Civil Action No. 3:12-cv- 00416-F (O)
____________________________________________________________________________
IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
____________________________________________________________________________
GARY N SCHEPPS,
PETFINDERS, LLC,
NOVO POINT, LLC, AND
JEFFREY BARON
Appellants,
v.
CHAPTER 11 TRUSTEE DANIEL J. SHERMAN
Appellee
____________________________________________________________________________
Appeal from the United States Bankruptcy Court
For the Northern District of Texas, Dallas Division
Bankruptcy Petition No. 09-34784-sgj11
____________________________________________________________________________
APPELLANTS’ REPLY BRIEF
____________________________________________________________________________
Respectfully submitted,
/s/ Gary N. Schepps
Gary N. Schepps
Texas State Bar No. 00791608
Drawer 670804
Dallas, Texas 75367
(972) 200-0000 - Telephone
(214) 347-4031 - Facsimile
Email: legal@schepps.net
COUNSEL FOR APPELLANT
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 1 of 10 PageID 977
ii
TABLE OF CONTENTS
TABLE OF CONTENTS .................................................................................................ii
TABLE OF AUTHORITIES ........................................................................................ iii
REPLY ISSUES PRESENTED .......................................................................................1
REPLY STATEMENT OF THE CASE AND FACTS....................................................1
ARGUMENT AND AUTHORITIES ..............................................................................1
REPLY ISSUE 1. CORROBORATIVE EVIDENCE IS REQUIRED TO DRAW A
NEGATIVE INFERENCE. ......................................................................................................1
REPLY ISSUE 2. THE ‘RECEIVERSHIP ORDER’ IS VOID...............................................6
CONCLUSION.................................................................................................................7
CERTIFICATE OF SERVICE.......................................................................................7
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 2 of 10 PageID 978
iii
TABLE OF AUTHORITIES
FEDERAL CASES
Armstrong v. Manzo,
380 U.S. 545, 552 (1965)..................................................................................................................... 6
Baxter [Baxter v. Palmigiano,
425 U.S. 308 (1976)], 425 U.S. at 318, 96 S.Ct. at 1558 ................................................................... 4
Boddie v. Connecticut,
401 U.S. 371, 379 (1971)..................................................................................................................... 6
Cochrane v. WF Potts Son & Co.,
47 F.2d 1026, 1029 (5th Cir. 1931) ..................................................................................................... 6
Ferrante v. United States,
516 U.S. 806, 116 S.Ct. 50, 133 L.Ed.2d 15 (1995)............................................................................ 4
Gannett Co. v. DePasquale,
443 U.S. 368, 412 (1979)..................................................................................................................... 6
Goss v. Lopez,
419 U.S. 565, 579 (1975)..................................................................................................................... 6
In re Winstar Communications, Inc.,
348 BR 234, 281 (D.Del. 2005)........................................................................................................... 3
Pennoyer v. Neff,
95 U.S. 714, 737 (1878)....................................................................................................................... 6
Petroleos Mexicanos v. Crawford Enterprises, Inc.,
826 F.2d 392, 401 (5th Cir.1987) ........................................................................................................ 4
Phillips v. Vandygriff,
711 F.2d 1217, 1227 (5th Cir. 1983) ................................................................................................... 6
Registration Control Systems v. Compusystems, Inc.,
922 F.2d 805, 807 (Federal Cir. 1990) ................................................................................................ 6
United States v. Private Sanitation Industry Ass'n,
899 F.Supp. 974, 982 (E.D.N.Y.1994), aff'd 47 F.3d 1158................................................................. 4
World-Wide Volkswagen Corp. v. Woodson,
444 U.S. 286, 291 (1980)..................................................................................................................... 6
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 3 of 10 PageID 979
-1-
REPLY ISSUES PRESENTED
REPLY ISSUE 1. Corroborative Evidence is Required to Draw a Negative Inference.
REPLY ISSUE 2. The ‘receivership order’ is void.
REPLY STATEMENT OF THE CASE AND FACTS
The Facts argued by the Appellee are erroneous and not supported by the record. Each and
every factual averment of the Appellee is contested.
ARGUMENT AND AUTHORITIES
REPLY ISSUE 1. Corroborative Evidence is Required to Draw a Negative Inference.
