Netsphere, Inc. v. Jeffrey Baron

Case: 13-10119 Document: 00513155610 Page: 1 Date Filed: 08/14/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 13-10119
United States Court of Appeals
Fifth Circuit
FILED
NETSPHERE, INCORPORATED, ET AL., August 14, 2015
Lyle W. Cayce
Plaintiffs Clerk
v.
JEFFREY BARON,
Defendant - Appellant
QUANTEC L.L.C.; NOVO POINT, L.L.C.,
Movants - Appellants
v.
PETER S. VOGEL,
Appellee
***************
No. 13-10696
NETSPHERE, INCORPORATED, ET AL.,
Plaintiffs
v.
JEFFREY BARON,
Defendant - Appellant
Case: 13-10119 Document: 00513155610 Page: 2 Date Filed: 08/14/2015
Nos. 13-10119 & 13-10696
QUANTEC L.L.C.; NOVO POINT, L.L.C.,
Movants - Appellants
v.
GARDERE WYNNE SEWELL, L.L.P.; PETER S. VOGEL,
Appellees
Appeals from the United States District Court
for the Northern District of Texas
Before JOLLY, HIGGINBOTHAM, and DAVIS, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
As a general rule, the courts of appeals have jurisdiction only over the
final decisions of the district courts. There are certain exceptions and
qualifications to that principle, however. In this case we must decide whether
any of them allow us to review several district court orders which, pursuant to
the mandate of an earlier decision of our court, awarded fees to a receiver
before final judgment had been entered. Concluding that none apply, we
dismiss for want of appellate jurisdiction.
I.
We set out the tangled factual and procedural history of this long-
running case in our earlier opinion. 1 We summarize briefly now.
This case began back in the spring of 2009, as a contractual dispute
between Netsphere, Inc., and Jeffrey Baron. 2 As the litigation ensued, one of
Baron’s companies, Ondova Limited Company, declared bankruptcy,
1 See Netsphere, Inc. v. Baron, 703 F.3d 296 (5th Cir. 2012).
2 See id. at 302.
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automatically staying the district court action. During this stage of the case,
as in earlier proceedings, Baron repeatedly hired and fired his lawyers. 3 “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 proceeding.” 4 As
proceedings continued, both the bankruptcy court and the bankruptcy trustee
became increasingly concerned over Baron’s failure to pay his current or
former lawyers. 5 Eventually, on the recommendation of the bankruptcy court,
the district court appointed Peter S. Vogel as receiver over Baron. 6
Baron appealed the district court’s order appointing the receiver. In
Netsphere v. Baron, Inc. (“Netsphere I”) we reversed, holding that the district
court had “no authority to . . . establish[] a receivership” in order “to control
Baron’s hiring, firing, and non-payment of numerous attorneys.” 7 We next
turned to the question of who should bear the costs expended by the improper
receivership. We held that our “precedents establish that equity controls when
addressing the costs created by an improper receivership.” 8 Because “the
record support[ed] that the circumstances that led to the appointment of a
receiver were primarily of Baron’s own making,” we ruled that “charging the
current receivership fund for reasonable receivership expenses, without
allowing any additional assets to be sold, is an equitable solution.” 9 On
3 See id. at 303. At one point the bankruptcy trustee’s attorney “presented a chart
identifying 45 lawyers whom Baron had not paid.” Id.
4 Id.
5 Id. at 304.
6 Id.
7 Id. at 305.
8 Id. at 313.
9 Id. “We also conclude[d] that everything subject to the receivership other than cash
currently in the receivership, which Baron assert[ed] 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
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remand, in addition to awarding new fees, we also ordered the district court to
reconsider all receivership fees and expenses it had previously ordered to be
paid. We reasoned that these “[f]ees already paid were calculated on the basis
that the receivership was proper” but “[i]n 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.” 10
Before the Netsphere I mandate issued, the district court entered several
orders approving interim fee applications submitted by the receiver and its
counsel. After the mandate issued, and the case was remanded, the district
court then entered an order reconsidering the fees it had previously awarded
to the receiver, its counsel, and the Ondova bankruptcy trustee. It also
authorized new payments to the receiver and to one of its counsel, Dykema
Gossett PLLC.
