fees and expenses.
By this Court’s Mandates, most if not all of the orders awarding fees
and expenses to Vogel, Vogel’s professionals and Sherman were reversed,
including, specifically, the order granting Sherman’s first fee application
(ROA 21409-10), by which the Ondova Trustee was paid $379,761.18. See
Court’s Mandate (ROA.27979–10).
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2. The DC 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
On January 2, 2013, the DC issued an Advisory on Past and Pending Re-
ceivership Disbursements (the “Advisory”). In the Advisory, the DC an-
nounced:
“. . . the Trustee will be instructed to return all previously paid
amounts back to the Receiver.”
(ROA.26478) (emphasis added).
3. The DC did a 180 degree turn, disavowing the January 2, 2013
Advisory.
Inexplicably, the DC made a 180 degree turn in the 5/29/2013 Fee Or-
der and did not order the Ondova Trustee to disgorge the $379,761.18 pre-
viously awarded by the DC. The reasoning of the DC in the 5/29/2013 Fee
Order was convoluted and unconvincing. (ROA.28147 - 48).
Having found that an analysis of the Johnson factors was moot because
the fee award was prohibited by law, the court then gratuitously awarded
fees without applying the Johnson factors or considering the benefit to the
receivership estate. This is clearly erroneous. Id.
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If the law does not permit a non-receivership professional to recover
professional fees and expenses, as the DC concluded twice, what would the
legal basis be for awarding any fees and expenses to the Ondova Trustee’s
attorneys? The DC found that there was no contract, oral or written, be-
tween the Ondova Trustee and Receiver. The DC also determined that the
Ondova Trustee was not entitled to recover fees and expenses under a
quantum meruit cause. Id.
In directing the DC to reconsider all receivership professional fees and
expenses and meaningfully discount them, the Netsphere I panel did not di-
rect the DC to gift away assets to non-receivership professionals in a “willy
nilly” fashion, using unexplained equitable considerations as a basis for
awarding such fees and expenses. At a minimum, as to the $379,761.18
awarded to MHKH, the 5/29/2013 Fee Order must be reversed and ren-
dered in favor of Baron. Id.
I The DC violated the mandates by awarding fees in excess of
the $1,600,000 fee cap.
In the Netsphere I opinion, the panel clearly and unequivocally instruct-
ed the DC, on remand, to limit the payment of any future fees and expens-
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es to Vogel and his attorneys to “cash on hand” as of November 26, 2012,
which the panel in Netsphere I found was $1,600,000,
189
which Vogel admits
was only $1,196,744.31—an amount considerably less.
190
However, Vogel
has now taken the position that this was not a “fixed cap”.
Performing some metaphysical “hocus pocus”, Vogel’s analysis sug-
gests that the cash on hand on December 18, 2012, was actually
$4,106,015.08,
191
alleging that the panel in Netsphere I mistakenly excluded
items such as unliquidated claims against third parties and discounts to
fee payments in the panel’s definition of “cash”. Vogel argues that the pan-
el actually intended to include within the definition of “cash on hand”
these clearly non-cash items for the purposes of increasing the cap.
192
Baron filed his objection to the 2014 Fee Request, explaining that the
Netsphere I panel’s mandate required that Vogel’s fees were limited to the
cap set by the Court, and that since Vogel had already been paid
$1,579,953.88 since the issuance of the Netsphere I mandates, it could not be
189
Netsphere I,
703 F.3d at 313-314.
190
ROA.30736, fn 4.
191
Id.
192
See section U of the Statement of the Case, supra, at p 57.
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paid any more than $20,046.12 ($1,600,000 - $1,579,953.88).
193
If, as Vogel
posits, the panel did not intend to fix the fee cap at $1,600,000, then the
Court should use the actual cash on hand on December 18, 2012, as per Vo-
gel, $1,196,744.31, to determine the amount by which the fee cap was ex-
ceeded, which would result in Vogel’s obligation to return to the
receivership estate $808,067.33 ($1,196,744.31-$1,579,953.88-$424,857.76).
Based on the unverified 2014 Fee Request and Supplement, and with-
out holding a hearing or adducing evidence, the DC entered its 3/27/2015
Memorandum Opinion and Order, in which the DC granted Vogel an addi-
tional $424,857.76--the entirety of the remaining cash assets in the receiver-
ship estate.
194
The DC defied the mandates issued by the Netsphere I panel,
disregarding the Fee Cap set by the Nestphere I panel.
