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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

In re

JEFFREY BARON,

Debtor;

CASE NO. 12-37921-7

INVOLUNTARY CHAPTER 7

PROCEEDING

JEFFREY BARON,

Plaintiff,

GERRIT M. PRONSKE, PRONSKE &

PATEL, P.C., PRONSKE, GOOLSBY &

KATHMAN, P.C., ELIZABETH L.

MORGAN, f/k/a ELIZABETH

MORGAN SCHURIG, SCHURIG

JETEL BECKETT TACKETT, DEAN

FERGUSON, GARY G. LYON,

ROBERT J. GARREY, POWERS

TAYLOR, LLP , MARK TAYLOR,

JEFFREY HALL and DAVID L.

PACIONE,

Defendants.

ADVERSARY NO. ____________

JURY TRIAL DEMANDED

PLAINTIFF JEFFREY BARON’S

COMPLAINT UNDER 11 U.S.C. § 303(i)

TO THE HONORABLE JUDGE OF SAID COURT:

Jeffrey Baron hereby files this Complaint under 11 U.S.C. § 303(i), and for cause, they

respectfully plead:

PARTIES

1. Plaintiff JEFFEY BARON is an individual who resides in Plano, Texas.

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2. Defendant GERRIT M. PRONSKE, is an attorney authorized to practice law in

the State of Texas, and can be issued service of process at 2200 Ross Avenue, Suite 5350, Dallas,

Texas 75201.

3. Defendant PRONSKE & PATEL, P.C. is a professional corporation organized

under the laws of the State of Texas, and may be served with process through its registered agent

for service of process, Gerrit M. Pronske, at 2200 Ross Avenue, Suite 5350, Dallas, Texas 75201.

4. Defendant PRONSKE, GOOLSBY & KATHMAN, P.C. is a professional cor-

poration organized under the laws of the State of Texas, and may be served with process through

its registered agent for service of process, Gerrit M. Pronske, at 2200 Ross Avenue, Suite 5350,

Dallas, Texas 75201.

5. Defendant ELIZABETH L. MORGAN, f/k/a ELIZABETH MORGAN

SCHURIG is an attorney licensed to practice law in the State of Texas, and may be served with

process at 10415 Morado Circle, Building 1, Suite 310, Austin, Texas 78759. Said Defendant

may also be served through Defendant’s counsel of record, Pronske, Goolsby & Kathman, PC,

through said firm’s registered agent for service of process, Gerrit M. Pronske, at 2200 Ross Ave-

nue, Suite 5350, Dallas, Texas 75201.

6. Defendant SCHURIG JETEL BECKETT TACKETT is or was a law firm that

at one time engaged in the practice of law in the State of Texas, and may be served with process

through Elizabeth L. Morgan at 10415 Morado Circle, Building 1, Suite 310, Austin, Texas

78759. Said Defendant may also be served through Defendant’s counsel of record, Pronske,

Goolsby & Kathman, PC, through said firm’s registered agent for service of process, Gerrit M.

Pronske, at 2200 Ross Avenue, Suite 5350, Dallas, Texas 75201.

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7. Defendant DEAN W. FERGUSON is an attorney licensed to practice law in the

State of Texas, and may be served with process at 3926 Wildwood Valley Court, Kingwood, Tex-

as 77345. Said Defendant may also be served through Defendant’s counsel of record, Pronske,

Goolsby & Kathman, PC, through said firm’s registered agent for service of process, Gerrit M.

Pronske, at 2200 Ross Avenue, Suite 5350, Dallas, Texas 75201.

8. Defendant GARY G. LYON is an attorney licensed to practice law in the State of

Texas, and may be served with process at P O Box 1227, Anna, TX 75409-1227. Said Defendant

may also be served through Defendant’s counsel of record, Pronske, Goolsby & Kathman, PC,

through said firm’s registered agent for service of process, Gerrit M. Pronske, at 2200 Ross Ave-

nue, Suite 5350, Dallas, Texas 75201.

9. Defendant ROBERT J. GARREY is an attorney licensed to practice law in the

State of Texas, and may be served with process at 1201 Elm Street, Suite 5200, Dallas, TX

75270. Said Defendant may also be served through Defendant’s counsel of record, Pronske,

Goolsby & Kathman, PC, through said firm’s registered agent for service of process, Gerrit M.

Pronske, at 2200 Ross Avenue, Suite 5350, Dallas, Texas 75201.

10. Defendant POWERS TAYLOR, LLP is a law firm engaged in the practice law in

the State of Texas, and may be served with process at 8150 North Central Expressway, Suite

1575, Dallas, TX 75206. Said Defendant may also be served through Defendant’s counsel of

record, Pronske, Goolsby & Kathman, PC, through said firm’s registered agent for service of

process, Gerrit M. Pronske, at 2200 Ross Avenue, Suite 5350, Dallas, Texas 75201.

11. Defendant MARK TAYLOR is an attorney licensed to practice law in the State

of Texas nd may be served with process at 8150 North Central Expressway, Suite 1575, Dallas,

TX 75206

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12. Defendant JEFFREY T. HALL is an attorney licensed to practice law in the

State of Texas, and may be served with process at 2200 Ross Avenue, Suite 5350, Dallas,

TX 75201. Said Defendant may also be served through Defendant’s counsel of record, Pronske,

Goolsby & Kathman, PC, through said firm’s registered agent for service of process, Gerrit M.

Pronske, at 2200 Ross Avenue, Suite 5350, Dallas, Texas 75201.

13. Defendant DAVID L. PACIONE is an attorney licensed to practice law in the

State of Texas, and may be served with process at 700 N. Pearl Street, Suite 425, Dallas,

TX 75201. Said Defendant may also be served through Defendant’s counsel of record, Pronske,

Goolsby & Kathman, PC, through said firm’s registered agent for service of process, Gerrit M.

Pronske, at 2200 Ross Avenue, Suite 5350, Dallas, Texas 75201.

II.

JURISDICTION & VENUE

14. This Court has jurisdiction over the subject matter of this case pursuant to 28

U.S.C. §§ 157, 1334, and 11 U.S.C. § 303(i).

