Netsphere, Inc. v. Baron

• Decision Date: 18 December 2012
• Docket Number: 12–10003,11–10113,11–10289,12–10444,11–10390,12–10804 and 12–11082.,11–10501,12–10657,Nos. 10–11202,12–10489,11–10290,s. 10–11202
• Citation: 703 F.3d 296
• Court: U.S. Court of Appeals — Fifth Circuit
• Parties: NETSPHERE, INC., et al., Plaintiffs, v. Jeffrey BARON, Defendant–Appellant, v. Ondova Limited Company, Defendant–Appellee. Netsphere, Inc., et al., Plaintiffs, v. Jeffrey Baron, et al., Defendants, v. Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants, v. Peter S. Vogel, Appellee. Netsphere, Inc., et al., Plaintiffs, v. Jeffrey Baron, Defendant–Appellant, v. Daniel J. Sherman, Appellee. Netsphere, Inc., et al., Plaintiffs, v. Jeffrey Baron, et al., Defendants, v. Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants, v. Peter S. Vogel, Appellee. Netsphere, Inc., et al., Plaintiffs, v. Jeffrey Baron, Defendant–Appellant. Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants, v. Ondova Limited Company, Defendant–Appellee. Peter S. Vogel, Appellee. Netsphere, Inc., et al., Plaintiffs, v. Jeffrey Baron, Defendant–Appellant. Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants, Carrington, Coleman, Sloman & Blumenthal, L.L.P., Appellant, v. Peter S. Vogel; Daniel J. Sherman, Appellees. Netsphere, Inc., et al., Plaintiffs, v. Jeffrey Baron, Defendant–Appellant. Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants, Gary Schepps, Appellant, v. Peter S. Vogel, Appellee. In re Novo Point, L.L.C., Petitioner. Netsphere, Inc., et al., Plaintiffs, v. Jeffrey Baron, Defendant–Appellant. Novo Point, L.L.C.; Quantec, L.L.C., Movants–Appellants, v. Peter S. Vogel; Daniel J. Sherman, Appellees. Netsphere, Incorporated, et al., Plaintiffs, v. Jeffrey Baron, Defendant–Appellant. Quantec L.L.C.; Novo Point, L.L.C., Movants–Appellants, v. Peter S. Vogel, Appellee.

703 F.3d 296

NETSPHERE, INC., et al., Plaintiffs,

v.Jeffrey BARON, Defendant–Appellant,

v.Ondova Limited Company, Defendant–Appellee.

Netsphere, Inc., et al., Plaintiffs,

v.Jeffrey Baron, et al., Defendants,

v.Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants,

v.Peter S. Vogel, Appellee.

Netsphere, Inc., et al., Plaintiffs,

v.Jeffrey Baron, Defendant–Appellant,

v.Daniel J. Sherman, Appellee.

Netsphere, Inc., et al., Plaintiffs,

v.Jeffrey Baron, et al., Defendants,

v.Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants,

v.Peter S. Vogel, Appellee.

Netsphere, Inc., et al., Plaintiffs,

v.Jeffrey Baron, Defendant–Appellant.

Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants,

v.Ondova Limited Company, Defendant–Appellee.

Peter S. Vogel, Appellee.

Netsphere, Inc., et al., Plaintiffs,

v.Jeffrey Baron, Defendant–Appellant.

Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants,

Carrington, Coleman, Sloman & Blumenthal, L.L.P., Appellant,

v.Peter S. Vogel; Daniel J. Sherman, Appellees.

Netsphere, Inc., et al., Plaintiffs,

v.Jeffrey Baron, Defendant–Appellant.

Quantec, L.L.C.; Novo Point, L.L.C., Movants–Appellants,

Gary Schepps, Appellant,

v.Peter S. Vogel, Appellee.

In re Novo Point, L.L.C., Petitioner.

Netsphere, Inc., et al., Plaintiffs,

v.Jeffrey Baron, Defendant–Appellant.