195
The DC strangely
applied a formula that included adding the amount of an uncollectable ac-
counts receivables of $600,000 due from the Netsphere parties (ROA.33581)
to the amount of cash on hand, and substituting this figure for the Fee Cap
193
ROA.30999-31001
194
ROA.33587.
See
footnote __, supra.
195
ROA.33580.
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determined in Netsphere I, thereby providing justification for exceeding the
cap. After doing so, the court, paradoxically, vacated its order requiring
Netsphere to pay the $600,000.
196
Against this backdrop, Baron’s assets have now finally been depleted to
zero. He has received nothing from the wind-down of the receivership
with the exception of his assets exempt under Texas law. For the receiver-
ship professionals to receive $5,581,445.46 for fees primarily used to defend
the receivership and their fees, as compared to Baron receiving none of his
non-exempt assets returned to him, none of the assets of the LLCs returned
to him and no records seized by Vogel returned to him does not achieve
the equitable solution the panel in Netsphere I was seeking, nor does this
satisfy the mandate to “meaningfully discount” the fees, nor does this
comport with the traditional notions of due process.
196
ROA.33585-38586.
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J. The DC violated the mandates by refusing to return the assets
of the LLCs to their rightful owner, and by refusing to make a
determination of the rightful owner of the LLCs.
The panel instructed the DC, on remand, that non-cash assets in the re-
ceivership were to be “expeditiously released to Baron under a schedule to
be determined by the DC for winding up the receivership.”
197
On December 31, 2012, the Netsphere I panel issued an order of clarifica-
tion (“Order of Clarification”). ECF Doc 00512097486, in Appellate Case
No. 10-11202. In the Order of Clarification, the panel stated:
“Our utilization of a shorthand reference to Baron did not in any
way affect the ownership of assets that were brought into the re-
ceivership. Assets are to be returned as appropriate to Baron or
other entities that were subject to the receivership.”
Id., at p7.
198
Notwithstanding the Netsphere I panel’s directives to return the non-
cash assets to “Baron or the other entities that were subject to the receiver-
197
Netsphere I,
703 F.3d at 313-14.
198
Baron would ask that the Court take judicial notice of this order. Fed. R. Evid.
201(b)(2).
Denius v. Dunlap
, 330 F.3d 919, 926 (7th Cir. 2003) (holding that a DC
may take judicial notice of information on an official government website. Pacer is
such a website).
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ship,” the DC entered an order on March 3, 2014,
199
in which the court re-
fused to “consider evidence or conduct proceedings regarding the owner-
ship of Novo Point LLC or Quantec LLC or the companies’ assets that are
at issue”, (ROA.29135) because “any such determination [was] outside of
the court’s jurisdiction.” (ROA.29143). Without a hearing or considering
any evidence, and over the objection of Baron, the DC determined that all
of LLC’s assets, including all of their domain names, would be given to the
custody of Lisa Katz.
Baron filed an emergency motion for reconsideration requesting that
the DC reconsider its order,
200
which the DC denied on grounds that Baron
did not have standing. This contradicted the basis upon which the DC
seized of the LLCs’ assets in December 2010, when it seized the LLCs on
the basis that the assets belonged to Baron. (ROA.29201). Additionally, the
DC did not consider this Court’s acknowledgment in Netsphere I that the
199
ROA.29135-29146
200
ROA.29165-29176. The Motion was made on an emergency basis because the
LLC’s assets were about to be transferred to the control of Lisa Katz, who lacked
any authority and was working against the interests of the LLCs.
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domain names “were assigned to Quantec, LLC, for Baron's benefit,” in the
GSA.
201
The panel also stated in the Netsphere I opinion the following:
“The trust to which Pronske was referring was the Village Trust, a
Cook Islands entity which owned Novo Point, LLC and Quantec,
LLC. Its trustee is SouthPac, which is also a Cook Islands entity,
and Baron is the trust's sole beneficiary.”
Netsphere I, 703 F.3d at 303 (emphasis added). The panel also stated:
“The receivership also included business entities owned or con-
trolled by Baron, including Novo Point, LLC and Quantec,
LLC.”
Netsphere I, 703 F.3d at 310 (emphasis in bold added). To this day Baron has
not received back any of the assets of the LLCs. In effect, Baron has lost a
business that originally had been valued at over $100,000,000. How can
this Court possibly conclude that this process was expeditious or fair and
equitable? How can the DCs actions in refusing to make this determina-
tion and failing to hold an evidentiary hearing comport with the traditional
notions of due process?