15. The relief sought in this adversary proceeding contains matters that are both core

and non-core. To the extent that the Plaintiff seeks relief pursuant to 11 U.S.C. § 303(i), this is a

core proceedings within the meaning of 28 U.S.C. §§ 157(b)(2)(A), (B) and (O). To the extent

the Plaintiff seeks relief under causes of action recognized under state law, the proceedings are

non-core. The Plaintiff does not consent to the entry of final orders by this Court and respectful-

ly request that the Court submit proposed findings of fact and conclusions of law to the District

Court pursuant to 28 U.S.C. § 157(c)(1).

16. Venue is proper in this Court pursuant to 28 U.S.C. § 1409(a).

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III.

BACKGROUND

17. On May 28, 2009, Netsphere, Inc., Manila Industries Inc. and Munish Krishan, as

plaintiffs, filed a lawsuit against Jeffrey Baron and Baron’s company, Ondova Limited Company

(“Ondova”), as defendants, in the United States United States District Court for the Northern

District of Texas - Dallas Division, Cause No. 09-0988 (“Netsphere action”). None of the Peti-

tioning Creditors were parties to the Netsphere action or ever sought to intervene in the action.

They instead appeared in the case as “Movants,” “Claimants,” or for purposes of “Notice Only.”

18. On November 24, 2010, the District Court in the captioned case entered an order

establishing a receivership over the assets of Jeffrey Baron (“Baron”) (the “Receivership Or-

der”), and appointed Peter S. Vogel as the receiver (the “Receiver”) at the urging of the Petition-

ing Creditors.

19. Pursuant to the Receivership Order and subsequent orders of the District Court,

Peter S. Vogel, as a receiver, took control over and possession of all of the assets of Baron, in-

cluding his assets exempt under Texas law (the “Baron Personal Assets”).

20. Pursuant to the Receivership Order and subsequent orders of the District Court,

Peter S. Vogel, as a receiver, took control over and possession of numerous entities (the “Enti-

ties”), including Novo Point, LLC and Quantec, LLC. Novo Point, LLC and Quantec, LLC are

LLCs formed, and in good standing, under the laws of the Cook Islands. Novo Point, LLC and

Quantec, LLC are owned entirely by the Village Trust. The Village Trust is a trust created under

the Cook Islands pursuant to a Trust Agreement prepared by Defendant ELIZABETH L.

MORGAN, f/k/a ELIZABETH MORGAN SCHURIG and/or Defendant SCHURIG JETEL

BECKETT TACKETT. Baron is the principal beneficiary of the Village Trust. Novo Point,

LLC and Quantec, LLC form the principal asset of the Village Trust and thus the value of Novo

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Point, LLC and Quantec, LLC are of substantial import to Baron, forming the corpus from which

he derives any benefit as a beneficiary of the Village Trust.

21. Seven months after the receivership was established, District Judge Furgeson en-

tered the May 18, 2011 Fee Order in an attempt to resolve the attorney fees claims of law firms

that previously represented various entities and individuals including Baron, including the fees

and expenses of the Petitioning Creditors (the “May 18, 2011 Fee Order”). See ECF Doc 575 in

District Court Case No. 09-0988. The Petitioning Creditors had been paid over $ 3 million dol-

lars prior to making claims in the receivership, and additional amounts claimed by the Petition-

ing Creditors had been in dispute. The May 18, 2011 Fee Order was entered in response to a mo-

tion by the Receiver seeking the court’s approval to disburse receivership funds to pay the con-

tract claims of attorneys who represented various entities and individuals including Baron. The

May 18, 2011 Fee Order was a compromise of the parties’ rights, and did not constitute an adju-

dication of the Former Attorneys’ claims against Baron or Baron’s counterclaims against the

Former Attorneys. At hearing on the motion to approve the Fee Order, Pronske, representative of

the Petitioning Creditors, strenuously argued that that Baron should not be permitted to have trial

counsel to defend himself. Unrepresented by trial counsel, Baron presented arguments to the

Fifth Circuit that the claims were groundless and in some instances fraudulent.

22. Numerous appeals to the Fifth Circuit were taken regarding the receivership and

related orders that were entered in the Netsphere action, including the May 18, 2011 Fee Order.

These and other matters were resolved by the Fifth Circuit on December 18, 2012, when the

Fifth Circuit Court of Appeals published its panel decision in the consolidated Baron appeals va-

cating the Receivership Order. Netsphere v. Baron, 703 F.3d 296 (5th Cir. 2012).

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23. With respect to the Receivership Order, the Fifth Circuit held that the appoint-

ment of a receiver was improper and an abuse of discretion. Id. at 302, 310-11, 315. The Fifth

Circuit explained that the district court did not have authority or jurisdiction to “[e]stablish a re-

ceivership to secure a pool of assets to pay Baron’s former attorneys” because, “[a]lthough the

attorneys’ allegations and claims were delaying the district court and bankruptcy proceedings,

they were not the subject matter of the underlying litigation.” Id. at 308-10. The Fifth Circuit

also noted that the Former Attorneys’ held “unresolved claims” which “had not been reduced to

judgment” and thus the more appropriate recourse for the Former Attorneys was to make a claim

against the Ondova bankruptcy estate or file suit in a court of appropriate jurisdiction to collect

the fees owed if they represented Baron in matters unrelated to the Ondova bankruptcy. Id. at

308.

24. Before the “ink even dried” on the Fifth Circuit’s opinion, and long before the is-

suance of the Fifth Circuit’s mandate, without prior authorization from any court, and in apparent

disregard of the Receivership Order, certain former counsel of Jeffrey Baron (the “Petitioning

Creditors”) filed an involuntary petition, case no. 12-37291, under Chapter 7 of the Bankruptcy

Code, against Jeffrey Baron (the “Involuntary Bankruptcy Case”).

25. The Petitioning Creditors were various law firms assembled, led, encouraged and

represented by Gerrit M. Pronske. Mr. Pronske and these other lawyers allegedly performed le-

gal services for Mr. Baron and, in some cases, also for entities with which Mr. Baron is affiliated.

