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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
In Re: ) Case No. 09-34784-sgj-11
) Chapter 11
ONDOVA LIMITED COMPANY, )
) Dallas, Texas
Debtor. ) November 14, 2011
)
) CONFIRMATION HEARING
)
) Excerpt: Daniel Sherman
) Testimony
TRANSCRIPT OF PROCEEDINGS
BEFORE THE HONORABLE STACEY G.C. JERNIGAN,
UNITED STATES BANKRUPTCY JUDGE.
APPEARANCES:
For Jeffrey Baron: Stephen Rudolph Cochell
THE COCHELL LAW FIRM
7026 Old Katy Road, Suite 259
Houston, TX 77024
(713) 980-8796
For Peter S. Vogel, Jeffrey R. Fine
Receiver: Christopher Kratovil
DYKEMA GOSSETT, PLLC
1717 Main Street, Suite 4000
Dallas, TX 75201
(214) 462-6455
For Daniel J. Sherman, Raymond J. Urbanik
Chapter 11 Trustee: MUNSCH, HARDT, KOPF & HARR P.C.
500 N. Akard Street, Suite 3800
Dallas, TX 75201-6659
(214) 855-7590
For the U.S. Trustee: Lisa Laura Lambert
OFFICE OF THE UNITED STATES TRUSTEE
1100 Commerce Street, Room 976
Dallas, TX 75242
(214) 767-8967 Ext. 1080
For Manila Industries, John W. MacPete
Inc. and Netsphere, Inc.: P.O. Box 224726
Dallas, TX 75222
(214) 564-5205
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Q And do you recall that you told me it was approximately $2
million?
A Against the Receiver? $2 million?
Q Yes.
A Okay.
Q Now, you are aware of the results of the auction, correct?
A Yes.
Q So, the value of the portfolio assets which would be
proposed to be transferred under the plan settlement, the
proposed plan settlement, is $5.2 million, right?
A So I'm told, yes.
Q And that's $3.2 million in excess of what you said your
claim against the receiver would be, right?
A Right.
Q What's the justification for, as you understand it, for the
Trustee getting $3.2 million more in value than 100 percent of
its claim?
A It -- it's not unlike any bankruptcy that ends up with a
surplus which is then returned to the debtor.
Q Would you agree with me that to the extent that -- well,
strike that. Would you agree with me that it's not guaranteed
that Mr. Baron is going to get $3.2 million back at the end of
this plan process?
A I don't know if there's any guarantee of anything.
Q And to the -- and would you agree with me that to the
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extent that Mr. Baron doesn't get $3.2 million back, that some
of Mr. Baron's assets or Novo Point and Quantec's assets are
going to be used to pay creditors of Ondova?
A I don't think that those assets will be used to do anything
more than reimburse this estate for the expenses that this
estate incurred in basically litigating with Mr. Baron after
the global settlement agreement was signed.
Q Okay. I don't think you understood my question.
A Maybe not.
Q My question was, to the extent Mr. Baron doesn't get $3.2
million back, that means some of his assets are being used to
pay debts of Ondova, correct?
A To reimburse -- yes, to reimburse the estate for fees the
estate incurred litigating with him, yeah.
Q Well, no, because if he doesn't get $3.2 million back, that
means that the amount of his assets used exceeds the amount of
your claim for fees. Do you understand the math?
A Well, I mean, I'm also -- my understanding is this estate
will also get the -- get liabilities of the receivership, too.
Q That was included in the $2 million that we talked about --
A Oh, okay.
Q -- at your deposition, you'll recall.
A All right. I -- yeah, I couldn't remember exactly what
that was, but all right.
Q And so when you do the math, if your claim is $2 million,
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just to round it out, and Mr. Baron only gets $2 million back,
let's say, at the end of the plan process, --
A Right.
Q -- that means there was $1.2 million of Mr. Baron's assets
that are in excess of your claim for fees that were used to pay
debts of Ondova, correct?
A That will only be if and after this Court approves such
fees.
Q Fair enough.
A Okay.
Q Now, as a joint proponent of this plan, you, Mr. Sherman,
individually and as the Chapter 11 Trustee, you are not
contributing any property into this bankruptcy for the plan,
correct?
A You mean am I selling any names?
Q No, I mean are you contributing any property?
A It depends. I still have service.com and Mondial. If I
don't sell them, I guess I'll be contributing that.