Novo Point, L.L.C.; Quantec, L.L.C., Movants–Appellants,

v.Peter S. Vogel; Daniel J. Sherman, Appellees.

Netsphere, Incorporated, et al., Plaintiffs,

v.Jeffrey Baron, Defendant–Appellant.

Quantec L.L.C.; Novo Point, L.L.C., Movants–Appellants,

v.Peter S. Vogel, Appellee.

Nos. 10–11202, 11–10113, 11–10289, 11–10290, 11–10390, 11–10501, 12–10003, 12–10444, 12–10489, 12–10657, 12–10804 and 12–11082.

United States Court of Appeals,Fifth Circuit.

Dec. 18, 2012.

Gary N. Schepps (argued), Schepps Law Offices, Dallas, TX, for Defendant–Appellant.

Richard M. Hunt (argued), Raymond James Urbanik, Munsch, Hardt, Kopf & Harr, P.C., Edwin Paul Keiffer, Wight Ginsberg Brusilow, Dallas, TX, for Defendant–Appellee.

David John Schenck (argued), Christopher D. Kratovil, Dykema Gossett, P.L.L.C., Richard M. Hunt, Curt M. Covington, Munsch, Hardt, Kopf & Harr, P.C., Dallas, TX, for Appellees.

Peter S. Vogel, Gardere Wynne Sewell, L.L.P., Dallas, TX, pro se.

Richard M. Hunt (argued), Munsch, Hardt, Kopf & Harr, P.C., Dallas, TX, for Ondova Ltd. Co., Amicus Curiae.

Gary N. Schepps (argued), Schepps Law Offices, Craig Alan Capua, West & Associates, L.L.P., Dallas, TX, for Movants–Appellants.

Jeffrey Michael Sutherland, Thomas Fenton Allen, Jr., Carrington, Coleman, Sloman & Blumenthal, L.L.P., Dallas, TX, for Appellant.

Appeals from the United States District Court for the Northern District of Texas.

Before DeMOSS, SOUTHWICK and HIGGINSON, Circuit Judges.

LESLIE H. SOUTHWICK, Circuit Judge:

These consolidated interlocutory appeals arise from the district court's appointment of a receiver over Jeffrey Baron's personal property and entities he owned or controlled. The district court sought to stop Baron's practice of regularly firing one lawyer and hiring a new one. This practice vexed the litigation involving Baron's alleged breaches of a settlement agreement and a related bankruptcy. It also created new claims in bankruptcy by unpaidattorneys. Baron appealed the receivership order and almost every order entered by the district court thereafter. We hold that the appointment of the receiver was an abuse of discretion and REVERSE and REMAND.

Numerous motions and a writ of mandamus to overturn the bankruptcy court's striking of notices of appeal to the district court are also before us. Most are denied as moot. We address below the motions that remain relevant.

FACTUAL AND PROCEDURAL HISTORY

Jeffrey Baron and Munish Krishan formed a joint venture involving the ownership and sale of internet domain names. Disputes arose between the venturers, resulting in at least seven lawsuits. In April 2009, after four mediation attempts and several years of litigation, Baron, Krishan, and other parties signed a Memorandum of Understanding (“MOU”) settling all disputes. Soon, Baron and one of his companies, Ondova Limited Company, allegedly breached the MOU. In May 2009, Krishan and his company, Netsphere, Inc., filed a lawsuit in the United States District Court for the Northern District of Texas to enforce the MOU. That suit is the one from which the current appeals have been brought.

In June 2009, the district court entered a preliminary injunction to compel Baron's compliance with the MOU. That injunction was later amended to include a $50,000 per day penalty for a violation. The injunction was entered to prevent deletion of domain names and to force compliance with parts of the MOU. The district court also began expressing concern with the multitude of lawyers appearing for Baron, concerns that would continue in the months ahead.