Specifically, the petitioning creditors included: Pronske & Patel, P.C.; Schurig Jetel Beckett

Tackett; Dean Ferguson; Gary G. Lyon; Robert J. Garrey; Powers Taylor, LLP; Jeffrey Hall; and,

later by joinder, David L. Pacione (hereinafter, the “Petitioning Creditors”) [Bankr. Doc. No.

239 at pp. 3-4]. The Petitioning Creditors’ claims total $682,924.58.

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26. Mr. Baron filed a petition for rehearing with respect to the Fifth Circuit decision,

as did the Receiver and certain other parties. Mr. Baron strenuously opposed the receivership

and the filing of the Involuntary Bankruptcy case. See Jeffrey Baron’s 12(b) Motions & Provi-

sional Answer. ECF Doc 22, in Bankruptcy Case No. 12-37921.

27. After the filing of the Involuntary Bankruptcy Case, the Petitioning Creditors, the

Ondova Trustee, and the Receiver’s prior counsel, Gardere Wynne Sewell LLP (“Gardere”), ac-

tively lobbied Judge Jernigan to collapse the Receivership into the Involuntary Bankruptcy fil-

ing, arguing that the Fifth Circuit appeal should be disregarded, and that the Bankruptcy Court

should hear all matters regarding all claimants. All of these parties worked relentlessly to evis-

cerate, circumvent, and trivialize the effect of, the Fifth Circuit’s decision. They argued before

the Bankruptcy Court and District Court that the jurisdiction of the Bankruptcy Court created by

the Involuntary Bankruptcy trumped the jurisdiction of both the District Court and even the Fifth

Circuit.

28. The Receiver took the position that the filing of the Involuntary Bankruptcy was

contrary to the Receivership Order, the Fifth Circuit’s Orders, and other orders of the District

Court. Within nine days of the filing of the Involuntary Bankruptcy, on December 27, 2012, in

the Receiver’s Emergency Motion to Clarify Status of Mandate and Stay Pending Remand and

Discharge of Receiver [Doc. No. 005120595875, Fifth Circuit Case No. 12-10489] (“Emergency

Motion”), the Receiver advised the Fifth Circuit that an Involuntary Bankruptcy Case against Mr.

Baron had been initiated “notwithstanding a stay of all actions against Jeffrey Baron in the origi-

nal Receivership Order entered by the District Court.” The Emergency Motion prompted the

See Gardere Objection [ECF Doc 1202, at p 3 and Doc 1203, at p 3, in District Court Case No. 09-0988, and ECF

Doc 83 in Bankruptcy Case 12-37921, at p. 3]; See Ondova Trustee Objection [ECF Doc 1205, at p 3, in District

Court Case No. 09-0988, and ECF Doc 88 in Bankruptcy Case 12-37921, at p. 3].

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Fifth Circuit to enter its Order of December 31, 2012 [Doc. No. 00512097490], pointing out that

its opinion did not dissolve the Receivership and that, following the issuance of the mandate on a

later date, the District Court would manage the process for ending the Receivership and vacating

the Order creating it.

29. Following orders from both the Fifth Circuit and the District Court indicating that

the Receivership Order was still in effect and would remain so at least until the mandate issued,

on January 8, 2013, the Receiver’s counsel informed the Petitioning Creditors, through their

counsel, Gerrit Pronske, and the Ondova Trustee through its counsel, Raymond Urbanik, that the

filing and maintenance of the Involuntary Bankruptcy Case was in violation of the Receivership

Order, the Fifth Circuit’s December 31, 2012 Order, and the District Court’s December 20, 2012

Order and subsequent orders. In response, the Petitioning Creditors, led by Pronske, forged for-

ward with their high-risk, head-long strategy to crush Baron by placing him into an involuntary

bankruptcy proceeding.

30. On January 16, 2013, Bankruptcy Judge Jernigan conducted a three hour status

conference. The next day, Judge Jernigan ordered that a summary judgment hearing would be

set on February 13, 2013, to consider whether the claims of the Petitioning Creditors were sub-

ject to a bona fide dispute, with all evidence to be presented by affidavit. Judge Jernigan also

ordered that if she determined that a material fact issue was raised, the parties would be permit-

ted to conduct limited discovery and submit live testimony; otherwise no live evidence would be

permitted. Judge Jernigan also ordered the US Trustee to appoint an Interim Trustee in Bank-

ruptcy to standby and be ready to accept the assets of the receivership should a “higher court is-

sue an order requiring delivery of Receivership assets to Mr. Baron or any other person before

the Court conclude[d] the Trial.” See order at ECF Doc 39, at p 3, in Case 12-37921. Judge Jer-

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nigan also expressed her opinion that “all matters regarding Mr. Baron, including all receivership

matters and the Netsphere litigation, [were] stayed during the Gap Period pursuant to 11 U.S.C. §

362”. Id. Thus, notwithstanding the Fifth Circuit’s ruling that dissolved the receivership, or-

dered a quick wind-down of the receivership estate and directed the distribution of the receiver-

ship assets to Baron, the Petitioning Creditors, the Ondova Trustee and Gardere had succeeded in

locking down Baron’s assets indefinitely.

31. As the Involuntary Bankruptcy Case proceeded forward, both Baron and the Re-

ceiver continued their efforts to prevent the Involuntary Bankruptcy Case from interfering with

the Fifth Circuit’s decision, to no avail. On February 12, 2013, the Receiver again pointed out to

all involved parties that the Petitioning Creditors had blatantly disregarded “the still effective in-

junction provisions of the Receivership Order prohibiting the parties from “doing any act or

thing whatsoever to interfere with the Receiver’s . . . management of the assets,” or from “inter-

fer[ing] with the receiver in anyway or . . . interfer[ing] with [the District] Court’s exclusive ju-

risdiction over the assets. . . ” Receivership Order at 13. The Receiver noted that filing of the

Involuntary Bankruptcy was both “premature and improper.” See Receiver’s Status Report and

Wind Down Recommendations. ECF Doc 1185, District Court Case No. 09-0988 at p. 6-7.

