No.
10-11202
and Consolidated
Cases
In
the
United States Court of Appeals
for the Fifth
Circuit
No.
10-11202
NETSPHERE, INC. Et
Al,
Plaintiffs
v.
JEFFREY
BARON,
Defendant-Appellant
v.
ONDOVA LIMITED
COMPANY,
Defendant-Appellee
Appeal of Ex Parte Order Appointing
Receiver
Where No Claims Were Pled in the Property
Seized
Cons. w/ No. 11-10113
NETSPHERE INC., Et Al,
Plaintiffs
v.
JEFFREY BARON, Et Al,
Defendants
v.
QUANTEC L.L.C.; NOVO POINT
L.L.C.,
Appellants
v.
PETER S.
VOGEL,
Appellee
From the United States District
Court
Northern District of Texas, Dallas
Division
Civil Action No.
3-09CV0988-F
MOTION FOR STAY
Case: 10-11202 Document: 00512206695 Page: 1 Date Filed: 04/12/2013
––––––––––––––––––––––––––––––––––––––––––––
Cons. w/ No.
11-10289
NETSPHERE, INC., ET AL,
Plaintiffs
v.
JEFFREY BARON, Defendant-
Appellant
v.
DANIEL J SHERMAN,
Appellee
––––––––––––––––––––––––––––––––––––––––––––
Cons. w/ No.
11-10290
NETSPHERE, INC. ET AL,
Plaintiffs
v.
JEFFREY BARON, ET AL,
Defendants
QUANTEC L.L.C.; NOVO POINT L.L.C., Non-Party
Appellants
v.
PETER S. VOGEL,
Appellee
––––––––––––––––––––––––––––––––––––––––––––
Cons. w/ No.
11-10390
NETSPHERE, INC. ET AL,
Plaintiffs
v.
JEFFREY BARON, Defendant –
Appellant
QUANTEC L.L.C.; NOVO POINT L.L.C.,
Appellants
v.
ONDOVA LIMITED COMPANY, Defendant –
Appellee
v.
PETER S. VOGEL,
Appellee
––––––––––––––––––––––––––––––––––––––––––––
Cons. w/ No.
11-10501
NETSPHERE, INC. ET AL,
Plaintiffs
v.
JEFFREY BARON, Defendant –
Appellant
QUANTEC L.L.C.; NOVO POINT L.L.C., Appellants
CARRINGTON,
COLEMAN, SLOMAN & BLUMENTHAL, L.L.P., Appellant
v.
PETER S. VOGEL; DANIEL J. SHERMAN,
Appellees
––––––––––––––––––––––––––––––––––––––––––––
Case: 10-11202 Document: 00512206695 Page: 2 Date Filed: 04/12/2013
Cons. w/ No.
12-10003
NETSPHERE, INC. ET AL,
Plaintiffs
v.
JEFFREY BARON, Defendant –
Appellant
QUANTEC L.L.C.; NOVO POINT L.L.C.,
Appellants
GARY SCHEPPS,
Appellant
v.
PETER S. VOGEL,
Appellee
––––––––––––––––––––––––––––––––––––––––––––
Cons. w/ No.
12-10444
In re: NOVO POINT LLC,
Petitioner
––––––––––––––––––––––––––––––––––––––––––––
Cons. w/ No.
12-10489
NETSPHERE, INC. ET AL,
Plaintiffs
v.
JEFFREY BARON, Defendant –
Appellant
QUANTEC L.L.C.; NOVO POINT L.L.C.,
Appellants
v.
PETER S. VOGEL; DANIEL J. SHERMAN ,
Appellees
––––––––––––––––––––––––––––––––––––––––––––
Cons. w/ No.
12-10657
NETSPHERE, INC. ET AL,
Plaintiffs
v.
JEFFREY BARON, Defendant –
Appellant
QUANTEC L.L.C.; NOVO POINT L.L.C.,
Appellants
v.
