IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
IN RE: §
§
ONDOVA LIMITED COMPANY, § CASE NO. 09-34784-SGJ
§ (CHAPTER 11)
DEBTOR. §
JEFFREY BARON’S OBJECTIONS TO TRUSTEE’S MOTION TO SELL
SERVERS.COM
Jeffrey Baron, by and through counsel, hereby files his objections to the Trustee’s Motion to
Sell Servers.com.
I. The Chapter 11 Trustee’s Motion Violates the Stay With Respect to In re Baron,
Case No. 12-37971.
As the Court is aware and as further explained in this Objection, Mr. Baron has an
interest in <servers.com> and has appealed the previous Order of this Court authorizing the
sale, on the basis that he owns fifty percent of <servers.com>. Case No. 10-11202, Fifth
Circuit Court of Appeals, Dkt. 691. Mr. Baron requests the Court take judicial notice of the
filings in the appellate proceedings, and the arguments set out therein. Although this Court
ruled in an adversary action that the estate had rights in the <servers.com> domain name,
Baron was not a party to the adversary action, despite his ownership interest in <servers.com>.
Any attempt to sell <Servers.com> is automatically stayed pursuant to Section 362 of
the Bankruptcy Code. As the Court is aware, this Court entered an Order for Relief against
Mr. Baron, who has been adjudged an involuntary Chapter 7 debtor under Title 11, United
States Code, in the United States Bankruptcy Court for the Northern District of Texas. Case
No. 12-37921-sgj7. An Order for Relief was entered on June 26, 2013, where an appeal of the
Order for Relief is currently pending.
Section 362 of the Bankruptcy Code provides:
1. Mr. Baron is without bankruptcy counsel because the involuntary petition circumvented
the Fifth Circuit’s December 2012 Order and subsequent mandate to return receivership
property to Baron. Mr. Baron cannot access funds sufficient to hire bankruptcy counsel.
In turn, the Bankruptcy Court denied Baron’s request for a stay of its Order for Relief.
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(a) Except as provided in subsection (b) of this section, a petition filed under
section 301, 302, or 303 of this title ... operates as a stay, applicable to all
entities, of- (1) the commencement or continuation, including the issuance or
employment of process, of a judicial, administrative, or other action or
proceeding against the debtor that was or could have been commenced
before the commencement of the case under this title, or to recover a claim
against the debtor that arose before the commencement of the case under this
title; ...
11 U.S.C. § 362 (emphasis added).
Clearly, the Motion to Sell <servers.com> is a “continuation” of the action against the
debtor, Mr. Baron and as such is automatically stayed. Moreover, it appears continuation of
filing of a claim in this action is improper, as Mr. Baron’s rights to the domain name are part of
his bankruptcy estate.
II. The Trustee’s Motion is an Attempt To Circumvent the Fifth Circuit Court of
Appeals’ Jurisdiction
a. The Fifth Circuit Court of Appeals Has Exclusive Jurisdiction Over
<Servers.com>\
Upon filing of the appeal of the order concerning <servers.com>, this Court lost
jurisdiction over the order and must await the ruling of the Fifth Circuit. The Trustee’s
motion is merely an attempt to circumvent the jurisdiction of the Fifth Circuit Court of
Appeals. The rule of the Fifth Circuit was adopted by the U.S. Supreme Court, which held
“The filing of a notice of appeal is an event of jurisdictional significance — it confers
jurisdiction on the court of appeals and divests the district court of its control over those
aspects of the case involved in the appeal.” Griggs v. Provident Consumer Discount Co., 459
U.S. 56, 58 (1982). Similarly, a lower court lacks jurisdiction to alter the status quo of the
matter on appeal and retains jurisdiction only to maintain the status quo. E.g., Coastal Corp. v.
Texas Eastern Corp., 869 F.2d 817, 820 (5
th
Cir. 1989); RTC v. Smith, 53 F.3d 72, 76 (5th Cir.
1995) (“`[u]ntil the judgment has been properly stayed or superseded, the district court may
enforce it through contempt sanctions.’”).
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b. Two Courts Should Not Assert Simultaneous Jurisdiction over the Same
Matter.
The Fifth Circuit has further held that a “federal district court and a federal court of
appeals should not attempt to assert jurisdiction over a case simultaneously.” Dayton Indep.
