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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

NETSPHERE, INC.,

MANILA INDUSTRY, INC.,

AND MUNISH KRISHAN

PLAINTIFFS,

JEFFREY BARON AND

ONDOVA LIMITED COMPANY,

DEFENDANTS

CIVIL ACTION NO. 3:09-cv-0988-L

JEFFREY BARON’S OBJECTION TO

THE RECEIVER’S REQUEST, AS SUPPLEMENTED,

FOR APPROVAL OF FINAL ACCOUNTING, APPLICATION

FOR PAYMENT AND REQUEST FOR ORDER OF FINAL DISCHARGE

[Relates to ECF Docs 1397 and 1398]

TO THE HONORABLE SAM A. LINDSAY, UNITED STATES DISTRICT JUDGE:

Jeffrey Baron (“Baron”) hereby files his Objection to the Receiver’s Request, as Supple-

mented, for Approval of Final Accounting, Application for Payment and Request for Order of

Final Discharge, and for cause, would respectfully represent:

INTRODUCTION

1. In Section III of the Receiver’s Supplemental Application For Payment and No-

tice of Filing of Petition for Certiorari, the Receiver makes his final claim for fees and expenses

for himself and for of a host of professionals for a failed and vacated receivership (the “Supple-

ment”). ECF Doc 1398. The Supplement supplements the Receiver’s Request for Approval of

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Final Accounting, Application for Payment and Request for Order of Final Discharge filed on

April 14, 2014 (the “Receiver’s Request for Payment”). ECF Doc 1397. This final blow to Bar-

on, who has been practically bludgeoned to death by the fees charged by the Receiver and his

professionals in this vacated receivership, is incredible in its duplicity, in the excessiveness of the

hourly rates charged, the total number of hours allegedly logged by these lawyers and the Re-

ceiver for doing little more than reviewing pleadings and sending and responding to interoffice

emails among numerous lawyers. The fees and expenses are simply outrageous, unjustified and

barred by the Mandate of the Fifth Circuit..

II.

THE RECEIVER’S REQUEST THAT THE FIFTH

CIRCUIT’S FEE LIMITATION BE DISREGARDED

2. The period covered by the Receiver’s Request for Payment is May 1, 2013

through Receivership Closing, which the Receiver anticipates will occur on May 15, 2014. In

the Fifth Circuit’s December 18, 2012, opinion and decision in Netsphere v. Baron,

the Fifth

Circuit directed the District Court to reconsider “the amount of all fees and expenses” of the Re-

ceiver, and that in such reconsideration, “equity may well require the fees to be discounted mean-

ingfully from what would have been reasonable under a proper receivership.” Id. at 313. The

Fifth Circuit also concluded “that everything subject to the receivership other than cash currently

in the receivership, which Baron asserts in a November 25, 2012 motion amounts to $1.6 mil-

lion, should be expeditiously returned to Baron under a schedule to be determined by the district

703 F3d 296 (5th Cir. 2012)

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court for winding up the receivership.” Id. at 313-314. The Fifth Circuit instructed that “the new

determination by the district court of reasonable fees and expenses to be paid to the receiver,

should the amount be set at more than has already been paid, may be paid from the $1.6 million,”

and “[t]o the extent the cash on hand is insufficient to satisfy fully what has been determined to

be the reasonable charges by the receiver and his attorneys, those charges will go unpaid.” Id. at

314.

3. In its opinion and decision issued hours before the involuntary bankruptcy fil-

ing, the Fifth Circuit clearly and unequivocally instructed the district court to limit the pay-

ment of any future fees and expenses to the receiver and his attorneys to “cash on hand” as of

December 18, 2012: “everything subject to the receivership other than cash currently in the

receivership” was to be returned to Baron.

By the time the Fifth Circuit had overruled all

petitions for rehearing and rehearing en banc, and had issued its mandates on April 19, 2013,

the Receiver had advised Fifth Circuit of the existence of the Baron involuntary bankruptcy

proceeding, but the Fifth Circuit did not alter or amend its December 18, 2012 opinion or de-

cision at all.

4. “Cash” is defined in Black’s Law Dictionary (8th Edition) as ‘money or the

equivalent; usually ready money. Currency and coins, negotiable checks, and balances in bank

accounts.’ Also See Hardy v. State, 102 S.W3d 123, 131 (Tex. 2003) (citing Webster’s Third

In the Receiver’s Application for Immediate Payment of Liquidated and Allowed Pre-Petition Fees of the Receiver

and Those He is obligated to Pursuant to 11 U.S.C. § 543 filed with the Bankruptcy Court on November 7, 2013,

ECF Doc 380, in Bankruptcy Case 12-37921-sgj7, at pp 5-6, the Receiver asked the Bankruptcy Court to adopt this

view.

In truth, the amount of “cash on hand” in the receivership on December 18, 2012, as admitted by the Receiver, was

$1,196,744.313. Everything collected or claimed by the receiver since this date, must be returned to Baron.

Any other result would be in contradiction to the Fifth Circuit’s Opinion and Mandates.

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New Int’l Dictionary 346 (1961); A.W. Cullum & Co. v. Calvert, 450 S.W.2d 419, 423

(Tex.Civ.App.1970) ("Cash has been defined as that which circulates as money ...," but trading

stamps are not cash for purposes of sales tax laws.)

5. Now, for the first time the Receiver is taking a different position in the Receiver’s

Request for Payment, as Supplemented. The Receiver now claims that the cash on hand on De-

cember 18, 2012, was really $4,106,015.08, while in the next breath admitting that the cash bal-

ance was $1,196,744.31.

The Receiver obviously wishes this Court to disregard the Fifth Cir-

cuit’s fee limitation set out in the December 18, 2012, decision and opinion and the mandates

issued on April 19, 2013,

as to which limitation the Receiver has never raised an objection, ei-

ther in its petitions for rehearing before the Fifth Circuit, before this Court or before the Bank-

ruptcy Court, at least until now.