Q I'm sorry. Maybe it was an inarticulate question. I'm not
asking about the estate now. I'm asking about you personally,
Mr. Sherman, who's serving as the Chapter 11 Trustee. You are
not adding anything into the bankruptcy plan, correct?
A You mean like my car?
Q Yes.
A No. I'm not selling my car.
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Q Okay. And your lawyers, the Munsch Hardt firm, they're not
contributing any assets into the plan either, correct?
A They're not selling their cars either.
Q Fair enough. Mr. Vogel personally, who serves as the
Receiver, he's not contributing any assets into the plan,
correct?
A I don't think so.
Q And his former law firm, Gardere, --
THE COURT: Mr. MacPete, I've read the plan. You can
make these arguments in oral argument. We know the answer.
MR. MACPETE: Okay. I think I need to make an
evidentiary record.
THE COURT: There's a pooling of the receivership
assets and the Ondova assets.
MR. MACPETE: I understand that, Your Honor, but I --
I think --
THE COURT: No human being is contributing their
personal assets. No professional. We don't need to spend 15
minutes going through that.
BY MR. MACPETE:
Q Now, can you articulate for the Court any basis on which
you personally, the Receiver personally, or any other third
party that's not contributing assets into the bankruptcy plan
should get a release or exculpation?
A You mean because it's uncommon?
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Q I'm just asking you what the justification for that would
be. If, as you put it, if you're not selling your car and
contributing it to the plan, what justification is there for
you personally to get a release or exculpation under the plan?
A It's one way to wrap things up and have some finality.
Q That's the only justification you can think of?
A It's a really good one.
Q I guess that's true if you're the potential defendant, and
maybe not so true if you're the potential claimant. Right?
A Well, you'd probably like one, too.
Q Maybe I would. But I'm not contributing anything to the
plan.
Okay. At some point, you and I have had a discussion and
you had said something to the effect that you thought that
Baron may have breached the global settlement agreement. Do
you recall that?
A Yes.
Q Can you tell -- well, let me ask you this. Is that still
your belief today that Mr. Baron has breached his obligations
to the Chapter 11 Trustee in the global settlement agreement?
A To the extent that he immediately began directing lawyers,
hiring new lawyers, and instructing them to attempt to appeal
the order that approved the settlement, yes, I considered that
to be a breach.
Q And is there anything else that, as you sit here today,
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that you can identify that you think is a breach by Mr. Baron
of his obligations under the global settlement agreement to the
Chapter 11 Trustee?
A I don't know how to add to a wholesale intent to not
perform.
MR. MACPETE: Your Honor, may I approach?
THE COURT: You may. And you're 30 minutes into this.
How many -- how much more do you think you have? I'm going to
remind you that I said you had thin standing in this matter.
MR. MACPETE: I don't have very much. I need to put
this exhibit into evidence, and I want to ask him a couple
questions about it.
THE COURT: Okay.
MR. MACPETE: And that will be the conclusion of my
examination.
THE COURT: Okay.
BY MR. MACPETE:
Q All right. Do you recognize this document?
A The mutual settlement and release? This is what we call
the global settlement agreement.
Q And if you flip to the back, would you verify that this is
the actual executed version of the global settlement agreement?
A (Pause.) It appears to be, yes.
Q And this is an agreement that you signed on behalf of the
Chapter 11 Trustee, correct?
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A I see my signature, yes.
Q Is there anywhere in this agreement that it says that Mr.
Baron is not allowed to appeal from the Bankruptcy Court's
order approving the settlement?
A No. I doubt it.
Q Is there any particular provision in this agreement that
you can point to specifically that you think Mr. Baron has
violated a duty that he owed to the Chapter 11 Trustee?
A Other than an intent not to perform? No.
Q And in fact, did you ever get a letter from Mr. Baron or
his counsel indicating that he was repudiating the agreement?
Q I got basically testimony from the lawyers that he called
to the stand in Judge Furgeson's court who all said that that's
what they were instructed to do.
Q But that particular testimony was months and months after
the fact, wasn't it?
