Ralph S. Janvey v. Dillon Gage, Inc. of Dallas

Case Number: 15-11211

Judge: Stephen A. Higginson

Court: United States Court of Appeals for the Fifth Circuit on appeal from the Northern District of Texas (Dallas County)

Plaintiff's Attorney: David Arlington, Brendan Day, Tim Durst, Bob Howell, Kevin Jacobs, Chris Norfleet,

Defendant's Attorney: Orrin Lea Harrison, Priya Arti Bhaskar, Laura Marie
Fontaine Allison Jacobsen, Mike Lang, Jeff Levinger

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

2
Janvey alleges that six transfers from SCB to Dillon Gage were
fraudulent transfers under the Texas Uniform Fraudulent Transfer Act
(“TUFTA”) and should be returned to the receivership. Following trial, a jury
disagreed, finding that the six transfers were not fraudulent. Dillon Gage then
sought attorney’s fees, which the district court denied. Janvey appealed,
challenging the jury verdict and instructions; Dillon Gage cross-appealed,
challenging the denial of the fee award. We AFFIRM.
I
For almost two decades, Allen Stanford and his co-conspirators
perpetrated a multi-billion-dollar Ponzi scheme using a global network of more
than 130 entities. The Ponzi scheme sold fraudulent certificates of deposit to
investors. Proceeds from investors were used to pay other investors, fund Allen
Stanford’s lifestyle, and finance other Stanford entities.
One entity related to the scheme was SCB. SCB received capital
contributions and loans from other Stanford entities. Indeed, until late 2008,
SCB had a line of credit with Stanford International Bank. However, SCB did
not sell Stanford certificates of deposit. Instead, SCB operated as an otherwise
ordinary coin and bullion business, buying and selling coins and metals. It
purchased coins and metals from wholesalers and resold them to retail
customers at a markup. SCB ran its business operations through an operating
account, that is, when SCB received customers’ money, it deposited the funds
into SCB’s operating account, and the operating account was then used to pay
SCB’s business expenses. SCB was led by its President Joseph Frisard and its
Vice President of Operations Scott Terry. SCB was never profitable, although
by 2009 its revenues were rising.
At all relevant times, Dillon Gage was managed by its President of the
Metals Division Terry Hanlon and General Manager Ira Fritz. SCB became
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Dillon Gage’s customer in 2004. The relationship grew and by early 2009,
Dillon Gage was SCB’s largest wholesale supplier. SCB would place orders
with Dillon Gage through Dillon Gage’s trading desk. Dillon Gage would then
either supply the goods to SCB or ship the goods directly to SCB’s customers
(called “drop-shipping”). SCB would then pay Dillon Gage for the orders, with
payment usually due ten days to two weeks after shipment. However, SCB
was consistently late in its payments to Dillon Gage.
During this business relationship, Dillon Gage extended SCB a line of
credit, which, by 2009, had grown to $2 million. In January 2009, SCB’s
account balance with Dillon Gage had grown to about $2.3 million. During this
time, Hanlon became increasingly concerned with the age and amount of SCB’s
outstanding invoices, and in response, on January 20, 2009, he traveled to
SCB’s headquarters to meet with Frisard. At the meeting, Frisard assured
Hanlon that SCB had already mailed a payment to Dillon Gage and was
anticipating a big order that could be used to pay off the rest of SCB’s balance.
Frisard also showed Hanlon SCB’s offices; Hanlon observed significant
inventory and a room full of salespeople taking customers’ orders.
As it turned out, the check that Frisard promised was actually only for
$250,000. Concerned by the low payment, Hanlon called Scott Terry on
January 22, 2009, seeking further payment. Hanlon told Terry that he was
uncomfortable with SCB’s slow rate of payment and high balance and asked
for an explanation. Terry explained that SCB was suffering from cash flow
problems, in part because it had lost its line of credit with Stanford
International Bank. Terry further explained that SCB was working on a big
deal and that when it received payment, it could use the money to pay Dillon
Gage. Terry suggested that if the big deal failed SCB could collect its unpaid
accounts receivables, liquidate inventory, or seek additional capital from
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Stanford. Hanlon responded that Dillon Gage could not keep shipping SCB
inventory until it was paid.