6. The Receiver’s Attempt at Redefining “Cash” is Misplaced. Despite the re-

ceiver’s erroneous assertions about his definition of “cash”, 1) claims against Netsphere are

not cash; 2) Novo Point and Quantec’s receivables are not cash; 3) Baron’s custodial IRA

accounts including stocks are not cash. These items must all be returned to Baron.

The Receiver cleverly explains this in footnote 4 of his Supplement, as follows:

“As set forth below, this amount appropriately includes the cash in Receivership accounts

($1,196,744.31); Accounts Receivable (totaling $1,147,761.18 including the 2012 Netsphere Set-

tlement Payment ($600,000.00), the estimated amount due from the Ondova Bankruptcy Trustee

for the disgorgement of a prior payment ($379,761.18), and withholdings from Domain Holdings

Group of monthly monetizer payments of approximately $150,000.00 for the month of December

2012); and the value of Mr. Baron’s IRAs and brokerage accounts that were subject to and under

the control of the Receivership ($1,761,509.59).”

ECF Docs 1255-1263, 09-cv-988.

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7. Moreover, this Court has already recognized the limitation set by the Fifth Cir-

cuit. In the Amended Memorandum Opinion issued by this Court on January 2, 2014, in Case

3:13-cv-03461-L

, this Court stated:

In reversing the Receivership Order, the Fifth Circuit directed the district

court to vacate the receivership and discharge the receiver, his attorneys and em-

ployees.” Id. at 315. No fees or expenses other than those incurred by the Receiv-

er were authorized by the Fifth Circuit, and the payment of the Receiver’s fees

expenses was to be limited to the $1.6 million in cash remaining in the receiver-

ship. Any fees or expenses exceeding that amount would go unpaid. The Fifth

Circuit instructed that all other assets in the receivership were to be “expeditiously

released to Baron under a schedule to be determined by the district court for wind-

ing up the receivership.” Id. at 313-14. The Fifth Circuit also made clear that

“[n]o further sales of domain names or other assets [were] authorized,” and that

the stay imposed as to the closing on sales resulting from an auction of domain

names was “permanent.” Id. at 314 n.2.

Id. at p 7.

8. The receiver made at least $1,579,953.88 in fee and expense disbursements since

December 18, 2014.

Therefore, under the Fifth Circuit’s fee cap of “cash on hand”, which was

at most $1,600,000.00, the Receiver can only recover an additional $20,046.12 in the Receiver’s

best case scenario.

III.

THE RECEIVER’S FEES SHOULD

BE DISCOUNTED MEANINGFULLY FROM WHAT WOULD

Docket Court Date Order Amount

1288 District Court 2/20/2013 Order Approving Fees -Doc 1190 $ 17,575.88

1227 District Court 4/16/2013 Order Approving Pmt of Mediator's Fees $ 12,000.00

1233 District Court 5/23/2013 Order granting Fees for Receiver Professionals $ 118,126.05

433 Bk Court

12/31/2013 Order Granting Fees $1,414,676.05

1388 District Court 5/9/2013 Order granting Receiver’s Expenses $ 17,575.90

Total $1,579,953.88

In truth, the amount of “cash on hand” in the receivership on December 18, 2012, as admitted by the Receiver, was

$1,196,744.317.

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ORDINARILY BE REASONABLE UNDER A PROPER RECEIVERSHIP

9. The Fifth Circuit in Netsphere v Baron held as follows:

“In light of our ruling that the receivership was improper, equity may well

require the fees to be discounted meaningfully from what would have been rea-

sonable under a proper receivership. Fees already paid were calculated on the ba-

sis that the receivership was proper. Therefore, the amount of all fees and expens-

es must be reconsidered by the district court. Any other payments made from the

receivership fund may also be reconsidered as appropriate.”

703 F.3d at 303.

10. After the Fifth Circuit opinion and decision was issued on December 18, 2012,

and the mandates issued on April 19, 2013, Judge Ferguson reconsidered the fees awarded to the

Receiver and his counsel. On May 29, 2013, Judge Ferguson issued an Order on Receivership

Professional Fees. ECF Doc 1287, Case 09-0988. Judge Ferguson found that “equity requires

that the Receiver’s fees [should] be allowed at 70%.” Id. at 37. Judge Ferguson also found that

the fees and expenses of the Dykema firm should be reduced to 90% for the period from Decem-

ber 18, 2012 and April 4, 2013, and 95% for the month of April 2013. Id. at 42-3.

11. Finally, Judge Ferguson ruled that”

“If an order for relief is denied and this Court must begin the wind down

process as instructed by the Fifth Circuit, the Court ORDERS that any monies

paid out during the wind down process be paid in the following order:

1. Dykema Gosset

2. Other unpaid Receivership professionals under the Order Granting

Motion for Fee Application for the Receiver in Regard to Certain

Miscellaneous Receivership Professionals (Docket No. 1282)

3. Receiver, Peter Vogel

Each claim is to be paid in full before the next claimant may receive anything.

These fees must be paid from the available cash in the Receivership estate and no

other assets may be sold to satisfy these claims.”

Id. at 45.

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12. Thus, this Court must take into consideration the limitation imposed by the Fifth

Circuit to “cash on hand” at the time of the December 18, 2012 Opinion, which was certainly no

greater than the $1,600,000 mentioned in the Opinion.

Additionally, before even applying such

limitation, the Court must discount the fees and expenses being requested by the Receiver and

his professionals meaningfully from what would have been reasonable under a proper receiver-

ship. As noted, assuming that the cash on hand was $1,600,000, the unused portion of the cap, at

this time, is no greater than $20,046.12; that is, the maximum amount this Court may award at

this time is no greater than $20,046.12.

IV.

