Justia U.S. 5th Circuit Court of Appeals Opinion Summaries

For nearly two decades, Stanford International Bank, Limited (Stanford) operated a multi-billion dollar Ponzi scheme through more than 130 affiliated entities. Beginning in 2005, Stanford developed a plan to increase awareness of its brand among sports audiences. It targeted this group because of its large proportion of high-net-worth individuals who would have been most likely to invest with Stanford. Stanford became a title sponsor of the Stanford St. Jude’s Championship, an annual PGA Tour event. Upon hearing of Stanford’s sponsorship, The Golf Channel, Inc., which broadcasted the tournament, offered Stanford an advertising package to augment its marketing efforts. Golf Channel did not design Stanford’s media strategy or develop the content of the advertisements. However, the agreement required Golf Channel’s final approval. Stanford satisfied most of its monthly payment obligations to Golf Channel and, before the agreement expired, entered into a four-year renewal. By the time this lawsuit was initiated, Stanford had paid at least $5.9 million to Golf Channel pursuant to the agreement. In February 2009, the SEC uncovered Stanford’s Ponzi scheme and filed a lawsuit requesting the district court to appoint a receiver over Stanford. The district court assumed exclusive jurisdiction, seized Stanford’s assets, and appointed Ralph Janvey to serve as receiver. Pursuant to his powers, the receiver took custody of any and all assets owned by or traceable to the receivership estate, which included recovering any voidable transfers made by Stanford before going into receivership. The receiver discovered the payments to Golf Channel and filed suit under the Texas Uniform Fraudulent Transfer Act (TUFTA) to recover the full $5.9 million. After initial discovery, the parties filed cross-motions for summary judgment. The court granted Golf Channel’s motion and denied the receiver’s motion. The district court determined that although Stanford’s payments to Golf Channel were fraudulent transfers under TUFTA, Golf Channel was entitled to judgment as a matter of law on its affirmative defense that it received the payments in good faith and in exchange for reasonably equivalent value (the market value of advertising on The Golf Channel). The receiver appealed. At issue here was whether Golf Channel proved the second element of its affirmative defense, that its advertising services provided “reasonably equivalent value” as defined under TUFTA. The Fifth Circuit Court of Appeals concluded that Golf Channel failed to prove that it exchanged something of value: that its services preserved the value of Stanford’s estate or had any utility from the creditors’ perspective. Golf Channel only brought forth evidence showing the market value of its services. This was insufficient to satisfy its burden under TUFTA of proving value to the creditors. View "Janvey v. Golf Channel, Inc." on Justia Law

Pilgrim's Pride was the successor-in-interest to Pilgrim's Pride Corporation of Georgia f/k/a Gold Kist, Inc., which was the successor-in-interest to Gold Kist, Inc. In 1998, Gold Kist sold its agriservices business to Southern States Cooperative, Inc. To facilitate the purchase, Southern States obtained a bridge loan that was secured by a commitment letter between Southern States and Gold Kist. The letter permitted Southern States to require Gold Kist to purchase certain securities from Southern States. In early 2004, Gold Kist and Southern States negotiated a price at which Southern States would redeem the securities. Gold Kist’s Board of Directors, instead of accepting the offer, decided to abandon the securities for no consideration. The issue this case presented for the Fifth Circuit's review centered on whether whether Pilgrim’s Pride Corporation's loss from its abandonment of securities was an ordinary loss or a capital loss. The Tax Court (in what appeared to be the first ruling of its kind by any court) ruled that 26 U.S.C. 1234A(1) applied to the abandonment loss and required that it be classified as capital. However, the Fifth Circuit disagreed. Because section 1234A(1) only applied to the termination of contractual or derivative rights, and not to the abandonment of capital assets, the Court reversed the Tax Court and rendered judgment in favor of Pilgrim's Pride. View "Pilgrim's Pride Corporation v. CIR" on Justia Law

A jury found that PlastiPure and CertiChem violated the Lanham Act, 15 U.S.C. 1125(a), by making false statements of facts about Eastman's plastic resin product called Tritan. The district court entered an injunction against both companies and the companies appealed, challenging the jury verdict and the injunction. The court held that the Act prohibits false commercial speech even when that speech makes scientific claims. The court rejected the companies' contention that the district court should not have entered its injunction because the companies' statements about Tritan containing estrogenic activity (EA) from BPA are not actionable statements under the Act. The court concluded that application of the Act to the companies’ promotional statements will not stifle academic freedom or intrude on First Amendment values; the injunction only applies to statements made “in connection with any advertising, promotion, offering for sale, or sale of goods or services;" the companies may continue to pursue their research and publish their results; and the companies may not push their product by making the claims the jury found to be false and misleading. The court rejected the companies' argument that the jury's verdict must be reversed where a reasonable jury could have concluded that the companies' statements were false and misleading. The court rejected the companies' claims of error in the jury instructions. Accordingly, the court affirmed the judgment. View "Eastman Chemical Co. v. PlastiPure, Inc." on Justia Law

