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

---------------------------------------------------------------------------

CONS. w/ 11-10113

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,

United States Court of Appeals

Fifth Circuit

F I L E D

December 18, 2012

Lyle W. Cayce

Clerk

 Case: 12-10444 Document: 00512087876 Page: 1 Date Filed: 12/18/2012
No. 10-11202

 Appellee

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CONS. w/ 11-10289

NETSPHERE, INC., ET AL,

 Plaintiffs

v.

JEFFREY BARON, 

 Defendant - Appellant

v.

DANIEL J. SHERMAN, 

 Appellee

---------------------------------------------------------------------------

CONS. w/ 11-10290

NETSPHERE, INC., ET AL,

 Plaintiffs

v.

JEFFREY BARON, ET AL,

 Defendants

v.

QUANTEC, L.L.C.; NOVO POINT, L.L.C., 

 Movants - Appellants

2

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No. 10-11202

v.

PETER S. VOGEL, 

 Appellee

---------------------------------------------------------------------------

CONS. w/ 11-10390

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

---------------------------------------------------------------------------

CONS. w/ 11-10501

NETSPHERE, INC., ET AL,

 Plaintiffs

v.

3

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No. 10-11202

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

---------------------------------------------------------------------------

CONS. w/ 12-10003

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. 

4

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No. 10-11202

PETER S. VOGEL, 

 Appellee

---------------------------------------------------------------------------

CONS. w/ 12-10444

In re: NOVO POINT, L.L.C.,

 

 Petitioner

---------------------------------------------------------------------------

CONS. w/ 12-10489, 12-10657, and 12-10804

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

---------------------------------------------------------------------------

CONS. w/ 12-11082

NETSPHERE, INCORPORATED, ET AL

Plaintiffs

5

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No. 10-11202

v. 

JEFFREY BARON, 

Defendant - Appellant

QUANTEC L.L.C.; NOVO POINT, L.L.C., 

Movants - Appellants

v. 

PETER S. VOGEL,

Appellee

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 unpaid

attorneys. 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.

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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.,

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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,

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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

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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 bankruptcy court reported substantial progress toward the settlement,

including “steps towards transferring the ‘Odd Names Portfolio’ portion of the

internet domain names to a new Registrar away from Ondova.” Included in the

order, in bold, was the bankruptcy court’s judgment that Baron’s hiring and

firing of lawyers was exposing the Ondova bankruptcy estate to great expense

that should be paid by Baron’s other entities such as Quantec and Novo Point. 

The court expressed it was “perhaps most concerned about the risk that the

bankruptcy estate has and will be exposed to administrative expense claims”

because of Baron’s failure to pay lawyers.

Also in this October 13, 2010 report, the bankruptcy court recommended

that the district court appoint Peter S. Vogel as special master to mediate the

claims for unpaid legal fees. The bankruptcy court further stated that if Baron

chose not to cooperate with final consummation of the settlement, Baron could

“expect [it] to recommend to His Honor that he appoint a receiver over Mr.

Baron.” The court adopted the bankruptcy court’s recommendation and

appointed Vogel as special master. Baron again fired his attorney. At this point,

the bankruptcy trustee filed an Emergency Motion for Appointment of a Receiver

over Baron on November 24, 2010. The trustee asserted the receivership was

necessary because of Baron’s failure to cooperate with the order to mediate the

legal-fee claims and his continued hiring and firing of lawyers in violation of the

court’s order. The trustee argued that Baron’s practice of hiring and firing

lawyers would expose the bankruptcy estate to additional administrative claims

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and further delay the resolution of the bankruptcy proceedings. On November

24, the same day the motion was filed, the district court entered the receivership

order without notice to Baron. On December 2, Baron appealed to the Fifth

Circuit Court of Appeals and five days later moved for a stay. While

“express[ing] no view on the ultimate merits,” we held on December 20, that he

had made an inadequate showing for a stay. Baron renewed his motion on

occasion but was never granted a stay. Somewhat belatedly, we now express our

views on the ultimate merits.

In the district court, the receiver moved to revise the receivership order to

make it clear that Novo Point, LLC and Quantec, LLC had always been subject

to the receivership. The original order identified Novo Point, Inc., and Quantec,

Inc., which are actual but distinct legal entities. The two LLCs filed objections

on several grounds. At a hearing on December 17, 2010, attorneys for Novo

Point, LLC and Quantec, LLC appeared and agreed they were subject to the

receivership order. The district court entered an order stating that the

receivership had always included Novo Point, LLC and Quantec, LLC and

ordered the LLCs to comply with all reasonable instructions given to them by the

receiver. On January 28, 2011, the LLCs filed a notice of appeal challenging

their inclusion as receivership parties. 

