Janvey v. Brown

• Decision Date: 11 September 2014
• Docket Number: 13–10276,13–10272,Nos. 13–10266,13–10279.,s. 13–10266
• Parties: Ralph S. JANVEY, Plaintiff–Appellee v. James BROWN; Robert Bush; Gene Causey; Joseph Chustz; Darrell Courville; et al; Thomas H. Turner ; Tarral E. Daigle; Jeff P. Purpera, Jr.; Daniel Joseph Daigle; Jilda Ann Daigle; Robert S. Greer; Alice D. Greer; Gmag, L.L.C.; Gary D. Magness Irrevocable Trust; Gary D. Magness; Magness Securities, L.L.C. ; David Topp; Dora Topp; Risia Topp Wine; Henry A. Mentz, III, Defendants–Appellants. Ralph S. Janvey, In his capacity as Court–Appointed Receiver for the Stanford International Bank, LTD et al, Plaintiff–Appellee v. James D. Holden; Henrietta M. Holden; Betty Jo Forshag; Judy Palmisano Jones; William L. Lafuze, Enrique Paredes; Marianne Paredes; Equus Viii, L.L.C.; Moore, Moore and Moore, L.L.C.; Namda Investment Group, L.L.C.; Estate of Nathan Allen Moore; Sococo L.T.D.A.; Eduardo Najera; Jennifer Najera; Michael E. Staid, Defendants–Appellants. Receiver Ralph S. Janvey, Plaintiff–Appellee v. Sartin Living Trust 1994; Rafael Bermudez ; Gerald W. Tonner; Mary E. Tonner, Defendants–Appellants. Receiver Ralph S. Janvey, Plaintiff–Appellee v. Edward S. Rubin Estate and Robert Rubin, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

767 F.3d 430

Ralph S. JANVEY, Plaintiff–Appellee

v.James BROWN;

Robert Bush;

Gene Causey;

Joseph Chustz;

Darrell Courville;

et al;

Thomas H. Turner ;

Tarral E. Daigle;

Jeff P. Purpera, Jr.;

Daniel Joseph Daigle;

Jilda Ann Daigle;

Robert S. Greer;

Alice D. Greer;

Gmag, L.L.C.;

Gary D. Magness Irrevocable Trust;

Gary D. Magness;

Magness Securities, L.L.C. ;

David Topp;

Dora Topp;

Risia Topp Wine;

Henry A. Mentz, III, Defendants–Appellants.

Ralph S. Janvey, In his capacity as Court–Appointed Receiver for the Stanford International Bank, LTD et al, Plaintiff–Appellee

v.James D. Holden;

Henrietta M. Holden;

Betty Jo Forshag;

Judy Palmisano Jones;

William L. Lafuze, Enrique Paredes;

Marianne Paredes;

Equus Viii, L.L.C.;

Moore, Moore and Moore, L.L.C.;

Namda Investment Group, L.L.C.;

Estate of Nathan Allen Moore;

Sococo L.T.D.A.;

Eduardo Najera;

Jennifer Najera;

Michael E. Staid, Defendants–Appellants.Receiver Ralph S. Janvey, Plaintiff–Appelleev.Sartin Living Trust 1994;

Rafael Bermudez ;

Gerald W. Tonner;

Mary E. Tonner, Defendants–Appellants.

Receiver Ralph S. Janvey, Plaintiff–Appellee

v.Edward S. Rubin Estate and Robert Rubin, Defendant–Appellant.

Nos. 13–10266

13–10272

13–10276

13–10279.

United States Court of Appeals, Fifth Circuit.

Sept. 11, 2014.

Kevin M. Sadler, Baker Botts, L.L.P., Palo Alto, CA, David Arlington, Attorney, Stephanie Frederique Cagniart, Attorney, Baker Botts, L.L.P., Austin, TX, Timothy Stuart Durst, Esq., Scott Daniel Powers, Baker Botts, L.L.P., Ben L. Krage, Esq., Krage & Janvey, L.L.P., Dallas, TX, for Plaintiff–Appellee.

Phillip W. Preis, Esq., Charles Malcolm Gordon, Jr., Esq., Preis Gordon, A.P.L.C., Baton Rouge, LA, Andrew J. Petrie, Ballard Spahr, L.L.P., Denver, CO, George G. Mahfood, Broad & Cassel, Miami, FL, Bill E. Davidoff, Figari & Davenport, L.L.P., Dallas, TX, Thomas Leonard David, Thomas L. David, P.A., Coral Gables, FL, for Defendant–Appellant.

David Topp, Doral, FL, pro se.

Risia Topp Wine, Doral, FL, pro se.

Jennifer Najera, Plano, TX, pro se.

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

Before HIGGINBOTHAM, CLEMENT, and HIGGINSON, Circuit Judges.

Opinion

PATRICK E. HIGGINBOTHAM, Circuit Judge:

In this Texas Uniform Fraudulent Transfer Act (“TUFTA”) case, plaintiff-appellee Ralph S. Janvey, the Receiver for the Stanford entities, seeks to recover funds that were paid to defendants-appellants, purchasers of certificate of deposits from Stanford International Bank, Ltd., as part of a Ponzi scheme. The district court granted the Receiver's motion for summary judgment, ordering defendants-appellants to return funds paid in excess of their original investments. Defendants-appellants timely appeal. We AFFIRM.

I

This case stems from the Stanford Ponzi scheme.¹ The Stanford Ponzi scheme has been the subject of numerous appeals, and the pertinent facts of this scheme are well-established. We recount briefly these relevant facts.