School Dist. v. US Mineral Prods. Co., 906 F.2d 1059, 1063-4 (5th Cir. 1990) (“our well-
established rulings that the district court loses jurisdiction over all matters which are validly
on appeal”).
In the instant case, the Fifth Circuit previously ordered the trustee to cease sales efforts
of domain names subject to Appeal. In addition, the Fifth Circuit ordered that the district
court and this Court cease any efforts to sell domain names held by the receivership over
Baron, as the sale would moot the appeal and thereby undermine the jurisdiction of the Fifth
Circuit. Exhibit A, Fifth Circuit Stay Order_; Netsphere v. Jeffrey Baron, 703 F.3d 296 (5
th
Cir. 2012).
On November 28, 2012, the Fifth Circuit made its injunction against such domain
name sales permanent. Netsphere, supra at 314 n.2 (“We stayed the closing on sales
resulting from an auction of domain names. Our ruling means no closing can occur, and
the stay is made permanent.”). As in Netsphere, there is a serious legal question as to
whether <servers.com> is now part of the Ondova estate.
III. A Bankruptcy court is not empowered or authorized to determine ownership
rights of an asset in a motion under Section 363.
Federal Rule of Bankruptcy Procedure 7001(2) provides that a proceeding to determine
the Estate’s “interest in property” be an “adversary proceeding” and “governed by the rules of
this Part VII.” Fed.R.Bankr.P. 7001. On the other hand, a Section 363 motion to sell an asset
of the Estate is merely a “contested matter” governed by Rule 9014. Fed.R.Bankr. P.
9014. Accordingly, a bankruptcy court is not empowered or authorized to determine
ownership rights of an asset in a motion under Section 363. E.g., In re Hearthside Baking
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Co., Inc., 397 BR 899, 902 (Bkrtcy. N.D. Ill. 2008); In re Whitehall Jewelers Holdings, Inc., 2008
WL 2951974 *6 (Bankr.D.Del. 2008), holding:
The Court cannot determine whether the [property is] property of the estate through
a contested matter, such as a sale motion under Section 363. Federal Rule of
Bankruptcy Procedure 7001(2) requires that an adversary proceeding be commenced to
determine the “validity, priority or extent of [an] interest in property.”
The public policy served by this rule is substantial– before businesses or individuals
outside of bankruptcy proceedings can be stripped of their assets, the bankruptcy court must
conduct a full adversarial proceeding including service of process on the interested parties
and the full disclosures required by Fed.R.Civ.P. 26(a). See Fed.R.Bankr.P. 9014(c)
(mandatory disclosure requirements of ”adversary proceedings” do not apply in ”contested
matters”). Accordingly, because a mandatory element required for authorization pursuant to
Section 363(b) is that the property be owned by the Ondova estate, the Bankruptcy Court’s
order to sell an asset not owned by the bankruptcy estate is outside the grant of authority
provided by Section 363(b).
As set out in prior pleadings, authorizing a bankruptcy court to finally adjudicate and
transfer ownership interest in non-estate property constitutes an unconstitutional delegation of
federal judicial authority to non-Article III judges. See Northern Pipeline Constr. Co. v.
Marathon Pipe Line Co., 458 U.S. 50, 71-72 (1982); Stern v. Marshall, 131 S.Ct. 2594, 2615
(2011). Allowing a bankruptcy judge to finally adjudicate state law ownership rights would
unconstitutionally grant such judges unbridled and unchecked judicial authority over the
property of the entire community. See Id.
IV. Baron Owns Fifty Percent of <servers.com>
Pursuant to Bankruptcy Rule of Procedure 363(p), the entity asserting an interest in
property has the burden of proof on the issue of the extent of such interest. Bankr.R.P.
363(p); 11 U.S.C. §101 (15) (“entity” includes the estate). In prior proceedings in the Emke
matter, As a matter of law, the uncontroverted evidence establish t h a t Jeff Baron owns a
fifty percent interest in <servers.com> and the bankruptcy estate of Ondova owns none.