PETER S. VOGEL; DANIEL J. SHERMAN ,
Appellees
Case: 10-11202 Document: 00512206695 Page: 3 Date Filed: 04/12/2013
-4
Table of Contents
I SUMMARY ...................................................................................................... 5
II STATEMENT OF RELEVANT FACTS ......................................................... 7
III THE BANKRUPTCY COURT LACKS SUBJECT MATTER
JURISDICTION ................................................................................................. 15
A. The Involuntary Bankruptcy Was Filed to Interfere with this Court’s
Jurisdiction. ........................................................................................... 15
B. Claims Under 11 U.S.C. §303 are required to be non-contingent ....... 17
C. None of the Petitioning Creditors hold a claim against the alleged
debtor that is not contingent as to liability or the subject of a bona fide
dispute as to liability or amount. .......................................................... 18
D. The Bankruptcy Court erroneously relied on a contingent order from
the District Court ....................................................................................... 19
E. The Compromise Order was stayed by order of the District Court, and
also upon this Court’s reversal of the receivership ................................... 20
IV This Court Should Delay Issuance of the Mandate and May Take Steps to
Protect its Jurisdiction. ...................................................................................... 21
V PRAYER ........................................................................................................ 24
VI
REQUEST FOR SHORTENED TIME FOR RESPONSE
.......................... 24
VII CERTIFICATE OF EMERGENCY ............................................................ 25
VIII CERTIFICATE OF NOTICE ..................................................................... 25
IX CERTIFICATE OF SERVICE ................................................................... 25
X CERTIFICATE OF COMPLIANCE ............................................................. 26
XI. CERTIFICATE OF SERVICE ..................................................................... 26
XII
EXHIBITS
.................................................................................................. 27
Case: 10-11202 Document: 00512206695 Page: 4 Date Filed: 04/12/2013
5
TO: HON. SENIOR JUDGE HAROLD R. DEMOSS, JR.,
HON. JUDGE LESLIE H. SOUTHWICK, and
HON. JUDGE STEPHEN A. HIGGINSON,
Appellant Jeffrey Baron (“Baron”) moves for a stay of proceedings to
aid in the jurisdiction of the Court. Specifically, Appellant requests the
Court to issue a brief stay of certain involuntary bankruptcy proceedings
filed against Appellant that threaten to defeat and reverse the judgment of
this Court and undermine its jurisdiction over the receivership assets.
Similarly, Appellant requests that the Court stay issuance of the mandate
for a period of up to 21 days to enable Appellant to investigate and fully brief
the issue for this Court
I SUMMARY
On December 18, 2012, this honorable Court issued an opinion
vacating a receivership imposed over Petitioner and all of his assets
(hereinafter “Opinion”). In the Opinion, this Court reversed the appealed
orders and remanded the case to the District Court in Netsphere, Inc., et al.
v. Jeffrey Baron, et al., Civil Action No. 3:09-CV-0988-F, instructing the
District Judge to wind down the receivership. Document no. 00512087819.
On December 18, 2012, the very day that this Court issued its Opinion,
an involuntary bankruptcy petition was filed against Appellant by
Case: 10-11202 Document: 00512206695 Page: 5 Date Filed: 04/12/2013
6
receivership participants, which, in purpose and effect, reinstates the
receivership as a bankruptcy, threatens to proliferate the professional fees
already incurred in this matter, and undermines this Court, and the district
court’s jurisdiction over the assets. While this Court’s order allows
Appellant to contest certain debts alleged in the receivership, the bankruptcy
court has already entered orders holding that: (1) Appellant cannot dispute
the alleged debts; (2) upon issuance of this Court’s mandate, the receiver
shall transfer all assets of the receivership to an interim trustee; and (3) has
ordered further proceedings in the bankruptcy court that will potentially
generate professional fees that potentially equal, if not surpass the
approximate $5.9 million in fees incurred through the receivership process.
Similarly, the bankruptcy court entered an order which prohibits the district
judge from consideration of wind down plans proposed by Appellant and
Receiver, as ordered by this Court.
A stay of the involuntary bankruptcy proceedings is necessary to
ensure that any further actions are not undertaken until such time as this
Court has had an opportunity to review the evidence and take action to
protect its jurisdiction. Similarly, a stay of the mandate is filed on an
emergency basis to immediately stop any attempt to transfer assets from the
receivership to a trustee in bankruptcy, which is set to occur after issuance of
the mandate. A stay will also slow down the flurry of activity ordered by the
Case: 10-11202 Document: 00512206695 Page: 6 Date Filed: 04/12/2013
7
bankruptcy court and will also defer, if not eliminate a substantial
expenditure of time and resources for both counsel and the Court.
The undersigned counsel is evaluating whether to apply to this Court
for relief under the All-Writs Act or to seek mandamus, as the circumstances
appear to support either or both forms of relief. There has been enough
rapid-fire litigation and appeals in this case, and counsel prefers to take a
measured approach before seeking extraordinary remedies unless
circumstances dictate otherwise. A stay of the litigation will give this
counsel and the Court time to evaluate these new developments.
II STATEMENT OF RELEVANT FACTS
This Court found that the purpose of the receivership was to secure a
fund for paying “unsecured claims of Baron’s current and former attorneys”
and further found that these claims had “not yet been reduced to judgment”
(Id. at pp. 20-21) and further found that “establishing a receivership to secure
a pool of assets to pay Baron’s former attorneys, who were unsecured
contract creditors, was beyond the court’s authority”. (Id. at p. 18.).
Moreover, this court found that “the claims had not been reduced to
judgment” (emphasis added). (Id. at p. 18). This Court ordered that the
assets be returned to their owners through a wind-down procedure. Thus,
the domain names would be returned to Novo Point and Quantec while
Case: 10-11202 Document: 00512206695 Page: 7 Date Filed: 04/12/2013
8
certain property and funds from IRA accounts would be returned to Mr.
Baron.
1
Upon issuance of this Court’s Opinion, however, seven claimant-
attorneys from the receivership action (hereinafter “Alleged Creditors” or
“Petitioning Creditors”) immediately filed an involuntary petition in
bankruptcy against Baron and all property held in the receivership.
