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Stephen R. Cochell
The Cochell Law Firm, P.C.
7026 Old Katy Road, Ste. 259
Houston, Texas 77096
Telephone: (713)980-8796
Facsimile: (214) 980-1179
srcochell@cochellfirm.com
ATTORNEY FOR JEFFREY BARON
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE:
JEFFREY BARON,
DEBTOR.
________________________________
JEFFREY BARON,
Movant,
vs.
GERRIT PRONSKE, et al.,
Respondents.
§
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§ Bankruptcy Case No. 12-37921
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MOTION FOR EMERGENCY HEARING ON MOTION TO STAY
ORDER FOR RELIEF IN INVOLUNTARY CASE PENDING APPEAL
AND APPOINTMENT OF INTERIM TRUSTEE
COMES NOW Jeffrey Baron (“Baron”) and files this Motion for an Emergency Hearing
(the “Emergency Hearing Motion”) on the Motion to Stay (the “Stay Motion”) the Order for
Relief in Involuntary Case (NDTX Bankr. Case No. 12-37921-sgj7 Dkt (“Bankr. Dkt.”) 240). In
support hereof, Baron would respectfully show as follows:
1. On December 18, 2012 (the “Petition Date”), several parties (“Petitioning
Creditors”) filed an involuntary chapter 7 bankruptcy petition (the “Involuntary Petition”)
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against Baron in this Bankruptcy Court. (Bankr. Dkt. 1.)
2. This involuntary proceeding was filed approximately two hours after the Fifth
Circuit Court of Appeals (the “Fifth Circuit”) entered an order (the “Reversal Order”) on the
same date: (a) reversing an earlier order appointing a receiver (the “Receiver”) over all of Mr.
Baron’s personal assets (the “Receivership Order”), previously entered by the United States
District Court for the Northern District of Texas (the “District Court”) on November 10, 2010, in
a separate lawsuit styled Netsphere, Inc. v. Baron, 703 F.3d 296 (5
th
Cir 2012) (the “Lawsuit”)
and (b) instructing the District Court to wind down the receivership estate and direct the receiver,
after satisfaction of certain expenses incurred by the receiver, to expeditiously return the property
held and managed by the receiver (the “Receivership Property”) to Baron. See Netsphere, Inc.,
703 F.3d at 313. This never happened. In point of fact, it has been 8 months since the Reversal
Order and the Receiver is still in possession of the Receivership Property, including property that
is exempt from the bankruptcy estate. (See Bankr. Dkt. Nos. 239 and 240.)
3. On June 26, 2013, after an evidentiary hearing where Baron was represented by
an attorney with a limited engagement agreement, the Bankruptcy Court entered the Order for
Relief which effectively terminated Baron’s legal representation when it adjudicated the
involuntary chapter 7 proceeding against Baron as appropriate and subjected Baron to such
proceedings. (See Bankr. Dkt. Nos. 239, 240, 241 and 243.)
4. The Receiver is now seeking direction from the Bankruptcy Court to turn over all
the property in his possession to a chapter 7 trustee (the “Trustee”), despite the Fifth Circuit’s
clear direction to turn over property to Baron. The Receiver is even seeking direction from the
Bankruptcy Court, without ever filing an adversary proceeding, to turn over property that does
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not belong to Baron and therefore never entered into the bankruptcy estate. All of these efforts
are transparent and aimed solely at contravening the Reversal Order and making sure that Baron
has absolutely no funds in which to hire counsel to represent him in any proceeding, including
this involuntary case, the Lawsuit and the appeal of the Order for Relief, as discussed below.
5. On July 8, 2013, Baron filed a Notice of Appeal, commencing the appeal of the
Order of Relief, pursuant to 28 U.S.C. § 158(a). (Bankr. Dkt. 253.) Baron currently has two other
requests for interlocutory appeals pending before the District Court for Northern District of
Texas regarding the Bankruptcy Court’s prior orders ruling that (a) the Petitioning Creditors—
nonjudgment creditors—had standing to initiate the involuntary bankruptcy, and (b) the
bankruptcy court had jurisdiction to adjudicate the involuntary case. (Bankr. Dkt. Nos. 111, Case
No. 3:13-cv-01745, and Docket 112, Case No. 3:13-cv-01746.) Baron expects to
consolidate all of the appeals in the District Court.
6. On July 14, 2013, Baron filed the Stay Motion, seeking a stay of the Order of
Relief. (Bankr. Dkt. 287.) In the Stay Motion, Baron informed the Court that, ever since the
commencement of this involuntary case (Petition Date), he has not been able to hire competent
bankruptcy counsel to adequately represent him because his money and assets are in the
possession of the Receiver and the least expensive quote he received was $250,000 for
bankruptcy counsel. Id. The Stay Motion reveals that Baron will be substantially prejudiced if he
is forced to proceed with the involuntary proceeding, including the appeal of the Order of Relief,
without competent counsel. There are serious due process concerns, because Baron has been
stripped of his property without due process of law, and the bankruptcy Court appears positioned
to disallow Baron to access his property to hire an attorney while it approves attorney fees to his
adversaries in violation of his equal protection rights. Indeed, the Petitioning Creditors have
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turned due process on its head by (a) using Baron’s assets to prosecute unliquidated claims in the
Lawsuit and in this involuntary case against him and (b) leaving Baron without means to
adequately defend himself.
7. On July 15, 2013, one of the Petitioning Creditors, without any authority from
Baron and after Baron requested the Bankruptcy Court allow him funds to hire a bankruptcy
attorney (Bankr. Dkt. 288), filed what appeared to be bankruptcy schedules and statement of
financial affairs for Baron, purporting to adequately represent Baron’s property interests. (Bankr.
Dkt. 289.) Whatever these schedules or statements reflect, they were not authorized, prepared or
signed by Baron.
8. On July 15, 2013, in front of the Receiver, the Trustee, the Petitioning Creditors
and a crowd full of other attorneys that are seeking to strip Baron of every last penny to his name
(including his 401k), Baron appeared without any counsel at a status hearing before the
Bankruptcy Court. He told the Bankruptcy Court that he has been unable to find bankruptcy
counsel because most counsel would require a substantial retainer in a complicated case such as
the instant case. Baron also informed the Bankruptcy Court that, because of lack of counsel,
accountants and other professionals (which he cannot hire) and because the Receiver is in
possession of his records, he was unable to complete the 7 day deadlines under the Order for
Relief, including filing bankruptcy schedules and statement of financial affairs, which could
easily (a) prejudice Baron’s property rights and (b) subject Baron to criminal sanctions, if
improperly prepared. (See, e.g., Bankr. Dkt. 288.)
9. Interestingly and likely because of the fact that she had not had a full opportunity
to consider the arguments in the Stay Motion, at the July 15, 2013 status conference, the
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Bankruptcy Court told Baron, on the record, that he did not need counsel to represent him in this
involuntary case because it was a civil matter and there are plenty of chapter 7 cases where no
counsel is present. The Bankruptcy Court further stated that she planned to proceed “full steam
ahead” with the involuntary case, including the adjudication of property interests and any related
title 18 criminal proceedings, whether or not Baron was represented.
10. As previously mentioned in the Stay Motion, the right to hire competent
professionals has been a great necessity, as demonstrated by the fact that the appointed
receiver—which the Fifth Circuit Court of Appeals determined was wrongfully appointed—and
his professionals have accrued approximately $5.2 million in counsel fees during the
receivership while paying alleged creditors nothing. Moreover, the strategy employed by the
Petitioning Creditors—nonjudgment creditors—to freeze all of Baron’s assets and use it against
him in civil and potentially criminal proceedings, directly flies in the face of the letter and spirit
of the Fifth Circuit’s determination in the Reversal Order.