201
Netsphere I,
703 F.3d at 303.
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K. The DC violated the mandates of the panel in
Netsphere I
by
granting broad and sweeping releases to Vogel and others.
In the DC’s 3/27/2015 Memorandum Opinion and Order, the DC
granted broad and sweeping releases to Vogel and other related parties.
202
However, the panel in Netsphere I did not mandate that the DC consider or
grant broad and sweeping releases of all liability, not only to Vogel, but al-
so to a broad category of third parties, including “independent contrac-
tors”. The penultimate ruling and mandate of the panel in Netsphere I was
as follows:
“The judgment appointing the receiver is REVERSED with direc-
tions to vacate the receivership and discharge the receiver, his at-
torneys and employees, and to charge against the cash in the
receivership fund the remaining receivership fees in accordance
with this opinion.”
Netsphere I, 703 F.3d at 315.
There was no mandate that the DC consider and grant such broad and
sweeping releases. The panel in Netsphere I determined that the DC had no
subject matter jurisdiction over the personal assets of Baron or the assets of
the LLCs, and found that there was no subject matter jurisdiction over the
202
ROA.33590-33591.
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LLCs because they were not parties in the Netsphere DC Case. If the DC
was lacking in subject matter jurisdiction to establish the receivership in the
first instance, it is inconceivable that this Court could find now that the DC
had the jurisdiction to grant such broad and sweeping releases.
1. Vogel and his professionals acted as trustees for Appellants’
assets
Further, it is undisputed that Vogel and professionals under his aus-
pices were occupying a fiduciary relationship with Baron and the LLCs, or,
at minimum, occupied the position of constructive trustee in possession
and control of the assets of Baron and the LLCs. In fact, early on in the re-
ceivership Vogel admitted he was Baron’s attorney.
203
Accordingly, Vogel
is required to deal with Appellants and their assets fairly, in a fiduciary ca-
pacity and as a constructive trustee of the assets.
Consequently, releasing such a fiduciaries to be exculpated for
their breaches of the duties, without full and complete disclosure and an
203
Vogel and his counsel repeatedly acknowledged their fiduciary obligations to Ap-
pellants and at least once acknowledged that their relationship with Baron was that
of an attorney-client (“I am the counsel for Mr. Baron. And that's what the judge said. So
now we're going to move on from that. We're not hiring any new lawyers” ROA.29048).
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agreement to such exculpation by the person to whom the duty is owed,
is against public policy and a nullity.
204
.
205
Indeed, a trustee has a duty of undivided loyalty “to administer
the trust solely in the interest of the beneficiaries… and “the trustee is
strictly prohibited from engaging in transactions that involve self-
dealing or that otherwise involve or create a conflict between the trus-
tee's fiduciary duties and personal interests.” Restatement (Third) of
Trusts (Third) § 78 (2007).
206
In addition, “a trustee has a duty in deal-
ing with a beneficiary to deal fairly and to communicate to the benefi-
ciary all material facts the trustee knows or should know in connection
with the matter.”
Id.; see also Pegram v. Herdrich,
530 U.S. 211, 224
204
An attorney cannot exculpate himself from acts unknown at the time of the acts
nor can a court do so. The Texas Disciplinary Rules of Professional Conduct is es-
tablished by the judicial branch and expressly prohibits prospective limitations of
liability for malpractice (Rule 108(G)).
205
Even if Vogel and his professional were acting with jurisdiction and subject to
quasi-judicial immunity, this Court has held that a trustee acting in such capacity
is responsible for acts such as breaches of fiduciary duty. Dodson v. Huff (In re Smyth),
207 F.3d 758 (5th Cir. 2000); See also Mosser v. Darrow, 341 U.S. 267, 272-73 (1951) and
for failure to pay taxes.
n re Texas Pig Stands, Inc
., 610 F.3d 937 (5th Cir, 2010).
206
“The rule against self-dealing extends to transactions with a firm of which the
trustee is a member”.
George G. Bogert et al
., The Law of Trusts and Trustees §
543, at 219 (2008).
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(2000). Even if he could be exculpated for some duties of a traditional at-
torney, Vogel cannot be exculpated himself of his fiduciary duties.
2. Vogel and his privies concealed their dealings with Appellants’
assets
Here, there was no agreement among the parties to release liability and
nor could there be because Vogel and his professionals have failed to dis-
close their dealings with respect to Appellants’ assets and affairs, including
concealing the substance of tens of millions of dollars of sales and aban-
donment of Appellants’ property, repeatedly and consistently making mo-
tions to sell such property ex parte and under seal.