These appeals of the various fee orders follow. 11
II.
Both sides implore us to decide this appeal. While we sympathize with
their desire for resolution, we lack the power to do so.
Our appellate jurisdiction is normally limited to “final decisions of the
district courts of the United States.” 12 These decisions “end[] the litigation on
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 the receiver and his attorneys, those charges will go unpaid. No further sales of
domain names or other assets are authorized.” Id. at 313-14.
10 Id. at 313. In a subsequent order, we clarified that “our opinion did not dissolve the
receivership immediately,” but that we had “ordered a remand for the expeditious winding
up of the receivership.” That process was to be managed by the district court “as quickly as
possible.” Order, at *1, No. 10-11202 (5th Cir. Dec. 31, 2012).
11 Appeal No. 13-10119 addresses six interim fee orders the district court awarded
before the Netsphere I mandate issued. Appeal No. 13-10696 addresses the fee award issued
in response to the Netsphere I mandate.
12 28 U.S.C. § 1291.
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the merits and leave[] nothing for the court to do but execute the judgment.” 13
That is not what we have here. No final judgment has been entered and the
underlying breach of contract dispute that formed the original basis for this
litigation remains undecided. Moreover, even within the context of the
receivership, the district court’s orders merely authorizes certain cash
payments to the receivership and its counsel; they do not purport to enter a
final judgment winding-up or terminating the receivership. Indeed, it was not
until two years after the orders in this case were issued that the district court
finally entered an order directing the termination of the receivership upon the
payment of certain court-approved fees and expenses. 14 That order has since
been appealed and will be addressed in the normal course by another panel of
our court. 15
There are two potential avenues for appellate jurisdiction absent a final
decision of the district court: one based in statute, one in federal common law.
Neither has purchase in this case.
A.
In 28 U.S.C. § 1292(a)(2), Congress granted a limited right to appellate
review of certain interlocutory orders related to receivers, providing:
[T]he courts of appeals shall have jurisdiction of appeals from:
[i]nterlocutory orders appointing receivers, or refusing orders to
wind up receiverships or to take steps to accomplish the purposes
thereof, such as directing sales or other disposals of property. 16
It is undisputed that the challenged fee orders are not “orders appointing
receivers.” Nor did the district court “refus[e] orders to wind up receiverships.”
Just the opposite, in fact: the fee orders were issued as a necessary step to
13 Catlin v. United States, 324 U.S. 229, 233 (1945).
14 See U.S.D.C. No. 2:09-cv-009880L, ECF No. 1447 (N.D. Tex. Mar. 27, 2015).
15 See U.S.C.A. Case No. 15-10341 (5th Cir.).
16 28 U.S.C. § 1292(a)(2).
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comply with our court’s mandate that receivership fees be awarded and the
receivership wound up. 17
The closer question, however, is whether the phrase “take steps to
accomplish the purposes thereof” vests us with jurisdiction to review a fee
order issued in compliance with an earlier appellate directive to wind-up the
receivership. We conclude that it does not.
Turning first to the text of section 1292(a)(2), the statute grants us
jurisdiction only over “orders . . . refusing orders to wind up receiverships or to
take steps to accomplish the purposes thereof, such as directing sales or other
disposals of property.” 18 While not a model of clarity, seen in context, there are
two ways to read these words. One “interpret[s] this provision as permitting
appeals from orders ‘to take steps to accomplish the purposes [of winding up
receiverships],’” and the other constructs the language to “permit[] appeals
only from orders ‘refusing . . . to take steps to accomplish the purposes of
[winding up receiverships].’” 19 We agree with the Ninth Circuit that the latter
construction “requires less grammatical torture of the statute” than the
former. 20 To reach the latter result, we interpret the verb phrase “refusing
orders” to modify both the infinitive phrase “to wind up receiverships” and the
infinitive phrase “to take steps to accomplish.” The parallel structure of both
infinitive phrases suggest that is a reasonable outcome. 21 To reach the
opposite result, however, we must replace “to take steps” with “taking steps,”
17 See Netsphere, Inc. v. Baron, 703 F.3d 296, 315 (5th Cir. 2012).
18 28 U.S.C. § 1292(a)(2) (emphasis added).