The “big deal” referenced by both Frisard and Terry was a deal with the
Pre-War Art Gallery (the “Gallery”). The Gallery wanted to purchase 101 gold
bars from SCB for approximately $3 million (the “Gallery Deal”).
Soon after the January 22 phone call, Dillon Gage stopped shipping
orders to SCB and its customers. This was not entirely out of the ordinary;
Dillon Gage had halted shipments to SCB before. From January 23 until
January 30, SCB made three payments to Dillon Gage, totaling approximately
$1.26 million: $501,326.30 (January 23); $394,567.40 (January 27); and
$368,491.51 (January 30).
On February 2, 2009, the Gallery placed its order with SCB for 101 gold
bars, wiring $3,028,613 to SCB for the order. Frisard then ordered the gold
bars from Dillon Gage and provided an upfront payment of approximately $3
million to Dillon Gage. Although the order was placed on February 2, the order
did not need to be shipped to the Gallery until March 4.
Following SCB’s $3 million payment, Dillon Gage immediately began
shipping SCB’s backlogged orders, applying the $3 million payment to the
oldest invoices first. In total, Dillon Gage shipped $1,947,453.65 in coins and
bullion to SCB or its customers in the time between when shipping resumed
and when the receivership was imposed.
On February 6 and February 13, SCB made two further payments to
Dillon Gage of $366,171.50 and $486,959.86, respectively. Following these
payments, SCB had a credit balance with Dillon Gage of $1,069,355.
Nonetheless, SCB still owed Dillon Gage more money to complete payment on
the Gallery Deal.
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On February 17, 2009, SCB was shut down by Janvey, the courtappointed
receiver. At the time it was shut down, SCB had over $1 million in
cash and $300,000–$400,000 in uncashed checks on hand. SCB’s management
believed that the company had sufficient cash, or access to capital, to complete
the Gallery Deal.
In September 2010, Janvey filed this lawsuit. He alleged that the
following payments from SCB to Dillon Gage were fraudulent transfers under
TUFTA and therefore should be returned to the receivership:
• January 23, 2009 - $501,326.30
• January 27, 2009 - $394,567.40
• January 30, 2009 - $368,491.51
• February 2, 2009 - $3,002,639.10
• February 6, 2009 - $366,171.50
• February 13, 2009 - $486,959.86
The parties proceeded to trial in July 2015. The jury was asked two
questions: (1) were the transfers from SCB to Dillon Gage fraudulent
transfers?; and (2) did Dillon Gage accept the transfers from SCB in good faith?
At trial, both parties agreed that Dillon Gage applied the $3 million
payment related to the Gallery Deal to its oldest debts with SCB. Both parties
also presented significant evidence of SCB’s financial condition. Janvey’s
expert, Karyl Van Tassel, opined that SCB was insolvent because it was
generally not paying its bills as they became due, although she did not
distinguish in her analysis between past due bills and general liabilities.
Moreover, neither Janvey nor Van Tassel identified any specific debts owed by
SCB to anyone other than Dillon Gage. Van Tassel further testified that SCB
never generated a profit, had negative equity, and had more liabilities than
available cash. However, Van Tassel did not testify that SCB’s liabilities were
greater than its assets because she never valued SCB’s assets.
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Dillon Gage introduced testimony concerning SCB’s finances from
Frisard, Terry, and its industry expert, Michael Fuljenz. Dillon Gage’s
witnesses testified that SCB had significant non-cash assets including:
inventory, uncashed checks, and uncollected accounts receivables. Dillon
Gage’s witnesses also testified that businesses in the coin and bullion industry
typically suffer from cash flow problems in the beginning of the calendar year
because, among other reasons, most coin companies buy inventory in the
beginning of the year.
The jury returned a verdict in favor of Dillon Gage, finding that none of
the six transfers was fraudulent. The district court denied Janvey’s motion for
judgment as a matter of law. Following judgment, Dillon Gage filed a motion
seeking attorney’s fees under TUFTA. The district court denied the motion.
Janvey appeals the denial of his motion for judgment as a matter of law and
Dillon Gage cross-appeals the denial of its motion for attorney’s fees.
II
Janvey raises two challenges to the jury verdict. First, he argues that a
reasonable jury was required to find that SCB’s transfers to Dillon Gage were
fraudulent. Second, he argues that the jury instructions were erroneous. We
reject both challenges.