32. On April 4, 2013, the Fifth Circuit denied all Petitions for Rehearing, and on April

19, 2013 the Fifth Circuit issued mandates with respect to its December 18, 2012, decision.

33. With the mandates now issued, the Fifth Circuit held that the appointment of a re-

ceiver was improper and an abuse of discretion. Netsphere, Inc., 703 F.3d at 302, 310-11, 315.

The Fifth Circuit explained that the district court did not have authority or jurisdiction to

“[e]stablish a receivership to secure a pool of assets to pay Baron’s former attorneys” because,

“[a]lthough the attorneys’ allegations and claims were delaying the district court and bankruptcy

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proceedings, they were not the subject matter of the underlying litigation.” Id. at 308-10. The

Fifth Circuit also noted that the Petitioning Creditors were “unsecured contract creditors” and

“for those unpaid attorneys who had filed claims, the claims had not been reduced to judgment”

and thus the more appropriate recourse for the Former Attorneys was to make a claim against the

Ondova bankruptcy estate or file suit in a court of appropriate jurisdiction to collect the fees

owed if they represented Baron in matters unrelated to the Ondova bankruptcy. Id. at 308.

34. With knowledge of the Involuntary Bankruptcy Case, the Fifth Circuit did not al-

ter its decision commanding the District Court to wind down the receivership expeditiously and

return the assets to Jeffrey Baron.

35. On June 26, 2013, the Bankruptcy Court issued findings of fact and conclusions

of law in support of its Order for Relief (“Report”), and then issued an order for relief putting

Jeffrey Baron in bankruptcy. ECF Docs 239 & 240 in Bankruptcy Case 12-37921. The Bank-

ruptcy Court concluded that Baron’s former attorneys, the Petitioning Creditors, had standing

under 11 U.S.C. §303(b) to file and proceed with the Involuntary Bankruptcy Case based solely

on the May 18, 2011 Fee Order. The Bankruptcy Court improvidently determined, at the urging

of the Petitioning Creditors, that the May 18, 2011 Fee Order was “tantamount to a final judg-

ment that foreclosed an argument of a bona fide dispute.” Id. at 24. The Bankruptcy Court de-

termined that the May 18, 2011 Fee Order was akin to a final judgment, which had not been re-

versed or specifically set aside by the Fifth Circuit. The Bankruptcy Court therefore agreed with

the Petitioning Creditors that Baron was barred by collateral estoppel under Texas law from re-

litigating the May 18, 2011 Fee Order.

36. On July 8, 2013, Jeffrey Baron perfected his appeal of the Order for Relief. ECF

Doc 257 in Bankruptcy Case 12-37921.

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37. One month later, on July 29, 2013, the bankruptcy court issued a Sua Sponte Re-

port and Recommendation to the District Court Proposing Disposition of Assets Held in the

Overruled Receivership of Jeffrey Baron, in Accordance with Section 541-543 of the Bankruptcy

Code [ECF Doc 1304-1 in District Court Case No. 09-0988] (“Sua Sponte Report”). In the Sua

Sponte Report, the bankruptcy court held that the involuntary bankruptcy proceeding created an

“intervening circumstance” that required the turnover of the receivership assets to the bankruptcy

trustee in accordance with 11 U.S.C. §543, notwithstanding the Fifth Circuit’s decision and

mandate.

38. Before the assets of the receivership could be turned over to the Trustee in Bank-

ruptcy, however, District Judge Sam A. Lindsay issued an Amended Memorandum Opinion and

Judgment on January 2, 2014, reversing the Bankruptcy Court’s Order for Relief. ECF Docs 52

& 53 in District Court Case No. 13-3461. Judge Lindsay held that, in following the Fifth Cir-

cuit’s opinion, “the district court lacked authority and jurisdiction to establish the receivership to

secure a pool of assets to pay Baron’s Former Attorneys.” Therefore, Judge Lindsay reasoned

that he District Court “also lacked jurisdiction to enter the May 18, 2011 Fee Order, based on the

Receivership Order since the Former Attorney claims were not the subject of the underlying liti-

gation.” Judge Lindsay specifically vacated the May 18, 2011 Fee Order. Amended Memoran-

dum Opinion, at 24.

39. The Petitioning Creditors filed a motion for stay pending appeal in the District

Court, and Judge Lindsay denied same. ECF Docs 56 & 62 in District Court Case No. 13-3461.

40. The Petitioning Creditors then appealed to the Fifth Circuit Court of Appeals, and

filed another motion for stay pending appeal, which was promptly denied.

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41. Pursuant to the District Court’s mandate in its Amended Memorandum Opinion

and Judgment, the case was remanded to the Bankruptcy Court with instructions to dismiss the

case and retain jurisdiction solely to consider claims pursuant to 11 U.S.C. §303(i). According-

ly, on March 14, 2014, the Bankruptcy Court dismissed the Involuntary Bankruptcy case and or-

dered that all applications for “fees, costs or damages” pursuant to 11 U.S.C. §303(i) be submit-

ted within 30 days of the entry of the order. See Order of Dismissal entered March 14, 2014,

ECF Doc 467 in Bankruptcy Case 12-37921. The deadline to appeal the order dismissing the

Involuntary Bankruptcy passed on March 28, 2014, and no appeal was perfected. The fourteen

day appellate period has now expired. See Bankruptcy Rule 8002. Thus, the Order Dismissing

the Bankruptcy Case is now final and no longer subject to appeal, and it appears that the Petition-

ing Creditors’ appeal of the Amended Memorandum Opinion and Final Judgment is now moot.

IV.

ARGUMENT AND AUTHROITIES - CLAIM UNDER 11 U.S.C. §303(i)(1)

42. Section 303(i)(1) of the Bankruptcy Code provides the Court with discretion to

award attorneys’ fees and costs when an involuntary petition is dismissed:

(i) If the court dismisses a petition under this section other than on consent of all

petitioners and the debtor, and if the debtor does not waive the right to judgment

under this subsection, the court may grant judgment—

(1) against the petitioners and in favor of the debtor for—

(A) costs; or

(B) a reasonable attorney’s fee.

