No. 10-11202
In the
United States Court of Appeals
for the Fifth Circuit
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NETSPHERE, INC. Et Al,
Plaintiffs
v.
JEFFREY BARON,
Defendant-Appellant
v.
ONDOVA LIMITED COMPANY,
Defendant-Appellee
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Appeal of Order Appointing Receiver in Settled Lawsuit
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Cons. w/ No. 11-10113
NETSPHERE INC., Et Al, Plaintiffs
v.
JEFFREY BARON, Et Al, Defendants
v.
QUANTEC L.L.C.; NOVO POINT L.L.C.,
Appellants
v.
PETER S. VOGEL,
Appellee
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Appeal of Order Adding Non-Parties Novo Point, LLC
and Quantec, LLC as Receivership Parties
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From the United States District Court
Northern District of Texas, Dallas Division
Civil Action No. 3-09CV0988-F
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PRELIMINARY RESPONSE TO TENTH MOTION FOR
FEES FOR VOGEL’S LAW FIRM
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TO THE HONORABLE JUSTICES OF THE FIFTH CIRCUIT COURT OF
APPEALS:
COMES NOW Appellants Jeff Baron, Novo Point LLC, and Quantec LLC,
and subject to the Fifth Amendment objection and motion previously filed in this
cause
1
and incorporated herein by reference, make this preliminary response with
respect to 10-11-11 MOTION filed by Appellee Mr. Peter S. Vogel in 11-10113,
11-10290, 11-10390, 11-10501 to supplement the record on appeal with Receiver's
Tenth Gardere Fee Application [6923954]. The Appellants also incorporate by
reference Document 00511600278 in case 10-11202 filed on 9/12/2011.
I. ARGUMENT AND AUTHORITY
Legal Analysis of the Fee Request
This Honorable Court has held that compensation paid from a receivership
estate must be for actual services provided to that estate. E.g., Commodity Credit
Corporation v. Bell, 107 F.2d 1001, 1001 (5th Cir. 1939); Securities and Exchange
Com'n v. Elliott, 953 F.2d 1560 (11th Cir. 1992) (“The court in equity may award
the receiver fees from property securing a claim if the receiver's acts have
benefited that property.”). No allegation has been made and no evidence has been
offered to sustain a showing that the fee request is for reasonable or necessary fees
to the benefit of any estate, nor are the fees segregated between estates. The
limitation upon attorneys to charge only a reasonable legal fee and to charge only
1
Document 00511592562 filed in Case 10-11202 on 09/04/2011.
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for legal services that are actually provided is a legal and ethical duty imposed by
law in Texas. Lee v. Daniels & Daniels, 264 SW 3d 273, 280-281 (Tex.App.-San
Antonio 2008, pet. denied)(noting “[A]ttorneys are members of an ancient
profession with unique privileges and corresponding responsibilities” and rejecting
the right of attorney to seek fees where “None of that time was spent engaged in
‘legal services’ performed or rendered on behalf of Cummings, his client.”).
Further, pursuant to Texas law, an attorney is paid (when they actually do
work on behalf of a client providing legal services) not solely based on their work,
but also based on their loyalty to the client. Burrow v. Arce, 997 S.W.2d 229, 237
(Tex. 1999). Vogel’s law firm has not been loyal to any of the receivership estates
in Vogel’s hands. Rather, Vogel has worked in clear conflict of interest between
various estates and against the estates. For example, Vogel and his law firm have
worked to liquidate the assets of Novo Point, LLC and Quantec, LLC instead of
defending the companies against claims asserted against Baron. Similarly, Vogel
and his law firm have clearly been acting as prosecutors against Baron and his
estate, actively soliciting claims against the estate and arguing actively against the
interests of the estate. At the same time Vogel has held the conflicted position of
being charged with defending LLC assets against ‘claims’ made against Baron,
while at the same time Vogel has prosecuted the claims and forcibly sought to
liquidate company assets to pay ‘Baron’ claims. Similarly, in acting as receiver
both of Baron and of AsiaTrust, Vogel is clearly conflicted over the adverse claims
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of AsiaTrust against Baron, and to claims by former attorneys employed by
AsiaTrust who seek to make Baron personally liable for the fees due from
AsiaTrust. This Honorable Court has held that “[W]here an actual conflict of
interest exists, no more need be shown in this type of case to support a denial of
compensation.” Matter of Consolidated Bancshares, Inc., 785 F.2d 1249, 1256 (5th
Cir. 1986). The Supreme Court has explained the rule as follows:
“[R]easonable compensation for services rendered”
necessarily implies loyal and disinterested service in the
interest of those for whom the claimant purported to act.