On January 4, 2011, the district court held an evidentiary hearing on

Baron’s motion to vacate the receivership order. A month later, the district court

entered an order denying Baron’s motion to vacate the receivership. The district

court gave six reasons for denying the motion to vacate: (1) “Baron hired and

fired counsel in bad faith as a means of delaying court proceedings[;]” (2)

“Baron’s vexatious litigation tactics have increased the cost of [the] litigation for

all parties[;]” (3) “Baron’s practice of hiring and firing attorneys exposed the

Ondova bankruptcy estate to significant expense[;]” (4) “Baron has repeatedly

ignored court orders[;]” (5) “Baron repeatedly hired attorneys in bad faith

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without the intention of paying them[;]” and (6) “the appointment of a receiver

is necessary to stop Baron from attempting to transfer funds outside the

jurisdiction of the United States.” Nowhere in its order did the district court find

that Baron failed to assign half of the domain names as required by the

settlement agreement. 

Baron appealed the appointment of the receiver and then appealed

numerous subsequent orders entered by the district court. An order appointing

a receiver is appealable to courts of appeals as a matter of right. 28 U.S.C. §

1292(a)(2). There is less clarity as to which orders during the pendency of a

1

receivership may properly be appealed. As we later discuss, our conclusions

about the receivership itself make most of the later appeals irrelevant.

DISCUSSION

The central issue on appeal is whether a court can establish a receivership

to control a vexatious litigant. The district court appointed a receiver primarily

to control Baron’s hiring, firing, and non-payment of numerous attorneys. The

receiver was granted exclusive control over assets, including Baron’s personal

property, that were not at issue in the underlying litigation over the domain

names. We find no authority to permit establishing a receivership for this

purpose. We set out below our reasons for that conclusion and its effect on what

has occurred since the receivership was put in place.

In one of the consolidated appeals in this case, Carrington, Coleman, Sloman &

1

Blumenthal, L.L.P. (“CCSB”), a firm that served as counsel to Baron and Ondova in the

bankruptcy proceedings, claimed it is owed $224,232.69 in unpaid fees. CCSB filed a separate

appeal from the district court’s disbursement order providing for payment to unpaid attorneys.

Under the disbursement order, CCSB is to receive no payments from the receivership; instead,

CCSB is to be paid out of the Ondova bankruptcy estate. CCSB agreed that this court lacks

jurisdiction over CCSB’s appeal given that the firm filed a motion to reconsider that remains

pending in the district court. Ross v. Marshall, 426 F.3d 745, 752, n.13 (5th Cir. 2005). 

Thus, the CCSB appeal is dismissed.

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I. Propriety of the Receivership Order

We review a district court’s appointment of a receiver for an abuse of

discretion. Santibanez v. Weir McMahon & Co., 105 F.3d 234, 242 (5th Cir.

1997). Federal Rule of Civil Procedure 66 gives limited guidance, stating that

the civil rules govern in an action involving a receiver. “Under that rule, the

appointment of a receiver can be sought ‘by anyone showing an interest in

certain property or a relation to the party in control or ownership thereof such

as to justify conservation of the property by a court officer.’” Santibanez, 105

F.3d at 241 (quoting 7 James Moore et al., Moore’s Federal Practice § 66.05[1]

(2d ed. 1996)). Correspondingly, a district court has authority to place into

receivership assets in litigation “to preserve and protect the property pending its

final disposition.” Gordon v. Washington, 295 U.S. 30, 37 (1935). Examples the

Court gave of the proper use of a receivership included the preservation of

property until the foreclosure of a mortgage, or of trust property until

appointment of a new trustee, or of a debtor’s property until a judgment creditor

has it applied to his judgment. Id. In none of those situations was the receiver

named simply to secure or preserve funds for the satisfaction of a potential later

judgment. Receivership is “an extraordinary remedy that should be employed

with the utmost caution” and is justified only where there is a clear necessity to

protect a party’s interest in property, legal and less drastic equitable remedies

are inadequate, and the benefits of receivership outweigh the burdens on the

affected parties. See 12 Charles Alan Wright & Arthur R. Miller, Federal

Practice and Procedure § 2983 (3d ed. 2012); see also Santibanez, 105 F.3d at

241-42 (summarizing factors courts must consider before appointing a receiver). 

Even if a reasonable basis exists for believing there are benefits to the

court and the parties to imposing a receivership, and those reasons likely existed

here, resort to that remedy may be inappropriate. The cases on which the

district court initially relied in appointing a receiver establish that the court has

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inherent power “to manage [its] own affairs so as to achieve the orderly and

expeditious disposition of cases.” Woodson v. Surgitek, Inc., 57 F.3d 1406, 1417

(5th Cir. 1995). These cases, however, refer to a court’s power to dismiss a case

with prejudice and the district court’s authority to impose monetary sanctions. 

