Janvey v. Democratic Senatorial Campaign Committee, Inc.Janvey v. Democratic Senatorial Campaign Committee, Inc.
ORDER
This Order addresses Defendants the Democratic Senatorial Campaign Committee, Inc. (“DSCC”), and the Democratic Congressional Campaign Committee, Inc.’s (“DCCC”), (collectively, the “Democratic Committees”) motion to dismiss [19], and Defendants the National Republican Congressional Committee (“NRCC”), the National Republican Senatorial Committee (“NRSC”), and the Republican National Committee’s (“RNC”) (collectively, the “Republican Committees” and, together with the Democratic Committees, the “Political Committees”) motion to dismiss [16] and motion for summary judgment [91], as well as the Receiver’s motion for summary judgment [36], For the reasons that follow, the Court denies the Political Committees’ motions to dismiss, denies the Republican Committees’ motion for summary
I. Origins of the Receiver’s Fraudulent Transfer Claims
This dispute presents another episode related to the Securities and Exchange Commission’s (the “SEC”) ongoing securities fraud action against R. Allen Stanford, his associates, and various entities under Stanford’s control (the “Stanford Defendants”). As part of that litigation, this Court “assume[d] exclusive jurisdiction and t[ook] possession of the” “Receivership Assets” and “Receivership Records” (collectively, the “Receivership Estate”). See Second Am. Order Appointing Receiver, July 19, 2010 [1130] (the “Receivership Order”), in SEC v. Stanford Int’l Bank, Ltd., Civil Action No. 3:09-CV-0298-N (N.D.Tex. filed Feb. 17, 2009). The Court appointed Ralph S. Janvey to serve as Receiver of the Receivership Estate and vested him with “the full power of an equity receiver under common law as well as such powers as are enumerated” in the Receivership Order. Id. at 3.
Among these enumerated powers, the Court “authorized [the Receiver] to immediately take and have complete and exclusive control, possession, and custody of the Receivership Estate and to any assets traceable to assets owned by the Receivership Estate.” Id. at 4. Additionally, the Court “specifically directed and authorized [the Receiver] to ... [c]olleet, marshal, and take custody, control, and possession of all the funds, accounts, mail, and other assets of, or in the possession or under the control of, the Receivership Estate, or assets traceable to assets owned or controlled by the Receivership Estate, wherever situated,” id., and to file in this Court “such actions or proceedings to impose a constructive trust, obtain possession, and/or recover judgment with respect to persons or entities who received assets or records traceable to the Receivership Estate.” Id. at 5.
Pursuant to those powers, the Receiver filed this fraudulent transfer suit to recover approximately $1.6 million in contributions made by R. Allen Stanford, James Davis, and the Stanford Financial Group Company (“SFGC”) to the Political Committees over a period of about eight years. The parties agree that the Stanford Defendants allocated their contributions as follows: $950,500 to the DSCC; $200,000 to the DCCC; $238,500 to the NRCC; $83,345 to the NRSC; and $128,500 to the RNC. See, e.g., Compl. at 7[1]. Nothing suggests that the Political Committees acted in bad faith. But, according to the Receiver, the Political Committees nonetheless must disgorge an amount equal to the contributions because they received Ponzi scheme proceeds without providing consideration of reasonably equivalent value in exchange. The Receiver now moves for summary judgment.
The Political Committees raise two primary objections to the Receiver’s claims. First, the Political Committees argue that the Receiver untimely filed this action. Because Texas courts treat the time-bar provisions of the Texas Uniform Fraudulent Transfer Act (“TUFTA”),
II. SUMMARY Judgment Standard 1
Courts “shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
The moving party bears the initial burden of informing the court of the basis for its belief that there is no genuine issue for trial.
Celotex Corp. v. Catrett,
III. Texas Fraudulent Transfer Law Does Not “Extinguish” This Action
The Court first addresses the Political Committees’ argument that TUFTA’s limitations provision “extinguished” the Receiver’s cause of action prior to filing. In general, TUFTA operates to void certain fraudulent “transfers,” which the statute defines in relevant part as “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money.”
The Receiver brings his claim under section 24.005(a)(1), which provides that a transfer “is fraudulent as to a creditor, whether the creditor’s claim arose before or within a reasonable time after the
As the Political' Committees point out, TUFTA does not preserve indefinitely a plaintiffs cause of action. TUFTA “extinguish[es]” claims brought under section 24.005(a)(1) unless filed “within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.”
Id.
§ 24.010(a)(1). Because the Receiver almost exclusively seeks the return of funds contributed to the Political Committees more than four years before his appointment, the parties agree that the Receiver timely filed suit only if he did so within the “discovery rule” in section 24.010(a)(l)’s second clause.
3
Cadle Co. v. Wilson,
The Political Committees contend, for a variety of reasons stemming from TUF-TA’s alleged status as a statute of repose,
4
that the Receiver did not timely file. First, the Political Committees posit that, because the Receiver stands in place of the Stanford Defendants, his claims were discovered the moment the Stanford Defendants made each contribution. Under this view, the Texas legislature’s intentional crafting of TUFTA as a statute of repose effectively exempts it from traditional equitable tolling doctrines that might otherwise salvage the Receiver’s claims.
5
Thus,
In the alternative, the Political Committees argue second that, even if TUFTA’s extinguishment provision operated as a statute of limitations that allowed equitable tolling, the Receiver should have filed his complaint no later than the first anniversary of his appointment, or February 16, 2010. See Order Appointing Receiver [10], in SEC v. Stanford Int’l Bank, Civil Action No. 3:09-CV-0298-N. This theory holds that the Receiver, in a singularity-like moment, inherited the Stanford Defendants’ actual knowledge of the contributions immediately upon his appointment. See, e.g., Republican Committees’ Mot. to Dismiss Br. at 7-9; Democratic Committees’ Mot. to Dismiss Br. at 8-9. Finally, the Political Committees assert that the Receiver, simply by exercising reasonable diligence, could have discovered the contributions in the three-day window between the date of his appointment and February 19, 2009, the date one year prior to the date he filed suit. See, e.g., Democratic Committees’ Mot. to Dismiss Br. at 9-11; Republican Committees’ Summ. J. Reply at 7[98]. The Court addresses each of these objections in turn.
