NO.

15-0489
IN THE SUPREME COURT OF TEXAS
RALPH S. JANVEY, in his Capacity as Court-Appointed Receiver
for the Stanford International Bank, Limited, et al.;
OFFICIAL STANFORD INVESTORS COMMITTEE;
Plaintiffs-Appellants,
vs.
THE GOLF CHANNEL, INCORPORATED;
TGC, L.L.C., doing business as Golf Channel,
Defendants-Appellees.
Certified Question from the United States Court of Appeals for the Fifth Circuit
Case No. 13-11305
BRIEF OF AMICUS CURIAE JPMORGAN CHASE BANK,
NATIONAL ASSOCIATION, IN SUPPORT OF APPELLEES
David J. Woll (pro hac vice pending)
Email: dwoll@stblaw.com
Isaac Rethy (pro hac vice pending)
Email: irethy@stblaw.com
SIMPSON THACHER & BARTLETT LLP
425 Lexington Avenue
New York, NY 10017-3954
(212) 455-2000
Fax: (212) 455-2502
James J. White (pro hac vice pending)
Email: jjwhite@umich.edu
UNIVERSITY OF MICHIGAN LAW SCHOOL
625 South State Street
Ann Arbor, MI 48109-1215
(734) 764-9325

505680-0299-13477-Active.18203941.4

Mary Angela Jenkins

Texas Bar No. 24008612
Email: maryann.jenkins@jpmchase.com
Daren Wayne Perkins
Texas Bar No. 15784320
Email: daren.perkins@jpmchase.com
JPMORGAN CHASE BANK, N.A.
700 North Pearl Street, 15th Floor
Dallas, TX 75265
(214) 965-3778
Fax: (214) 965-4024

Attorneys for Amicus Curiae

JPMorgan Chase Bank, N.A.

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TABLE OF CONTENTS
TABLE OF AUTHORITIES .................................................................................... ii
STATEMENT OF INTEREST .................................................................................. 1
CERTIFIED QUESTION .......................................................................................... 2
SUMMARY OF THE ARGUMENT ........................................................................ 2
BACKGROUND ....................................................................................................... 7
ARGUMENT ............................................................................................................. 9
I.

II.

THE FIFTH CIRCUITS PONZI SCHEME JURISPRUDENCE IS

CONTRARY TO TUFTA ............................................................................... 9
A.

Fraudulent Transfer Claims Are Not Fraud Claims ............................ 10

B.

The Fifth Circuits Ponzi Scheme Jurisprudence Is Unsupported

By Persuasive Authority...................................................................... 20

C.

The Fifth Circuits Conclusive Presumption Of Fraudulent

Intent Is Inconsistent With TUFTA .................................................... 27
1.

TUFTA Rejects Presumptions Of Intent .................................. 27

2.

TUFTA Imposes Liability On A Transaction-ByTransaction Basis ...................................................................... 29

3.

The Presumption Of Fraudulent Intent Is Bad Public

Policy......................................................................................... 32

ARMS LENGTH TRANSACTIONS AT MARKET RATES

PROVIDE VALUE UNDER SECTION 24.009(a) ...................................... 33

CONCLUSION ........................................................................................................ 42
CERTIFICATE OF SERVICE ................................................................................ 44
CERTIFICATE OF COMPLIANCE ....................................................................... 45

TABLE OF AUTHORITIES
Cases
Allard v. Flamingo Hilton (In re Chomakos),
69 F.3d 769 (6th Cir. 1995) ...............................................................................41
Am. Cancer Socy v. Cook,
675 F.3d 524 (5th Cir. 2012) .............................................................................29
B.E.L.T., Inc. v. Wachovia Corp.,
403 F.3d 474 (7th Cir. 2005) ...................................................................... 17, 31
Badger State Bank v. Taylor,
688 N.W.2d 439 (Wis. 2004).............................................................................37
Balaber-Strauss v. Sixty Five Brokers (In re Churchill Mortg. Inv. Corp.),
256 B.R. 664 (Bankr. S.D.N.Y. 2000)..............................................................24
Bank of Am., N.A. v. Kapila (In re Pearlman),
478 B.R. 448 (M.D. Fla. 2012) ............................................................................9
Bear, Stearns Sec. Corp. v. Gredd (In re Manhattan Inv. Fund, Ltd.),
397 B.R. 1 (S.D.N.Y. 2007) ................................................................... 9, 25, 30
BFP v. Resolution Trust Corp.,
511 U.S. 531 (1994) ...........................................................................................35
Boston Trading Group v. Burnazos,
835 F.2d 1504 (1st Cir. 1987) ............................................................... 15, 16, 33
Bowman v. El Paso CGP Co., LLC,
431 S.W.3d 781 (Tex. App.Houston [14th Dist.] 2014, pet. denied) ............27
Breeden v. Ne. Binding Sys. (In re Bennett Funding Grp., Inc.),
253 B.R. 316 (Bankr. N.D.N.Y. 2000) ..............................................................22
Brennan v. Slone (In re Fisher),
296 F. Appx. 494 (6th Cir. 2008) ......................................................................22
Carney v. Lopez,
933 F. Supp. 2d 365 (D. Conn. 2013)................................................................31
ii

Christians v. Crystal Evangelical Free Church (In re Young),

152 B.R. 939 (D. Minn. 1993) ...........................................................................36
Cunningham v. Brown,
265 U.S. 1 (1924) ...............................................................................................26
Cuthill v. Greenmark, LLC (In re World Vision Entmt, Inc.),
275 B.R. 641 (Bankr. M.D. Fla. 2002) ..............................................................24
Davis v. Schwartz,
155 U.S. 631 (1895) ...........................................................................................19
Englert v. Englert,
881 S.W.2d 517 (Tex. App.Amarillo 1994, no writ) ....................... 12, 28, 41
Equip. Acquisition Res., Inc. v. PlainsCapital Leasing, LLC
(In re Equip. Acquisition Res., Inc.),
502 B.R. 784 (Bankr. N.D. Ill. 2013) ................................................................30
Finn v. Alliance Bank,
860 N.W.2d 638 (Minn. 2015) .................................................................. passim
Firmani v. Firmani,
752 A.2d 854 (N.J. Super. Ct. App. Div. 2000) ................................................39
G.M. Houser, Inc. v. Rodgers,
204 S.W.3d 836 (Tex. App.Dallas 2006, no pet.) .........................................19
Given v. Taylor, Hart & Co.,
6 Tex. 315 (1851)...............................................................................................42
Hawes v. Cent. Tex. Prod. Credit Assn,
503 S.W.2d 234 (Tex. 1973) .............................................................................11
Hayes v. Palm Seedlings Partners-A
(In re Agric. Research & Tech. Grp., Inc.),
916 F.2d 528 (9th Cir. 1990) .............................................................................22
Henry v. Lehman Commercial Paper, Inc.
(In re First Alliance Mortgage Co.),
471 F.3d 977 (9th Cir. 2006) ...................................................................... 14, 15

iii

Higgs v. Amarillo Postal Emps. Credit Union,

358 S.W.2d 761 (Tex. App.Amarillo 1962, no writ) ....................................28
Hinsley v. Boudloche (In re Hinsley),
201 F.3d 638 (5th Cir. 2000) ...................................................................... 35, 39
Image Masters, Inc. v. Chase Home Fin.,
489 B.R. 375 (E.D. Pa. 2013) ............................................................................31
In re Gen. Agents Ins. Co. of Am., Inc.,
224 S.W.3d 806 (Tex. App.Houston [14th Dist.] 2007, no pet.) ..................12
In re Petters Co., Inc.,
495 B.R. 887 (Bankr. D. Minn. 2013) ...............................................................24
In re Yotis,
518 B.R. 481 (Bankr. N.D. Ill. 2014) ................................................................38
Ingalls v. SMTC Corp. (In re SMTC Mfg. of Texas),
421 B.R. 251 (Bankr. W.D. Tex. 2009).............................................................18
Janvey v. Alguire,
647 F.3d 585 (5th Cir. 2011) .............................................................................27
Janvey v. Brown,
767 F.3d 430 (5th Cir. 2014) .................................................................... 7, 8, 27
Janvey v. Democratic Senatorial Campaign Comm., Inc.,
712 F.3d 185 (5th Cir. 2013) ...............................................................................8
Janvey v. The Golf Channel, Inc.,
780 F.3d 641 (5th Cir. 2015) ................................................................ 2, 5, 9, 34
Janvey v. The Golf Channel, Inc.,
792 F.3d 539 (5th Cir. 2015) ..................................................................... passim
Kapila v. TD Bank, N.A. (In re Pearlman),
460 B.R. 306 (Bankr. M.D. Fla. 2011) ..............................................................24
KCM Fin. LLC v. Bradshaw,
457 S.W.3d 70 (Tex. 2015) ...............................................................................10

iv

Klein v. Cornelius,
786 F.3d 1310 (10th Cir. 2015) .................................................................. 36, 37
Klein v. Weidner,
729 F.3d 280 (3d Cir. 2013) ..............................................................................38
Lippe v. Bairnco Corp.,
249 F. Supp. 2d 357 (S.D.N.Y. 2003) ...............................................................19
Martino v. Edison Worldwide Capital (In re Randy),
189 B.R. 425 (N.D. I11. 1995) ..........................................................................23
Maxwell v. KPMG LLP,
520 F.3d 713 (7th Cir. 2008) .............................................................................33
Merrill v. Abbott (In re Indep. Clearing House Co.),
77 B.R. 843 (D. Utah 1987) ...............................................................................21
Nobles v. Marcus,
533 S.W.2d 923 (Tex. 1976) .............................................................................12
Quilling v. Schonsky,
247 Fed. Appx. 583 (5th Cir. 2007)...................................................................26
Roland v. United States,
838 F.2d 1400 (5th Cir. 1988) ...........................................................................18
Samson v. U.S. W. Commcns, Inc. (In re Grigonis),
208 B.R. 950 (Bankr. D. Mont. 1997) ...............................................................40
Scholes v. Lehmann,
56 F.3d 750 (7th Cir. 1995) ...............................................................................25
SEC v. Mgmt. Solutions, Inc.,
No. 11 Civ. 1165, 2013 WL 4501088 (D. Utah Aug. 22, 2013) .......................30
SEC v. Res. Dev. Intl, LLC,
487 F.3d 295 (5th Cir. 2007) ...................................................................... 26, 37
Sender v. Heggland Family Trust (In re Hedged-Inv. Assocs., Inc.),
48 F.3d 470 (10th Cir. 1995) .............................................................................22

