Baum v. Blue Moon Ventures, LLC

Decision Date03 January 2008
Docket NumberNo. 06-20446.,No. 06-20386.,06-20386.,06-20446.
Citation513 F.3d 181
PartiesDouglas BAUM, Movant-Appellant, v. BLUE MOON VENTURES, LLC; Randy W. Williams, Chapter 11 Trustee for the estate of Zouhair "Danny" Hilal, Parties-in-Interest-Appellees.
CourtU.S. Court of Appeals — Fifth Circuit

Michael M. Essmyer (argued), Essmyer, Tritico & Rainey, Houston, TX, for Baum.

David Allen Furlew (argued), Henry Lee Hardwick, Thompson & Knight, Houston, TX, for Parties-in-Interest-Appellees.

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

Before DeMOSS, DENNIS and OWEN, Circuit Judges.

DeMOSS, Circuit Judge:

Appellant, Douglas Baum ("Baum"), appeals the modification of an injunction issued by the district court that enjoins Baum from directly or indirectly filing claims in any federal or state court or agency in Texas without the express written permission of Judge Lynn N. Hughes. Baum argues that the district court had no jurisdiction to sua sponte modify the permanent injunction, or alternatively, that the modification was too broad and an abuse of discretion.

1. Factual & Procedural History

Douglas Baum purports to run an asset recovery business. He researches various unclaimed funds, tries to locate they rightful owner, and then gets paid either with a finder's fee or by taking an assignment. Although he claims to work alone, the district court has determined that Douglas Baum acts in concert with his brother, Brian Baum, and his father, Sheldon Baum ("the Baums").

In September 2002, the Baums injected themselves into a federal district court case styled Clark v. Mortenson, by recruiting investors—through misrepresentation —to sue a receiver, the receiver's attorney, other investors, and those investors' attorneys. 256 F.Supp.2d 661, 663 (S.D.Tex.2002) ("the Mortenson case"). The district court, Judge Hughes presiding, determined that the Baums' pleadings were "gratuitous, malicious attacks with legal propositions that were wholly disconnected from the facts of the defendants' behavior." Id. at 663. The district court admonished the Baums for wrongfully interfering in the case, wrongfully holding themselves out to be attorneys licensed to practice in Texas, lying to the parties and the court, and for generally abusing the judicial system. The district court stated:

This case is an example of guerilla warfare through litigation. The Baums brought this suit to satisfy their illusion of hidden funds or to extort deals for their other clients. These claims were fraudulent. Once instituted, the Baums maintained them with singular ineptitude. When asked to explain their case—or anything else—Brian and Sheldon Baum did not tell the truth.

Mortenson, 256 F.Supp.2d at 668.

The Baums have wasted the time and money, of the defendants and the scarce resources that the taxpayers entrust to the judiciary. They have flouted the authority of this court—an authority they invoked. They have no concept of the purpose and function of the courts. They must compensate, and they must be excluded.

Id. at 666.

The district court sanctioned both Brian and Sheldon Baum to ten days in jail and ordered them to pay $100,000 in attorney's fees to the defendants. Id. at 666-67. The court also issued a permanent prefiling injunction against all three Baums. Id. Douglas Baum was prohibited from "fil[ing] claims, directly or indirectly, in courts or with agencies in the state of Texas without the express written permission of Judge Lynn N. Hughes." Id. at 667. ("December 2002 Injunction").

The Baums appealed the sanctions and December 2002 Injunction to this Court. In March 2004, this Court upheld the sanctions order in an unpublished opinion, but it limited the scope of the December 2002 Injunction. Clark v. Mortenson, 93 Fed. Appx. 643, 655 (5th Cir.2004). This Court noted that the December 2002 Injunction made permanent a preliminary pre-filing injunction that forbade the Baums from making any claims against the Mortenson defendants and related parties. Id. at 654. Therefore, this Court determined that the December 2002 Injunction was intended to only apply to the Mortenson defendants and related parties, and not act as a bar to all future filings unrelated to the Mortenson case. Id. at 655. Thus, this Court limited the scope of the December 2002 Injunction by interpreting it narrowly. Id. ("March 2004 Injunction"). However, this Court did not rule out the possibility that a broader pre-filing injunction may be necessary in the future. This Court stated the following:

We note that our statement in Farguson [v. MBank Houston, N.A., 808 F.2d 358, 360 (5th Cir.1986)], that "a broader injunction, prohibiting any filings in any federal court without leave of that court" may be "appropriate if a litigant is engaging in a widespread practice of harassment of different people," could potentially apply to the Baums. If the Baums persist in a widespread practice that is deserving of such a broad sanction, then such an injunction could be appropriate. But here, as of now, we interpret this injunction as more narrow and appropriate based on the Baums' actions in relation to [the Mortenson case].