THE RECEIVER AND HIS

ATTORNEYS SHOULD NOT BE COMPENSATED FOR

FILING PLEADINGS IN THE BANKRUPTCY COURT AND

ATTENDING HEARINGS THAT DID NOT BENEFIT THE RECEIVERSHIP ESTATE

13. The Fifth Circuit has ruled in Speakman v. Bryan, 61 F.2d 430, 431 (5th Cir.

1932), that receivership fees in a reversed and vacated receivership may be charged against a re-

ceivership estate only “to the extent that they have inured to its benefit”. Thus, the authority to

take funds from an estate in a reversed receivership is limited to “reimbursement out of the prop-

erty for his expenditures which have actually benefited the estate”. Id. at 432. Other circuits

have concurred. Franklin v. City of New York, 144 F. 2d 571 (2

Cir. 1944 ("allowances, if any,

which may be made by the district court;" and that such allowances must be made in accordance

As noted, the Fifth Circuit limit to “cash on hand” at the time of the Opinion was actually $1,196,744.318

The receiver made at least $1,579,953.88 in fee and expense disbursements since December 18, 2014. Therefore,

under the Fifth Circuit’s fee cap of “cash on hand”, which was at most $1,600,000.00, the Receiver can only recover

an additional $20,046.12 in the Receiver’s best case scenario.

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with the principle which controls the allowance of counsel fees in receivership cases, namely,

benefit to the receivership estate” ). Here, despite the receiver’s assertions to this court that he

was an unwilling participant in the involuntary bankruptcy, the facts demonstrate that the receiv-

er actively advocated for the involuntary bankruptcy and then billed massively for the failed ef-

fort.

A. The Fifth Circuit Clarifies its December 18, 2012 Decision.

14. On December 27, 2012, the Receiver filed an Emergency Motion to Clarify Status

of Mandate and Stay Pending Remand and Discharge of Receiver, in the Fifth Circuit. ECF Doc

00512095875, at p. 5-6, in Fifth Circuit Case No. 12-10489, also attached as Exhibit A to ECF

Doc 95, Bankruptcy Case No. 12-37921. Therein, the Receiver advised the Fifth Circuit that an

involuntary bankruptcy case had been filed nine days earlier, and asked the Fifth Circuit to clari-

fy its December 18, 2012, decision and opinion.

15. On December 31, 2012, aware of the bankruptcy petition, the Fifth Circuit panel

ruled on the Receiver’s Emergency Motion and held:

“No assets that were brought under control of the receiver will be released imme-

diately from that control even when the mandate is issued. The district court will

thereafter have the authority to manage the process for ending the receivership as

quickly as possible.”

See December 31, 2012 Fifth Circuit Order. ECF Doc 00512097486 in Fifth Circuit Case No.

10-11202; also ECF Doc 1130-1, District Case Case No. 09-988.

B. The Fifth Circuit Issues Mandates Enforcing its December 18, 2012 Decision and

Opinion.,

16. With full knowledge of the Involuntary Bankruptcy Case, and having considered

and denied cross motions for rehearing and rehearing en banc, the Fifth Circuit did not alter its

December 18, 2012, decision and opinion, and on April 19, 2013, issued numerous mandates,

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commanding the District Court to enforce the directives in its December 18, 2012, decision and

opinion, to wind down the receivership expeditiously and return the assets to Jeffrey Baron,

NOVO and QUANTEC. ECF Docs 1255-1263, District Case Case No. 09-988.

17. Notwithstanding the April 19, 2013 Mandates issued by the Fifth Circuit, and

without a trial on the merits, on June 26, 2013, Bankruptcy Judge Jernigan issued findings of fact

and conclusions of law in support of order for relief, and then issued an order for relief placing

Jeffrey Baron in bankruptcy, thereby freezing Mr. Baron’s assets and the assets of NOVO and

QUANTEC yet again. ECF Docs 239 & 240 in Bankruptcy Case 12-37921. The Bankruptcy

Court concluded that Baron’s former attorneys, the Petitioners, had standing under 11 U.S.C.

§303(b) to file and proceed with the Involuntary Bankruptcy Case.

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

Doc 257 in Bankruptcy Case 12-37921.

C. Judge Jernigan Issues Sua Sponte Report and Recommendation

19. At the urging of the Reciver, On July 29, 2013, Bankruptcy Judge Jernigan issued

a Sua Sponte Report 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 Case No. 09-0988] (“Sua Sponte Report and

Recommendation”). In the Sua Sponte Report and Recommendation, Judge Jernigan opined that

the involuntary bankruptcy proceeding created an “intervening circumstance” that required the

turnover of the receivership assets, including all of NOVO and QUANTEC’s assets, to the bank-

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

and mandate. The receiver aggressively attempted to convince the Bankruptcy court to expedite

transferring the receivership assets to the bankruptcy court, in circumvention of this Court’s ju-

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risdiction. See Receiver’s Motion to Show Cause Why Receiver Should Not Turnover Novo Point

and Quantec Assets to Bankruptcy Trustee in View of Recent Testimony and Filings (bankruptcy

dkt 372), billing over $_____ dollars to the estate to effectuate . Despite the fact that This Court

never adopted Judge Jernigan’s Sua Sponte Report and Recommendation, the receiver re-

ceiver billed massively preparing for the hearing on his motion to transfer the assets, conducting

discovery, deposing witnesses, including traveling outside of the Northern District to do so.. This

work was completely unnecessary and contrary to the best interests of the receivership es-

tate.

D. This Court Reverses Bankruptcy Judge Jernigan’s Order for Relief.

20. This Court granted Baron’s appeal, and reversed the Order for Relief in an

Amended Memorandum Opinion and Judgment entered on January 2, 2014. ECF Docs 52 & 53

in District Case No. 13-3461. The effect of this Court’s order was that the assets of Baron, NO-

VO and QUANTEC were never transferred to the involuntary bankruptcy estate, but remained

subject to the Receivership.

E. The Receiver and His Counsel Have Churned the Bankruptcy File Relentlessly for a

Year, and the Receivership Estate Has Received No Value for Such Work.

