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CIVIL ACTION NO. 3:13-cv-03461-O
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
Dallas Division
JEFFREY BARON,
Appellant
v.
ELIZABETH SHURIG, et. al.
Appellees
ON APPEAL FROM THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION
CONSOLIDATED REPLY OF APPELLANT TO OPENING
BRIEFS OF INTERVENOR AND PETITIONING CREDITORS
Comes now Appellant Jeffrey Baron (“Baron”) and files this Consolidate Reply to the
Opening Briefs of Intervenor, John H. Litzler (the “Trustee”), and the petitioning creditors in the
involuntary bankruptcy case of Baron (collectively, the Petitioning Creditors”).
1
In support
hereof, Baron would respectfully show the Court as follows:
I. Preliminary Statement
Instead of demonstrating that they obtained final judgments against Baron through a fair
trialor at least rebutting that an interlocutory fee order is not akin to a final judgment under
Federal Rules of Civil Procedurethe Petitioning Creditors and Trustee make repetitive
arguments that Baron is a vexatious litigant, in an attempt to convince yet a fourth court that they
are entitled to extraordinary equitable relief. Setting aside that this allegation is baseless, as
1
Capitalized terms not otherwise defined herein have the same ascribed to them in Baron’s Brief in Support
of Appeal of Bankruptcy Court Orders Granting Petitioning Creditors Partial Summary Judgment and Order for
Relief (Dkt. No. 25.)
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demonstrated below, section 303 of the Bankruptcy Code contains absolutely no provision that
allows alleged creditors to force an individual into bankruptcy because he or she is “vexatious.
Rather, section 303 requires petitioning creditors to hold claims that are not subject to bona fide
dispute as to liability or amount. And the reasoning behind this requirement makes perfect sense,
as the Bankruptcy Code was not intended to be used as a tool by plaintiffs to obtain a litigation
advantage over defendants by placing them into bankruptcy. For these and other reasons, the
Involuntary Case should be dismissed.
II. Violation of Due Process
Receivership Order Precluded Involuntary Case
The Trustee and Petitioning Creditors first contend that the reversal of the Receivership
Order did not preclude the remedy of involuntary bankruptcy. (Tr. Br. at 19; PC’s Br. at 11.)
They argue that [a] federal court’s equitable power to appoint a receiver in order to restrict a
debtors use of his unencumbered property before judgment may not be viable, but involuntary
bankruptcy certainly provides a method for creditors to force a debtor into bankruptcy proceedings if
certain statutory criteria are met.” (Tr. Br. at 19.) They are fundamentally incorrect for several
reasons.
First, the Trustee and Petitioning Creditors mistake the different effects of the Reversal
Opinion and the Fifth Circuit mandate in determining what remedies were available to the Petitioning
Creditors at different points in time. At the time the Reversal Opinion was entered, the Petitioning
Creditors had absolutely no right to commence the Involuntary Case because the original
Receivership Order contained a broad injunction against the commencement of any such remedy. As
demonstrated in the Baron’s Motion for Reconsideration [Dkt. No. 40], the Receivership Order
banned the Petitioning Creditors from, among other things:
[c]ommencing, prosecuting, continuing, entering, or enforcing any suit or
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proceeding . . .;”
taking or attempting to take possession, custody or control of any asset”
[e]xecuting, issuing, serving or causing the execution, issuance or service of, any
legal process . . . whether specified in this Order or not;
[d]oing any act or thing whatsoever to interfere with the Receiver taking custody,
control, possession, or management of the assets or documents subject to the
receivership.”
(See App. 6, 139-140.) Federal Rule of Appellate Procedure 41, as well as the Fifth Circuits
Clarification Order, ensured that this broad injunction remained in place when the Involuntary
Case was commenced. While Baron had an absolute right to the protections of the Receivership
Order, this right was stripped away, without due process, when the Petitioning Creditors ignored
it and pursued the illegal remedy of bankruptcy.
Second, even if the Receivership Order had not been in placewhich it wasthe
Petitioning Creditors still had no remedy available to them regarding the Fee Order because that
Order had been stayed by Judge Furgesonat the instruction of the Fifth Circuitsix days after
it was entered. (App. 28, p.214.) Judge Furgeson’s initial stay order unequivocally provided
that: “[H]aving consulted with the Clerk of the U.S. Court of Appeals for the Fifth Circuit, the
Court advises the parties that it is STAYED from taking any action in the various matters
[including the Fee Order (Dkt. No. 575)] involved in the instant appeal.(Id.) A month later,
Judge Furgeson reiterated in another Order that he had stay[ed] orders concerning . . . fees to
be paid to Baron attorneys pending appeal.” (App. 31, p. 217.) After the Fifth Circuit
mandate on the Reversal Opinion issued, Judge Furgeson then made the stay permanentdespite
renewed requests by the Petitioning Creditors to be paidstating “the Fifth Circuit found this
Court could not order the payment of these fees from the Receivership estate.” (App. 34, p.
