Sec. & Exch. Comm'n v. Stanford Int'l Bank, Ltd.
| Decision Date | 17 June 2019 |
| Docket Number | No. 17-10663,17-10663 |
| Parties | SECURITIES AND EXCHANGE COMMISSION, Plaintiff v. STANFORD INTERNATIONAL BANK, LIMITED, Defendant v. Joseph Becker; Terence Beven; Wanda Bevis; Thomas Eddie Bowden; Troy L. Lillie, Jr., et al, Movants-Appellants Doug McDaniel; Scott Notowich; Eddie Rollins; Cordell Haymon; et al, Objecting Parties-Appellants v. Certain Underwriters at Lloyd's of London; Arch Specialty Insurance Company; Lexington Insurance Company, Interested Parties-Appellees Ralph S. Janvey, Appellee Certain Underwriters at Lloyd's of London; Arch Specialty Insurance Company, Plaintiffs-Appellees v. Ralph S. Janvey, In his Capacity as Court Appointed Receiver for Stanford International Bank Limited, Stanford Group Company, Stanford Capital Management L.L.C., Stanford Financial Group, and Stanford Financial Group Bldg, Defendant-Appellee v. Cordell Haymon, Intervenor-Appellant Certain Underwriters at Lloyd's of London; Arch Specialty Insurance Company; Lexington Insurance Company, Plaintiffs-appellees v. Cordell Haymon, Objecting Party-Appellant v. Ralph S. Janvey, Intervenor-Appellee Certain Underwriters at Lloyd's of London; Arch Specialty Insurance Company; Lexington Insurance Company, Plaintiffs-Appellees v. Ralph S. Janvey, Intervenor Defendant-Appellee v. Cordell Haymon, Objecting Party-Appellant Cordell Haymon, Third Party Plaintiff-Appellant v. Certain Underwriters of Lloyd's of London, Claims asserted by Claude F. Reynaud, Jr. Third Party Defendant-Appellee v. Ralph S. Janvey, Appellee |
| Court | U.S. Court of Appeals — Fifth Circuit |
Phillip W. Preis, Esq., Charles Malcolm Gordon, Jr., Esq., Preis Gordon, A.P.L.C., Baton Rouge, LA, for Movants-Appellants.
Stephan Bruce Rogers, Rogers & Moore, P.L.L.C., Boerne, TX, for Objecting Party-Appellants DOUGLAS M. MCDANIEL, SCOTT NOTOWICH, EDDIE ROLLINS.
Sean Daniel Jordan, Adam Warren Aston, Joel Robert Glover, Peter Carl Hansen, Danica Lynn Milios, Jackson Walker, L.L.P., Austin, TX, for Objecting Party-Appellant CORDELL HAYMON.
John C. Porter, Jr., Esq., Smiley Bishop & Porter, L.L.P., Objecting Party-Appellant ET AL.
Manuel Mungia, Matthew Edwin Pepping, Chasnoff Mungia Pepping & Stribling, P.L.L.C., San Antonio, TX, for Interested Party-Appellees CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON, ARCH SPECIALTY INSURANCE COMPANY, LEXINGTON INSURANCE COMPANY.
Kevin M. Sadler, Stephanie Frederique Cagniart, Attorney, Scott Daniel Powers, Baker Botts, L.L.P., Austin, TX, for Appellee.
Before JONES, CLEMENT, and SOUTHWICK, Circuit Judges.
These appeals challenge the district court's approval of a global settlement between Ralph Janvey, the Receiver for Stanford International Bank and related entities, and various insurance company Underwriters, who issued policies providing coverage for fidelity breaches, professional indemnity, directors and officers protection, and excess losses. The settlement yielded $ 65 million for the Receiver's claims against the insurance policy proceeds, but it wipes out, through "bar orders," claims by coinsureds to the policy proceeds and their extracontractual claims against the Underwriters even if such claims would not reduce or affect the policies' coverage limits. Among the parties whose claims were barred are Appellants comprising (a) two groups of former Stanford managers and employees; (b) Cordell Haymon, a Stanford entity director who settled with the Receiver for $ 2 million; and (c) a group of Louisiana retiree-investors.
A constellation of issues surrounding the global settlement is encapsulated in the question whether the district court abused its discretion in approving the settlement and bar orders. Based on the nature of in rem jurisdiction and the limitations on the court's and Receiver's equitable power, we conclude the district court lacked authority to approve the Receiver's settlement to the extent it (a) nullified the coinsureds' claims to the policy proceeds without an alternative compensation scheme; (b) released claims the Estate did not possess; and (c) barred suits that could not result in judgments against proceeds of the Underwriters' policies or other receivership assets. Accordingly, we VACATE the district court's order approving the settlement and bar orders and REMAND for further proceedings consistent with this opinion.
The massive Stanford Financial Ponzi scheme defrauded more than 18,000 investors who collectively lost over $ 5 billion. As part of a securities fraud lawsuit brought by the SEC, the district court appointed the Receiver "to immediately take and have complete and exclusive control" of the receivership estate and "any assets traceable" to it. The court granted the Receiver "the full power of an equity receiver under common law," including the right to assert claims against third parties and "persons or entities who received assets or records traceable to the Receivership Estate." SEC v. Stanford Int'l Bank, Ltd. , 776 F. Supp. 2d 323, 326 (N.D. Tex. 2011). The district court also held that the court possessed exclusive jurisdiction over a group of insurance policies and their proceeds, at issue in this case, and ruled that, other than a lawsuit involving the Stanford criminal defendants, "[n]o persons or entities may bring further claims related to the [Proceeds] in any forum other than" the district court. Neither of these latter two orders was timely appealed.