Exhibit A. Their claims are identical to the claims in the receivership case.
The Alleged Creditors allege that their claims are bona fide debts, fully
adjudicated and are not disputed as to validity or amount. However, this
Court found that these same claims had not been reduced to final judgment
which negates a good faith filing of involuntary bankruptcy by the Alleged
Creditors.
2
The bankruptcy court entered an order specifically providing that all
assets of the receivership would be transferred to an interim trustee in
bankruptcy should this Court issue an order requiring delivery of the
Receivership assets to Mr. Baron or any other party before the bankruptcy
court concluded the bankruptcy trial. Exhibit B at 3. The asset transfer
1
The domain names are owned by Novo Point, LLC and Quantec, LLC and
are not owned or controlled by Jeff Baron. The bankruptcy court intends to
transfer assets (domain names) of NovoPoint and Quantec, non-debtors, to a
bankruptcy trustee.
2
Section 303 of the Bankruptcy Code requires that the creditors present
claims that are not disputed as to validity or amount, and that the claims
are not being paid in the ordinary course of business.
Case: 10-11202 Document: 00512206695 Page: 8 Date Filed: 04/12/2013
9
would include domain names owned by Novo Point and Quantec, which
this Court found to be improperly seized in the receivership and were not
related to any dispute properly before the district court. Thus, a wind-
down of the receivership and return of assets, as ordered by this Court,
would not be possible because all receivership assets would be transferred
to a bankruptcy trustee.
On December 19, 2012, the Alleged Creditors, moved for appointment of
an interim Chapter 7 Trustee to “take possession of the property of the estate
[Baron’s] and to operate any business of the debtor” so that Baron’s assets
“remain in the jurisdiction of this Court [Bankruptcy Court] pending entry of
an order for relief”. Exhibit C. At hearing on January 16, 2013, the Alleged
Creditors averred that an order entered by the district judge compromising
claims (Exhibit D, the “Compromise Order”) was final with res judicata
effect, contrary to this Court’s Opinion reversing the order.
3
On December 31, 2013, this Court issued an Order stating, in pertinent
part, that:
3
The vacated Compromise Order at issue essentially compromised claims of
the Petitioning Creditors and authorized the Receiver to pay the claims
subject to counterclaims that could be raised by Mr. Baron. SR. v7, p349. The
District Court later entered an Order that made clear that no payments were
to be made under the Compromise Order until such time as this Court
resolved appeal of the receivership order. (hereinafter “Stay of Compromise
Order) Exhibit E. However, despite this Order, the Bankruptcy Court ruled
that “District Court Docket 987 did not stay, pending appeal, the
Compromise Order.” Exhibit F.
Case: 10-11202 Document: 00512206695 Page: 9 Date Filed: 04/12/2013
10
Baron filed a motion to clarify who is to take custody of the
receivership assets upon the dissolution of the receivership.
The opinion stated that everything subject to the receivership
other than cash "should be expeditiously returned to Baron
under a schedule to be determined by the district court for
winding up the receivership." Our utilization of a shorthand
reference to Baron did not in any way affect the ownership of
assets that were brought into the receivership. Assets are to
be returned as appropriate to Baron or other entities that were
subject to the receivership. (Emphasis supplied)
Mr. Baron filed a Motion to Dismiss the involuntary bankruptcy for
lack of subject matter jurisdiction (Exhibit G), which was denied by the
bankruptcy court. Exhibit F. The bankruptcy judge also entered an order
allowing the petitioning creditors to file summary judgment on whether
the District Court’s vacated order, which summarily compromised claims of
the attorney claimants, precluded Baron from disputing the validity and
amount of the Petitioning Creditors” claims.
On January 15, 2013, the district court entered an order that
effectively acceded to the Bankruptcy Court’s jurisdiction. In the context of
an emergency request for funds to retain bankruptcy counsel, the district
judge stated:
Even so, this Court is in an unusual position that prevents it from
granting such a request in such a limited time frame. Trapped
between the impending mandate to wind down the Receivership
and the automatic stay, the Court has already concluded that it
will take no further action to make any distributions from the
Receivership until the involuntary bankruptcy has been resolved.
Without any guidance from the Bankruptcy Court on this issue,
the Court is not inclined to grant this motion; unfortunately, in
filing this emergency motion, counsel has not permitted the Court
Case: 10-11202 Document: 00512206695 Page: 10 Date Filed: 04/12/2013
11
the time necessary to obtain this guidance. Although an alleged
debtor in an involuntary bankruptcy retains the right to use his
property in the interim period before the bankruptcy is
commenced, as this Court has not yet dissolved the Receivership,
the property has not yet been returned to Mr. Baron. Although
the Court will return this property to him once the Receivership
is wound down, this has not happened and the Receivership
assets remain property of the Receiver.(emphasis supplied)
Exhibit H.
