No. 11-10289
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.
DANIEL J SHERMAN,
Appellee
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Interlocutory Appeal of Orders
Adding Receivership Parties and
Disposing of Receivership RES
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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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RESPONSE AND MOTION FOR RELIEF WITH RESPECT TO
SHERMAN MOTION TO DISMISS, SUBSTITUTE APPELLEES,
AND EXTEND BRIEFING DEADLINES
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
Case: 11-10289 Document: 00511598080 Page: 1 Date Filed: 09/09/2011
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TO THE HONORABLE FIFTH CIRCUIT COURT OF APPEALS:
COMES NOW Appellant Jeff Baron and makes this response, objection and
motion for relief with respect to two motions filed by Sherman, being: (1) 8-30-11
OPPOSED MOTION filed by Appellee Mr. Daniel J. Sherman: Trustee's Motion to
Dismiss, or in the Alternative for Designation of Appellee and to Extend Briefing
Deadline to dismiss the appeal [6893047-2] (Motion 1); and (2) 7-06-11
OPPOSED MOTION filed by Sherman for Other Relief and to expedite briefing
filed in case 10-11202 as Document number 00511531893) (Motion 2).
I. RESPONSIVE ARGUMENT AND AUTHORITY
Shermans Request to be Removed as Appellee
In Motion 1 Sherman argues that he has no interest in the instant appeal and
should be removed as Appellee. At the same time, in Motion 2 (at page 7)
Sherman argues the opposite that he has an interest in all of the appeals and
therefore has standing to seek relief with respect to the appeals, including the
instant appeal. Previously, Sherman argued that because Sherman had moved for
the receivership against Baron, Sherman was the proper appellee and thus Sherman
should be substituted in as the sole appellee in case 11-10113 in place of Vogel.
(Page 3 of Document 00511504433 filed 6/09/2011 in case 11-10113). Now
Sherman argues the opposite that he has no interest in the instant appeal and
should be removed as Appellee and that Vogel should be inserted in his place, even
though Sherman moved for the receivership against Baron and, as discussed above,
claims an interest in all of the appeals including the instant appeal.
Case: 11-10289 Document: 00511598080 Page: 2 Date Filed: 09/09/2011
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The notice of appeal in the instant appeal was filed on March 3, 2011.
Sherman waited half a year and until after the Appellant had filed his principal
briefing, before asserting that he has no interest in the appeal and should be
removed as Appellee. In conjunction with his delayed motion to be removed as
Appellee, in Motion 1 Sherman seeks a delay in his briefing deadlines. At the
same time, in Motion 2, Sherman argues the opposite, and moves for an expedited
appeal of the instant case. (Motion 2 at page 9-11).
1
Sherman has offered no authority for his request to be removed as Appellee.
Rather, Sherman has expressly admitted that he has an interest in this appeal.
(Motion 2 at page 7).
2
As an underlying issue of law, where party has an interest in
the appeal he is a proper appellee. Legault v. Zambarano, 105 F.3d 24, 26 (1st Cir.
1997). Additionally, Sherman has acted as an Appellee in moving to dismiss this
appeal and has objected to being the Appellee only after the Appellants principal
brief was filed. See Terry v. Sparrow, 328 BR 450, 453 fn 1 (M.D.N.C. 2005)
(Trustees motion to dismiss appeal was factor in determining that the Trustee was
the proper appellee). Accordingly, in light of (1) his admission that he is an
interested party in this appeal; (2) his affirmative requests for relief filed as the
Appellee in this appeal; and (3) the timing of Shermans raising of the issue;
Shermans requests to be removed as Appellee and to delay the briefing schedule
should be denied.
1
Pages are cited herein based on the PACER pagination. Accordingly, Motion 2 printed page 7
corresponds to page 11 as referenced in this response.
2
Printed page 3 of Motion 2.
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Sherman Mootness Motion is Legally Frivolous, His Certificate of Conference to
the Court is False, and Sherman Should Be Sanctioned
Shermans Mootness Argument
Sherman offers no precedential authority in support of his mootness
argument. Instead, Sherman cites an unpublished case
3
(that pursuant to the
express rules of this Honorable Court is not precedent) holding that where a party
does not seek to stay the sale of property that is sold to good faith purchasers, an
appeal of that sale is moot. Notably, good faith purchasers are afforded special
protection under the law. The importance of securing the rights of good faith
purchasers is so fundamental that the Supreme Court explained almost 200 years
ago: Strong as a plaintiff's equity may be, it can in no case be stronger than that of
a purchaser, who has put himself in peril by purchasing a title, and paying a
valuable consideration, without notice of any defect in it, or adverse claim to it.