American United Mutual Life Ins. Co. v. City of Avon
Park, 311 U.S. 138. Where a claimant, … was serving
more than one master or was subject to conflicting
interests, he should be denied compensation. It is no
answer to say that fraud or unfairness were not shown to
have resulted. Cf. Jackson v. Smith, 254 U.S. 586, 589.
Woods v. City Nat. Bank & Trust Co. of Chicago, 312 U.S. 262, 268 (1941).
Notably, Vogel is also conflicted as a fiduciary and partner of Gardere. On one
hand as a fiduciary for Gardere Vogel is charged with maximizing the fees received
by Gardere and paid a bonus based on the more he bills on Gardere’s behalf. At
the same time, Vogel is charged as a fiduciary for the receivership estates and has
the conflicting duty to conserve estate property and minimize unnecessary fees and
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charges.
Further, a receiver’s compensation should correspond with the degree of
responsibility and business ability required in the management of the affairs
entrusted to him and the perplexity and difficulty involved in that management.
Stuart v. Boulware, 133 U.S. 78, 82 (1890). A receiver looks for compensation to
the receivership estate, which may belong, in equity, largely to others than those
who have requested the receiver’s services, and the receiver should have in mind
the fact that the total aggregate of fees must bear some reasonable relation to the
estate's value. Cf. In re Imperial “400” National, Inc., 432 F.2d 232, 237 (3rd Cir.
1970); Finn v. Childs Co., 181 F.2d 431, 436 (2nd Cir. 1950). Where the same
receiver is appointed over multiple receivership estates, the charge to each estate
should be based on the work performed by the receiver for that particular estate.
Bank of Commerce & Trust Co. v. Hood, 65 F.2d 281, 283-284 (5th Cir. 1933) (fees
and expenses must be charged against each fund held by receiver as if separate
receivers had been appointed for each and an “[A]ccurate inquiry ought to be made
as to what time and services counsel and receiver gave to each fund, and what part
of their expenses were in fact necessary for each.”); and e.g., Butterwick v.
Fitzpatrick, 2008 Cal. App. LEXIS 1293 (4th Appellate Dist., 1st Div., February
15, 2008). Much of the asserted charges are for work that could have been
performed (had it been necessary to perform) by less costly non-legal employees.
See Matter of US Golf Corp., 639 F.2d 1197, 1202 (5th Cir. 1981).
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Finally, Vogel and his firm should not be paid from receivership assets for
work done in defending Vogel or in engaging in a controversy with parties to the
lawsuit. E.g. In re Marcuse & Co., 11 F.2d 513, 516 (7th Cir.1926) (the receiver
has ordinarily no justification for engaging in a controversy with one who claims
adversely to him and because “the receiver was without authority to participate in
the litigation involving the … liability of these men, there should be no allowance
against the estate of attorney's fees for such services.”); United States v. Larchwood
Gardens, Inc., 420 F.2d 531, 534-535 (3rd Cir. 1970) (“the receivers' expenses and
costs in defending their allowances on appeal are not proper charges against the
receivership estate”).
The Fifth Amendment Question
Baron repeatedly moved in the District Court to be allowed access to his
own money in order to hire attorneys to represent him. E.g., R. 2720; SR. v2 p384-
390 (Doc 264); SR. v5 p139 (Doc 445). However, the District Court did not allow
Baron to hire counsel. E.g., Doc 316 (SR. v4 p119). Baron has made a similar
motion before this Honorable Court. That motion is pending ruling, and, to this
point, Baron has not been permitted to (1) Earn wages and engage in business
transactions to earn money to pay an attorney; (2) Be allowed access to his own
money held by the receiver to pay an attorney to represent him; nor (3) Hire paid
legal counsel. However, this Honorable Court has held that a civil litigant has a
constitutional right to retain hired counsel. Potashnick v. Port City Const. Co., 609
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F.2d 1101, 1104 (5th Cir. 1980). Moreover, this Honorable Court has held that “the
right to counsel is one of constitutional dimensions and should thus be freely
exercised without impingement.” Id. at 1118; Mosley v. St. Louis Southwestern Ry.,
634 F.2d 942, 946 (5th Cir. 1981). An individual's relationship with his or her
attorney “acts as a critical buffer between the individual and the power of the
State.” Johnson v. City of Cincinnati, 310 F.3d 484, 501 (6th Cir. 2002). Further,
the Supreme Court has held that a party must be afforded a fair opportunity to
secure counsel “of his own choice” and that applies “in any case, civil or criminal”
as a due process right “in the constitutional sense”. Powell v. Alabama, 287 U.S.