19 S.E.C. v. Am. Principals Holdings, Inc., 817 F.2d 1349, 1350 (9th Cir. 1987)
(brackets original) (quoting 28 U.S.C. § 1292(a)(2)).
20 Id.
21 Under this reading, we would interpret the provision as: “the courts of appeals shall
have jurisdiction of appeals from: [i]nterlocutory orders (1) appointing receivers, or (2)
refusing orders (a) to wind up receiverships or (b) to take steps to accomplish the purposes
[of winding up receiverships].”
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a tense change that requires us to change the structure of the statute. Indeed,
every circuit to squarely consider this question has reached the same result. 22
Second, both our court and our sister circuits have long concluded that
orders directing the payment of monies or the transfer of property to receivers
and their professionals are unreviewable under section 1292(a)(2). 23 We have
also refused to find jurisdiction over other orders issued in the course of a
receivership, such as authorizing the execution of a lease by a receiver. 24 So
have our sister circuits. 25
Third, as a matter of policy, this interpretation makes good sense. As we
recognized in Warren v. Bergeron, 26 the imposition of a receivership visits
significant consequences: “To put a corporation or other entity into
receivership is to wrest management and control from those entrusted by the
owners, replacing them with a court-appointed trustee under court
supervision. Because this action may cause great harm, Congress decided to
make interlocutory orders appointing receivers appealable.” 27 Orders entered
22 See, e.g., United States v. Antiques Ltd. P’ship, 760 F.3d 668, 671-72 (7th Cir. 2014);
F.T.C. v. Peterson, 3 F. App’x 780, 782 (10th Cir. 2001) (unpublished); SEC v. Black, 163 F.3d
188, 195 (3d Cir. 1998); State St. Bank & Trust Co. v. Brockrim, Inc., 87 F.3d 1487, 1490-91
(1st Cir. 1996); Am. Principals Holdings, 817 F.2d at 1351-52; SEC v. Am Bd. of Trade, Inc.,
829 F.2d 341, 344 (2d Cir. 1987).
23 See, e.g., United States v. Beasley, 558 F.2d 1200, 1200-01 (5th Cir. 1977); Wark v.
Spinuzzi, 376 F.2d 827, 827 (5th Cir. 1967); see also Black, 163 F.3d at 195; Am. Principals
Holdings, 817 F.2d at 1351.
24 See Belleair Hotel Co. v. Mabry, 109 F.2d 390, 390-91 (5th Cir. 1940) (“An
examination [of the predecessor statute to section 1292(a)(2)] discloses no authorization of an
appeal from an order of the kind under review. It makes provision for appeals from
interlocutory orders refusing to take appropriate steps to wind up a pending receivership,
such as directing a sale or other disposal of the property, but we have no such order before
us. In this case, the court has not refused an order to wind up the receivership or to take
appropriate steps to that end.”).
25 See, e.g., 16 Charles Alan Wright & Arthur R. Miller, FEDERAL PRACTICE AND
PROCEDURE § 3925 (3d ed. 2015) (“Orders entered in the course of a receivership
administration generally are not appealable as such.”) (collecting cases).
26 831 F.2d 101 (5th Cir. 1987).
27 Id. at 103.
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in the normal course of a receivership do not visit such consequences.