Boone v. Chiles, 35 U.S. 177, 210 (1836). Accordingly, with few exceptions, as a
special rule, good faith purchaser status trumps a challenge to an order confirming
the sale of property. See generally In re Bleaufontaine, Inc., 634 F.2d 1383, 1388
n.7 (5th Cir. 1981). No order on appeal involves property that has been sold to a
good faith purchaser and the rule has no application in this appeal.
The good faith purchaser exception does not apply to the payment of money.
As a well established express principle of long standing and fundamental law,
even after money is paid an appellate court is fully empowered to reverse the order
to pay the money, and if reversed, the aggrieved party can recover his money back.
3
S.E.C. v. Janvey, 404 Fed.Appx. 912, 916, (5th Cir. 2010).
Case: 11-10289 Document: 00511598080 Page: 4 Date Filed: 09/09/2011
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Eg., Dakota County v. Glidden, 113 U.S. 222, 224 (1885). A case is only moot
when the parties lack a legally cognizable interest in the outcome. E.g., Powell v.
McCormack, 395 U.S. 486, 496 (1969). As a matter of well-established law a case
is justiciable when the court can order specific relief through a decree of a
conclusive character. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937).
This Honorable Court can issue a decree of conclusive character with respect to
each of the matters involved in the instant appeal.
Specific Orders on Appeal
Sherman argues that District Court Docket No.s 274, 275, 276, 278, 279,
283, 284, 292, 295, 297, each of which ordered the disbursement of receivership
funds are moot because the payments ordered have already been made. As
discussed above, a matter of well-established and fundamental law, even after
money is paid an appellate court is fully empowered to reverse an order for the
payment of money. Dakota, 113 U.S. at 224. This Court can clearly give effective
relief by reversing the District Courts orders to pay money, and Sherman has
offered no authority to the contrary.
Sherman argues that District Court Docket No. 285 is moot because part of
the relief denied by the Order is moot. Contrary to Shermans representation the
controversy involves more than server fees. Baron moved for an order for his
lifes work (computer code on a computer hard disk that was threatened with
deletion) to be backed up. The District Court failed to allow Baron to reply to
Shermans response to his motion, and denied the motion without allowing Baron
Case: 11-10289 Document: 00511598080 Page: 5 Date Filed: 09/09/2011
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the procedural due process required by the Federal Rules of Procedure and Local
Rules of the Northern District of Texas. The underlying substance of the denied
relief was the preservation of Barons assets, an express purpose of the ex parte
receivership imposed upon Baron. The dispute is live, and the matter is not moot.
Sherman argues, without citation to any authority, that where an emergency
hearing is requested upon a motion for relief, the relief requested is automatically
mooted by the failure to grant the relief on an emergency basis. Where a motion is
made for distribution or disposal of receivership assets for a certain purpose, so
long as the distribution or disposal has been declined by the District Court the
controversy is live and the matter is not moot. For example, Barons need for a
heated apartment (refused him by the receiver) was acute in the freezing weather of
February. The matter is not moot, however, as in the next 90 or 120 days the
weather again will be cold and while the District Court has awarded a million
dollars of Barons life savings to the receiver and his law partners as fees, Baron
is still locked by the receiver in an apartment without heating or air conditioning.
Sherman argues that the injunction ordered in District Court Docket No. 318
is moot because it was vacated by the District Court after the order was appealed.
As a preliminary matter the District Court is without jurisdiction to vacate the
order after it was appealed and thus has no jurisdictional authority to moot a matter
on appeal. Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982);
Coastal Corp. v. Texas Eastern Corp., 869 F.2d 817, 820 (5th Cir. 1989); Dayton
Indep. School Dist. v. US Mineral Prods. Co., 906 F.2d 1059, 1065 (5th Cir. 1990).
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Perhaps more relevantly, counsel for the Appellant, Baron, sought in writing
conference with Sherman to reduce the amount of issues and orders taken up in
this appeal. Appellants counsel requested that Shermans counsel agree to
stipulate that as many orders as possible were moot and thus eliminate the
necessity of including the orders in this appeal. Appellants counsel specifically
and expressly requested that Shermans counsel agree that Doc 318 was moot.
Shermans counsel, however refused, explaining that it was his position that Baron
had violated the injunction ordered in Doc 318, and thus the matter was not moot.