43. Baron is entitled to an award of all fees and costs incurred as a consequence of the

Petitioning Creditors’ unsuccessful Involuntary Petition. An allegation of bankruptcy invokes

remedies not available in any ordinary debt collection procedure. It should not be invoked light-

ly and contrary to statutory right. In re Nancy Lee Walden, 781 F.2d 1121, 1123 (5th Cir. 1986);

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In re SBA Factors of Miami, Inc., 13 B.R. 99, 101 (Bankr. S.D. Fla. 1981) (an involuntary bank-

ruptcy petition “chills the alleged debtor's credit and his sources of supply. It can scare away his

customers. It leaves a permanent scar, even if promptly dismissed”). Recognizing the potential

harm of imprudent involuntary petitions, Congress has imposed unusual consequences on unsuc-

cessful petitioners. Pursuant to 11 U.S.C. §303(i)(1), dismissal of a contested involuntary peti-

tion authorizes the Court to grant judgment “[a]gainst the petitioners and in favor of the debtor

for. . .costs [and] reasonable attorneys fees.” The statute contemplates “pure fee shifting . . . re-

gardless of motive or purpose of the petitioners.” In re Commonwealth Securities Corp., 2007

Bankr. LEXIS 312 (Bankr. N.D. Tex. Jan. 25, 2007) (‘section 303(i) is really a fee shifting stat-

ute . . . . that creates a statutory exception to the usual

`American Rule’,

so that the losing invol-

untary petitioners will pay in the context of an unsuccessful involuntary petition.”). Though the

relief is discretionary, the wording and legislative history of the statute raise a presumption

against the unsuccessful petitioning creditor for this relief.

44. In conjunction with relaxing the standards for filing involuntary cases under the

new Bankruptcy Code, Congress simultaneously made it expensive for petitioners and interve-

nors who fail in attempting to bring an involuntary case. Congress drafted the statute to make an

award of costs and fees the norm. While the better view is that such awards are discretionary

and not mandatory, courts exercise their discretion in light of two factors. First the progenitor of

section 303(i)(1) is former Bankruptcy Rule 15(e), which makes such awards “routine.” Second,

the statute makes plain that bad faith is not relevant unless consequential and punitive damages

are under consideration. Thus, any petitioning creditor in an involuntary case, whether signing

the initial petition or later joining as a petitioner under section 303(c), should expect to pay the

debtor’s

attorney fees and costs if the petition is dismissed. In re Kelly G. Kidwell, 158 B.R. 203,

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217 (Bankr. E.D. Cal. 1993). See also In re TRED Holdings, L.P, 2010 Bankr. LEXIS 3109, *19

(Bankr. E.D. Tex. 2010) (“If an involuntary bankruptcy petition is dismissed, there is a rebuttable

presumption the alleged debtor is entitled to reasonable fees and costs.”); In re Silverman, 230

B.R. 46, 50-51 (Bankr. D.N.J. 1998) (“[A]lthough there is no hard and fast rule regarding the

award of fees and costs, fairness dictates that

attorney

fees and costs should generally be awarded

to the prevailing debtor.”); In re Johnston Hawks Limited, 72 B.R. 361, 365 (Bankr. D. Hawaii

1987) (“Attorneys fees and costs, though discretionary, should be awarded as a matter of “rou-

tine.”); 2 C

OLLIER ON BANKRUPTCY, ¶ 303.33 (endorsing presumption for award of costs and

fees); Landmark 189 B.R. at 307 (Bankr. D.N.J. 1995) (“petitioners should generally anticipate

that an award of costs and fees will be granted upon the dismissal of an involuntary petition.”);

In re Advance Press & Litho, Inc., 46 B.R. 700, 702 (Bankr.D.Colo. 1984) (“It is not necessary

that the Involuntary Petition be frivolous or meritless to award costs and fees under this subsec-

tion”).

45. Further, awards of fees incurred in related proceedings and post-dismissal pro-

ceedings are routinely awarded. Federal courts have reasoned that, because the great majority of

legal expenses could be incurred following the dismissal of the involuntary petition, it would “fly

in the face of legislative intent and common sense” for the Bankruptcy Code not to have author-

ized post-dismissal fees pursuant to § 303(i). Glannon v. Carpenter (In re Glannon), 245 B.R.

882, 895 (D. Kan. 2000); See In re Advance Press & Litho, Inc., 46 B.R. 700, 703 (Bankr. D.

Colo. 1984) ; In re Petrosciences Intern., Inc., 96 B.R. 661, 665 (Bankr. N.D. Tex. 1988) ; In re

Atlas Mach. and Iron Works, Inc., 190 B.R. 796, 803-04 (Bankr. E.D. Va. 1995); In re John

Richard; In Re Rosenberg, 471 B.R. 307 (Bankr. S.D. Florida 2012).

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ACTUAL DAMAGES UNDER 11 U.S.C. §303(I)(1)

46. The following Amounts were paid and/or invoiced to Baron during the pendency

of this action. Baron cannot represent that the below fees are reasonable and necessary, but does

represent that the amounts have either been billed to Baron or will be a charge against the Re-

ceivership Estate that will ultimately diminish the value of Baron’s residual interest in the assets

of the Receivership Estate:

a. The Fees and Expenses of Peter S. Vogel, the Receiver. The Receiver has filed an Applica-

tion for Payment Under 11 U.S.C. § 303(i) and 543(c) of Costs, Attorneys’ Fees, and Damag-

es Incurred (the “Receiver’s Application”). ECF Doc 473, Bankruptcy Case No, 12-37921.