207
Indeed, the Sealed
Record in this case, consisting of Vogel’s sealed filings, contains at least 22
Bankers Boxes full of sealed documents, which Appellees continue to object
to Appellants attempts to view.
208
Vogel’s asset sales were made without hearings, discovery and without
proper disclosure to Baron or the LLCs. Vogel and his professionals cannot
207
See
Chart included as Appellants’ Record Excerpt 18.
208
See
ECF Doc 00513199813, filed by Vogel in this appeal on September 18, 2015.
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do this behind the curtain and then get a release without the curtain having
been lifted.
L. The DC violated the Mandate Rule in
Netsphere I
by creating
exclusive jurisdiction over claims relating to parties and assets
over which the panel held that the DC had no subject matter
jurisdiction to begin with.
In the DC’s 3/27/2015 Memorandum Opinion and Order, the DC
granted broad general jurisdiction provisions over claims and causes of ac-
tion relating to parties and assets over which the DC never had jurisdiction
in the first instance.
209
The panel in Netsphere I, however, did not mandate
that the DC establish such exclusive jurisdiction provisions. Since the DC
was lacking in subject matter jurisdiction to establish the receivership in the
first instance, it is inconceivable that this Court could approve the DC’s
creation of jurisdiction by judicial fiat where none existed by constitution
or statute in the first instance.
210
.
209
ROA.33592.
210
B.,Inc. v. Miller Brewing Co.,
663 F.2d 545, 548 (5th Cir.1981).
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M. The DC’s grant of broad, sweeping releases and creation of an
exclusive continuing jurisdiction provisions not only violate the
mandate but are in conflict with the DC’s prior pronouncements.
These provisions are not only in violation of this Court’s mandates,
they are also are in conflict with the DC’s own prior pronouncements. For
example, the DC observed that “A judgment is void if the court that ren-
dered it lacked jurisdiction over the subject matter or the parties.” See
Memorandum and Opinion, Lindsay, J, Case 3:13-cv-03461-L, Document
52, pp 24-5., citing New York Life Ins. Co. v. Brown, 84 F.3d 137, 143 (5th Cir.
1996).
211
Again, the DC recognized the limited scope of its jurisdiction when it
stated:
“Thus, any such determination [of ownership of the LLCs] is out-
side of the court’s jurisdiction. For the same reason, the court does
not and will not have jurisdiction in this case over any claims and
disputes regarding the ownership of the receivership.
ROA.29143
Once more, DC stated in the same Order on Show Cause:
211
Appellants would ask this this Court to take judicial notice of this court filing.
See
footnote __, supra.
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“If the court lacks jurisdiction over the disputes regarding the
ownership of the Novo Point and Quantec receivership assets, it
would seem that it also lacks jurisdiction to enjoin third-party
claims dealing with this matter, particularly those claims that
have already been filed, litigated, or arbitrated or are in the pro-
cess of being litigated or arbitrated.”
ROA.29145.
Since the DC recognized it lack of subject matter jurisdiction as being so
pervasive, then where would the DC now obtain the requisite jurisdiction
to grant releases to a receiver, his professionals and others? How could the
DC justify the creation out of “whole cloth” of an all-encompassing, con-
tinuing jurisdiction clause. Aside from its clear violation of the Mandate
Rule, the court otherwise lacked jurisdiction to make these determinations.
N. The DC violated the mandates by refusing to order the return
of Appellants’ books and records seized by Vogel
To date the DC has refused to order Vogel to return Appellants’
books and records, allowing Vogel to keep them.
212
As this court ruled that
the receivership was illegal, these documents should have been returned
immediately following this Court’s rulings in Netsphere I.
212
ROA.33591
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O. The DC approved a wholly deficient accounting
Among the duties of a trustee is a full accounting.
Garrett v. First
National Bank & Trust Co. of Vicksburg, Miss
,
153 F.2d 289, 292
(5th
Cir.1946) (“Whenever a trust relation between the parties is shown to
exist, the right to an accounting at reasonable periods follows as a mat-
ter of course”). “The burden is upon the trustee to show that it has per-
formed its trust and the manner of its performance”
Id
George G.
Bogert et al
., The Law of Trusts and Trustees § 543, at 219 (2008).
The documents provided by Vogel are devoid of any of the charac-
teristics of an accounting, defined for example, in Black’s Law Diction-
ary as “the report of all items of property, income, and expenses”
prepared by the trustee for a beneficiary”. Here, Vogel did not even
identify the status of any of the other domain names that he seized
when he was appointed, not even the domain names that he apparently
sold for approximately $2 million.
