United States District Court, E.D. Texas, Sherman Division
MEMORANDUM OPINION ON APPEAL FROM BANKRUPTCY
MICHAEL J. TRUNCALE UNITED STATES DISTRICT JUDGE
appeal and related No. 4:17-CV-261 stem from a series of
claims that involve a company called White Nile Software, Inc
(“White Nile”) formed by Debtor Edward Mandel
(“Mandel”) and his friend Steven Thrasher
(“Thrasher”). Mandel and Thrasher formed White
Nile in 2005 for the purpose of developing search engine
technology. White Nile hired Jason Coleman
(“Coleman”) to work on several projects. On
February 4, 2006, prior to the bankruptcy petition, state
court litigation involving Mandel, Thrasher, and Coleman
arose. On May 29, 2009, the state court appointed Rosa R.
Orenstein (“Orenstein”) as the Receiver for White
Nile, and Mandel agreed to pay 52.5% of her fees. In
September 2009, the state court issued an order (the
“Receiver Counsel Order”) approving
Orenstein's designation of Mastrogiovanni, Schorsch &
Mersky, P.C. (“MSM”) as independent counsel for
Orenstein. Orenstein sent Mandel a bill for $14, 000 for
attorney's fees related to the receivership. Mandel
refused to pay the bill, and on January 25, 2010, Mandel
filed for bankruptcy under Chapter 11.
the next two years, the bankruptcy court granted several
motions by Thrasher, While Nile, Orenstein and MSM to extend
the deadline and approved a stipulation among the parties,
including Mandel, to extend deadlines. On February 13, 2012,
several of the Plaintiffs sought the appointment of a trustee
in the Chapter 11 proceeding. The bankruptcy court conducted
a hearing on the matter and on June 18, 2012, the court
appointed Milo Segner as the Chapter 11 trustee after
granting the a motion filed by the Plaintiffs.
August 22, 2012, White Nile Software Inc, Rosa Orenstein, and
MSM filed an adversary complaint against Mandel. The
bankruptcy court assigned the proceeding number
12-4127. On the same day, Thrasher, in his
individual capacity and on behalf of White Nile, Jason
Coleman, Maddenswell LLP, and the Law Offices of Mitchell
Madden filed their own adversary complaint against Mandel.
The bankruptcy court assigned that proceeding the number
parties in the Orenstein proceeding objected to Mandel's
discharge under 11 U.S.C §§ 727(a)(2), (a)(3) and
(a)(4) as well as 11 U.S.C § § 523(a)(2)(A), (a)(4)
and (a)(6). The parties in the Thrasher proceeding filed
claims for unliquidated damages against Mandel's
bankruptcy estate and objected to Mandel's discharge
under 11 U.S.C. 727(a)(2)(A) and (B), (a)(3) and (a)(4), the
also objected to discharge under 11 §§
523(a)(2)(A), (a)(4) and (a)(6). Mandel objected to the
allowance of these claims. The bankruptcy court tried these
claims and entered an order awarding $1, 000, 000 to
Thrasher, $400, 000 to Coleman, and $300, 000 to White Nile.
See In re Mandel, 2011 WL 4599969 (Bankr. E.D. Tex.
2011). Additionally, the bankruptcy court ordered Thrasher
and Coleman their reasonable attorney's fees in the total
amount of $1, 500, 000. See Id.
relevant to the current appeal, the bankruptcy court made the
following findings and reached the following conclusions:
Mandel breached his fiduciary duties as an officer of White
Nile by failing to preserve White Nile's Assets. In
particular, Mandel failed to timely prosecute White
Nile's patent rights and transferred money invested in
White Nile to NeXplore Corporation, among other breaches.
In order to induce Thrasher to go into business with him,
Mandel misrepresented material facts to Thrasher, such as his
intent to invest $300, 000 of his own funds into White Nile,
to develop its intellectual property.
In order to obtain access to White Nile's intellectual
property and trade secrets, Mandel fraudulently represented
to White Nile that he had recruited an investor in the
Philippines and that there was a team of highly qualified
individuals in the Philippines working to develop White Niles
In order to induce Coleman to become a consultant for White
Nile, Thrasher made numerous false and inaccurate
representations to Coleman.
Mandel breached his obligations to Thrasher and White Nile
under non-disclosure agreements he entered into with them.