In the Application, the Receiver requests damages of $900,713.32. Jeffrey Baron incorpo-

rates the Receiver’s Application into this adversary pleading as if same, together with the ex-

hibits attached thereto, is set forth herein verbatim.

b. The Fees and Expenses of Stromberg Stock, PLLC. Stromberg Stock, PLLC has filed a

Motion for Recovery of Attorneys’ Fees and Expenses on April 11, 2014. ECF Doc 471,

Bankruptcy Case No, 12-37921. In the Stromberg Motion, Stromberg Stock, PLLC incorpo-

rates by reference a Final Motion for Allowance of Administrative Expense Claim filed on

August 8, 2013. ECF Doc 319, Bankruptcy Case No, 12-37921. Stromberg Stock, PLLC re-

quests fees in the amount of $168,115.00 and expenses in the amount of $957.79. Jeffrey

Baron incorporates these filings into this adversary pleading as if same, together with exhib-

its, are set forth herein verbatim.

c. The Fees and Expenses of Busch Ruotolo & Simpson, LLP. Busch Ruotolo & Simpson,

LLP (“Busch Ruotolo “) has filed a Motion for Recovery of Attorneys’ Fees and Expenses

on April 11, 2014. ECF Doc 472,, Bankruptcy Case No, 12-37921. In the Busch Ruotolo

Motion, Busch Ruotolo incorporates by reference a Final Motion for Allowance of Adminis-

trative Expense Claim filed on August 8, 2013. ECF Doc 319, Bankruptcy Case No, 12-

37921. Busch Ruotolo requests fees in the amount of $16,785.00 and expenses in the amount

of $565.79. Jeffrey Baron incorporates the Busch Ruotolo Motion into this adversary plead-

ing as if same, together with exhibits, is set forth herein verbatim.

d. The Fees and Expenses of Edwin E. Wright, III. Edwin E. Wright, III (“Wright”) filed a

Motion for Attorney’s Fees and Expenses on May 20, 2013. On August 19, 2013, this Court

entered an order striking Wright’s Motion. ECF Docs 211 & 329, Bankruptcy Case No, 12-

37921. In the Wright Motion, Wright requests fees in the amount of $75,560.00 and expenses

in the amount of $673.80. Jeffrey Baron incorporates the Wright Motion into this adversary

pleading as if same, together with exhibits, is set forth herein verbatim.

e. The Fees and Expenses of Acosta & Associates P.C. Acosta & Associates

P.C. (“Acosta”) has submitted an invoice relating to the prosecution of the appeal of the

Order for Relief. Acosta claims fees and expenses in the amount $70,764.00 Copies of in-

voices submitted to Mr. Baron redacted to preserve the attorney-client and work product

privileges shall be submitted to counsel for Defendants.

f. The Fees and Expenses of Pendergaft & Simon, LLP. The fees and expenses of Pender-

graft & Simon, LLP are unknown at this time. Pendergraft & Simon will be prosecuting Mr.

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Baron’s claims pursuant to 11 U.S.C. §303(i) and will be handling the defense of the Amend-

ed Memorandum Opinion and Judgment issued by Judge Lindsay on January 2, 2014. Copies

of invoices submitted to Mr. Baron redacted to preserve the attorney-client and work product

privileges shall be submitted to counsel for Defendants.

g. The Fees and Expenses of Gary Schepps. Unknown at this time. A copy of the invoice re-

dacted to preserve the attorney-client and work product privileges shall be submitted to coun-

sel for Defendants when received. A copy of the invoice redacted to preserve the attorney-

client and work product privileges shall be submitted to counsel for Defendants when re-

ceived.

h. The Fees and Expenses of William Gammon. Mr. Gammon invoiced $5,000 for appearing

at the deposition of Elizabeth L. Morgan..

i. The Fees and Expenses of Stephen Cochell. Stephen Cochell has submitted invoices

from January 13, 2013 through November 13, 2013 for fees and expenses of $103,81 in

connection with related proceedings. A copy of the invoices redacted to preserve the attor-

ney-client and work product privileges shall be submitted to counsel for Defendants.

WITH THE EXCEPTION OF SUBPARAGRAPH “a”, AT THIS TIME, BARON CAN-

NOT REPRESENT WHETHER THE ABOVEMENTIONED FEES ARE REASONABLE

AND NECESSARY, BUT DOES REPRESENT THAT THE AMOUNTS HAVE BEEN

BILLED TO BARON.

ARGUMENT AND AUTHROITIES - CLAIM UNDER 11 U.S.C. §303(i)(2)

47. Section 303(i)(2) of the Bankruptcy Code provides the Court with discretion to

award attorneys’ fees and costs when an involuntary petition is dismissed:

(i) If the court dismisses a petition under this section other than on consent of all

petitioners and the debtor, and if the debtor does not waive the right to judgment

under this subsection, the court may grant judgment—

(2) against any petitioner that filed the petition in bad faith, for—

(A) any damages proximately caused by such filing; or

(B) punitive damages.

48. Jeffrey Baron alleges and will prove at trial that the Petitioning Creditors have

acted in bad faith.

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49. As explained below, the Petitioning Creditors misled and deceived this Court into

improperly issuing an Order for Relief over Baron.

50. This case is essentially a two-party dispute between Baron and each of the Peti-

tioning Creditors. The Petitioning Creditors’ claims arose from state law disputes In fact, suits

to resolve the various claims between Baron and three of the Petitioning Creditors were pending

in state district court and in Adversary 10-03281 at the time that the Petitioning Creditors filed

their involuntary petition.

51. A bankruptcy court is an improper forum for deciding state law disputes. See In

re Mazzocone, 183 B.R. 402, 421 (Bankr.E.D.Pa.1995); In re Robert A. Spade, 258 B.R. 221,

234 (Bankr. D. Colo. 2001); In re Mountain Dairies, Inc., 372 B.R. 623, 634-35 (Bankr.

S.D.N.Y. 2007);’s As such, the purpose of the Petitioning Creditors’ filing is subject to a height-

ened level of scrutiny.

52. The proper purpose of a creditor filing an involuntary petition is to protect against

other creditors obtaining a disproportionate share of the debtor’s assets. An improper use of the

Bankruptcy Code justifying a finding of bad faith will then exist any time a creditor uses an in-

voluntary bankruptcy to obtain a disproportionate advantage to that particular creditor’s position,

rather than to protect against other creditors obtaining such a disproportionate advantage. This is

especially true where the petitioning creditor could have obtained that advantage in an alternate

forum. In re Better Care, Ltd., 97 B.R. 405, 411 (Bankr. N.D. Ill. 1989).

