The Winter/Spring 2015 edition of Receivership News
discussed the Fifth Circuit case Janvey v. The Golf Channel, Inc.,
780 F. 3d 641 (5th Cir. 2015) (“Golf Channel I”). There the court found
The Golf Channel liable to return $6,000,000 paid to it for advertising
services it provided, that were used to help solicit investors in the
Allen Stanford Ponzi scheme. The court found the advertising did not
provide “reasonably equivalent value,” from the standpoint of the Stanford
creditors, and, therefore, could not be used to support The Golf Channel’s
defense to the receiver’s fraudulent transfer claim. The court stated that
under the Uniform Fraudulent Transfer Act, which was modeled after the
Bankruptcy Code, consideration having no utility, from a creditor
standpoint, does not satisfy the statutory definition. The court cited a
number of cases and held “we measure value ‘from the standpoint of the
creditors,’ and not from that of a buyer in the marketplace,” Id.
at 644.
The Fifth Circuit’s decision received a lot of press. In
response to The Golf Channel’s petition for rehearing, the Fifth Circuit
vacated its opinion and certified to the Supreme Court of Texas the
question of whether the definition of “value” in the Texas version of the
Uniform Fraudulent Transfer Act (“TUFTA”), found in Texas Business &
Commerce Code § 24.004(d), is to be viewed from a creditor’s viewpoint.
Janvey v. The Golf Channel, Inc., 792 F.3d 539 (5th Cir. 2015) (“Golf
Channel II”).
The Supreme Court of Texas in Janvey v. Golf Channel, Inc.,
47 S.W. 3d 560 (Tex. 2016), in response to the Fifth Circuit’s
certification, held that under the TUFTA “the ‘reasonable equivalent
value’ requirement can be satisfied with evidence that the transferee (1)
fully performed under a lawful, arms-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
transferees business.” Id. at 564. In other words, the Texas
Supreme Court held that “reasonably equivalent value” exists if the goods
or services provided would have been available to another buyer at market
rates had they not been purchased by the operator of the Ponzi scheme,
whether or not they constituted value from the standpoint of creditors.
The Texas Supreme Court went on to note: “Uniformity is a
stated objective of the statute but TUFTA is unique among fraudulent
transfer laws because it provides a specific market value definition of
reasonable equivalent value.” Id. at 573.1
In response to the Texas Supreme Court’s decision, the
Fifth Circuit in Janvey v. Golf Channel, Inc., 834 F. 3d 570 (2016) (“Golf
Channel III”), held that, because the Texas Supreme Court is the
arbitrator of Texas law, its interpretation of Texas law was binding and,
therefore, reversed its prior holding and affirmed the district court’s
grant of summary judgment in favor of The Golf Channel against the
receiver. However, the Fifth Circuit went on to state that it believed the
Supreme Court of Texas’ interpretation of value under Texas law is
different from the definition under other states’ fraudulent transfer laws
and under § 548(c) of the Bankruptcy Code. It specifically cited to its
own decision in Warfield v. Byron, 436 F.3d 551, 560 (5th Cir.
2016), where it held, applying Washington law, that services rendered in
furtherance of a Ponzi scheme were not for “value” because “[t]he primary
consideration in analyzing the exchange of value of any transfer is the
degree to which the transferor’s net worth is preserved.” Golf Channel
III at 573. In other words, courts should view the transaction from
the creditor’s standpoint, as it had originally held. Faced with this
dichotomy, the court held that when interpreting the Texas fraudulent
transfer law, courts in the Fifth Circuit would have to comply with the
Supreme Court of Texas’ interpretation but: “When interpreting a federal
statute or statute different from a different state, ‘we are not bound by
the state court’s interpretation of a similar-or even identical-state
statute.” Id. As a result, the Fifth Circuit took the position that
so long as Texas law does not apply, receivers and bankruptcy trustees can
pursue fraudulent transfer claims in Ponzi schemes against third parties
who provided goods and services to the Ponzi scheme, if those goods or
services did not provide value “from the standpoint of the creditors.”
This should also be the result in California which, as indicated, does not
have the specific “reasonably equivalent value” definition found in Texas
law.
*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP a
Beverly Hills Law Firm. His practice includes representing Receivers and
acting as a Receiver in State and Federal Court.