29. Each day that Baron remains in bankruptcy is a day that Baron’s Fifth and
Fourteenth amendment rights to liberty and property are being violated. Before the Order
of Relief becomes effective, a higher court should evaluate whether the Petitioning Creditors’
strategy in the Lawsuit and this involuntary case, and other orders entered by this Court,
effectively deprive Baron of his constitutional due process rights. Accordingly, in accordance
with the Local Rules for the Bankruptcy Court for the Northern District of Texas, Baron requests
an emergency hearing on the Stay Motion within 7 days of filing this Emergency Hearing
Motion. Any notice of the hearing will be given instantly to the US Trustee, the Receiver, the
Trustee, the Petitioning Creditors, and any other party in interest.
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WHEREFORE, PREMISES CONSIDERED, Baron requests an emergency hearing on
the Stay Motion within 7 days and any further relief to which he may be entitled to under the law
and equity.
Dated: July 19, 2013 Very respectfully,
The Cochell Law Firm, P.C.
By: /s/ Stephen R. Cochell
Stephen R. Cochell
Texas Bar No. 24044255
7026 Old Katy Rd., Ste 259
Houston, Texas 77096
(713)980-8796 (phone)
(713)980-1179 (facsimile)
srcochell@cochellfirm.com
CERTIFICATE OF SERVICE
On this date, I electronically submitted the foregoing document with the Bankruptcy
Clerk for the U.S. District Court, Northern District of Texas, using the electronic case filing
system of the court. I hereby certify that I have served all parties who receive notification
through the electronic filing system.
/s/ Stephen R. Cochell
Stephen R. Cochell
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Stephen R. Cochell
The Cochell Law Firm, P.C.
7026 Old Katy Road, Ste. 259
Houston, Texas 77024
Telephone: (713)980-8796
Facsimile: (214) 980-1179
srcochell@gmail
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE:
JEFFREY BARON,
DEBTOR.
________________________________
JEFFREY BARON,
Movant,
vs.
GERRIT PRONSKE, et al.,
Respondents.
§
§
§ Bankruptcy Case No. 12-37921
§
§
§
§
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AMENDED EMERGENCY MOTION TO STAY
ORDER FOR RELIEF IN INVOLUNTARY CASE PENDING APPEAL
AND APPOINTMENT OF INTERIM TRUSTEE
COMES NOW Jeffrey Baron (“Baron”) and, pursuant to Rule 8005 of the Federal Rules
of Bankruptcy Procedure (the “Bankruptcy Rules”), files this emergency motion (the “Motion”)
to stay the Order for Relief in Involuntary Case (Dkt. No. 240), entered on June 26, 2013 (the
“Order for Relief”) and to stay the appointment of an Interim Trustee.
The Fifth Circuit Court of Appeals issued a ruling on December 18, 2012 that reversed a
District Court’s order placing Baron into a receivership. The Fifth Circuit determined that
Baron’s assets should be “expeditiously released” to him after a wind down period.
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Approximately two hours after entry of the Fifth Circuit Order, however, the same alleged
creditors identified in the reversed receivership filed a petition to place Baron in involuntary
bankruptcy. The receivership assets were never returned to Baron, and they are now subject to
being turned over to the bankruptcy estate and liquidated. In support of this Motion to stay all
actions in the bankruptcy court, Mr. Baron would respectfully show the Court as follows:
I.
PRELIMINARY STATEMENT
1. Since November 2010, Baron was placed into a receivership which effectively (a)
seized all his assets, (b) restricted him from managing his financial affairs, entering into
agreements, traveling, hiring attorneys or other professionals to represent his interests and (c)
denied Baron other basic freedoms, like the right to a jury trial and due process of law in
connection with defending against non-judgment creditor claims. (See, e.g., Attached Exh. A,
NDTX Case 3:09-cv-00988-F, Dkt 124: Receivership Order, dated Nov. 24, 2010).
2. The right to hire competent professionals has been a great necessity, as
demonstrated by the fact that the appointed receiver—which the Fifth Circuit Court of Appeals
determined was wrongfully appointed—and his professionals have accrued approximately $5.2
million in counsel fees during the receivership while paying alleged creditors nothing. (See
Attached Exh. C, NDTX Case 3:09-cv-00988-F, Dkt 1287: the “Receivership Fee Order”; See,
also, Netsphere, Inc. v. Baron, 703 F.3d 296 (5
th
Cir 2012)(the “Reversal Order”).
3. Baron’s misery, however, does not end there. The attorneys seeking to benefit
from the receivership filed a petition to force Baron into an involuntary bankruptcy in the same
court that originally recommended the receivership. See Netsphere, Inc, 703 F.3d at 312 (“the
bankruptcy court recommended a receiver, and the trustee then moved in the district court for the
appointment as recommended”); (See, also, Attached Exh. D, NDTX Bankr. Ct., Case 12-37921-
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sgj-7 Dkt 1 and attached Exh. E, NDTX Bankr. Ct. Case 12-37921-sgj-7 Dkt 239: “Findings” at
¶ 48). Based on the same disputed claims that led to the receiver being appointed, the
Bankruptcy Court has determined that Baron should be placed in an involuntary chapter 7
bankruptcy proceeding to pay these attorneys (the “Petitioning Creditors”). (See Exh. E,
Findings). This determination contravenes the Fifth Circuit’s decision in Netsphere.
4. The Fifth Circuit in Netsphere held that receiverships cannot be used to freeze an
alleged debtor’s assets pending a determination of the validity of the debt. 703 F.3d at 309; see,
also, In re Fredeman Litig., 843 F.2d 821, 824 (5
th
Cir. 1988)(court injunction that froze assets in
pending civil lawsuit set aside as an improper exercise of the court’s equitable powers). In
reaching its determination, the Netsphere Court found that the debts of the Petitioning Creditors
in this case had not been reduced to judgment and could not be the subject of a receivership
proceeding:
The receivership ordered in this case encompassed all of Baron’s personal
property, none of which was sought in the Netsphere lawsuit or the Ondova
bankruptcy order than as a possible fund for paying the unsecured claims of
Baron’s current and former attorneys that had not been reduced to judgment.
Netsphere, Inc., 703 F.3d at 310 (emphasis added).
5. The Fifth Circuit Court’s findings and ruling are binding on the district court and
the bankruptcy courts; moreover, when a higher court decides upon a rule of law, then that
decision should continue to govern the same issues in subsequent stages in the same case or
related cases. See Arizona v. California, 460 U.S. 605, 615 (1982). This rule of practice, called
the law of the case doctrine, promotes the finality and efficiency of the judicial process by
protecting against the agitation of settled issues. Christian v. Colt Indus. Operating Corp., 486
U.S. 800, 817 (1988). In the instant case, despite the Fifth Circuit’s findings that the claims of
Baron’s current and former attorneys had not been reduced to judgment, the Bankruptcy Court
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held that a ruling of the District Court compromising the claims somehow did constitute a final
judgment. (See Exh. E, Order at pg. 24: “[t]his bankruptcy court, on balance, believed and still
believes that the May 18, 2011 Fee Order is tantamount to a final judgment that forecloses an
argument of a bona fide dispute.”) Even assuming the law of the case doctrine did not apply, the
Court should apply the doctrine of collateral estoppel, because the issue of whether the
Petitioning Creditors’ claims were fully and finally litigated in the Netsphere case was
determined by the Fifth Circuit. As previously stated, the Fifth Circuit held that the claims were
not reduced to judgment and therefore, disputed.
6. The bankruptcy court’s conclusion is contrary to the Fifth Circuit’s decision that
the claimants in the receivership---now Petitioning Creditors in the involuntary bankruptcy---did
not have a claim reduced to a final judgment and were simply nonjudgment creditors that needed
to pursue their claims in a proper forum. The bankruptcy court, however, is not the proper forum
because the Bankruptcy Code prohibits imposition of an involuntary bankruptcy based on claims
filed by nonjudgment creditors. Seizure of Mr. Baron’s property through an involuntary
bankruptcy proceeding violates his Fifth Amendment right to due process of law. . The Fifth
Circuit determined, “everything subject to the receivership other than cash currently in the
receivership…should be expeditiously released to Baron…” Netsphere, Inc., 703 F.3d. at 313.