On January 16, 2013, the Bankruptcy Court: 1) recommended that the
U.S. Trustee appoint an interim trustee to “be on “standby” and in place to
receive the Receivership assets during the Gap Period should a higher court
issue an order requiring delivery of Receivership assets to Mr. Baron or any
other person before this Court concludes the Trial”
4
; and 2) Ordered the
Petitioning Creditors to file a motion for summary judgment for the Court to
determine whether the stayed Claimant Order, now reversed, precluded Mr.
Baron from arguing that the Petitioning Creditor’s Claims were subject to a
bona fide dispute. Exhibit I at 2.
On January 31, 2013, after issuing its Opinion, this Court issued a stay
(hereinafter “Receivership Stay”) as follows:
The import of our order of November 9, 2012, has not changed,
which said this: ‘Disbursement of any other assets of the
Receivership should be as limited as possible until this Court
resolves the appeals.’ We have resolved the appeals, but the only
expenditures should be those appropriate for the Receiver to make
4
Notably, this provision intends to place assets belonging to receivership
parties, other than Mr. Baron in the hands of the trustee instead of returning
them to their owners, as ordered by this Court.
Case: 10-11202 Document: 00512206695 Page: 11 Date Filed: 04/12/2013
12
until relinquishment of control of assets. Document 00512097486
at p. 7.
Receivership assets have been disbursed and expenses are being incurred to
defend the involuntary bankruptcy proceedings. Exhibit H.
In January, 2013, the bankruptcy court held a hearing. At that time,
the record reflects an apparent intention by the bankruptcy judge and the
Receiver’s counsel to “moot” this Court’s ruling reversing and vacating the
receivership through the involuntary bankruptcy proceedings. Exhibit I. A
colloquy between counsel and the bankruptcy judge on January 16, 2013,
reveal that the bankruptcy court actively supports a strategy that “moots”
this Court’s reversal of the receivership. The following exchange occurred
between the Court and Receiver’s counsel:
THE COURT: -- is this all moot? Moot's not the
right word, but --
MR. FINE: -- Your Honor --
THE COURT: -- I mean there's no reason for the Fifth Circuit --
MR. FINE: -- our -- one of our basic arguments to the Fifth Circuit on
the petition for re-hearing is that this is essentially form over substance
that what the Fifth Circuit was saying to Judge Furgeson was you had a
quiver of remedies that you could apply to this very difficult situation,
and you essentially picked the wrong one.
THE COURT: But now petitioning creditors have chosen a remedy.
MR. FINE: Correct, Your Honor. And our point to the Fifth Circuit was,
yes, you know, it's fundamentally the same thing. A bankruptcy trustee,
receiver, they're both accomplishing essentially the same function and -- to
carry forward the payment of just claims and to take care of this vexatious
Case: 10-11202 Document: 00512206695 Page: 12 Date Filed: 04/12/2013
13
situation. And I don't know if I -- if it's really necessary for us to address
whether or not the Fifth Circuit may consider an appeal.
Exhibit I. Similar discussions between counsel and the bankruptcy court
reportedly occurred in two other hearings before the bankruptcy judge.
5
On December 20, 2012, the district judge requested the parties
submit wind-down plans for the Court’s consideration, in accordance with
this Court’s Opinion. Exhibit J. Appellant filed a Motion for a Wind-Down
Plan and for Withdrawal of the Reference and specifically objected to the
bankruptcy court’s exercise of authority over the district court receivership
as it undermined the jurisdiction of the district court and this Court, and it
further interfered with the ability of the district court to implement the
directives of this Court. Exhibit K at 14-17.
On February 20, 2013, the bankruptcy court held a hearing on
whether the Compromise Order entered by Judge Furgeson precluded
Appellant from litigating whether the Alleged Creditors’’ claims were “non-
contingent” or bona fide debts not disputed as to validity or amount under
Section 303 of the Bankruptcy Code. The bankruptcy court orally
announced that Appellant would not be permitted to dispute the claims
despite the fact that this Court specifically held that the claims had not
5
Two other transcripts of proceedings have been ordered and reportedly
contain similar discussions between the court and counsel.
Case: 10-11202 Document: 00512206695 Page: 13 Date Filed: 04/12/2013
14
been determined on the merits and that there was no final judgment on the
claims. Exhibit L.
On March 18, 2013, the Bankruptcy Judge ordered that the district
judge not consider a wind-down plan until such time as the involuntary
bankruptcy was dismissed and the Fifth Circuit issued its mandate in the
case. Exhibit M at 4.
On April 4, 2013, the district court and bankruptcy court held a joint
status conference. However, the conference agenda was issued by the
bankruptcy judge and carefully delineated that the status conference
would address issues on fee requests and scheduling of matters in the in
voluntary bankruptcy proceeding. (Exhibit N). At the conclusion of the
joint status conference, the district court and bankruptcy court issued a
Mediation Order (Exhibit O), which requires the parties to attend a
mediation to achieve a global resolution.
6
However, the “global resolution”
includes a resolution that is not rooted in a wind down plan, as ordered by
the Court, but based on an involuntary bankruptcy that is not grounded in
law or fact.