Sharp Intl Corp. v. State St. Bank & Trust Co. (In re Sharp Intl Corp.),
281 B.R. 506 (Bankr. E.D.N.Y. 2002) ..............................................................31
Sharp Intl Corp. v. State St. Bank & Trust Co. (In re Sharp Intl Corp.),
403 F.3d 43 (2d Cir. 2005) ......................................................................... 16, 31
Solow v. Reinhardt (In re First Commercial Mgmt. Group),
279 B.R. 230 (Bankr. N.D. Ill. 2002) ................................................................23
Stanley v. U.S. Bank Natl Assn (In re TransTexas Gas Corp.),
597 F.3d 298 (5th Cir. 2010) ...................................................................... 35, 39
United States v. Dyer,
216 F.3d 568 (7th Cir. 2000) .............................................................................25
United States v. Fernon,
640 F.2d 609 (5th Cir. 1981) .............................................................................18
United States v. Stanford,
--- F.3d ----, 2015 WL 6742682 (5th Cir. Oct. 29, 2015) ....................................7
United States. v. Hartstein,
500 F.3d 790 (8th Cir. 2007) .............................................................................30
Walker v. Anderson,
232 S.W.3d 899 (Tex. App.Dallas 2007, no pet.) .........................................19
Walker v. Treadwell (In re Treadwell),
699 F.2d 1050 (11th Cir. 1983) .........................................................................36
Warfield v. Byron,
436 F.3d 551 (5th Cir. 2006) .................................................................. 9, 25, 39
Wiand v. Lee,
753 F.3d 1194 (11th Cir. 2014) .........................................................................26
Wider v. Wootton,
907 F.2d 570 (5th Cir. 1990) .............................................................................22
Zahra Spiritual Trust v. United States,
910 F.2d 240 (5th Cir. 1990) .............................................................................36

vi

Statutes and Rules

11 U.S.C. 547(c)(2) ...............................................................................................22
11 U.S.C. 548 ........................................................................................................41
11 U.S.C. 548(c) ...................................................................................................37
TEX. BUS & COMM. CODE ANN. 24.005(b)(1).......................................................19
TEX. BUS & COMM. CODE ANN. 24.005(b)(11).....................................................19
TEX. BUS & COMM. CODE ANN. 24.006 ...................................................... 10, 20, 34
TEX. BUS & COMM. CODE ANN. 24.005(a)(1) ........................................... 10, 20, 34
TEX. BUS & COMM. CODE ANN. 24.005(b) ............................................................10
TEX. BUS & COMM. CODE ANN. 24.005(a)(2) ......................................... 10, 20, 34
UNIF. FRAUDULENT CONVEYANCE ACT....................................................................28
UNIF. FRAUDULENT TRANSFER ACT ................................................................. passim
UNIF. VOIDABLE TRANSACTIONS ACT ......................................................... 12, 13, 28
Other Authorities
Bruce J. Borrus,
Recent Developments in Fraudulent Transfer Cases Arising out of Ponzi
Schemes (2015) ........................................................................................... 20, 26
Jared Wilkerson,
Investors and Employees as Relief Defendants in Investment Fraud
Receiverships: Promoting Efficiency By Following the Plain Meaning of
Legitimate Claim or Ownership Interest,
3 Fin. Fraud L. Rep. 243, (Mar. 2011).................................................................8
Jason B. Hirsh,
Golf is a Crazy Game, Comm. Bankr. Litig. (Mar. 13, 2015) ............................5

vii

Kenneth C. Kettering,
The Uniform Voidable Transactions Act; or, the 2014 Amendments to
the Uniform Fraudulent Transfer Act,
70 Bus. Law. 777 (2015) ........................................................................... passim
Orlando F. Bump,
FRAUDULENT CONVEYANCES 20 (4th ed. 1896) .............................................17
Richard F. Doyle, Jr. & Vernon Teofan,
The Nonuniform Texas Uniform Fraudulent Transfer Act,
42 Sw. L.J. 1029 (1989).....................................................................................11
U.S.A. TODAY,
Lawyer wants 34% of money recovered in Stanford case (Aug. 14, 2009) ........8

viii

STATEMENT OF INTEREST
JPMorgan Chase Bank, N.A. (JPMorgan Chase Bank) is a national bank
chartered under the National Bank Act and a subsidiary of JPMorgan Chase & Co.
(JPMorgan Chase), a leading global financial services firm and one of the largest
banking institutions in the United States.1 JPMorgan Chase is one of the nations
leading providers of commercial and consumer credit and banking services. The
ability of JPMorgan Chase and other lenders to extend business credit at
reasonable terms depends in large part on the stability and predictability of the
application of state and federal laws governing the creditor/debtor relationship.
As such, JPMorgan Chase has a compelling interest in the resolution of the
important issues of fraudulent transfer law that will be impacted by this Courts
determination of the question of Texas law certified by the United States Court of
Appeals for the Fifth Circuit. Fraudulent transfer laws are valuable creditorprotection tools when they are properly applied so as to prevent debtors from
improperly sheltering their assets or otherwise placing their assets beyond the
reach of creditors. However, the Fifth Circuit panels application of the Texas
Uniform Fraudulent Transfer Act (TUFTA) in this case turns fraudulent transfer
law on its head. If allowed to stand, the panels interpretation of TUFTA will
1

Pursuant to Rule 11(c) of the Texas Rules of Appellate Procedure, JPMorgan Chase Bank
certifies that no other person or entity contributed monetarily towards the preparation or
submission of this brief.

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result in significant commercial uncertainty and manifestly unfair outcomes by

transforming many ordinary-course, arms-length, market-price transactions into
voidable transfers.
CERTIFIED QUESTION
Considering the definition of value in section 24.004(a)
of the Texas Business and Commerce Code, the
definition of reasonably equivalent value in section
24.004(d) of the Texas Business and Commerce Code,
and the comment in the Uniform Fraudulent Transfer Act
stating that value is measured from a creditors
viewpoint, what showing of value under TUFTA is
sufficient for a transferee to prove the elements of the
affirmative defense under section 24.009(a) of the Texas
Business and Commerce Code?
SUMMARY OF THE ARGUMENT
In rendering summary judgment against Golf Channel, the Fifth Circuit held
that (1) Stanfords purchase of TV advertising services at a market rate constituted
an intentional fraudulent transfer under TUFTA because Stanford was engaged in a
Ponzi scheme, and (2) the advertising services Golf Channel provided had no value
under TUFTA because they did not generate an asset that Stanfords creditors
could use to satisfy their claims. See Janvey v. The Golf Channel, Inc., 780 F.3d
641 (5th Cir. 2015) (Golf Channel I). On rehearing, the Fifth Circuit vacated
Golf Channel I and sought this Courts input on the second holding via certified
question. See Janvey v. The Golf Channel, Inc., 792 F.3d 539 (5th Cir. 2015)
(Golf Channel II). The Fifth Circuit did not expressly certify a question as to its
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first holding, which, broadly applied, would make every transfer of any kind by an
entity that operates a Ponzi scheme an intentional fraudulent transfer under
TUFTA as a matter of law. Nonetheless, the Fifth Circuit disclaim[ed] any
intention or desire that the Supreme Court of Texas confine its reply to the precise
form or scope of the question certified. Golf Channel II, 792 F.3d at 547.
Accordingly, although the Fifth Circuit did not specifically certify a question
with respect to the Golf Channel I panels conclusion that all transfers of any kind
made by a Ponzi scheme perpetrator are intentional fraudulent transfers, the
certified question concerning the establishment of value under TUFTA would
not even arise absent the conclusive Ponzi scheme presumptions applied in Golf
Channel I. The history and purpose of TUFTA does not permit the conclusion that
receiving payment for TV advertising in an arms-length transaction at market rates
could be a fraudulent transfer. Only through adoption of a judicially-created
presumptionthat all transfers by a debtor deemed to be engaged in Ponzi scheme
activities are intentional fraudulent transferscould the Golf Channel I panel even
begin to question whether the market-value advertising payments received by
defendant were for value. Thus, an understanding of the Fifth Circuits Ponzi
scheme jurisprudence provides crucial context for this Courts review of the instant
certified question.

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The conclusive presumption applied by the Golf Channel I panel that all
transfers by an entity operating a Ponzi scheme are by definition intentional
fraudulent transfers is not a correct statement of Texas law. It has no basis in
TUFTAs statutory text, misapprehends the purposes of fraudulent transfer law,
and has never been endorsed by a Texas court. Without this presumption, the
Receivers case would have been dismissed on the pleadings, because under
longstanding principles of fraudulent transfer law, a debtors purchase of goods or
services in an arms-length transaction and at a reasonable market rate is not an
intentional fraudulent transferregardless of whether the debtor is generally
engaged in fraud or uses the fruits of the transaction in a manner that somehow
deepens its insolvency. Application of this presumption eliminated the Receivers
burden of actually pleading and proving its prima facie case, and immediately
shifted the burden to Golf Channel to satisfy TUFTAs statutory affirmative
defense for transferees who take in good faith and for value. Nothing in TUFTA
suggests that this wholesale elimination of the plaintiffs burden of proof is
appropriate.
The Fifth Circuits TUFTA jurisprudence has stomach-curdling
implications.2

In Golf Channel I, the Fifth Circuit expressed the view that

See Jason B. Hirsh, Golf is a Crazy Game, Comm. Bankr. Litig. (Mar. 13, 2015), available at
http://commercialbankruptcylitigation.com/articles/ralph-janvey-as-receiver-for-stanford-

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payments to the electricity provider of a debtor engaged in a Ponzi scheme

would constitute intentional fraudulent transfers, and that the electricity provider
would have to put[ ] on evidence that its services helped preserve the building in
which the debtor operated, preventing the buildings deterioration to the benefit of
the debtors creditors in order to retain the debtors payments on its electric bills.
780 F.3d at 646 n.7.

This Courts resolution of the Fifth Circuits certified

question will determine whether Texas utility providers will actually, as Golf
Channel I held and as the Receiver contends, have to retain electrical engineers as
expert witnesses to avoid having their customers bill payments clawed back, or
whether they will merely be required to demonstrate that they charged market rates
for their services. The latter answer is obviously correct. More basically, this
hypothetical suit against an electric company (and the real suit against the Golf
Channel) should have been dismissed on the pleadings as a matter of law, and
should not have reached the summary judgment stage based on a set of judge-made
conclusive presumptions with no basis in TUFTA.
The Ponzi scheme jurisprudence that has been developed by the federal
courts in recent decades, and that was adopted and applied by the Golf Channel I
panel, is mistaken. It misapprehends the purpose and history of fraudulent transfer

international-bank-v-the-golf-channel (describing Golf Channel I as a stomach curdling

decision).