A. TUFTA’s Discovery Rule Applies to the Receiver’s Claims
The Political Committees’ first two objections assume that only the Court’s use of equitable tolling, specifically the doctrine of adverse domination, may bring the Receiver’s claims within the ambit of TUFTA’s discovery rule. “Under the common law doctrine of adverse domination, the statute of limitations for an entity’s claim is tolled when the entity is controlled or dominated by individuals engaged in conduct that is harmful to the entity.”
Warfield v. Carnie,
The viability of the Receiver’s claims, however, does not hinge on equitable tolling. As an initial matter, the Political
More importantly, the Political Committees’ first two objections depend on a cramped — and recently rejected — interpretation of the Receiver’s authority to bring claims besides those available to the Stanford Defendants. The Fifth Circuit recently held in another asset recovery case that the Receiver may stand in the shoes of the Stanford Defendants and also represent defrauded creditors in their recovery efforts.
See Janvey v. Alguire,
The discovery rule’s application here thus turns on whether the facts giving rise to the Receiver’s claims were inherently undiscoverable to the Stanford Defendants’ creditors; when the Stanford Defendants obtained knowledge of the contributions is irrelevant.
Cf. Cadle Company,
Texas courts generally apply the discovery rule when “the alleged wrongful act and resulting injury were inherently undiscoverable at the time they occurred but may be objectively verified.”
S.V. v. R.V.,
The facts underlying the Receiver’s claims were inherently undiscoverable to the Stanford Defendants’ creditors, and the creditors’ injuries are objectively verifiable. Even if the Stanford Defendants’ contributions were publicly disclosed, the possibility that the Stanford Defendants essentially funneled their creditors’ money to the Political Committees through an elaborate Ponzi scheme was not. The Stanford Defendants’ creditors would have had notice of that only after the Receiver’s appointment.
8
And, although the Receiver brings claims based on contributions made approximately a decade ago, the Receiver presents his forensic accountant’s objectively verifiable — and uncontradicted — evidence showing that the Stanford Defendants operated a Ponzi scheme.
9
The Political Committees admit
B. The Receiver Filed Within the Discovery Rule Period as a Matter of Law
“A defendant moving for summary judgment on the affirmative defense of limitations has the burden to establish that defense conclusively.”
Cadle Company,
According to the Political Committees, the Receiver reasonably could have discovered the Stanford Defendants’ contributions before February 19, 2009. As evidence, they point primarily to the ostensibly vast resources at the Receiver’s disposal, publicly-available FEC records, and certain websites, news articles, and blogs discussing the Stanford Defendants’ many campaign and other political contributions. Under this view, the Receiver untimely filed his complaint outside of
For summary judgment purposes, however, the Republican Committees fail to show conclusively when the Receiver’s cause of action accrued or when he reasonably should have discovered the contributions. The Receiver avers that he did not discover the contributions until February 20, 2009.
See, e.g.,
Receiver’s Resp. to Mot. to Compel at 6[60]. The Political Committees have submitted no summary judgment evidence estabhshing that the Receiver actually discovered the contributions on February 16,17, 18, or 19.
11
And, because the Receiver represents the Stanford Defendants’ creditors in this action, no basis exists for concluding that on his appointment the Receiver acceded to the Stanford Defendants’ knowledge that their contributions to the Political Committees were fraudulent.
12
The Court thus considers only whether it was unreasonable for the Receiver to discover the Stanford De
The Court concludes that no reasonable minds could differ as to the timeliness of the Receiver’s discovery. It is simply unreasonable to expect the Receiver to have discovered the $1.6 million in contributions — out of a complex, long-lasting, intentionally-concealed, international scheme involving billions of dollars and myriad transactions — in less than four days. Under the circumstances, the Receiver reasonably might have taken longer. TUFTA requires only the exercise of reasonable diligence, not omniscience. 13 The Political Committees’ limitations defenses thus fail as a matter of law. Accordingly, the Court declines to dismiss the Receiver’s claims or to grant summary judgment in favor of the Republican Committees on limitations grounds.
IV. Feca Does Not Preempt The Receiver’s Claims
The Republican Committees next move for summary judgment on the admittedly “novel” grounds that federal election laws preempt the Receiver’s state law fraudulent transfer claims. 14 Republican Committees’ Summ. J. Reply Br. at 5. As the Republican Committees note, courts have not “squarely addressed” this argument. Id. Nonetheless, preemption caselaw and the relevant campaign finance statutes provide sufficient guidance to conclude that the Political Committees contentions fail as a matter of law.
The Political Committees argue broadly that FECA, BCRA, and their associated regulations “expressly preempt state law and comprehensively address what contributions are illegal, how the national committees are to handle illegal contributions, and when and how nonfederal contributions received by national political committees were to be disgorged.” Republican Committees’ Summ. J. Br. at 3 [91-1]. According to the Political Committees, the Receiver’s TUFTA claims also “infringe on the domain set forth by Congress and the FEC” because, “even if [TUFTA’s] purpose is completely unrelated to elections ..., as applied, [it] encroach[es] on federal law” by effectively appending Ponzi scheme-derived contributions to FECA’s “comprehensive” — and therefore exclusive — “list of prohibited contributions.” Id. at 4. Combined with a “regulatory scheme [that also] instructs political committee treasurers on how to assess the legality of contributions ... and sets the conditions and timetable of each contribution refund,” federal law simply “leaves no room for additional ‘avoidance’ at the behest of state law plaintiffs.” Id. at 6. And, finally, because the Stanford Defendants’ made primarily “soft money” contributions, the Political Committees contend that honoring the Receiver’s request would “breach the long-standing principle of separating ‘soft money’ from ‘hard money’ ... at the core of the FECA” by requiring the disgorgement of a now-prohibited type of contribution for which Congress provided two “sole” means of disposal. Id. at 8 (emphasis removed).
A. Preemption Principles
Because “[a] fundamental principle of the Constitution is that Congress has the
Explicit statutory or regulatory language provides the clearest expression of preemptive intent.