The policies issued to the Stanford entities covered, in different arrangements, losses and defense costs for the entities and their officers, directors and certain employees. At issue are the following policies: a Directors' and Officers' Liability and Company Indemnity Policy ("D&O"); a Financial Institutions Crime and Professional Indemnity Policy, including (a) first-party fidelity coverage for employee theft ("Fidelity Bond") and "[l]oss resulting directly from dishonest, malicious or fraudulent acts committed by an Employee," and (b) third-party coverage for professional indemnity ("PI Policy"); and an Excess Blended "Wrap" Policy ("Excess Policy"). The policy limits are as follows:
Stanford Bank Entities Stanford Brokerage Entities
D&O Policy $5 million $5 million
PI Policy $5 million per Claim $5 million per Claim
$10 million aggregate $10 million aggregate
Fidelity $5 million per Loss $5 million per Loss
Bond $10 million aggregate $10 million aggregate
Excess $45 million each Claim or Loss/$90 million aggregate
Policy
The maximum amount of remaining coverage is disputed. According to the district court, the Underwriters have paid some $ 30 million in claims under the policies for insureds' defense costs. Underwriters contend that only $ 46 million remains available because the losses resulted from a single event—the Ponzi scheme. The Receiver argues that the conduct implicates the aggregate loss limits up to $ 101 million of remaining coverage. The questions of coverage ultimately depend on the identity of the insureds under each policy and the nature of the claims, and these issues are hotly contested. The Stanford corporate entities are insured under all of the policies, but Stanford directors, officers, and employees are coinsureds only under the D&O, PI, and Excess policies.1 Each policy is subject to multiple definitions and exclusions. After the Receiver made numerous claims for coverage under the policies (the "Direct Claims") that were met with Underwriters' denial based on policy exclusions, several lawsuits ensued.
The Receiver also pursued the policy proceeds indirectly by filing lawsuits (the "Indirect Claims") against hundreds of former Stanford directors, officers, and employees, alleging fraudulent transfers and unjust enrichment and/or breach of fiduciary duty. The Receiver obtained a $ 2 billion judgment against one former Stanford International Bank director and a $ 57 million judgment against a former Bank treasurer, both of whom were potentially covered under the policies. The Receiver continues to litigate similar claims against the coinsured Appellants who were Stanford managers and employees. See, e.g. , Stanford International Bank, Ltd., et al., v. James R. Alguire, et al. , No. 3:09-CV-0724-N (N.D. Tex., filed Dec. 18, 2019).
After eight years of sparring, the Receiver and Underwriters, together with the court-appointed Examiner on behalf of Stanford investors, mediated their disputes for several months in 2015. Mediation initially resulted in a Settlement Proposal under which the Underwriters agreed to pay the Receiver $ 65 million, and in return the Receiver would "fully release any and all insureds under the relevant policies." The purpose of the complete release was to shield the Underwriters from any policy obligations to defend or indemnify former Stanford personnel, including the employee Appellants, in the Receiver's Indirect Claim lawsuits. The parties almost immediately disagreed about the content of the settlement, however, and the Underwriters filed an Expedited Motion to Enforce the Settlement Agreement. The district court denied the motion and instructed the parties to continue negotiating. On June 27, 2016, the Receiver and Underwriters notified the court that they had entered into a new settlement agreement, which the Examiner supported.
Under this new settlement, the Underwriters again agreed to pay $ 65 million into the receivership estate, but the settlement required orders barring all actions against Underwriters relating to the policies or the Stanford Entities. Paragraph 35 of the settlement provides Underwriters the unqualified right to withdraw from the settlement if the court refuses to issue the bar orders. The bar orders were necessary because, unlike the terms of the first proposed settlement, the Receiver is...
To continue reading
Request your trial
-
Neutra, Ltd. v. Terry (In re Acis Capital Mgmt., L.P.), Civil Action No. 3:18-CV-1056-D
...to the bankruptcy court. Cf. Zale , 62 F.3d at 763-64.34 The Fifth Circuit's recent decision in SEC v. Stanford International Bank, Ltd. , 927 F.3d 830, 840-43 (5th Cir. 2019), is not to the contrary. The Stanford panel interpreted Zale 's discussion of certain limits on a bankruptcy court'......
-
Dig. Media Sols. v. S. Univ. of Ohio
...abuses its discretion if its decision rests on a legal mistake. See Koon v. United States, 518 U.S. 81, 100 (1996); cf. Lloyd's, 927 F.3d at 842-43. And this requires us to answer a legal question: Did the district court have the power to enter the Bar Order that enjoined the Art Students' ......
-
Zacarias v. Official Stanford Int'l Bank, Ltd.
...under its "wasting" insurance policy.Our decision is consistent with this court’s decision in SEC v. Stanford International Bank, Limited. (Lloyds ) reviewing bar orders entered by the same receivership court in connection with the Stanford receiver’s $65 million settlement with insurance u......
-
Zacarias v. Stanford Int'l Bank, Ltd., 17-11073 CONSOLIDATED WITH 17-11114, 17-11122, 17-11127, 17-11128, 17-11129
...be said of BMB: continued litigation would eat away at the limited funds available under its "wasting" insurance policy.66 e. Zacarias and Lloyds do not conflict. Each responded to distinct, critical differences in fact. Lloyds reviewed bar orders entered by the same receivership court in c......