At the April 4 conference, the bankruptcy court and district court:
1) ruled that “the res of the receivership shall be turned over to the
jurisdiction of the bankruptcy court” (Exhibit P) ;
6
Appellant does not seek to stay mediation.
Case: 10-11202 Document: 00512206695 Page: 14 Date Filed: 04/12/2013
15
2) set an expedited scheduling order for a trial on the merits in the
involuntary bankruptcy case for May 22, 2013 (Exhibit Q);
3) ruled that a trial be held on April 4, 2011 on fee applications of
any party seeking fees from the receivership res
7
(the deadline for
Mr. Baron’s objections to all fee application requests were set as
April 25, 2011 ; and a pre-trial hearing for fee applications be held
on April 29, 2013) (Exhibit R); and
4) ruled that certain receivership expenses be paid.
Notably, at the April 4 hearing, the district judge and bankruptcy judge also
denied Mr. Baron’s request for release of money to retain and pay counsel for
pending matters in this Court and the district court.
III THE BANKRUPTCY COURT LACKS SUBJECT MATTER
JURISDICTION
A. The Involuntary Bankruptcy Was Filed to
Interfere with this Court’s Jurisdiction.
On the same day that this Court issued its Opinion, seven receivership
claimants filed a Petition for Involuntary Bankruptcy, seeking to
involuntarily place Jeffrey Baron in bankruptcy. Exhibit A. Petition for
Involuntary Bankruptcy. These seven Alleged Creditors were also alleged
creditors in the receivership and the subject of the vacated Compromise
Order.
The Petitioning Creditors, apparently dissatisfied with this Court’s
order reversing the receivership order, had a pre-arranged plan to file an
7
The fee applications are expected to include over 10,000 entries, requiring
hundreds of hours in attorney time to review and prepare, requiring
substantial time and effort to prepare for a hearing.
Case: 10-11202 Document: 00512206695 Page: 15 Date Filed: 04/12/2013
16
involuntary petition to divest jurisdiction over the assets from the District
Court. Notably, the Petitioning Creditors were well aware of the
receivership order and aware that they were prohibited from interfering with
the receivership. In pertinent part, the November 24, 2011 order of the
District Court states that:
"[During] the pendency of the receivership ordered herein,
all other persons and entities aside from the Receiver are
hereby stayed from taking any action to establish or
enforce any claim, right, or interest for, against, on behalf
of, in, or in the name of, the Receivership Party, any of
their partnerships, assets, documents, or the Receiver or
the Receiver's duly authorized agents acting in their
capacities as such, including, but not limited to, the
following actions: 1, Commencing, prosecuting, continuing,
entering, or enforcing any suit or proceeding, except that
such actions may be filed to toll any applicable statute of
limitations; 2, Accelerating the due date of any obligation
or claimed obligation; filing or enforcing any lien; taking or
attempting to take possession, custody or control of any
asset" R. 1619 at 12.
As to the Receivership Stay, this Court clarified that although its
Opinion vacates the receivership order, its Opinion will not go into effect
until the mandate is issued by this Court. It is readily apparent that the
Receivership Order was in effect when the Petitioning Creditors filed the
involuntary petition; thus, the Petitioning Creditors have been actively
violating the order. It is also apparent that filing of the involuntary petition
is a transparent attempt to end-run this Court’s rulings on the receivership
and to maintain a financial stranglehold over Mr. Baron’s financial life and
Case: 10-11202 Document: 00512206695 Page: 16 Date Filed: 04/12/2013
17
to seize assets from Novo Point and Quantec that should have never been
placed into the receivership.
Unfortunately, the bankruptcy court has supported the involuntary
bankruptcy despite the fact that the Petitioning Creditors’ key argument
required to maintain the bankruptcy action—that the Compromise Order
has res judicata effect—is not founded in law and fact
8
.
B. Claims Under 11 U.S.C. §303 are required to be
non-contingent
The Alleged Creditors’ claims under 11 U.S.C. §303 against a debtor
with more than 12 creditors and the Court's jurisdiction thereunder, requires
and is contingent upon a petition by three or more entities, each of which
holds a claim against such debtor "that is not contingent as to liability or the
subject of a bona fide dispute as to liability or amount". 11 U.S.C. §303(b)(l).
Entities alleging a debt which is contingent or the subject of a bona fide
dispute as to liability or amount lack standing to petition for the
commencement of an involuntary case under §303 of Chapter 11. A person
8
As further evidence that the Compromise Order was not a “final judgment”,
this Court observed in its Opinion that one of the claimants had a pending
motion for reconsideration to the Compromise Order at the time of issuing
the Opinion, resulting in this court dismissing the claimant’s appeal to the
Compromise Order: “ This Court agreed with CCSB’s contention that the
court lacked jurisdiction over CCSB’s appeal given that the firm filed a
motion to reconsider that remains pending in the district court.” Document
no. 00512087819.
Case: 10-11202 Document: 00512206695 Page: 17 Date Filed: 04/12/2013
18
seeking to invoke the jurisdiction of the court must establish the requisite
standing to sue. E.g., Whitmore v. Arkansas, 495 U.S. 149, 154 (1990).
