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Janvey v. Gmag, L.L.C.

United States Court of Appeals, Fifth Circuit

May 24, 2019

RALPH S. JANVEY, in his Capacity as Court-Appointed Receiver for the Stanford International Bank Limited et al, Plaintiff - Appellant
v.
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

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

          Before STEWART, Chief Judge, and DENNIS and WILLETT, Circuit Judges.

         ON PETITION FOR PANEL REHEARING

          PER CURIAM.

         The original opinion in this case was filed on January 9, 2019. Janvey v. GMAG, LLC, 913 F.3d 452 (5th Cir. 2019). There, we held that a transferee on inquiry notice of a transfer's fraudulent nature is not entitled to the Texas Uniform Fraudulent Transfer Act's ("TUFTA") good faith affirmative defense. Because the jury determined that the Defendants-Appellees were on inquiry notice of the fraudulent nature of transfers received from a Ponzi scheme, we reversed the district court's judgment and rendered judgment in favor of the Plaintiff-Appellant. Defendants-Appellees submitted a petition for panel rehearing and a petition for rehearing en banc, which are now pending before the court. In these petitions, Defendants-Appellees requested, in the alternative, that we certify a question to the Supreme Court of Texas on grounds that interpreting TUFTA's good faith defense is a significant issue of first impression, and the panel's interpretation differs from that of other jurisdictions to analyze their own Uniform Fraudulent Transfer Act ("UFTA") good faith defenses.

         The petition for panel rehearing is GRANTED, the original opinion is VACATED, and the panel substitutes the following opinion certifying a question to the Supreme Court of Texas.

         CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT TO THE SUPREME COURT OF TEXAS, PURSUANT TO THE TEXAS CONSTITUTION ART. 5 § 3-C AND TEXAS RULE OF APPELLATE PROCEDURE 58.1.

         I. BACKGROUND

         The SEC 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.

         Defendants-Appellees 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.

         Bloomberg 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.

         Later 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.

         The receiver sued Magness to recover funds under theories of (1) TUFTA fraudulent transfer 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.

         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 ...


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