A clear and comprehensive accounting is specifically mandated in
cases where the court employs equity to apportion costs in an unlawful-
ly appointed receivership. Speakman, 61 F.2d at 432.
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“We affirmed [in Potts II] that court's jurisdiction to hold plaintiff
to account for losses which the improvident appointment of the
receiver had caused.” (citations omitted).
P. The DC violated the mandates by failing to expeditiously wind-
down the receivership and return assets to Appellants
The DC improperly continued the receivership for approximately 2
years past the date this Court issued its mandates requiring an expeditious
termination. This permitted Vogel and his professionals to continue billing
the estate, to the detriment of Appellants.
V.
THE DC ABUSED ITS DISCRETION BY AWARDING FEES UNDER
PATENTLY DEFECTIVE FEE APPLICATIONS
A. Block billing practices rendered the Fee Applications defective
as a matter of law
The term “block billing” refers to the method by which each lawyer en-
ters the total daily time spent working on a case, rather than itemizing the
time expended on specific tasks.
It is well established that a party does not have the right to bill for time
that is not properly documented. Texas State Teachers Ass’n v. Garland Indep.
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134
Sch. Dist., 489 U.S. 782, 784 (1989). Block billing is inadequate to support a
fee award. E.g., Kearney v. Auto-Owners Ins. Co., 713 F.Supp.2d 1369, 1378
(M.D. Fla. 2010); Seastrunk v. Darwell Integrated Technology, Inc., No. 3:05-
CV-0531, 2009 WL 2705511, at *8 (N.D.Tex. Aug. 27, 2009) (reducing award
in block billing case).
In the instant case, Vogel, Gardere and Dykema have submitted Fee
Applications supported entirely by block billing, where they fail to allocate
fees and expenses to the various tasks they were performing and fail to
segregate their fees and expenses by receivership party.
1. A receiver and his lawyers must meet a high standard before
receiving compensation
Compensation of receivers and their professionals are held to a higher
standard than lawyers billing private clients. 75 C.J.S., Receivers, § 389(a),
p. 1064. Courts emphasize the necessity that a trustee (or a receiver) must
establish the time expended and the nature of the services performed as a
precondition to receipt of compensation. In re Imperial “400” National,
Inc., 432 F.2d 232, 237 (3rd Cir.1970); Larchwood Gardens, 420 F.2d 531, 534–
35.
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Courts also consider the results they achieved in benefiting the estate a
“critical factor” in determining the appropriate fees. W.L. Moody, 374
F.Supp. at 480; United States v. Code Products Corp., 362 F.2d 669, 673 (3d
Cir.1966) (“Results obtained are a critical factor”).
Thus, the court must look at the activities performed by a receiver on a
task by task basis, and determine whether these benefited the estate or
whether they personally benefited the receiver. Nowell v. International Trust
Co., 169 F. 497, 505 (9th Cir.1909); Larchwood Gardens, 420 F.2d 531, 534–35.
(“neither the receivers nor their attorney are entitled to compensation for
time spent in surmounting difficulties caused by their own improper,
though well intended, course of conduct.”).
Further, courts require full disclosure from receivers, as the Su-
preme Court of Florida observed in
Gramil
Corp
., 94 So. 2d at 177.
Had the DC fully considered these factors, it would have determined
that the receiver and his professionals’ work purely benefited themselves
and provided no benefit to the estate.
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2. Gardere’s fee application is wholly deficient
Gardere’s Final Fee Application
213
makes no discernable attempt to
break down the amount of fees and expenses incurred and paid for each
task Gardere undertook for Vogel and makes no attempt to segregate
the expenditures and charge them to the estates with which they are
associated. Instead, Gardere insincerely attempts to comply with such re-
quirements in a single section of one of its fee application entitled “E.
Gardere expenses would largely have been incurred by Baron any-way.”
214
.
In this section, Gardere lists six main tasks performed by Gardere for the
Vogel,
215
This constitutes the only attempt to delineate the tasks Gardere
allegedly performed. However, even in this instance, Gardere’s list is fun-
damentally flawed because it fails to allocate their fees and expenses to
each task.
Gardere’s fee application suffers from yet another fatal flaw, in that the
tasks performed could have been performed at far less cost, yet Gardere
213
See
section P-1 of the Statement of the Case, supra, at pp 40-43. (“Gardere Fee
Application”)
214
ROA.27501–05
215
Albeit, these tasks are associated with Novo Point and Quantec and not Baron.