See English v. Gen. Elec. Co.,
B. The Court Narrowly Construes FECA’s Express Preemption Provision
“When Congress has considered the issue of pre-emption and has included in the enacted legislation a provision explicitly addressing that issue, and when that provision provides a reliable indicium of congressional intent with respect to state authority, there is no need to infer congressional intent to pre-empt state laws from the substantive provisions of the legislation.”
Cipollone,
1. FECA’s Plain Text Does Not Expressly Preempt the Receiver’s Claims.
— FECA expressly “supersede^] and preempts] any provision of State law with respect to election to Federal office.”
Given the background assumption against preemption of state law causes of action, the Court — in line with long-standing precedent — reads
A plain reading, however, must also take into account that FECA uses “election” and “Federal office” as terms of art. FECA defines “election” as
(A) a general, special, primary, or runoff election; (B) a convention or caucus of a political party which has authority to nominate a candidate; (C) a primary election held for the selection of delegates to a national nominating convention of a political party; and (D) a primary election held for the expression of a preference for the nomination of individuals for election to the office of President.
These definitions demonstrate that TUFTA simply has nothing to do with “election to Federal office.” The Political Committees concede, as they must, that TUFTA facially contains no provision that could be construed to touch on federal campaign finance or election law. See Republican Committees’ Summ. J. Reply at 1, 4-5 (noting that, as opposed to a “broad” facial challenge, the Political Committees object to TUFTA “as applied”). But even as applied, the Receiver’s claim implicates the covered elections and conventions only in the most tangential and immaterial way. The Court accepts that the Stanford Defendants contributed funds for election-related purposes, 18 and presumably the Political Committees used the funds as such. The Receiver’s claims, however, do not implicate those uses or attempt to regulate contributions or expenditures as made for the purpose of influencing any election for Federal office.
Forcing the Political Committees to disgorge funds that presumably will come from present-day monies they would rather spend on core campaign-related activities may have a connection to topical areas, such as campaign finance, regulated by FECA. “ ‘[B]ut that possibility does not change [the Receiver’s] case from one about [fraudulent transfer] into one about’ ” election to Federal office.
Altria,
2. FECA’s Implementing Regulations Do Not Expresslg Preempt the Receiver’s Claims.
— An examination of the regulations related to FECA’s preemption provision demonstrates that FECA’s regulatory scheme, too, fails to evince an intent to preempt state law fraudulent transfer claims. The Political Committees contend that the “Effect on State law” regulations at
The Court disagrees. The Receiver’s claims limit neither contributions or expenditures as those terms are used in
In this light, the Receiver’s claims fall outside of
The Political Committees’
C. TUFTA Does Not Encroach on FECA’s Domain
Although the presence of an express preemption provision “means that [courts] need not go beyond [the provision’s] language to determine whether Congress intended the [statute] to pre
1. FECA’s Legislative History Fails to Support the Political Committees’ Expansive Interpretation.
— The Political Committees argue that FECA’s legislative history evinces Congress’s desire that the statute have broad preemptive “sweep.” Democratic Committees’ Mot. to Dismiss Br. at 13. “The House Committee drafting the preemption provision,” for example, allegedly “intended it ‘to preempt all state and local laws ... [and] to make certain that Federal Law is construed to occupy the field.’ ”
Id.
(quoting H.R.Rep. No. 93-1239, at 10 (1974) [hereinafter “1974 House Report”], reprinted in, FEC, Legislative History of Federal Election Campaign Act Amendments of 1974 644 (1977) [hereinafter “FECA 1974 Compilation”] ) (alterations in original). And, according to the Political Committees, “[t]he Senate Conference Report further ‘make[s] it clear that the Federal law occupies the field with respect to ... the sources of campaign funds used in Federal races.’ ”
Id.
(quoting S. Conf. Rep. No. 93-443 (1974),
reprinted in
1974 U.S.C.C.A.N. 5618, 5638).
21
As further evidence, the
“[A]gainst a background of dissatisfaction with [FECA as enacted in 1971],” Congress amended FECA in 1974
(1) To place limitations on campaign contributions and expenditures; (2) To facilitate the reporting and disclosure of the sources and disposition of campaign funds by centralizing campaign expenditure and contribution reporting; (3) To establish a Board of Supervisory Officers to oversee enforcement of and compliance with Federal campaign laws; and (4) To strengthen the law for public financing of Presidential general elections, and to authorize the use of the dollar checkoff fund for financing Presidential Nominating Conventions and campaigns for nomination to the office of President.
1974 House Report at 1-2; FECA 1974 Compilation at 635-36;
see also
Federal Election Campaign Act Amendments of 1974, Pub. L. 93-443, 88 Stat. 1263 (1974) [hereinafter the “1974 Amendments”]. Among a plethora of other amendments, the House Committee version “contain[ed] two separate provisions relating to the preemption of State laws.” 1974 House Report at 10; FECA 1974 Compilation at 644. Referencing then-
The congressional reports related to the 1974 Amendments show that Congress intended FECA to preempt a much narrower domain than the Political Committees claim. To take the most off-the-mark argument first, the Political Committees quote from the 1974 Conference Report,
23
ostensibly showing that Congress intended to occupy “the field with respect to ... the sources of campaign funds used in Federal races.” Democratic Committees’ Mot. to Dismiss Br. at 13. But, that portion of the report actually concerns only the title I criminal code amendments. The 1974 Conference Report explicitly adopted House amendment section 104,
24
which “provided that chapter 29 of title 18, United States Code, relating to elections and political activities, supersedes and preempts provisions of state law.” 1974 Conference Report at 69; FECA 1974 Compilation at 1013. That provision — in
The Political Committees’ arguments as to Congress’s intended scope for
The House committee focused specifically on state laws’ treatment of certain federal reports. Although FECA as originally enacted required candidates for federal office to file federal reports with appropriate state election officials, it only “encourage[d]” the state officials “to accept [the] Federal reports in satisfaction of State reporting requirements.” Id. The 1974 Amendments made acceptance of the federal reports mandatory. It was this provision that the committee explicitly intended to have preemptive effect. See id. (“[T]he provision relating to encouraging State officials to accept Federal reports to satisfy State reporting requirements is deleted. Under [FECA], Federal reporting requirements will be the only reporting requirements and copies of the Federal reports must be filed with appropriate State officials.”).