See Exhibit A. Thus, directly contrary to the certification of conference
presented by Sherman, counsel for Appellant did attempt to reach agreement
to avoid including orders in this appeal expressly on the basis of mootness,
and it was Shermans counsel who refused. After rejecting the offer to
voluntarily agree that orders expressly including Doc 318 were moot, Sherman
now seeks to have the order declared moot and has in all essence falsely certified
to the Court that Barons counsel refused agreement as to removing the order from
this appeal. It is obviously a waste of this Courts resources, and the efforts of the
Appellants counsel to brief orders that both sides can agree are moot. Sherman
refused to reach agreement with Appellants counsel as to the mootness of any
order (which is Shermans absolute right).
4
However, Sherman then falsely
represented to this Court that it was Appellants counsel that refused agreement.
4
Notably, the orders such as Doc 318 are not moot but can easily be made so by the agreement
of counsel. However, if Sherman insists, for example, that Baron may have violated an order,
then Sherman can force the appeal of the order by creating a controversy involving the order.
Case: 11-10289 Document: 00511598080 Page: 7 Date Filed: 09/09/2011
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The District Court in Docket No. 288 gave the receiver a blank check to
dispose of essentially any and all of the receivership assets of the receivership
estates of Novo Point, LLC, and Quantec, LLC, (in order to pay alleged debts of
Jeff Baron) without the requirement of any further order by the District Court.
Sherman argues, with no supporting legal authority, that because after that order
was appealed and the District Court entered subsequent orders and was stayed
pending appeal, the status of the case has changed and the order is no longer ripe
for appeal. As discussed above, once the order was appealed the District Court
was divested of jurisdiction over the matter and was without power to alter the
status of the order on appeal. Dayton, 906 F.2d at 1063 (A district court does not
have the power to alter the status of the case as it rests before the Court of
Appeals.). Moreover, it is axiomatic that stay pending appeal does not moot the
order then on appeal because it has been stayed.
Sanctions Against Sherman Are Appropriate
As discussed above, Sherman offered no legal precedent for his mootness
argument. His argument ignores fundamental and long-established principles of
law. For example, Sherman argues that an order to pay money cannot be appealed
after if the money has been paid. Such an argument can be described no other way
than frivolous. This Honorable Court has issued an order in relationship to appeal
from the case below expressly warning against the filing of frivolous motions.
Sherman clearly did not heed this Courts warnings. Moreover, Sherman has
engaged in the worst sort of gamesmanship, waiting months to file his motion,
Case: 11-10289 Document: 00511598080 Page: 8 Date Filed: 09/09/2011
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taking completely inconsistent positions in different motions pending before the
Court of Appeals at the same time, and refusing to reach agreement to limit the
orders included in this appeal and then falsely representing that Counsel for the
Appellant opposed agreement to moot various orders that clearly can be mooted by
agreement of the parties and do not need to be a live controversy, for example, Doc
318.
5
In light of the foregoing, appropriate sanctions should be imposed against
Sherman.
Shermans Appealability Argument
Sherman offers the argument that the District Court Orders placing a dozen
new receivership parties and estates under receivership are non-appealable.
Contrary to the assertions of Sherman, the appealed from orders (District Court
Docket Numbers 272, 287) make no finding that any company is owned or
controlled by Baron.
6
Rather, more than a dozen independent entities were simply
ordered (without service of process or hearing) placed under the District Courts
receivership, and one entity was ordered removed. Sherman ignores that the
entities were placed into receivership and were made subject to a long series of
injunctions and argues instead that there was merely a turnover over. The
challenged orders are clear: The entities were made receivership parties. As there
was also an injunction imposed upon the entities by virtue of the appealed from
5
As shown by Shermans unusual certificate of conference, Shermans counsel were well aware
of the intense work load placed upon the undersigned with respect to the mass of motions filed
by Sherman and Vogel, and Sherman filed his motion willfully and intended that the motion
would require a substantial time commitment to respond.
6
SR. v2 pp365,405.
Case: 11-10289 Document: 00511598080 Page: 9 Date Filed: 09/09/2011
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orders, the orders clearly fall within the scope of §1292(a).
Shermans argument also lacks a logical footing. To Shermans argument,
entities which are not parties to a lawsuit and have not been served with process,
can be placed into receivership ex parte without even being named in the
receivership order. After the blank receivership order can no longer be appealed,
those companies can then be identified and included in the receivership, but the
companies have no right to appeal. To Shermans view, the statutory right to
interlocutory appeal pursuant to 28 U.S.C.§1292(a) when a receivership is imposed
can be abrogated by entering a receivership order without naming receivership
parties, and then later, after the time for appeal of that order has lapsed, entering an
order reciting the names of the included parties. However, as an established
principle of law, an independent right to appeal extends to orders modifying or
amending previous orders. E.g.,, Taylor v. Sterrett, 640 F.2d 663, 666-667 (5th Cir.