However, the Bankruptcy Court in this matter instead held that all such assets must be turned
over to the involuntary bankruptcy trustee. (Exh. E, Order at pg. 38: “Further, based on the
foregoing, a separate order will be issued henceforth regarding the turnover of assets from the
Receiver to the Bankruptcy Trustee.”) Baron‘s initial bankruptcy counsel, Mark Stromberg, had
a limited engagement that terminated when Petitioning Creditors were granted relief by the
Bankruptcy Court, but the Bankruptcy Court denied Baron’s pro se request for an extension of
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the imminent deadlines to find another attorney. (See Attached Exh. F, NDTX Bankr. Ct., Case
12-37921-sgj-7 Dkt 266). The Bankruptcy Court cites lack of good cause as the reason it denied
Baron’s request for counsel. Id. As such, and although the receivership was reversed, Baron still
does not have access to funds sufficient to hire the attorneys necessary to adequately represent
his interests.
7. Where representation in both the involuntary bankruptcy and appellate matters
would be inefficient and cost prohibitive for Baron, and where he has been unsuccessful in
securing bankruptcy counsel, Baron should be allowed limited access to his assets so that he can
properly hire counsel to assist with the prosecution of his appeal of the merits of this involuntary
bankruptcy. As demonstrated below, and as instructed by the U.S. Supreme Court and the Fifth
Circuit (which vacated the appointment of the receiver), there is a serious legal question as to
whether a federal court can essentially freeze a party’s assets based on claims made by non-
judgment creditors. The Bankruptcy Code recognizes non-judgment creditors have no right to
place a citizen into involuntary bankruptcy where, as here, the Bankruptcy Code itself mandates
that claims subject to a bona fide dispute as to liability or amount (a) disqualify petitioning
creditors from commencing an involuntary proceeding and (b) cannot be taken into account in
determining whether an alleged debtor is insolvent. See 11 U.S.C. § 303(b)(1), (h).
8. A stay should be granted pending appeal because Baron: (a) will likely succeed on
the merits in light of the Fifth Circuit’s findings in Netsphere; (b) will be irreparably harmed if
this proceeding is allowed to move forward, (c) will suffer a harm far greater than any other
party; and (d) can show that public policy favors the imposition of a stay in this case.
Accordingly, the Bankruptcy Court should grant a stay of the order for relief pursuant to
Bankruptcy Rule 8005.
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II.
BACKGROUND
1. The issues in this case have their genesis in parallel proceedings against Jeff
Baron in a separate corporate bankruptcy case, In re Ondova, as well as Netsphere. In these
proceedings, Baron was deprived of any right to hire his own counsel for over two years, when
District Judge Furgeson appointed the undersigned counsel. Unfortunately, counsel was denied
compensation for the same types of fees expenses that were later granted to the Receiver.
Simply stated, Baron cannot fully and effectively defend himself against seizure of property
when the judicial system grants millions in defense to a Receiver and a minute fraction of that
amount to Baron for his defense. Simply stated, this sort of double standard violates due
process. Moreover, despite the seizure of all his property, and allegations of criminal conduct
against him, the Receiver threatened Baron with contempt if he attempted to hire his own
attorney.
. On December 2., 2010, the receiver sent the following letter to Mr. Baron:
As you know, I am counsel for the Receiver, Peter Vogel. The Receiver forwarded
to me your email below.
…
Based on the powers and duties provided to the Receiver within the Receiver
Order, the Receiver has retained me and others at my firm to serve as counsel.
Furthermore, based on the obligations imposed upon you under the Receiver
Order, you – and that means you, personally, and not indirectly through any
lawyer, agent, or any third party individual – shall cooperate and assist me and
others at my law firm and provide us with information that we deem necessary to
effectuate the Receiver Order.
The Receiver is furthermore instructing you as follows:
First, you are expressly prohibited from retaining any legal counsel. Should
you retain any legal counsel, the Receiver may move the Court to find you in
contempt of the Receiver Order.
(Attached Exh. B, 5
th
Cir. Ct. App. Case 10-11202, Dkt. 00511388248: Email from Barry
After nearly 2 years after the receivership order, The District Court ultimately allowed Baron to hire the
undersigned attorney, where it approved payment of $50,000 over the Receiver’s objections.
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Golden, Gardere Wynne Sewell LLP to Baron, dated Dec. 2, 2010)(emphasis added). After two
years of Mr. Baron being in the receivership, the Fifth Circuit reversed the receivership order.
While the Court did not specifically use the words “due process”, it is readily apparent that the
Court found that the freezing and seizure of property through a receivership proceeding violated
due process. That conclusion is no less valid when the same alleged creditors come to
bankruptcy court with the same unsecured claims that have not been reduced to judgment.
Martin Thomas was appointed as bankruptcy counsel to Mr. Baron in the Ondova case and was
purportedly instructed by either the receiver or Judge Jernigan that he could not file pleadings.or
make any statements to the court to represent Baron’s interest . Judge Furgeson became irate
when he learned that Martin Thomas had been instructed not to file any pleadings to defend Mr.
Baron’s interests in the Ondova case, telling Mr. Thomas that he did not agree to Thomas
$10,000 a month to be a “potted plant.” [Exhibit B-1, September 27, 2010 hearing]. Judge
Furgeson understood that the judiciary cannot appoint lawyers who create only the appearance,
but not the reality of representation by counsel.
2. On December 18, 2012 (the “Petition Date”), several parties (“Petitioning
Creditors”) who had just been rebuffed by the Fifth Circuit in the receivership appeal, filed an
involuntary chapter 7 bankruptcy petition (the “Involuntary Petition”) against Baron in this
Bankruptcy Court. This involuntary proceeding was filed approximately two hours after the
Fifth Circuit Court of Appeals (the “Fifth Circuit”) entered an order (the “Reversal Order”) on
the same date: (a) reversing an earlier order appointing a receiver over all of Mr. Baron’s
personal assets (the “Receivership Order”), previously entered by the United States District
Court for the Northern District of Texas (the “District Court”) on November 10, 2010, in a
separate lawsuit styled Netsphere, Inc., et al. v. Jeffrey Baron, Civil Action No. 3:09-cv-0988-L
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(the “Lawsuit”) and (b) instructing the District Court to wind down the receivership estate and
direct the receiver, after satisfaction of certain expenses incurred by the receiver, to expeditiously
return the property held and managed by the receiver (the “Receivership Property”) to Baron.
See Netsphere, Inc., 703 F.3d at 313. This never happened.
3. Rather, on June 17 and 18, 2013, the Bankruptcy Court held an evidentiary
hearing regarding the Involuntary Petition. (See Attached Exh. G & G-1, In re Jeffrey Baron,
Case No. 12-37921-sgj7, Trial Transcript of June 17, 2013.) Then, on June 26, 2013, the
Bankruptcy Court entered the Order for Relief, adjudicating that the involuntary chapter 7
proceeding against Baron was appropriate and subjected Baron to such proceedings. (Attached
Exh. H, NDTX Bankr. Ct., Case 12-37921-sgj-7 Dkt 240: “Order for Relief”.) The Order for
Relief is a final judgment that can be appealed pursuant to 28 U.S.C. § 158.