Id.; FDIC v. Maxxam, Inc., 523 F.3d 566, 584 (5th Cir. 2008). In a later order

disbursing attorney fees, the district court also relied on precedents stating that

a receivership is an equitable remedy. Santibanez, 105 F.3d at 241. That is so,

but for the reasons discussed below, equity does not allow a receivership to be

imposed over property that was not the subject of the underlying dispute.

Receivers have been used in a number of contexts. “Secured creditors,

lien- holders, and mortgagees” may seek appointment of a receiver because they

“clearly have an interest in the property in which they have a security interest

that may provide a basis for convincing the court to appoint a receiver ending a

foreclosure suit or any other action to enforce one or more outstanding liens.” 

Wright & Miller, supra, § 2983; see also Bookout v. First Nat’l Mortg. & Disc. Co.,

514 F.2d 757, 758 (5th Cir. 1975). Additionally, a receivership is a remedy for

taking possession of a judgment debtor’s property. Santibanez, 105 F.3d at 241. 

A receivership also can be utilized when a judgment creditor seeks “to set aside

allegedly fraudulent conveyances by the judgment debtor, or who has had

execution issued and returned unsatisfied . . . or who otherwise is attempting to

have the debtor’s property preserved from dissipation until his claim can be

satisfied.” Id. (quoting Wright & Miller, supra, § 2983). Importantly, to justify

the appointment of a receiver such claims would already have been reduced to

judgment. That was not the case here, as the receivership was deemed imposed

for unresolved claims.

The receiver and trustee pointed us to another line of cases where a

receivership was proper as an adjunct to injunctive relief for a securities fraud. 

E.g., SEC v. Keller Corp., 323 F.2d 397, 402 (7th Cir. 1963). Receiverships also

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have been upheld in derivative actions by stockholders against corporations to

prevent the threatened diversion of assets through fraud or mismanagement. 

E.g., Tanzer v. Huffines, 408 F.2d 42, 43 (3d Cir. 1969). Thus, in cases of

non-compliance with SEC regulations, a receiver may be appointed to prevent

the corporation from dissipating corporate assets and to pay defrauded investors.

Id.; SEC v. Hardy, 803 F.2d 1034, 1035 (9th Cir. 1986). Nonetheless, in a

derivative suit or a suit for non-compliance with SEC regulations, the corporate

assets are the underlying subject matter of the dispute. Here, the only assets

that were the subject matter of the dispute were the domain names that were to

be transferred under the settlement agreement. They were transferred.

Last, the receiver and trustee relied on cases where courts appointed

receivers to run institutions where constitutional violations were occurring. 

Such receiverships are generally ordered in the context of ensuring a

governmental entity’s compliance with court orders. See, e.g., Morgan v.

McDonough, 540 F.2d 527 (1st Cir. 1976) (upholding a receivership imposed to

insure a high school’s compliance with desegregation orders); Plata v.

Schwarzenegger, 603 F.3d 1088 (9th Cir. 2010) (upholding a receivership to

administer and improve prison health care). This is not a case where a

governmental organization will not comply with the law. Plata, 603 F.3d at

1094.

We now look at the specific arguments for the receivership presented by

the receiver and trustee and explain why none is consistent with the limited

purposes for this “extraordinary remedy.” Strickland v. Peters, 120 F.2d 53, 56

(5th Cir. 1941).

A. Preserving Jurisdiction and Bringing Litigation to a Close

Among the justifications presented by the receiver and trustee for the

receivership is that it was needed to preserve the court’s jurisdiction over

Baron’s assets, given that one of Baron’s former attorneys had testified that

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Baron intended to move assets outside of the country. They further asserted

that the receivership order was a valid exercise of the court’s inherent authority

because bringing the Netsphere litigation and Ondova bankruptcy to a close

required that Baron be prevented from either hiring or firing additional counsel. 

The receiver halted the hiring and firing of counsel by seizing all of Baron’s

personal assets and the assets of the companies he controlled. 

We first examine the argument that assets needed to satisfy a future

money judgment were being transferred beyond the court’s jurisdiction. The All

Writs Act “empowers a federal court to employ procedures necessary to promote

the resolution of issues in a case properly 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.

The jurisdiction “being exercised” by the district court in this case prior to

the receivership order was enforcing a settlement agreement and the transfer

of domain names, which would end the Netsphere litigation and the Ondova

bankruptcy. Baron executed the settlement agreement in July 2010 and agreed

to quitclaim the “Even Group” of domain names to Netsphere. Neither the

trustee nor the receiver has pointed to record evidence that Baron failed to

transfer the domain names in accordance with the agreement. He had other

obligations, but there is no record evidence brought to our attention that any

discrete assets subject to the settlement agreement were being moved beyond

the reach of the court.

