925 F.3d 229
5th Cir.2019Background
- Stanford International Bank (SIB) operated a Ponzi scheme; receiver Ralph Janvey was appointed to recover assets for victims.
- Gary Magness invested ~$79 million in SIB CDs and in Oct 2008 redeemed/borrowed cash totaling $88.2 million, repaying most with accrued (paper) interest.
- The receiver sued under the Texas Uniform Fraudulent Transfer Act (TUFTA) and unjust enrichment; some transfers already returned and $79 million remained in dispute.
- A jury found Magness had inquiry notice of SIB’s fraud but lacked actual knowledge, and also found that an investigation would have been futile.
- The district court held that Magness satisfied TUFTA’s good faith defense (accepting a futility exception); the receiver appealed; the Fifth Circuit vacated its prior opinion and certified a question to the Texas Supreme Court.
Issues
| Issue | Plaintiff's Argument (Janvey) | Defendant's Argument (Magness) | Held |
|---|---|---|---|
| Whether inquiry notice alone defeats TUFTA good faith as a matter of law | Inquiry notice defeats good faith; transferee cannot keep defense if on inquiry notice | Transferee can retain good faith if a diligent inquiry would have been futile | Fifth Circuit found Texas authorities unsettled and certified the controlling question to the Texas Supreme Court |
| Whether TUFTA good faith requires a transferee on inquiry notice to conduct a diligent investigation | Good faith is defeated by inquiry notice regardless of investigation | TUFTA should require a diligent investigation to maintain good faith | Certified question asks whether good faith is available to one who had inquiry notice but did not investigate because investigation would have been futile |
| Whether a futility exception permits a transferee who did not investigate to keep the good faith defense | No futility exception should save a transferee who was on inquiry notice and did not inquire | A futility exception should apply when investigation would not have revealed fraud | Court certified the question whether non-investigation + proven futility preserves good faith to Texas Supreme Court |
| Whether Magness is estopped from denying actual knowledge of fraud | Janvey argued estoppel should prevent Magness from contesting actual knowledge | Magness disputed estoppel and maintained lack of actual knowledge | The Fifth Circuit did not resolve estoppel here; primary certified question concerns inquiry notice, investigation, and futility |
Key Cases Cited
- In re Katrina Canal Breaches Litig., 613 F.3d 504 (5th Cir.) (certification standards; when to seek state-law guidance)
- Free v. Abbott Labs., 164 F.3d 270 (5th Cir.) (federal precedent on Erie and certification practice)
- BMG Music v. Martinez, 74 F.3d 87 (5th Cir.) (purpose of UFTA/TUFTA to prevent debtors’ fraudulent transfers)
- GE Capital Commercial, Inc. v. Worthington Nat’l Bank, 754 F.3d 297 (5th Cir.) (discussing Hahn as leading Texas TUFTA good-faith analysis)
- In re Am. Hous. Found., 785 F.3d 143 (5th Cir.) (§ 548(c) jurisprudence recognizing diligent-investigation concept)
- Hahn v. Love, 321 S.W.3d 517 (Tex. App.) (defining TUFTA good faith as defeated by actual or inquiry notice)
- Citizens Nat’l Bank of Tex. v. NXS Constr., Inc., 387 S.W.3d 74 (Tex. App.) (upholding that inquiry or actual notice can defeat TUFTA good faith)
- Madison v. Gordon, 39 S.W.3d 604 (Tex.) (real-property inquiry notice principle that ties notice to what reasonable inquiry would have revealed)
- Strong v. Strong, 98 S.W.2d 346 (Tex.) (duty to search records in title inquiries; no futility exception in that context)
- Flores v. Robinson Roofing & Constr. Co., Inc., 161 S.W.3d 750 (Tex. App.) (burden on transferee to prove TUFTA good faith)