4. On July 8, 2013, Baron timely filed a Notice of Appeal, appealing the Order for
Relief to the District Court. (Attached Exh. U, NDTX Bankr. Case 12-37921-sgj7, Dkt 253:
Notice of Appeal.) Baron’s argument on appeal, in large part, centers around the Fifth circuit
precedent in Netsphere where it found that the Receivership Order should never have been
entered in the first instance. Significantly, the Fifth Circuit also found that the district court erred
by creating a receivership to satisfy the debts of non-judgment creditors, which included the
Petitioning Creditors in the instant case. Netsphere, Inc. v. Baron, 703 F.3d 296. Before the
appellate court was an interlocutory order entered by Judge Furgeson on May 11, 2011 (Attached
Exh. I, NDTX Case 3:09-cv-00988-F, Dkt 575) (the “Compromise Order”), after an evidentiary
hearing: (a) directing that the Receiver pay twenty two (22) lawyers who previously represented
Baron and other entities $870,237.19 for legal services rendered and (b) reserving Baron’s right
to assert claims against those lawyers. This Compromise Order was stayed by the District Court
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on June 18, 2012. (Attached Exh. J, NDTX Case 3:09-cv-00988-F, Dkt 987: the “Fee Stay
Order”) because the Court did not wish to enter a final judgment until the Fifth Circuit ruled on
the validity of the receivership. The Fifth Circuit vacated the receivership order finding that the
claims being made in the receivership were unliquidated claims that had not yet been reduced to
judgment and could not be the subject of a receivership. Netsphere, Inc., 703 F.3d at 310.
5. In subsequent proceedings, the District Court reiterated the Fifth Circuit’s holding
in its Receivership Fee Order entered on May 29, 2013, specifically holding that “the Fifth
Circuit found that this [District] Court could not order the payment of these fees from the
Receivership estate….” However, in contravention to both the Fifth Circuit and District Court
orders, the Bankruptcy Court held that there was no bona fide dispute regarding the Petitioning
Creditors’ claims and thus (a) the Petitioning Creditors had standing to bring the Involuntary
Petition and (b) the insolvency standard for the Involuntary Petition under section 303(h)(1) had
been met. (See Exh. E, Findings.)
6. This Motion is filed because the involuntary bankruptcy process was wrongfully
commenced and has denied Baron due process of law and equal protection under the law, in that
all of his assets have been taken away from him (despite the Reversal Order by the Fifth Circuit),
and he does not have adequate funds with which to hire counsel to defend against the Involuntary
Petition while the trustee, receiver and/or opposing parties appear to have or had unfettered
access to millions of dollars of Baron’s assets. If a stay is granted and the Reversal Order is
implemented as mandated by the Fifth Circuit, Baron will have access to funds necessary to
adequately prosecute the appeal on the Involuntary Petition, as well as defend himself in the
Lawsuit.
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III.
RELIEF REQUESTED
Standard for Stay Pending Appeal
7. Bankruptcy Rule 8005 provides, in pertinent part:
A motion for stay of the judgment, order, or decree of a bankruptcy judge,
for approval of a supersedeas bond, or for other relief pending appeal must
ordinarily be presented to the bankruptcy judge in the first instance.
Notwithstanding Rule 7062 but subject to the power of the district court . .
. , the bankruptcy judge may suspend or order the continuation of other
proceedings in the case under the Code or make any other appropriate
order during the pendency of an appeal on such terms as will protect the
rights of all parties in interest. A motion for such relief . . . may be made
to the district court . . . , but the motion shall show why the relief . . . was
not obtained from the bankruptcy judge.
Fed. R. Bankr. P. 8005. While Bankruptcy Rule 8005 expressly authorizes that a stay motion can
also be directly filed in the district court with original jurisdiction on certain grounds, Local
District Court Rule 8005.1 provides that a motion for stay pending appeal must first be made in
the bankruptcy court.
8. The Fifth Circuit employs a four part test in determining whether to grant a stay
pending appeal:
(1) whether the movant has made a showing of likelihood of success on
the merits; (2) whether the movant has made a showing of irreparable
injury if the stay is not granted; (3) whether the granting of the stay would
substantially harm the other parties; and (4) whether the granting of the
stay would serve the public interest.
Ruiz v. Estelle, 666 F.2d 854, 856 (5
th
Cir. 1982); Arnold v. Garlock, Inc., 278 F.3d 426, 438-39
(5
th
Cir. 2001); Hunt v. Bankers Trust Co., 799 F. 2d 1060, 1067 (5
th
Cir. 1986); In re Texas
Equip. Co., Inc., 283 B.R. 222, 227 (Bankr. N.D. Tex. 2002). The Fifth Circuit, however, “has
refused to apply these factors in a rigid mechanical fashion.” Reading & Bates Petroleum Co. v.
Musslewhite, 14 F.3d 271, 272 (5
th
Cir. 1994). Accordingly, courts within the Fifth Circuit have
determined that “the absence of any one factor is not fatal to a successful motion for stay . . .” In
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re Permian Producers Drilling, Inc., 263 B.R. 510, 515 (W.D. Tex. 2000) (citing In re First Savs.
Ass’n, 820 F.2d 700, 709 n.10 (5
th
Cir. 1987)); see also Garlock, 278 F.3d at 438-39 (noting that
while “each part [of the stay pending appeal test] must be met . . . the appellant need not always
show a probability of success on the merits; instead, the movant need only present a substantial
case on the merits when a serious legal question is involved and show that the balance of the
equities weighs heavily in favor of granting stay”) (internal citations omitted).
9. Application of the foregoing standard to the instant case warrants the imposition
of a stay pending appeal to preserve Baron’s due process rights and equal protection under the
law, which includes a meaningful right to appeal the Order for Relief.
(1) Baron is likely to succeed on the merits.
(a) Petitioning Creditors Lack Standing
10. Section 303(b) of the Bankruptcy Code provides, in relevant part, that an
involuntary chapter 7 case is properly commenced “by three or more entities, each of which is
either a holder of a claim against such person that is not contingent as to liability or the subject
of a bona fide dispute as to liability or amount . . . if such noncontingent, undisputed claims
aggregate at least $15,325 . . .” 11 U.S.C. § 303(b)(emphasis added). Unless each of the
petitioning creditors comply with this provision in section 303(b), they lack standing to
commence an involuntary petition. See Whitmore v. Arkansas, 495 US 149, 154 (1990). The
holdings of the District Court and Fifth Circuit in the Lawsuit and subsequent appeal
unequivocally prove that all of the Petitioning Creditors’ claims are, at least, the subject of a
bona fide dispute as to liability or amount and therefore such parties lack the requisite standing.
The Fifth Circuit’s Reversal Order effectively reversed the Compromise Order, specifically
holding that a receivership cannot be used to collect or litigate disputed claims:
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[F]or those unpaid attorneys who had filed claims, the claims had not
been reduced to judgment such that a receiver would have been
proper to “set aside allegedly fraudulent conveyances by Baron.”
Netsphere, Inc., 703 F.3d at 308. The Court further held that: “Baron’s former attorneys were
free to make claims” or “the attorneys could file suit in a court of competent jurisdiction to
collect the fees owed.” Id. The Fifth Circuit noted that their holding was supported by the
Supreme Court’s decision in Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc.,
527 U.S. 308, 310 (1999). Netsphere, Inc., 703 F.3d at 310. In Grupo Mexicano, the Supreme
Court held a federal district court did not have authority to issue a preliminary injunction
preventing defendant from transferring assets in a more action for money damages:
[F]ederal Courts in this country have traditionally applied the principal that courts
of equity will not, as a general matter, interfere with a debtor’s disposition of his
property at the instance of a nonjudgment creditor.
Grupo at 329. Indeed, the Fifth Circuit found that “[T]he case before us is similar to Grupo
Mexicano to the extent that the receivership remedy was for the purpose of controlling Baron’s
transferring of funds that were to be paid to attorneys—nonjudgment creditors.” Netsphere,
Inc., 703 F.3d at 310 (emphasis added). It is well settled that the factual findings and legal
holdings of the Fifth Circuit are binding on all lower courts.
