No. 11-10501
In the
U
nited States Court of Appeals
f
or the Fifth Circuit
ŷŷŷŷŷŷŷŷŷŷŷŷŷŷ
NETSPHERE, INC. ET AL,
Plaintiffs
v.
JEFFREY BARON,
Defendant – Appellant
QUANTEC L.L.C.; NOVO POINT L.L.C.,
Appellants
CARRINGTON, COLEMAN, SLOMAN & BLUMENTHAL, L.L.P.,
Appellant
v.
PETER S. VOGEL; DANIEL J. SHERMAN,
Appellees
ŷŷŷŷŷŷŷŷŷŷŷŷŷŷ
Interlocutory Appeal of Orders
in Receivership on Appeal
ŷŷŷŷŷŷŷŷŷŷŷŷŷŷ
From the United States District Court
Northern District of Texas, Dallas Division
Civil Action No. 3-09CV0988-F
Hon. Judge William R. Furgeson Presiding
ŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷ
BRIEF FOR APPELLANTS NOVO POINT, L.L.C.,
QUANTEC, L.L.C., AND JEFFREY BARON
ŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷŷ
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When the receivership was imposed, Baron immediately turned
over his personal documents and files requested by the receiver.
10
Baron’s estate consists essentially of some savings accounts and some
Roth IRAs.
11
Accordingly, the receiver was not left with very much to
do. Baron appealed the receivership order on Dec. 2, 2010.
12
The receiver then moved to add a multitude of companies into his
receivership (without lawsuits, service, evidence, or the normally
expected process of law).
13
Those companies include:
1. NovoPoint, LLC.
2. Quantec, LLC.
3. Iguana Consulting, LLC.
4. Diamond Key, LLC.
5. Quasar Services, LLC
6. Javelina, LLC.
7. HCB, LLC, a Delaware limited liability company.
8. HCB, LLC, a USVI company.
9. Realty Investment Management, LLC.- Deleware.
10. Realty Investment Management, LLC – USVI.
11. Blue Horizon, LLC.
12. Simple Solutions, LLC.
13. Asiatrust Limited.
14. Southpac Trust Limited.
15. Stowe Protectors, Ltd.
16. Royal Gable 3129 Trust.
10
R. 3891.
11
SR. v8 p1007.
12
R. 1699-1700.
13
R. 1717, 3952; SR. v1 p40, and sealed record Doc 609; SR. v2 pp365,405.
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17. CDM Services, LLC
18. URDMC, LLC.
The District Judge made no findings in entering the original
November 2010, ex parte receivership order against Baron and an
initial set of companies. R. 1619-1632. Months later, in February 2011
the District Court entered findings in denying Baron’s
Fed.R.App.P. 8(a) motion for relief pending appeal. The post-appeal
explanation in the Fed.R.App.P. 8(a) findings is essentially as follows:
The District Court believes Baron was a vexatious litigant (although
never appearing pro se and never sanctioned) who owed money in
undetermined amounts to his former attorneys, and therefore should be
denied the ability to hire an experienced trial lawyer to defend himself,
and should be stripped of his possessions without trial “so that justice is
done”. SR v2 p358.
While this matter has been on appeal, the District Court has
distributed essentially all of Baron’s savings account balances to the
receiver and his law firm.
14
The amount is staggering— almost a
14
Around $400,000 in a stock portfolio, and IRAs remain, but the stocks are
currently subject to a motion by the receiver to liquidate to pay additional fees, and
the receiver did not pay 2010 taxes.
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million dollars. SR. v8 p990-992.
The “Claims” Solicited by the Receiver
In addition to the receiver (and his firm’s) personal fees, the
receiver solicited claims (SR. v8 p1242-43) against Baron by former
attorneys of the receivership entities and presented the “claims” to the
District court in a one-sided ‘report’ that intentionally excluded
all of the exculpatory evidence. SR. v7 p202. Baron moved the
District Court for the opportunity to:
(1) retain experienced Federal trial counsel to defend the ‘claims’;
(2) the opportunity to conduct discovery with respect to the
claims; and
(3) the opportunity to retain an expert witness with respect to the
reasonableness of the alleged fees.
SR. v5 p139 [Doc 445].