The 1974 Conference Report bolsters this narrow reading of Congress’s intent. The Senate and the House bills included almost identical title III preemption provisions, which the Conference committee believed would have amended FECA “in essentially the same manner.”
26
1974 Conference Report at 100; FECA 1974 Compilation at 1044. The Conference committee ultimately adopted the House version. In doing so — and in line with the 1974 House Report — the Conference committee succinctly explained that FECA “occupies the field with respect to
reporting and disclosure
of political contributions to and expenditures by Federal
Read in context, the legislative history shows a much more restricted conception of FECA’s preemptive reach than that urged by the Political Committees. Because TUFTA’s disgorgement remedy is not a criminal sanction, the preemptive reach of FECA’s long-repealed title I preemption provision is irrelevant to this case. And, no one suggests that the Receiver’s claims touch on FECA’s reporting and disclosure requirements. Accordingly, the Political Committees’ proffered legislative history provides no grounds for construing
2. FECA and Its Regulations’ Structure Support the Court’s Narrow Construction of FECA’s Preemptive Domain. — The Political Committees ground their next preemption objection in FECA’s structure. “Specifically,” they contend that “[sjections 441a through 441f of FECA provide a comprehensive list of source restrictions on political contributions” in a manner that “makes plain Congress’s intent to occupy the domain defining illegal sources of political contributions.” Democratic Committees’ Mot. to Dismiss Br. at 14. Allowing the Receiver’s TUFTA claims would allegedly “supplement this list of illegal sources to include Ponzi scheme funds” as well as “compromise the certainty provided by FECA’s source restrictions.” Id.
The Political Committees’
expressio uni
Tts-style argument,
28
however, accords FECA and its regulations’ “[l]imitations on contributions and expenditures” an unsupportable exclusivity.
Viewed in that context, the relevant provisions in FECA
Even as applied, TUFTA falls squarely within this nonpreempted zone of state laws. The Receiver seeks only a judgment making the Political Committees liable to the Stanford Defendants’ creditors under Texas fraudulent transfer law.
29
Doing so in no way imposes a “dollar limit” on contributions or expenditures,
30
a restriction
The regulation promulgated by the FEC to provide clarity to
Thus, the FEC’s failure specifically to list in
Accordingly, FECA and its regulations support the Court’s narrow reading of FECA’s preemptive scope. Even if the Court were to credit the Political Committees’ contentions that FECA contains an exclusive list of illegal contributions and expenditures, no basis exists for concluding that the Receiver’s claims fall within the realm of prohibited activities, let alone attempt to contrive a wholly new type of forbidden campaign funding. At most the Receiver’s claim will result in a judgment payable by the Political Committees’ to the Stanford Defendants’ creditors, who are represented here by the Receiver. The FEC views similar state law judgments as falling outside FECA’s purview. And, FEC regulations specifically provide for the resolution of such “debts owed by candidates and political committees.”
3. Caselaw Belies the Political Committees’ Position on FECA Preemption.
— Although not necessary to establish the reach of FECA’s preempted domain, the Court notes that the little available caselaw directly relevant to the subject confirms its narrow reading. As the Second and Fifth Circuits have observed, “even with respect to election-related activities, courts have given
Subsequent caselaw has taken the same tack. Courts that have found FECA preemption have done so in the context of state laws directly touching on federal elections or campaign finance.
42
Courts
D. TUFT A’s Application Poses No Obstacle to FECA’s Purposes and Objectives
Although “[a]t best there is an inference that an express pre-emption clause forecloses implied pre-emption,” the Supreme Court has consistently “rejected] the more absolute argument that the presence of the express pre-emption provision entirely foreclosed the possibility of conflict pre-emption.”
Geier v. Am. Honda Motor Co.,
To avoid a “freewheeling, extratextual, and broad evaluation!]” of FECA’s purposes and objectives,
Wyeth v. Levine,
The Political Committees’ second conflict preemption objection concerns BCRA’s soft money prohibitions. The Court reads the Political Committees to make two distinct arguments in this vein. First, and most broadly, the Republican Committees contend that paying the Receiver would require the “use [of] recently contributed ‘hard money’ to refund [the Stanford Defendants’ largely] ‘soft money’ contributions!,] • • ■ • breach[ing] the longstanding principle of separating ‘soft money from ‘hard money’ ” at FECA’s “core.” Republican Committees’ Summ. J. Br. at 8. Second, because “BCRA prescribed specific, exclusive rules for how national party committees could spend those soft money contributions [before and] after November 6, 2002,” the Political Committees argue that the Receiver’s claims implicate funds that may be used only for certain, statutorily-defined purposes. See, e.g., Democratic Committees’ Mot. to Dismiss Br. at 18. Neither argument supplies grounds for concluding that the Receiver’s claims pose an obstacle to FECA’s purposes and objectives.
1. The Receiver’s Claims Bo Not Implicaté the Purposes and Objectives Underlying FECA or BCRA’s Soft Money Amendments to FECA.
— Congress intended FECA primarily to “regulate campaign contributions and expenditures in order to eliminate pernicious influence— actual or perceived — over candidates by those who contribute large sums.”
Karl Rove,
Under FECA, “contributions” must be made with funds that are subject to theAct’s disclosure requirements and source and amount limitations. Such funds are known as “federal” or “hard” money. FECA defines the term “contribution,” however, to include only the gift or advance of anything of value “made by any person for the purpose of influencing any election for Federal office.” 2 U.S.C. § 431(8)(A)(i) (emphasis added). Donations made solely for the purpose of influencing state or local elections are therefore unaffected by FECA’s requirements and prohibitions. As a result, prior to the enactment of BCRA, federal law permitted corporations and unions, as well as individuals who had already made the maximum permissible contributions to federal candidates, to contribute “nonfederal money” — also known as “soft money” — to political parties for activities intended to influence state or local elections.
McConnell,
“BCRA’s central provisions are designed to address Congress’ concerns about the increasing use of soft money and issue advertising to influence federal elections. Title I,” relevant here, “regulates the use of soft money by political parties, officeholders, and candidates.”
