913 F.3d 452
5th Cir.2019Background
- The SEC uncovered the Stanford International Bank (SIB) Ponzi scheme in 2009; over 18,000 investors lost about $7 billion. A receiver, Ralph Janvey, was appointed to recover assets for victims.
- Gary D. Magness and related entities purchased $79 million in SIB CDs (2004–2006). In October 2008, Magness received $88.2 million in cash/loans from SIB, repaying most with accrued (paper) interest and $700,000 cash.
- The receiver sued to recover fraudulent transfers under the Texas Uniform Fraudulent Transfer Act (TUFTA) and for unjust enrichment; $8.5 million previously was returned by Magness as funds in excess of original investment.
- The district court submitted to the jury whether Magness had inquiry notice (not actual knowledge) of the Ponzi scheme and whether an investigation would have been futile; jury found inquiry notice but that investigation would have been futile.
- The district court applied a bankruptcy-law-derived “futility exception” to TUFTA good faith and held Magness satisfied TUFTA’s good faith defense; the receiver appealed.
- The Fifth Circuit rejected the futility exception under TUFTA, held that inquiry notice defeats the good-faith defense as a matter of law, reversed the district court, and rendered judgment for the receiver.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether TUFTA’s good-faith defense permits a transferee on inquiry notice to avoid liability by showing an investigation would have been futile | Janvey: Inquiry notice alone defeats good-faith; no futility exception under TUFTA | Magness: TUFTA should incorporate a diligent-investigation requirement/futility exception from Bankruptcy §548(c) jurisprudence | Court: Inquiry notice defeats TUFTA good-faith; futility exception rejected |
Key Cases Cited
- BMG Music v. Martinez, 74 F.3d 87 (5th Cir. 1996) (UFTA/TUFTA purpose to prevent debtors’ bad-faith transfers)
- GE Capital Commercial, Inc. v. Worthington Nat'l Bank, 754 F.3d 297 (5th Cir. 2014) (endorsing Hahn’s objective good-faith analysis for TUFTA)
- Hahn v. Love, 321 S.W.3d 517 (Tex. App.—Houston [1st Dist.] 2009) (adopting objective inquiry-notice rule: inquiry notice defeats TUFTA good faith)
- Templeton v. O'Cheskey, 785 F.3d 143 (5th Cir. 2015) (discussing §548(c) diligent-investigation requirement in bankruptcy context)
- Janvey v. Democratic Senatorial Campaign Comm'n, Inc., 712 F.3d 185 (5th Cir. 2013) (using bankruptcy jurisprudence to interpret certain TUFTA provisions)
- Montano v. Orange County, 842 F.3d 865 (5th Cir. 2016) (standard of review for renewed JMOL)
- Jimmy Swaggart Ministries v. Hayes, 310 F.3d 796 (5th Cir. 2002) (noting §548(c) and its application are unsettled)
- Citizens Nat'l Bank of Tex. v. NXS Constr., Inc., 387 S.W.3d 74 (Tex. App.—Houston [14th Dist.] 2012) (holding actual knowledge or inquiry notice defeats TUFTA good faith)