11. Judge Furgeson’s ruling during the Netsphere receivership similarly demonstrates
that there has not been a final adjudication of the Petitioning Creditors’ claims. The Petitioning
Creditors were initially “stayed by the Receivership Order from taking any action to establish or
enforce any claim, right, or interest” against Baron or the receivership assets. (Exh. A, Receivership
Order at 12.) Subsequent to entry of the Receivership Order, and without any lawsuits pending
before the District Court to fully and fairly adjudicate the Petitioning Creditors’ claims, the District
Court entered the Compromise Order, making a preliminary determination that Baron owed 22
lawyers, including the Petitioning Creditors, $870,237.19, which could be paid from the Receivership
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Estate.
(Exh. H, Compromise Order.) The district court held that Baron’s counterclaims would be
litigated at a later time. (Id. at ¶ 36.)
12. The District Court decided that the unliquidated fee claims of Baron’s former
attorneys had not properly adjudicated to any finality, especially given the then-pending appeal
to the Fifth Circuit. In the Compromise Order, the District Court itself stated:
[T]he Court understands that certain of the claimants of the Former
Attorney Claims are claiming that, in addition to the amounts of the
Former Attorney Claims, they are entitled to bring Putative Claims.
Furthermore, the Court understands that eight of the claimants of the
Former Attorney Claimants are seeking the amounts not being awarded to
them because of the Fee Cap Reduction (and which these claimants have a
right to challenge through motion before this Court or through an appeal).
The Court also understands that Baron claims that certain of the claimants
of the Former attorney Claims are allegedly liable for legal malpractice
and other civil claims.
13. (Exh. H, Compromise Order ¶ 36.)(emphasis added). These rulings are an
objective finding that the Petitioning Creditors’ fee claims were subject to a bona fide
dispute as to liability or amount. That is precisely why the District Court held that “Baron
maintains any and all rights to bring, after the end of the Receivership, the Baron Claims”
(which are defined as “legal malpractice and other civil claims”). (See Exh. H, Compromise
Order ¶¶ 35-36.)(emphasis added.) By definition, partial interlocutory orders have no collateral
estoppel effect because Baron was not allowed a full and final adjudication of his
counterclaims, as well as the law firm claims. The Bankruptcy Court relies on Gupta v. E. Idaho
Tumor Inst., Inc. (In re Gupta), 394 F.3d 347, 351 n.4 (5
th
Cir. 2004) to support its proposition that
collateral estoppel applied to the reversed receivership. (Exh. E, Findings at 25). However, the Fifth
circuit, in Gupta, actually reversed the bankruptcy court and district court for erroneously according
The hearing held by Judge Furgeson can only, at best, be described as a truncated hearing held only to determine
the amount of the claims.
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collateral estoppel effect to a state court judgment when the issue was not actually fully litigated.
Gupta v. E. Idaho Tumor Inst., Inc. (In re Gupta), 394 F.3d 347 (5
th
Cir. 2004). In Gupta, after the
appellant debtor sought bankruptcy relief following a state court judgment entered in favor of
Appellee co-joint venture, the bankruptcy court found that the debtor was essentially a managing
partner of the parties’ joint venture. Id. The Fifth Circuit unequivocally held no such “finding” was
litigated or made in the state court proceedings and collateral estoppel could not attach to a non-
existent finding, as here. See Id. This Court, however, should afford collateral estoppel effect to the
Fifth Circuit findings that the Petitioning Creditors’ claims are unsecured claims not reduced to
judgment and Bankruptcy Court lacks jurisdiction under the Code. While forcing clients to pay legal
fees may, in some cases, be a proper exercise of judicial power, the bankruptcy court lacks the
authority to impose an involuntary bankruptcy over an alleged debtor to achieve that goal. Moreover,
the Compromise Order is void, as a matter of law, because it was based solely on the premise
that a properly appointed receiver can waive an individual’s (ie, Baron’s) 7
th
Amendment right to
a jury trial in a contractual dispute based on state law. (See Exh. I, Compromise Order ¶¶ 14-20.)
Baron properly asserted these jury trial rights before the preliminary “assessment” of any
attorney fees was made and he was denied the opportunity to fairly, properly and justly contest
these assessments by the Receiver. (Attached Exh. K, NDTX Case 3:09-cv-00988-F, Baron’s
Response, Objection, Motion for Leave to File, and Motion for Relief with Respect to Receiver
Assessment of Former Attorney Claims, Dkt 443 at pg. 16 (“Notably, Jeff Baron object (sic) to
this process, and demands a jury trial for each and every claim against him, as his constitutional
right.”). When the Fifth Circuit reversed the Receivership Order, however, the Court effectively
vacated the receiver’s authority to enter into the Compromise Order or to waive Baron’s
“Dr. Gupta was essentially a managing partner of the party's joint venture. Unfortunately,
no such "finding" was litigated or made in the state court proceedings, and, collateral
estoppel cannot attach to a non-existent finding.” Gupta, 394 F.3d at 351.
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constitutional rights to contest a disputed claim. Hernandez v. Ebrom, 289 S.W.3d 316, 325 (Tex.
2009) citing Sclafani v. Sclafani, 870 S.W.2d 608, 611 (Tex. Ct. App. 1993)(“The setting aside of
an order of receivership has ‘the effect of nullifying all intervening acts of the receiver…”).
14. Moreover, on June 2012, recognizing the interlocutory nature of its Compromise
Order, the District Court entered an Order Regarding Motion to Clarify Instruction to Receiver
on Payments to Former Baron Attorneys (See Exh. J, Fee Stay Order), which unequivocally
stayed the effect of the Compromise Order, including the payment of any fee claims by the
former Baron attorneys, and 2 years later (on May 29, 2013) the District Court even held that this
stay was to be enforced permanently, in light of the Reversal Order. (Exh. H, Fee Order).
15. In winding down the receivership, the District Court entertained fee applications
from various law firms representing, or purporting to represent, the Receiver. On May 6, 2013,
the Petitioning Creditors filed Petitioning Creditors’ Omnibus Comment to Receivership
Professional Fee Applications (“Omnibus Comment”) (Receivership Fee Order), wherein they
requested that the District Court limit the fees awarded to the Receiver and his professionals, so
that there would be amounts left in the Receivership Estate to pay the Petitioning Creditors’
claims. (See Attached Exh. L, NDTX Case 3:09-cv-00988-F, Dkt 1268: Omnibus Comment ¶
12.)
16. On May 29, 2013, in response to the Omnibus Comment—which was interpreted
as a general objection—the District Court entered an Order On Receivership Fees (Exh. C,
Receivership Fee Order), wherein the District Court made the following important findings
regarding the Fee Stay Order: (a) the Petitioning Creditors’ “claims total approximately
$1,400,000.00” (tellingly, not the amount previously allowed under the Compromise Order) and
(b) the Fee Stay Order actually “stayed its [Compromise O]rder and instructed the Receiver to
refrain making such payments until the Fifth Circuit ruled on the Receivership.” (Exh. C,
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Receivership Fee Order at 44)(emphasis added). More importantly, in light of the Reversal
Order, the Receivership Fee Order now reaffirmed the stay under the Fee Stay Order,
specifically finding that that “the Fifth Circuit found that this Court could not order the payment
of these fees.” (Exh. C, Receivership Order at 45 and n.16.) Thus, the Compromise Order was
essentially vacated--and properly so, as Baron, at a minimum, was denied the constitutional right
to contest the disputed claims in front of a jury of his peers.