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137
billed at much higher attorney-rates for these tasks. Recognizing the ineq-
uity in this kind of behavior, this Court criticized this conduct. Neville v.
Eufaula Bank & Trust Co. (In re U.S. Golf Corp.), 639 F.2d 1197, 1201–02 (5th
Cir. 1981).
Clearly administrative tasks such as assisting with accounting, manag-
ing sales and the like, are not “legal work,” and thus cannot be billed at at-
torney rates, as Gardere has done
Gardere has stated that the firm recognizes that it and its lawyers acted
as fiduciaries of Baron.
216
As fiduciaries of Baron, it is Gardere who must
account to Baron for the fees and expenses requested or paid, task by task,
so that Baron and the DC can make a meaningful decision as whether such
fees and expenses are compensable under Potts II. Baron should not be re-
quired to analyze Gardere’s fee applications to allocate the fees and ex-
penses of Gardere, task by task. The burden of proving up its fees and
216
ROA.34954.
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138
expenses and meeting the criteria set out in Potts II clearly falls on
Gardere.
217
3. Dykema’s fee application is just as deficient as Gardere’s
Dykema’s fee application
218
,
219
suffers from the same infirmities as
the Gardere final fee application. In a section entitled “Dykema Gossett
PLLC’s Role in the Receivership Case,” Dykema seemingly attempts to
summarize the different tasks performed by the firm, but, like the Gardere
fee application, no attempt is made to delineate the time spent or expenses
incurred, task by task or entity by entity.
220
217
See
also
Godfrey v. Powell,
159 F.2d at 33;
Gramil Corp
., 94 So. 2d at 176-177;
In re Blackwood Assoc., L.P
., 165 B.R. 108, 111 (Bankr. E.D.N.Y.1994).
218
See
section P-1 of the Statement of the Case, supra, at pp 40-43. (the “Dykema
FeeApplication”)ROA.27761‐65.
219
In the Receivership Professionals’ Fee Application (ROA.27511–27756), in Sec-
tion II entitled “Receivership Fees and Expenses,” Vogel recites that he submitted
applications for fees and expenses from September 1, 2012–October 31, 2012, and
from December 1–28, 2012, as detailed in the invoices attached to a prior applica-
tion. (ROA.27320–27321).
Formatt
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139
4. Vogel’s time entries are the most deficient.
The time entries in Vogel’s Fee Application are far worse.
221
For ex-
ample, three invoices are attached for September, October and December
2012.
222
Approximately 45 time entries are covered in such invoices. Nearly
every single entry is identical and reads as follows:
“Review pleading, files, emails, send emails, and related con-
versations with Receiver’s counsel.”
Vogel also attaches invoices for work performed by him from the com-
mencement of the receivership on November 24, 2010, through August
2012. (ROA.27614–734). The non-specific time entries in all of these invoices
failed to delineate who Vogel talked to, for how long and why, the nature
of the tasks performed and their relationship to this case.
Vogel claims that he is exempt from the established requirements im-
posed on attorney fee applications since he did not act as counsel. Howev-
er, the DC found that Vogel was acting as “lead litigator” in criticism of
Vogel’s activities and billing practices:
221
See
section P-1 of the Statement of the Case, supra, at pp 40-43. (“Vogel’s Fee
Application”)
222
ROA.27571–92.
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140
The result was that the estate was essentially billed for two lead
litigators. This problem is confounded by the fact that Vogel's
billings were often generic and repetitive, making it difficult to
determine exactly what work was done when (sic).
(ROA.28160, 5/29/2013 Fee Order at p. 37).
5. Vogel’s 2014 Fee Request is deficient.
Vogel’s 2014 Fee Request is also deficient.
223
The deficiencies in the 2014
Fee Request, as supplemented, were identified in section VI of the
4/22/2014 Objection, and are incorporated herein by reference for all pur-
poses.
C. A Receiver Has a Duty to segregate his expenditures
Vogel is responsible to segregate receivership billings, delineating the
source of each expenditure. In Bank of Commerce & Trust Co. v. Hood, 65 F.2d
281 (5th Cir. 1933), the Court held that when a receiver is administering a
receivership for multiple estates, the responsibility to segregate expenses is
that of the receiver.
223
See
section U & V of the Statement of the Case, supra, at pp 57-58. (“Vogel files
the 4/14/2014 Fee Request and Final Accounting” and “The Vogel Final “Account-
ing”)
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141
D. Fees for work performed after receivership deemed illegal are
not compensable
In addition to the deficiencies and prohibitions concerning Vogel and
his professionals’ fee applications, it is abundantly clear that no fees could
be awarded for work provided to the receivership after this Court deter-
mined that the receivership was illegal. Approximately $800,000 has been
paid to the receiver and his professionals for work performed after the
Netsphere I decision., which clearly is not compensable.
