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Janvey v. Gage

United States Court of Appeals, Fifth Circuit

May 5, 2017

RALPH S. JANVEY, In His Capacity as Court-Appointed Receiver for The Stanford International Bank, Limited, et al, Plaintiff - Appellant Cross-Appellee
v.
DILLON GAGE, INCORPORATED OF DALLAS; DILLON GAGE, INCORPORATED, Defendants-Appellees Cross-Appellants

         Appeals from the United States District Court for the Northern District of Texas

          Before WIENER, CLEMENT, and HIGGINSON, Circuit Judges.

          STEPHEN A. HIGGINSON, Circuit Judge.

         This case concerns more fallout from Allen Stanford's Ponzi scheme. Plaintiff-Appellant Ralph Janvey ("Janvey") is the court-appointed receiver tasked with marshalling and distributing the assets of the Stanford entities. This suit relates to Stanford Coins and Bullion ("SCB"), a coin and bullion company previously owned by Allen Stanford. SCB sold coins and metals to the public. Defendant-Appellee Dillon Gage Inc. of Dallas ("Dillon Gage") is a wholesaler of metals, bullion, and coins and was SCB's largest supplier.

         Janvey alleges that six transfers from SCB to Dillon Gage were fraudulent transfers under the Texas Uniform Fraudulent Transfer Act ("TUFTA") and should be returned to the receivership. Following trial, a jury disagreed, finding that the six transfers were not fraudulent. Dillon Gage then sought attorney's fees, which the district court denied. Janvey appealed, challenging the jury verdict and instructions; Dillon Gage cross-appealed, challenging the denial of the fee award. We AFFIRM.

         I

         For almost two decades, Allen Stanford and his co-conspirators perpetrated a multi-billion-dollar Ponzi scheme using a global network of more than 130 entities. The Ponzi scheme sold fraudulent certificates of deposit to investors. Proceeds from investors were used to pay other investors, fund Allen Stanford's lifestyle, and finance other Stanford entities.

         One entity related to the scheme was SCB. SCB received capital contributions and loans from other Stanford entities. Indeed, until late 2008, SCB had a line of credit with Stanford International Bank. However, SCB did not sell Stanford certificates of deposit. Instead, SCB operated as an otherwise ordinary coin and bullion business, buying and selling coins and metals. It purchased coins and metals from wholesalers and resold them to retail customers at a markup. SCB ran its business operations through an operating account, that is, when SCB received customers' money, it deposited the funds into SCB's operating account, and the operating account was then used to pay SCB's business expenses. SCB was led by its President Joseph Frisard and its Vice President of Operations Scott Terry. SCB was never profitable, although by 2009 its revenues were rising.

         At all relevant times, Dillon Gage was managed by its President of the Metals Division Terry Hanlon and General Manager Ira Fritz. SCB became Dillon Gage's customer in 2004. The relationship grew and by early 2009, Dillon Gage was SCB's largest wholesale supplier. SCB would place orders with Dillon Gage through Dillon Gage's trading desk. Dillon Gage would then either supply the goods to SCB or ship the goods directly to SCB's customers (called "drop-shipping"). SCB would then pay Dillon Gage for the orders, with payment usually due ten days to two weeks after shipment. However, SCB was consistently late in its payments to Dillon Gage.

         During this business relationship, Dillon Gage extended SCB a line of credit, which, by 2009, had grown to $2 million. In January 2009, SCB's account balance with Dillon Gage had grown to about $2.3 million. During this time, Hanlon became increasingly concerned with the age and amount of SCB's outstanding invoices, and in response, on January 20, 2009, he traveled to SCB's headquarters to meet with Frisard. At the meeting, Frisard assured Hanlon that SCB had already mailed a payment to Dillon Gage and was anticipating a big order that could be used to pay off the rest of SCB's balance. Frisard also showed Hanlon SCB's offices; Hanlon observed significant inventory and a room full of salespeople taking customers' orders.

         As it turned out, the check that Frisard promised was actually only for $250, 000. Concerned by the low payment, Hanlon called Scott Terry on January 22, 2009, seeking further payment. Hanlon told Terry that he was uncomfortable with SCB's slow rate of payment and high balance and asked for an explanation. Terry explained that SCB was suffering from cash flow problems, in part because it had lost its line of credit with Stanford International Bank. Terry further explained that SCB was working on a big deal and that when it received payment, it could use the money to pay Dillon Gage. Terry suggested that if the big deal failed SCB could collect its unpaid accounts receivables, liquidate inventory, or seek additional capital from Stanford. Hanlon responded that Dillon Gage could not keep shipping SCB inventory until it was paid.

         The "big deal" referenced by both Frisard and Terry was a deal with the Pre-War Art Gallery (the "Gallery"). The Gallery wanted to purchase 101 gold bars from SCB for approximately $3 million (the "Gallery Deal").

         Soon after the January 22 phone call, Dillon Gage stopped shipping orders to SCB and its customers. This was not entirely out of the ordinary; Dillon Gage had halted shipments to SCB before. From January 23 until January 30, SCB made three payments to Dillon Gage, totaling approximately $1.26 million: $501, 326.30 (January 23); $394, 567.40 (January 27); and $368, 491.51 (January 30).

         On February 2, 2009, the Gallery placed its order with SCB for 101 gold bars, wiring $3, 028, 613 to SCB for the order. Frisard then ordered the gold bars from Dillon Gage and provided an upfront payment of approximately $3 million to Dillon Gage. Although the order was placed on February 2, the order did not need to be shipped to the Gallery until March 4.

         Following SCB's $3 million payment, Dillon Gage immediately began shipping SCB's backlogged orders, applying the $3 million payment to the oldest invoices first. In total, Dillon Gage shipped $1, 947, 453.65 in coins and bullion to SCB or its customers in the time between when shipping resumed and when the receivership was imposed.

         On February 6 and February 13, SCB made two further payments to Dillon Gage of $366, 171.50 and $486, 959.86, respectively. Following these payments, SCB had a credit balance with Dillon Gage of $1, 069, 355. Nonetheless, SCB still owed Dillon Gage more money to complete payment on the Gallery Deal.

         On February 17, 2009, SCB was shut down by Janvey, the court-appointed receiver. At the time it was shut down, SCB had over $1 million in cash and $300, 000-$400, 000 in uncashed checks on hand. SCB's management believed that the company had sufficient cash, or access to capital, to complete the Gallery Deal.

         In September 2010, Janvey filed this lawsuit. He alleged that the following payments from SCB to Dillon Gage were fraudulent transfers under TUFTA and therefore should be returned to the receivership:

• January 23, 2009 - $501, 326.30
• January 27, 2009 - $394, 567.40
• January 30, 2009 - $368, 491.51
• February 2, 2009 - $3, 002, 639.10
• February 6, 2009 - $366, 171.50
• February 13, 2009 - $486, 959.86

         The parties proceeded to trial in July 2015. The jury was asked two questions: (1) were the transfers from SCB to Dillon Gage fraudulent transfers?; and (2) did ...


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