Janvey v. Golf Channel, Inc.

487 S.W.3d 560

Ralph S. Janvey, in his Capacity as Court–Appointed Receiver for the Stanford International Bank, Limited, et al.; Official Stanford Investors Committee, Appellants,

v.The Golf Channel, Incorporated; TGC, L.L.C., doing Business as Golf Channel, Appellees

NO. 15–0489

Supreme Court of Texas.

Argued January 12, 2016

Opinion delivered: April 1, 2016

Kevin M. Sadler, Scott D. Powers, Stephanie F. Cagniart, Baker Botts L.L.P., Austin, TX, Timothy S. Durst, Baker & Botts, Douglas J. Buncher, Nicholas A. Foley, Neligan Foley L.L.P., Dallas, TX, Edward C. Snyder III, Castillo Snyder, P.C., Edward Frazer Valdespino, Strasburger & Price L.L.P., San Antonio, TX, for Appellants.

Katherine D. Mackillop, Norton Rose Fulbright U.S., L.L.P., Houston, TX, Kyle Morris Schindler, Theodore W. Daniel, Norton Rose Fulbright U.S., L.L.P., Dallas, TX, Jonathan S. Franklin, Norton Rose Fulbright U.S. L.L.P., Washington D.C., for Appellees.

Mary L. O'Connor, Akin Gump Strauss Hauer & Feld LLP, Donald Richard Jones, Wilensky & Jones, LLP, Mary Angela Jenkins, JP Morgan Chase & Co, John Martin Jackson, Jackson Walker LLP, Josiah M. Daniel III, Thomas S. Leatherbury, Vinson & Elkins LLP, W. Scott Hastings, Locke Lord LLP, Dallas, TX, Meghan E. Tepas, Michael J. Summerhill, Salvador A. Carranza, Freeborn & Peters LLP, Chicago, IL, Gregory F. Miller, Vinson & Elkins LLP, Charles L. Babcock, Jackson Walker LLP, Houston, TX, Amicus Curiae.

Justice Guzman delivered the opinion of the Court.

Under the Texas Uniform Fraudulent Transfer Act (TUFTA), an asset transferred with “actual intent to hinder, delay, or defraud” a creditor may be reclaimed for the benefit of the transferor's creditors unless the transferee “took [the asset] in good faith and for a reasonably equivalent value.”¹ Even without proof of actual intent, an asset transfer may be avoided if the transferor was financially vulnerable at the time of the transaction and the “value” exchanged was not reasonably equivalent.² In this fraudulent-transfer clawback action, the asset at stake is $5.9 million a cable television network received in exchange for media-advertising services that included commercial air time and sponsorship recognition during sports broadcasts. The issue in this certified-question proceeding is whether the television network must relinquish its compensation absent proof the transaction benefited the transferor's creditors. The question arises not because the exchange at issue lacked objective value but because the transferor turned out to be one of the most notorious Ponzi schemes of the modern era.³

With few exceptions, courts applying similar fraudulent-transfer statutes conclusively presume actual intent and insolvency when a transfer is made in furtherance of a Ponzi scheme,⁴ and some courts have held that satisfaction of the “reasonably equivalent value” requirement depends on the extent to which the transaction preserved the transferor's net worth for the benefit of its creditors.⁵ Because a Ponzi scheme is a fraudulent endeavor that is driven further into insolvency with each transaction,⁶ under this authority, unknowing vendors and service providers have little defense to fraudulent-transfer claims unless the challenged transaction has the potential to generate or preserve a tangible or leviable asset for the transferor's creditors. For consumable goods and services, disgorgement of compensation becomes a veritable certainty without regard to the transferee's good faith or the objective value of the consideration the transferee provided.

Following prior precedent applying similar principles, the Fifth Circuit initially ordered the television network to return all remuneration paid for services rendered, holding that media-advertising services have “no value” to a Ponzi scheme's creditors even though the same services might be “quite valuable” to the creditors of a legitimate business.⁷ On rehearing, the Circuit vacated its opinion. Observing that TUFTA, unlike the model Uniform Fraudulent Transfer Act (UFTA), specially defines the term “reasonably equivalent value” to include consideration having value from a marketplace perspective,⁸ the Circuit certified the following question to this Court:

Considering the definition of “value” in section 24.004(a) of [TUFTA], the definition of “reasonably equivalent value” in section 24.004(d) of [TUFTA], and the comment in [UFTA] stating that “value” is measured “from a creditor's viewpoint,” what showing of “value” under TUFTA is sufficient for a transferee to prove the elements of the [good-faith] affirmative defense under section 24.009(a) of [TUFTA]?⁹

Construing the relevant statutory provisions, we conclude TUFTA's “reasonably equivalent value” requirement can be satisfied with evidence that the transferee (1) fully performed under a lawful, arm's-length contract for fair market value, (2) provided consideration that had objective value at the time of the transaction, and (3) made the exchange in the ordinary course of the transferee's business.

