Janvey v. Democratic Senatorial Campaign Comm., Inc.

• Citation: 712 F.3d 185
• Decision Date: 18 March 2013
• Docket Number: No. 11–10704.,11–10704.
• Parties: Ralph S. JANVEY, as Court–Appointed Receiver for the Stanford International Bank, Ltd., et al., Plaintiff–Appellee, v. DEMOCRATIC SENATORIAL CAMPAIGN COMMITTEE, INC.; Democratic Congressional Campaign Committee, Inc.; National Republican Congressional Committee; Republican National Committee; and National Republican Senatorial Committee, Defendants–Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

712 F.3d 185

Ralph S. JANVEY, as Court–Appointed Receiver for the Stanford International Bank, Ltd., et al., Plaintiff–Appellee,

v.DEMOCRATIC SENATORIAL CAMPAIGN COMMITTEE, INC.; Democratic Congressional Campaign Committee, Inc.; National Republican Congressional Committee; Republican National Committee; and National Republican Senatorial Committee, Defendants–Appellants.

No. 11–10704.

United States Court of Appeals,

Fifth Circuit.

March 18, 2013.

Kevin M. Sadler, Scott Daniel Powers, Baker Botts, L.L.P., Austin, TX, for Plaintiff–Appellee.

Robert P. Latham, Matthew C. Acosta, Jackson Walker, L.L.P., Mark A. Shank, Gruber, Hurst, Johansen, Hail & Shank, L.L.P., Dallas, TX, Brian G. Svoboda, John Michael Devaney, Counsel, Marc Erik Elias, Attorney, John Kuropatkin Roche, Perkins Coie, L.L.P., Washington, DC, Noah Guzzo Purcell, Perkins Coie, L.L.P., Seattle, WA, for Defendants–Appellants.

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

Before JOLLY, BENAVIDES, and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

Acting on our own motion, in order to correct error in our prior opinion, Janvey v. Democratic Senatorial Campaign Committee, Inc., 699 F.3d 848 (5th Cir.2012), we withdraw that opinion and substitute the following:

* * *

R. Allen Stanford (“Stanford”) created and perpetrated a “Ponzi scheme” ¹ that has given rise to issues of fraudulent-conveyance law, which this appeal requires us to consider. What follows is a simplified overview of how the scheme operated: Stanford created and owned Stanford International Bank, Ltd. (“SIBL”) and a network of other entities (collectively, the “Stanford corporations”) through which he sold certificates of deposit (“CDs”) to the investing public, promising buyers extraordinarily high rates of return. Through his corporations, Stanford represented 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. The vast majority of the money thus raised, however, was not reinvested in legitimate securities but rather was used mainly to pay investors the promised returns. These payments gave the scheme credibility, enabling Stanford to sell additional CDs. Although precisely when the scheme was launched is not certain, the Receiver presented the expert opinion of a certified public accountant, Karyl Van Tassel (“Van Tassel”), who, upon review of the Stanford corporations' books, interviews with numerous employees, and examination of a number of investors' and other institutions' records, together with the guilty plea and rearraignment statements of James M. Davis (“Davis”), Stanford's Chief Financial Officer, determined that the Stanford Ponzi scheme began and was insolvent as early as 1999 and that it was continuously operated in this manner and condition until it began to unravel in October 2008. By the time the scheme collapsed in February 2009, the Stanford corporations had raised in excess of $7 billion from the sale of the fraudulent CDs. Stanford and Davis were prosecuted for and convicted of numerous federal offenses in their operation of the Ponzi scheme and are currently serving federal prison sentences.

The Securities and Exchange Commission (“the SEC”) brought a civil suit against Stanford, his agents, and his corporations on February 16, 2009, charging multiple violations of federal securities laws. The SEC asked the district court to appoint a receiver for Stanford and his companies in order to preserve the Stanford corporations' resources and pursue the corporations' assets that were in the hands of third parties as the result of fraudulent conveyances. The court obliged, appointing Ralph S. Janvey (“the Receiver”) as receiver over Stanford, his associates, his corporations, and their assets on February 16, 2009.