A
Janvey first argues that, as a matter of law, each of the challenged
transfers was fraudulent.1 We review a district court’s denial of a motion for
1 As a preliminary matter, Dillon Gage argues that Janvey does not have standing to
assert its fraud claim because, Dillon Gage claims, the fraud claim is brought on behalf of the
Gallery. “[This Court] review[s] questions of statutory standing de novo.” Janvey v. Brown,
767 F.3d 430, 437 (5th Cir. 2014). “[A] federal equity receiver has standing to assert only the
claims of the entities in receivership, and not the claims of the entities’ investor-creditors.”
Janvey v. Democratic Senatorial Campaign Comm., Inc., 712 F.3d 185, 190 (5th Cir. 2013).
Here, Janvey is not bringing a common-law fraud claim on behalf of the Gallery. Instead, he
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judgment as a matter of law de novo, applying the same standards as the
district court. See, e.g., Ill. Cent. R.R. Co. v. Guy, 682 F.3d 381, 392–93 (5th
Cir. 2012). Judgment as a matter of law is proper only when “a reasonable
jury would not have a legally sufficient evidentiary basis to find for the party
on that issue.” Abraham v. Alpha Chi Omega, 708 F.3d 614, 620 (5th Cir. 2013)
(quoting Fed. R. Civ. P. 50(a)). “This will only occur if the facts and inferences
point so strongly and overwhelmingly in the movant’s favor that jurors could
not reasonably have reached a contrary verdict.” Id. (quoting Brown v.
Sudduth, 675 F.3d 473, 477 (5th Cir. 2012)). “In evaluating such a motion, the
court must consider all of the evidence in the light most favorable to the
nonmovant, drawing all factual inferences in favor of the non-moving party,
and leaving credibility determinations, the weighing of evidence, and the
drawing of legitimate inferences from the facts to the jury.” Price v. Marathon
Cheese Corp., 119 F.3d 330, 333 (5th Cir. 1997). “After a jury trial, [the]
standard of review is especially deferential.” Abraham, 708 F.3d at 620
(citation omitted, alteration in original).
Janvey brought all of his claims under TUFTA. TUFTA pursues one
overriding goal: “to protect creditors from being defrauded or left without
recourse due to the actions of unscrupulous debtors.” KCM Fin. LLC v.
Bradshaw, 457 S.W.3d 70, 89 (Tex. 2015). To that end, a creditor may sue a
third party that received a fraudulent transfer from the debtor and recover its
is bringing a statutory TUFTA claim on behalf of SCB—an entity under his receivership. Id.
at 192–93 (looking to the claims asserted in the complaint to determine what claims were
asserted by the receiver). Janvey has standing to bring a TUFTA claim on behalf of a
Stanford entity. Id. at 192 (“[W]e conclude that the Receiver has standing to assert the claims
of [a Stanford entity], and any other Stanford entity in receivership, against the [defendants]
to recover the contributions made to them without reasonably equivalent value by the
Stanford Ponzi operation.”); see also Janvey v. Suarez, 978 F. Supp. 2d 685, 697–98 (N.D. Tex.
2013). Thus, Janvey has standing to bring these TUFTA claims on behalf of SCB.
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losses by voiding that transaction. See In re IFS Fin. Corp., 669 F.3d 255, 261–
62 (5th Cir. 2012). A transfer is fraudulent under TUFTA if it was made “with
actual intent to hinder, delay, or defraud any creditor of the debtor.” Tex Bus.
& Com. Code § 24.005(a)(1). A fraudulent transfer can be proven in two ways:
directly or circumstantially. When direct evidence of fraudulent intent exists,
as when a debtor “admits the fraud,” then “[i]ntent . . . can be decided as a
matter of law.” BMG Music v. Martinez, 74 F.3d 87, 90 (5th Cir. 1996). But
“[s]ince [this] intent . . . is seldom susceptible of direct proof, courts have relied
on badges of fraud,” eleven of which are listed in the statute, as circumstantial
evidence of fraud. Uniform Fraudulent Transfer Act (“UFTA”), Prefatory Note;
see also Tex. Bus. & Com. Code § 24.005(b).