53. Petitioning creditors may not use an impermissible means to achieve even an oth-

erwise legitimate goal. When a petitioner misuses a bankruptcy proceeding as a “collection de-

vice,” the petitioner abuses the court system and the Bankruptcy Code and acts in bad faith. In

re Johnston Hawks Limited, 72 B.R. 361, 367 (Bankr. D. Haw. 1987). This occurs when the peti-

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tioning creditor is “aware that the appropriate vehicle to resolve their dispute . . . was a contract

action in a non- bankruptcy forum.” Id.

54. In this case, the Fifth Circuit squarely addressed this issue and explained that the

Petitioning Creditors’ claims were “unresolved“ and “for those unpaid attorneys who had filed

claims, the claims had not been reduced to judgment” and thus the more appropriate recourse for

the Former Attorneys was to make a claim against the Ondova bankruptcy estate or file suit in a

court of appropriate jurisdiction to collect the fees owed if they represented Baron in matters un-

related to the Ondova bankruptcy. Netsphere, Inc., 703 F.3d at 308.

55. Not only did the Fifth Circuit specifically advise the Petitioning Creditors that the

appropriate vehicle was a contract action in state court, Petitioning Creditors’ attorney, Pronske,

was affirmatively seeking relief in a contract action in this Court in an adversary proceeding that

had been removed to this Court, Adversary 10-03281. A finding of bad faith is supported by this

reasoning alone, but there is much more.

56. Clearly, the Petitioning Creditors (several of whom are bankruptcy lawyers) are

fearful of taking their claims before a state court where a jury will likely reject their claims and

grant Jeff Baron substantial relief on his counterclaims—their mission was to keep Jeff Baron’s

personal assets frozen and to continue to deprive him of his “day in court,” where he might have

an impartial trial by a court and jury with respect to the attorney fee claims being asserted against

Mr. Baron and his claims against the attorneys. This Court has heard the continued mantra of

Gerrit Pronske throughout this case disparaging his client, Mr. Baron, at every possible oppor-

tunity. Mr. Pronske testified before this Court that Mr. Baron was about to remove his assets to

overseas venues, a fabrication that the Fifth Circuit debunked completely. Netsphere, Inc., 703

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F.3d at 307

and 308.

Mr. Pronske misled this Court on numerous occasions about this and

many other issues, and these misleading statements of Pronske formed the basis of this Court’s

recommendation to the District Court (Judge Furgeson) that a receiver be appointed. There is a

message to be taken from the fact that Baron, with his underpaid rag-tag legal team of lawyers,

have reversed the District Court’s Receivership Order and this Court’s order for relief. Baron

would suggest that the “take away message” is that this Court needs to stop giving credence to

the representations and arguments of Pronske. He has led this Court down paths that have ended

in financial ruin for Mr. Baron and reversal of this Court’s orders.

57. The remaining Petitioning Creditors have acted with equal amounts of bad faith.

The Petitioning Creditors, each holding groundless claims, acted in concert, since at least the ini-

tiation of the receivership, to strip Baron of his assets and to deprive him of his “day in court,”

where he might have an impartial trial by a court and jury with respect to the attorney fee claims

being asserted against him and his claims against the Petitioning Creditors.

58. A bankruptcy petition filed in order to frustrate legitimate court process warrants a

finding of bad faith. “Use of an involuntary petition to . . . extract a litigation advantage is pre-

cisely the sort of bad faith conduct that can and should be sanctioned under § 303(i).” In re

TRED Holdings, L.P. 2010 WL 3516171 (Bankr. E.D. Tex. 2000, Rhoades, J) (punitive damages

awarded where motivation was to forestall eviction of the petitioner’s family) See also Keiter v.

Stracka, 192 B.R. 150, 160 (S.D. Tex. 1996) (finding punitive damages appropriate where peti-

tion was filed to avoid foreclosure proceedings).

“Neither the trustee nor the receiver has pointed to record evidence that Baron failed to transfer the domain names

in accordance with the agreement. He had other obligations, but there is no record evidence brought to our attention

that any discrete assets subject to the settlement agreement were being moved beyond the reach of the court.”

“We do not, though, find evidence that Baron was threatening to nullify the global settlement agreement by trans-

ferring domain names outside the court's jurisdiction.”

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59. To support their alleged standing in filing this action, the Petitioning Creditors

misled the Bankruptcy Court in representing that “the claims of the Petitioning Creditors and

other attorneys against the Alleged Debtor were fully litigated” [Doc 25 ¶ 51], and “the Petition-

ing Creditors’ claims against the Alleged Debtor were fully adjudicated by the District Court”

[Doc 25 ¶ 43] in their representations to this Court about the May 18, 2011, Fee Order. De-

spite Petitioning Creditors’ representations to this Court to the contrary, the May 18, 2011, Fee

Order was stayed and affirmed stayed at least three times before being reversed and vacated. Pe-

titioning Creditors were well aware of this fact and keenly aware that their claims were subject to

a bona fide dispute. This Court relied on the Petitioning Creditors’ false statements in granting

the Order for Relief.

60. To dispel any doubt of whether the Petitioning Creditors knew of the falsehood of

their assertions to this Court that the May 18, 2011, Fee Order was “not stayed”, the Petitioning

Creditors, through Pronske, filed a Motion For Reconsideration in the Netsphere case [Dkt

1013], stating: “Pronske Patel respectfully requests this Court to reconsider the imposition of

the stay imposed by the Clarification Order” (Order Staying the Receiver Fee Order), and avers

that the “Clarification Order essentially granted a “stay pending appeal” of the May 18 2011 Fee

Order.

61. The suggestion that the Petitioning Creditors filed their petition for the legitimate

purpose of preserving a proportionate and orderly liquidation Baron’s assets is laughable. The

Petitioning Creditors manipulated three courts in a transparent attempt to avoid a contractually-

chosen forum and to frustrate Baron’s constitutional rights to a jury trial. After filing the peti-

tion, the Petitioning Creditors used the pendency of this action to deny Baron access to his funds

to hire counsel in this action and in appeals relative to this action. Meanwhile, the Petitioning

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Creditors employed the collective resources of their law well-heeled firms, the Ondova Trustee

and of the Baron Chapter 7 trustee to ensure that Baron would never have his day in court.