17. On February 20, 2013, given the Fifth Circuit appeal, the uncertainty of the
Receivership Order and the lack of a fair trial on the merits of the Involuntary Petition, the
Bankruptcy Court itself issued an oral ruling that the involuntary bankruptcy against Baron was
“stayed/abated.” (See Attached Exh. M, Transcript of Bench Ruling Motion for Summary
Judgment (Doc 52) and Status Conference before the Honorable Stacey G. Jernigan, United
States Bankruptcy Judge, dated February 20, 2013 at pg. 44) Since that time, the Fifth Circuit has
affirmed its Reversal Order, but the Bankruptcy Court, instead of taking its cue from the higher
court, forged forward with the involuntary proceeding against Baron.
18. To be abundantly clear, the issue here is not whether there is a dispute as to
whether Baron hired almost all of the Petitioning Creditors. The issue here is whether the
Petitioning Creditors performed under their contractual arrangements with Baron and if Baron
paid them according to their contractual arrangements and, if not, whether their fee claims are
subject to a bona fide dispute as to liability or amount. Simply stated, these amounts are
disputed. The Fifth Circuit found, as fact, that the claims were disputed and not reduced to
judgment. The District Court recognized that the claims were subject to a bona fide dispute in
the Compromise Order, the Fee Stay Order and the Receiver Fee Order. Baron did not file
lawsuits or counterclaims against the law firms (Petitioning Creditors) because he was deprived
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of his right to fully defend himself due to the Receivership Order that was ruled invalid and,
now, due to an involuntary bankruptcy where the Petitioning Creditors and the Bankruptcy
Court are simply repeating the same mistakes that were reversed by the Fifth Circuit.
19. The Receivership’s and professionals’ recent fee applications in the District Court
(Attached Exh. N, NDTX Case 3:09-cv-00988-F, Dkts 1229, 1232 and 1233) unquestionably
demonstrate that (a) the Receiver has accrued approximately $5.2 million in professional fees
over approximately 2 years (or an average of $200,000 per month) and (b) competent counsel is
absolutely required to represent a party—especially the defendant—in a case like this. See Id. In
light of the reality, the Bankruptcy Court’s prior offer on January 16, 2013, to pay proposed
bankruptcy counsel for Baron $25,000 to defend against the Involuntary Petition (for 6 months)
and the District Court’s prior payment of $50,000 for counsel in the Lawsuit (a matter with over
3,000 docket entries) are mere token gestures in clear contravention of due process of law and
equal protection under the law. (See Exh. O, Transcript of Hearing Status Conference, dated
January, 16, 2013: “I am going to issue a recommendation to Judge Furgeson that he allow
25,000 dollars to be released from the receivership … to pay counsel of Mr. Baron’s choice, in
connection with contesting the involuntary petition.”)
.
20. The due process clause of the U.S. Constitution reads: “[N]or shall any State
deprive any person of life, liberty, or property, without due process of law.” U.S. Const. amend.
XIV, § 1. Substantive due process cases inquire whether a statue or government action “‘shocks
the conscience’ or interferes with rights ‘implicit in the concept of ordered liberty.’” United
States v. Salerno, 481 U.S. 739, 746 (1987). Baron argues that the fee limitation or restriction
imposed by the Bankruptcy Court unconstitutionally interferes with Baron’s substantive due
In actuality, Baron’s pre-involuntary counsel billed in excess of $125,000.
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process rights to access the courts and to appeal by chilling qualified lawyers from taking his
case. Baron’s counsel requested funding on May 11, 2011. [Exhibit 0-1] Indeed, defense of
Baron against multitudes of lawyers in the Bankruptcy Court is estimated to cost a minimum of
$500,000 in attorney fees to Baron alone where the Bankruptcy Court’s Fee limitation of $25,000
has the effect of precluding Baron from representation in the complex matter. This
comparatively small retainer likely contributed to the limited engagement of Mark Stromberg
and Alan Busch, Baron’s pre-involuntary lawyers, both of whom filed a motion to withdraw on
the Bankruptcy Court entering an Order for Relief placing Baron into involuntary proceedings.
(Attached Exh. P, NDTX Bankr. Case No. 12-37921, Dkt Nos 241 and 243).
21. The Bankruptcy Court’s Fee limitation further denies Baron equal protection
under the law. The United States Constitution provides that no person shall be denied equal
protection of the laws. U.S. Const. amend. XIV, § 2. Equal Protection. This is essentially a
mandate that similarly situated individuals be treated alike, absent a sufficient reason to justify
the disparate treatment. See City of Cleburne v. Cleburne Living Ctr., Inc., 473 U.S. 432, 439
(1985); Corn v. New Mexico Educators Fed. Credit Union, 889 P.2d 234, 244 (NM Ct. App.
1994). The court in Corn evaluated an equal protection challenge to a fee limitation and declared
the fee limitation unconstitutional because it applied only to one side of the litigation. Id. at 244.
As applied, the Bankruptcy Court’s orders denying or otherwise prohibitively restricting Baron’s
Fee applications for attorneys creates two classes of litigants: those who are entitled to unfettered
access to Baron’s funds for attorney fees (such as the receiver and the trustee); and Baron
himself, whose assets are now property of the bankruptcy estate such that he cannot afford
representation in the bankruptcy court.
In facing an army of lawyers in the Bankruptcy Court
Notably, Baron does not work and has survived on an allowance he received from the court appointed receiver. As
the receivership winds down, Baron will not only have issues with attorney fees, but also living expenses.
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while he is unable to access funds to obtain adequate representation, Baron is being denied equal
protection under the law.
22. The Petitioning Creditors and the Bankruptcy Court were, as a matter of law,
bound to follow the rulings of the Fifth Circuit and the District Court. Because the Bankruptcy
Court incorrectly applied the doctrine of collateral estoppel and relied on a case that reversed
another bankruptcy court that incorrectly relied on the doctrine of collateral estoppel, it erred by
failing to analyze the Fifth Circuit’s findings and determination that the law firms’ claims had not
been reduced to judgment and that they could not litigate disputed state law claims in a
receivership proceeding. Regardless of the amount of the Petitioning Creditors’ claims, their
claims are subject to a bona fide dispute as to liability or amount and Baron has been essentially
stayed—because of the sequestration of all his assets—from filing appropriate actions to further
demonstrate the legitimate dispute.
(b) Petitioning Creditors Failed to Establish the Insolvency
Requirement.
23. Section 303(h) of the Code sets forth the insolvency requirement for an
involuntary filing. That section provides, in relevant part, that a bankruptcy court must find,
after conducting a trial, that “the debtor is generally not paying such debtor’s debts as such debts
become due unless such debts are the subject of a bona fide dispute as to liability or amount.”
11 U.S.C. § 303(h)(emphasis added).
24. The Bankruptcy Court found that Baron paid all of his ordinary debts other than
legal expenses as they become due. (See Findings ¶¶ 51, 54.) But, as discussed above, even
before the Receivership Order was entered on November 10, 2010, Baron has been disputing the
Petitioning Creditors’ fee claims as to liability or amount. (See, e.g., Exh. K, Dkt. 443). He has
never had the fair opportunity to litigate or defend against these claims, because the Receiver
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purported to waive Baron’s jury trial rights. (Exh. I, Compromise Order ¶¶ 16-20.) Even in the
summary proceeding to which Receiver agreed prior to the Compromise Order, Baron lodged
objections as to the amount or liability of the Petitioning Creditors’ fee claims. (Exh. K, Dist. Ct.
Dkt. 443). The fact that the Fifth Circuit reviewed the legality of the Receivership Order and
ruled in Baron’s favor on the ground that the District Court could not appoint a receiver to
protect the claims of non-judgment creditors demonstrates that there was a bona fide dispute as
to their claims.
25. There was, and continues to exist, bona fide disputes as to the Petitioning Creditor
and other attorney-creditor claims is the fact that many of their disputes were never resolved in
state courts, for example:
(1) Jeff Baron v. Gerritt M. Pronske, Individually and Pronske & Patel, P.C., District
Court, Dallas, Texas, Cause No. 10-11915 removed by Gerritt Pronske to
Bankruptcy Court in 2010; stayed and pending before the instant Bankruptcy
Court Judge Stacey Jernigan.