21. From December 18, 2012, forward, the Receiver and his counsel were pounding

the bankruptcy file as hard as they could. In at least one instance, the Receiver and two senior

partner level lawyers of the Dykema law firm attended a status conference at a combined hourly

rate of at least $1,900, which hearing could have been attended by one senior level bankruptcy

associate. In numerous days of mediation, three partner level lawyers of the Dykema law firm

plus the Receiver attended for several days, another case of blatent over-staffing. In several oth-

er instances, the Receiver and a senior level lawyer from the Dykema law firm attended several

hearings, charging at least $1,300 per hour, when a senior level bankruptcy associate could have

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handled the hearing. Partners were drafting pleadings that could have been drafted by senior

bankruptcy associates. All of the hearings were attended by at least one senior level Dykema

partner, but could have been attended by a senior bankruptcy associate or not attended at all. A

great majority of the filings and appearances involved the Receiver attempting to get his profes-

sionals paid.

22. The truth of the matter is that the Receiver had “no dog in the fight” insofar as the

bankruptcy proceeding was concerned. His job was to wait and see what the Bankruptcy Court

did in regards to entering an order for relief, make interim requests for payment from the bank-

ruptcy court, and follow the instructions of the bankruptcy court.

If an order for relief was en-

tered, the receivership was over and the receiver would be required to turnover the receivership

assets to the Bankruptcy Court.

If no order for relief was entered, the receivership continued.

But having one, two and sometimes three partner level lawyers attending every single bankrupt-

cy hearing during the year the involuntary bankruptcy proceeding was pending was an abuse.

23. Instead of simply “treading water”, which would have been the sensible thing to

do, the Receiver attended every bankruptcy hearing during the pendency of the bankruptcy with

one, two and sometimes three senior partner level attorneys “in tow”. The following is a sample

list of hearings and pleadings that were a waste of time and of no benefit to the Receivership Es-

tate.

Section 543(a) of the Bankruptcy Code provides that upon the commencement of a bankruptcy case, a custodian,

including a Receiver, is to turn over the debtor’s property to the trustee and provide an accounting. On January 17,

2013, the Bankruptcy Court entered an Order, which was later approved by Judge Ferguson, directing the Receiver

to “maintain all receivership assets pending further order,” waiving the requirement of 11 U.S.C. § 543(a) that the

Receiver, as a custodian, turn over same to the then-interim bankruptcy trustee, pending the determination of wheth-

er Baron was a debtor and the scope of his estate.

See Jordan v. Independent Energy Corp., 446 F.Supp. 516 (N.D. Tex. 1978) ("[Clreditors would be irreparably

harmed by their inability to secure access to the rights afforded creditors under the [Bankruptcy 1 Act. An order [by

a federal district court in a federal receivership 1 restricting access to the bankruptcy court, other than as specifically

provided by Congress in the Bankruptcy Act, would not be in the public interest").

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a. On December 21, 2012, the Receiver’s counsel, Jeffrey Fine, attended a hearing be-

fore the Bankruptcy Court that was totally unnecessary.

b. On January 16, 2013, the Receiver’s counsel, Jeffrey Fine, attended a scheduling

conference before the Bankruptcy Court where the scheduling for the trial of the in-

voluntary petition was addressed. The Receiver attended by telephone. The Receiv-

er had “no dog in this fight” and there was no benefit to the Receivership Estate from

such attendance. The hourly rate for the attendance at this hearing was over $1,300.

c. On February 12, 2013, Jeffrey Fine filed a Notice of Fifth Circuit Directive and Re-

quest to Preserve Status Quo of Receivership Pending Fifth Circuit Action that was

totally unnecessary. ECF Doc 60 in Bankruptcy Case 12-37921.

d. On February 12, 2013, Jeffrey Fine filed a Motion to pay Receiver's Expedited Ap-

plication for Payment of Receivership Expenses Pursuant to the Interim Order that

was simply an effort to get the Receiver’s fees and his counsel’s fees approved. This

did not benefit the Receivership Estate. ECF Doc 61 in Bankruptcy Case 12-37921.

e. On February 12, 2013, Jeffrey Fine filed a Motion to pay Request to Clarify Receiv-

er's Authority to Pay Counsel that was simply an effort to get the Receiver’s fees and

his counsel’s fees approved. This had no discernable benefit the Receivership Es-

tate. ECF Doc 63 in Bankruptcy Case 12-37921.

f. On February 13, 2013, the Receiver and the Receiver’s counsel, Jeffrey Fine attend-

ed a hearing before the Bankruptcy Court that was totally unnecessary. There was no

benefit to the Receivership Estate from such attendance. The hourly rate for the at-

tendance at this hearing was over $1,300.

g. On February 20, 2013, Jeffrey Fine filed a Motion to pay Receiver's Expedited Ap-

plication for Payment of Receivership Expenses that was totally unnecessary. ECF

Doc 70 in Bankruptcy Case 12-37921.

h. On February 20, 2013, the Receiver’s counsel, Jeffrey Fine, attended a hearing be-

fore the Bankruptcy Court that was totally unnecessary. There was no benefit to the

Receivership Estate from such attendance.

i. On March 18, 2013, the Receiver and the Receiver’s counsel, Jeffrey Fine attended a

hearing before the Bankruptcy Court that was totally unnecessary. There was no

benefit to the Receivership Estate from such attendance. The hourly rate for the at-

tendance at this hearing was over $1,300.

j. On April 4, 2013, the Receiver and two of the Receiver’s partner level counsel, Jef-

frey Fine and David Schenck, attended a hearing before the Bankruptcy Court that

was totally unnecessary. There was no benefit to the Receivership Estate from such

attendance. The hourly rate for the attendance at this hearing was over $1,900.