62. Pronske’s abuse of process and bad faith goes on today. In 2010, Jeff Baron insti-

tuted a lawsuit in the 193rd Judicial District Court of Dallas County, Texas styled Jeff Baron v.

Gerrit M. Pronske, Individually and Pronske & Patel, P.C. , Cause No. 10-11915. The state court

action involved a dispute regarding fees. Pronske withdrew the reference to the Ondova bank-

ruptcy case, and Baron filed a motion for remand. See ECF Docs 1 and 10, Adversary Proceed-

ing No. 10-03281-sgj. Just recently, on March 13, 2014, Pronske filed an Application for Pre-

judgment Garnishment, an Emergency Motion to Lift Abatement and an Emergency Motion for

Hearing. The Court denied the Motion for Emergency Hearing by order entered on March 14,

2014. ECF Docs 37 & 39, Adversary Proceeding No. 10-03281-sgj. Later that day, Pronske

filed in State District Court a new lawsuit against Baron making the same claims that he had as-

serted in his counterclaim filed in Adversary Proceeding No. 10-03281-sgj. He simultaneously

filed an Ex Parte Application for Issuance of Prejudgment Garnishment, and obtained a setting

before the State District Judge on March 17, 2014. On the 17

day of March 2014, without any

notice to Baron, Pronske appeared at the hearing before the State District Court, at which hearing

the State District Court issued an “Order to Issue Prejudgment Writ of Garnishment”. Just as

Pronske had done before this Court in 2010, Pronske advised the District Court that Baron had

no assets in the State of Texas, and that he was about to dispose of his assets. See true and cor-

rect copy of the Order to Issue Prejudgment Writ of Garnishment attached hereto as Exhibit “1”.

Nowhere in his pleadings filed in the State District Court did Pronske advise the State District

Judge that in Adversary Proceeding No. 10-03281-sgj, he was asserting the same claims, and that

his emergency motion to set a hearing to consider his Application for Writ of Garnishment had

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been denied by this Court. See Pronske Goolsby & Kathman, PC v. Jeffrey Baron, In the 69

Judicial District Court in and for Dallas County, Texas, Cause No. DC-14-02622. More telling

is the fact that Pronske is attempting to prove his claim as a liquidated amount by alleging that

the order issued by the Bankruptcy Court in the Ondova Bankruptcy awarding Pronske an ad-

ministrative claim for “substantial contribution”. In doing so, Pronske is well aware that Mr.

Baron was not a debtor in the Ondova bankruptcy and thus not responsible for payment of such

amount.

DAMAGES UNDER 11 U.S.C. §303(i)(2)

63. To the extent that the fees and expenses of the Receiver set forth above in para-

graph 46a are not recoverable under 11 U.S.C. §303(i)(1), Jeffrey Baron hereby requests that

such damages be awarded under 11 U.S.C. §303(i)(2). Among the reasons for such request is the

simple fact that any costs or fees incurred by the Receiver obviously reduces the assets held by

the Receiver – all or substantially all of which are the property of, and to be returned to, Mr. Bar-

on or are property owned by the Village Trust, as to which Mr. Baron is the sole beneficiary. As

aforesaid, Baron alleges that each of the Petitioning Creditors have acted in bad faith.

64. Jeffrey Baron also alleges that during the delay occasioned by the Involuntary

Bankruptcy Case, the value of Novo Point, LLC and Quantec, LLC has diminished substantially.

Novo Point, LLC and Quantec, LLC are subsidiaries of the Village Trust, as to which Jeffrey

Baron is the sole beneficiary. The loss in value is unascertainable at this time, as the Receiver

has only recently relinquished control over these entities.

65. Jeffrey Baron has suffered damages as a result of a loss of reputation and lost op-

portunities, which losses are real and substantial, but cannot be easily quantified. Therefore,

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Baron claims punitive damages against the Petitioning Creditors in the amount of at least

$10,000,000. Mr. Baron would show that the Petitioning Creditors have acted with malice.

VI.

REQUEST FOR JURY TRIAL

66. The Seventh Amendment of the Constitution entitles Jeffrey Baron to a right to a

trial by jury, which Baron here asserts, in his claims under 11 U.S.C. §303(i). Established Su-

preme Court precedent holds that a jury trial right exists in causes of monetary damages. The

court in Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) found that a request for a money

judgment strongly indicates that a jury right exists since the claim should be denominated as le-

gal rather than equitable . See Id. at 47. See also Dairy Queen Inc. v. Wood, 369 U.S. 469, 476,

(1962).

67. In In re Glannon, 248 B.R., 882 (D. Kan. 2000), the district court analyzed the

debtor’s right to a trial by jury in the context of a claim under 11 U.S.C. §303(i). The district

court applied the four-part test enunciated by the Supreme Court in Granfinanciera. The district

court concluded that the Bankruptcy Court had erred by denying the debtor his Seventh Amend-

ment right to a jury trial. Id., at 888-892. See also, analysis in In re Palm Beach Finance Part-

ners, LP, 501 B.R. 792 (Bankr. S.D. Fla., 2013).

WHEREFORE, premises considered, Plaintiff Jeffrey Baron respectfully requests that the

Defendants be summoned to appear and answer, and after a trial on the merits, that the Court

grant the Plaintiff the relief requested herein, damages, and all such other relief which is just.

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Respectfully submitted this 13

day of April 2014.

PENDERGRAFT & SIMON, LLP

/s/ Leonard H. Simon

Leonard H. Simon

Texas Bar No. 18387400

S.D.Tex. Adm. No. 8200

Email: lsimon@pendergraftsimon.com

William P. Haddock

Texas Bar No. 00793875

S.D.Tex. Adm. No. 19637

Email: whaddock@pendergraftsimon.com

2777 Allen Parkway, Suite 800

Houston, Texas 77019

Tel. (713) 528-8555

Fax. (713) 868-1267

ATTORNEY IN CHARGE FOR

JEFFEY BARON

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