1
Janvey first contends that he provided the jury with irrefutable direct
evidence of fraud. He argues that SCB misappropriated the Gallery’s $3
million payment in order to pay down SCB’s old debts to Dillon Gage. Janvey
contends that this misappropriation constitutes direct evidence of fraudulent
intent because “a debtor acts with fraudulent intent when it misappropriates
funds from one creditor to pay another, and when it disregards the substantial
risk that its creditors will be hindered, delayed, or defrauded as a result.”2
That is, Janvey relies on the theory that there is direct evidence of fraud when
a debtor uses Creditor A’s money to pay off its debts to Creditor B and the
debtor knows, or must know, that “the natural consequence of its action” is
2 The mere fact that SCB used money from the Gallery to pay its antecedent expenses
is not per se fraudulent. SCB would have upheld its end of the bargain with the Gallery if it
delivered gold on March 4, regardless of which specific money SCB used to complete the deal.
After all, money is fungible. The fact that the Gallery may have preferred that SCB segregate
its money does not indicate fraud. See Quadrant Structured Prods. Co., Ltd. v. Vertin, No.
CV 6990-VCL, 2015 WL 6157759, at *20 (Del. Ch. Oct. 20, 2015), aff’d, No. 210, 2016, 2016
WL 6438209 (Del. Oct. 31, 2016).
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that Creditor A will be hindered, delayed, or defrauded in the collection of its
debts. See In re Sentinel Mgmt. Grp., Inc., 728 F.3d 660, 667 (7th Cir. 2013)
(“Sentinel I”).
However, the jury could have concluded that SCB did not disregard a
substantial risk that the Gallery would go unpaid (here, not receive its gold
bars) when SCB used the Gallery’s money to pay its antecedent debt to Dillon
Gage. Specifically, the jury rationally could have concluded that SCB thought
that it had sufficient assets to complete the Gallery deal without having to
resort to the use of a new customers’ money. The jury was told that SCB’s
revenues were rising—going from about $36 million in 2007 to $60 million in
2008. And, the jury heard evidence from which it could have inferred that this
revenue growth would have continued. For example, in early 2009, SCB began
a new national advertising campaign. From these facts, the jury could have
inferred that, over time, SCB would have generated enough profit to pay down
its trade creditor debt without needing to use new customer funds.
But the jury did not need to draw this inference because the jury also
heard evidence suggesting that SCB had sufficient saleable inventory in the
beginning of 2009 to complete the Gallery transaction, even without growing
its business. In order to complete the Gallery Deal, SCB needed to pay Dillon
Gage an additional $1.9 million by March 4, 2009. At the time the receivership
began, SCB had over $1 million in cash and between $300,000 and $400,000 in
uncashed checks on hand. In addition, SCB owned approximately $3 million
worth of rare coins and approximately $4.6 to $4.9 million in total inventory.
Dillion Gage’s industry expert testified that SCB could have easily liquidated
its inventory to raise capital because the market for coins and bullion was
rising in early 2009. SCB had additional assets that could have been sold to
complete the Gallery Deal, such as approximately $1.3 to $1.5 million in
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unpaid accounts receivables and customer lists that, according to Dillon Gage’s
industry expert, could be sold. Finally, SCB’s employees testified that SCB
intended to complete, and could have completed, the Gallery Deal. Based on
this evidence, the jury reasonably could have found that SCB could have raised
sufficient capital to pay Dillon Gage to complete the Gallery Deal without using
new customers’ money. Accordingly, the jury could have properly rejected
Janvey’s direct evidence of fraud theory.3
2
Janvey next argues that he provided the jury with significant
circumstantial evidence of fraud. At trial, Janvey attempted to prove two
badges of fraud: insolvency and incurrence of a substantial debt at the time of
the challenged transfers. See Tex. Bus. & Com. Code § 24.005(b)(9), (10).
Janvey proved one badge—incurrence of substantial debt at the time of the
challenged transfers—but failed to prove insolvency as a matter of law.4
Under TUFTA, it is a badge of fraud if “the debtor was insolvent or
3 Janvey relies primarily on two cases to support its direct evidence of fraud theory:
Sentinel I and GE Capital Commercial, Inc. v. Worthington National Bank, 754 F.3d 297 (5th
Cir. 2014). Neither case supports Janvey’s argument on this factual record, because a debtor
does not act with fraudulent intent when it incurs a new debt so long as it has a reasonable
expectation that it can pay that debt off. See, e.g., Vertin, 2015 WL 6157759, at *19. That is,
because the jury could have found that SCB reasonably believed that it could complete the
Gallery deal without churning funds from new customers to pay old debts, the cases Janvey
cites are inapposite. In both Sentinel I and GE Capital the debtor could not have reasonably
believed that it could make payment on the debts it incurred. See Sentinel I, 728 F.3d at 667
(noting that the debtor must have known that the “natural consequence of its actions” was to
deny its creditors repayment); GE Capital, 754 F.3d at 300 (noting that the alleged fraudster
took the creditor’s money for his own purposes, outside the scope of the debtor’s business).