E. Disgorgement Required for Breaches of Fiduciary Duty.
Trustees, like Vogel and the receivership professionals who have
breached their fiduciary duties is subject to disgorgement of fees.
PSL Realty Co. v. Granite Investment Co.,
395 N.E.2d 641 (Ill. 1979)
,
overruled by
86 Ill.2d 291, 56 Ill.Dec. 368, 427 N.E.2d 563
(1981);
Woods v. City National Bank & Trust Co. of Chicago,
312 U.S.
262 (1941).
While the issues surrounding Vogel and his professionals’
breach of fiduciary duty, negligence and fraud were not litigated in the
district court, the district court nevertheless should have recognized
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142
such breaches as described in set forth in Section N of the Statement of
the Case, supra, at p 35. in observing these professionals’ conduct dur-
ing throughout the proceedings.
VI.
THE DC ERRED IN MAKING FINDINGS OF FACT UNSUPPORTED
BY THE RECORD
Findings of fact are reviewed under a clearly erroneous standard.
Beaubouef v. Beaubouef
(In re Beaubouef ), 966 F.2d 174, 178 (5th Cir.
1992). “[T]he clearly erroneous standard requires that an appellate
court be able to discern the evidentiary basis for a trial court’s factual
finding. Only if the district court specifies which evidence it adopted
and which evidence it rejected in making its finding can we properly
and effectively apply the clearly erroneous standard.”
Planned
Parenthood of Greater Texas Surgical Health Services v. Abbott II,
748
F.3d at 583, 604 (5
th
Cir. 2014)
; Lopez v. Current Dir. of Tex. Econ. Dev.
Comm’n
, 807 F.2d 430, 434 (5th Cir. 1987) (citation omitted));) (“Rule
52(a) exacts neither punctilious detail nor slavish tracing of the claims
issue by issue and witness by witness, but it does require findings that
Case: 15-10341 Document: 00513219780 Page: 163 Date Filed: 10/05/2015
143
are explicit and detailed enough to enable us to review them under the
applicable standard.” (quotation marks omitted).
Collins v. Baptist
Mem’l Geriatric Ctr
., 937 F.2d 190, 194 (5th Cir. 1991).
The DC made numerous erroneous findings based on unsupported
statements of opposing counsel and innuendo, all of which require rever-
sal. Record Excerpt 22 is a table of the factual findings which Baron asserts
were clearly erroneous.
CONCLUSION
The DC violated the Fifth Amendment when it prevented Jeffrey
Baron from accessing to his funds to pay counsel during contentious,
complex proceedings. Charging fees against property that was wrong-
fully seized without jurisdiction and without probable cause violates the
Fourth or Fifth Amendments. Because of these violations, the Court
must set aside the Memorandum Opinion and Order entered on March
27, 2015 and the Final Fee Order entered on May 29, 2013, Record Ex-
cerpts 12 and 5 and order the Receiver and his professionals to disgorge
the fees they have received in this case and all other expenditures made
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144
from the proceeds from the receivership estate, in total, over
$11,000.00.
See
Record Excerpts 14 and 15.
The precedent of this Court and the Supreme Court precludes charg-
ing expenses of an unlawful receivership against property over which
the court lacks subject matter jurisdiction. The decision in
Netsphere I
was clearly erroneous in determining that the DC had the equity juris-
diction to award fees and expenses against the assets of Baron, Novo
Point and Quantec, where the Court had determined that the DC lacked
subject matter jurisdiction in the first instance. Accordingly, the Court
must set aside the Memorandum Opinion and Order entered on March
27, 2015 and the Final Fee Order entered on May 29, 2013, Record Ex-
cerpts 12 and 5 and order the Receiver and his professionals to disgorge
the fees they have received in this case and all other expenditures made
from the proceeds from the receivership estate, in total, over
$11,000.00.
See
Record Excerpts 14 and 15.
Even if the DC had equity jurisdiction, it could not ignore this
Court’s mandates and controlling precedent from the Supreme Court
and this Court in awarding fees to a vacated receiver and his profes-
sionals without a showing that the fees conferred a benefit to the estate.
