Janvey v. Alguire

Decision Date15 December 2010
Docket NumberNo. 10-10617,10-10617
Citation628 F.3d 164
PartiesRalph S. JANVEY, Plaintiff-Appellee, v. James R. ALGUIRE, Victoria Anctil, Tiffany Angelle, Sylvia Aquino, Jonathan Barrack, et al. 1; Teral Bennett, Susana Cisneros, Ron Clayton, James Fontenot, Mark Groesbeck, et al. 2; and Jason Green, Defendants-Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

Kevin M. Sadler (argued), David Todd Arlington, Baker Botts, L.L.P., Austin,TX, Timothy Stuart Durst, Baker Botts, L.L.P., Ben L. Krage, Krage & Janvey, L.L.P., Dallas, TX, for Janvey.

Bradley Wayne Foster (argued), Matthew Griffith Nielsen, Andrews Kurth, L.L.P., Dallas, TX, for Alguire, Anctil, Angelle, Aquino, Barrack, and et al. 1.

Michael John Stanley (argued), Stanley, Frank & Rose, L.L.P., Houston, TX, for Bennett, Cisneros, Clayton, Fontenot, Groesbeck and et al. 2.

John Patrick Kincade, Winstead, P.C., Dallas, TX, for Green.

Appeal from the United States District Court for the Northern District of Texas.

Before STEWART, PRADO and ELROD, Circuit Judges.

PRADO, Circuit Judge:

The Securities Exchange Commission ("SEC") brought suit against Stanford Group Company ("SGC"), along with various other Stanford corporate entities, including Stanford International Bank ("SIB"), for allegedly perpetrating a massive Ponzi scheme.1 The district court appointed Robert Janvey (the "Receiver") to marshal the Stanford estate. In November, this Court heard Janvey v. Adams, 588 F.3d 831 (5th Cir.2009),2 a case concerning the frozen accounts of Stanford investors. Although the Fifth Circuit ordered the district court to thaw the accounts of the Stanford investors, the Receiver subsequently obtained a preliminary injunction against numerous former financial advisors and employees of SGC, freezing the accounts of those individuals pending the outcome of trial.3

In this interlocutory appeal, the Employee Defendants contend that the district court should have granted their motion to compel arbitration, and that the district court had no power to grant the preliminary injunction when the motion to compel arbitration was pending. Additionally, the Employee Defendants claim that the district court abused its discretion when it granted the preliminary injunction, and that the Receiver's calculation of the amounts subject to the injunction was overly broad. The Bennett Defendants appeal separately, claiming that the district court erroneously found that SGC operated as a Ponzi scheme.

We hold that (1) the district court had the power to decide the motion for preliminary injunction before deciding the motion to compel arbitration; (2) the district court did not abuse its discretion in granting a preliminary injunction; (3) the preliminary injunction was not overbroad; (4) the district court acted within its power to grant a Texas Uniform Fraudulent Transfer Act ("TUFTA") injunction rather than an attachment;and (5) the Receiver's claims are not subject to arbitration.

I. FACTUAL AND PROCEDURAL BACKGROUND
A. Stanford, the Receiver, and Adams

This appeal shares its background facts with this Court's prior Adams opinion:

This case arises out of an alleged multi-billion-dollar Ponzi scheme perpetrated by the Stanford companies .... According to the SEC, the companies' core objective was to sell certificates of deposit ("CDs") issued by [SIB]. Stanford achieved and maintained a high volume of CD sales by promising above-market returns and falsely assuring investors that the CDs were backed by safe, liquid investments. For almost 15 years, [SIB] represented that it consistently earned high returns on its investment of CD sales proceeds, ranging from 12.7% in 2007 to 13.93% in 1994. In fact, however, [SIB] had to use new CD sales proceeds to make interest and redemption payments on pre-existing CDs, because it did not have sufficient assets, reserves and investments to cover its liabilities.
The SEC filed suit against R. Allen Stanford, [SIB], and related companies on February 16, 2009. At the SEC's request, the district court issued a temporary order restraining the payment or expenditure of funds belonging to the Stanford parties. The district court also appointed [the Receiver] for the Stanford interests and granted him the power to conserve, hold, manage, and preserve the value of the receivership estate.

588 F.3d at 833. At the time the SEC filed suit, Stanford should have held assets of greater than seven billion dollars, but actually held assets of less than $1 billion.