C. None of the Petitioning Creditors hold a claim
against the alleged debtor that is not contingent as
to liability or the subject of a bona fide dispute as
to liability or amount.
The Alleged Creditors attempted to invoke the power of the federal
bankruptcy court for the improper purpose of securing a pre-judgment
seizure of the Petitioner’s property to secure their disputed claims, just as
they have done for the last two and a half years in the reversed receivership.
Pursuit of their claims through bankruptcy deny Baron his Constitutional
right to trial by jury on their claims.
As noted above, the Alleged Creditors have previously been rebuffed by
this Court for attempting precisely the same tactic through the improper and
unauthorized use of a receivership to secure resolution of their disputed
claims. In finding that the receivership imposed to resolve the attorneys'
disputed claims was unauthorized by law and an abuse of the court's
discretion, this Court’s noted that "the claims had not been reduced to
judgment such that a receiver would have been proper to set aside allegedly
fraudulent conveyances". Thus, the involuntary bankruptcy against Mr.
Baron fails as a matter of law, and the Petitioning Creditors clearly are
attempting to circumvent this Honorable Court’s rulings.
Case: 10-11202 Document: 00512206695 Page: 18 Date Filed: 04/12/2013
19
D. The Bankruptcy Court erroneously relied on a contingent
order from the District Court
To obtain jurisdiction, the Bankruptcy Court erroneously relies on the
Compromise Order (Exhibit D), a non-determinative order from the district
court,, which approved disbursements of former attorney claims. In the
order, the district court acknowledged that the motion considered “a
settlement and compromise of the Former Attorney Claims” id. at p. 5, ¶7,
that his consideration was “summary” in nature, id. at pp. 6-7, ¶11, that the
Receiver had the right to waive Baron’s otherwise extant right to a jury trial,
id. At pp. 9-11, ¶¶16-20, and that the Receiver was not required to collect or
offer evidence or make arguments to controvert the Former Attorney
Claims,” referred to as “the Defense Obligation.” Id. at p. 5, ¶8.
In addition to the clearly non-determinative language of the district
court’s ruling in the Compromise Order, the district court did not treat this
order as a “final judgment” on the claims for FRCP Rule 54(a) purposes. To
wit, there was no “judgment” entered; there was no final disposition of any of
the claims; there was no “severance” of the claims of and the mandatory
procedure for certification of fewer that all claims or all parties for finality in
FRCP Rule 54(b) was not followed. Thus, it is impossible for the
requirements under 11 U.S.C. §303 to have been met.
Perhaps most critically, the Compromise Order to pay the claims was
stayed by the district court, as further explained below.
Case: 10-11202 Document: 00512206695 Page: 19 Date Filed: 04/12/2013
20
E. The Compromise Order was stayed by order of the
District Court, and also upon this Court’s reversal
of the receivership
It is well-established that where creditors possess a stayed order, their
claims are subject to a bona fide dispute. In re Norris, 183 B.R. 437, 453
(Bankr. W.D. La. 1995), aff’d, 114 F.3d 1182 (5th Cir. 1977); In re Raymark
Industries, Inc., 99 B.R. 298, 299 (Bankr. E.D. Pa. 1989) (holding that “a
creditor who holds a stayed judgment holds a claim which is subject to a bona
fide dispute, and hence, lacks standing to institute an involuntary
bankruptcy case.”) This Court has defined a “stay” as “[a] stopping; the act of
arresting a judicial proceeding by the order of a court. Also, that which holds,
restrains, or supports. A stay is a suspension of the case or some designated
proceedings within it. It is a kind of injunction with which a court freezes its
proceedings at a particular point Tesfamichael v. Gonzales, 411 F.3d 169
(5th Cir. 2005).
On June 18, 2012, the district court entered the Stay of Compromise
Order. Exhibit E. In the order, the district court ordered that “no funds be
distributed to the former Baron attorneys until the completion of the appeal.”
Exhibit E. Moreover, the district court expressly recognized that the claims
were subject to a dispute, and ordered that “Baron should be able to contest
the decision before funds are distributed.” Id. at 3. (emphasis added).
In addition to the district court’s stay, this Court imposed its own stay
in its Receivership Stay order, even while acknowledging that the status quo,
Case: 10-11202 Document: 00512206695 Page: 20 Date Filed: 04/12/2013
21
and all prior orders of the district court (including its stay order above)
remained in force. Document 00512097486.
IV This Court Should Delay Issuance of the Mandate and May Take
Steps to Protect its Jurisdiction.
There has been enough rapid-fire litigation and appellate filings in this
case, and counsel prefers to take a measured approach to seeking
extraordinary remedies unless circumstances dictate otherwise. The Court’s
December 18, 2013 decision sparked off a flurry of litigation activity against
Appellant that has interfered with winding down the receivership. The
district court and bankruptcy court had deferred action pending this Court’s
resolution of the parties’ petitions for rehearing, but issuance of a mandate
by this Court will quickly result in transfer of the assets to a bankruptcy
trustee instead of assets being returned to Appellant and other parties. That
action clearly violates the letter and spirit of this Court’s Opinion. A stay
will provide some valuable “breathing space” for this Court to review
whether the actions of the petitioning parties and rulings of the bankruptcy
court undermine or divest this Court of the ability to render a meaningful
decision.