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145
Accordingly, the Court must set aside the Memorandum Opinion and
Order entered on March 27, 2015 and the Final Fee Order entered on
May 29, 2013, Record Excerpts 12 and 5 and remand the case to the DC
with specific instructions that all fee awards must be based on a show-
ing of benefit to the receivership estate, and such fee awards cannot in-
clude fees and expenses incurred in defending against the appeals
which Baron successfully prosecuted before this Court.
The DC cannot disregard this Court’s mandates in
Netsphere, Inc. v.
Baron
, in awarding excessive fees and expenses to Vogel and the profes-
sionals hired by him and to Sherman, the party who moved for the re-
ceivership. This Court cannot permit a vacated receiver to charge the
estate for work that he and his professionals performed vindicating
their personal interests, including services involved in prosecuting fee
applications to the DC and defending them. Accordingly, the Court
must set aside the Memorandum Opinion and Order entered on March
27, 2015 and the Final Fee Order entered on May 29, 2013, Record Ex-
cerpts 12 and 5 and remand the case to the DC with specific instruc-
tions that all fee awards must be based on a showing of benefit to the
receivership estate, and such fee awards cannot include fees and ex-
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146
penses incurred in defending against the appeals which Baron success-
fully prosecuted before this Court.
As a matter of law, fiduciaries canot receive broad releases of lia-
bility without an agreement for such releases and without disclosure of
their activities and when the lower court lacks jurisdiction to grant such
releases. This Court must reverse the March 27, 2015, Memorandum
Opinion and Order, Record Except 10, because the Court did not have
the power or authority to grant such releases or to employ exclusive ju-
risdiction provisions the likes of which were adopted by the DC.
The findings set forth in Record Excerpt 22 must be set aside be-
cause they were clearly erroneous.
Respectfully Submitted,
P
ENDERGRAFT & SIMON, LLP
/s/
Leonard H. Simon
Leonard H. Simon
Texas Bar No. 18387400
William P. Haddock
Texas Bar No. 00793875
2777 Allen Parkway, Suite 800
Houston, TX 77019
Tel. 713-528-8555 J
Fax. 713-868-1267
Attorneys for Appellant Jeffrey
Baron
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147
CERTIFICATE OF SERVICE
The undersigned certifies that the original of the Appellant Jeffrey Baron’s
Brief was electronically filed with the Clerk of the United States Court of
Appeals for the Fifth Circuit using the Appellate CM/ECF system. Accord-
ingly, counsel who have entered an appearance in this case and are regis-
tered Appellate CM/ECF users will be served electronically by the
Appellate CM/ECF system through their registered e-mail addresses.
The undersigned further certifies that a true and correct copy of this Appel-
lants’ Brief was served on counsel who do not participate in the Appellate
CM/ECF system by courier in accordance with Fed. R. App. P. 25 and
5
TH CIR. R. 25.
Service List:
Paul Raynor Keeting
173 Balmes 2/2
08006 Barcelona
SPAIN
Counsel for Novo Point, LLC and
Quantec, LLC
Christopher D. Kratovil
Dykema Gossett, PLLC
1717 Main Street, Suite 4000
Dallas, TX 75201
Counsel for Peter S. Vogel
Debbie E. Green
Gardere Wynne Sewell LLP
1717 Main Street, Ste. 4000
Dallas, Texas 75201
Counsel for Gardere Wynne Sewell
LLP
Lee Morris
Munsch, Hardt, Kopf & Harr PC
500 N. Akard St., Ste. 3800
Dallas, Texas 75201
Counsel for Munsch, Hardt, Kopf &
Harr PC
Case: 15-10341 Document: 00513219780 Page: 168 Date Filed: 10/05/2015
148
/s/ Leonard H. Simon
Leonard H. Simon
Dated: October 5, 2015
Case: 15-10341 Document: 00513219780 Page: 169 Date Filed: 10/05/2015
149
CERTIFICATE OF COMPLIANCE WITH RULE 32(A )
Certificate of Compliance with Type-Volume Limitation, Typeface
Requirements, and Type Style Requirements
1. This brief complies with the type-volume limitation of Fed. R. App. P.
32(a)(7)(B) because this brief contains 25,575 words, excluding the parts
of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).
2. This brief complies with the typeface requirements of Fed. R. App. P.
32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) be-
cause this brief has been prepared in a proportionally spaced typeface
using Microsoft Word 2011 (Mac OS X) in 14 point Palatino for text, and
Helvetica Neue for headings.
/s/
Leonard H. Simon
Leonard H. Simon
Dated: October 5 2015
Case: 15-10341 Document: 00513219780 Page: 170 Date Filed: 10/05/2015