Id.
at 132,
The Receiver’s fraudulent transfer claim poses no obstacle to the achievement of
Before turning to the Political Committees’ narrower soft money expenditure argument, the Court stops to address an even broader objection implicit in the Republican Committees’ purposes-and-objectives contention: that state law actions conceivably implicating soft money contributions inherently conflict with FECA and BCRA’s amendments, and that, therefore, claims based on those contributions should be channeled through FECA’s comprehensive regulatory scheme. The practical import of this argument is that courts must read FECA to preempt state law claims against the Political Committees whenever soft money may be an issue. But, “[i]f Congress thought state-law suits posed an obstacle to its objectives, it surely would have enacted an express pre-emption provision [to that end] at some point.”
Wyeth,
Accordingly, FECA, post-BCRA, preempts state laws no differently than before.
2. FECA’s Soft Money Expenditure Restrictions Do Not Encompass Disgorgement Pursuant to State Fraudulent Transfer Laws. — The Political Committees next conflict preemption argument relates to Congress’s placing certain restrictions in BCRA concerning the use and disposal of soft money funds. The Political Committees contend that BCRA mandated that they use soft money funds
solely for the purpose of — (I) retiring outstanding debts or obligations that were incurred solely in connection with an election held prior to November 6, 2002; or (II) paying expenses or retiring outstanding debts or paying for obligations that were incurred solely in connection with any runoff election, recount, or election contest resulting from an election held prior to November 6, 2002.
Democratic Committees’s Mot. to Dismiss Br. at 18 (emphasis in original) (quoting BCRA, Pub. L. 107-155, § 402(b)(2)(B)(i)). Any soft money funds not used for either purpose, the Political Committees further argue, could have been only “disgorged to the United States Treasury, or returned by check to the donors.” Republican Committees’ Summ. J. Br. at 5-6 (quoting
Context, however, demonstrates that Congress intended the cited provisions to apply during the limited “transitional” period surrounding BCRA’s effective date of November 6, 2002, BCRA § 402(b)(2), and then only to “excess soft money funds.” BCRA § 402(b)(2)(B). The Court agrees that BCRA established exclusive procedures for campaign committees’ use of soft
After the 2002 midterms, the Political Committees could spend any remaining soft money funds as the Political Committees contend, e.g. on “retiring outstanding debts and obligations that were incurred solely in connection with an election held prior to November 6, 2002,” BCRA § 402(b)(2)(B)(i)(I), but only “prior to January 1, 2003.” BCRA § 402(b)(2)(B)®. Only those “[soft money] funds remaining after [this] payment of debts and obligations” qualified for disgorgement to the U.S. Treasury or to the Political Committees’ respective donors.
Even if the Receiver sought actual soft money contributions — and he does not 50 — his claims simply do not concern the disposal of soft money funds between November 6, 2002, and March 31, 2003. Nothing in the Political Committees’ cited BCRA provisions or FEC regulations indicate that Congress intended these provisions to have force beyond the limited transitional period surrounding the abolition of the soft money regime, let alone that it meant for the provisions to bar later disgorgement due to liability created by state-law fraudulent transfers of soft money contributions.
The Republican Committees’ summary judgment evidence showing that they disgorged $20,000 to the U.S. Treasury may demonstrate their compliance with BCRA’s transitional soft money restrictions,
see
Republican Committees’ Summ. J. App. Ex. 3[92], but that does not provide a defense to liability under TUFTA. It just proves that the Political Committees appropriately spent soft money funds. And, spending Ponzi scheme proceeds does not shield a recipient of fraudulently transferred funds from liability.
See, e.g., Donell v. Kowell,
3. The FEC Recently Verified that the Political Committees May Pay a Judgment in this Case. — A recent FEC Advisory Opinion issued to the Political Committees confirms that paying a judgment in this case will not conflict with the purposes and objectives underlying FECA and BCRA. The Political Committees inquired whether “they may use donations to their respective recount funds to defend against [this action],” particularly whether those funds could be used to “pay some or all of their legal fees and judgment or settlement costs arising from [this action].” FEC Adv. Op. Request 2011-03 at 1, 2 (Feb. 7, 2011). The FEC replied in the affirmative. See FEC Adv. Op. 2011-03 at 3 (Apr. 7, 2011). Although the advisory opinion did not address the specific preemption arguments in this case, the Political Committees provided the FEC with a copy of the Receiver’s complaint as well as the parties’ motion to dismiss briefing. Thus, the FEC was aware of the potential for conflict between TUFTA as applied here and applicable FECA provisions and regulations. The FEC’s silence suggests that FECA does not preclude the Political Committees from paying a judgment in this case in compliance with applicable FEC regulations. Rather, it tends to confirm that, despite the “sui generis ” facts underlying this suit, FEC Adv. Op. 2011-03, Concurring Statement of Comm’r Weintraub at 2, the Receiver’s sought-after money judgment will comport with the FEC’s longstanding policy that FECA does not preempt the Political Committees from paying nonelection-related, state law-created liabilities. 51
E. Summary on Preemption
The Political Committees’ preemption defenses fail as a matter of law. The Receiver’s claims neither effect a regulation with respect to election to federal office nor require the Political Committees to disgorge funds for the purpose of influencing federal election. The Court therefore adheres to precedent and the background presumption against preemption of state law causes of action and narrowly construes FECA’s express preemption provision to allow the Receiver’s claims. The Political Committees proffer legislative history that does not support their expansive interpretation of FECA’s preempted domain, and they fail to provide evidence showing that the FEC considers claims such as the Receiver’s to fall within its zone of enforcement. In light of longstanding FEC policy holding that liability for state law causes of action should be determined and paid in light of applicable state law, the Court furthermore concludes that the Receiver’s claims do not seek to create a new form of illegal contribution or expenditure under FECA. And, finally, the Receiver’s claims pose no obstacle to FECA’s anticorruption and soft money regulatory purposes and objectives. The Court therefore denies the Democratic Committees’ motion to dismiss and the Republican Committees’ motion for summary judgment.