The Appellee, having lined his and his counsel’s pockets with over two million dollars
of Baron’s money, constructs a conspiracy theory picture of Jeff Baron with long arms
somehow reaching from beyond the grave to conspire against justice in America. There is
no evidence to support the groundless fabrications of alleged misconduct alleged by the
Appellee against the undersigned. Yet, the Appellee feels compelled to accuse the
undersigned counsel of criminal wrongdoing. Perhaps the Appellee feels the need to attempt
to delegitimize an opposing attorney who has shown on appeal that:
(1) The Appellee induced Baron to fund the Bankruptcy Estate with a net three
million dollars by promising to immediately pay off all the creditor claims
(mostly attorneys) and return Ondova to Baron with around $1 Million in the
bank and all the non-cash assets intact;
(2) The Appellee then broke the agreement—an agreement which has been admitted
on the record— and started running up, in the space of 30 days, hundreds of
thousands of dollars in attorneys fees instead of paying off the attorney creditors
and closing the bankruptcy;
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 4 of 10 PageID 980
-2-
(3) Baron objected and then, within just three business days, the Appellee secretly
consulted ex parte with the Special Master Peter Vogel over in the District Court,
to have the District Judge act in secret, without notice or an opportunity for Baron
to be heard, to issue a complete and total receivership order over Baron to seize
all
of Baron’s exempt and non-exempt assets, and to prevent Baron from earning
any money, and to prevent Baron from hiring an attorney to defend himself;
(4) The Appellee then participated in off-the-record ex parte proceedings before the
District Court to implement the plan worked out with Vogel, and to convince the
Court that Baron was a menace to society (or at least to Attorneys) by painting a
false picture for the Court including, by the following:
a. Falsely representing to the Court that Baron didn’t pay his bankruptcy
lawyer Thomas and thus forced Thomas to withdraw;
b. Falsely representing to the Court that the Bankruptcy Judge recommended
a receiver be placed over Baron should Thomas withdraw (in reality,
Thomas neither withdrew nor was owed unpaid fees);
c. Falsely representing that Baron caused the Court ordered mediation to fail;
d. Failing to disclose to the Court that Ondova had more than sufficient cash
in the bank to pay ALL
of the attorney creditors who filed claims with
Ondova, plus ALL
of the attorney claimants who had not so filed; and
e. Participating in a concerted effort to mislead the District Court into
believing that under the bankruptcy code, a creditor
such as Baron was
liable to indemnify the bankruptcy estate for the substantial contributions
of his counsel—when no such law exists and the law is exactly opposite,
i.e., the bankruptcy estate and not the creditor must ultimately pay for
qualifying substantial contributions.
(5) Then, after obtaining the ex parte receivership order in secret proceedings, the
Appellee made concerted efforts to cover-up and deny the existence of the ex
parte proceedings and to conceal the fact that the receivership order [Doc 124]
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 5 of 10 PageID 981
-3-
had been signed hours before the Appellee’s motion for such an order was filed
[Doc 123]; and
(6) Since Baron has been locked down and prohibited from retaining trial counsel to
defend himself against the economic rape of himself and his property and the
property of Ondova, the Appellee has engaged in a round-the-clock, non-stop
blizzard of billing so massive that the Appellee has nearly completely emptied the
bank accounts of Ondova. The Appellee has placed into his own pockets and the
pockets of his attorney all of the money that the he had promised Baron would be
used to immediately
pay the bankruptcy court attorney claimants, as well the
surplus money that could have been used to pay non-claimant attorneys had they
made claims. In fact, one attorney who made a claim in the bankruptcy court has
even objected to the Appellee’s actions and has pointedly noted that the Appellee
is taking the reserved funds that would have been used to pay attorney claimants
should they prevail on their claims in the bankruptcy proceedings.
(7) After using secret off-the-record ex parte proceedings to secure an ex parte order
preventing Baron from having any paid counsel to represent him, the Appellee
and Vogel have gorged themselves on the assets of Baron, Ondova, and the other
receivership entities, emptying the estate of Ondova and lining their and their
firms’ pockets with nearly five million dollars in ‘fees’. No claimant has
received a penny, and the funds of Ondova are essentially fully drained. The
Appellee of course, attempts to place the blame on the whipping boy, Baron—tied
by the Court’s order and helpless without paid counsel or trial counsel to defend
himself so that the Appellee and Vogel can have their way with him, and the
estates’ assets.
Now, to support the completely unsubstantiated claims fabricated against the
undersigned, the Appellee seeks to rely upon ‘negative inference’. However, as succinctly
explained by the Judge Rosenthal in In re Winstar Communications, Inc., 348 BR 234, 281
(D.Del. 2005):