0443.) Moreover, Judge Furgeson had no authority to ever enforce the Fee Order (a) after the
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Fifth Circuit mandate pursuant to established case law regarding reversed receiverships
2
and the
law of the case and mandate rule.
3
Thus, the Petitioning Creditors never had any right to enforce
the Fee Order; rather Baron had a right to enforce the Fifth Circuit mandate and Judge
Furgeson’s nullification of such Order.
Moreover, section 303(b) of the Bankruptcy Code itself precluded any remedy for the
Petitioning Creditors, because it requires the Petitioning Creditors to hold claims that are not
subject to a bona fide dispute. While the Trustee and Petitioning Creditors spend an inordinate
amount of time in their Opening Briefs arguing that the claims were not “contingent” (Tr. Br. at
25-26; PC’s Br. at 16-18), this argument misses the mark entirely, as section 303(b) separately
requires petitioning creditors to hold claims that are not subject to “bona fide dispute as to
liability or amount.” See 11 U.S.C. § 303(b). And any reasonable person who reviews the Fee
Order will notice that Judge Furgeson specifically acknowledged in his Order that Baron’s held
claims against all of the Petitioning Creditorsand visa versathat were preserved for future
litigation. In that Order, Judge Furgeson stated:
[T]he Court understands that certain of the claimants of the Former
2
See Jacksonsville, T. & K. W. RY. CO. v. American Const. Co., 57 F. 66 (5
th
Cir. 1893); Coskery v. Roberts
& Mander Corp., 189 F.2d 234 (3rd Cir. 1951); Coburn v. Hill, 103 F. 340, 340-41 (6
th
Cir. 1900); Sclafani v.
Sclafani, 870 S.W.2d 608,611 (Tex. App.-Hous. [1 Dist.] 1993); Christie v. Lowrey, 589 S.W.2d 870, 873 (Tex. Civ.
App.-Dallas 1979, no writ).
3
Given that the only assets that were the subject of the Netsphere Litigation were the domain names that
were to be transferred to Netsphere under the settlement agreement between Ondova and Netsphere (R. 183), the
Fifth Circuit unequivocally ruled that Judge Furgeson did not have subject matter jurisdiction to impose a receiver
over propertythe personal assets of Baron, Novo Point and Quantecthat was not the subject of the Netsphere
Litigation. (R. 179; see also R. 185-86, 188.) (“The receiver was granted exclusive control over assets, including
Baron’s personal property, that were not at issue in the underlying litigation over the domain names. We find no
authority to permit establishing a receivership for this purpose.”) The Fifth Circuit further held that “[e]stablishing a
receivership to secure a pool of assets to pay Baron’s former attorneys, who were unsecured contract creditors, was
beyond the court’s authority.” (R. 185-86.) These rulings were binding on Judge Furgeson. See United States v.
Lee, 358 F.3d 315, 321 (5th Cir.2004) (“Absent exceptional circumstances, the mandate rule compels compliance on
remand with the dictates of a superior court and forecloses relitigation of issues expressly or impliedly decided by
the appellate court.”); see also Demahy v. Schwarz Pharma, Inc., 702 F.3d 177, 184 (5
th
Cir. 2012) (the mandate rule
“’provides that a lower court on remand must implement both the letter and the spirit of the appellate courts
mandate and may not disregard the explicit directives of that court.”) (quoting United States v. Matthews, 312 F.3d
652, 657 (5
th
Cir. 2002)). Thus, Judge Furgeson had no authority to ever enforce the Fee Order after the Fifth
Circuit mandate issued.
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Attorney Claims are claiming that, in addition to the amounts of the
Former Attorney Claims, they are entitled to bring Punitive Claims.
Furthermore, the Court understands that eight of the claimants of the
Former Attorney Claims are seeking the amounts that are 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 or other civil claims (collectively, “Baron
Claims”).
(R. 1327) That is precisely why Judge Furgeson stated that “[t]hrough this Order, Baron
maintains any and all rights to bring, after the end of the Receivership, the Baron Claims.” (R.
1328.) This ruling is consistent with the representations made by t