However, the District Court did not grant Baron any of the
requested relief, and instead sealed
from the public view Baron’s
motion, objections, and response to the one-sided receiver’s ‘report’. SR.
v7 p379; and see Doc 458 (itself also sealed). Baron then filed a detailed
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briefing rebutting the alleged claims (SR. v5 p1313 [Doc 577]). The
District Court sealed that too. SR. v7 p379. Baron had also filed
additional evidence. SR. v5 p1369 [Doc 507]; SR. v6 p70 [Doc 523]. The
evidence was rejected by the District Court. SR. v6 pp116, 124. The
receiver’s initial motion for ‘approval’ of the claims against Baron was
denied by the District Court. SR. v6 p94 [Doc 527]. The receiver then
filed a new motion seeking approval of the ‘former attorney’ alleged
claims against Baron. SR. v7 p194. Five business days later, the
District Court granted the new motion (ignoring the defensive evidence
previously filed by Baron), and before Baron was able to file a response
to the new motion. SR. v7 p349. Notably, although Baron had
previously directed the District Court’s attention to evidence refuting
the fee allegations made by claimants, the District Court did “not
question the evidence presented by the Receiver”. SR. v6 p94. The
issues involving the unpleaded ‘claims’ awarded
15
(in the total sum of
$870,237.19) by the District Court against Baron include, for example,
15
The District Court did not evaluate the claims per se but decided that the claims
would “likely” be successful if tried, ordered Baron to settle with the claimants in
the amount set by the District Judge, and authorized the receiver to pay the claims
out of any of the receivership estates. SR. v7 p349.
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the following:
16
1. Mr. Broome ‘claimed’ more than the $10,000.00 per-month
capped fee he was paid by Baron. ‘Exhibits 4-5b’ referenced
at SR. v7 p363.
17
Broome’s argument is that Mr. Baron paid
him based on a $10,000.00 monthly fee cap but his contract
did not
contain any term limiting the amount of fees that
may be incurred in any month. SR. v5 pp426, 427. However,
Broome’s contract (submitted by Broome) clearly contains (in
writing) an explicit and unambiguous provision limiting the
amount of fees that may be incurred to $10,000.00 per
month. There is no ambiguity. Broome’s contract expressly
states a capped monthly fee limit setting the maximum
amount of fees that could be “incurred”, and expressly
16
The nine “claims” discussed below constitute approximately 80% of the total
dollar amount in “claims” presented. The factual underpinnings of the remaining 16
“claims” are similar to the nine discussed below. However, a full factual discussion
of each of the remaining claims would exceed briefing length limitations. See
‘Exhibits’ referenced at SR. v7 p362-369. Notably, the District Court made no
specific factual findings with respect to any individual “claim”. SR. v7 p349.
17
The attorney’s allegations were filed as sealed documents, and the Appellants’
motion for access to the sealed portions of the record on appeal was denied by the
appellate motion panel. Accordingly, Appellants are unable to provide more
detailed citation to the record with respect to the ‘claim’ allegation documentation,
(hereinafter referenced as ‘Exhibit __’).
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requires formal written authorization to exceed the capped
amount. SR. v8 p1212 (and see SR. v7 p379). No written
authorization to exceed the monthly fee cap was alleged in
Broome’s “claim”, and no written authorization to exceed the
agreed upon monthly cap has been produced by Broome.
Rather, Broome falsely swore that his contract did not
contain any provision to limit the amount of fees that could
be incurred monthly. SR. v5 pp426-427.
2. Ms. Crandall ‘claimed’ fees based on her allegation that she
had a written contract (which she could not produce) at an
hourly fee of $300/hour. ‘Exhibit 16’ referenced at SR. v7
p364. However, per Crandall’s own invoice, Crandall billed
(and was paid), at a flat
monthly fee. SR. v6 p77; SR. v6 p70-
76. There is no ambiguity. Crandall’s invoice (which was
paid) clearly states that “60.1” hours of work were performed
and the “Flat Rate” due was $5,000.00. SR. v6 p77.
3. Mr. Pronske was paid $75,000.00 up front for his work in the
bankruptcy court, and later alleged that the $75,000.00 was
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just an initial retainer. ‘Exhibit 24’ referenced at SR. v7
p365. Pronske demanded an additional fee of $241,912.70.
Id. However, Pronske admitted that “There are no
engagement agreements relating to the representation” and
for almost a year after receiving the $75,000.00 fee and
working on the case, Pronske sent no contract, no
engagement letter, no bill, no invoice, no demand for
payment, and no hourly work report alleging that the flat fee
payment was actually a ‘retainer’. SR. v8 p1218 and ‘Exhibit
24’. Also, the only
“invoices relating to the Representation”
(which Pronske alleges ended in July 2010), were printed up
in February 2011, after the claims were solicited by the
receiver, and some seven months after Pronske’s
representation ended. Id.