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k. On April 12, 2013, Jeffrey Fine, the Receiver’s counsel, filed a Motion for order to

show cause Why WIPO and ICANN Should not Be Held in Contempt that was total-

ly unnecessary. ECF Doc 122 in Bankruptcy Case 12-37921.

l. On April 17, 2013, Jeffrey Fine, the Receiver’s counsel, filed an Application for

compensation for Dykema Gossett PLLC. ECF Doc 128 in Bankruptcy Case 12-

37921.

m. On June 24, 2013, the Receiver’s counsel, Jeffrey Fine, attended a hearing before the

Bankruptcy Court that was totally unnecessary.

n. On July 15, 2013, the Receiver and the Receiver’s counsel, Jeffrey Fine, attended a

hearing before the Bankruptcy Court that was totally unnecessary. The hourly rate

for the attendance at this hearing was over $1,300.

o. On July 26, 2013, the Receiver’s counsel, Jeffrey Fine, attended a hearing before the

Bankruptcy Court that was totally unnecessary.

p. On October 3, 2013, the Receiver filed with the Bankruptcy Court the Receiver's

Motion for Authority to Immediately Comply with Mandate, for Wind Down Plan

and Discharge, and for Payment Consistent with the May 29, 2013 Order of this

Court. ECF Doc 352 in Bankruptcy Case 12-37921.

q. On October 28, 2013, the Receiver’s counsel, Jeffrey Fine, attended a hearing before

the Bankruptcy Court that was totally unnecessary.

r. On October 31, 2913, the Receiver filed in the Bankruptcy Court a nineteen page

Expedited Motion for order to show cause Why Receiver Should Not Turnover No-

vo Point and Quantec Assets to Bankruptcy Trustee in View of Recent Testimony

and Filings. ECF Doc 372 in Bankruptcy Case 12-37921.

s. On October 31, 2013, the Receiver’s counsel, Jeffrey Fine, attended a hearing before

the Bankruptcy Court that was totally unnecessary.

t. On November 7, 2013, the Receiver filed with the Bankruptcy Court a fourteen page

Application for (1) Immediate Payment of Liquidated and Allowed Pre-Petition Fees

and Expenses of the Receiver and Those He Is Obligated to, Pursuant to 11 U.S.C.

§§ 503(b)(3)(E), 503(b)(4) and 543(c), and (2) Approval of Ongoing Compensation,

Reimbursement of Expenses and Payment of Legal Fees From the Estate, seeking

approval from the Bankruptcy Court to be paid fees and expenses. ECF Doc 380 in

Bankruptcy Case 12-37921.

u. On November 14, 2013, the Receiver’s counsel, Jeffrey Fine, attended a hearing be-

fore the Bankruptcy Court that was totally unnecessary.

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v. On November 22, 2013, the Receiver and the Receiver’s counsel, Jeffrey Fine, at-

tended a hearing before the Bankruptcy Court that was totally unnecessary. The

hourly rate for the attendance at this hearing was over $1,200.

w. On December 4, 2013, the Receiver’s counsel, Jeffrey Fine, attended a hearing be-

fore the Bankruptcy Court that was totally unnecessary.

x. On December 17, 2013, the Receiver and the Receiver’s counsel, Jeffrey Fine, at-

tended a hearing before the Bankruptcy Court that was totally unnecessary. The

hourly rate for the attendance at this hearing was over $1,300.

AFTER SPENDING $5,200,000 ON RECEIVERSHIP FEES,

THE RECEIVER HAS FAILED TO DETERMINE WHO THE RIGHTFUL

OWNER AND MANAGERS ARE OF NOVO POINT, LLC AND QUANTEC, LLC

24. In the Supplement, at ¶ 4, p 4, the Receiver laments about having “been served,

today, April 15, 2014, with the attached Petition for Writ of Certiorari to the United States Su-

preme Court filed by Novo Point and Quantec by Mr. Schepps and Mr. Payne.” The Receiver is

apparently distraught over being dragged into more litigation with Mr. Payne, who alleges that he

is the duly appointed attorney (by Ms. Katz”) for Novo Point and Quantec.

25. This is quite incredible. Mr. Schepps is an attorney known to the Receiver to be a

creditor who has alleged a three million dollar claim against Novo Point and Quantec. How do

we know this? Christopher Payne has appeared before Judge Ferguson and testified, incredibly,

that he represents Mr. Schepps in connection with Schepps claim against Novo Point and Quan-

tec. Of Course, the Receiver is also well aware of the fact that Christopher Payne has filed nu-

merous pleadings before this Court in which he purports to represent Novo Point and Quantec.

This is an obvious conflict of interest that the Receiver and his counsel, the Dykema firm, have

done nothing to resolve for over a year.

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26. This is all the more distressing when considering that Receiver has claimed Novo

Point and Quantec as assets of the Receivership.

In fact, there are orders entered by Judge Fer-

guson to such effect. Yet, the Receiver and his counsel, the Dykema firm, have done nothing

stop these shenanigans. Instead, they spend Jeffrey Baron’s money in a ludicrous effort to re-

spond to the pleadings filed by Christopher Payne. This is an issue that could have and should

have been resolved by the Receiver filing with this Court at any time within the last year or more

a Motion to Show Authority. The Receiver’s failure to have such matters cleared up and adjudi-

cated constitutes either “gross negligence” or a breach of the Receiver’s fiduciary duties owed to

the Receivership Estate.

27. Moreover, the Receiver has done nothing to determine who the rightful manager

of Novo Point and Quantec might be. After paying $5,200,000 in receivership fees and expenses

to himself and his legal counsel, the Receiver and his attorneys, the Dykema firm, have done

nothing to determine this issue.

28. Granted this Court has expressed its view of late that the Court in the Netsphere

Acton, captioned above, does not have jurisdiction to make such a determination. However, the

Receiver and his counsel could have and should have instituted a separate declaratory judgment

action to make such determination. This failure cannot be laid at the feet of Baron and the Vil-

See ¶ 15 of the Motion for Order to Show Cause filed in the Bankruptcy Court on October 31, 2013, ECF Doc

372, in Bankruptcy Case 12-37921sgj7, at p 6, where the Receiver stated:

“In support of this request, the Receiver notes, as the Court is and will be aware from taking judi-

cial notice of its file in this and related matters, that the Receiver has been in possession of Novo

Pint, LLC and Quantec, LLC and the Domain Assets by virtue of an Order of the District Court,

continues to hold same and from time to time to make certain renewal payments as necessary to

maintain the Domain Assets within them under the Orders of the Fifth Circuit, this Court and the

District Court pending a wind-down of the receivership.”

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lage Trust, who have been in such a severe financial lockdown that they could not fund the pur-

suit of such declaratory relief.