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At a September 15, 2010 hearing in bankruptcy court, the attorney for the

trustee gave an update on the parties’ progress toward completing the terms of

the settlement agreement. In addition to addressing the few minor unresolved

issues with respect to domain names to be conveyed to Baron, the trustee’s

attorney discussed the increasing number of attorneys who had formerly

represented Baron and Ondova and were now making claims against the

bankruptcy estate. At this point, when the bankruptcy court considered

recommending the district court appoint a receiver, the bankruptcy court was

not responding to a threatened loss of control over domain names or other

discrete property. Instead, it was trying to prevent the loss of the funds

necessary to pay the various claims that continued to mount up against the

Ondova bankruptcy estate. It was at this hearing that the bankruptcy court

heard testimony from Baron’s attorney, Pronske, explaining that he had learned

Baron was planning to transfer “assets” offshore. Based on these allegations, the

bankruptcy court ordered Baron to direct the Village Trust to deposit $330,000

with the bankruptcy trustee as a form of security to pay Baron’s “obligations.”

Baron continued to hire and fire attorneys, causing the bankruptcy trustee

to move for the appointment of a receiver over Baron, followed soon by the

district court’s ex parte appointment of a receiver. In the January 2011 hearing

that followed, the district court provided its justifications for appointing the

receiver. Those justifications centered almost entirely on the court’s concern

that Baron’s vexatious litigation tactics – particularly the hiring and firing of

lawyers – were increasing the costs of litigation and exposing the bankruptcy

estate to additional administrative claims. The court briefly mentioned its

concern that Baron would transfer “funds” outside of the court’s jurisdiction, a

concern grounded in the court’s desire to fashion a remedy through a

receivership to pay the claims of Baron’s former attorneys.

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There certainly was evidence that Baron’s actions were disrupting,

complicating, and making more expensive both the bankruptcy and the district

court suit. We do not, though, find evidence that Baron was threatening to

nullify the global settlement agreement by transferring domain names outside

the court’s jurisdiction. Accordingly, the receivership cannot be justified in this

instance on the basis that it was needed to take control of the property that was

the subject of the litigation. Rather, the receivership was established to pay the

attorneys and to control vexatious litigation. We will now examine each of those

reasons.

B. Paying Attorneys

The district court in its order establishing a receivership referred to the

testimony received by the bankruptcy court on Baron’s debts to former attorneys. 

The district court described those debts as the primary rationale for the

receivership. A receiver may be appointed for a secured creditor who has

legitimate fears his security may be dissipated; “an unsecured simple contract

creditor has, in the absence of a statute, no substantive right, legal or equitable,

in or to the property of his debtor.” Pusey & Jones Co. v. Hanssen, 261 U.S. 491,

497 (1923). Baron’s former attorneys were free to make claims against the

bankruptcy estate. Many had done so. Alternatively, to the extent that they

represented Baron or his companies in matters unrelated to the Ondova

bankruptcy, the attorneys could file suit in a court of appropriate jurisdiction to

collect the fees owed, which many had done. 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.

Moreover, for those unpaid attorneys who had filed claims, the claims had

not been reduced to judgment such that a receiver would have been proper to

“set aside allegedly fraudulent conveyances by [Baron].” Santibanez, 105 F.3d

at 241. “[R]eceivers may be appointed to preserve property pending final

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determination of its distribution in supplementary proceedings in aid of

execution.” Id. (internal quotation marks omitted). They may also be properly

appointed for a judgment creditor who “is attempting to have the debtor’s

property preserved from dissipation until his claim can be satisfied.” Id. 

Although the attorneys’ allegations and claims were delaying the district

court and bankruptcy proceedings, they were not the subject matter of the

underlying litigation. “The general federal rule of equity is that a court may not

reach a defendant’s assets unrelated to the underlying litigation and freeze them

so that they may be preserved to satisfy a potential money judgment.” In re

Fredeman Litig., 843 F.2d 821, 824 (5th Cir. 1988). Fredeman involved a civil

action under RICO for treble damages. Id. at 822. The district court entered a

preliminary injunction that effectively froze all of the defendants’ assets, which

were unrelated to the underlying lawsuit, based solely on the need to protect the

potential RICO judgment. Id. at 825. This court set aside the injunction as an

improper exercise of the court’s equitable powers. Id.

In setting aside the injunction in Fredeman, this court relied on De Beers

Consolidated Mines, Ltd. v. United States, 325 U.S. 212, 222-23 (1945). Id. In

De Beers, the government sought and obtained a pretrial preliminary injunction

freezing the domestic assets of a foreign corporation suspected of violating

antitrust laws. DeBeers, 325 U.S. at 215. The government argued that freezing

the corporation’s assets was the only method of ensuring compliance with future

court orders. Id. The government also speculated that the corporation would

withdraw its domestic assets in an effort to evade the jurisdiction of the courts

of the United States. Id. at 215-16. Though the Supreme Court acknowledged

a court’s inherent power to protect its jurisdiction, it concluded that the

injunction exceeded the court’s powers. Id. at 222-23. The Court explained that

if it were to hold otherwise, every plaintiff in an action for a personal judgment

would apply for a “so-called injunction sequestrating his opponent’s assets

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pending recovery and satisfaction of a judgment . . . . No relief of this character

has been thought justified in the long history of equity jurisprudence.” Id.

