Netsphere, Inc. v. Gardere Wynne Sewell, L.L.P ( 2016 )

Case: 15-10341 Document: 00513584364 Page: 1 Date Filed: 07/08/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-10341 FILED
July 8, 2016
Lyle W. Cayce
NETSPHERE, INCORPORATED; ET AL Clerk
Plaintiffs
QUANTEC L.L.C.; NOVO POINT, L.L.C.,
Movants - Appellants
v.
GARDERE WYNNE SEWELL, L.L.P; PETER S. VOGEL; DYKEMA
GOSSETT, P.L.L.C.; MUNSCH, HARDT, KOPF & HARR PC,
Appellees
DANIEL J. SHERMAN
Trustee - Appellee
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:09-CV-988
Case: 15-10341 Document: 00513584364 Page: 2 Date Filed: 07/08/2016
No. 15-10341
Before DAVIS, JONES, and GRAVES, Circuit Judges.
EDITH H. JONES, Circuit Judge: *
In this appeal, Quantec LLC and Novo Point, LLC challenge the district
court’s award of fees in an invalid receivership. We have appellate jurisdiction
and having considered the parties’ briefs and pertinent portions of the record,
we AFFIRM.
BACKGROUND
In 2006, Netsphere, Inc. sued Jeffrey Baron over an internet business
venture. That lawsuit settled in April 2009. In May 2009, Netsphere sued
Baron in the Northern District of Texas alleging a breach of the settlement
agreement.
That case became “a nightmare. What should have been a simple
contract dispute . . . morphed into a four-year train-wreck involving numerous
attorneys, millions of dollars in legal fees, thousands of docket entries, and
massive frustrations for all parties, for [the district court], for the [b]ankruptcy
[c]ourt, and for the Fifth Circuit.” Netsphere, Inc. v. Baron, No. 3:09-cv-0988,
2013 WL 3327858, at *1 (N.D. Tex. May 29, 2013) (internal quotation marks
omitted).
To bring Baron’s vexatious litigation conduct to heel, the district court
imposed a receivership on Baron and his assets. Among those assets were the
appellants here: Quantec LLC and Novo Point, LLC. 1
Baron and Quantec successfully challenged the receivership on appeal to
this court. See Netsphere, Inc. v. Baron (Netsphere I), 703 F.3d 296, 301–02
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
1 Because those two companies filed a single set of briefs, are represented by the same
counsel, and have the same interests in this appeal, we will refer to them both as “Quantec.”
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(5th Cir. 2012). This court held that the district court exceeded its authority
in imposing the receivership. Id. at 311. We ordered the district court to
dissolve the receivership expeditiously, but stopped short of immediately
releasing all of the assets under receivership. Id. at 313–14.
Netsphere I also considered who should pay for the receivership. The
court recognized that the receivership was imposed as a result of Baron’s own
vexatious conduct. Id. at 313. As a result, this court ordered that the
receivership assets be charged for “reasonable receivership expenses.” Id. at
313. We remanded with instructions to wind up the receivership and pay the
fees and expenses. Id. at 315.
On remand, the district court entered an order in May 2013 awarding
new fees and adjusting fees already paid in an attempt to comply with this
court’s order. However, the process of winding up the receivership was dragged
out almost two more years after Baron was pushed into an involuntary
bankruptcy.
During the pendency of winding up the receivership, Quantec and Baron
challenged the district court’s May 2013 fee order on appeal. See Netsphere,
Inc. v. Baron, 799 F.3d 327 (Netsphere II) (5th Cir. 2015). This court held that
the order was not a collateral order or independently appealable under
28 U.S.C. § 1292(a)(2) and dismissed for lack of appellate jurisdiction. Id. at
329.
In March 2015, the district court entered another thorough order
discharging the receiver and awarding additional fees to the receiver, his
attorneys, and his employees. This fee award covered the period from May
2013 until the receiver’s discharge. As the case stands now, the receiver and
the receiver’s law firms have been paid everything the district court ordered.
These payments zeroed out the receivership accounts, which have been closed.
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Quantec has now appealed the court’s May 2013 and March 2015 fee
orders as well as 26 orders (entered between April 2011 and January 2014)
granting fee applications by the receiver, his attorneys, and his employees. 2
Because there is still no final judgment in the underlying Netsphere v.
Baron case, we begin with our jurisdiction to consider this appeal.
1. Jurisdiction
Appellate jurisdiction is an issue of law this court reviews de novo. See
Pershing, LLC v. Kiebach, 819 F.3d 179, 181 (5th Cir. 2016). Jurisdiction is
debatable in this case because there has been no final judgment or resolution
in the underlying breach of contract case. Though the receivership has been
fully wound up, the district court has been unable to move forward with the
case between Netsphere and Baron because of a parallel bankruptcy
proceeding involving a company controlled by Baron. While awaiting a
resolution to the bankruptcy proceedings, the district court has
administratively closed its case.
The parties have opposing views of jurisdiction based on this state of
affairs. The receiver and his attorneys assert lack of appellate jurisdiction
because this case is in the same stance as Netsphere II. Quantec contends that
jurisdiction exists under the collateral order doctrine. We agree with Quantec.
Under the collateral order doctrine, this court may exercise appellate
jurisdiction over a non-final order that “(1) conclusively determine[d] the
disputed question, (2) resolve[d] an important issue completely separate from
the merits of the action, and (3) [would] be effectively unreviewable on appeal
from a final judgment.” Netsphere II, 799 F.3d at 334–35 (quoting Henry v.