The All Writs Act provides, in pertinent part, that: “courts established
by … Congress may issue all writs necessary or appropriate in aid of their
respective jurisdictions. The act “empowers a federal court to employ
procedures necessary to promote the resolution of issues in a case properly
Case: 10-11202 Document: 00512206695 Page: 21 Date Filed: 04/12/2013
22
before it.” ITT Cmty. Dev. Corp. v. Barton, 569 F.2d 1351, 1359 (5th Cir.
1978); 28 U.S.C. § 1651. This authority, though, “is firmly circumscribed, its
scope depending on the nature of the case before the court and the legitimacy
of the ends sought to be achieved through the exercise of the power.” ITT
Cmty. Dev. Corp., 569 F.2d at 1358-59. A court is limited to issuing orders
“to curb conduct which threaten[s] improperly to impede or defeat the subject
matter jurisdiction then being exercised by the court.” Id. at 1359.
This Court has also recognized that the inherent powers doctrine
ensures that a federal court, sitting in equity, possesses all the common law
equity tools of a chancery court (subject only to congressional limitation) to
process litigation to a just and equitable conclusion. Id at 1359. Simply
stated, Appellant contends that the Petitioning Creditors intend to use a
frivolous bankruptcy action to wrongfully perpetuate the receivership
proceedings, in contradiction of this Court’s mandate. The bankruptcy
courts’ apparent desire to “moot” this Court’s decision is disturbing. Left
unchecked, the bankruptcy court’s imposition of involuntary bankruptcy will
have the practical effect of destroying this Court's power to bring the
receivership litigation to conclusion.
Mandamus also appears to be an appropriate remedy in this case,
although counsel need more time to investigate this remedy. This Court has
the authority to grant writs of mandamus under Rule 21(a) of the Federal Rules of
Appellate Procedure; but the standard for issuance is stringent, and such writs are rarely
Case: 10-11202 Document: 00512206695 Page: 22 Date Filed: 04/12/2013
23
issued. Mandamus is not used simply to correct error. See Will v. United States, 389 U.S.
90, 98 n. 6, 88 S.Ct. 269, 275 n. 6, 19 L.Ed.2d 305 (1967); In re Steinhardt Partners,
L.P. (Salomon Bros. Treasury Litig. v. Steinhardt Partners, L.P.), 9 F.3d 230, 233–34
(2d Cir.1993). It is reserved for “judicial usurpation[s] of power” by inferior
courts. Will, 389 U.S. at 95, 88 S.Ct. at 273 (citation and internal quotation marks
omitted); accord Mallard v. United States Dist. Court, 490 U.S. 296, 309, 109 S.Ct.
1814, 1822, 104 L.Ed.2d 318 (1989).
The Court may issue mandamus to protect a superior court's mandate, see General
Atomic Co. v. Felter, 436 U.S. 493, 497, 98 S.Ct. 1939, 1941, 56 L.Ed.2d 480 (1978), to
assure that “the terms of the mandate [are] scrupulously and fully carried out,” and that
the inferior court's “actions on remand [are] not ... inconsistent with either the express
terms or the spirit of the mandate,” In re Ivan F. Boesky Sec. Litig. (Kidder, Peabody &
Co. v. Maxus Energy Corp.), 957 F.2d 65, 69 (2d Cir.1992) (citation and internal
quotation marks omitted). Similarly, the Court may issue mandamus to restrain an
inferior court from detours into areas in which it lacks jurisdiction. see Ex parte Republic
of Peru, 318 U.S. 578, 583, 63 S.Ct. 793, 796–97, 87 L.Ed. 1014 (1943).
In addition, the filing of parallel litigation in the bankruptcy court is
duplicative and wastes judicial resources. The appointment of an Interim
Trustee will likely continue the waste of assets from the receivership estate
9
.
Moreover, it appears that many of the orders being issued in the District
9
The Interim Trustee has already filed motions to employ a law firm and
accounting firm to represent himself, to be paid out of Baron’s estate.
Case: 10-11202 Document: 00512206695 Page: 23 Date Filed: 04/12/2013
24
Court and the Bankruptcy Court will likely be appealed. Accordingly, these
proceedings and appeals will cause unnecessary expenditure of judicial
resources unless a stay is granted.
Finally, Appellant needs further time to obtain transcripts of the
bankruptcy proceedings that have not yet been transcribed. If the
Bankruptcy Court has been motivated by a desire to “moot” this Court’s
reversal of the receivership, such evidence should be presented to this Court.