Moreover, to conclude otherwise would mean that “virtually any order of the
receiver within the scope of its jurisdiction would be potentially appealable.” 28
Such a piecemeal approach to the appellate process would be disruptive and
costly, both to the parties and the courts. 29
While we believe this textual reading is best, there is one wrinkle, in the
form of precedent from our court that could be read to come out the other way.
In United States v. “A” Manufacturing Co., Inc., we addressed the question of
whether an order by a receiver confirming a sale after the fact is appealable
under section 1292(a)(2). 30 We said it was, relying mainly on cases interpreting
the final-judgment doctrine. 31 But in doing so, we used expansive language to
describe section 1292(a)(2), saying it “provides for appeals from interlocutory
orders which take steps to accomplish the purpose of receiverships such as
directing the sale or disposal of property.” 32 This language arguably conflicts
with the reading of section 1292(a)(2) we have just put forward. Even still, we
conclude that this language does not require us to hold we have jurisdiction to
28 Am. Principals Holdings, 817 F.2d at 1351.
29 See, e.g., United States v. Antiques Ltd. P’ship, 760 F.3d 668, 671-72 (7th Cir. 2014)
(“Parties in other cases have argued that this additional statutory language authorizes
appeals from orders en route to winding up the receivership, which could include the sale
order in the collection phase of this case. But that would both strain the statutory language
and make anything the receiver did appealable immediately, which could flood the courts of
appeals with interlocutory appeals.”); F.T.C. v. Peterson, 3 F. App’x 780, 782 (10th Cir. 2001)
(“The statute expressly permits appeal from orders ‘refusing ... to take steps to accomplish
the purposes [of the receivership].’ It says nothing about appellate review with respect to
steps actually taken—and, given the enormous potential for disruptive piecemeal appeals in
this context, it seems reasonable for Congress to have granted a right of immediate review
when there has been a complete failure to act in furtherance of the receivership, but not to
have burdened the appellate courts with ongoing supervision of every action a receiver might
be ordered to take.”) (quoting 28 U.S.C. § 1292(a)(2)) (emphasis omitted).
30 541 F.2d 504, 505-06 (5th Cir. 1976).
31 See 16 Charles Alan Wright & Arthur R. Miller, FEDERAL PRACTICE AND
PROCEDURE § 3925 n.29 (3d ed. 2015).
32 “A” Mfg. Co., 541 F.2d at 505-06.
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review receivership fee orders issued as part of a court-mandated wind-down
process.
First, that sentence in “A” Manufacturing is likely dicta. While “[i]t is
well-established in this circuit that one panel of this Court may not overrule
another,” that rule does not apply to dicta. 33
A statement is dictum if it could have been deleted without
seriously impairing the analytical foundations of the holding and
being peripheral, may not have received the full and careful
consideration of the court that uttered it. A statement is not
dictum if it is necessary to the result or constitutes an explication
of the governing rules of law. 34
“A” Manufacturing’s holding – that orders confirming a sale are immediately
appealable – was based on its interpretation of three cases that, pursuant to
an entirely different jurisprudential line, had held that orders confirming sales
were immediately appealable. 35 That holding was not based on the language
of section 1292(a)(2), 36 and so “A” Manufacturing’s discussion of that provision
could be removed without hindering the analytical basis of its conclusion.
Next, even assuming that “A” Manufacturing’s statement that the courts
of appeals have jurisdiction over “interlocutory orders which take steps to
accomplish the purpose of receiverships” was holding, that decision conflicts
with other, previous panel decisions that held such interlocutory orders were
not appealable. In Belleair Hotel Co. v. Mabry, 37 a 1940 decision interpreting
33 United States v. Segura, 747 F.3d 323, 328 (5th Cir. 2014) (quoting Cent. Pines Land
Co. v. United States, 274 F.3d 881, 893 (5th Cir. 2001)).
