RESPONSE TO [DOC#192] AND [DOC#193] - Page 1
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
NETSPHERE, INC., § Civil Action No. 3-09CV0988-F
MANILA INDUSTRIES, INC., and §
MUNISH KRISHAN, §
JEFFREY BARON, and §
ONDOVA LIMITED COMPANY, §
APPELLANTS’ JOINT OBJECTION AND RESPONSE TO (1) THE
RECEIVER'S FIRST APPLICATION FOR REIMBURSEMENT OF FEES
AND EXPENSES INCURRED BY THE RECEIVER [DOC#192] AND (2)
THE RECEIVER'S FIRST APPLICATION FOR REIMBURSEMENT OF
FEES AND EXPENSES INCURRED BY GARDERE WYNNE SEWELL
TO THE HONORABLE ROYAL FURGESON, U.S. DISTRICT JUDGE:
COMES NOW, Appellant, defendant Jeffrey Baron and Appellants
NovoPoint, LLC and Quantec, LLC and make this joint response and objection to
(1) The Receiver's First Application For Reimbursement Of Fees And Expenses
Incurred By The Receiver [DOC#192] and (2) The Receiver's First Application For
Reimbursement Of Fees And Expenses Incurred By Gardere Wynne Sewell LLP
1. Mr. Baron has appealed the order appointing the receiver [Doc #136] and
NovoPoint, LLC and Quantec, LLC (“SouthPac’s LLC companies”) have appealed
Case 3:09-cv-00988-F Document 236 Filed 01/20/11 Page 1 of 8 PageID 5143
RESPONSE TO [DOC#192] AND [DOC#193] - Page 2
from the order including the SouthPac LLC companies into the receivership [Doc
2. The filing of a notice of appeal is an event of jurisdictional
significance— it confers jurisdiction on the court of appeals and divests the district
court of its control. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58
(1982). The divesture of jurisdiction of the trial court involves those aspects of the
case appealed. Id.
3. The Court had no jurisdiction over the receivership order after Mr. Baron
filed his appeal. “A district court does not have the power to ‘alter the status of the
case as it rests before the Court of Appeals’.” Dayton Indep. School Dist. v. US
Mineral Prods. Co., 906 F.2d 1059, 1063 (5th Cir. 1990).
4. Accordingly, the order to alter the original receivership order to include
SouthPac’s LLC companies is void for lack of subject matter jurisdiction.
5. The order including SouthPac’s LLC companies into the receivership is
also void for lack of personal jurisdiction over the owner of those LLC companies,
SouthPac. SourthPac is a serious and reputable trustee, recognized by US Courts
of Appeals. The bankruptcy court approved SouthPac to act as trustee and take
possession of the LLC companies. SouthPac has not been served with any process
in this case. Accordingly, by law this Court lacks personal jurisdiction over
SouthPac and is without jurisdiction to seize its property.
Case 3:09-cv-00988-F Document 236 Filed 01/20/11 Page 2 of 8 PageID 5144
RESPONSE TO [DOC#192] AND [DOC#193] - Page 3
6. The order including SouthPac’s LLC companies into the receivership is
also void for lack of subject matter jurisdiction on the further but significant
grounds that the pleadings do not put their subject-matter at issue. See Cochrane v.
WF Potts Son & Co., 47 F.2d 1026, 1029 (5th Cir. 1931) (since the court had no
jurisdiction over these properties, its order appointing a receiver to take charge of
them was void, in fact, “their proceedings are absolutely void in the strictest sense
of the term”).
7. Moreover, the Fifth Circuit has ruled that the powers of the district court
over a matter appealed from, pending appeal are limited to maintaining the status
quo and do not to extend to the point that the district court can divest the court of
appeals from jurisdiction while the issue is before the Court of Appeals on appeal.
Coastal Corp. v. Texas Eastern Corp., 869 F.2d 817, 820 (5th Cir. 1989).
8. Accordingly, pending appeal the district court is without jurisdiction to
dispose of any of the assets which were seized by the receiver. See e.g., Taylor v.
Sterrett, 640 F.2d 663, 668 (5th Cir. 1981) (“[T]he District Court was divested of
jurisdiction only as to matters relating to the April 27 and May 12 orders and
subsequent orders and, for that reason, fees cannot be recovered for work relating
to these orders”).
9. Further, Mr. Baron has no responsibility for the liabilities or
administrative fees or costs relating to any other receivership entity, and
Case 3:09-cv-00988-F Document 236 Filed 01/20/11 Page 3 of 8 PageID 5145
RESPONSE TO [DOC#192] AND [DOC#193] - Page 4
SouthPac’s LLC companies have no responsibility for the liabilities or
administrative fees or costs relating to Mr. Baron’s assets. Also, the scope of the
receivership extends to Mr. Baron’s exempt property, and distribution of such
exempt property would be unlawful.
10. Payment to the receiver with respect to SouthPac’s companies is also
improper because the receiver acted as an advocate seeking inclusion of the
companies in the receivership order. A receiver is prohibited from seeking to be
appointed receiver over a company and then charge those companies for its work
as receiver. Rather, by law a receiver must be disinterested. Booth v. Clark, 58 US
322, 331 (1855). Similarly, the receiver’s requested fees must be excluded because
the receiver is not entitled to compensation from receivership assets for his role as
an advocate against a party.