29. The Receiver’s attorneys have taken the deposition of Lisa Katz, a true and cor-

rect copy of which is attached hereto as Exhibit “1”. Lisa Katz was promoted into this position

by Schepps, an alleged creditor of Novo Point and Quantec and a disbarred Texas lawyer work-

ing with Schepps, as the putative manager of Novo Point and Quantec, and if this Court would

read Katz’ deposition, it is believed that the Court would be astonished at the degree of ignorance

and lack of professional qualifications exhibited by Ms. Katz in her deposition. In the face of

this deposition, the Receiver has sat silent for months if not years, allowing Katz to engage

Payne -- an attorney with a huge conflict of interest fully known to the Receiver and his counsel -

- to file flagrantly disruptive pleadings with this and other Courts. When asked by the under-

signed counsel, the Receiver’s counsel, Jeff Fine, could not produce one document that substan-

tiated the fact that Katz was the manager of Novo Point and Quantec, notwithstanding that such

documents had been requested at her deposition. See Exhibit “2” attached hereto.

30. However, the Receiver’s counsel, Mr. Fine, says it best in a Motion for Order to

Show Cause he filed in the Bankruptcy Court on October 31, 2013, ECF Doc 372, in Bankruptcy

Case 12-37921sgj7.

“16. Accordingly, the Receiver respectfully suggests that the trusts’ ob-

jections as represented by Mr. Payne can and should be resolved without delay by

directing all interested in the Domain Assets, including and especially Mr. Payne

on behalf of the Entities, to appear and show both his authority to file pleadings

and cause why the Domain Assets should not be turned over to Mr. Baron’s bank-

ruptcy trustee. Such a hearing would permit the termination of the receivership

and conclusion of the bankruptcy without delay. Notice of this motion will be

served on Mr. Payne and Ms. Garrett by email to the address used in their filings

in the District Court and by certified mail, return receipt requested.”

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Id. at 7. Before this Motion could be heard, this Court dismissed the Baron bankruptcy, but there

is no excuse for the Receiver’s failure to file a new declaratory judgment action to determine the

rightful owner of these valuable assets that have been under the control of the Receiver for over

two years, entities that the Receiver has sucked $5,200,000 from to pay the Receiver and his

counsel’s bloated fee requests. Instead, the Receiver sat silent while the Court turned the rem-

nants of these valuable assets over to Lisa Katz, contrary to the wishes of Jeffrey Baron, who the

Receiver well knows is vitally interested in the survival of these entities.

31. This Court should consider the above facts when considering whether to grant the

Receiver and his attorneys any further fees and expenses. Professionals get rewarded for suc-

cess, not for simply churning the file, administering assets, and doing so poorly.

VI.

THE RECEIVER AND HIS COUNSEL HAVE FOR THE MOST

PART ENGAGED IN CHURNING THE FILE AND OVERSTAFFING

MATTERS WITH MULTIPLE LAYERS OF PARTNERS AND ASSOCIATES.

32. Several instances of gross overstaffing have been addressed above, in Section IV.

In this section, Baron will point to evidence of gross churning and overstaffing by the Receiver

and his attorneys, principally the Dykema firm. It is impossible for Baron, with limited re-

sources and a limited response time (one week), to respond to all of the excessiveness exhibited

In lobbying for a turnover of the Receivership assets to the Bankruptcy Estate of Jeffrey Baron, the Receiver ar-

gued in paragraph 11 of his Motion for Order to Show Cause filed in the Bankruptcy Court on October 31, 2013,

ECF Doc 372, in Bankruptcy Case 12-37921sgj7, at p 5, that:

“This Court has already found that: (a) Mr. Baron is ultimately the beneficiary of the Village Trust

(the Cook Islands trust, that owns the entities that own the Quantec/Novo Point Domain Names);

(b) Mr. Baron contributed assets that he controlled to the Village Trust and likely should be con-

sidered a settlor of it; and (c) Mr. Baron has at all times (through an elaborate web of entities) con-

trolled the quite amorphous Quantec/Novo Point Domain Assets.”

Instead of doing the right thing, the Receiver and his counsel have done the expedient thing, taking the path of least

resistance, by allowing this Court to turnover the Novo Point and Quantec assets to Baron’s enemies.

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by the Receiver and his attorneys, but Baron will ask this Court to reflect on just one typical

month, July 2013, as an examples which will prove the point.

A. The Receiver’s Invoice for July 2013.

33. The Receiver’s Invoice for July 2013 is excerpted and attached hereto as Exhibit

“3”. In July 2013, the Receiver had 16 entries on his invoice. Each entry had the exact same

description: “Review pleadings, files, emails, send emails, and related conversations with Re-

ceiver's counsel.” The total hours spent by the Receiver for the month of July amounted to

33.70. The hourly rate charged by the Receiver was $800.00. This invoice is an embarrassment,

abusive, and an obvious example of overbilling - “pounding the file” unmercifully - even to a

casual observer.

The description does not alert the public to the actual pleadings reviewed, why

there was a need to review such pleadings by such a senior level lawyer charging an hourly rate

of $800.00 who had a team of lawyers appointed to represent him (the Dykema firm), how such

review benefited the receivership estate, why this review could not have been accomplished by

an associate or a capable paralegal. This Honorable Court should not countenance such a shoddy

billing practice. This will not withstand the scrutiny of an appellate court. This is one example

of one month’s billing practice that has been repeated month after month from October 2010

forward. Poor Jeffrey Baron’s fortune has been depleted to zero by these pernicious practices.

This billing practice would not be appropriate where the receivership was upheld by the Fifth

Circuit: it is certainly not appropriate in a failed receivership, where the Fifth Circuit has in-

structed this Court to exercise heightened scrutiny.

It is so abusive as to constitute a breach of fiduciary duty.

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B. Dykema’s Invoice for July 2013.

34. Dykema’s invoice for July 2013, is excerpted and attached hereto as Exhibit “4”.

Dykema spent 49.30 hours during the month of July 2013, on Receivership matters, charging a

total of $27,748.00. Not one minute of the time billed was attributable to paralegal or asso-

ciate time. All of this time was spent by two senior partners, Jeffrey Fine, whose hourly rate was

$560.00 and David J. Schenck, whose hourly rate was $570.00.