1981). Accordingly, an order which clarifies a previous order to place new
parties into receivership, is clearly an appealable order pursuant to 28
U.S.C.§1292.
Even if Shermans argument were logically valid and were supported by
some authority, the appeals should still be considered pursuant to the doctrine of
pendent appellate jurisdiction. A refusal to allow the appeal would defeat the
principal purpose of allowing an immediate appeal of a receivership order. See e.g.,
Morin v. Caire, 77 F.3d 116, 119-120 (5th Cir. 1996). The claims on appeal of these
orders are clearly closely related to the other issues before the Court in this appeal.
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Specifically, a core issue raised in the instant appeal is whether the District Court is
divested of jurisdiction over the matter appealed by an interlocutory appeal. The
Appellants argue in this appeal that the District Court was divested of jurisdiction
over the matters on appeal and therefore lacked authority over the matter other than
to maintain the status quo as of the filing of the notice of appeal. See e.g., Griggs,
459 U.S. at 58; Coastal Corp., 869 F.2d at 820. The same facts and legal issue
apply to the orders objected to by Sherman. It materially serves the interest of
judicial economy to review orders expanding the jurisdictional authority of a
receiver (while the receivership was on appeal) at the same time the Court takes up
the issue of the effect of filing an appeal on the District Courts jurisdiction.
The District Courts authority, if challenged on appeal, is best challenged
before the District Court takes action based on that asserted authority, and not after.
For that reason receivership orders are allowed interlocutory review. Post-appeal
orders of the District Court to carry out the purposes of the receivership, which
have jurisdictional impact and will necessarily impact the validity of numerous
future orders of the court,
7
should be allowed interlocutory review as a matter of
fundamental judicial economy.
7
Administrative actions such as ordering the turnover of stocks or other similar property do not
impact a District Courts underlying jurisdiction and authority. Accordingly, such actions are not
afforded interlocutory review. By contrast, the validity of orders placing new parties into
receivership and orders expanding the territorial authority of a receiver directly impact the
validity of all future orders based on the jurisdiction of the District Court asserted by virtue of
those orders.
Case: 11-10289 Document: 00511598080 Page: 11 Date Filed: 09/09/2011
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WHEREFORE, the Appellants respectfully move this Honorable Court to
deny Shermans motions and consider imposing sanctions against Sherman,
including sanctions to compensate Appellants counsel for the costs of responding
to the motions.
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 APPELLANT
Case: 11-10289 Document: 00511598080 Page: 12 Date Filed: 09/09/2011
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AUTHORITIES CITED
FEDERAL CASES
Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937)..................................... 5
Boone v. Chiles, 35 U.S. 177, 210 (1836).............................................................. 4
Coastal Corp. v. Texas Eastern Corp., 869 F.2d 817, 820 (5th Cir. 1989) .........6, 11
Dakota County v. Glidden, 113 U.S. 222, 224 (1885)............................................ 5
Dayton Indep. School Dist. v. US Mineral Prods. Co., 906 F.2d 1059, 1065 (5th
Cir. 1990) ........................................................................................................6, 8
Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 58 (1982)...............6, 11
In re Bleaufontaine, Inc., 634 F.2d 1383, 1388 n.7 (5th Cir. 1981) ........................ 4
Legault v. Zambarano, 105 F.3d 24, 26 (1st Cir. 1997).......................................... 3
Morin v. Caire, 77 F.3d 116, 119-120 (5th Cir. 1996)...........................................10
Powell v. McCormack, 395 U.S. 486, 496 (1969).................................................. 5
S.E.C. v. Janvey, 404 Fed.Appx. 912, 916, (5th Cir. 2010).................................... 4
Terry v. Sparrow, 328 BR 450, 453 fn 1 (M.D.N.C. 2005) .................................... 3
Case: 11-10289 Document: 00511598080 Page: 13 Date Filed: 09/09/2011
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CERTIFICATE OF SERVICE
This is to certify that this filing was served this day on all parties who receive
notification through the Courts electronic filing system.
CERTIFIED BY: /s/ Gary N. Schepps
Gary N. Schepps
COUNSEL FOR APPELLANT
CERTIFICATE OF CONFERENCE
Counsel for Sherman have stated they oppose, and counsel for Vogel have not
stated whether they oppose.
CERTIFIED BY: /s/ Gary N. Schepps
Gary N. Schepps
COUNSEL FOR APPELLANT
Case: 11-10289 Document: 00511598080 Page: 14 Date Filed: 09/09/2011

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