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law by focusing not on the specific challenged transactions but on the debtortransferors general business practices, thereby blurring the important distinctions
between the law of fraudulent transfers and the law of fraud.

This

jurisprudence also leads to dramatically different outcomes based on arbitrary

judicial determinations of whether a particular debtors operations constituted a
Ponzi scheme, a phrase that has no clear definition and is nowhere mentioned in
TUFTA.
The validity of this jurisprudence as a matter of state law had never been
presented to a state supreme court until this past year. In that case, the Minnesota
Supreme Court resoundingly rejected each aspect of the doctrines espoused in Golf
Channel I and II as inconsistent with the Uniform Fraudulent Transfer Act, the
same uniform law enacted by the Texas legislature as TUFTA.

See Finn v.

Alliance Bank, 860 N.W.2d 638, 642 (Minn. 2015) (rejecting each component of
the Ponzi-scheme presumption as inconsistent with the Minnesota Uniform
Fraudulent Transfer Act). This Court should do so as well.
Finally, the Receivers claim that the Golf Channels provision of TV
advertising had no value because it did not increase the value of Stanfords estate
is meritless. This argument suffers from the same misplaced focus on the overall
character of Stanfords business, rather than on the specific transactions at issue.
Like the doctrines above, such a conception of value has no basis in the statutory

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text or in case law. There is no statutory Ponzi scheme exception to the ordinary
rules for assessing the provision of value, and this Court should not create one in
this case.
BACKGROUND
Golf Channel sold advertising time in what was undisputedly an armslength, market rate transaction. The parties who purchased the advertising were
companies controlled by R. Allen Stanford, which sold certificates of deposit
(CDs) to investors that promised investors extraordinarily high rates of return.
Janvey v. Brown, 767 F.3d 430, 433 (5th Cir. 2014).

Stanford claimed that

investors funds would be invested in high-quality securities, but instead of

actually investing the money raised by selling these CDs, Stanford used the money
to pay prior investors their promised returns. Id. In other words, Stanford was
running what is commonly understood to be a Ponzi scheme, which collapsed in
early 2009. Id. Stanford was tried and convicted of mail and wire fraud, money
laundering, and related conspiracy charges and sentenced to 110 years in prison.
See United States v. Stanford, --- F.3d ----, 2015 WL 6742682, at *1 (5th Cir. Oct.
29, 2015). The Fifth Circuit recently affirmed Stanfords conviction. See id.
When Stanfords scheme collapsed, the Stanford entities were put into
receivership, and plaintiff Ralph Janvey (the Receiver) was appointed as receiver
by the Securities and Exchange Commission (SEC).

The Receiver filed

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numerous fraudulent transfer suits against parties who dealt with Stanford. Many
of these were CD investors who received back their principal, as well as supposed
interest on this principal. Brown, 767 F.3d at 434.3 The Receiver also sued
creditors such as Golf Channel which did not invest in Stanfords fraudulent CDs,
but rather provided commercial services to Stanford.

The Receivers suits

principally asserted state-law fraudulent transfer claims, but were brought in

federal court; federal jurisdiction arose from the federal receivership statutes and
the federal courts supplemental jurisdiction. See Janvey v. Democratic Senatorial
Campaign Comm., Inc., 712 F.3d 185, 202 n.3 (5th Cir. 2013).
The Receiver argued, and the Fifth Circuit agreed, that the Texas Uniform
Fraudulent Transfer Act (TUFTA) governs the Receivers fraudulent transfer
claims because the Ponzi scheme was operated out of Texas, the Receiver is in
Texas, many of the Stanford entities are in Texas, and some of the defrauded
creditors and [defendants] are Texan, and therefore Texas has the greatest interest
in the disputes. Brown, 767 F.3d at 436; see also Golf Channel I, 780 F.3d at 643
3

The receiveragainst the wishes of the SECfirst attempted to recover investor funds by
naming investors as relief defendants and seeking disgorgement of all CD proceeds. The Fifth
Circuit rejected this theory of recovery in Janvey v. Adams, leading the receiver to commence
suits against investors under fraudulent transfer statutes. See generally Brief of Sec. & Exch.
Commn as Amicus Curiae in support of Appellees, Janvey v. Adams, Nos. 09-10761, 09-10765
(5th Cir. 2009), available at 2009 WL 6338943; Jared Wilkerson, Investors and Employees as
Relief Defendants in Investment Fraud Receiverships: Promoting Efficiency By Following the
Plain Meaning of Legitimate Claim or Ownership Interest 3 Fin. Fraud L. Rep. 243 (Mar.
2011); U.S.A. TODAY, Lawyer wants 34% of money recovered in Stanford case (Aug. 14, 2009),
available
at
http://usatoday.com/money/industries/brokerage/2009-08-14-stanfordattorney_N.htm.

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n.3 (finding Texas law applicable in the instant case). Prior to certification of the
instant question of Texas law to this Court, however, this litigation has proceeded
with only minimal reference to Texas law, and has instead been resolved based on
federal cases applying judge-made rules arising out of Ponzi schemes; these rules
which are often referred to collectively as the Ponzi scheme presumption.4
ARGUMENT
I.

THE FIFTH CIRCUITS PONZI SCHEME JURISPRUDENCE IS

CONTRARY TO TUFTA
The Fifth Circuit first adopted the rule that every transfer made by a person

engaged in a Ponzi scheme is an intentional fraudulent transfer in 2006, see

Warfield v. Byron, 436 F.3d 551 (5th Cir. 2006), and has since applied it a number
of times, including in the instant action. See Golf Channel II, 792 F.3d at 543 (In
this circuit, proving that a transferor operated as a Ponzi scheme establishes the
fraudulent intent behind the transfers it made.) (collecting cases).
This rule misinterprets TUFTA. First, it ignores the important distinction
between a cause of action for fraud and a cause of action for fraudulent transfer.
Second, it is unsupported by persuasive authority. Third, it arbitrarily alters the

See, e.g., Finn v. Alliance Bank, 860 N.W.2d 638, 642 (Minn. 2015) (addressing the so-called
Ponzi-scheme presumption adopted by a number of federal courts); Bank of Am., N.A. v.
Kapila (In re Pearlman), 478 B.R. 448, 451 (M.D. Fla. 2012) (discussing the judicially-created
Ponzi scheme presumption); Bear, Stearns Sec. Corp. v. Gredd (In re Manhattan Inv. Fund,
Ltd.), 397 B.R. 1, 8 (S.D.N.Y. 2007) (describing the general ruleknown as the Ponzi scheme
presumption).

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nature of liability under TUFTA by imposing such liability based on the

designation of a transferors business as a Ponzi scheme, rather than on a case-bycase inquiry into the transaction at issue.
A.

Fraudulent Transfer Claims Are Not Fraud Claims

Fraudulent transfer statutes empower courts to prevent debtors from injuring

their creditors by placing assets beyond their reach.

KCM Fin. LLC v.

Bradshaw, 457 S.W.3d 70, 89 (Tex. 2015). The general purpose of fraudulent
transfer law is policing conduct to the prejudice of creditorsin other words,
debtor behavior that contravenes acceptable norms of creditors rights.5 There are
two basic types of fraudulent transfer claims: actual or intentional fraudulent
transfer claims, which void transactions intended to hinder, delay, or defraud the
transferors creditors (see TEX. BUS & COMM. CODE ANN. 24.005(a)(1)) (West
2015), and constructive fraudulent transfers, which are transactions by an
insolvent debtor for less than reasonably equivalent value (see id. 24.005(a)(2),
24.006). Intentional fraudulent transfer claims under 24.005(a)(1) are proven by
showing a confluence of factors known as badges of fraud, which are listed in
24.005(b). This case involves an actual intent claim under 24.005(a)(1), but

Kenneth C. Kettering, The Uniform Voidable Transactions Act; or, the 2014 Amendments to
the Uniform Fraudulent Transfer Act, 70 Bus. Law. 777, 807 (2015).

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rather than establishing his prima facie case through the badges of fraud analysis,
the Receiver relied on a conclusive presumption of intent in Ponzi scheme cases.
Texass fraudulent transfer statute, enacted in 1987, is based on the Uniform
Fraudulent Transfer Act (UFTA).6 The National Conference of Commissioners
on Uniform State Laws (the Uniform Law Commission) adopted UFTA in 1984
to supersede the Uniform Fraudulent Conveyance Act (UFCA), which the
Uniform Law Commission had promulgated in 1918 as a codification of the
better decisions applying the Statute of 13 Elizabeth.7

The Statute of 13

Elizabeth, an English statute enacted in 1571, is traditionally referred to as the

fountainhead of American law on the subject.8 Texas never adopted the UFCA;
its pre-TUFTA fraudulent transfer statute was derived from an 1840 Act of the
Republic of Texas9 which itself closely resemble[d] the statute of 13
Elizabeth. Hawes v. Cent. Tex. Prod. Credit Assn, 503 S.W.2d 234, 236 (Tex.
1973).

In its consistent fealty to the Statute of 13 Elizabeth, fraudulent

conveyance law may be unique in its statutory continuity.10

Indeed, the

See generally Richard F. Doyle, Jr. & Vernon Teofan, The Nonuniform Texas Uniform
Fraudulent Transfer Act, 42 Sw. L.J. 1029 (1989).
7

UNIF. FRAUDULENT TRANSFER ACT, Prefatory Note, at 1 (1984).

Kettering, supra note 5, at 778.

Doyle & Teofan, supra note 6, at 1030.

10

Kettering, supra note 5, at 777 (2015).

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primordial rule of the modern statute renders voidable any transfer of property
by a debtor made with intent to hinder, delay, or defraud creditorsa phrase
composed of the very same words, inconsequentially reordered, that were used to
express the rule in 1571.11
Texas courts have repeatedly pointed out that fraudulent transfer is a term
of art, and does not simply describe any transaction with some connection to some
sort of fraud. See, e.g., In re Gen. Agents Ins. Co. of Am., Inc., 224 S.W.3d 806,
819 (Tex. App.Houston [14th Dist.] 2007, no pet.) (Fraudulent transfer. . . is a
statutory term of art that does not necessarily equate to the term fraud.); Englert
v. Englert, 881 S.W.2d 517, 519 (Tex. App.Amarillo 1994, no writ) (Matters
involved in a cause of action for fraud are separate and distinct from those in an
action for fraudulent transfer.); Nobles v. Marcus, 533 S.W.2d 923, 925 (Tex.
1976) (Fraudulent conveyance requires a technical pleading that relies on specific
allegations, including one that alleges the transfer to have been a fraud against the
rights of the creditors; it is in addition to, and separate from, an action for fraud.).
The fact that Texas courts have had to repeatedly make this point, however, is
indicative of the confusion that can arise from the misleading intimation that
[f]raud is a necessary element of a claim for relief under the Act.12 It is not.
11

Id.