In a more recent articulation of its “cautious approach to equitable

powers,” the Supreme Court stated that equity is “confined within the broad

boundaries of traditional equitable relief.” Grupo Mexicano de Desarrollo, S.A.

v. Alliance Bond Fund, Inc., 527 U.S. 308, 322, 329 (1999). The Court identified

the issue as being “whether, in an action for money damages, a United States

District Court has the power to issue a preliminary injunction preventing the

defendant from transferring assets in which no lien or equitable interest is

claimed.” Id. at 310. The Court answered “no.” Id. at 333. The opinion

thoroughly reviewed the breadth of equitable powers before reaching that

conclusion. Id. “[F]ederal courts in this country have traditionally applied the

principle that courts of equity will not, as a general matter, interfere with a

debtor’s disposition of his property at the instance of a nonjudgment creditor.” 

Id. at 329. We conclude that the limits of equity there described are relevant to

the receivership remedy, too.

The trustee and receiver are correct that Grupo Mexicano involved a claim

only for money damages, in which the district court improperly relied on its

equitable authority to issue a preliminary injunction to preserve a fund. Even

so, the Court detailed the relevant principles that confine the equitable power

of federal courts. Id. at 319-22. It rejected that the merger of law and equity

had altered the relevant limitations on that power. Id. at 322. The Grupo

Mexicano Court distinguished its ruling from a case in which the suit sought the

equitable relief of contract rescission and restitution. Id. at 325 (citing Deckert

v. Independence Shares Corp., 311 U.S. 282, 287-88 (1940)). The equitable relief

was not, therefore, simply in aid (as in Grupo Mexicano) of a legal claim for a

money judgment. Id. The case before us is similar to Grupo Mexicano to the

extent that the receivership remedy was for the purpose of controlling Baron’s

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transferring of funds that were to be paid to attorneys – nonjudgment creditors. 

This receivership was intended to control vexatiousness, but it is more similar

to Grupo Mexicano than it is to Deckert.

While these precedents dealt with injunctions, the jurisdictional principle

that a court’s equitable powers do not extend to property unrelated to the

underlying litigation applies with equal force to receiverships. A court lacks

jurisdiction to impose a receivership over property that is not the subject of an

underlying claim or controversy. Cochrane v. W.F. Potts Son & Co., 47 F.2d

1026, 1029 (5th Cir. 1931). In Cochrane, a holder of corporate bonds, which were

alleged to be part of a fraud scheme, sought the establishment of a receivership. 

Cochrane, 47 F.2d at at 1027. The bondholder only claimed an interest in one

series of bonds – series E. Id. at 1028. The district court appointed a receiver

over the series E bonds as well as five other series that were not part of the

underlying complaint. Id. This court held that the district court only had

jurisdiction over the series E bonds, which were the subject of the litigation. Id.

at 1029. Because the district court lacked subject matter jurisdiction over the

other bonds, which were not at issue in the litigation, it lacked authority to

appoint a receiver over them. Id.

The receivership ordered in this case encompassed all of Baron’s personal

property, none of which was sought in the Netsphere lawsuit or the Ondova

bankruptcy other than as a possible fund for paying the unsecured claims of

Baron’s current and former attorneys that had not been reduced to judgment. 

The receivership also included business entities owned or controlled by Baron,

including Novo Point, LLC and Quantec, LLC. Although Novo Point and

Quantec were listed as parties on the global settlement agreement, they were

never named parties in the Netsphere lawsuit or the Ondova bankruptcy. We

conclude the district court could not impose a receivership over Baron’s personal

property and the assets held by Novo Point and Quantec.

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C. Controlling Vexatious Litigation

Baron’s vexatious litigation tactics were his ignoring court orders and

hiring and firing of attorneys, which delayed court proceedings, increased the

general cost of litigation, and increased expenses for the bankruptcy estate. 

Such tactics, though, have not been recognized as a basis for invoking the

equitable remedy of a receivership. A receiver has been allowed to halt

fraudulent, evasive litigation tactics, but only when a specific provision of the

Internal Revenue Code applied. In re McGaughey, 24 F.3d 904 (7th Cir. 1994);

United States v. Bartle, 159 F. App’x 723 (7th Cir. 2005) (unpublished). In

McGaughey, the court derived its power to appoint a receiver to collect unpaid

taxes from a specific provision of the Code. In re McGaughey, 24 F.3d at 907. 