Mandel conspired with others to misappropriate and use White
Nile's intellectual property.
Mandel knowingly communicated White Nile's trade secrets
Mandel knew his actions were improper, but he did not act
with the requisite malice to support an award of exemplary
[Dkt. #1 Attachment 4 Pg6-7]. Mandel appealed to the district
court. See Mandel v. Thrasher, WL 3367297 (E.D. Tex.
2013). The district court affirmed the findings of the
bankruptcy court on appeal. Mandel then appealed to the Fifth
Circuit. The Fifth Circuit affirmed the bankruptcy
court's findings of fact. See In re Mandel, 578
Fed.Appx. 376 (5th Cir. 2014). However, The Fifth Circuit
remanded the issue of compensatory damages. [Dkt #1
Attachment 4 Pg 7].
Orenstein and independent counsel MSM filed independent
claims against Mandel's bankruptcy estate seeking their
fees related to the state court receivership of White Nile.
Mandel objected to these claims. The bankruptcy court
conducted a trial related to Orenstein's claims seeking
fees. The bankruptcy court allowed Orenstein an unsecured
claim of $315, 535 for her reasonable and necessary fees as
Receiver incurred through December 1, 2011. The bankruptcy
court also allowed an unsecured claim of $155, 517 for
reasonable and necessary attorneys' fees incurred through
December 1, 2011. The bankruptcy court found the following
facts in its decision:
Prior to Mandel's bankruptcy, on May 29, 2009, a state
court entered an agreed order appointing Orenstein as the
receiver for White Nile.
The agreed order placed Orenstein in control of White
Nile's claims against Mandel, among other things.
The agreed order provided that Mandel would pay 52.5% of the
The agreed order required Mandel to pay the fees of the
receiver herself as well as the fees of any counsel she
In an order dated September 15, 2009, the state court
approved Orenstein's retention of MSM as independent
counsel and required Mandel to pay 52.5% of the fees of the
receiver's counsel. The state court also approved the
fees of Orenstein and MSM through September 9, 2009,
specifically finding their fees to be fair, reasonable, and
In the state court proceeding, Mandel claimed that he did not
have the financial resources to pay his portion of all the
fees charged by Orenstein and MSM In the state court
proceeding, Orenstein conducted discovery regarding
Mandel's financial ability to pay pursuant to orders
issued by the state court.
Orenstein testified, credibly, that she had to fight to get
business and financial information from Mandel and that
Mandel's business structure and finances are unusually
Orenstein filed two motions to compel Mandel to respond to
her discovery requests in the state court proceeding, and the
state court ordered Mandel to comply.
[Dkt. #1 Attachment 4 Pg. 8-9]. Mandel appealed the
bankruptcy court's order. The district court dismissed
the appeal for lack of standing. The Fifth Circuit reversed
and remanded the appeal to the district court, finding that
Mandel did have standing. See In re Mandel, 641
Fed.Appx. 400 (5th Cir. 2016). On remand, the district court
affirmed the findings of the Bankruptcy Court. See In re
Mandel, WL 1197117 (E.D.Tex. 2017). On appeal to the
Fifth Circuit, Mandel only challenged “the legal
findings to support the fee award - not the specific numeric
amounts awarded” Id. at 960. The Fifth Circuit
affirmed in part and reversed in part. The Fifth Circuit
found that while the Receiver Counsel Order issued in state
court did authorize Orenstein to have counsel, it did not
authorize Orenstein to represent White Nile as a creditor in
the bankruptcy proceeding, and therefore her retention of
independent counsel to assist her in those matters would
likewise not be authorized” Id. at 964. The
Fifth Circuit remanded only the award amount with regard to
Orenstein and MSM.
filed a “Motion to Enforce Settlement Agreement and to
Dismiss All Thrasher and Related Claims and Causes of
Action” in the bankruptcy court. The motion, based on a
mediated settlement agreement arising out of state court
litigation regarding a fee-sharing agreement between Thrasher
and Michael Shore, was heard by the bankruptcy court on
September 4, 2013. In his motion, Mandel argued that because
the mediated settlement agreement includes a release of
claims, the bankruptcy court should find Mandel a party to
that agreement and broadly construe the agreement to release
all the claims of Thrasher and White Nile against Mandel.
Thrasher, Coleman, Orenstein, and MSM objected, arguing that