45, 53-69 (1932). That basic right was denied Baron by the District Court below,
and is pending ruling by this Honorable Court.
As a fundamental cornerstone of Due Process, the Constitution guarantees
every citizen the right to a meaningful opportunity to be heard in a meaningful
manner. Williams v. McKeithen, 939 F.2d 1100, 1105 (5th Cir. 1991). As a matter
of established law, this means the right to be represented by paid
legal counsel.
E.g., Mosley, 634 F. 2d at 946; Powell, 287 U.S. at 53; Chandler v. Fretag, 348
U.S. 3, 10 (1954); Potashnick v. Port City Const. Co., 609 F.2d 1101, 1104 (5th
Cir. 1980). In the instant proceedings, Jeffrey Baron is being denied this
fundamental right. Accordingly the substantive motions pending against Baron
and his property while he is being deprived of his basic constitutional right to pay
an attorney to represent him should be denied. Because the undersigned is a solo
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practitioner with no funding for discovery or manpower to perform itemized
review of fee applications, or manpower to attend all of the various bankruptcy
court proceedings, etc., the representation provided Baron is limited in scope to
appellate legal issues. Baron is entitled as a matter of constitutional right to more.
A citizen is entitled to use their own money to hire paid legal counsel to fully
represent them, including conducting discovery, attending hearings, reviewing line
by line items on fee applications, hiring expert witnesses to provide evidence that
fee requests are not reasonable, to investigate the claims against them, etc.
The Sherman-Vogel Fraud Issue
In September 2010 the Ondova bankruptcy estate had some $2,000,000.00 in
cash and only around $900,000.00 in claims— ie., more than a million dollar cash
surplus
. This was achieved when Baron agreed for Ondova to take all of the
settlement proceeds in the global settlement because he was promised by the
Ondova chapter 11 trustee (Sherman) that:
“[I]f I were going to be entering into this settlement
agreement, that … once the creditors were paid, that
there would be a significant amount of money that was
left over, that would come back, that would stay, you
know, in a company that I would have at the end of the
day. … I was told that obviously if you look at the
settlement agreement, I individually am not getting any, a
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penny from it myself. … the settlement agreement was
that Ondova was going to be able to walk away out of the
bankruptcy, after it paid its creditors, with a large amount
of cash, and we were thinking maybe even a million
dollars.”
Proceedings before the Bankruptcy Court on 9-15-2010.
Doc 470, Page 95 in Ondova Bankruptcy (case no. 09-
34784-sgj11),
Sherman should have immediately closed the Ondova bankruptcy in
September 2010 when there was the Million Dollars cash surplus. Instead,
Sherman kept the bankruptcy open and ran up over $300,000.00 in additional
attorney fees. When that happened, Baron objected. Within three business days
of Baron’s objection, Sherman and Vogel had Baron placed into receivership (with
Vogel as receiver) ex parte in the district court case (where Vogel was employed as
special master). Sherman notably did not act on his own, but filed his motion
seeking to appoint Vogel as receiver over Baron only after secret consultations with
Vogel.
2
After consulting with Vogel, Sherman filed his receivership motion falsely
representing that the Bankruptcy Judge ordered that if Baron fired his
counsel and proceeded pro se that a receivership was to be placed over him.
3
What the Bankruptcy Judge actually stated was:
2
SR. v5 p238.
3
R. 1576.
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“I am thinking very, very carefully about doing a Report
& Recommendation to Judge Will Furgeson that he
appoint a receiver over Mr. Baron and his assets pursuant
to 28 U.S.C., 20 Section 754 and 1692 so that a receiver
can seize assets and perform the obligations of Jeff
Baron under the settlement agreement.”
Ondova Bankruptcy Doc 470 at 58.
However, in November when Sherman and Vogel had Vogel appointed ex
parte as receiver over Baron, Baron had already fully performed all of his
settlement agreement obligations.
4
Thus, Sherman did not allege Baron was in
breach of the settlement. Rather, Sherman’s motion falsely represented the
receivership was to be imposed merely if Baron fired his bankruptcy counsel and
proceeded pro se. Of course, Sherman and Vogel still had to show that Martin
Thomas (who was Baron’s counsel in the bankruptcy court) was fired. So a
fraudulent story was fabricated that Baron filed an ethics complaint against
Thomas, didn’t pay him, and thereby caused Thomas to withdraw.