“To recover the transfers from [the Stanford Defendants] to [the Political Committees], the Receiver [is] required to demonstrate that [the Political Committees] received transfers from [the Stanford Defendants] that were made with actual intent to defraud.”
Warfield v. Byron,
The Receiver carries his summary judgment burden. The evidence he provides establishes that the Stanford Defendants operated a Ponzi scheme and were therefore insolvent at least as early as 1999 and perhaps much earlier — Van Tassel’s forensic accounting of the Stanford entities remains ongoing.
See
Van Tassel Deck; Van Tassel Supp. Deck
54
Among other things, the Receiver shows that the SIB CD program depended on continued infusions of cash from an ever increasing number of depositors, a “classic” Ponzi scheme.
Id.; see also Janvey v. Alguire,
The Political Committees also fail to establish a fact issue concerning reasonably equivalent value.
See
The Receiver has produced evidence that the Stanford Defendants operated a Ponzi scheme. The Political Committees have failed to point to any evidence contradicting that showing or establishing the exchange of consideration of a reasonably equivalent value. The “only reasonable inference” to be drawn under the circumstances is that the Stanford Defendants made their contributions with the intent to defraud their creditors. McDermott at 174 (quoting
Merrill v. Abbott (In re Indep. Clearing House Co.),
Conclusion
Because the Stanford Defendants’ scheme was inherently undiscoverable to their creditors and the creditors’ injuries are objectively verifiable, TUFTA’s discovery rule applies to the Receiver’s claims. And, because no reasonable jury would conclude that the Receiver should have discovered the Stanford Defendants’ contributions within seventy-two hours of his appointment, the Receiver timely brings his claims as a matter of law. The Political Committees fail to establish that federal campaign finance laws preempt state law fraudulent transfer claims. Accordingly, the Court denies the Political Committees’ motions to dismiss and the Republican Committees’ motion for summary judgment.
The Receiver, on the other hand, produces evidence showing that the Stanford Defendants operated a Ponzi scheme and that them contributions were derived from Ponzi scheme proceeds. The Political Committees fail to create a fact issue concerning the Ponzi scheme’s existence or the contributions’ source and make no attempt to show that the contributions were made in exchange for consideration of reasonably equivalent value. The Court, therefore, grants the Receiver’s motion for summary judgment.
“Ponzi schemes leave no true winners once the scheme collapses.”
Donell,
Notes
. The Republican Committees’ motion for summary judgment raises the same arguments presented in the Political Committees’ motions to dismiss. The Court's analysis of the parties’ cross-motions for summary judgment also disposes of the Political Committees’ motions to dismiss.
. Because the parties assume that Texas law controls here, the Court will not second guess their choice.
. "The discovery rule defers the accrual of a cause of action until the plaintiff knew or, through the exercise of reasonable diligence, should have known of the facts giving rise to the cause of action.”
Cadle Company,
. The Supreme Court of Texas recently distinguished statutes of repose from statutes of limitation as follows:
Statutes of repose typically provide a definitive date beyond which an action cannot be filed. Unlike traditional limitations provisions, which begin running upon accrual of a cause of action, a statute of repose runs from a specified date without regard to accrual of any cause of action. Repose then differs from limitations in that repose not only cuts off rights of action after they accrue, but can cut off rights of action before they accrue. And while statutes of limitations operate procedurally to bar the enforcement of a right, a statute of repose takes away the right altogether, creating a substantive right to be free of liability after a specified time. Thus, the purpose of a statute of repose is to provide absolute protection to certain parties from the burden of indefinite potential liability.
Galbraith Eng’g Consultants, Inc. v. Pochucha,
. Although the Supreme Court of Texas has yet to rule on the issue,
see Smith v. Am. Founders Fin., Corp.,
The federal courts follow the same practice.
See, e.g., In re Supplement Spot, LLC,
. Although the Court refrains from deciding the issue, it notes that TUFTA contains at least two provisions that create considerable tension with its ostensibly repose-related goals. First,
Second, TUFTA expressly provides creditors with potentially expansive equitable remedies.
See
except that Texas uses "chapter” in place of "Act”). Because nothing in
As the statute itself makes clear, moreover, the Texas Legislature adopted TUFTA with the specific purpose that it be applied uniformly with other states' versions of the Act.
See
.
See also Eckert,
.
Cf. Cadle Company,
. See Receiver’s Summ. J.App. Ex. 2 (forensic accountant’s report) [hereinafter "Van Tassel Decl.”] [37],
[M]y findings are consistent with the SEC’s allegations and James Davis’s admission that the Stamford enterprise was a Ponzi scheme. [Stanford International Bank, Ltd., ("SIB”) ] was insolvent ... from at least 2004 and probably for much longer, 3'et it continued selling CDs to the end. .... The Stanford Ponzi scheme could only be continued by selling yet more CDs and using the proceeds to pay redemptions, interest and operating expenses. Significant sums were also diverted to finance Allen Stanford's opulent life style of yachts, jet planes, travel, multiple homes, company credit cards, etc. Davis ... and other insiders were paid handsomely for their complicity.....James Davis admitted in his rearraignment that the Stanford enterprise was a Ponzi scheme from the beginning, and I have not seen anything in the records I have reviewed to indicate otherwise.
Van Tassel Decl. at 4-5 (App. at 37-38). Among other things, Van Tassel drew her conclusions from objectively verifiable Stanford entity, customer, and third party records, worksheets, and databases “using reliable practices and methodologies that are standard in the fields of accounting and finance.”
The Court overrules the various objections to the Receiver's summary judgment evidence. Davis’s guilty plea constitutes admissible evidence that Van Tassel may rely upon even if hearsay.
See
Van Tassel later supplemented her report, "[bjased on [her] continued investigation.” App. to Receiver's Opp. to Republican’s Mot. for Summ. J. at 5 [hereinafter “Van Tassel Supp. Decl.”] [94-1]. Among other things, she revised her conclusion concerning the length of time the Stanford Defendants operated a Ponzi scheme from 2004 to 1999 and determined that: (1) “SIB was insolvent ... from at least 1999 forward,” (2) R. Allen Stanford's income was derived "almost exclusively from the Stanford Entities, including proceeds from SIB CDs,” and (3) "SFGC was insolvent ... from at least 2000 and received SIB CD funds.” Id.