34 Id. (quoting Int’l Truck & Engine Corp. v. Bray, 372 F.3d 717, 721 (5th Cir. 2004)).
35 See “A” Mfg. Co., 541 F.2d at 506 (“These cases, spanning a century, clearly establish
the rule that an interlocutory order commanding a sale, and one confirming a sale are
appealable.”).
36 See id. at 505-06.
37 109 F.2d 390 (5th Cir. 1940).
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an earlier (but nearly identically phrased) version of section 1292(a)(2), 38 we
concluded that a district court order authorizing a receiver to lease a piece of
property was not immediately appealable. 39 In doing so, we held that:
An examination of the statute just cited discloses no authorization
of an appeal from an order of the kind under review. It makes
provision for appeals from interlocutory orders refusing to take
appropriate steps to wind up a pending receivership, such as
directing a sale or other disposal of the property, but we have no
such order before us. In this case, the court has not refused an
order to wind up the receivership or to take appropriate steps to
that end. 40
Similarly, in Wark v. Spinuzzi, which also predates “A” Manufacturing, we
held that an interlocutory order “requiring appellants to turn over certain
bonds to the Receiver” was not reviewable under section 1292(a)(2). 41 The
reasoning and holding of both cases, concluding that interlocutory orders
which do not refuse orders to wind-down a receivership are not reviewable,
conflict with “A” Manufacturing. “The rule in this circuit is that where two
previous holdings or lines of precedent conflict the earlier opinion controls and
is the binding precedent in this circuit.” 42
We hold that section 1292(a)(2) does not confer upon us appellate
jurisdiction to review these fee orders.
B.
A second potential avenue for appellate jurisdiction is the collateral
order doctrine. It does not avail. This rule, which emerged from the Supreme
38 See An Act to Amend the Judicial Code, § 129, 43 Stat. 936, 937 (1925) (current
version at 28 U.S.C. § 1292(a)(2)) (providing for appellate jurisdiction when “an interlocutory
order or decree is made appointing a receiver, or refusing an order to wind up a pending
receivership or to take the appropriate steps to accomplish the purposes thereof, such as
directing a sale or other disposal of property held thereunder.”).
39 Belleair Hotel, 109 F.2d at 390.
40 Id. at 390-91.
41 376 F.2d 827, 827 (5th Cir. 1967).
42 Rios v. City of Del Rio, Tex., 444 F.3d 417, 425 n.8 (5th Cir. 2006).
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Court’s decision in Cohen v. Beneficial Industrial Loan Corporation, 43 “is best
understood not as an exception to the final decision rule laid down by Congress
in [28 U.S.C.] § 1291, but as a practical construction of it.” 44 “To fall within
Cohen’s collateral order doctrine, ‘an order must (1) conclusively determine the
disputed question, (2) resolve an important issue completely separate from the
merits of the action, and (3) be effectively unreviewable on appeal from a final
judgment.’” 45
The fee orders satisfy the first two Cohen criteria, but not the third.
Looking at the first factor, an order is “conclusive” if it is “not subject to later
review or revision in the district court. The mere power to revisit an order,
however, is insufficient to preclude a finding of conclusivity; it should be
unlikely that the district court will revisit the order.” 46 By this light, the
district court’s fee orders, which did not contemplate revision or modification,
are conclusive. The second criteria is whether the fee orders “resolve[] an issue
completely separate from the merits of the case,” 47 or whether they “generally
involve[] considerations that are ‘enmeshed in the factual and legal issues
comprising the plaintiff’s cause of action.’” 48 The orders are adequately
separate: the underlying merits of the initial cause of action, a breach of
contract dispute, are far removed from the propriety of the fee orders issued as
part of a mandated receivership wind-up.
43 337 U.S. 541 (1949).
44 Will v. Hallock, 546 U.S. 345, 349 (2006) (quoting Digital Equip. Corp. v. Desktop
Direct, Inc., 511 U.S. 864, 867 (1994)) (internal quotation marks omitted).