5
The story was
false and fabricated, but it was not the only one. Since Baron was also represented
in the bankruptcy court by Stan Broome, Sherman and Vogel had to also use
another story. Accordingly, with Broome’s participation a false claim was
4
I has been alleged that a de minimis $2,500.00 payment obligation had been skipped.
5
R. 1576.
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fabricated that (1) Broome’s fee contract contained no provision capping his
monthly fees at $10,000.00 per month; (2) Baron wrongfully refused to pay more
than that amount, and thus (3) Broome was owed tens of thousands of dollars and
withdrew. Of course, when Vogel produced Broome’s contract the “claim” was
shown to be completely fabricated. See SR. v8 p1212 (the written contract terms
in Broome’s contract, imposing a $10,000.00 per month cap on fees incurred); SR.
v5 pp426-430 (Broome’s fraudulent statements denying the existence of such a
term in his contract).
Vogel was intimately involved in the ex parte proceedings appointing
himself as receiver over Baron, and Vogel personally filed the receivership order.
R. 27, 1604. Baron appealed the receivership and Vogel then, on his own motions
,
moved for a long list of companies to be added as receivership parties and placed
in his hands as receiver. Other than brutally punishing Baron— limiting his access
to medical care, keeping him from owning an operating vehicle, traveling outside
of Dallas, having heat or air-conditioning, being allowed to earn any money or
engage in any business transactions, burning up his COBRA coverage, etc.—
literally, the receivership has achieved nothing
other than to: (1) prevent Baron
from hiring any legal counsel, (2) create a list of groundless, non-diverse state law
attorney fee ‘claims’ against Baron (solicited by Vogel); and (3) provide a platform
for Sherman and Vogel to run up fee demands to a combined total of over FOUR
MILLION DOLLARS.
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Notably, every possible thread of an excuse has been used by Vogel to churn
the file to run up fees. When no excuses could be found, Vogel and his firm have
fabricated new ones. See, e.g., pdf page 14, et.seq., of the “GENERAL
RESPONSE TO MOTIONS FOR FEES FOR VOGEL, HIS PARTNERS, AND
OTHER “RECEIVER PROFESSIONALS” (Document 00511600278 in case 10-
11202 filed on 9/12/2011) (describing the Vogel’s orchestrated attempt to falsely
make it appear that Baron was harassing, intimidating, and ‘obstructing’), and SR.
v4 pp102-110 (the smoking gun emails with Vogel’s office’s digital IDs proving
the affair was completely and 100% a concocted, fabricated set-up by Vogel). At
the same time, Vogel and his firm abandoned even the most basic duties with
respect to protecting receivership assets. Vogel refused to defend international
arbitration disputes and has simply defaulted on what now appears a mass of
disputes involving the loss of millions of dollars in assets, Vogel has failed to fulfill
basic duties such as filing tax returns and paying taxes, etc. Document
00511604732, filed by Appellants on 09/16/2011 in Case 10-11202, and
Document 00511598319 in case 10-11202 filed on 9/09/2011, detailing Vogel’s
conduct in these respects are incorporated herein by reference.
As a fundamental principle of equity, “Fraud vitiates everything it touches.”
White v. Union Producing Co., 140 F.2d 176, 178 (5th Cir. 1944). Accordingly,
Vogel and his firm Gardere should not be allowed to profit from the fabricated
claims, and the resulting appointment of Vogel as receiver over Baron (and other
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receivership parties) that was obtained by fraud. This is especially true where
Vogel was employed in the role of special master at the time he was also (secretly)
involved in the ex parte proceedings to appoint himself paid receiver over Baron,
and where he has used his position as receiver to enrich himself while abandoning
his most basic fiduciary obligations to protect multiple receivership estates.
WHEREFORE, Vogel’s motion should be denied and overruled.
Respectfully submitted,
/s/ Gary N. Schepps
Gary N. Schepps
Texas State Bar No. 00791608
5400 LBJ Freeway, Suite 1200
Dallas, Texas 75240
(214) 210-5940 - Telephone
(214) 347-4031 - Facsimile
Email: legal@schepps.net
FOR APPELLANTS
CERTIFICATE OF SERVICE
This is to certify that this motion 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: 10-11202 Document: 00511640727 Page: 13 Date Filed: 10/21/2011
