Ralph Janvey v. Oreste Tonarelli
847 F.3d 231
| 5th Cir. | 2017Background
- Allen Stanford ran a large Ponzi scheme through interconnected entities, including Stanford International Bank (the Bank) and the Stanford Group Company (the Company); Stanford and CFO Davis were convicted.
- The SEC obtained appointment of Ralph Janvey as federal equity Receiver to preserve assets and recover fraudulent transfers under TUFTA.
- The Receiver sued former employees who had received salaries, commissions, bonuses, or forgiven loans from Stanford entities to recover fraudulent transfers.
- Defendants moved to compel arbitration based on arbitration clauses in promissory notes, FINRA/broker forms, and other employment-related instruments executed with the Company (and in one case, the Bank).
- The district court denied the motions to compel arbitration, concluding the Receiver could prosecute claims on behalf of different receivership entities, could reject executory arbitration agreements, and that arbitration would conflict with receivership purposes; this appeal followed.
Issues
| Issue | Plaintiff's Argument (Receiver) | Defendant's Argument | Held |
|---|---|---|---|
| Whether Receiver may sue on behalf of the Bank (a non-signatory to arbitration) and thus avoid arbitration | Receiver elected to sue on behalf of the Bank, which was a creditor under TUFTA and did not consent to arbitration | Defendants argued the Receiver must sue on behalf of the Company (a signatory) or otherwise be bound by arbitration via equitable doctrines | Held: Receiver may sue on behalf of any receivership entity with a claim (here the Bank); Bank is not bound by the Company’s arbitration clauses |
| Whether equitable doctrines (alter ego, estoppel, third‑party beneficiary) bind the Bank to arbitration | Receiver: corporate separateness remains; equitable doctrines do not apply because entities were victims of Stanford’s control | Defendants: invoke alter ego, equitable estoppel, and third‑party beneficiary to bind the Bank | Held: None of the equitable doctrines applied to bind the Bank to arbitration |
| Whether arbitration agreements are unenforceable because they were instruments of the fraud / Receiver may reject executory arbitration clauses | Receiver: arbitration clauses were part of Stanford’s fraudulent apparatus and may be rejected; Receiver has power to assume/reject executory contracts | Defendants: arbitration provisions are severable and enforceable; disputes about contract validity belong to arbitrator | Held: Court did not need to decide this broader rejection theory because Receiver’s choice to sue for the Bank and other grounds precluded compulsion; but recognized the argument as strong and not reached decisively |
| Whether Giusti (who had an agreement with the Bank) waived right to arbitrate | Receiver: Giusti litigated extensively in federal court before moving to compel arbitration, causing prejudice | Giusti: contract requires arbitration with the Bank | Held: Giusti waived arbitration by substantially invoking the judicial process and prejudicing the Bank; arbitration denied |
Key Cases Cited
- Janvey v. Democratic Senatorial Campaign Comm., Inc., 712 F.3d 185 (5th Cir. 2013) (receiver’s standing to sue for receivership entities and effect of Ponzi control on imputation of fraud)
- United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574 (1960) (arbitration is a matter of contract; parties cannot be required to arbitrate disputes they did not agree to)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006) (arbitration provisions are severable from the remainder of the contract)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967) (fraud in the inducement of the contract generally is for arbitrator, but fraud in inducement of the arbitration clause itself is for the court)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (strong federal policy favoring arbitration)
- Scholes v. Lehmann, 56 F.3d 750 (7th Cir. 1995) (corporations used as instruments of a Ponzi scheme retain separate legal identity once freed from fraudster’s control)
- In re Mirant Corp., 613 F.3d 584 (5th Cir. 2010) (standards for interlocutory appeal and waiver by substantial invocation of judicial process)
- Wiand v. Schneiderman, 778 F.3d 917 (11th Cir. 2015) (distinguishable on standing; non-signatory entities without relation to defendant cannot avoid arbitration)