A district court may use authority from 26 U. S. C. § 7403 to appoint a receiver

over a debtor’s assets in a proceeding to enforce a tax lien if the Government

makes the necessary showing of need. Id. Bartle did not provide its own

extensive analysis but relied on McGaughey to support a receiver for that

purpose. Bartle, 159 F. App’x at 725. Here, unlike in McGaughey and Bartle,

the court had no statutory authority to appoint the receiver nor were the

receivership assets at issue in the litigation.

Baron’s longstanding vexatious litigation tactics presented the district

court with an exceedingly difficult situation. The district court recognized that

it had the inherent authority to address those tactics. At the beginning of the

suit, the district court entered a preliminary injunction to compel compliance

with the first settlement agreement – i.e., the MOU. The court later held a

hearing to address Baron’s non-compliance with the preliminary injunction. The

injunction was amended to include a $50,000 per day penalty for a violation. 

When Baron’s hiring and firing of attorneys were first addressed, the court found

clear and convincing evidence of Baron’s contempt of court and said it could

employ such tools as monetary sanctions or jailing Baron until he complied with

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court orders. The court concluded, though, that these remedies were insufficient

because Baron had repeatedly ignored court orders. 

If the district court entered a sufficiently specific order, it could have held

Baron in contempt, imposed a fine or imprisoned him for “disobedience . . . to its

lawful . . . command.” 18 U.S.C. § 401. At oral argument in the appeal, it

seemed conceded that no clear order existed. Instead, the receiver and trustee

cited only to hearings at which the district court admonished Baron not to hire

or fire any more attorneys. Whether there was a clear order ultimately does not

matter in our resolution. The question before us concerns the receivership. 

The district court also could have required Baron to proceed with the same

lawyer or pro se at his choice. McCuin v. Tex. Power & Light Co., 714 F.2d 1255,

1263 (5th Cir. 1983) (explaining that the right to retain the counsel of one’s

choosing may be restricted where it is misused “for purposes of delay or

obstruction of the orderly conduct of the trial” and when “the needs of effective

administration of justice” so require). The court noted some of these remedies

and determined they would be inadequate. No authority has been cited to us,

though, that a receivership becomes appropriate when traditional means might

not fully prevent a litigant from engaging in vexatious litigation tactics.

A court has undeniable authority to control its docket but not through

creating a receivership over assets, including personal assets, that were not the

subject of the litigation. The terms of the receivership order had far-reaching

implications for Baron’s personal property. For example, the receiver was

empowered to take possession of Baron’s mobile phone and computers and to

divert mail. Baron was required to turn over his bank accounts and keys to any

property he owned or rented, including his own home. Moreover, when Baron

needed funds for medical care, he had to request such funds from the receiver. 

We conclude that the receivership improperly targeted assets outside the

scope of litigation to pay claims of Baron’s former attorneys and control Baron’s

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litigation tactics. This was an improper use of the receivership remedy. The

order appointing a receiver is vacated.

II. The Receivership Fees

When a receivership is proper, the general rule is that receivership fees

and expenses “are a charge upon the property administered.” Gaskill v. Gordon,

27 F.3d 248, 251 (7th Cir. 1994); see also Atl. Trust Co. v. Chapman, 208 U.S.

360, 374 (1908). When a receivership is improper or the court lacks equitable

authority to appoint a receiver, the party that sought the receivership at times

has been held accountable for the receivership fees and expenses. W.F. Potts &

Co. v. Cochrane, 59 F.2d 375, 377-78 (5th Cir. 1932). Baron relied on a

somewhat later case for the same point. Porter v. Cooke, 127 F.2d 853 (5th Cir.

1942). That court held that “the parties whose property has been wrongfully

seized are entitled, on equitable principles, to recover costs from those who have

wrongfully provoked the receivership.” Id. at 859. In the present case, no party

“provoked” the receivership. The bankruptcy court recommended a receiver, and

the trustee then moved in district court for the appointment as recommended.

We discover no controlling rule on assessing costs for an improperly

created receivership other than that equity is the standard. For example, in

W.F. Potts, this court evaluated the assignment of responsibility for the

receivership fees by recognizing that the district court itself ordered the

receivership. W. F. Potts, 59 F. 2d at 377-78. After holding that the receivership

should not have been imposed, we rejected that the party who sought the

receivership had to bear its costs:

[The parties whose assets were seized] treat the matter too much as

though this were a suit for the wrongful and forcible taking of

property by plaintiff or its agents. They overlook the fact that,

though it is true that one who invokes without sufficient equitable

grounds the administration by a receiver of the property of another

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may be in a proper case held accountable for the costs and expenses

of the receivership and for losses which the receivership has visited

upon the property, the appointment of a receiver is at last the

court’s appointment; the administration, its administration. We

think it perfectly clear that in a case like this, where there was no

malice nor wrongful purpose, and only an effort to conserve property

in which plaintiff believed, though it did not show, it was interested,

the question of its liability should be considered and adjudged from

the standpoint of working as little hardship as may be, plaintiff in

the end to be held liable for only the actual losses which its

mistaken course has caused.