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 6 of 10 PageID 982
-4-
Before an adverse inference may be drawn from a party's refusal to
testify in a civil case, there must be independent corroborative
evidence to support the negative inference beyond the invocation
of the privilege. See Baxter [Baxter v. Palmigiano, 425 U.S. 308
(1976)], 425 U.S. at 318, 96 S.Ct. at 1558. (“the Fifth Amendment
does not forbid adverse inferences against parties . . . when they
refuse to testify in response to probative evidence offered against
them”); “[L]iability should not be imposed based solely upon the
adverse inference.” United States v. Private Sanitation Industry
Ass'n, 899 F.Supp. 974, 982 (E.D.N.Y.1994), aff'd 47 F.3d 1158 (2d
Cir.), cert. denied sub. nom., Ferrante v. United States, 516 U.S. 806,
116 S.Ct. 50, 133 L.Ed.2d 15 (1995).
Accordingly, even had the proceedings below not been to vindicate the Court’s
authority with “$50,000.00” being the pre-declared punishment necessary to ‘get the
attention’ of the alleged offenders and to prevent the violation of future orders, negative
inference does not support the Bankruptcy Court’s findings because there is no independent
corroborative evidence of the underlying findings. For example, there is no
corroborative
evidence that the undersigned had knowledge of the content of the orders alleged to have
been contemptuously violated. Rather, the testimony uniformly established that the
undersigned was not provided a copy of the orders before taking allegedly contemptuous
action. The Bankruptcy Court erred in failing to use the clear and convincing standard in
reaching its findings, and there is no clear and convincing evidence of record to support even
civil contempt. See Petroleos Mexicanos v. Crawford Enterprises, Inc., 826 F.2d 392, 401
(5th Cir.1987).
Notably, the Appellee has routinely offered completely fictitious claims directed
personally against opposing counsel as the basis for the Appellee’s arguments, as discussed
below. The Appellee has used this technique in the Fifth Circuit, and for example, argued
the undersigned fabricated a forged bill of sale to substantiate the transfer of domains from
Ondova to Novo Point, LLC. It was then shown that the Appellee previously acknowledged
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 7 of 10 PageID 983
-5-
the very same document in prior filings before the Bankruptcy Court. The Appellee again
uses this technique in his current briefing. For example, the Appellee argues (without any
evidence) that SouthPac Trust did not hire the undersigned. While that groundless argument
is made here, concurrently in the main District Court case and before the Fifth Circuit, Vogel
takes the opposite position and argues that Baron controls SouthPac Trust. Notably, the
Appellee references the order by which the undersigned was ordered to file documentation of
the corporate authority for his employment, but the Appellee fails to mention—in
contravention of the Appellee’s current argument—that the documentation was filed, and the
formal corporate authorization for Novo Point LLC to retain the undersigned was executed
by its Cook Islands manager and filed of record in the Bankruptcy Court.
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 8 of 10 PageID 984
-6-
REPLY ISSUE 2. The ‘receivership order’ is void.
An ex parte order such as the ‘receivership order’ that was signed without a motion on
file to support it, and without notice, opportunity to be heard, sworn affidavits, or bond to
protect the rights of those adversely affected by the order, etc., is an order fundamentally
devoid of due process and void as a matter of law. As a matter of well-established law,
failure to afford a party the opportunity to be heard on a motion seeking relief against them
is fundamentally inconsistent with the notion of due process, and orders issued without such
an opportunity are void. See e.g., Armstrong v. Manzo, 380 U.S. 545, 552 (1965); Goss v.
Lopez, 419 U.S. 565, 579 (1975); Boddie v. Connecticut, 401 U.S. 371, 379 (1971); Phillips
v. Vandygriff, 711 F.2d 1217, 1227 (5th Cir. 1983); Registration Control Systems v.
Compusystems, Inc., 922 F.2d 805, 807 (Federal Cir. 1990). Thus, the Supreme Court has
described secret judicial proceedings as “a menace to liberty”. Gannett Co. v. DePasquale,
443 U.S. 368, 412 (1979). Because the ‘receivership order’ was signed in secret, off-the-
record proceedings before a motion requesting the order was filed and failed to provide the
most basic aspects of Due Process, the order is void ab initio and subject to collateral attack
in the Bankruptcy Proceedings. See e.g., Pennoyer v. Neff, 95 U.S. 714, 737 (1878) (“such
proceeding is void as not being by due process of law”); World-Wide Volkswagen Corp. v.
Woodson, 444 U.S. 286, 291 (1980) (“rendered in violation of due process is void in the
rendering”).
The ‘receivership order’ is also void for lack of subject matter jurisdiction. The
district court lacked subject matter jurisdiction to enter the receivership order because no
claim for relief regarding the property ordered into receivership was pled before that court.
Cochrane v. WF Potts Son & Co., 47 F.2d 1026, 1029 (5th Cir. 1931) (absent pleadings
asserting a claim in and to the property subject of the receivership, an order appointing a
receiver over that property is “absolutely void in the strictest sense of the term”).
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 9 of 10 PageID 985
-7-
CONCLUSION
The Bankruptcy Court’s order should be reversed.
Respectfully submitted,
/s/ Gary N. Schepps
Gary N. Schepps
Texas State Bar No. 00791608
Drawer 670804
Dallas, Texas 75367
(972) 200-0000 - Telephone
(214) 347-4031 - Facsimile
Email: legal@schepps.net
COUNSEL FOR APPELLANT
CERTIFICATE OF SERVICE
This is to certify that this brief was served this day on all parties who receive notification through
the Court’s electronic filing system.
CERTIFIED BY: /s/ Gary N. Schepps
Gary N. Schepps
COUNSEL FOR APPELLANTS
Case 3:12-cv-00416-F Document 15 Filed 04/08/12 Page 10 of 10 PageID 986
