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IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
NETSPHERE, INC., § Civil Action No. 3-09CV0988-F
MANILA INDUSTRIES, INC., and §
MUNISH KRISHAN, §
JEFFREY BARON, and §
ONDOVA LIMITED COMPANY, §
TRIAL BRIEF FOR MOTION TO STAY RECEIVERSHIP PENDING
APPEAL OR TO VACATE THE RECEIVERSHIP ORDER AS
VOID AB INITIO
TO THE HONORABLE ROYAL FURGESON, U.S. DISTRICT COURT JUDGE:
COMES NOW Jeffrey Baron, and respectfully files this brief and shows:
1. No property interest has been invoked. Without it, as a matter of law
this Court may not order a receivership against an individual.
Receivership is a special remedy that is allowed only as a step to achieve a
further, final disposition of property. This fundamental rule was established in
Gordon v. Washington, 295 U.S. 30 (1935). The Gordon Court held “there is no
occasion for a court of equity to appoint a receiver of property of which it is asked to
make no further disposition. The English chancery court from the beginning
declined to exercise its jurisdiction for that purpose.” Id. at 37.
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This rule has been explained by the Fifth Circuit in Tucker v. Baker, 214 F.2d
627, 631 (5th Cir. 1954). Tucker explains that “a receivership for the sake of a
receivership with the consequent heavy burdens and expenses which will tend to
dissipate in court costs and allowances the properties of the true owners, while
unduly and without warrant keeping them out of the possession and use of their
own” and that “receiverships for conservation have a legitimate function but
they are to be watched with jealous eyes lest their function be perverted”.
The Tucker Court explains at 631-632:
Where a final decree involving the disposition of property is
appropriately asked, the court, in its discretion, may appoint a receiver to
preserve and protect the property pending its final disposition. …
In the case at bar, the plaintiffs, though asking for a receiver with
broad powers, are not asking for a final disposition of the property. …
[S]uch action is clearly inappropriate under the above authorities
for the reason that the receivership can accomplish no end, but must
merely be an end in itself, if there is any reason for same.
Because the motion for receivership did not seek the appointment of a
receiver as a step to achieve any further, final disposition of Mr. Baron’s property,
the receivership order imposed is unlawful. Id.
Accordingly the receivership should be immediately vacated and all the fees
and expenses claimed by the receiver and his attorneys charged against Mr. Sherman
and his counsel, the parties provoking the receivership. Tucker at 632; Porter v.
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Cooke, 127 F.2d 853, 859 (5th Cir. 1942) (the parties whose property has been
wrongfully seized are entitled, on equitable principles, to recover the costs from
those who have wrongfully provoked the receivership).
Notably, non-judgment contract creditors, such as attorneys who claim unpaid
fees, do not hold an interest in Mr. Baron’s property and are not entitled to the remedy
of receivership. See Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 497 (1923).
2. This Court does not have subject matter jurisdiction over disposition
of Mr. Baron's personal assets nor the fee disputes with former attorneys.
The only subject matter jurisdiction vested in this Court is that jurisdiction
authorized by the Constitution and statute and which is not to be expanded by
judicial decree. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 378
(1994). Unless a dispute falls within the confines of the jurisdiction conferred by
Congress, such courts do not have authority to issue orders regarding its resolution.
Giannakos v. M/V Bravo Trader, 762 F.2d 1295, 1297 (5th Cir. 1985).
There is no claim or controversy pled before this Court relating to the
disposition of Mr. Baron’s personal assets.
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This Court should honor the binding precedent of the Fifth Circuit. The ink is
barely dry on the Fifth Circuit’s opinion in Griffin v. Lee, (No. 09-30734, 5th Cir.
Sept. 23, 2010), and to attempt to use a receivership to pay former attorney’s fee
claims circumvents the Fifth Circuit’s ruling and attempts to do what the Fifth
Circuit has clearly and expressly prohibited.
In Griffith an attorney sought to have the District Court hear his attorney fee
claim arising in a case pending before the District Court. The Fifth Circuit
expressed sympathy for the attorney, but held that the district court lacked subject
matter jurisdiction over the fee dispute even though the fees were incurred for work
before that court. The Griffith Court noted “Unless a dispute falls within the
confines of the jurisdiction conferred by Congress, such courts do not have authority
to issue orders regarding its resolution.” The Griffith Court ruled that the district
court does not have subject matter jurisdiction to issue orders regarding non-
diversity claims for attorneys’ fees.
3. Imposition of a receivership requires due process. Here, there was
none, and the receivership order is void ab initio as matter of law.
A receivership is an “extraordinary” equitable remedy to be “employed with the
utmost caution” and “granted only in cases of clear necessity.” See e.g., Solis v. Matheson,
563 F.3d 425, 437 (9th Cir. 2009); Rosen v. Siegel, 106 F.3d 28, 34 (2d Cir. 1997); Aviation
Supply Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314, 316 (8th Cir. 1993); Consolidated
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Rail Corp. v. Fore River Ry. Co., 861 F.2d 322, 326-27 (1st Cir. 1988).
A district court has discretion to appoint a receiver “only after evidence has been
presented and findings made showing the necessity of a receivership.” E.g., Solis, 563
F.3d at 438 (emphasis). It needs no extended argument that absent being preceded by
the presentation of evidence, the receivership order violates the fundamental principles
of due process. Sniadach v. Family Finance Corp. of Bay View, 395 U.S. 337, 342
(1969). Even the temporary taking of property that is not in execution of a final
judgment is a “deprivation” as contemplated by the constitution and must be “preceded
by a fair hearing”. Fuentes v. Shevin, 407 U.S. 67 (1972) (emphasis). Notably, due
process requires presentation of evidence prior to the deprivation of property rights
even if a hearing is provided thereafter. Mathews v. Eldridge, 424 U.S. 319, 333.