Id. (citations omitted). An equitable allocation was ordered. The plaintiff who

sought the receivership was not charged with disbursements that benefitted the

fund, but it was ordered to reimburse the defendant for actual losses to the fund. 

Id. at 379. 

With a similar focus on equity, the Supreme Court evaluated how to assign

the costs of an improper receivership created by a federal court when that court

had erroneously concluded that a state court receivership no longer had

possession of the relevant property. Palmer v. Texas, 212 U.S. 118, 125-26

(1909). The Court reversed the lower court’s assessment of the costs against the

party who had sought the receivership, because the Court concluded “thatjustice

will be done if the costs of the receivership are paid out of the fund realized in

the Federal court . . . .” Id. at 132.

These precedents are consistent with analysis in one of our precedents

that without “convincing evidence that the appointment of a receiver was either

collusive, capricious, venal, or in bad faith,” ordinarily the expenses of the

receivership will not be charged “other than against the fund administered by

the receiver, even though the [c]ourts are vested with a discretion in determining

who should pay the costs and expenses of a receivership in unusual instances.” 

Commercial Nat’l Bank v. Connolly, 176 F.2d 1004, 1009 (5th Cir. 1949). In

holding that the receivership expenses should be paid out of receivership funds,

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we reasoned that, though appointment of a receiver was a “mistake,” the large

recovery by the plaintiffs in the trial indicated the receivership was not

“needless.” Id. On remand, the lower court was to enter a decree directing the

receiver to pay one-fourth of the costs of the retrial and appeal, the party moving

for the receiver to pay one-half, and the intervenors one-fourth. Id. at 1010.

We do not find that Baron received any benefit from this receivership. 

Nonetheless, these precedents establish that equity controls when addressing

the costs created by an improper receivership. Here, the record supports that

the circumstances that led to the appointment of a receiver were primarily of

Baron’s own making. The district court had an array of fairly onerous remedies

to apply but chose another remedy that it did not have. The manner in which

the district court responded to those circumstances was errant, but the court’s

perception was reasonable that a vigorous response was required.

We must decide how equitably to resolve this misapplication of an

equitable remedy. Baron did in fact contend that the appointment of the

receiver was in bad faith or collusive but fails to convince. He supported the

argument by saying the appointment was prohibited by law by virtue of the

receiver’s previous appointment as special master. Baron relied on this

statutory language: “A person holding any civil or military office or employment

under the United States or employed by any justice or judge of the United States

shall not at the same time be appointed a receiver in any case in any court of the

United States.” 28 U.S.C. § 958. The trustee pointed out that a special master

is neither an employee of the United States nor of the judge who appointed him. 

While the special master is subject to the court’s supervision, his fee is paid by

the parties to the litigation, not the court. Fed. R. Civ. P. 53(g)(2). The fact that

the receiver was previously special master is no indication of bad faith or

collusion in the appointment of the receiver. 

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Additionally, we hold, based on this record, that in creating the

receivership “there was no malice nor wrongful purpose, and only an effort to

conserve property in which [the court] believed” it was interested in maintaining

for unpaid attorney fees and to control Baron’s vexatious litigation tactics. W.F.

Potts, 59 F.2d at 377-78. We recognize that the district court was dealing with

a conundrum when it decided to appoint the receiver – the problem was great,

but standard remedies seemed inadequate. We also take into account that, to

a large extent, Baron’s own actions resulted in more work and more fees for the

receiver and his attorneys. For these reasons, charging the current receivership

fund for reasonable receivership expenses, without allowing any additional

assets to be sold, is an equitable solution.

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

reasonable under a proper receivership. Fees already paid were calculated on

the basis that the receivership was proper. Therefore, the amount of all fees and

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

from the receivership fund may also be reconsidered as appropriate.

We also conclude that everything subject to the receivership other than

cash currently in the receivership, which Baron asserts in a November 26, 2012

motion amounts to $1.6 million, should be expeditiously released to Baron under

a schedule to be determined by the district court for winding up the receivership. 

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. To the extent the cash on hand is

insufficient to satisfy fully what is determined to be the reasonable charges by

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the receiver and his attorneys, those charges will go unpaid. No further sales of

domain names or other assets are authorized.2

 

III. Other Issues

Baron raised other issues related to the receivership. Additionally, there

are multiple outstanding motions. We address those that would remain

unresolved despite our holding that the receivership was improper.

A. Subpoena of IOLTA Account

Baron contended the district court erred in allowing the receiver to

subpoena bank records related to Baron’s attorney’s IOLTA account. When the

receiver learned that Baron’s attorney, Gary Schepps, was paying another Baron

attorney through an IOLTA account, he served a subpoena on the bank holding

the account. The receiver argued that Baron was using the account to hide

receivership assets and retain additional counsel in defiance of the district

court’s orders.