Mortenson, 93 Fed.Appx. at 655.

A little over a year later, in June 2005, the Baums entered an appearance in an other bankruptcy case, In re: Zetchair. (Danny) Hilal, Cause No. 05-36909 ("the Hilal case"). Prior to bankruptcy, Danny Hilal owned and operated several limited liability companies, including Appellee, Blue Moon Ventures L.L.C. Blue Moon's primary business was purchasing real property at foreclosure sales and leasing those properties to residential tenants. Most of the assets of the Hilal estate consisted of interests in these limited liability companies. After. Danny Hilal (individually) filed for bankruptcy, Randy W. Williams ("the Trustee"), the other Appellee, was appointed Chapter 11 trustee over the Hilal estate.

Sheldon Baum claimed to be a secured, judgment creditor in the Hilal case, but he would not identify his claim. Brian Baum was again misleading the parties and the court as to being a licensed attorney in Texas, and Douglas Baum participated in the scheme by posting a fake notice of federal tax lien on property related to the estate.

At the same time, Appellee Blue Moon was involved in litigation in Texas state court over its right to receive a deed to certain real property, referred to as the "Kelliwood property." The Baums took an assignment of a right of redemption for the Kelliwood property and, based on this alleged right, took up residence on the property. Blue Moon believed that the right of redemption was expired or invalid, so it filed a trespass to try title suit in state court to clarify ownership to this property. A second suit was simultaneously proceeding in state court in which the Baums used Linda Chepolis, the girlfriend of Brian. Baum, to file suit against the taxing authority, the constable, and an individual claiming to own an interest in Blue Moon ("the Chepolis suit").

In the bankruptcy court, counsel for the Trustee filed a Motion to Show Cause to identify the creditors that the Baums represent and for explanation of the basis of the Baums' claims. In August 2005, after a hearing, the bankruptcy court, Judge Steen presiding, issued a Memorandum and Order Imposing Corrective Sanctions, which described the similarity between the Baums' conduct in the Mortensen, case and the Hilal case. The bankruptcy court concluded the following:

Both in Judge Hughes' case and in this one, the Baums had no apparent connection to the parties or to the events until after the filing, of legal proceedings. The Baums injected themselves into both cases by recruiting, or seeking to recruit, defrauded creditors. The Baums recruit by asserting that the efforts of the receiver (trustee) are insufficient. In Judge Hughes' case, the Baums promoted a suit against the state court receiver. In this case, the "Baums seek to bypass the efforts of the bankruptcy trustee to promote a proposal that apparently is designed to benefit the Baums.

Brian Baum's letter to creditors, Douglas Baum's notices posted on property related to the estate, and Sheldon Baum's Preliminary Outline of a chapter 11 plan of reorganization are a continuation of a pattern of conduct identified by Judge Hughes that are materially misleading to creditors and parties in interest in this case. The Court concludes that the following corrective sanctions are appropriate at this time, but reserves imposition of more severe sanctions if the pattern of conduct does not stop.

Judge Steen ordered that all three Baums were not to interfere further with the administration of the Hilal bankruptcy estate. Judge Steen also ordered that the clerk forward his Memorandum and Order to the district court "for consideration of matters related to Judge Hughes' case and for such further action as that court deems appropriate."

The district court, Judge Hughes presiding, then issued on its own motion, an Order to Show Cause, directing the Baums, including Douglas Baum, to appear and show why they should not be prohibit ed from, "directly or indirectly, entering the court house, filing papers of any nature, or representing to anyone that they are playing any part in a proceeding in or related to this court." The Baums were also ordered to appear to "show why they should not be held in contempt for violating the permanent injunction a December 23, 2002."

The court conducted two three-hour hearings in which the Baums all testified, as well as counsellor the Appellees (collectively referred to as "Blue Moon"). The court concluded that the Baums had continued in their abusive litigation practices, and thus a modification of the March 2004 Injunction was necessary. On April 25, 2006, the district court specifically enjoined Douglas Baum from "directly or indirectly [filing] claims in courts or with agencies in the state of Texas without the express written...

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