35.

C. Conclusion for July 2013.

36. Between the Receiver and the Dykema firm, Vogel, Fine and Schenck, three sen-

ior level partners, spent a total of 81.2 hours on Receivership matters. Not one minute of associ-

ate or paralegal time was spent. The docket sheets for the Netsphere Action, Case No. 3:09-cv-

00988-L, for the month of July 2013, are attached hereto as Exhibit “5”. Not one pleading was

filed by Fine or Schenck or anyone else at the Dykema firm. Not one pleading was filed by any

other party. One wonders what the pleadings were that Vogel reports in his billing records that

he reviewed day after day during the month of July. The docket sheets for the Baron Bankruptcy,

Case No. 12-37921-sgj7, for the month of July 2013, are attached hereto as Exhibit “6”. These

docket sheets reflect the following events occurred:

a. A five page Notice of Appeal of Order for Relief and an amendment thereto were

filed by Baron on July 8, 2013;

b. A one page motion was filed by Baron on July 8, 2013, requesting an extension of

time to find new counsel;

c. The bankruptcy trustee attempted to subpoena Gerrit Pronske for a deposition and

Pronske and the trustee fought about the issue on July 0-10, 2013;

d. An order was entered appointing an attorney for the Chapter 7 Trustee was entered

on July 12;

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e. The Receiver filed an Accounting Report on July 12, 2013;

f. The Receiver filed on July 14, 2013, his Notice of Receiver’s Inventory Report of

April 19, 2013;

g. Baron filed a two-page Motion for approval to release a portion of money to retain

bankruptcy counsel on July 15, 2013;

h. Baron filed a Motion for Stay Pending Appeal on July 15, 2013;

i. Pronske filed Statement of Financial Affairs on July 15, 2013;

j. Fine attended a status conference on July 15, 2013, along with the Receiver, charg-

ing collectively an hourly rate of more than $1,300;

k. Several orders were entered on ministerial matters from July 15, 2013, to July 26,

2013;

l. The Court filed its Sua Sponte Report and Recommendation to the District Court on

July 26, 2013; and

m. Fine attended a hearing on July 26, 2013.

37. Under the circumstances, it is hard not to reach the conclusion that Vogel’s time

records are inaccurate and probably fabricated. They bear no resemblance to the events that oc-

curred during the Month of July 2013.

38. The stewardship by Vogel of the Baron Estate’s assets, as exemplified by the

billings for the month of July 2013, is deplorable and unacceptable. One can only conclude that

the Receiver and his attorneys have engaged in a wholesale effort to milk Baron’s Receivership

Estate in favor of lining their own pockets, charging astronomical hourly rates attributable to

three senior level lawyers, Vogel, charging $800.00 per hour; Fine, charging an hourly rate was

$560.00 and Schenck, charging an hourly rate was $570.00, for a total of $1,930.00 per hour.

Vogel, as receiver, owes fiduciary duties to the Receivership Estate. Vogel has failed to oversee

and manage his attorneys as a good steward of the Receivership Estate, and, instead, allowed

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senior partners at the Dykema firm to perform all of the work, to the exclusion of the employ-

ment of associates and paralegals. Vogel’s time records are totally deficient, and do not contain

entries that are contemporaneous with the events that occurred. Such records are non-

descriptive, and unhelpful to this Court in discharging its duties to review the Receiver’s fee re-

quests and approve only those fees and expenses that benefited the Receivership Estate. The fee

requests of the Receiver should, in equity and under the doctrine of fairness, be denied in their

entirety.

39. The Dykema firm failed in its duty to manage the representation in the best inter-

ests of the client, the Receivership Estate Dykema failed to utilize associates and paralegals,

and, instead, charged for two senior partner level lawyers. Dykema attended bankruptcy court

hearings that were not necessary for the Receiver or its attorneys to attend. Pending the conclu-

sion of the involuntary trial, the Receiver did not need to participate in the Baron Bankruptcy

with the exception, perhaps, of requesting authority for distribution and payment of fees and

complying with requests for information by the Bankruptcy Court. Otherwise, there was nothing

for the Receiver to do: he had no “dog in the fight”. If the order for relief was entered, it is clear

that the Receivership assets would have to be turned over to the Chapter 7 Trustee, If the order

for relief was not entered, the Receivership would continue on to conclusion. Participation at the

level described above in section IV, supra, and in this section was totally unwarranted and unnec-

essary. If Dykema argues that attendance was prudent, associate level attorneys could and

should have been utilized.

40. Any Court reviewing the billing practices of Vogel and his counsel, Dykema,

should be concerned. Any client, in this case, Baron, as the ultimate beneficiary of the Receiver-

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ship Estate, would have every right to be upset over what has transpired in this case. This Court

should not add insult to injury by awarding the Receiver’s requested fees and expenses.

41. As indicated above, neither the time allotted for this response nor the availability

of funding for legal and accounting personnel to review the invoices submitted by the Receiver

permits a full or adequate review of the billing practices of the Receiver and his attorneys, prin-

cipally the Dykema firm. However, a cursory review of the remaining months suggests that

these practices prevailed throughout the tenure of the Receiver and his attorneys, to the detriment

of the Receivership Estate and its ultimate beneficiary, Jeffrey Baron.

VII.

IF THE COURT IS INCLINED TO GRANT

ADDITIONAL FEES, BARON REQUESTS LEAVE

42. In the event that this Court is inclined to award additional fees for the receiver and

his counsel, Baron requests that this Court allow him time to hire an expert to review the fee bills

and opine on the reasonableness and necessity of such fees. As this Court is aware, all of Bar-

on’s assets have been sequestered by this receivership until recently and thus Baron has been

prevented from hiring an expert. Furthermore, Baron has had approximately one week to pre-

pare a response to the Receiver’s Fee Request, as Supplemented.

VIII.

WHERE THERE IS NO JURISDICTION

OVER THE PROPERTY, FEES CANNOT BE PAID.

