The receiver of the Allen Stanford businesses sued several investors for receiving fraudulent conveyances. In earlier appeals, the Fifth Circuit resolved other thresehold issues in these cases; in Janvey v. Alguire, the Court reviewed the denials of the defendants’ motions to compel arbitration. It affirmed, rejecting their arguments based on arbitration clauses in various Stanford-related documents: “Because the Receiver may sue on behalf of any of the Stanford entities that has a claim against the defendants, becausehe has chosen to sue on behalf of the Bank, which has not consented to arbitrate claims against any of the defendants [except for one, who waived the issue], and because none of the equitable doctrines urged by the defendants applies, the Receiver cannot be compelled to arbitate his claims against these defendants.” No. 14-10945 et al. (Jan. 31, 2017).
After a bad start in the Fifth Circuit, the Golf Channel ultimately prevailed in the Texas Supreme Court in a fraudulent transfer case against the Allen Stanford receiver. The Channel ran advertisements for Stanford’s golf business in exchange for payments of roughly $6 million. The issue was whether the “value” of those ads, for purposes of the Channel’s defenses under TUFTA, “became valueless based on the true nature of the debtor’s business as a Ponzi scheme or the debtor’s subjective reasons for procuring otherwise lawful services.” The Texas Supreme Court ruled for the Channel, finding that “TUFTA does not contain separate standards for assessing ‘value’ and ‘reasonably equivalent’ value based on whether the debtor was operating a Ponzi scheme. . . . “[V]alue must be determined objectively at the time of the transfer and in relation to the individual exchange at hand rather than viewed in the context of the debtor’s entire enterprise, . . . the debtor’s perspective, or . . . a retrospective evaluation of the impact it had on the debtor’s estate.” Janvey v. Golf Channel, No. 15-0489 (Tex. Apr. 1, 2016).
Peter Romero, among the multitudes sued for fraudulent transfers by the receiver for Stanford International Bank, argued that limitations had run because the receiver had not sued within a year of when the transfer “was or could reasonably have been discovered by the claimaint.” The receiver offered detailed proof about the overall timetable of his work, its substantive scope, its geographic scope, and the condition of the relevant documents and electronic records. An accountant corroborated his account. This was sufficient information to sustain the jury’s finding in favor of the receiver (on a question using a specific date, unlike the standard Texas PJC submission). Janvey v. Romero, No. 15-10435 (March 16, 2016).
The receiver for the affairs of Allen Stanford assigned some fraudulent transfer claims to a committee of creditors. The defendants moved to dismiss, arguing that while a federal court may hear the claims of a federally-appointed receiver, it may not hear those brought by his assignee. The panel majority, noting that “[n]either side of this dispute has cited any controlling cases” on the point, found that the district court did not “clearly and indisputably err, if it erred at all,” because the point did not have a clear resolution. A dissent would have heard the case, observing: “It is unfortunate that the [defendants] should be forced to litigate this case to conclusion, if they can afford it, before resolving this difficult and novel jurisdictional issue.” In re American Lebanese Syrian Associated Charities, No. 15-11188 (March 3, 2016). This exchange echoes several others in recent years about mandamus and the balance of power between the trial and appellate levels of the court system. (Thanks to 600Camp friend Jeff Levinger for flagging this one.)
Allen Stanford spent close to $6 million advertising his investment firm on the Golf Channel. After his empire collapsed, the receiver sued the Golf Channel under the Texas fraudulent transfer statute. The Channel successfully defended in the district court on the ground that it gave reasonably equivalent value. Janvey v. The Golf Channel, No. 13-11305 (March 11, 2015). Unfortunately for the Channel, because the receiver proved Stanford was running a Ponzi scheme, the question was whether it gave value from the perspective of the creditors, not whether it provided quality advertising from the perspective of Stanford’s business operation. “Golf Channel argues that its advertising services did not further the Stanford Ponzi scheme and that the $5.9 million reasonably represents the market value of those services. . . . TUFTA makes no distinction between different types of services or different types of transferees, but requires us to look at the value of any services from the creditors’ perspective. We have no authority to create an exception for ‘trade creditors.'” Accordingly, the Fifth Circuit reversed.
The Court released a revised opinion in Janvey v. Democratic Senatorial Campaign Committee, No. 11-10704 (originally issued October 23, 2012; revised March 18, 2013). The expanded opinion withdraws the earlier holding that a federal equity receiver has standing to assert creditors’ fraudulent transfer claims arising from a Ponzi scheme. The Court now holds that the receiver only has standing to assert the claims of the entities in receivership, but those entities are not considered to be “in pari delicto” with the operator of the scheme: “The appointment of the receiver removed the wrongdoer from the scene. The corporations were no more [the perpetrator’s] evil zombies.” Id. at 6 (quoting Eberhard v. Marcu, 530 F.3d 122, 132 (2d Cir. 2008), and citing Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (Posner, C.J.)).
“The central issue on appeal is whether a court can establish a receivership to control a vexatious litigant.” Applying an abuse of discretion standard, the Fifth Circuit answered “no” on the facts of Netsphere v. Baron, No. 10-11202 (Dec. 18, 2012). The Court reviewed and rejected several rationales for imposing a receivership on a portfolio of disputed domain names, including preservation of jurisdiction, bringing closure to long-running litigation, payment of a series of attorneys and controlling vexatious litigation. It then addressed how to handle the fees related to the vacated receivership. The opinion thoroughly reviews prior Circuit precedent about the reasons for and proper boundaries of a receivership. A Dallas Observer article adds some backstory about the dispute.