RESPONSE TO [DOC#323] AND [DOC#324] - Page 1
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
NETSPHERE, INC., §
MANILA INDUSTRIES, INC., and §
MUNISH KRISHAN, §
§ Civil Action No. 3-09CV0988-F
JEFFREY BARON, and §
ONDOVA LIMITED COMPANY, §
APPELLANT’S OBJECTION AND RESPONSE TO (1) THE RECEIVER'S
THIRD FEE APPLICATION [DOC#323] AND (2) THE RECEIVER'S
FIRM’S THIRD FEE APPLICATION [DOC#324]
Appellant, Jeffrey Baron makes this response and objection to (1) The
Receiver's Third Application for Fees [DOC#323] and (2) The Receiver's Third
Application for Fees for his law firm, Gardere Wynne Sewell LLP [DOC#324].
1. From the very start of the receivership, Mr. Baron, through his counsel,
has extended his hand to the receiver in an offer of full cooperation and resolving
the need for any receivership by agreement. The receiver slammed the door on
cooperation and agreement, stating in no uncertain terms that there “is no first step
to reaching any agreement.” The receiver’s fees are massive, unreasonable, and
unnecessary. Docket no. 364 is incorporated herein by reference in its entirety.
2. For further cause, if same is necessary: Mr. Baron has appealed the order
appointing the receiver [Doc #136] and NovoPoint, LLC and Quantec, LLC
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(“SouthPac’s LLC companies”) have appealed from the order including the
SouthPac LLC companies into the receivership [Doc #227].
3. 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.
4. 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).
5. Accordingly, the order to alter the original receivership order to include
SouthPac’s LLC companies is void for lack of subject matter jurisdiction.
6. 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.
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7. 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”).
8. 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).
9. 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”).
10. Further, Mr. Baron has no responsibility for the liabilities or
administrative fees or costs relating to any other receivership entity, and
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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.
11. 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.
12. 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.
13. 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
violation of the law and rules of procedure. There was no necessity to run up fees
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to obtain the information on Mr. Baron’s accounts—he provided the information
and bank statements to the receiver.
14. 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.
15. 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
16. 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).
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17. 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.
18. 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. Notably, Peter Vogel’s appoint as special
master was itself done in clear violation of the Federal Rules of Civil Procedure.
19. 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
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ineligible to be appointed as 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
20. 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.
/s/ Gary N. Schepps
Gary N. Schepps
State Bar No. 00791608
Dallas, Texas 75367
(214) 347-4031 Facsimile
APPELLATE COUNSEL FOR
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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