12

UNIF. VOIDABLE TRANSACTIONS ACT 15 cmt. 1 (2014).

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Rather, as the drafters of the recent 2014 amendments to the UFTA explain, a
fraudulent transfer claim seeks to undo a transaction that unacceptably
contravenes norms of creditors rights; such a transaction need not bear any
resemblance to common-law fraud.13

The risk of confusion of fraud and

fraudulent transfer concepts is most acute when courts consider fraudulent transfer
claims involving, as here, transactions by debtors whose business practices involve
civil or criminal fraud. Such debtors may well act with intent to defraud in the
modern sense of the term, but a transaction in which one party intends to defraud
another is not, as such, a fraudulent transfer under TUFTA.
Recognizing that use of the term fraud, while sanctioned by historical
usage, is a misleading description of the [UFTA], the Uniform Law
Commission approved revisions to the Uniform Act in 2014 which, among other
things, changed its title to the Uniform Voidable Transactions Act.14 In a recent
article, Kenneth C. Kettering, the Reporter for the 2014 amendments drafting
committee, identifies two sources of the confusion which the renaming of the law
was meant to redress. First, the identification of the transactions subject to the law
as fraudulent derives from Latin legal sources, in which the root word fraus did
13

Id. 4 cmt. 8; see also Kettering, supra note 5, at 807 (explaining that a more correct
shorthand for the objectives of fraudulent transfer law is prevention of conduct to the prejudice
of creditors). Professor James J. White, counsel to amicus curiae, served on the drafting
committee for these 2014 amendments.
14

UNIF. VOIDABLE TRANSACTIONS ACT 15 cmt. 1.

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not really mean fraud, but rather prejudice or disadvantage, something

better understood in 1571 than today.15 Second, [t]he nickname of the primordial
rule, actual fraud, invites the misconception that the rules intent requirement
should be interpreted in a way similar to the intent requirement for a claim of
common-law fraud, which makes little sense as an interpretation of that language
in modern codifications of voidable transfer law.16

Thus, for centuries courts

applying the modern statutes or similar laws have interpreted the reference to
intent to minimize or eliminate the significance of the debtors mental state,
through use of the badges of fraud and the standard evidentiary presumption
that a person is presumed to intend the natural consequences of his acts.17
In keeping with these principles, those courts that have thoroughly analyzed
the issue have recognized that a nexus to a fraudulent scheme, or the use of funds
obtained by fraud, does not render a transaction voidable under fraudulent transfer
law. For example, in Henry v. Lehman Commercial Paper, Inc. (In re First
Alliance Mortgage Co.), 471 F.3d 977 (9th Cir. 2006), the Ninth Circuit addressed
aiding and abetting fraud claims and fraudulent transfer claims brought against a
15

Kettering, supra note 5, at 807 (2015).

16

It was, however, a sensible interpretation of the primordial rule as originally written in the
Statute of 13 Elizabeth, because rather than creating a private right in favor of creditors, [t]he
Statute of 13 Elizabeth was a penal statute which targeted the debtor who made the improper
transfer as much as the transferee who received it, and therefore required mens rea. Id. at 809.
17

Id. at 809-10.

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Lehman Brothers affiliate, which had provided financing to an insolvent mortgage

lender that had been found liable for defrauding its borrowers. The court affirmed
Lehmans aiding and abetting liability, finding that Lehman kn[ew] that First
Alliance loans were originated through deceptive sales procedures, and that
without Lehmans financing, First Alliance would not have been able to continue
to fund its fraudulently obtained loans. Id. at 987. The court, however, rejected
claims that loan repayments to Lehman constituted fraudulent transfers. Id. at
1009. The court reasoned that because fraudulent transfer law attempts to prevent
scheme[s] to hide assets from creditors, but is not generally aimed at preventing
or redressing fraud, the fact that Lehman substantially assisted First Alliance in
fraud did not mean that loan repayments from First Alliance to Lehman
constituted a scheme to fraudulently transfer First Alliance assets. Id.
Similarly, in Boston Trading Group v. Burnazos, now-Justice Breyer,
writing for the First Circuit, found that repayment of a loan using funds
fraudulently acquired from a third party did not constitute a voidable transfer. 835
F.2d 1504, 1510 (1st Cir. 1987). In so holding, the court noted the potentially
confusing coincidence that we are dealing with a form of initial dishonesty [by the
transferor] that itself happens to be called fraud, but recognized that no fraudulent
transfer existed because the fraud or dishonesty in this example concerns not [the
transferors] transfer to the [repaid creditor] but the manner in which the original

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debt [to the defrauded third party] arose. Id. at 1510 (emphasis in original). In
so holding, the court noted that it had found no modern case (nor any reference in
any modern case, treatise, or article to any case in the past 400 years) that has
found a fraudulent conveyance in such circumstances, which was not
surprising, since [f]raudulent conveyance law is basically concerned with
transfers that hinder, delay or defraud creditors; it is not ordinarily concerned
with how such debts were created. Id.
Along the same lines, Sharp Intl Corp. v. State St. Bank & Trust Co. (In re
Sharp Intl Corp.), involved a loan repayment by an entity engaged in widespread
fraud to a lender that knew that the funds used to repay the [preexisting debt]
were fraudulently obtained. 403 F.3d 43, 55 (2d Cir. 2005). The plaintiffappellant complained that the lower court, in dismissing its fraudulent transfer
claims, had inappropriately focused on badges of fraud even though the Spitzes
fraud was so clearly established that it need not be detected by indicia. Id. at 56.
The Second Circuit rejected the argument, finding that the fraudulent transfer
claim failed because the plaintiff inadequately allege[d] fraud with respect to the
transaction that [plaintiff] seeks to voidthe alleged fraud related to the manner
in which Sharp obtained new funding from the Noteholders, not Sharps
subsequent payment of part of the proceeds to State Street. Id. (emphasis added).
And, rejecting a similar claim, the Seventh Circuit explained that [b]eing paid for

16
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services rendered to the perpetrator of a fraud does not constitute a fraudulent

transfer. B.E.L.T., Inc. v. Wachovia Corp., 403 F.3d 474, 477 (7th Cir. 2005).
Someone who sells a car at the market price to Charles Ponzi is entitled to keep
the money without becoming liable to Ponzi's victims for the loss created by his
scheme. Id.
The UFTAs drafters include[d] most of the badges of fraud that have been
recognized by the courts in construing and applying the Statute of 13 Elizabeth and
7 of the Uniform Fraudulent Conveyance Act.18 Notably, these badges of fraud
do not include the general character of the debtors business, or the fact that the
debtor was engaged in a fraudulent or criminal enterprise. While the statutory list
of badges of fraud is not exclusive, debtors who engage in fraud or misconduct are
hardly uncommon; if such a badge of fraud had existed at common law, it would
either have been included as one of the UFTAs enumerated badges of fraud, or the
drafters would have explained its exclusion.19 As the Minnesota Supreme Court
explained in Finn,
Even if there is evidence to support the inference that
Ponzi-scheme operators generally intend to defraud
investors, MUFTA does not contain a provision allowing
18

UNIF. FRAUDULENT TRANSFER ACT 4 cmt. 5.

19

Consistent with this, an early leading commentator observed that [a]n intent to deceive and
defraud the public does not in and of itself demonstrate the requisite fraudulent intent for
purposes of fraudulent transfer law. Orlando F. Bump, FRAUDULENT CONVEYANCES 20 (4th
ed. 1896).

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a court to presume fraudulent intent. Instead, MUFTA

contains a list of factors, commonly referred to as
badges of fraud, that a court may consider to determine
whether a debtor made a transfer with an actual intent to
defraud creditors. See Minn. Stat. 513.44(b). That the
debtor was involved in a Ponzi scheme is not among
them. To be sure, the list of badges of fraud is not
exclusive, see id. (stating that consideration may be
given, among other factors, to the badges of fraud), so a
court could consider a debtors operation of a Ponzi
scheme if such a fact is properly alleged and supported.
But the Legislatures enumeration of a specific list of
badges of fraud, none of which are conclusive, precludes
an interpretation that it intended a non-enumerated badge
of fraud to be conclusive.
860 N.W.2d at 647 (emphasis in original).
When analyzed under the badges of fraudas TUFTA instructs courts to
doGolf Channels provision of TV advertising to Stanford does not constitute a
fraudulent transfer.

Of the 11 statutory factors, the only one satisfied is

insolvency, and under TUFTA, [a]s a matter of law, a finding of fraudulent intent
cannot properly be inferred from the existence of just one badge of fraud.
Ingalls v. SMTC Corp. (In re SMTC Mfg. of Texas), 421 B.R. 251, 300 (Bankr.
W.D. Tex. 2009); see also Roland v. United States, 838 F.2d 1400, 1403 (5th Cir.
1988) (an inference of fraud is proper only when several badges are found); United
States v. Fernon, 640 F.2d 609, 613 (5th Cir. 1981) ([O]ne badge of fraud
standing alone may amount to little more than a suspicious circumstance,
insufficient in itself to constitute fraud per se); Walker v. Anderson, 232 S.W.3d

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899, 914 (Tex. App.Dallas 2007, no pet.) (An individual badge of fraud is not
conclusive.); G.M. Houser, Inc. v. Rodgers, 204 S.W.3d 836, 843 (Tex. App.
Dallas 2006, no pet.) (same). Moreover, where the debtors transfer consists of a
payment in satisfaction of a valid debt, such transferalthough potentially a
preferencehas never been considered a fraudulent transfer, notwithstanding the
debtors insolvency. See, e.g., Davis v. Schwartz, 155 U.S. 631, 640 (1895) (We
do not understand it to have ever been doubted that a debtor may openly prefer one
creditor to the rest, and may transfer property to him, or give him security, even
after others have begun their actions.).
In addition, under the badges of fraud analysis, the absence of the badges of
fraud negates any inference of fraudulent intent. See, e.g., Lippe v. Bairnco Corp.,
249 F. Supp. 2d 357, 375 (S.D.N.Y. 2003) (Of course, the flip side of these
badges of fraud is that their absence . . . would constitute evidence that there was
no intent to defraud.); UNIF. FRAUDULENT TRANSFER ACT 4 cmt. 6, 7A U.L.A.
pt. II, at 60 (Master ed. 2006) (In considering the [badges of fraud] the court
may appropriately take into account all indicia negativing as well as those
suggesting fraud).