I. Background

For nearly two decades, R. Allen Stanford perpetrated a multi-billion dollar Ponzi scheme through Antigua-based Stanford International Bank Limited (Stanford), which sold fraudulent high-yield certificates of deposit to unwary investors.¹⁰ To further the scheme, Stanford used new investors' principal to pay early investors their promised returns, a classic Ponzi-scheme artifice designed to create a false aura of success.¹¹ By the time the Securities and Exchange Commission uncovered the ruse in 2009, Stanford had bilked investors out of more than $7 billion.¹²

After Stanford's assets were seized and placed into receivership, the court-appointed receiver instituted legal proceedings to void asset transfers Stanford made before entering receivership, including suits to recoup payments to various vendors. At issue in this certified-question proceeding are payments Stanford made to The Golf Channel, Inc. under a contract for media-advertising services. The relevant facts, recounted below, are undisputed.

In 2005, Stanford initiated a marketing plan targeting new investors in the economic echelon most coveted by the Ponzi scheme, high-net-worth individuals. Part of Stanford's strategy involved marketing directed at sporting events that skewed favorably to the desired demographic. Among other activities, Stanford became the title sponsor of the Stanford St. Jude Championship, a 2006 Professional Golfers' Association of America (PGA) event broadcasted and covered by Golf Channel.

The same year, Golf Channel entered into a two-year agreement with Stanford to provide media-advertising services to augment Stanford's existing tournament sponsorships. Those services were directed at brand awareness and included commercial air time, recognition of Stanford's St. Jude Championship and U.S. Open title sponsorships, and integration of messaging about Stanford's charitable contributions, products, and brand during live tournament coverage. In exchange for its services, Golf Channel received payments from Stanford each month of the two-year contract term, except for the last monthly payment, which Stanford failed to make. All told, Stanford paid Golf Channel $5.9 million under the media-services contract, which Golf Channel fully performed. Three years after the services contract expired, the court-appointed receiver and the Official Stanford Investors' Committee (collectively, the Receiver) sued Golf Channel in federal district court to recover all the money Stanford paid under the media-advertising agreement, alleging the payments were made with intent to defraud Stanford's creditors.

On cross-motions for summary judgment in the federal-court proceeding, the Receiver asserted fraudulent intent was established as a matter of law, while Golf Channel argued the transfer was not voidable because it took Stanford's contract payments in good faith and in exchange for reasonably equivalent value.¹³ According to the Receiver, Golf Channel's affirmative defense failed as a matter of law because advertising services that further a Ponzi scheme and produce no tangible estate asset have zero value from the perspective of the enterprise's creditors.¹⁴

The district court agreed fraudulent intent was conclusively established because Stanford operated a Ponzi scheme, but granted summary judgment for Golf Channel on its affirmative defense. Citing TUFTA's definition of “reasonably equivalent value,” the court opined that, if Golf Channel's services provided any “value,” the exchange of value was reasonably equivalent because the transaction was arm's length, in good faith, at fair market value, and in the ordinary course of business.¹⁵ As to the threshold issue of value, the court similarly resolved that matter in Golf Channel's favor.

In doing so, the district court rejected the Receiver's argument that there is no “value” unless the transaction leaves the transferor's estate with a tangible asset on which creditors can levy execution. Because value is determined at the time of the transaction, the court explained that transferring consumable goods and services can confer value even though nothing is ultimately left behind for creditors. A contrary rule, the court observed, would sweep too broadly, negating the good-faith defense for vendors such as the electric and water companies that serviced Stanford's facilities. Because Golf Channel's advertising time and services had objective value at the time of the transaction,¹⁶ the district court concluded Golf Channel provided reasonably equivalent value for Stanford's contract payments. The court refused to categorically presume that vendors incidentally supporting a Ponzi scheme—like utility and office supply companies—provide no value in an otherwise good-faith transaction. In sum, the court concluded that Golf Channel did not actively promote or participate in the Ponzi scheme and, therefore, was an innocent trade creditor that had...