The Texas Supreme Court is poised to consider a significant fraudulent transfer case stemming from the Allen Stanford Ponzi scheme. The origins of Janvey v. Golf Channel date back to 2009. In the wake of Stanford’s $7 billion Ponzi scheme, the Northern District of Texas appointed a receiver for Stanford and his related entities. The receiver sued the Golf Channel (among others), claiming the nearly $6 million Stanford paid for advertising was a fraudulent transfer under the Texas Uniform Fraudulent Transfer Act (“TUFTA”).
The case turns on whether the Golf Channel could prove an affirmative defense—that its advertising services were something of “reasonably equivalent value” in return for the transfer. Not so, according to the Fifth Circuit’s original opinion in March 2015. Value is measured from these particular creditors’ perspective, not the general marketplace, under the court’s original reasoning. And so while advertising “may have been quite valuable to the creditors of a legitimate business,” it had “no value to the creditors of a Ponzi scheme.”
But on a motion for rehearing three months later, the Fifth Circuit changed course and vacated its original opinion. The court acknowledged that “precisely where TUFTA draws the line between the various interested parties is the difficult question that Texas courts have yet to answer.” On that basis, the Fifth Circuit certified a question to the Texas Supreme Court, asking what showing of value is sufficient to prove an affirmative defense to a fraudulent transfer claim.
Last Friday, the Texas Supreme Court set the case for oral argument on January 12, 2016. Apart from its significance in the Stanford litigation, the court’s ruling is expected to clarify the contours of defenses available to innocent trade creditors who deal with businesses that were engaged in fraudulent conduct. The briefing and up-to-date case events are available here.