Here, Stanfords payment to the Golf Channel for TV

advertising time was not a transfer to an insider (TEX. BUS & COMM. CODE ANN.
24.005(b)(1), (11) ) or a sham transaction in which Stanford retained control of
ostensibly transferred property (id. 2); it was not concealed (id. 3, 7) or timed

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so as to suggest that Stanford was attempting to shelter its assets from a pending
judgment or recently-incurred debt (id. 4, 10); it was not a transfer of
substantially all of Stanfords assets (id. 5); and the payment had no relationship
to Stanford absconding or concealing assets (id. 6, 7). In other words, it was an
ordinary, arms-length market transaction.20
B.

The Fifth Circuits Ponzi Scheme Jurisprudence Is Unsupported

By Persuasive Authority

Entities involved in fraudulent investment schemes are often placed into

federal receivership or bankruptcy proceedings after the schemes are uncovered.
Consequently, fraudulent transfer cases arising in this context are often brought in
federal court. While the federal courts in such contexts often apply state fraudulent
transfer statutes, they generally focus primarily, if not exclusively, on other federal
decisions, rather than on state law. As one commentator recently noted, this case
is the first federal case to seek an authoritative interpretation of UFTA, a state
statute, from the highest court of the state.21
In the course of addressing fraudulent transfer claims in such cases, the
20

Of course, if a transaction both involves an insolvent debtor and is made for less than
reasonably equivalent value, it is voidable under the constructive fraud provisions of
24.005(a)(2) and 24.006 regardless of the transferors intent. Critically, however, it is the
Receivers burdennot Golf Channelsto establish lack of reasonably equivalent value under
either the intentional fraudulent transfer provisions of 24.005(a)(1) or the constructive
fraudulent transfer provisions of 24.005(a)(2) and 24.006.
21

Bruce J. Borrus, Recent Developments in Fraudulent Transfer Cases Arising out of Ponzi
Schemes, at 2 (2015), available at http://www.americanbar.org/content/dam/aba/events/
business_law/2015/09/bankruptcy/materials/erosion-of-defenses-201509.authcheckdam.pdf.

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federal courts have recently developed a set of rules of decision, often referred to,
as noted above, as Ponzi scheme presumptions.

These rules are of recent

vintage, and courts that have adopted them have done so without meaningful
analysis, but have relied on tautological proclamations about the fraudulent nature
of Ponzi schemes and citations to other cases that either adopt the doctrines in
similarly conclusory fashion, or do not support the sort of categorical propositions
for which they are cited.
Modern federal Ponzi scheme fraudulent transfer jurisprudence can be traced
back to Merrill v. Abbott (In re Indep. Clearing House Co.), 77 B.R. 843, 860 (D.
Utah 1987). Independent Clearing House held that a Ponzi scheme operator,
aware that it was insolvent and that payouts to investors of profits at per annum
rates in excess of 95% deepened its insolvency, could be charged with knowledge
to a substantial certainty that such transfers would ultimately injure its investorcreditors, and that this certain knowledge constitutes intent in the eyes of the
law. Id. at 860. This ruling was tethered to the facts of the particular case and the
nature of the specific challenged transactions, and did not purport to announce a
general rule about Ponzi schemes. It merely held that intent was established
because transfers of fictitious profits had the necessary effect of prejudicing
creditors, a result that is consistent with the focus of modern fraudulent transfer
law on creditor protection rather than the debtors mental state, and that is not

21
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specific to Ponzi schemes; intent can be inferred whenever a debtor, aware of its
insolvency, knowingly makes unequal transfers that deepen its insolvency, no
matter the nature of such debtors business.22 Other early federal cases, relying on
Independent Clearing House, similarly allowed recovery of fictitious profits to
Ponzi scheme investors, reasoning that knowledge that a transaction will operate
to the detriment of creditors justifies an inference of actual intent on the part of
the transferor. E.g., Hayes v. Palm Seedlings Partners-A (In re Agric. Research &
Tech. Grp., Inc.), 916 F.2d 528, 535 (9th Cir. 1990).23
By the mid-1990s, as Ponzi scheme precedents began to accumulate, some
courts lost focus on the specific transactions before them, and instead simply
presumed the existence of intentional fraudulent transfers based on the fraudulent
nature of Ponzi schemes.

This approach is often traced back to an Illinois

22

See, e.g., Brennan v. Slone (In re Fisher), 296 F. Appx. 494, 508 (6th Cir. 2008) (affirming
finding of actual fraud where debtor transferred assets for less than reasonably equivalent value
when planning for bankruptcy).
23

Another early line of cases arising out of Ponzi schemes involved claims for recovery of
preferential transfers, rather than fraudulent transfers. These cases typically construed
exceptions for transfers made in the ordinary course of business or financial affairs of the debtor
and the transferee, 11 U.S.C. 547(c)(2), with some courtsincluding the Fifth Circuit
holding that this exception was intended only for legitimate businesses and therefore
inapplicable to transfers made by Ponzi schemes. See, e.g., Wider v. Wootton, 907 F.2d 570, 572
(5th Cir. 1990) (Transfers made in a Ponzi scheme are not made in the ordinary course of
business.). In reviewing these preference cases, the Tenth Circuit notedlike the Finn court
would two decades later in the fraudulent transfer contextthat it was [s]triking that none of
those cases cite any language or legislative history in support of a Ponzi-scheme exception, and
that [r]ather, it appears to us that this bright line rule has developed solely from precedent that
does not support it. Sender v. Heggland Family Trust (In re Hedged-Inv. Assocs., Inc.), 48 F.3d
470, 475 (10th Cir. 1995); accord Breeden v. Ne. Binding Sys. (In re Bennett Funding Grp.,
Inc.), 253 B.R. 316, 322-23 (Bankr. N.D.N.Y. 2000) (same).

22
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bankruptcy court ruling, Martino v. Edison Worldwide Capital (In re Randy),

which derived actual intent as a matter of law by finding [t]hat the Debtor
Randy intended to defraud his investors was established by the jury verdict against
him in the criminal proceeding. 189 B.R. 425, 439 (N.D. Ill. 1995). Randy had
been convicted of mail fraud, money laundering, and racketeering. Id. at 435.
The conceptual slippage here is clear: the purveyor of a fraudulent investment
scheme is guilty of defrauding his investors, and his investors, if they lost money
in the scheme, are also his creditors (by virtue, if nothing else, of the fraud claims
they hold against him).

Therefore, the purveyor intended to defraud his

creditorsa phrase that sounds very much like the conduct proscribed by
fraudulent transfer law. See id. at 439 (The Superseding Indictment under which
Randy was convicted clearly established that he intended to defraud his
creditors.). As discussed above, however, a fraudulent transfer is not just a
transfer with a nexus to some form of fraud or a transaction with a transferor who
harbors an evil intent; it is a specific sort of transaction in which a debtor hides
assets or places them beyond the reach of creditors. Thus, to the extent In re
Randy imposed fraudulent transfer liability just because the transferor had been
convicted for mail and wire fraud, it committed legal error.24

24

Cf., e.g., Solow v. Reinhardt (In re First Commercial Mgmt. Group), 279 B.R. 230, 238
(Bankr. N.D. Ill. 2002) (rejecting In re Randy and holding that the statutes and case law do not
call for the court to assess the impact of an alleged fraudulent transfer in a debtors overall

23
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Federal case law subsequently coalesced around a standard announced in a

2002 Florida bankruptcy court ruling, Cuthill v. Greenmark, LLC (In re World
Vision Entmt, Inc.), 275 B.R. 641 (Bankr. M.D. Fla. 2002). The World Vision
court held, without citing any supporting authorities, that because [a] Ponzi
scheme is by definition fraudulent, [b]y extension, any acts taken in furtherance
of the Ponzi scheme ... are also fraudulent. Id. at 656. While cases such as
Independent Clearing House had inferred intent from the nature of the particular
challenged transfers, World Vision simply derived intent from the generally
fraudulent nature Ponzi schemes, without reference to the transaction at issue, and
then looked for some sort of connection between the transaction and the fraudulent
scheme. This protean standard has since empowered receivers and trustees to
bring suit against ever-expanding categories of defendants who (like Golf Channel)
did not invest in the Ponzi scheme itself. See, e.g., In re Petters Co., Inc., 495 B.R.
887, 910 (Bankr. D. Minn. 2013) (commercial loan repayments furthered a Ponzi
scheme because they were a means to avoid default and to sustain the faade
against collapse); Kapila v. TD Bank, N.A. (In re Pearlman), 460 B.R. 306, 319
(Bankr. M.D. Fla. 2011) (repayments to revolving lender furthered Ponzi scheme if
they prolonged and supported it); Bear, Stearns Sec. Corp. v. Gredd (In re
business. The statutes require an evaluation of the specific consideration exchanged by the
debtor and the transferee in the specific transaction which the trustee seeks to avoid, made by the
individual Debtors.) (quoting Balaber-Strauss v. Sixty Five Brokers (In re Churchill Mortg. Inv.
Corp.), 256 B.R. 664, 680 (Bankr. S.D.N.Y. 2000)).

24
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Manhattan Inv. Fund), 397 B.R. 1, 13 (S.D.N.Y. 2007) (Because the Funds only
strategy was to short-sell technology stocks, it had to keep its account at Bear
Stearns operational in order to survive. If it had not made the transfers into the
margin account, the Fund could have collapsed almost immediately).25
The Fifth Circuit, however, does not even recognize the minimal limitation
imposed by World Visions in furtherance standard. Instead, every transfer made
by an entity operating a Ponzi schemeincluding bill payments to the electric
company, is by definition avoidable as an intentional fraudulent transfer, unless the
transferee can establish an affirmative defense. See Warfield, 436 F.3d at 558
(The Receivers proof that RDI operated as a Ponzi scheme established the
fraudulent intent behind transfers made by RDI.)). As support for the sweeping
rule it announced, Warfield cited only the Seventh Circuits ruling in Scholes v.
Lehmann, 56 F.3d 750 (7th Cir. 1995) (applying the pre-UFTA Illinois law).
Scholes, however, concerned appeals from judgments entered on constructive
fraudulent transfer claims, and Scholes necessarily rejected the rule Warfield
derived from it, holding that the judgments at issue could not (as the plaintiff had
argued in the alternative) be affirmed under an actual fraud theory. See Scholes, 56
25

As these examples demonstrate, the in furtherance inquiry tends to collapse into a spurious
sort of speculation whereby a transfer not part of a Ponzi scheme furthers the scheme if, had
the debtor not made the transfer, the scheme would (hypothetically) have collapsed. Cf. United
States v. Dyer, 216 F.3d 568, 570 (7th Cir. 2000) (But for Dyers having been born, he wouldnt
have operated a Ponzi scheme; but it would be odd, in fact incorrect, to say that his birth (or the
birth of his parents or grandparents) caused his crime.).

