Janvey v. Golf Channel: Objective Value Provided Prevails Over Ponzi Claims

In Janvey v. Golf Channel, Inc., No. 13-11305, 2016 BL 272349 (5th Cir. Aug. 22, 2016), the United States Court of Appeals for the Fifth Circuit affirmed the district court’s decision denying summary judgment to Janvey, the court-appointed receiver for Stanford International Bank, (“Plaintiff”) and granting summary judgment to Golf Channel (“Defendant”) allowing Golf Channel to retain the $5.9 million paid by Stanford International Bank for advertising services.

According to the allegations, the Golf Channel had an advertising contract with Stanford International Bank worth over $5.9M. After the SEC exposed Stanford International Bank’s Ponzi scheme, the court appointed a receiver, Janvey, to recover fraudulent transfers.  Janvey contended, relying on the Texas Uniform Fraudulent Transfer Act (“TUFTA”), that the payments made to Golf Channel did not benefit the investors or creditors, even though the advertising services would be “valuable” to another business. The district court granted Golf Channel’s motion for summary judgment based on its interpretation of TUFTA and the affirmative defense by the Golf Channel that the payments received were “in good faith and for a reasonably equivalent value.” Under TUFTA, a creditor can recover transfers made with the intent to defraud unless the transferee establishes that the transfers were received in good faith and for reasonable equivalent value. The Supreme Court of Texas certified that the inquiry of “value” under TUFTA does not depend on whether the debtor was operating a Ponzi scheme, but whether “the services would have been available to another buyer at market rates.” Other states’ fraudulent transfer laws and section 548(c) of the Bankruptcy Code examine “the degree to which the transferor’s net wealth is preserved,” but TUFTA does not.

In early 2015, the Fifth Circuit initially reversed the district court’s judgment, based on its interpretation of TUFTA finding that “the payments to Golf Channel were not for “value” because Golf Channel’s advertising services could only have depleted the value of the Stanford estate and thus did not benefit Stanford’s creditors.”  In response to the Golf Channel’s petition for rehearing, the court certified a question to the Texas Supreme Court on what constitutes “value.”  The Texas Supreme Court reasoned that the Golf Channel’s advertising had objective “value and utility from a reasonable creditor’s perspective at the time of the transaction, regardless of Stanford’s financial solvency at the time.” Janvey v. Golf Channel, Inc., 487 S.W.3d 560 (Tex. 2016).

Based on the opinion from the Texas Supreme Court, the appeals court affirmed the district court’s judgment for the Defendant.

The primary materials for this case may be found on the DU Corporate Governance website.