(2) David Pacione v. Jeffrey Baron, District Court, Dallas, Texas, Cause No. DC-10-
06464 (Case Type: Debt).
(3) Jeffrey T. Hall v. Jeffrey Baron, Dallas, Texas, In the Justice Court, Precinct 3,
Place 3, Cause No. JC-10-00721N.
(4) Freidman & Fieger, LLP Jeffrey Baron and The Village Trust, v. Freidman &
Feiger, LLP, Lawrence Friedman, Individually, and Ryan Lurich, Individually,
Dallas, Texas, 44
th
Judicial District, Cause No. DC-10-12100 (Case Type: Debt).
(Attached Exh. Q.)
26. Moreover, even the Bankruptcy Court grappled with the fact that Baron has been
prevented from paying his former lawyers’ fees—the only debts at issue—since Mr. Baron’s
assets have been tied up in a Receivership for almost three years (a Receivership that was
overturned by the Fifth Circuit). (See Exh. E, Findings.) After being placed in receivership,
Baron had no rights nor did he personally possess assets to settle the Petitioning Creditors’
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claims. (E.g., Exhs. A, Receivership Order and B, Corr. From Receiver’s Attorneys). Baron was
not allowed to file counterclaims or engage in discovery—rights afforded to individuals as a
matter of due process. Id. Simply stated, Baron had no control whatsoever the Receivership
Assets; only the District Court did, and it failed to pay the Petitioning Creditors during the nearly
three years of receivership – not Baron. See Id. Even after the Fifth Circuit vacated the
Receivership Order in December 2012, the District Court was still in charge of winding down the
receivership. Netsphere, Inc., 703 F.3d 296, 313-314. Ultimately (and as late as May 29, 2013),
the District Court ordered the Receiver not to pay the Petitioning Creditors’ claims. (Exh. C, Fee
Order).
27. Baron has not had the right or the ability to generally pay his debts as they
become due.” (See Findings ¶ 58.) The Bankruptcy Court, nevertheless, found that Baron was
not paying his debts timely, because “there was more than enough value from the assets in the
Receivership to pay the legal fees (if Baron had wanted to pay the fees and cease the
Receivership at any time.)” (see id.) This finding is erroneous for several reasons. Most notably,
it is well settled that a federal court cannot freeze a defendant’s assets on claims of a non-
judgment creditor. Netsphere, Inc., 703 F.3d at 309.
a. The bankruptcy court found that Baron “should have settled the case” after being
placed in a receivership. First, this finding is clearly erroneous as Baron filed a
wind down plan to resolve the issues consistent with the Fifth Circuit’s decision.
[Exhibit V, Baron’s Wind-Down Plan]. The finding is also contrary to Netsphere
and Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S.
308 (1999). Baron had no ability to settle anything because he was in a
receivership and unrepresented by trial counsel until September 27, 2012.
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Baron’s right to settle or otherwise enter into contracts was limited and placed in
the hands of a receiver.
b. The Court’s finding also overlooks the fact that Mr. Baron repeatedly tried to
settle the claims in the district court through a wind-down plan [Exh. H], a
separate settlement plan submitted to the district court [Dist. Dkt. 1284] and
actually submitted a Rule 9019 Joint Motion to Approve Compromise Agreement
and Wind-Down Plan [Dkt. 228], which was rejected by this Court. In May, 2011,
Mr. Baron tried to resolve the case, but his plans were rejected. [Exhibit V].
(c) Order for Relief is Automatically Stayed
29. Bankruptcy Rule 1018 provides that, “unless the [bankruptcy] court directs and
except as otherwise prescribed on Part 1 of the [Bankruptcy R]ules, Bankruptcy Rule 7062
applies to all proceedings contesting an involuntary proceeding. See Fed. R. Bankr. P. 1018.
Bankruptcy Rule 7062 incorporates Rule 62 of the Federal Rules of Civil Procedure, which
provides that “no execution may issue on a judgment, nor may proceedings be taken to enforce
it, until 14 days have passed after its entry.” Fed. R. Bankr. P. 7062.
30. Ignoring Bankruptcy Rules 1018 and 7062, the Order for Relief demands Baron
file a list of creditors within 7 days after the order, and bankruptcy schedules and statement of
financial affairs within 14 days after the entry of such order. (Exh. H, Order for Relief). Most
disturbing is that after Baron’s counsel filed a motion to withdraw the next day, the Bankruptcy
Court (a) denied Baron’s request for a small extension so that he could find representation for the
complex involuntary proceedings, and (b) offered the Petitioning Creditors the option to “seek
the imposition of sanctions” against a non-represented Baron if he failed to independently
complete the complex tasks. (Exh. H). Also disturbing is that, while even the newly appointed
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chapter 7 trustee has had an opportunity to engage competent bankruptcy counsel at a cost to the
estate, Baron has not. There is no reason that the Order for Relief should not be stayed to allow
Baron the opportunity to find counsel to properly prosecute his appeal of the Order for Relief and
pending litigation.
(2) Baron will suffer irreparable injury if the stay is not granted
31. The Fifth Circuit has already held that liquidation of Baron’s assets is sufficient to
show the irreparable injury necessary for a stay. See Netsphere, Inc., 703 F.3d 314, n.2 (“We
stayed the closing on sales resulting from an auction of domain names. Our ruling means no
closing may occur, and the stay is made permanent.”)
32. The Northern District of Texas District Court has also previously determined that
irreparable harm would occur if Receivership assets were sold or otherwise liquidated prior to a
full hearing. (Attached Exh. R, NDTX Case 3:12-cv-04489-L, Dkt. 5 (“Due to the urgency of the
motion…and the irreparable injury that could occur if the sale is permitted to proceed, the
court grants Jeffrey Baron’s Emergency Motion for Stay Pending Appeal…”).)(emphasis added.)
33. After the Receivership attorneys retain the approximately $5.2 million dollars in
fees from the Receivership estate, only $300,000 or so in liquid assets will remain. (See Exh. C.)
Should this Court fail to stay the Order for Relief, and in order to pay the nearly $5,000,000 in
disputed lawyer fees the bankruptcy court will invariably allow the trustee to move forward to
liquidate the same spendthrift trust assets the District and Fifth Circuit stayed them from
liquidating on the eve of the Fifth Circuit’s Reversal Order. An action that has already been
determined to cause irreparable harm.
34. Moreover, if a stay pending appeal is not granted, Baron’s right to due process of
law will be eviscerated. Since the Receivership Order was entered, all of Baron’s assets have
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been frozen, precluding or otherwise limiting Baron’s right to hire counsel to adequately defend
against the disputed claims being made by various nonjudgment creditors, including the merits of
the Involuntary Petition.
Baron has pointed this problem out to the Bankruptcy Court and
District Court in motions requesting access to funds to hire counsel. (See, e.g. Attached Exhs. B,
K, O, and S: Baron’s Motions for Fees.) At best, the Bankruptcy Court has denied or otherwise
strictly limited Baron’s requests for fees. (Exh. O.) The Bankruptcy Court is now claiming
exclusive jurisdiction over all of Baron’s assets and is even looking to bring more assets into the
bankruptcy estate through the assets of Novo Point, LLC and Quantec, LLC, two entities that
Baron asserts are part of a spendthrift trust associated with research to cure juvenile autoimmune
Type I Diabetes. (See attached Exh. T, Bankr. Ct. Dkt. 251: Order Setting Status Conference.) As
discussed above, the Bankruptcy Court is even compelling Baron, under threat of sanctions, to
actively participate in this complicated bankruptcy pro se and thereby waive many of his
constitutional rights. (See, e.g., Order for Relief (“if the debtor does not prepare and file the list
of creditors [within 7 days], schedules and statement of financial affairs [within 14 days]…[t]he
petitioning creditors and the bankruptcy trustee may seek the imposition of sanctions against the
debtor…”).)