25
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F.3d at 759 (concluding, despite the submission into evidence of, among other
things, the Ponzi scheme operators guilty plea, that the evidence is [not] so
strong that we can say as a matter of law that there was fraud in fact.).
Neither Warfield nor any of the Fifth Circuits later rulings applying its rule
provide any further precedential or analytical justification for this rule, much less
any support for this rule in TUFTAs text or history. Quilling v. Schonsky, 247
Fed. Appx. 583, 586 (5th Cir. 2007), citing only Warfield, restated this rule as
[u]nder the UFTA, transfers made from a Ponzi scheme are presumptively made
with intent to defraud, because a Ponzi scheme is, as a matter of law, insolvent
from inception (a formulation that confusingly seems to justify a presumption of
intent entirely on the basis of the debtors insolvency26). Similarly, SEC v. Res.
Dev. Intl, LLC, 487 F.3d 295, 301 (5th Cir. 2007), cited on Warfield in holding
that [i]n this circuit, proving that [a transferor] operated as a Ponzi scheme
establishes the fraudulent intent behind the transfers it made. Subsequent Fifth
26

Warfield also announced the rule that a Ponzi scheme is, as a matter of law, insolvent from its
inception, 436 F.3d at 558, relying on Cunningham v. Brown, a preference action arising from
the scheme perpetrated by Charles Ponzi. 265 U.S. 1 (1924). In Cunningham, the Supreme
Court noted in dicta that Ponzi was always insolvent, and became daily more so, the more his
business succeeded. 265 U.S. at 8. As the Minnesota Supreme Court explained, however, this
reflects only the Courts observation that the particular swindle operated by Charles Ponzi
was insolvent when it began. It does not stand for the broader proposition that every Ponzi
scheme, even those businesses that once operated legitimately or had legitimate operations apart
from the Ponzi scheme, is necessarily insolvent from its inception. Finn, 860 N.W.2d at 649;
see also Borrus, supra note 21, at 2 (Cunningham did not hold that all Ponzi schemes are
presumed to be insolvent. Wiand [v. Lee, 753 F.3d 1194, 1201 (11th Cir. 2014)] and Warfield go
too far when they cite Cunningham for the proposition that a debtor who is operating a Ponzi
scheme is, as a matter of law, insolvent from its inception.).

26
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Circuit cases simply cite back to some combination of these three cases without
further analysis.27
C.

The Fifth Circuits Conclusive Presumption Of Fraudulent Intent

Is Inconsistent With TUFTA

The Fifth Circuits conclusive presumption of fraudulent intent cannot be

reconciled with TUFTA. First, TUFTA does not permit presumptions of intent.
Second, liability under TUFTA should not attach based on characterizations of the
transferors general business practices, rather than the characteristics of the specific
challenged transaction.

Third, the Fifth Circuits rule improperly redraws the

balance struck between creditors rights and protection of transferees. It does not
properly state Texas law and should therefore be rejected.
1.

TUFTA Rejects Presumptions Of Intent

Under TUFTA, it is the plaintiffs burden to prove the elements of its prima
facie case, and Texas courts reject attempts to shift aspects of that burden to the
transferee. See, e.g., Bowman v. El Paso CGP Co., LLC, 431 S.W.3d 781, 789 n.8
(Tex. App.Houston [14th Dist.] 2014, pet. denied) (rejecting creditors attempt
to shift the burden to [the transferee] to prove an element of [the creditors]
claim because it is [the creditors] burden to prove that [the debtor] did not
receive reasonably equivalent value). Texas courts have also consistently held
27

For instance, Golf Channel II recited the rule by quoting Janvey v. Brown, 767 F.3d 430 (5th
Cir. 2014), which in turn relied on Janvey v. Alguire, 647 F.3d 585 (5th Cir. 2011), which relied
on Warfield. See Golf Channel II, 792 F.3d at 543.

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that fraudulent intent must be affirmatively shown and will not be presumed.
Englert, 881 S.W.2d at 518 (citing Higgs v. Amarillo Postal Emps. Credit Union,
358 S.W.2d 761, 763 (Tex. App.Amarillo 1962, no writ)).
Similarly, a principal and articulated goal of the Uniform Law
Commissioners in drafting the original UFCA was to redress confusion in the
common law caused by application of unwarranted presumptions of fraud. To
remedy this confusion, the UFCA created constructive fraud as a separate cause
of action, and otherwise rejected all prospect of the continued use of presumptions.
As expressly stated in the Prefatory Note to the UFCA:
In the Act as drafted all possibility of a presumption of
law as to intent is avoided. Certain conveyances which
the courts have in practice condemned, such as a gift by
an insolvent, are declared fraudulent irrespective of
intent. On the other hand, while all conveyances with
intent to defraud creditors (see Section 7) are declared
fraudulent, it is expressly stated that the intent must be
actual intent, as distinguished from intent presumed as a
matter of law.
UNIF. FRAUDULENT CONVEYANCE ACT, 7A U.L.A. pt. II at 247, 378 (Master ed.
2006). This hostility carried through to the UFTA, and is reinforced by its 2014
amendments, which expressly provide that a fraudulent transfer plaintiff has the
burden of proving the elements of the claim for relief by a preponderance of the
evidence,28 and explain that courts should not apply nonstatutory presumptions
28

UNIF. VOIDABLE TRANSACTIONS ACT 4(c).

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that reverse that allocation, and should be wary of nonstatutory presumptions

that would dilute it.29 By creating a nonstatutory presumption of intent to deal
with a particular set of facts, the Fifth Circuit contravened the intent of the drafters
of the UFTA and the Texas legislature in adopting it. As the Minnesota Supreme
Court held in Finn, since MUFTA does not contain a provision allowing a court
to presume fraudulent intent , there is no statutory justification for relieving the
Receiver of its burden of provingor for preventing the transferee from
attempting to disprovefraudulent intent. See Finn, 860 N.W.2d at 647.
2.

TUFTA Imposes Liability On A Transaction-ByTransaction Basis

TUFTA also does not authorize the creation of special rules based on the
form or structure of the entity making the transfer. Finn, 860 N.W.2d at 647.
However, the numerous advantages that inure to fraudulent transfer plaintiffs once
the existence of a Ponzi scheme is established incentivizes fraudulent transfer
plaintiffs to fit the facts of any fraud to this procrustean bed. See, e.g., Am. Cancer
Socy v. Cook, 675 F.3d 524, 526 (5th Cir. 2012) (The Receivers attempt to liken
the scheme in question to a Ponzi-like fraud, and therefore reduce her burden to
proving presumed intent to defraud, fails for lack of evidence. Not all securities
frauds are Ponzi schemes.); SEC v. Mgmt. Solutions, Inc., No. 11 Civ. 1165, 2013

29

Id. 4 cmt. 11 (emphasis added).

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WL 4501088, at *20 (D. Utah Aug. 22, 2013) (denying motion to gain an early
overall characterization of a Ponzi scheme in order to take future advantage of the
Ponzi presumption); Equip. Acquisition Res., Inc. v. PlainsCapital Leasing, LLC
(In re Equip. Acquisition Res., Inc.), 502 B.R. 784, 795 (Bankr. N.D. Ill. 2013)
(denying similar motion because fraud alleged was too different from the
traditional Ponzi scheme). This inquiry into whether a debtors general course of
conduct can be characterized as a Ponzi scheme is incompatible with the proper
focus of fraudulent transfer lawwhether specific challenged transfers
unacceptably interfere with creditors rightsand is rendered all the more arbitrary
by the absence of any precision in judicial definitions of Ponzi schemes,30 as
well as the complete absence of any statutory guidance on the subject. See Finn,
860 N.W.2d at 647 (The word Ponzi does not appear in the Minnesota Statutes,
and MUFTA does not address schemes.).
Just as this doctrine forces courts to choose whether a particular fraudulent
scheme should be characterized as a Ponzi scheme, it also forces courts to rely

30

See, e.g., Finn, 860 N.W.2d at 646 ([E]ven those courts that have recognized a Ponzi-scheme
presumption have struggled to define its scope, in no small part due to the multitude of different
forms that a fraudulent-investment scheme can take.); United States. v. Hartstein, 500 F.3d 790,
798 (8th Cir. 2007) (While the general term Ponzi scheme refers to various configurations of
investment schemes in which one victims funds are used to pay, appease, or further entice the
same victim or additional victims, the term is in such wide use in such diverse settings as to be of
little practical assistance.); In re Manhattan Inv. Fund Ltd., 397 B.R. at 12 (Bankr. S.D.N.Y.
2007) (There is no precise definition of a Ponzi scheme and courts look for a general pattern,
rather than specific requirements.).

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wholly on other Ponzi scheme cases to the exclusion of other authorities. For
example, multiple courts have distinguished the Second Circuits ruling in Sharp,
403 F.3d 43 and the Seventh Circuits ruling in B.E.L.T., 403 F.3d 474both of
which hold that an arms-length market transaction does not become a fraudulent
transfer simply because the debtor has engaged in widespread fraudon the basis
that they did not involve Ponzi schemes.31 The allegations in B.E.L.T. and Sharp,
however, reveal frauds materially indistinguishable from Ponzi schemes. The
lower court in Sharp summarized that [Sharps principals] reported fictitious sales
and revenues and falsely inflated Sharps accounts receivable to the extent that
fraudulent or nonexistent transactions comprised three quarters of the accounts
receivable balance included in Sharps financial statements. Sharp Intl Corp. v.
State St. Bank & Trust Co. (In re Sharp Intl Corp.), 281 B.R. 506, 510 (Bankr.
E.D.N.Y. 2002). The complaint in B.E.L.T. alleged that the debtor was engaged
in a massive creditor fraud, using false financial statements, non-existent
equipment vendors and a phony telefax ruse to defraud creditors, including the
plaintiffs, out of millions of dollars in loans and equipment financing. 4th Am.
Compl. at 4, B.E.L.T., Inc. v. Lacrad Intl Corp., Nos. 01 C 4296, 01 C 7539 (N.D.