Plaintiffs filed suit against oil and gas companies and their insurers, alleging that aspects of the companies' pipeline activities impeded water flows and commercial navigation, causing economic damages. On appeal, plaintiffs challenged the district court's dismissal of their complaint for failure to state a claim in favor of two defendants, DIGC and Willbros. The court affirmed, concluding that plaintiffs failed to state a claim for a maritime tort against DIGC and Willbros. Further, the court adopted the Golden State rule where a defendant is alleged to be a corporate successor to a maritime tortfeasor but is not accused of having engaged in tortious conduct. In this case, plaintiffs' allegations that Dow is the "predecessor" to DIGC and that DIGC operated under an Army Corps permit originally issued to Dow do not show that an exception to Golden State's default rule of nonliability plausibly applies. Without more, plaintiffs have failed to state a claim for successor liability against DIGC. View "In re: Louisiana Crawfish Producers" on Justia Law

Plaintiff, the receiver for the Stanford entities, filed suit seeking to recover funds that were paid to defendants, purchasers of certificate of deposits from Standard International Bank (SIB) as part of a Ponzi scheme. The court concluded that the district court properly applied the Texas Uniform Fraudulent Transfer Act (TUFTA), Tex. Bus. & Com. Code 24.010, to the receiver's claims; the receiver has standing to bring the TUFTA claims on behalf of the Stanford entities; and the receiver's claims are not barred by the statute of limitations. On the merits, the court concluded that the receiver established that the Stanford principles transferred monies to the investor-defendants with fraudulent intent; unlike interest payments, it is undisputed that the principal payments were payments of an antecedent debt, namely fraud claims that the investor-defendants have as victims of the Stanford Ponzi scheme; the district court did not err in denying an exemption under Texas Property Code 42.0021(a) where investor-defendants have offered no evidence that they have a legal right to the funds despite those funds being the product of a fraudulent transfer; and the court declined to reach the investor-defendants' argument that certain factual issues remain. Accordingly, the court affirmed the district court's grant of the receiver's motion for summary judgment.View "Janvey, et al. v. Brown, et al." on Justia Law

From 1993 through 2006, Dow engaged in transactions with foreign banks to operate two partnerships that generated over one billion dollars in tax deductions for Dow. The court affirmed the district court's holding that the partnerships were shams where the district court did not clearly err in holding that Dow lacked the intent to share the profits and losses with the foreign banks. The court vacated, however, the district court's penalty award where, in light of United States v. Woods, the district court erred in foreclosing the applicability of both the substantial-valuation and gross-valuation misstatement penalties. The court remanded for the district court to determine whether to impose either or both of these penalties.View "Chemtech Royalty Assoc. LP, et al. v. United States" on Justia Law

Debtor Lisa Galaz filed an adversary proceeding in bankruptcy court against her ex-husband, appellant Raul Galaz, for fraudulently transferring the assets of Artist Rights Foundation, LLC ("ARF") to a Texas limited liability company managed by Raul's father. Raul, a former California attorney, founded ARF in 1998 with Julian, a music producer, in order to collect royalties for the music of the Ohio Players. Raul and Julian secured all rights to the Ohio Players' music catalogue and exploited those rights, but from 1998 until 2005 the rights did not generate any revenue. In 2002, Lisa and Raul divorced and executed a divorce decree under which Raul assigned half of his 50% interest in ARF to Lisa. Because Raul transferred half of his interest to Lisa without Julian's consent, in violation of ARF's written operating agreement, Lisa received an economic interest in ARF with no management or voting rights. In 2005, without obtaining prior consent from either Lisa or Julian, Raul assigned all of ARF's rights to the entity Segundo Suenos. Soon thereafter, the royalties for the Ohio Players' music began to generate a substantial amount of revenue. From the time of ARF's transfer in June 2005 until trial in February 2010, Segundo Suenos's gross revenue from the Ohio Players' royalties totaled nearly one million dollars. Neither Julian nor Lisa received any share of the profits despite their interests in ARF. In 2007, Lisa filed for Chapter 13 bankruptcy. In April 2008 she brought an adversary proceeding against Raul and Segundo Suenos, asserting claims under the Bankruptcy Code and the Texas Uniform Fraudulent Transfer Act ("TUFTA"), and asserted that Raul, as a managing member of ARF, breached his fiduciary duties to Lisa when he transferred ARF's assets to Segundo Suenos. Defendants filed a third-party complaint against Julian, who in turn asserted seven counterclaims against Defendants, including breach of fiduciary duty and fraudulent conversion. After a bench trial, the bankruptcy court found that the transfer of assets from ARF to Segundo Suenos was invalid, that it constituted a fraudulent transfer under TUFTA, that Raul owed fiduciary duties to Julian and had breached those duties, and that Raul owed no fiduciary duties to Lisa. The court entered judgment for Lisa and Julian, awarding both actual and exemplary damages. Raul and Segundo Suenos unsuccessfully appealed the judgment to the district court. The district court vacated and remanded the damages awards, however, for further consideration of Segundo Suenos's alleged expenses and for redetermination of both the actual and exemplary damages. Appellants Raul and Segundo Suenos appealed the district court's decisions. "Because rapidly evolving case law has limited bankruptcy courts' jurisdiction," the Fifth Circuit vacated the district court's order and remanded the case with separate instructions for each judgment creditor. View "Galaz, et al v. Galaz, et al" on Justia Law