V PRAYER
Appellant requests that a stay be issued staying all proceedings and
orders involving Jeffrey Baron in the bankruptcy action until such time as
the Appellant has time to submit briefs or to file appropriate pleadings to
address the issues raised herein. Movant alternatively prays that the
Court Stay issuance of the mandate for at least twenty-one days to allow
Appellant to complete his investigation of the facts and apply for appropriate
relief to this Court.
VI
REQUEST FOR SHORTENED TIME FOR RESPONSE
Movants request the Court shorten the time for responses to this motion
be shortened to four days from the date of service.
Case: 10-11202 Document: 00512206695 Page: 24 Date Filed: 04/12/2013
25
Respectfully submitted, ,
/s/ Stephen R. Cochell
Stephen R. Cochell
The Cochell Law Firm, P.C.
Texas Bar No. 24044255
7026 Old Katy Rd., Ste 259
Houston, Texas 77096
(713)980-8796 (phone)
(713)980-1179 (facsimile)
srcochell@cochellfirm.com
VII CERTIFICATE OF EMERGENCY
This is to certify that the facts giving rise to the need for emergency
relief are true and complete. A ruling is requested by April 18, 2013
CERTIFIED BY: /s/ Stephen Cochell
COUNSEL FOR APPELLANT
VIII CERTIFICATE OF NOTICE
This is to certify that notice of the filing of this request for emergency
relief was provided by telephone to the Clerk of the Fifth Circuit Court of
Appeals and to counsel for the Appellee.
CERTIFIED BY: /s/ Stephen Cochell
COUNSEL FOR APPELLANTS
IX CERTIFICATE OF SERVICE
This is to certify that this brief was served this day on all parties who
receive notification through the Court’s electronic filing system.
CERTIFIED BY: /s/ Stephen Cochell
COUNSEL FOR APPELLANTS
Case: 10-11202 Document: 00512206695 Page: 25 Date Filed: 04/12/2013
26
X CERTIFICATE OF COMPLIANCE WITH TYPE-VOLUME
LIMITATION, TYPEFACE
REQUIREMENTS,
AND TYPE
STYLE REQUIREMENTS
1. This brief complies with the type-volume limitation of FED. R.
APP. P. 32(a)(7)(B) because: this brief does not exceed 30 pages
exclusive of the parts of the brief exempted by FED. R. APP. P.
21(d)
2. This brief complies with the typeface requirements of FED. R.
APP. P. 32(a)(5) and the type style requirements of FED. R. APP. P.
32(a)(6) because: this brief has been prepared in a proportionally spaced
typeface using MS Word 2000 in 14 and 15 point century font.
DATED: April 11, 2013.
CERTIFIED BY: /s/ Stephen Cochell
XI CERTIFICATE OF SERVICE
This is to certify service this day of this Petition on the
Respondents and real parties in interest by electronic service to counsel
for all parties to the US District Case 3:09-CV-00988-F in the Northern
District of Texas.
CERTIFIED BY: /s/ Stephen Cochell
Case: 10-11202 Document: 00512206695 Page: 26 Date Filed: 04/12/2013
27
XII INDEX OF EXHIBITS
Exhibit Description
A Petition for Involuntary Bankruptcy
B Order: Setting Involuntary Petition for Trial; and (B) Granting
Interim Gap Period Relief
C Emergency Motion to Appoint Interim Trustee
D Findings of Fact, Conclusions of Law and Order on Assessment and Disbursement
of Former Attorney Claims (the Compromise Order”)
E Order Regarding Motion to Clarify Instruction to Receiver on Payments to Former
Baron Lawyers (“Stay on Compromise Order”)
F Order Denying Jeffrey Baron’s Motion to Dismiss
G Jeffrey Baron’s Motion to Dismiss
H Order Denying Emergency Motion of Jeffrey Baron for Order Approving Payment
of Retainer to Bankruptcy Counsel
I Transcript of Proceedings, Bankruptcy Court, January 16, 2013
J Order to Parties to Submit Views on Closing the Receivership
K Jeffrey Baron’s Motion to Wind Down Receivership with Proposed Plan, Motion to
Withdraw Reference to the Bankruptcy Court, and Provided Resolution for all
Disputed Attorneys Fee Claims
L Partial Summary Judgment
M Order: (A) Continuing to 4/4/13 at 2:30 pm the Joint Status Conference and
hearings Set for 3/19/13 at 10:30 am On Various Motions Filed by the Receiver; (b)
Requiring Mandatory, Good Faith, In-Person Global Settlement Conferene among
Parties and Lawyers During Next Two Weeks; (C) Authorizing Payment of Court
Reporter Fees; and (D) Addressing Miscellaneous Matters
N Agenda for Joint Status Conference
O Order Directing Mediation
Case: 10-11202 Document: 00512206695 Page: 27 Date Filed: 04/12/2013
28
P Sua Sponte Order Modifying Automatic Stay (Section 362) to Permit Adjudication
of Allowable Receivership Fees and Expenses in District Court
Q Scheduling Order (District Court)
R Scheduling Order (Bankruptcy Court)
Case: 10-11202 Document: 00512206695 Page: 28 Date Filed: 04/12/2013