31

See, e.g., Carney v. Lopez, 933 F. Supp. 2d 365, 381 (D. Conn. 2013) (Defendants reliance
on Sharp Intl is misplaced if the Ponzi presumption applies. In that case, all the Receiver must
show is that the transfers at issue were related to a Ponzi scheme.); Image Masters, Inc. v.
Chase Home Fin., 489 B.R. 375, 394 (E.D. Pa. 2013) (distinguishing Sharp because it did not
involve a Ponzi scheme, but a different fraudulent scheme).

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Ill. Mar. 7, 2002)), available at 2002 WL 32742361. Imposing liability based

entirely on judicial determinations as to whether a debtors general business
practices amounted to a Ponzi scheme, as opposed to some other sort of
fraudulent scheme is fundamentally inconsistent with the case-specific, transferby-transfer inquiry mandated by TUFTA, and should be rejected.
3.

The Presumption Of Fraudulent Intent Is Bad Public Policy

The Fifth Circuits rule that proving that [a transferor] operated as a Ponzi
scheme establishes the fraudulent intent behind the transfers it made (e.g., Golf
Channel II, 792 F.3d at 543) lacks any limiting principle whatsoever, and
improperly dispenses with the core inquiry of fraudulent transfer lawi.e.,
whether a particular transfer improperly hid or placed assets beyond the reach of
creditors. This lack of a limiting principle makes the Ponzi scheme presumption
extremely attractive to trustees and receivers, but creates a nightmare for ordinary
market participants, such as commercial lenders who have done nothing more than
receive loan repayments at market rates of interest (i.e., transfers for reasonably
equivalent value), and trade creditors, who have merely exchanged goods or
services for the promise of payment.
The risk of overreaching by plaintiffs attempting to expand the presumption
is compounded by the particular incentives of trustees and receivers, the plaintiffs
who typically seek to use the presumption. As Judge Posner has explained:

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The filing of lawsuits by a going concern is properly

inhibited by concern for future relations with suppliers,
customers, creditors, and other persons with whom the
firm deals (including government) and by the cost of
litigation. The trustee of a defunct enterprise does not
have the same inhibitions. A related point is that while
the management of a going concern has many other
duties besides bringing lawsuits, the trustee of a defunct
business has little to do besides filing claims that if
resisted he may decide to sue to enforce.
Maxwell v. KPMG LLP, 520 F.3d 713, 718 (7th Cir. 2008).

With no clear

standards in place, and with plaintiffs continuously pushing for recoveries against
new classes of transferees, it has been left to the discretion of individual courts to
make equitable judgments that are nowhere contemplated by TUFTA and that have
more in common with the law of restitution than with fraudulent conveyance law.
See, e.g., Boston Trading Grp., 835 F.2d at 1508 (In this case, however, we are
concerned not with these well-established principles of restitution, but with
Fraudulent Conveyance Law, a set of legal (not equitable) doctrines designed for
very different purposes.); Finn, 860 N.W.2d at 652 ([E]quality among a debtors
creditors, even if they are victims of a Ponzi scheme, is not the purpose of
MUFTA.) (emphasis in original).
II.

ARMS LENGTH TRANSACTIONS AT MARKET RATES PROVIDE

VALUE UNDER SECTION 24.009(a)
TUFTA, properly understood, simply does not contemplate that arms length

market transactions will be potentially voidable as fraudulent transfers merely

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because one party to such a transaction is dishonest. Thus, it should not be Golf
Channels burden to establish, as an affirmative defense, that it furnished
reasonably equivalent value. Instead, as discussed above, the Receiver should be
required to plead and prove the lack of reasonably equivalent value, either as part
of an intentional fraudulent transfer claim under 24.005(a)(1) or a constructive
fraudulent transfer claim under 24.005(a)(2) or 24.006.

In any event,

regardless of where the burden of proof lies, Golf Channels provision of TV

advertising on its face conferred reasonably equivalent value on Stanford.
In Golf Channel I, the Fifth Circuit relied on comment 2 to section 3 of the
UFTA, which provides in relevant part:
Value is to be determined in light of the purpose of the
Act to protect a debtors estate from being depleted to the
prejudice of the debtors unsecured creditors.
Consideration having no utility from a creditors
viewpoint does not satisfy the statutory definition. The
definition does not specify all the kinds of consideration
that do not constitute value for the purposes of this Act
e.g., love and affection. See, e.g., United States v. West,
299 F. Supp. 661, 666 (D. Del. 1969).
UNIF. FRAUDULENT TRANSFER ACT 3 cmt. 2. Based on this comment, the Fifth
Circuit concluded that value should be measured from the standpoint of the
creditors, not from that of a buyer in the marketplace. Golf Channel I, 780 F.3d
at 645. None of the authorities cited by Golf Channel I supported its statement that
value should not be measured from the standpoint of a buyer in the marketplace;

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to the contrary, it has long been understood that reasonably equivalent value
means similar to fair market value.

BFP v. Resolution Trust Corp.,

511 U.S. 531, 545 (1994). Instead, Golf Channel I, like the Receiver, attempts to
derive from three lines of inapposite cases the overarching and unsupported
proposition that fraudulent transfer statutes contemplate a post-hoc judicial inquiry
into whether a particular transferregardless of whether it was an arms-length
transaction at market ratespreserves the transferors net worth and thus
provides value to the creditors. Id. at 645-46.32
The first line of caseswith which the UFTA comment is concerned
rejects claims that intangible or subjective consideration, such as love and
affection, constitutes reasonably equivalent value for a transfer. E.g., Christians
v. Crystal Evangelical Free Church (In re Young), 152 B.R. 939, 948 (D. Minn.

32

The Receiver also cites certain entirely inapposite cases which simply involve transfers for
objectively deficient value. In Hinsley v. Boudloche (In re Hinsley), 201 F.3d 638, 644 (5th Cir.
2000) the debtor claimed that she was mistaken about the value of the assets she received in the
challenged transaction, and so believed that she was getting much more value than she actually
did. Id. at 643. For example, debtor undervalued one asset by nearly $1 million, an error
corroborated by her own balance sheet. Id. at 644. The court pointed out that under such
circumstances, the debtors subjective belief as to the assets value is not dispositive in the
reasonably equivalent value inquiry. Similarly, in Stanley v. U.S. Bank Natl Assn (In re
TransTexas Gas Corp.), 597 F.3d 298 (5th Cir. 2010), the debtor corporations CEO received
over $2 million in severance payments, which he claimed were in satisfaction of a $3 million
claim under his employment agreement. However, after a bench trial, the district court found as
a matter of fact that the CEO was owed $1.5 million at most. Id. at 307-8. Neither of these cases
establish any special rule stemming from a difference between the viewpoint of the debtor and a
creditor. Rather, they simply stand for the uncontroversial proposition that a debtors subjective
belief as to the value of property transferred will not trump objective evidence contradicting that
belief.

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1993) (moral obligations not reasonably equivalent value), revd on other grounds,
82 F.3d 1407 (8th Cir. 1996); Zahra Spiritual Trust v. United States, 910 F.2d 240,
249 (5th Cir. 1990) (spiritual fulfillment not reasonably equivalent value); Walker
v. Treadwell (In re Treadwell), 699 F.2d 1050, 1051 (11th Cir. 1983) (love and
affection not reasonably equivalent value). Notably, Golf Channel Is quotation of
the UFTA comment omits its final sentence, which explains that the comment is
directed at the kinds of consideration that do not constitute value for purposes of
this Act.33 This reference is significant: it makes clear that the focus of the
comment is on forms or types of (nonmonetary) consideration (e.g., love and
affection) that lack objective value whether viewed from the specific perspective
of the debtors creditors, or from the perspective of a buyer in the marketplace
not on establishing a requirement that, assessed in hindsight, the transaction must
have yielded a net benefit to the debtors estate.
The second line of cases on which the Receiver relies concern transactions
in which value is conferred on a third party, not on the debtor. In Klein v.
Cornelius, the principal of the debtor corporation paid a law firm $90,000 of the
corporations funds to represent the principals friend in a criminal proceeding,

33

Golf Channel II quoted the comment in its entirety, including this final sentence, but did not
consider the significance of this sentence to a proper understanding of the comment. 792 F.3d at
544-45.

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even though the friend had no connection to the debtor corporation.34 786 F.3d
1310, 1314 (10th Cir. 2015). The court held that the payment was made solely for
the benefit of a third party and therefore did not furnish reasonably-equivalent
value to the debtor. Id. at 1321. Similarly, in Badger State Bank v. Taylor, the
transferees agreed to cancel a debt owed to them by the debtor corporation in
exchange for the cancellation of a roughly equivalent debt that they owed a third
company.35 688 N.W.2d 439, 446 (Wis. 2004) . While the third party received
value in the form of a cancellation of its debts, the debtor received nothing. Id.
The focus in these cases is on reasonably equivalent value being given to the
debtor, rather than a third partyan express element of the good faith and value
defense under 548(c) of the Bankruptcy Code, and implicit in the UFTAs
articulation of the defense.36
The third line of cases, to which the Receiver only alludes, involves the
distinct situation in which a debtor changes the legal form of its property interest in
an asset to prevent creditors from executing on the property, a fact pattern similar
34

SEC v. Res. Dev. Intl, LLC, 487 F.3d 295 (5th Cir. 2007) also involved a case where the
debtor corporation paid a third partys legal fees.
35

Both the debtor and third party in Badger State were owned by the same individual, who
through this transaction essentially siphoned money from a failing company into a healthy one.
36

11 U.S.C. 548(c) provides in relevant part that transferee or obligee of such a transfer or
obligation that takes for value and in good faith has a lien on or may retain any interest
transferred or may enforce any obligation incurred, as the case may be, to the extent that such
transferee or obligee gave value to the debtor in exchange for such transfer or obligation.