A Before that, I -- I called and -- to interview Robert
Garry, the lawyer that sued him, in -- I don't remember if it
was late October/early November, the one that said he had been
-- he'd placed his name at the state bar, Baron had contacted
him to employ him to represent Novo Point and Quantec. He was
working at a firm in Collin County, he was looking to leave his
job, but didn't want to leave unless he had -- wasn't going to
give notice and leave unless he had what he called at least a
90-day gig somewhere else. And so after interviewing with
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Baron, he agreed to go to work for him representing Novo Point
and Quantec, and when he got there he found out that Baron
wanted him to do things that were really representing Jeff
Baron personally and were designed to violate orders that he
said existed in the district court and the bankruptcy court and
said, none of that has anything to do with Novo Point/Quantec,
and so Baron fired him.
Q Ultimately, Mr. Baron hasn't managed to successfully breach
this agreement, though, has he? He may have talked about --
THE COURT: I'm going to interrupt, because all of our
time is very important. You're going to have to tell me where
you're going with this. Why is this relevant?
MR. MACPETE: There was a suggestion by the Chapter 11
Trustee that there might be another claim against the
receivership which would be predicated on the idea that Mr.
Baron had breached the global settlement agreement to the
Chapter 11 Trustee. And with all due respect, Your Honor,
there is no performance in the global settlement agreement from
Mr. Baron directly to the Chapter 11 Trustee. The payments
that were all made --
THE COURT: Okay. Just ask him what was meant by
that. Okay?
MR. MACPETE: Okay.
THE COURT: Why are we dancing around 42 questions
getting there? Just, what did he mean by that?
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BY MR. MACPETE:
Q Isn't it true that Mr. Baron didn't actually owe any
performance under the global settlement agreement directly to
the Chapter 11 Trustee?
A Maybe not.
Q In fact, isn't it true that the payments that were being
made to the Chapter 11 Trustee were essentially being made by
my client, Netsphere?
A True.
Q The bottom line is Mr. Baron hasn't breached any obligation
to the Chapter 11 Trustee under the global settlement agreement
because he didn't have any. Isn't that right?
A Maybe not.
Q Thank you.
MR. MACPETE: I have nothing further.
THE COURT: All right.
MR. MACPETE: Oh, wait. Actually, I need to move this
into evidence as Netsphere Exhibit 1.
THE COURT: I assume no one has any objection?
MR. URBANIK: No objection.
MR. KRATOVIL: None, Your Honor.
THE COURT: N-1 is admitted.
(Netsphere's Exhibit 1 is received into evidence.)
THE COURT: All right. Mr. Cochell?
MR. COCHELL: May I have a brief break, Your Honor?
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THE COURT: Five-minute break. I want everyone back
here in five minutes.
MR. COCHELL: Thanks, Your Honor.
THE CLERK: All rise.
(A recess ensued from 4:19 p.m. until 4:31 p.m.)
THE COURT: All right. Please be seated. All right.
Mr. Sherman, you're still under oath. Mr. Cochell?
MR. COCHELL: Thank you, Your Honor.
THE COURT: You may cross-examine.
MR. COCHELL: Thank you.
CROSS-EXAMINATION
BY MR. COCHELL:
Q Mr. Sherman, just a couple of quick questions to start off
with. From prior testimony taken in your deposition, I
understand that neither you nor your lawyers conducted a
valuation of the portfolio before moving towards a sale of the
portfolio in this Court?
A That's correct.
Q Okay. And other than hearing -- and in fact, what you did
was rely on Mr. Vogel to determine whatever value he thought
was appropriate. Is that a fair statement, sir?
A Yes.
Q Okay. And other than being told that there was a -- that
there had been an agreement with a stalking horse bidder to pay
$4.1 million as the initial opening bid in the auction, other
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INDEX
Excerpt: Daniel Sherman Testimony
2:12-2:55 pm; 3:44-5:13 pm
PROCEEDINGS 3
WITNESSES
Chapter 11 Trustee's Witnesses
Daniel J. Sherman
- Direct Examination by Mr. Urbanik 3
- Direct Examination by Mr. Kratovil 31
- Cross-Examination by Mr. MacPete 33
- Cross-Examination by Mr. Cochell 59
- Redirect Examination by Mr. Urbanik 84
- Redirect Examination by Mr. Kratovil 86
- Recross-Examination by Mr. MacPete 89
EXHIBITS
Netsphere's Exhibits Identified Received
N-1 Global Settlement Agreement 55 58
RULINGS
END OF PROCEEDINGS 91
INDEX 92