Post-appointment, the Receiver froze millions of dollars in assets. These frozen accounts allegedly contained funds dispersed by Stanford as purported interest on CDs, reimbursement of CD principle, or compensation to former Stanford employees. After time for review and assessment, the district court set a date to thaw the frozen assets and ordered the Receiver to complete his review. Adams, 588 F.3d at 833. The Receiver subsequently filed a series of claims, naming hundreds of CD investors and the Employee Defendants as "relief defendants," and seeking to recover funds from the frozen accounts. The district court severed the investor defendants from the Employee Defendants.

The Receiver sought a preliminary injunction to continue the freeze as to the investor defendants, which the district court granted in part and denied in part, maintaining the freeze of the accounts of various CD investors who had received payments of interest on their CDs. In Adams, the Fifth Circuit vacated the district court's grant of a preliminary injunction. 588 F.3d at 835. The Adams Court found that the CD investors could not be properly named as "relief defendants" because the CD investors had actual ownership interests in the CDs and any proceeds of the CDs. Id. at 834-35. This Court did not address the Employee Defendants' frozen accounts.

B. Post-Adams Developments, the Employee Defendants, and the Instant Appeal

The remaining frozen accounts represent accounts held at Pershing LLC and JP Morgan Clearing Corp. by the Employee Defendants. After Adams, the Receiver amended his complaint against the Employee Defendants, leaving claims only for fraudulent transfer or unjust enrichment.

The Receiver subsequently reached a series of compromises with the Employee Defendants, allowing for partial releases of their frozen assets. The district court eventually entered an agreed order (the "April 6th Order"), releasing all but "(1) commissions earned from the sale of SIB CDs; (2) SIB quarterly bonuses; and (3) branch managing-director quarterly compensation."

With the account freeze due to expire, the Receiver moved for a preliminary injunction to continue the freeze as to the funds named in the April 6th Order. The Receiver claimed that the three named classes of funds represented payments by Stanford to the Employee Defendants from the proceeds of the Ponzi scheme and therefore constituted fraudulent transfers, entitling the Receiver to disgorgement of those assets.

The Employee Defendants opposed the preliminary injunction and moved to compel arbitration. They based their motion to compel on the existence of Promissory Notes between the Employee Defendants and SGC. The Promissory Notes concerned upfront loan payments that SGC paid to the Employee Defendants when they joined Stanford. The Promissory Notes contained a broad arbitration clause, which provided that any dispute "arising out of or relating to this Note ... would be submitted and settled by arbitration pursuant to the constitution, bylaws, rules, and regulations of the Financial Industry Regulation Authority (FINRA)" or the National Association of Securities Dealers ("NASD"), FINRA's predecessor. The Employee Defendants argued that because the Receiver "stood in the shoes" of SGC, the Receiver was also bound by the arbitration clause between the Employee Defendants and SGC.

The district court granted a temporary restraining order, and then granted the preliminary injunction. The district court did not decide the merits of the motion to compel arbitration, finding that it had the power to issue a preliminary injunction pending resolution of that matter. Additionally, the district court distinguished between a preliminary injunction under the Texas Uniform Fraudulent Transfer Act ("TUFTA") and a writ of attachment, expressly granting the former. In granting the preliminary injunction, the district court continued the account freeze as to the amounts named in the April 6th Order. Various Employee Defendants appealed.

II. DISCUSSION

Various groups of the Employee Defendants have set forth five issues on appeal: (1) whether the district court had the power to grant a preliminary injunction before deciding the motion to compel arbitration; (2) whether the district court abused its discretion when it granted the preliminary injunction; (3) whether the district court's preliminary injunction is overbroad; (4) whether the district court properly granted a preliminary injunction rather than a writ of attachment; and (5) whether the Receiver's claims against the Employee Defendants are subject to arbitration. We address the five issues in turn.

A. Jurisdiction and Standard of Review for the Preliminary Injunction Order

The Panel has jurisdiction over the appeal of the district court's preliminary injunction under 28 U.S.C. § 1292(a)(1).4

While "the standard to be applied by the district court in deciding whether a plaintiff is entitled to a preliminary injunction is stringent, the standard of appellate review is simply whether the issuance of the injunction, in the light of the applicable standard, constituted an abuse of discretion." Doran v. Salem Inn, Inc., 422 U.S. 922, 931-32, 95 S.Ct. 2561, 45 L.Ed.2d 648 (1975). Despite this deferential standard, "a decision grounded in erroneous legal principles is reviewed de novo." Byrum v. Landreth, 566 F.3d 442, 445 (5th Cir.2009) (citations omitted) (quotation marks omitted). As to each element of the district court's preliminary-injunction analysis, the...

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