45 Henry v. Lake Charles Am. Press, L.L.C., 566 F.3d 164, 171 (5th Cir. 2009) (quoting
Coopers & Lybrand v. Livesay, 437 U.S. 463, 468 (1978)).
46 Id. at 173-74 (internal citations omitted).
47 Henry, 556 F.3d at 174.
48 Coopers & Lybrand, 437 U.S. at 469 (quoting Mercantile Nat. Bank v. Langdeau,
371 U.S. 555, 558 (1963)).
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It is on the reviewability element that the orders run aground, a
requirement we have “held . . . to be the fundamental characteristic of the
collateral order doctrine.” 49 Here, we look to whether it would be possible to
review the fee orders after final judgment has been entered. 50 We have not
squarely considered the question of whether an order paying receiver fees is
effectively reviewable after judgment. We have, however, repeatedly
considered whether a district court’s interim (i.e., pre-final judgment) award of
attorney’s fees is reviewable under Cohen. It is not, we have “consistently
held,” “because the fee award is effectively reviewable after final judgment on
the merits of the case is entered.” 51 This logic applies equally to receiver fee
awards.
While we have announced several exceptions to this pre-final judgment
fee rule, none apply here. In Ruiz v. Estelle, for example, we suggested that an
award might be reviewable “if the defendant had alleged and proved that the
mere payment of the fees would make them unrecoverable.” 52 “Such a
situation might arise, for instance, if the fees were to be paid directly to a client
in danger of becoming judgment-proof.” 53 It might also arise if awards “will be
distributed to potentially thousands of claimants,” leaving the defendant “no
practical way of recovering these funds should it prevail.” 54 Here, by contrast,
49 Pan E. Exploration Co. v. Hufo Oils, 798 F.2d 837, 840 (5th Cir. 1986); see also
Mitchell v. Forsyth, 472 U.S. 511, 525 (1985) (“A major characteristic of the denial or granting
of a claim appealable under Cohen's ‘collateral order’ doctrine is that ‘unless it can be
reviewed before [the proceedings terminate], it can never be reviewed at all.’”) (quoting Stack
v. Boyle, 342 U.S. 1, 12 (1952) (opinion of Jackson, J.)) (brackets original).
50 See Campanioni v. Barr, 962 F.2d 461, 463 (5th Cir.1992).
51 Id.; see also Shipes v. Trinity Indus., Inc., 883 F.2d 339, 344 (5th Cir. 1989); Dardar
v. Lafourche Realty Co., Inc., 849 F.2d 955, 959 (5th Cir. 1988); Ruiz v. Estelle, 609 F.2d 118,
119 (5th Cir. 1980).
52 609 F.2d at 119.
53 Campanioni, 962 F.2d at 463.
54 In re Deepwater Horizon, 732 F.3d 326, 332 n.3 (5th Cir. 2013); see also S.E.C. v.
Forex Asset Mgm’t LLC, 242 F.3d 325, 330 (5th Cir. 2001) (concluding that the Cohen
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there are no allegations – and certainly no proof – that the receiver or its
counsel would be unable to pay back the awards if Baron prevails. Moreover,
there are only a few interested parties; a far cry from the “thousands” of
distributed claimants that would make practical recovery an impossibility. We
discussed another exception in Walker v. United States Department of Housing
and Urban Development. 55 There, we reviewed a fee award in the context of a
desegregation consent decree, and held that given the “ongoing and possibly
permanent nature of monitoring and preventing further changes to the City
Consent Decree, it is unlikely that there ever will be a ‘final judgment’ for this
court to review.” 56 In this case, while the litigation has lingered, we cannot
conclude that it will continue on forever.
We hold that that collateral order doctrine does not provide a basis for
appellate jurisdiction.
III.
We DISMISS this appeal for want of appellate jurisdiction.
exception applied when “the assets from the receivership will be distributed, and likely
unrecoverable, long before the action . . . is subject to appellate review”).
55 99 F.3d 761 (5th Cir. 1996).
56 Id. at 766.
13