The District Court’s order appointing receiver was not preceded by a
evidentiary hearing, and was not supported by affidavit. It is therefore void for
lack of procedural due process. See Pennoyer v. Neff, 95 U.S. 714, 737 (1878)
(“such proceeding is void as not being by due process of law”); World-Wide
Volkswagen Corp. v. Woodson, 444 U.S. 286, 291 (1980) (“rendered in violation
of due process is void in the rendering”); Margoles v. Johns, 660 F. 2d 291,295
(7th Cir. 1981)(“void only if the court that rendered it lacked jurisdiction ... or if it
acted in a manner inconsistent with due process of law”).
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4. This Court must exercise restraint and use the least power necessary in
ordering equitable remedies. Receivership is grossly excessive and manifestly
unreasonable for the grounds raised in Mr. Sherman’s motion to appoint a receiver.
A court is obliged to use the “least possible power adequate to the end
proposed”. Spallone v. United States, 493 U.S. 265, 272 (1990). The ultimate
touchstone of inherent powers is necessity. Natural Gas Pipeline Co. v. Energy
Gathering, Inc., 2 F.3d 1397, 1412 (5th Cir. 1993) (“Traditional sanctions—perhaps
a monetary penalty that increased each day for Fox's noncompliance with the other
post-judgment discovery orders—would have accomplished the court's purpose
If the purpose of the receivership is to prevent Mr. Baron from being
represented by new counsel in the pending court proceedings, the Court can
simply say “no” when a new attorney asks to be allowed appearance in the case.
The Court clearly does not need to order a receivership in order to have
control over which attorneys appear at bar before it. McCuin v. Tex. Power & Light
Co., 714 F.2d 1255 (5th Cir. 1983) (a case relied upon by Mr. Sherman, and holding
“[T]he ultimate decision on [delaying a trial for the appointment of separate counsel]
must remain with the trial judge; otherwise unscrupulous defense attorneys might
abuse their `authority,' presumably for purposes of delay or obstruction of the
orderly conduct of the trial.”).
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On the other hand, attempting to bar an individual from freely hiring
attorneys to give legal counsel is blatantly unconstitutional. Potashnick v. Port
City Const. Co., 609 F.2d 1101, 1104 (5th Cir. 1980) (“the fifth amendment to the
United States Constitution establishes that a civil litigant has a constitutional right
to retain hired counsel” and “the right to counsel is one of constitutional
dimensions and should thus be freely exercised without impingement”); Mosley v.
St. Louis Southwestern Ry., 634 F.2d 942, 946 (5th Cir. 1981)(the right to the
advice of retained counsel in civil litigation is implicit in the concept of due
process); Johnson v. City of Cincinnati, 310 F.3d 484, 501 (6th Cir. 2002)
(attorney acts as a critical buffer between the individual and the power of the
State); Powell v. Alabama, 287 U.S. 45, 53-69 (1932) (right to hire counsel of
one’s choice is a due process right in the constitutional sense that applies in any
case, civil or criminal).
If the purpose of the receivership is to prevent Mr. Baron’s attorneys from
making claims in the bankruptcy court for fees, the Court can simply enter an
injunction requiring Mr. Baron to include a term in any attorney employment contract
with new attorneys that the attorney will not file any claims in the bankruptcy court.
The Court does not need to order a receivership in order to do that.
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If the purpose of the receivership order is to prevent alleged vexatious
litigation, the Court can adopt Mr. Sherman’s own recommendation [Doc 195] that
the Court “enjoin Mr. Baron and his lawyers from filing any pleading or other paper
with the Court until the Magistrate Judge has reviewed it and determined that is
offered in good faith.” Notably, an injunction, and not a receivership, is the remedy
authorized by the Fifth Circuit for vexatious litigants. Baum v. Blue Moon Ventures,
LLC, 513 F.3d 181, 187 (5th Cir. 2008). Notably, Baum holds that while a district
court has jurisdiction to impose a pre-filing injunction to deter vexatious, abusive,
and harassing litigation, such injunction must still preserve “the legitimate rights of
litigants”. Id. Mr. Baron’s right to file lawful objections, to control settlement of
his own claims, to a jury trial for claims raised by or against him, etc., have been
squashed by this Court’s receivership order. (The receivership order also squashes
most of Mr. Baron’s civil and constitutional rights as well).
Notably, before any of the above described sanctions should be imposed, Mr.
Baron must be entitled to opportunity to fairly and fully—with the assistance of
qualified counsel—appear in Court to defend himself and require the movant to
prove by lawful evidence their factual allegations. That is the American way—the
way of a free society that protects the civil and constitutional rights of her citizens
and resolves disputes through a centuries old process—due process. That includes
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the right to have a jury hear and decide, in public, claims for damages for any
alleged breach of contract.
/s/ Gary N. Schepps
Gary N. Schepps
State Bar No. 00791608
Dallas, Texas 75367
(214) 347-4031 Facsimile
APPELLATE COUNSEL FOR
CERTIFICATE OF SERVICE
This is to certify that this was served on all parties who receive notification
through the Court’s electronic filing system.
/s/ Gary N. Schepps
Gary N. Schepps
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