4. Mr. Ferguson’s ‘claim’ sought more than the $22,000.00
capped fee he agreed to in writing and that was paid. SR. v8
p1220. Ferguson offered several conflicting factual scenarios,
the latest being that he is allowed to violate his engagement
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agreement and charge more than the agreed upon (and paid
in full) capped fee because he was ‘defrauded’. Id. Ferguson
alleged that Baron ‘fraudulently’ represented that the money
would be paid from his million dollar trust and not from his
pocket personally because he was personally “destitute”
(according to Ferguson). Id. It is, however, undisputed that
the trust’s money is just as green and in US Dollars, just the
same as if it had come from Baron’s pocket, and Ferguson
was paid the agreed upon fee. Notably, in his original sworn
testimony before the District Court at a Fed.R.App.P. 8(a)
hearing, Ferguson offered a different story. R. 4443, 4445.
At the FRAP 8(a) hearing, to explain the additional fee
‘claimed’ in light of the agreed fee at which Ferguson was
paid, Ferguson claimed the agreed fee was only to August 21
and based on a 33% time demand. Id. In his new ‘claim’
Ferguson tells a new story to avoid the written
agreed upon
fee cap. Ferguson’s new story contradicts his original
version and now admits that the cap did apply through
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August 31, and with full time work contemplated (as is
stated in Ferguson’s written agreement), but should not
apply since Ferguson claims Baron ‘fraudulently’
represented the money (which was paid in full) was coming
from Baron’s million dollar trust. SR. v8 p1220.
5. Mr. Lyon submitted a ‘claim’ for more than the $40/hour fee
he charged and was paid. His argument is that his fee was
really $300/hour (and around $260/hour is due him),
although he could not produce his written contract. ‘Exhibit
19’ referenced at SR. v7 p361. However, Lyon’s own email
(distributed to other attorneys) states his rate was the
$40/hour rate he was paid. SR. v5 p1376. In this undisputed
evidence, Lyon bragged– in writing– that his rate of
$40/hour gave Baron ‘more bang for the buck’ so that Lyon
should be given more work to do. Id.
6. Mr. Taylor submitted a ‘claim’ for additional fees beyond the
money he was paid (in full) pursuant to the $10,000.00 per
month fee cap expressly called for in his written contract.
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‘Exhibit 18’ referenced at SR. v7 p365. Unlike Broome,
Taylor did not deny his fees were capped at $10,000/month
(as stated in his written contract). Instead, Mr. Taylor
claims entitlement to a contingency fee even though the
contingency provided for in his contract was not met. Id.
When the case settled at a substantial loss, Taylor made no
claim that the contingency in his contract was met, and
made no disclosure of any contingency amount which would
be due; rather, Taylor confirmed in writing
that only a very
small (hourly) fee would be billed. SR. v5 pp1370, 1380.
Subsequently, Taylor decided he wanted a contingency fee
payment after all, and asked for $42,000.00. SR. v5 p 1378.
The District Court, although no suit was filed in the District
Court, and with no explanation of how the ‘contingency’
amount had been calculated, awarded Taylor $78,058.50.
SR. v7 p365.
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7. Ms. Schurig submitted a ‘claim’ for more than the million
dollar fee she has been paid. Her ‘claim’ was for work
performed– without any contract– for a company neither
owned nor managed by Baron—AsiaTrust. SR. v8 p1223.
Schurig does not allege that Baron ever agreed or undertook
to pay the debts of AsiaTrust, yet the District Court awarded
her $93,731.79 “claim” for unpaid fees. Id.; SR. v7 p364.
8. Bickel-Brewer submitted a ‘claim’ for more than the
$200,000.00+ fee it was paid nearly half a decade ago. The
current amount claimed due is around $40,000.00– the
amount of the work billed by Bickel-Brewer, without
explanation, for fees preceding
its representation of Baron
plus additional fees for seeking payment of the claimed fees.
Bickel-Brewer’s contract does not call for payment of any
pre-engagement work, and there is no explanation of what
the work was for, or why Baron is in any way liable to pay it.
SR. v8 pp1224-1235; ‘Exhibit 20’ referenced at SR. v7 p365.
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9. Mr. Garrey submitted a ‘claim’ for two weeks work. Garrey
originally demanded a million dollar fee for that alleged
work. SR. v4 p104. Recently, Mr. Garrey has lowed his
million dollar ‘claim’ to a $52,275.00 “claim” for the alleged
two weeks work. ‘Exhibit BLANK’ referenced at SR. v7 p361.