A. The Emke Settlement Provided for Baron’s Ownership in <servers.com>
On July 6, 2009, an agreement for the ownership of <servers.com> was reached
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among all interested parties (The Emke Settlement). (Exhibit B, Agreement For
<servers.com> and Dkt 130 BK Case 11-03181 at p. 2). The Emke Settlement transferred
most of the rights to <servers.com> to a new entity that the agreement required to be created
(Servers, Inc., a Nevada corporation) (Id At pp. 2-3). The Trustee of the Ondova estate
effectuated the transfer to Servers, Inc. (Id. At pp. 2-3).
The stock of Servers Inc. is owned 50/50 by Ondova and Mike Emke. Id. at p 5. It is
undisputed that Ondova owns 50% ownership of the Servers, Inc. stock (Id. at p 5). However,
Ondova does not own any direct interest in the <Servers.com> domain name. Further, the
Emke Settlement expressly reserved an interest in the Servers.com domain name for Emke
and Jeffrey Baron personally. Agreement For <Servers.com>. That interest is a security and
reverter interest in <Servers.com>, reverting ownership to Baron and Emke in the event
thatServers, Inc. was placed into receivership. Id. Specifically the Emke Settlement provides:
In the event of insolvency, receivership and/or other default of the jointly
owned company, the domain name <servers.com> shall revert to Jeff Baron
and Mike Emke, to be owned jointly and equally. To this degree, these two
principals shall maintain a first lien and security interest in the domain name
superior to any other investor, equity holder or creditor. (emphasis supplied).
Id.
B. Servers, Inc. was Placed into Receivership. Per the Terms of the Settlement
Agreement, Ownership of <Servers.com> Reverted to Baron and Emke.
On October 18, 2011, this Court entered an order placing Servers, Inc. into
receivership because Servers, Inc. was in default of its obligations regarding the Emke
Settlement and <Servers.com>. (Exhibit C, Order Appointing Receiver over Servers, Inc.,).
Because of Servers, Inc.’s default, as a matter of Texas and Nevada state law, and
pursuant to the agreement between the parties, the domain name servers.com reverted to
Baron and Emke, each owning a fifty percent ownership interest. The result of the
receivership is that the Ondova bankruptcy estate retains its fifty percent ownership interest in
Servers, Inc. but, as a matter of Texas and Nevada state law, Servers, Inc. no longer owns
any interest in the <servers.com> domain name.”
To be clear, the reversion of the interest in <servers.com> was not triggered by a
bankruptcy. In fact, Servers, Inc. has never been in bankruptcy. Instead, the triggering event
of the reversion of Servers.com was Servers, Inc.’s default in carrying out its purpose, as set
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out and agreed in the Emke Settlement. After being forced into receivership, Servers, Inc.
has no remaining right to sell servers.com. Notably, Ondova has not lost any interest in
<Servers.com>, since one hundred percent ownership of <Servers.com> was vested in
Servers, Inc.--not in Ondova.
Similarly, Servers, Inc.’s loss of <servers.com> is unrelated to the fact that Ondova
filed for bankruptcy. The Ondova estate is a stockholder of Servers, Inc., and it still owns the
stock, but does not own any of Servers, Inc’s assets. While the value of the stock that Ondova
owns in <Servers.com> may be diminished due to Servers, Inc.’s loss of the <Servers.com>
domain name, Ondova does not have any greater interest in the individual assets of Servers,
Inc. than it would in individual assets of a publically traded company in which Ondova were a
stockholder. The mere fact that Ondova happened to own Servers, Inc. stock when Ondova
went into bankruptcy does not give Ondova any special rights to the asset, <Servers.com>. In fact, the
statutory protections afforded to an entity in bankruptcy do not extend to third party entities
of which the bankrupt entity is a stockholder.
For the above reasons, the Court should sustain Jeffrey Baron’s Objections and deny
the Trustee’s Motion to Sell.
Very respectfully,
/s/ Stephen R. Cochell
Stephen R. Cochell
The Cochell Law Firm, P.C.
7026 Old Katy Rd., Ste. 259
Houston, Texas 77034
(713)980-8796
(713)980-1179 (fax)
Attorneys for Jeff Baron
CERTIFICATE OF SERVICE
This is to certify that a copy of this document was electronically served on all counsel of record
on September 7, 2013.
/s/Stephen R. Cochell
Stephen R. Cochell
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