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to that involving debtors who engage in sham transactions in which they retain
control of purportedly transferred assets in order to retain the benefit of those
assets while hiding them from their creditors. In such cases, the focus is not on the
diminution in the debtors assets as such, but rather on the debtors intentional
conversion of its assets into a harder-to-reach form, thus hindering and
delaying (as opposed to defrauding) its creditors. For example, in Klein v.
Weidner, which the Receiver cites in a footnote, a debtor transferred a house to
himself and his wife as a tenancy by the entirety. 729 F.3d 280, 282 (3d Cir.
2013). The court rejected the argument that subsequent renovations by the wife
could constitute reasonably equivalent value for the transfer (which itself was
made for $1.00); the transfer of the house to the tenancy by the entirety removed
the Property from [the creditors] reach so the subsequent renovations added no
value to the debtors estate. Id. at 285; cf. In re Yotis, 518 B.R. 481, 488 (Bankr.
N.D. Ill. 2014) (the only practical reason to hold a homestead in tenancy by the
entirety is to shelter that property from the creditors of one spouse.). This, again,
does not stand for the broader principle that every transaction must be assessed to
determine whether it benefitted creditors. It merely means that where a debtor
engaged in a specific kind of fraudulent transferi.e., one in which the debtor
retains control over its property while changing its legal form to prevent creditors
from accessing itthe transferee, typically an insider of the debtor, will not be

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able to establish the good faith and value defense. Cf. Firmani v. Firmani, 752
A.2d 854, 857 (N.J. Super. Ct. App. Div. 2000) (transfer of property to limited
partnership so that creditors could only recover through the Limited Partnership
charging process was intended to hinder or delay creditor).
Thus, the tension identified by the Fifth Circuit in Golf Channel II is
ultimately illusory. The Fifth Circuit sets up an opposition between a creditors
perspective and the perspective of a buyer in the marketplace which is found
nowhere in the UFTA comment itself. As noted above, the comment is focused on
kinds of consideration, such as love and affection, that have no utility from a
creditors viewpoint. UNIF. FRAUDULENT TRANSFER ACT 3 cmt. 2. But kinds
of consideration such as love and affection equally lack utility from the
perspective of a buyer in the marketplace. Nor is any support found in the cases
the Fifth Circuit cites for the proposition that [p]ursuant to UFTA, we have
measured value from the standpoint of creditors, not from that of a buyer in the
marketplace, none of which juxtapose creditors and market participants
perspectives. Golf Channel II, 792 F.3d at 545.37

37

Stanley v. U.S. Bank Natl Assoc. (In re TransTexas Gas Corp.), 597 F.3d 298, 306 (5th Cir.
2010) involved severance payments to an executive in excess of what was required under his
employment contract. In re Hinsley, 201 F.3d 638 (5th Cir. 2000) merely holds that (1)
[i]ntangible, non-economic benefits, such as preservation of marriage, do not constitute
reasonably equivalent value and (2) a debtors incorrect subjective belief as to the value of
transferred assets does not create a disputed issue of material fact for summary judgment
purposes. Warfield, 436 F.3d at 560, involved contracts which were deemed to be illegal as a
matter of public policy. Setting aside whether this was the correct result (see Finn, 860 N.W.2d

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Golf Channel II recognized that consumables and speculative investments

have value under UFTA, but noted that speculative investments at least had
the potential to benefit the debtors creditors, whereas the case before us may be
different because Stanford was engaged in a Ponzi scheme, which foreclosed any
potential benefit to creditors because each new transaction [with a Ponzi scheme]
create[s] greater liabilities. Golf Channel II, 792 F.3d at 546. There are at least
two basic flaws in the Fifth Circuits logic. First, the Fifth Circuits hypothesized
potential benefit requirement does nothing to explain cases involving
consumables, which have no chance of yielding such benefits.

As the court

reasoned in Samson v. U.S. W. Commcns, Inc. (In re Grigonis),

[C]onsumer purchases for solely personal gratification
furnish only psychic and intangible benefits or
entertainment value to the debtor personally, and by
definition, always results in asset depletion. [T]he
Court can with little effort imagine an array of consumer
transactions that result in absolutely no benefit to the
purchasers creditorsfrom tickets to Broadway shows
and exclusive sporting events, to hourly charges for
music, sports or language lessons, to any and all forms of
recreational travel, to name a few. While Congress may
at some point decide to include payments for such
extravagances in the list of transfers avoidable by a
trustee the current statutory structure does not allow
for such extraordinary powers.

at 651-53 (criticizing rulings voiding contracts with Ponzi scheme operators)), the Fifth Circuit
did not suggestand the Receiver does not seriously contendthat payment by Stanford for
advertising services would somehow be void as against public policy.

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208 B.R. 950, 955-56 (Bankr. D. Mont. 1997) (construing 11 U.S.C. 548). See
also Allard v. Flamingo Hilton (In re Chomakos), 69 F.3d 769, 771, 772 (6th Cir.
1995) (payments for casino gambling and expensive dinners could not be
avoided as fraudulent transfers).
Second, and perhaps more importantly, nothing in TUFTA, Texas case law,
or the drafters comments in any way suggests that transactions with an inherently
money-losing business should be considered, for that reason, to lack reasonably
equivalent value. There is no logically consistent way to limit such a rule to
Ponzi schemes; it would apply equally, for instance, to a debtor who
manufactures a product with a substantial, unknown health and safety risk, such
that each additional sale of the product deepens the debtors insolvency by
increasing its tort liability. Nothing in TUFTA suggests that such a debtors
payments to its suppliers or vendors should be avoidable as fraudulent transfers.
Such a rule, in effect, finds lack of reasonably equivalent value by virtue of finding
insolvency, thus making all transfers with hopelessly insolvent debtors avoidable
and transforming TUFTA into a supercharged preference statute (and one without
an ordinary course of business exception). Texas law does not countenance such a
result. See, e.g., Englert, 881 S.W.2d at 518 ([F]rom the earliest days of our
jurisprudence, it has been recognized that a debtor has the right to prefer his
obligation to one creditor over an obligation to another creditor.) (citing Given v.

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Taylor, Hart & Co., 6 Tex. 315, 321 (1851)).

Fraudulent transfer law is aimed at avoiding certain types of inherently
unfair transactions in which debtors shelter or place their assets beyond the reach
of creditors. An arms-length, market rate transaction is not such a transaction.
Fraudulent transfer law does not require merchants to inquire into their
counterparties finances or perform due diligence on their general business
practices before entering into ordinary market transactions, nor does it give
creditors the right, outside of bankruptcy or receivership, to prevent debtors from
entering into such transactions simply because they may not ultimately inure to the
benefit of creditors. A debtors payment of a valid debt does not violate creditor
norms; creditors expect a debtor to pay its debts regardless of solvency. This Court
should affirm these longstanding principles and hold that Golf Channels provision
of television advertising services at market rates conferred reasonably equivalent
value, and therefore cannot be avoided under TUFTA.
CONCLUSION
The certified question should be answered by holding that an arms-length
market rate transaction confers reasonably equivalent value under TUFTA and is
not avoidable as a fraudulent transfer.

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Respectfully submitted,

/s/ Mary Angela Jenkins

Mary Angela Jenkins
Texas Bar No. 24008612
Email:
maryann.jenkins@jpmchase.com
Daren Wayne Perkins
Texas Bar No. 15784320
Email: daren.perkins@jpmchase.com
JPMORGAN CHASE BANK, N.A.
700 North Pearl Street, 15th Floor
Dallas, TX 75265
(214) 965-3778
Fax: (214) 965-4024
David J. Woll (pro hac vice pending)
Email: dwoll@stblaw.com
Isaac Rethy (pro hac vice pending)
Email: irethy@stblaw.com
SIMPSON THACHER & BARTLETT LLP
425 Lexington Avenue
New York, NY 10017-3954
(212) 455-2000
Fax: (212) 455-2502
James J. White (pro hac vice pending)
UNIVERSITY OF MICHIGAN LAW
SCHOOL
625 South State Street
Ann Arbor, MI 48109-1215
(734) 764-9325
Fax: (734) 936-0579
Email: jjwhite@umich.edu
Attorneys for Amicus Curiae
JPMorgan Chase Bank, N.A.

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CERTIFICATE OF SERVICE
I hereby certify that on November 16, 2015, a true and correct copy of this
Brief was served via e-filing to all counsel of record:
Scott D. Powers
Stephanie F. Cagniart
David Arlington
Baker Botts LLP
98 San Jacinto Blvd., Suite 1500
Austin, Texas 78701
(512) 322-2500 (Telephone)
(512) 322-2501 (Facsimile)
scott.powers@bakerbotts.com
stephanie.cagniart@bakerbotts.com

Kevin M. Sadler Baker Botts LLP

1001 Page Mill Road
Building One, Suite 200
Palo Alto, California 94304
(650) 739-7500 (Telephone)
(650) 739-7699 (Facsimile)
kevin.sadler@bakerbotts.com

Katherine D. Mackillop Norton Rose

Fulbright US LLP
Fulbright Tower
1301 McKinney
Suite 5100
Houston, Texas 77010
katherine.mackillop@nortonrosefulbrigh
t.com

Theodore W. Daniel Kyle Schindler

Tricia W. Macaluso Norton Rose
Fulbright US LLP 2200 Ross Avenue,
Suite 3600 Dallas, TX 75201-7932
(214) 855-8000 (Telephone) (214) 8558200 (Facsimile)
ted.daniel@nortonrosefulbright.com
kyle.schindler@nortonrosefulbright.co
m

Jonathan Franklin
Norton Rose Fulbright US LLP
799 9th Street NW Suite 1000
Washington, DC 20001
202-552-0466 (Telephone)
(202) 662-4643 (Facsimile)
jonathan.franklin@nortonrosefulbright.c
om

Douglas J. Buncher
NELIGAN FOLEY, L.L.P.
325 N. St. Paul, Suite 3600
Dallas, Texas 75201
(214) 840-5320
(214) 840-5301 (Facsimile)
dbuncher@neliganlaw.com

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Peter D. Morgenstern
BUTZEL LONG PC
380 Madison Avenue
22nd Floor
New York, NY 10017
morgenstern@butzel.com

Edward C. Snyder
CASTILLO SNYDER, P.C.
300 Convent St.
Suite 1020
San Antonio, Texas 78205
esnyder@casnlaw.com

Edward F. Valdespino
STRASBURGER & PRICE L.L.P.
300 Convent St.
Suite 1020
San Antonio, Texas 78205
edward.valdespino@strasburger.com

/s/ Mary Angela Jenkins

Mary Angela Jenkins

CERTIFICATE OF COMPLIANCE
1.
This brief complies with the type-volume limitations of Tex. R. App. P. 9.4,
as it contains 11,205 words, excluding the parts of the brief exempted by Rule
9.4(i)(1).
2.
This brief complies with the typeface requirements of Tex. R. App. P. 9.4(e)
because this brief has been prepared in a proportionally spaced typeface using
Microsoft Word 2010 in Times New Roman 14-point font for text and 12-point
font for footnotes.
/s/ Mary Angela Jenkins
Mary Angela Jenkins

45
505680-0299-13477-Active.18203941.4

11/16/2015 2:20 PM