Idearc, a corporation spun-off from its parent corporation, Verizon, filed for bankruptcy protection and the confirmed plan of reorganization created a litigation trust. In this case, the trustee filed suit against Verizon and others, alleging various federal and state law claims in connection with the spin-off. The court concluded that the trustee was not entitled to a jury trial where the trustee's fraudulent transfer claims against Verizon are integral to the restructuring of the debtor-creditor relationship through the bankruptcy court's equity jurisdiction; resolution of Verizon's proof of claim in the bankruptcy court would necessarily resolve the fraudulent transfer issue; and, therefore, the court affirmed the district court's order granting the motion to strike the jury. The court affirmed the district court's denial of reconsideration of its holding that Idearc was a wholly-owned subsidiary of Verizon because the request to reconsider was untimely, based entirely on evidence that was available at the summary judgment stage, and lacked merit. Finally, the court rejected the trustee's challenges to the district court's evidentiary rulings; affirmed the district court's finding that Idearc was worth at least $12 billion on the date of the spin-off; and affirmed the district court's conclusions of law.View "U.S. Bank Nat'l Assoc. v. Verizon Communications, Inc., et al." on Justia Law

Petitioner filed a complaint with OSHA, asserting that Saybolt and Core Labs had violated Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the Sarbanes-Oxley Act, 18 U.S.C. 1514A(a), by retaliating against him for blowing the whistle on an alleged scheme to violate Colombian tax law. OSHA, an ALJ, and the Board all rejected petitioner's complaint. The court concluded that petitioner did not demonstrate that he engaged in protected conduct because he did not complain, based on a reasonable belief, that one of six enumerated categories of U.S. law had been violated. Petitioner had not demonstrated that he engaged in any protected activity, and given this, the court could not say that Core Labs knew that petitioner engaged in a protected activity that was a contributing factor in the unfavorable actions of withholding petitioner's pay raise and ultimately terminating him. Accordingly, the court affirmed the Board's dismissal of petitioner's complaint because he had not demonstrated that his claim fell within the scope of section 806. View "Villanueva v. U.S. Dept. of Labor" on Justia Law

Muse, Nelson, and Weiss, and two others formed DGP. The five individuals were DGP’s limited partners; its general partner was MNW LLC, consisting of Muse, Nelson, and Weiss. DGP contracted to buy Gas Solutions and Prospect agreed to lend DGP 95% of the purchase price, subject to due diligence. The agreement prevented DGP from negotiating with other lenders. Prospect’s investigation raised concerns and it informed DGP that it would not make the loan. After DGP threatened to sue, Prospect agreed to pay DGP $3.295 million as reimbursement for DGP’s expenses and DGP agreed to assign Prospect its right to buy Gas Solutions. DGP assigned the purchase contract to DGP’s general partner, MNW, owned by Muse, Nelson and Weiss, who then sold Prospect their individual membership interests, transferring the contract to Prospect. Despite a mutual release, DGP sued Prospect alleging fraud, breach of fiduciary duty, and tortious interference with contract. Prospect counterclaimed alleging breach of the covenant not to sue. The district court granted summary judgment in favor of Prospect and awarded attorneys’ fees in its award. The Fifth Circuit affirmed, rejecting an argument that the covenants did not bind the individuals. Under an interpretation of the agreement giving effect to all its terms, Nelson and Muse breached the agreement by funding DGP’s lawsuits and violated the release and covenant not to sue.View "Dallas Gas Partners, L.P. v. Prospect Energy Corp" on Justia Law