The receiver argued that the issue regarding bank records is moot given

that the subpoena issued, the bank produced the records, and the receiver has

reviewed them. An appeal must be dismissed when “an event occurs while a

case is pending on appeal that makes it impossible for the court to grant any

effectual relief whatever to a prevailing party.” Motient Corp. v. Dondero, 529

F.3d 532, 537 (5th Cir. 2008). Yet, an appellate court’s “continued jurisdiction

does not depend upon being able to provide complete relief; if there is some

means by which we can effectuate a partial remedy, this case remains a live

controversy.” In re Sec. Life Ins. Co. of Am., 228 F.3d 865, 870 (8th Cir. 2000). 

The records have been produced and reviewed by the receiver and there is no

We stayed the closing on sales resulting from an auction of domain names. Our

2

ruling means no closing may occur, and the stay is made permanent.

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relief that this court can provide. Baron’s challenge to the subpoena of his

attorney’s IOLTA account is moot.

B. Section 144 Affidavit

On April 27, 2011, Baron filed a motion for leave to file a motion for

recusal under 28 U.S.C. § 144. Baron attached to the motion an affidavit

detailing his allegations of bias. At the hearing on Baron’s motion, the court

instructed Baron to file a second affidavit with appropriate record citations to

statements by the court that Baron believed evidenced bias. Baron’s attorney

assured the court that providing record cites would be “no problem” because

“everything in the affidavit is directly cut and pasted from the record.” 

The court then entered an order granting Baron’s motion for leave to file

a second affidavit, but only under the condition that Baron submit an affidavit

with record citations. On May 6, 2011, Baron’s attorney informed the district

court that a new affidavit was ready, but that it did not comply with the court’s

record cites requirement. In his supplemental affidavit, Baron alleged that the

district court had “a personal bias against giving credence to allegations of poor

conduct by attorneys” and that his personal bias had allowed Baron to be

victimized by his opponents – many of whom were attorneys. The district court

struck the new affidavit, but it allowed Baron to file another affidavit provided

that it complied with the court’s original order. Baron never submitted a

compliant affidavit and did not re-urge his motion to disqualify.

Baron contended that the district court erred in refusing to rule on the

legal sufficiency of the affidavits. The receiver argued that Baron waived this

issue by failing to file an affidavit that complied with the court’s order.

“A judge is to recuse himself if a party to the proceeding makes and files

a timely and sufficient affidavit that the judge before whom the matter is

pending has a personal bias or prejudice either against him or in favor of any

adverse party.” Patterson v. Mobil Oil Corp., 335 F.3d 476, 483 (5th Cir. 2003)

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(internal quotation marks omitted). A district court’s ruling with respect to a

Section 144 affidavit is appealable under 28 U.S.C. § 1292(b). Davis v. Bd. of

Sch. Comm'rs of Mobile Cnty., 517 F.2d 1044, 1047 (5th Cir. 1975). 

When a motion is filed under Section 144, the district court “must pass on

the legal sufficiency of the affidavit” without passing on the truth of the matter

asserted. Davis, 517 F.2d at 1051. “A legally sufficient affidavit must: (1) state

material facts with particularity; (2) state facts that, if true, would convince a

reasonable person that a bias exists; and (3) state facts that show the bias is

personal, as opposed to judicial, in nature.” Patterson, 335 F.3d at 483.

Based on our reading of the record, the district court considered Baron’s

original affidavit, determined that it was insufficient, and ordered Baron to

correct the deficiency by including citations to the record. Baron filed a second

affidavit and admitted that it did not comply with the court’s order. The district

court struck the affidavit, but left Baron the option of filing another affidavit

provided it had record cites. Baron never filed a compliant affidavit; therefore,

he has waived the issue on appeal.

C. Outstanding Motions & Mandamus

In light of our holding that the receivership order was improper, we need

not address the outstanding motions that were carried with the case. Similarly,

we do not find it necessary to address Novo Point’s petition for a writ of

mandamus, which challenged the bankruptcy court’s decision to strike various

notices of appeal filed by Novo Point. The bankruptcy court struck these notices

based on its finding that they violated the terms of the receivership order –

which we have now set aside.

The judgment appointing the receiver is REVERSED with directions to

vacate the receivership and discharge the receiver, his attorneys and employees,

and to charge against the cash in the receivership fund the remaining

receivership fees in accordance with this opinion. 

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Carrington, Coleman, Sloman and Blumenthal,LLP’s appeal ofthe district

court’s disbursement order is DISMISSED. 

Baron’s challenge to the subpoena of his attorney’s IOLTA account is

DENIED as moot.

Baron’s challenge to the denial of his Section 144 affidavit was waived.

Should we not have addressed a motion that a party believes still needs

a ruling, that claimed oversight should be suggested on rehearing.

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