R. Allen Stanford created and owned a network of entities (the “Stanford entities”) that sold certificates of deposit (“CDs”) to investors through the Stanford International Bank, Ltd. (“SIB”).² These CDs promised investors extraordinarily high rates of return. Using the Stanford entities, Stanford and his employees would explain to “prospective investors that their funds would be reinvested in high-quality securities so as to yield the investors the high rates of return purportedly guaranteed by the CDs.”³ But, instead of actually investing the money raised by selling these CDs, Stanford used the money to pay prior investors their promised returns. By paying the prior investors these returns, Stanford, and the Stanford entities, developed credibility and a track record of supposed success, which in turn allowed them to recruit additional investors.⁴

Although it is unclear for how long the Stanford Ponzi scheme operated, the Receiver's expert witness, Karyl Van Tassel, a certified public accountant, examined the Stanford entities' books, interviewed prior employees, examined investors' and institutions' records, and considered the guilty plea and arraignment statement of Stanford's Chief Financial Officer, James M. Davis, to conclude (i) that the scheme “began and was insolvent as early as 1999,” and (ii) that the scheme operated continuously until October 2008.⁵ When the scheme collapsed in early 2009, the Stanford entities had raised over $7 billion from sales of fraudulent CDs.⁶

Stanford and Davis were convicted of numerous federal offenses, and are currently serving federal prison sentences.⁷ The Securities and Exchange Commission brought a civil suit against Stanford, his agents, and the Stanford entities, alleging violations of federal securities laws. At the SEC's request, the district court appointed Ralph S. Janvey (the “Receiver”) as receiver over the Stanford entities, and charged him with preserving corporate resources and recovering corporate assets that had been transferred in fraudulent conveyances.⁸

In following this charge, the Receiver has filed numerous fraudulent transfer claims against investors who profited from the Stanford Ponzi scheme. Although the vast majority of investors lost their entire investment, some investors profited, as they had withdrawn their investments prior to the collapse of the scheme. The Receiver now seeks disgorgement of these profits, as he alleges that these are fictitious profits that are in fact funds taken from other investors.

The defendants-appellants (“investor-defendants”) in this appeal are all investors who received back their principal, as well as supposed interest on this principal. In other words, as described by the district court and the Receiver, they are ‘net winners' in the Ponzi scheme. Except for one investor-defendant that we address below, it is undisputed that the investor-defendants at issue here were ‘net winners.’

The Receiver moved for partial summary judgment on the TUFTA claims at issue here, arguing that the payments made to the investor-defendants were fraudulent transfers and that no affirmative defenses are available to the defendants, as the payments were not made in exchange for reasonably equivalent value. The district court granted the motion for partial summary judgment, and the investor-defendants timely filed for leave to interlocutory appeal, which this court granted.

On appeal, the investor-defendants argue (i) that the district court erred in holding that TUFTA governed the Receiver's claims; (ii) that the district court erred in holding that the Receiver has standing under TUFTA to bring these claims; (iii) that the TUFTA claims are untimely; (iv) that the district court erred in holding that payments to the investor-defendants were fraudulent transfers made without an exchange for reasonably equivalent value; (v) that the investor-defendants' assets in Individual Retirement Accounts (“IRAs”) are exempted from TUFTA; and, (vi) that fact issues remain as to whether certain investor-defendants are in fact ‘net winners.’ We address each issue in turn.

II

Our analysis begins with the choice of law question. “We conduct a de novo review of choice-of-law issues[.]”⁹ It is well-settled that choice of law issues for supplemental state law claims, such as the fraudulent transfer claims at issue here, are governed by the forum state in which the federal court is sitting.¹⁰ Here, the forum state is Texas, and “Texas courts follow the ‘most significant relationship’ test outlined in the Restatement (Second) of Conflict of Laws[.]”¹¹

The district court, applying Texas choice-of-law rules, concluded that TUFTA governed the Receiver's fraudulent transfer claims. The district court first determined that Texas state courts first conduct a ‘false conflict’ analysis, and would then only apply the Second Restatement's most significant relationship test where a true conflict exists.¹² Here, the district court concluded that any conflict between the law of Texas, the center of the Ponzi scheme, and the law of Antigua, SIB's place of incorporation, was a ‘false conflict,’ because Antigua “has no actual interest in this dispute.”¹³ Finally, the district court explained, as between Texas and other UFTA-enacting states, there is no conflict, because these states “have identical language in their fraudulent transfer provision, and that language is ‘virtually identical’ to the corresponding language in the Bankruptcy Code.”¹⁴ Thus, the district court concluded that “because there is no conflict of laws between UFTA-enacting states as relating to the instant motions, the Court need not undertake a choice-of-law analysis as between those states.”¹⁵

The investor-defendants argue that the district court's choice of law analysis was fundamentally flawed. They argue that the district court first erred in conducting a ‘false conflicts' analysis, thereby displacing the Second Restatement test for resolving a conflict of laws. And they argue that, even if the district court was correct in engaging in a ‘false conflicts' analysis, the district court erred in concluding that there was a false conflict. They next argue that the district court erred in ignoring SIB's separate corporate existence, and whether the corporate form should be ignored was a question of Antiguan law. Finally, they argue that a Second Restatement analysis compels the application of Antiguan law, not Texas law.

These arguments fail to persuade. To begin, the Texas Supreme Court, as well as several panels of the Texas Court of Appeals and this Court, apply the ‘false conflicts' analysis. In Duncan v. Cessna Aircraft Co.,¹⁶ the Texas Supreme Court engaged in a ‘false conflicts' analysis rather than engaging in a full Second Restatement analysis. The Duncan court first identified the “policies or ‘governmental interests,’ if any, of each state in the application of its rule.”¹⁷ Concluding that “[a]n analysis of the relevant state contacts reveals that New Mexico has no underlying interest in the application of its...