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

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

Spring Street, seeking to recover against Bayou and its owner Douglas Lam on defaulted promissory notes, claimed that certain transfers that defendants made were fraudulent: (1) Bayou's transfer of "hard assets" to LT Seafood when LT Seafood took over Bayou's retail operations at the 415 East Hamilton location; (2) Douglas Lam's transfer of his 49% interest in LT Seafood to DKL & DTL; and (3) DKL & DTL's subsequent transfer of this 49% interest to Vinh Ngo. The court concluded that Spring Street could pierce DKL & DTL's corporate veil on the basis of fraud and impose individual liability on the LLC members. Accordingly, the court affirmed the district court's summary judgment in favor of Spring Street with regard to these claims. However, the court concluded that Ten Lam and Ngo have raised a genuine dispute of fact as to both which "hard assets" Bayou transferred to LT Seafood and the value of those assets on the date of the transfer. Accordingly, the court vacated the judgment in regards to Spring Street's fraudulent transfer claim against Lam and Ngo for the amount of $150,000 and remanded for further proceedings. View "Spring Street Partners v. Lam, et al." on Justia Law

Petitioner challenged the IRS's determination that the gross income petitioners reported in 2003 and 2004 based on their ownership of a controlled foreign corporation should have been taxed at the rate of petitioners' ordinary income rather than the lower tax rate they had claimed. At issue was whether amounts included in petitioners' gross income for 2003 and 2004 pursuant to 26 U.S.C. 951(a)(1)(B) and 956 (collectively, "section 951 inclusions") constituted qualified dividend income under 26 U.S.C. 1(h)(11). The court concluded that section 951 inclusions did not constitute actual dividends because actual dividends required a distribution by a corporation and receipt by a shareholder and these section 951 inclusions involved no distribution or change in ownership; Congress clearly did not intend to deem as dividends the section 951 inclusions at issue here; and petitioners' reliance on other non-binding sources were unavailing. Accordingly, the court affirmed the judgment of the tax court. View "Rodriguez, et al. v. Commissioner of Internal Revenue" on Justia Law

This appeal arose from eleven notices of final partnership administrative adjustment (FPAAs) issued by the IRS with respect to three Limited Liability Companies (LLCs) treated as partnerships for tax purposes. The IRS claimed that the partnerships' transactions provided one partner with an illegal tax shelter to avoid taxes on his unrelated personal capital gain of the same approximate amount. The court affirmed the district court's determinations that (1) the FOCus transactions lacked economic substance and must be disregarded for tax purposes; (2) the negligence penalty was applicable and the partnerships were not entitled to the reasonable cause defense; and (3) the valuation misstatement penalty was inapplicable. The court vacated and rendered judgment for plaintiffs as to the remaining claims addressing the FPAAs premised on the government's alternative theory under Treasury Regulation 1.701-2 and the district court's approval of the alternative substantial understatement penalty. View "Nevada Partners Fund, et al. v. United States" on Justia Law

Debtors, Schlotzsky's Inc. and certain affiliates, filed for Chapter 11 bankruptcy protection and appellants were one of the creditors. On appeal, appellants challenged the denial of their motion to pursue post-confirmation causes of action on behalf of the reorganized debtor. The court concluded that the joint plan of liquidation (Plan) did not specifically reserve the state law claims that appellants wished to assert. Without this specific reservation, the Plan Administrator - and, by extension, appellants - lacked standing to pursue the proposed claims. Thus, the claims were not colorable, and the bankruptcy court did not err in denying appellants' motion to pursue causes of action on behalf of debtors. Accordingly, the court affirmed the judgment. View "Wooley, et al v. Faulkner, et al" on Justia Law