43. For more than a century the Supreme Court has recognized that the exercise of

federal court power must be limited to the particular matters placed at issue before a court. E.g.,

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Reynolds u. Stockton, 140 U.S. 254, 268 (1891). The Supreme Court has rigorously limited fed-

eral court power to the finite bounds of the court's authority. Any order issued beyond a court's

jurisdiction has, here-to-fore, been void. See U.S. Catholic Conference v. Abortion Rights Mobi-

lization, Inc., 487 U.S. 72, 76-77 (1988) (a court's power to issue any order "cannot be more ex-

tensive than its jurisdiction").

44. For two centuries the rulings of the Supreme Court have been clear: "If there was

no jurisdiction, there was no power to do anything but to strike the case from the docket. In that

view of the subject the matter was as much coram non judice as anything else could be, and the

award of costs and execution was consequently void." Mayor v. Cooper, 73 U.S. 24 7, 250-251

(1868). Likewise, a court "not having jurisdiction of the res, cannot affect it by its decree". Fall

u. Eastin, 215 U.S. 1,11 (1909). Since the ruling in the seminal case of Lion Bonding & Surety

Co. u. Karatz, 262 U.S. 640, 642 (1923), the law has been that when a federal court lacks juris-

diction to impose a receivership, it is "necessarily without power to make any charge upon, or

disposition of, the assets". Id.

45. The Fifth Circuit found that the receivership imposed by the district court below,

seized "property that was not the subject of the underlying dispute". The Fifth Circuit correctly

held that ''A court lacks jurisdiction to impose a receivership over property that is not the subject

of an underlying claim or controversy."

IX.

THIS COURT DOES NOT HAVE JURISDICTION

TO GRANT THE RECEIVER AND HIS COUNSEL A RELEASE

46. Clams as to whether acts of the receiver constituted gross negligence or breaches

of fiduciary duty are not the subject of this action and cannot, as a matter of law, be determined

Case 3:09-cv-00988-L Document 1400 Filed 04/22/14 Page 23 of 26 PageID 67823

Page 24 of 26

at this time. The orders issued by Judge Furgeson, state what they state, and this Court should

not be providing carte blanche releases for matters that are not the subject of this suit. This Court

lacked the subject matter jurisdiction to grant the receivership in the first instance. The Fifth

Circuit vacated the receivership order, and this Court has ruled that this means that every order

entered by the Court is of no force or effect because such orders derive “their existence from the

creation of the receivership and the Receivership Order and therefore cannot exist separate and

apart from them.” See this Court’s Amended Memorandum Opinion, at p 25, ECF Doc 52 in Dis-

trict Court Case 3:13-cv-03461-L.

47. The receiver diverted millions of dollars of the estate’s cash to vigorously defend

its own receivership in a meritless defense in the Fifth Circuit.

From the inception of the re-

ceivership, Baron repeatedly demanded that his cash in the entire amount of all claims against

him—claims largely solicited by the receiver, be held in the registry court so that the receivership

could be terminated. The receiver repeatedly objected to these efforts and to repeated attempts to

close down the receivership. The receiver appeared to be intent on burning through every asset

that he could lay his hands on

48. Not only did the receiver spend all of the cash in the receivership that existed in

December 2012, it failed to pay one dime of income taxes on the money that the Receiver took in

throughout the entire tenure of the receivership. Instead of paying taxes on receivership income

as required by law, the receiver skimmed the money generated by the receivership, using pre-tax

Defending a Receivership or in defense of fees sought are not properly chargeable against the receivership estate.

US. v. Larchwood Gardens, Inc., 420 F.2d 531, 535 (3rd Cir. 970); In re Marcuse & Co., 11 F.2d 513, 516 (7th Cir.

1926) (denying fees where receiver acted as litigant and not neutral party).

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dollars to pay himself and his counsel, and defrauding the government of its share. (further ex-

plained in Document: 00511604732, COA5 10-11202).

49. The receiver hired the “best” lawyers that (Baron’s) money could buy and aggres-

sively opposed all efforts of Baron to obtain use of his funds to hire counsel. The receiver was

thus successful in preventing Baron from having virtually any representation in this Court and

woefully inadequate representation in the Fifth Circuit and bankruptcy court. The fact that Baron

won the appeals with his “rag tag” volunteer team lawyers should speak volumes as to the merits

of the receiver’s position. The Fifth Circuit overturned over 60 orders of the District Court that

were advocated and defended by the Receiver.

THE FIFTH CIRCUIT MANDATED

THAT BARON’S NON-CASH PROPETY BE RETURNED

50. In his proposed order, the receiver requests this Court to authorize him to “store,

maintain or abandon or destroy” Baron’s property (his books and records). All of Baron’s prop-

erty, including his books and records must be returned to him per the mandate of the Fifth Cir-

cuit. None should be destroyed or maintained by the receiver.

Respectfully submitted this 22

day of April 2014.

/s/ Stephen R. Cochell

Stephen R. Cochell, Esq.

The Cochell Law Firm, P.C.

7026 Old Katy Road, Ste. 259

Houston, Texas 77096

Telephone: (713)980-8796

Facsimile: (214) 980-1179

srcochell@cochellfirm.com

Attorney-in-Charge for Jeffrey Baron

Case 3:09-cv-00988-L Document 1400 Filed 04/22/14 Page 25 of 26 PageID 67825

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Leonard H. Simon, Esq.

PENDERGRAFT & SIMON, LLP

TBN: 18387400; SDOT No. 8200

Admitted to Practice in NDOT

THE RIVIANA BUILDING

2777 Allen Parkway, Suite 800

Houston, Texas 77019

Telephone: (713) 528-8555

Facsimile: (832) 202-2810

lsimon@pendergraftsimon.com

 Co-Counsel for Jeffrey Baron

CERTIFICATE OF SERVICE

The undersigned hereby certifies that a true and correct copy of the foregoing was served

via ECF on all parties receiving ECF Notices in the above-captioned case on April 22, 2014.

/s/ Leonard H. Simon

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