Although the Court denied the Republican Committees' motion to strike Van Tassel’s Supplemental Declaration, it granted the Republican Committees leave to file a supplemental response. In it, the Republican Committees maintain their objections.
See, e.g.,
Republican Committees’ Supp. Reply Br. at 1 n. 1[105]. The Court, however, overrules those objections, too.
See, e.g., In re Enron Corp. Sec., Derivative & “ERISA” Litig.,
. See Receiver’s Summ. J.App. Exs. 3, 5-7 (Political Committees, sans NRCC, Admissions). The NRCC later produced evidence showing that it in fact had received the sought-after contributions. See Receiver's Summ. J. Reply App. Ex. 2[90]. The Republican Committees’ failure to provide evidence concerning the Ponzi scheme’s existence stems in part from its decision to forego deposing Van Tassel. See Receiver's Summ. J. Reply App. Ex. 4 at 60.
. The publicly available contribution disclosures required under federal law "do not of themselves raise a presumption of constructive knowledge.”
Duran,
. The Court rejects the Democratic Committees’ attempts to establish constructive notice by referencing testimony at congressional hearings concerning the SEC's failure to discover the Stanford Defendants’ scheme despite receiving various warnings. See Notice of Supp. Authorities [ 107]. Even on the (dubious) assumption that the Stanford Defendants' creditors possessed the requisite expertise and resources to conduct a securities fraud investigation, the Democratic Committees still fail to show how the creditors could have learned of certain SEC personnel and former Stanford insiders’ suspicions that the Stanford enterprise was, in reality, a Ponzi scheme. The Democratic Committees do not allege that the creditors had an obligation to follow Financial Industry Regulatory Authority ("FINRA”) arbitration proceedings. And even if they did, the proffered testimony establishes that FINRA " ‘sided with Stanford in every single ... case,' " id. at 3 (quoting testimony of Charles Rawls), evidence tending to support the Stanford enterprises’ veneer of legitimacy. Accordingly, the Democratic Committees’ supplemental authorities do not alter the Court's concluding that the discovery rule applies here.
. Nor does it require clairvoyance, as the Republican Committees suggest by referencing the Receiver’s pre-appointment communications with the SEC. Republican Committees’ Supp. Reply Br. at 7. The proffered deposition testimony fails to show that the Receiver could have learned of the Political Committees' contributions from those discussions, see Republican Committees’ Supp. Reply App. (Janvey Dep.) [106], and the Receiver lacked access to the Stanford Defendants’ records prior to his appointment.
. The Democratic Committees raise the same arguments in their motion to dismiss.
. Because pagination for the United States Reports remains unavailable, the Court will use the Supreme Court Reporter when citing Altria.
.
"[C]ourts have given
. In
Morales,
the Supreme Court, "[r]elying on precedents construing the pre-emptive effect of ['relating to’] in [ERISA], ... concluded that the phrase 'relating to’ [in the Airline Deregulation Act of 1978, 49 App. U.S.C. § 1305(a)(1)] indicate[d] Congress’ intent to preempt a large area of state law to further [the statute's] purpose.”
Altria,
. Of course, the Stanford Defendants’ large-scale soft money contributions to both parties suggests that, like "many corporate contributors],” they gave out of "a desire for access to candidates and a fear of being placed at a disadvantage in the legislative process relative to other contributors, rather than by ideological support for the candidates and parties.”
McConnell,
. A TUFTA plaintiff seeks to recover “judgment for the value of the asset transferred,”
. Because “Congress' enactment of a provision defining the pre-emptive reach of a statute implies that matters beyond that reach are not pre-empted/' the Supreme Court has suggested that a statute's “pre-emptive scope ... is governed entirely by the express [statutory] language/'
Cipollone,
. The relevant legislative history sources' citations have created some confusion. For example, the Democratic Committees cite 1974 U.S.C.C.A.N 5618 as providing Senate Conference Report 93-443, but entering the U.S.C.C.A.N. pincite into Westlaw produces what is titled as Senate Conference Report 93-1237. The FECA 1974 Compilation contains a "Report of Committee of Conference” in the form of House Conference Report 93-1438.
See
FECA 1974 Compilation at 943. After examining the U.S.C.C.A.N. and FECA 1974 Compilation sources, the Court is satisfied that the U.S.C.C.A.N. cite references material in the "Joint Explanatory Statement of the Committee of Conference.”
See
1974 U.S.C.C.A.N. 5618, 5618; FECA 1974 Compilation at 993 [hereinafter the "1974 Conference Report”]. The Court will pincite the
. In order to make FECA’s definitions "controlling whenever the provisions of title 18 impact on federal elections and political activity," the Federal Election Campaign Act Amendments of 1979 repealed
. Because “conference committee reports reflect[ ] the understanding of both House and Senate,” they are "especially ... authoritative [sources of] legislative history.” William N. Eskridge, Jr., Philip P. Frickey, & Elizabeth Garrett, Cases and Materials on Legislation: Statutes and the Creation of Public Policy App'x B at 27 (4th ed. 2007) [hereinafter "Eskridge”].
. The Senate bill did not contain a preemption amendment to title I.
. As part of their broad-scope argument, the Political Committees cite FEC Advisory Opinion 1999-12. (June 25, 1999). Although the Political Committees do not raise the point, the advisory opinion suggests that the distinction between the title I criminal and title III general preemption provisions has only “limited significance” because FECA provides for both civil and criminal penalties and the title I provisions later were incorporated into other provisions. See FEC Adv. Op. 1999-12 at 5 n. 6. Even if true — and, given that courts find distinctions between criminal and civil statutes significant in numerous other contexts, the Court doubts it is — that does not change the fact that the Political Committees cite inapposite legislative history. Congress’s preemptive intent with respect to the criminal code amendments has no bearing on this dispute.
