Special Master Appointed to Conduct Global Mediation in Bankruptcy Case

A special master was recently appointed by the Northern District of Texas in NetSphere v. Baron (In re Ondova Ltd. Co.), No. 3-09CV988-RF. The underlying Chapter 11 bankruptcy case involves numerous parties, offshore entities and several related lawsuits. After the bankruptcy court held four status conferences related to the parties’ global settlement agreement (GSA), approved by the bankruptcy court on July 28, 2010, the bankruptcy judge made a “Report and Recommendation” to Senior District Court Judge Royal Furgeson which detailed the status of the GSA and recommended the appointment of a special master to mediate claims arising from the conduct of one of the parties.

In large part, the bankruptcy court’s concern regarding the GSA arose from what the court termed Baron’s “Cavalcade of Attorneys.” Throughout the bankruptcy proceedings, Baron “has continued to hire and fire lawyers” and has instructed these lawyers to file pleadings against matters resolved by the agreement. The court also expressed concern that such constant turn-over in the “dozens of sets of lawyers” hired by Baron has generated “significant fees . . . to a level that is more than a little disturbing.” The court noted that this behavior “smacks of the possibility of violating Rule 11” or, “more troubling,” the possibility that “Baron may be engaging in the crime of theft of services.”

Although the bankruptcy court’s report indicates that there was “substantial consummation” of the settlement agreement by most parties, the court nevertheless “has had lingering concerns at each of the status conferences regarding Jeffrey Baron’s commitment to completing his obligations under . . . and possibly taking actions to frustrate . . . [the settlement agreement].” The court also expressed concern that Baron’s practice of continuously switching legal counsel may pose a risk to the bankruptcy estate and expose other parties to the GSA to unwanted administrative expense.

The bankruptcy court informed Baron that he would no longer be allowed to hire additional attorneys. He was given the option to retain his current legal counsel throughout the remainder of the bankruptcy litigation or proceed pro se. Further, the bankruptcy court recommended the Northern District of Texas appoint a special master to conduct a global mediation between Baron and “various attorneys who may make a claim” for reimbursement against the amount of $330,000 set aside by the bankruptcy court as a “security deposit” against the financial risks posed against the bankruptcy estate by the fees incurred by Baron’s attorneys.

After consideration of the bankruptcy court’s report, the Northern District of Texas adopted the bankruptcy court’s recommendation in its entirety and appointed a special master to the case. Although the case is still pending, Judge Fergeson’s Order may be viewed here. The bankruptcy court’s Report and Recommendation is available at 2010 Bankr. LEXIS 3575 or 2010 WL 4226285 (N.D. Texas).

Tags: special masters, mediation