I. Factual and Procedural Background

Pursuant to his duty as court-appointed receiver, Janvey filed this fraudulent-transfer suit on February 19, 2010 against several national political committees (collectively, “the Committees”) ² to recover approximately $1.8 million in political contributions that Stanford, Davis, and the Stanford corporations made to the Committees over a period covering the nine years between 2000 and 2008. The parties agree that between February 2000 and May 2008, Stanford, Davis, and the Stanford corporations made forty-nine contributions totaling: $950,500 to the DSCC; $200,000 to the DCCC; $128,500 to the RNC; $83,345 to the NRSC; and $238,500 to the NRCC. The law under which the Receiver proceeded is the Texas Uniform Fraudulent Transfer Act (“TUFTA”), Tex. Bus. & Com.Code § 24.001 et seq.³ The Committees moved to dismiss, and the Republican Committees moved for summary judgment, on the grounds that the Receiver's suit was untimely under TUFTA and that TUFTA is preempted by federal law as to political contributions to the Committees. Additionally, the Receiver moved for summary judgment on the TUFTA claims. The district court denied the Committees' motions and granted summary judgment in favor of the Receiver against each of the Committees and entered a judgment against the Committees in the amount of the contributions made as fraudulent conveyances. The Committees appealed.

II. Standing and Knowledge in Ponzi–Scheme Cases

At the threshold, we confront and correct errors of law pertaining to standing and imputed knowledge, relied on by the parties and the district court and based on this court's erroneous prior, withdrawn opinions, that could otherwise affect our correct understanding and decision of the questions presented by this case. In previous panel opinions, now withdrawn, this court erroneously asserted that a federal equity receiver has standing to assert the claims of the investor-creditors of a corporation in receivership against third-party transferees who receive assets of the corporation that were fraudulently conveyed to them by the principal of a Ponzi scheme who owned the corporation and used its funds to make the transfers. See Janvey, 699 F.3d at 848 (withdrawn by the instant opinion); Janvey v. Alguire, 628 F.3d 164 (5th Cir.2010) (Alguire I ), withdrawn, Janvey v. Alguire, 647 F.3d 585 (5th Cir.2011) (Alguire II ). Relying on that error of law, the district court in the present case reasoned that, because the Receiver had standing to assert, and was asserting, the claims of investor-creditors of the corporations in receivership, rather than the claims of the corporations themselves, knowledge of the principal's fraud could not be imputed to the investor-creditors or cause the limitations period to run against their claims. The district court's result was correct, but the rationale it used was wrong. As we explain more fully below, a federal equity receiver has standing to assert only the claims of the entities in receivership, and not the claims of the entities' investor-creditors, but the knowledge and effects of the fraud of the principal of a Ponzi scheme in making fraudulent conveyances of the funds of the corporations under his evil coercion are not imputed to his captive corporations. Thus, once freed of his coercion by the court's appointment of a receiver, the corporations in receivership, through the receiver, may recover assets or funds that the principal fraudulently diverted to third parties without receiving reasonably equivalent value.

The leading case explaining the principles that govern a federally appointed receiver's action under a state law adopting the Uniform Fraudulent Transfer Act (“UFTA”) to recover assets that the operator of a Ponzi scheme caused to be fraudulently transferred to a third party without fair consideration is Scholes v. Lehmann, 56 F.3d 750 (7th Cir.1995), cert. denied sub nom. African Enter., Inc. v. Scholes, 516 U.S. 1028, 116 S.Ct. 673, 133 L.Ed.2d 522 (1995). In that case, Judge Posner explained that an equity receiver may sue to redress only injuries to the entity in receivership, id. at 753 (citing Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972)), but that a receiver may sue on behalf of the receivership entity under a state uniform-fraudulent-transfer law to recover assets fraudulently transferred by the Ponzi-scheme principal without commensurate consideration to third parties. Id. at 753–55. In Eberhard v. Marcu, the Second Circuit summarized Scholes as follows:

In Scholes, Michael Douglas created three corporations and caused them, in turn, to create limited partnerships. The corporations were the general partners and sold limited partner interests to investors in a Ponzi scheme. In the civil enforcement action, the district court appointed one receiver to represent both Douglas and the corporations, who then sought to recover assets conveyed to third parties. Those third parties argued that the receiver was suing on behalf of the investors, not Douglas or the corporations, and lacked standing to do so. The Seventh Circuit disagreed, noting that the corporations—“Douglas's robotic tools”—were still distinct legal entities with separate rights and duties. “The appointment of the receiver removed the wrongdoer from the scene. The corporations were no more Douglas's evil zombies. Freed from his spell they became entitled to the return of the moneys ... that Douglashad made the corporations divert to unauthorized purposes.”

Once the “zombie” corporations were under the control of the receiver, the receiver's only object was “to maximize the value of the corporations for the benefit of their investors and any creditors.” The receiver pressed a claim that the corporations had a right to a return of their assets that had been distributed by Douglas in his scheme. Because Douglas controlled the corporations completely, the transfers were, in essence, coerced.

530 F.3d 122, 132 (2d Cir.2008) (footnote omitted) (citations omitted).

In Scholes, the court ad...