In July 2009, Netsphere moved to have Baron held in contempt for violating the preliminary injunction. On the day before the scheduled contempt hearing, Baron caused Ondova to file for bankruptcy, which automatically stayed the district court litigation. Netsphere sought to lift the automatic stay, arguing that the domain names at issue in the lawsuit were not owned by Ondova and were not subject to the stay. Ondova allegedly admitted it did not own the domain names that were the subject of the district court litigation—i.e., the ones involving plaintiff Krishan and defendant Baron that the settlement provided would be divided between them.

The bankruptcy creditors and Ondova eventually agreed to a settlement, but Baron continued to hire new lawyers. Many of the lawyers claimed they had not been paid and began to file claims for legal fees in the bankruptcy proceedings. In September 2009, in bankruptcy court, Baron asserted his Fifth Amendment right not to answer questions that might reveal he was violating the June preliminary injunction. Six days later, the bankruptcy court appointed Daniel Sherman as Chapter 11 trustee. The bankruptcy court recommended that the district court appoint a special master to mediate among the trustee, Baron, and the attorneys with claims against the Ondova bankruptcy estate, but no master was appointed at that time.

Beginning in February 2010, negotiations began for another settlement. On May 5, 2010, the bankruptcy court held a status conference. If no settlement could be reached by May 14, the bankruptcy judge suggested the trustee file to convert the case to one in Chapter 7. The trustee did so, stating liquidation was in the best interest of creditors. Several hearings were held over the next month. On June 22, 2010, the parties announced a global settlement in principle. At a July 12 bankruptcy court hearing, the parties represented that most issues had been resolved. Two days later at another hearing, the bankruptcy judge approved the settlement subject to six remaining issues.

The settlement, dated July 2, 2010, provided for the division of domain names between companies controlled by Baron and Krishan. The odd-numbered names were assigned to Quantec, LLC, for Baron's benefit, while Manila Industries, Inc.—under Krishan's control—was assigned the even-numbered names. The agreement was not to become effective until the “Settlement Date,” which was defined as “the day after the date on which the Bankruptcy Court's order approving this Agreement becomes a Final Settlement Order.” On July 28, 2010, the bankruptcy court approved the settlement and ordered it to be fully executed by July 30. The bankruptcy court maintained jurisdiction to resolve disputes arising under the agreement. Attached to the agreement was a “Stipulated Dismissal with Prejudice” of the district court suit. Though signed by the parties and attorneys, the district court never entered the dismissal.

On September 15, 2010, a hearing was held on the settlement agreement. The trustee said that 30 or 40 items in the agreement had been completed and the remaining items were the execution of a supplemental agreement appointing a trustee of a trust and the transfer of domain names to Quantec from Manila.

At this hearing, the trustee's attorney also addressed Baron's repeated hiring and firing of lawyers—he presented a chart identifying 45 lawyers whom Baron had not paid. Gerrit Pronske, one of Baron's former attorneys who was seeking to withdraw, testified that he worked for Baron full-time for six months and had not been paid. Pronske testified that Baron planned to move assets that were at the time subject to jurisdiction in the United States to a trust in a foreign country. The trust to which Pronske was referring was the Village Trust, a Cook Islands entity which owned Novo Point, LLC and Quantec, LLC. Its trustee is SouthPac, which is also a Cook Islands entity, and Baron is the trust's sole beneficiary. Pronske indicated that the assets being transferred out of the United States would have been the principal source of payment for his allegedly unpaid attorney fees. The attorney for the trustee was concerned because the money to pay the lawyers and satisfy other claims would be lost if the domain names that Baron's entities were to own under the settlement left control of the trust that was subject to the court's jurisdiction.

At this point, the bankruptcy judge stated that “no more lawyers [are] going to be allowed. The question is: Whether any are going to be released; is he going to be pro se; or is he going to have lawyers?” In light of those questions, the bankruptcy judge said she was considering recommending the district court appoint a receiver over Baron and his assets “and let that receiver implement the settlement agreement.” Additionally, the bankruptcy court ordered Baron to request from the trust that $330,000 be deposited with the bankruptcy trustee as security, to be held until further court order. The money was deposited and held “to pay [Baron's] obligations.”

On October 13, 2010, in a report and recommendation to the district court, the...