Lake Charles Am. Press, LLC, 566 F.3d 164, 171 (5th Cir. 2009)).
2 The receiver, Peter Vogel, and his attorneys are the appellees in this case.
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The fee awards in this case are not themselves “final orders.” Netsphere
II, 799 F.3d at 335–36. However, the first two prongs of the collateral order
doctrine are satisfied. See id. at 335. The receivership fees were conclusively
determined because the district court’s March 2015 order discharged the
receiver and disbursed the remainder of the receivership funds to him and his
professionals. This order resolved an issue completely separate from the
merits of Netsphere’s underlying breach of contract action against Baron.
Resolving the fees issue is important because millions of dollars hang in the
balance.
At this point in the underlying case, we hold that the third prong is
satisfied because the district court’s receiver fee orders would be effectively
unreviewable on appeal from a final judgment. As Netsphere II recognized, fee
orders generally do not satisfy this third prong except in limited circumstances
where such fees would be potentially unrecoverable on appeal. Id. at 335–36.
Three factors push this case within that limited exception.
Most importantly, there is no telling when the underlying case will reach
final decision. It has already been seven years since Netsphere sued Baron in
the underlying action and over four years since this court ordered the end of
the receivership. The related bankruptcy case is now seven years old and has
almost 1300 entries on its docket. The order appealed from in this case is
16 months old. Baron has a proclivity for derailing otherwise orderly litigation.
Second, the money has been fully disbursed. All the receivership attorneys
and professionals have been paid and the receivership accounts have been
zeroed out and closed. Third, the money has been spread around: At least 27
different entities received payment under the district court’s fee orders.
Continuing to put off this appeal runs a severe risk of rendering at least some
of the fee awards unrecoverable.
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Jurisdiction is supported by our precedent. In SEC v. Forex Asset
Management LLC, this court considered a district court’s order approving the
pro rata distribution of receivership assets before the underlying case went to
judgment. 242 F.3d 325, 327–28 (5th Cir. 2001). The court found jurisdiction
under the collateral order doctrine. Id. at 330–31. On the third prong of the
collateral order doctrine, this court said the distribution would be
unreviewable on final judgment “because the assets from the receivership will
be distributed, and likely unrecoverable, long before the action . . . is subject to
appellate review.” Id. at 330; see also SEC v. Wealth Mgmt. LLC, 628 F.3d 323,
330–31 (7th Cir. 2010) (citing Forex with approval and concluding there was
collateral order jurisdiction on similar facts). In Forex, it appears there were
42 claimants who would receive $1.15 million under the plan. 242 F.3d at 328
& n.3. In this case, there are only a few less payees and a similarly large
amount of money at stake. In Forex, unlike here, the money does not appear
to have been distributed. Id. at 330 (“[T]he assets from the receivership will
be distributed . . . .”) (emphasis added). The basis for collateral order
jurisdiction is stronger than in Forex.
2. Fee award challenges
Quantec levels a host of challenges to the fee awards, some of them
constitutional, others challenging reasonableness of the fee awards, and some
complaining of the court’s subject-matter jurisdiction to award fees. What
these challenges have in common is that Quantec has waived them by not
raising them in the district court. See Constitution State Ins. Co. v. Iso-Tex
Inc., 61 F.3d 405, 410 (5th Cir. 1995). Quantec filed no briefing or objection to
fees with the district court between Netsphere I’s remand and the district
court’s May 2013 fee order. Quantec filed no motion to reconsider following
that order. Baron objected in the district court, but his filings are in his name
only, and Baron and Quantec are distinct entities.
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Quantec did object to the March 2015 order. But Quantec’s arguments
largely dealt with computing the amount of cash on hand in the receivership—
not the constitutional arguments it raises here. Quantec also did not challenge
any specific fee award in this filing. Because we do not consider arguments
not raised to the district court, these objections are also waived. See id. 3
Quantec contends that it was prevented by the district court from lodging
their fee award objections, but its record citation does not support this
allegation. Further, Quantec, through their counsel in this appeal, filed
numerous motions in the district court following the Netsphere I remand and
did object to the March 2015 order. These facts belie the claim that Quantec
was prevented from objecting to the fee orders.
Finally, Quantec’s “jurisdictional” arguments are not jurisdictional at
all. Quantec merely attempts to recast its merits arguments as jurisdictional
to avoid the consequences of waiver. See Grupo Mexico SAB de CV v. SAS Asset
Recovery, Ltd., 821 F.3d 573, 575–76 (5th Cir. 2016). We have jurisdiction over
this appeal. The district court had subject-matter jurisdiction over the breach
of contract dispute under 28 U.S.C. § 1332. Quantec may think the district
court used that jurisdiction to decide parts of this case erroneously, but that
does not implicate subject-matter jurisdiction. See Arbaugh v. Y&H Corp.,
546 U.S. 500, 510–15, 126 S. Ct. 1235, 1242–45 (2006). These “jurisdictional”
contentions are just repackaged merits arguments and waived as well. See
Grupo Mexico, 821 F.3d at 575–76.
3 Quantec may have arguably preserved the issue whether fees could be charged
against its assets in the receivership. However, this issue is squarely foreclosed by the law
of the case doctrine. Quantec’s assets were part of the receivership and Netsphere I ordered
the district court to award fees using the receivership assets. We refuse to reconsider
Netsphere I’s resolution of the receivership fees issue. See Af-Cap Inc. v. Republic of Congo,
383 F.3d 361, 367 (5th Cir. 2004).
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For the foregoing reasons, the orders of the district court are
AFFIRMED.
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