RALPH S. JANVEY, in his Capacity as Court-Appointed Receiver for the Stanford International Bank Limited et al, Plaintiff - Appellant
GMAG, L.L.C.; MAGNESS SECURITIES, L.L.C.; GARY D. MAGNESS; MANGO FIVE FAMILY INCORPORATED, in its Capacity as Trustee for the Gary D. Magness Irrevocable Trust, Defendants - Appellees
from the United States District Court for the Northern
District of Texas
STEWART, Chief Judge, and DENNIS and WILLETT, Circuit Judges.
E. STEWART, CHIEF JUDGE
case, arising out of the Stanford International Bank Ponzi
scheme, requires us to determine whether the Texas Uniform
Fraudulent Transfer Act's good faith affirmative defense
allows Defendants-Appellees to retain fraudulent transfers
received while on inquiry notice of the Ponzi scheme. We hold
it does not. We REVERSE the district court's judgment and
RENDER judgment in favor of the Plaintiff-Appellant.
uncovered the Stanford International Bank ("SIB")
Ponzi scheme in 2009. For close to two decades, SIB issued
fraudulent certificates of deposit ("CDs") that
purported to pay fixed interest rates higher than those
offered by U.S. commercial banks as a result of assets
invested in a well-diversified portfolio of marketable
securities. In fact, the "returns" to investors
were derived from new investors' funds. The Ponzi scheme
left over 18, 000 investors with $7 billion in losses. The
district court appointed Plaintiff-Appellant Ralph S. Janvey
("the receiver") to recover SIB's assets and
distribute them to the scheme's victims.
are Gary D. Magness and several entities in which he
maintains his wealth (collectively, "Magness").
Magness was among the largest U.S. investors in SIB. Between
December 2004 and October 2006, Magness purchased $79 million
in SIB CDs. As of November 2006, Magness's family
trust's investment committee monitored his investments,
including the SIB CDs.
reported in July 2008 that the SEC was investigating SIB. At
an October 2008 meeting, the investment committee persuaded
Magness to take back, at minimum, his accumulated interest
from SIB. The receiver asserts this decision was the result
of mounting skepticism about SIB. Magness asserts it was
because he was experiencing significant liquidity problems
given the tumbling stock market.
that month, Magness's financial advisor approached SIB
for a redemption. On October 9, 2008, SIB instead agreed to
loan Magness $25 million on his accumulated interest. SIB
applied Magness's outstanding "accrued CD
interest" to repay most of this loan. In other words,
Magness repaid $24.3 million of the $25 million loan with
"paper interest" and $700, 000 with cash. Between
October 24 and 28, 2008, Magness borrowed an additional $63.2
million from SIB. In total, Magness received $88.2 million in
cash from SIB in October 2008.
receiver sued Magness to recover funds under theories of (1)
fraudulent transfer pursuant to the Texas Uniform Fraudulent
Transfer Act ("TUFTA") and (2) unjust enrichment.
The receiver obtained partial summary judgment as to funds in
excess of Magness's original investment, and Magness
returned this $8.5 million in fraudulent transfers to the
receiver moved for partial summary judgment, seeking a ruling
that the remaining amounts at issue were also fraudulent
transfers. Magness moved for summary judgment on his TUFTA
good faith defense and the receiver's unjust enrichment
claim. The district court granted the receiver's motion
and denied Magness's motion.
before trial, the district court sua sponte
reconsidered its denial of Magness's motion for summary
judgment and rejected the receiver's unjust enrichment
claim. Thus, the only issue presented to the jury was whether
Magness received $79 million,  already determined to be
fraudulent transfers, in good faith. After Magness's
case-in-chief, the receiver moved for judgment on grounds
that (1) Magness was estopped from claiming he took the
transfers in good faith and (2) no reasonable jury could
conclude Magness established TUFTA's good faith defense.
The district court did not rule on the motion.
jury determined that Magness had inquiry notice that SIB was
engaged in a Ponzi scheme, but not actual knowledge. Inquiry
notice was defined in the jury instructions as
"knowledge of facts relating to the transaction at issue
that would have excited the suspicions of a reasonable person
and led that person to investigate." The jury also
determined that an investigation would have been futile. A
futile investigation was defined in the jury instructions as
one where "a diligent inquiry would not have revealed to
a reasonable person that Stanford was running a Ponzi
receiver moved for entry of judgment on the verdict, arguing
that the jury's finding of inquiry notice defeated
Magness's TUFTA good faith defense as a matter of law.
The receiver also renewed his motion for judgment as a matter
of law. The district court denied the receiver's motions
and held that Magness satisfied his good faith defense. The
receiver renewed his post-trial motions and moved for a new
trial. The court ...