Garrey, however, has admitted that he agreed in writing to a
fixed rate employment at $8,500.00 per month, for the period
covering the two weeks he claims to have worked. Id. In his
“claim” Garrey notably alleges that he expended a
significant amount of time in representing Baron in part
because he was “asked to object to the fee requests of the
Receiver’s counsel, and I was asked to devise a strategy to
remove the Receiver and the Receiver’s counsel.” SR. v8
p1217. Garrey, however, admitted that his alleged two week
representation ended on November 16, 2010, well before
the
application for the appointment of a receiver had been made.
Id.
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The 28 U.S.C. §144 Affidavit
On or about April 27, 2011, the District Judge issued sealed
findings that statements made about an attorney in filings were
‘unfounded’. Doc 458 (under seal). No hearing was held and no briefing
was submitted on the issue. Accordingly, it appeared that the District
Judge had no basis other than bias to make such findings. In light of
the foregoing, after a careful review of a series of actions and
statements by the District Judge, counsel for Baron came to believe that
there was a good faith basis to conclude that due to the District Judge’s
personal bent of mind (developed well before the filing of the District
Court lawsuit), Baron could not receive fair and impartial treatment.
Doc 497 filed 4/27/11 (ordered under seal). Baron then submitted an
affidavit pursuant to 28 U.S.C. §144, certified to by counsel. Id.
The District Judge Refused to Review the Legal
Sufficiency of the Facts Stated in the Affidavit
The District Judge refused to review the legal sufficiency of the
facts stated in Baron’s §144 affidavit, and ruled that Baron could not
submit an affidavit that made factual allegations, but must instead
submit an affidavit that cited specific portions of the court record. SR.
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v5 p1470. The District Court also sealed Baron’s affidavit so that it was
hidden from the public. Id. Baron filed a supplemental affidavit that
added quotations from the record, including the quoted text and the
hearing date, and removed the ‘sealed’ facts from the affidavit. Doc.
521 (also ordered under seal). The District Judge then struck and
placed that affidavit under seal on the grounds that the affidavit “failed
to give citation to the record as to every statement by the Court”. SR.
v6 p122. The District Judge ordered that any supplemental affidavit
could not contain any off-the-record statements made by the District
Judge, and must be confined to statements the Judge made on the
record. Id.
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ARGUMENT SUMMARY
This appeal presents core issues that have been authoritatively
decided, as follows:
(1) The District Court below lacked jurisdiction to issue the orders
challenged in this appeal. Griggs v. Provident Consumer
Discount Co., 459 U.S. 56, 58 (1982) (filing of a notice of appeal
confers jurisdiction on the court of appeals and divests the
district court of its control over the aspects of the case involved
in the appeal).
(2) The District Court should have ceased all action in the case until
the legal sufficiency of the factual allegations made in Baron’s
§144 affidavit had been ruled on. Parrish v. Board of Com'rs of
Alabama State Bar, 524 F.2d 98, 100 (5th Cir. 1975).
(3) The District Court erred in holding that it could appoint a
receiver over an individual and thereby waive the individual’s
Constitutional right to trial by jury. Scott v. Neely, 140 U.S. 106,
109-110 (1891) (Seventh Amendment right to jury trial cannot be
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PRAYER
Appellants, jointly and in the alternative requests the following
relief:
(1) That the challenged orders be reversed.
(2) That the challenged orders be found to be void ab initio.
(3) That costs be taxed against the Appellees.
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
NOVO POINT, LLC.,
QUANTEC, LLC., and
JEFFREY BARON
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CERTIFICATE OF COMPLIANCE
WITH TYPE-VOLUME LIMITATION, TYPEFACE
REQUIREMENTS, AND TYPE STYLE REQUIREMENTS
1. This brief complies with the type-volume limitation of FED. R.
APP. P. 32(a)(7)(B) because: this brief contains 12,836 words, excluding
the parts of the brief exempted by FED. R. APP. P. 32(a)(7)(B)(iii).
2. This brief complies with the typeface requirements of FED. R.
APP. P. 32(a)(5) and the type style requirements of FED. R. APP. P.
32(a)(6) because: this brief has been prepared in a proportionally spaced
typeface using MS Word 2000 in 14 and 15 point century font.
DATED: October 6, 2011.
CERTIFIED BY: /s/ Gary N. Schepps
GARY N. SCHEPPS
COUNSEL FOR APPELLANT
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CERTIFICATE OF SERVICE
This is to certify that this brief 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: 11-10501 Document: 00511625994 Page: 89 Date Filed: 10/06/2011