. The House version provided that FECA “supersede[d] and preempted] any provision of State law with respect to election to Federal office,” 1974 House Report at 31; FECA 1974 Compilation at 665, while the Senate version did so "with respect to campaigns for nomination for election, or for election, to Federal office.” S.Rep. No. 93-689, at 65 (1974), 1974 U.S.C.C.A.N. 5587; FECA 1974 Compilation at 161-62 [hereinafter "1974 Senate Report”]. To the extent the differences between the House and Senate versions has any significance, FECA’s definition of "election” incorporates the Senate’s separate provision for primary and other nominating elections.
See
. This advances literally an interpretation of FECA’s preemptive scope at odds with precedent concerning things other than reporting and disclosure requirements.
See, e.g., Weber,
. Expressio unius est exclusio alterius is "[a] canon of construction holding that to express or include one thing implies the exclusion of the other, or of the alternative.” Black’s Law Dictionary 620 (8th ed. 2004).
.
See
.
.
.
.
.
.
.
. "A national committee of a political party (including a national congressional campaign committee of a political party) may not ... direct to another person a contribution, donation, or transfer of funds or any other thing of value, or spend any funds, that are not subject to the limitations, prohibitions, and reporting requirements of this Act.”
Given FECA and its regulations’ Byzantine reporting requirements, the Political Committees almost certainly are required to report to the FEC the use of funds to pay judgments. But that does not prevent the Receiver from bringing his claims. To hold otherwise effectively would read
.
See Weber,
.
(1) Manner of qualifying as a candidate or political party organization; (2) Dates and places of elections; (3) Voter registration; (4) Prohibition of false registration, voting fraud, theft of ballots, and similar offenses; (5) Candidate's personal financial disclosure; or (6) Application of State law to the funds used for the purchase or construction of a State or local party office building to the extent described in11 C.F.R. § 300.35 .
. FECA and its regulations specifically exempt certain potentially election-related activities from their definitions of contributions and expenditures.
See
.
See Reeder,
.
See Teper,
.
See Karl Rove,
.
See Morton v. Crist,
Civil Action No. 2:10—CV-0450-CEH,
. At least one federal court has abstained from addressing FECA preemption when the FEC has yet to address specifically the state law at issue and the law did not fall clearly within
.
McConnell
provides a thorough history of FECA and BCRA's origins.
See
. The Supreme Court summarized BCRA's amendments as follows:
The cornerstone of Title I is new FECA § 323(a), which prohibits national party committees and their agents from soliciting, receiving, directing, or spending any soft money.2 U.S.C. § 441i(a) (Supp. II). In short, § 323(a) takes national parties out of the soft-money business. The remaining provisions of new FECA § 323 largely reinforce the restrictions in § 323(a). New FECA § 323(b) prevents the wholesale shift of soft-money influence from national to state party committees by prohibiting state and local party committees from using such funds for activities that affect federal elections.2 U.S.C. § 4411(b) .....New FECA § 323(d) reinforces these soft-money restrictions by prohibiting political parties from soliciting and donating funds to tax-exempt organizations that engage in electioneering activities.2 U.S.C. § 441i(d) . New FECA § 323(e) restricts federal candidates and officeholders from receiving, spending, or soliciting soft money in connection with federal elections and limits their ability to do so in connection with state and local elections.2 U.S.C. § 441i(e) . Finally, new FECA § 323(f) prevents circumvention of the restrictions on national, state, and local party committees by prohibiting state and local candidates from raising and spending soft money to fund advertisements and other public communications that promote or attack federal candidates.2 U.S.C. § 441i(f) .
McConnell,
. The Court’s review of FEC advisory opinions and enforcement actions turned up none suggesting that claims such as the Receiver's fall within the FEC's exclusive bailiwick. See
This distinction is lost on the Court. FECA similarly fails to address campaign committees’ liability for state law fraudulent transfer claims. The Political Committees point to no history of the FEC asserting jurisdiction over similar claims, and the Court has found none. It makes no difference that the FEC has yet to issue a formal opinion on the matter. Sometimes silence speaks. And, the only reasonably inference from decades of inaction is that the FEC does not interpret FECA to preempt claims like the Receiver’s.
. The
Wyeth
Court went on to note that " '[t]he case for federal pre-emption is particularly weak where Congress has indicated its awareness of the operation of state law in a field of federal interest, and has nonetheless decided to tolerate whatever tension there [is] between them.’ ”
.
See supra
note 19;
. The Court takes appropriate judicial notice of the advisory opinion and related documents as publicly-available "sources whose accuracy cannot reasonably be questioned.”
. There are no material differences between the Washington and Texas UFTA statutes. See
Byron,
.
. As this and other courts have observed, Van Tassel’s declarations "provide clear, numerical support for the creative reverse engineering undertaken by Stanford executives to accomplish the Ponzi scheme,”
Janvey v. Alguire,
. The Republican Committees criticize Van Tassel’s Supplemental Declaration for failing to distinguish sufficiently between SIB and SFGC and to trace specific funds from SIB to SFGC. The Fifth Circuit already rejected a similar objection to Van Tassel's reports in
Alguire,
noting that such arguments were "of no moment.”
. The Republican Committees' object to Van Tassel's insolvency analysis, contending that she wrongly excluded the value of loans made to R. Allen Stanford in calculating the amount of SIB's insolvency.
See
Republican Committees’ Supp. Reply Br. at 5. The Republican Committees, however, fail to cite any authority supporting their preferred accounting method or to provide any evidence suggesting, as they obliquely imply, that the Stanford Defendants were solvent. In any case, as fruits of the Ponzi scheme, neither Stanford's loans nor SIB’s reported assets qualify as assets under TUFTA.
See
. The Political Committees also failed to produce evidence suggesting that the Stanford Defendants’ contributions were sourced from a "legitimate business operation.” Mark A. McDermott, Ponzi Schemes & the Law of Fraudulent and Preferential Transfers, 72 Am. Bankr. L.J. 157, 174-175 (1998) (discussing how the existence of a debtor’s legitimate business may create a fact issue that makes application of the actual intent presumption inappropriate) [hereinafter "McDermott”].
.
Cf. United States v. Am. Bar Endowment,
.
See, e.g., McConnell,
. To the extent the Political Committees raise First Amendment objections, TUFTA "applfies] to all entities, charitable, political, or private and any effect [it] might have on expressive activity is incidental.''
Republican Dinner,