11.The fees run up by the receiver and his law firm are unreasonable and
include fees and charges prohibited by law. For example, the receiver and his law
firm have charged for executing upon property exempt from execution as a matter
of law, such as Mr. Baron’s Roth IRAs. Seizure of exempt assets appears to be
around half, or more, of the entire receivership with respect to Mr. Baron.
12.The fees are also excessive and unnecessary. Mr. Baron complied with
this Court’s injunction order with respect to his assets, even though it was issued
without notice, without supporting affidavit, and without supporting findings, in
Case 3:09-cv-00988-F Document 236 Filed 01/20/11 Page 4 of 8 PageID 5146
RESPONSE TO [DOC#192] AND [DOC#193] - Page 5
violation of the law and rules of procedure. There was no necessity to run up fees
to obtain the information on Mr. Baron’s accounts—he provided the information
and bank statements to the receiver.
13.The billing rate charged by the receiver’s law firm are excessive, the
attorneys working on the matter do not have sufficient experience working on this
particular type of matter, and their hourly fees are excessive.
14. Mr. Baron is an individual; his only material assets are some banking
accounts and two small apartments, one of which is his home. The receiver and his
firm are running up fees at the rate of almost $10,000.00 per business day. The
amount is grossly excessive, unreasonable and inequitable. The entire ‘estate’ of
Mr. Baron involved some US accounts which Mr. Baron himself provided
15. The receivership was brought on behalf of no claimant to the property of
Mr. Baron. Accordingly, the receivership in place for this Court’s personal desire
to pay attorneys fees from Mr. Baron’s money, is akin to a governmental action to
recover a debt. Accordingly, the maximum statutory fee allowed in such
circumstances– 5 percent of the sums received by the receiver (which themselves
are limited by law to non-exempt assets)– should set the maximum equitable fees
allowed. See 28 U.S.C. §3103(g)(1).
Case 3:09-cv-00988-F Document 236 Filed 01/20/11 Page 5 of 8 PageID 5147
RESPONSE TO [DOC#192] AND [DOC#193] - Page 6
16. Moreover, the entry of a receivership without due process and subject
matter jurisdiction over the property placed into receivership is unconstitutional
and void ab initio. The great mass of weight of clear and controlling Fifth Circuit
and Supreme Court precedent extending back for more than a century that
establishes the unlawful and unconstitutional nature of the receivership order – and
the absence of any controlling precedent to support the receivership order– signed
without notice, without hearing, without affidavits, without supporting findings,
and without lawful cause– makes the receiver’s action under the order
unreasonable and a violation of the receiver’s fiduciary and legal duties to inform
the Court of the illegality and unconstitutionality of the receivership order and
process by which it was entered.
17. For further grounds, should same be necessary, the receiver and his firm
are estopped from entitlement to payment for fees because at the time he was
appointed receiver in this Court’s order, he was employed by your honor as a special
master in this very case. See Docket #37. The receiver himself recognized that
holding both roles was inappropriate and sought termination of his employment as
special master on December 10, 2010. See Docket#147. Post appointment
termination of his employment as special master, however, is not sufficient.
Pursuant to 28 U.S.C. 958, Mr. Vogel was legally ineligible to be appointed as
Case 3:09-cv-00988-F Document 236 Filed 01/20/11 Page 6 of 8 PageID 5148
RESPONSE TO [DOC#192] AND [DOC#193] - Page 7
receiver. 28 U.S.C. 958 mandates that a person holding employed by any judge of
the United States may not at the same time be appointed a receiver. Id.
18. Similarly, Mr. Vogel undertook to act as a mediator with respect to this
case, and was provided confidential information of Mr. Baron with respect to that
mediation. Accordingly, to then act as an adversary against Mr. Baron in the very
same proceedings and concerning the same subject matter, is a violation of Mr.
Vogel’s fiduciary duties as a mediator in the case. Pursuant to state law, Mr.
Vogel and his law firm, are not entitled to profit from the fiduciary violation and
any fee must be forfeited.
The Supreme Court has ruled that “[t]he filing of a notice of appeal is an
event of jurisdictional significance– it confers jurisdiction on the court of appeals
and divests the district court of its control over those aspects of the case involved
in the appeal.” Griggs, 459 U.S. at 58.
Movants pray this Honorable Court to respect the jurisdiction of the Court of
Appeals, and, should the receivership order be upheld on appeal and jurisdiction
over the order be returned to this Court, to proceed with respect to the requested
fees pursuant to the law and the good and equitable judgment of this Court.
Case 3:09-cv-00988-F Document 236 Filed 01/20/11 Page 7 of 8 PageID 5149
RESPONSE TO [DOC#192] AND [DOC#193] - Page 8
/s/ Gary N. Schepps
Gary N. Schepps
State Bar No. 00791608
Dallas, Texas 75367
(214) 347-4031 Facsimile
APPELLATE COUNSEL FOR
CERTIFICATE OF SERVICE
This is to certify that this was served on all parties who receive notification
through the Court’s electronic filing system.
/s/ Gary N. Schepps
Gary N. Schepps
Case 3:09-cv-00988-F Document 236 Filed 01/20/11 Page 8 of 8 PageID 5150