35. Baron asserts that the involuntary bankruptcy proceeding is nothing more than a
continuation of the receivership---both dedicated to collecting debts for lawyers who possess
nothing more than disputed claims where, similarly, Baron has been unable to pay for bankruptcy
counsel to adequately defend himself. Given the deck of cards stacked against him, and without
help from a higher court, who knows how many of Baron’s personal freedoms will continue to
be sacrificed?
After Baron’s attorney of choice was denied his request for a full retainer, Baron hired Mark Stromberg, whom was
the only attorney Baron could find to accept the Bankruptcy court’s offer of $25,000. Stromberg only agreed to the
representation if limited to matters prior to an Order for Relief.
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36. Indeed, Courts have consistently held that a deprivation or violation of rights
constitutes irreparable harm warranting a stay pending an appeal. Hoekstra v. Oak Cluster
Comm. Council (In re Hoekstra), 268 B.R. 904, 907 (Bankr. E.D. Va. 2000) (irreparable harm
found when creditor stripped of potential lien rights); In re Sphere Holding Corp., 162 B.R. 639
(E.D.N.Y. 1994) (irreparable harm of debtor forced to close business due to pressure by
creditors); In re Allegheny Health Education and Research Foundation, 252 B.R. 309 (Bankr.
E.D. Pa. 2002) (finding irreparable harm where party being denied rights.)
37. Moreover, the dissipation of assets by a Trustee in this case will simply result in a
pyrrhic victory if Mr. Baron prevails in this appeal. The Trustee and lawyers will likely charge
the same kind of fees as the Receiver and a stay of the proceedings will protect Baron’s assets.
(3) Granting the Stay Will Not Substantially Harm Other Parties
38. The “other parties” in interest in this case are the Petitioning Creditors – all
lawyers who know how to protect their rights in bankruptcy court and other courts, some even
filing lawsuits against Baron. While these lawyers are claiming to be owed a substantial sum of
money, none can demonstrate that his or her constitutional rights have been or will be violated,
or that they will not have their day in court to adjudicate their claims without bankruptcy. And
Baron even agrees, as he had in the Lawsuit numerous times, that he is willing to pay all claims
that have been properly adjudicated through a trial.
39. Baron, on the other hand, has been deprived all of his assets for almost three
years, and many of his constitutional rights have been taken away with respect to his alleged
creditors. At the request of his creditors, a receiver was appointed to take control over all of
Baron’s assets, even exempt assets (like IRA plans and trusts with spendthrift clauses) that
creditors could not typically touch. When the Fifth Circuit reversed the receivership, the
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creditors maneuvered to continue the lock on Baron’s assets by filing an involuntary petition
only hours later. Since November 2010, with little or no assets available, Baron has not been
able to adequately defend him against the numerous allegations made by various parties,
including the Petitioning Creditors. (See, e.g., Exh. K.) As a result, Baron has been negatively
portrayed in the District Court, Bankruptcy Court and Fifth Circuit Court of Appeals and his
right to fair trials against non-judgment creditors has been sacrificed. This pattern will assuredly
continue if this involuntary bankruptcy is allowed to proceed and Baron is unable to hire
competent counsel.
40. It is clear that Baron upset a lot of lawyers who know their way around courts and
around arguments. There have been numerous claims made by the Petitioning Creditors that
Baron continuously hires and fires new attorneys as delay tactics. These assertions date back to
the original appointment of a Receiver and continued through the hearings leading up to the
Compromise Order. However, Baron had legitimate defenses to these claims in the state court
proceedings, and in the district court which were never fully or fairly litigated. Even assuming
one credits these asseertions, the Fifth Circuit unequivocally stated that a human receivership
was not the proper remedy, and creditors and the courts could and should rely on other remedies,
none of which included involuntary bankruptcy.
41. Given there were several lawful remedies suggested by the Fifth Circuit to
address Baron’s alleged vexatious behavior toward his former attorneys, the Petitioning Creditors
will not be prejudiced by the stay of the Order for Relief and the ability of Baron to have access
to his property.
(4) Public Interest Would be Served by Granting a Stay
42. Fundamentally, public interest will be served if a stay of the Order for Relief was
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entered because this involuntary bankruptcy appears to be geared solely toward circumventing
the Fifth Circuit’s Reversal Order. The Bankruptcy Court’s Order for Relief violates the
public policy expressed by the Fifth Circuit in Netsphere. An alleged debtor’s assets cannot
be frozen or tied up by a receiver based on mere claims of non-judgment creditors, including the
Petitioning Creditors. The Fifth Circuit ruled that the claims of the law firms (including the
Petitioning Creditors) violated fundamental principles that receiverships cannot be used to freeze
funds unless or until the debts are reduced to judgment. The Bankruptcy Code also recognizes
that nonjudgment creditors, or creditors’ whose claims are subject to bona fide dispute as to
liability or amount, cannot avail themselves of the involuntary bankruptcy remedy. See 11
U.S.C. § 303(b). The other public interest that assuredly will be undermined if a stay is not
granted is Baron’s due process rights to regain his property (which was wrongfully taken away)
and to contest the various allegations made by the Petitioning Creditors in a proper forum.
Instead, if no stay is granted, the bankruptcy will likely proceed with full steam ahead, just as the
Receivership proceeded, and Baron will be forced to participate with little or no help from
counsel. There is a very serious danger that he will be forced to waive many of his constitutional
rights, including the right to a trial by jury and the right to challenge state law claims in front of a
state court or Article III Judge, as prescribed by the Supreme Court in Stern v. Marshall, 131 S.
Ct. 2594 (2011).
43. Moreover, the public interest and judicial economy will be served if the stay on all
bankruptcy proceedings is imposed and Baron is allowed to hire professionals and counsel to
finalize the Lawsuit. The Fifth Circuit Court of Appeals in the Reversal Order appears to have
given Baron the tools (i.e., his property) to complete this task. The intervening involuntary
bankruptcy strips Baron of any right to manage any of his property, property exempt from the
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bankruptcy estate. The intervening bankruptcy has even resulted in an appointment of a trustee
which, like the Receiver, can again attempt to waive Baron’s constitutional rights with respect to
non-judgment creditors, as well as his rights to defend against claims in the underlying Lawsuit,
and can even try to waive his right to have privileged conversations with his counsel.
IV.
CONCLUSION
44. For the foregoing reasons, Baron requests that the Court enter a stay of the Order
for Relief pending the appeal of the same and to stay the appointment of an Interim Trustee.
Dated: July 15, 2013 Very respectfully,
The Cochell Law Firm, P.C.
By: /s/ Stephen R. Cochell
Stephen R. Cochell
Texas Bar No. 24044255
7026 Old Katy Rd., Ste 259
Houston, Texas 77024
(713)980-8796 (phone)
(713)980-1179 (facsimile)
srcochell@gmail.com
LBR 7001-1(b) CERTIFICATE OF CONFERENCE
On July 11, 2013, undersigned counsel contacted several parties in interest in this matter,
including John Litzler, Gerrit Pronske, Jeffrey Fine, John MacPete, Richard Roberson and Ray
Urbanik to discuss the motion and ascertain whether there will be opposition to Baron’s request
for stay. At the time of filing, this motion had no concurrence, and is therefore OPPOSED.
/s/ Stephen R. Cochell
Stephen R. Cochell
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CERTIFICATE OF SERVICE
On this date, I electronically submitted the foregoing document with the Bankruptcy
Clerk for the U.S. District Court, Northern District of Texas, using the electronic case filing
system of the court. I hereby certify that I have served all parties who receive notification
through the electronic filing system.
/s/ Stephen R. Cochell
Stephen R. Cochell
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