4 The challenged transfers occurred between January 23 and February 13, 2009.
Janvey argues that those transfers occurred shortly before or after an incurrence of
substantial debt because SCB increased its trade-creditor debt by over $2 million in early
2009 and SCB incurred an additional approximately $3 million debt on February 2, 2009
when it took payment from the Gallery (because at that point, SCB owed gold to the Gallery).
Dillon Gage does not meaningfully contest this analysis.
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became insolvent shortly after the transfer was made or the obligation was
incurred.” Tex. Bus. & Com. Code § 24.005(b)(9). Insolvency can be proven in
two ways: by showing that “the sum of the debtor’s debts is greater than all of
the debtor’s assets at a fair valuation,” or by showing that the debtor “is
generally not paying the debtor’s debts as they become due.” Tex. Bus. &
Comm. Code § 24.003(a), (b). Both parties focus on the second test.5 TUFTA
provides that “[a] debtor who is generally not paying the debtor’s debts as they
become due is presumed to be insolvent.” See Tex. Bus. & Com. Code §
24.003(b). Janvey argues that the trial evidence conclusively established that
SCB was not generally paying its debts as they came due and was therefore
presumptively insolvent under TUFTA.
“The question of insolvency is to be determined as of the time of the
conveyance.” United States v. Fritz, No. SA-12-C-550-FB (HJB), 2014 WL
12540471, at *4 (W.D. Tex. Jan. 7, 2014), report and recommendation adopted,
2014 WL 12537176 (W.D. Tex. Feb. 24, 2014), aff’d, 608 F. App’x 259 (5th Cir.
2015) (unpublished) (quoting Jackson Law Office, P.C. v. Chappell, 37 S.W.3d
15, 25 (Tex. App.—Tyler 2000, pet. denied)). “[V]arious factors are relevant to
determine whether a debtor’s payment of its debts shows insolvency.”
Williams v. Hous. Plants & Garden World, Inc., 508 B.R. 19, 30–31 (S.D. Tex.
2014) (quoting In re Arriola Energy Corp., 74 B.R. 784, 790 (S.D. Tex. 1987)).
“Among them are the number and amount of the unpaid debts in relation to
the size of the debtor’s operation; the age and number of unpaid debts; the total
5 At trial, Janvey did not rely on the first test of insolvency, called “balance-sheet
insolvency.” Here too, Janvey does not attempt to prove balance-sheet insolvency. In any
event, because Janvey did not attempt to value all of SCB’s assets, there is no way to conduct
a complete analysis of balance-sheet insolvency. See In re Lamar Haddox Contractor, Inc.,
40 F.3d 118, 121–22 (5th Cir. 1994) (reversing a finding of insolvency because the district
court heard no evidence regarding the value of the debtor’s assets).
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amount of indebtedness; and the number of unpaid creditors[.]” Id. (citing
Arriola Energy Corp., 74 B.R. at 790); accord Unif. Fraudulent Transfer Act §
2(b) & cmt. 2; ASARCO LLC v. Ams. Mining Corp., 396 B.R. 278, 402 (S.D.
Tex. 2008) (looking to the same presumption under Delaware and New Jersey
law and noting that “[t]he most commonly used factors are: (1) the number of
debts; (2) the amount of delinquency; (3) the materiality of non-payment; and
(4) the nature of the debtor’s conduct of its financial affairs”).
The jury heard evidence from which it could infer that SCB was
generally paying its debts as they came due. Other than the bills owed to
Dillon Gage, Janvey did not identify any specific bills that were due and that
SCB did not pay. And even with regard to the debts owed to Dillon Gage, the
jury heard conflicting evidence concerning whether SCB was generally paying
Dillon Gage as its debts came due. On the one hand, the jury heard testimony
indicating that, from its inception, SCB was “historically late paying [its] bills”
to Dillon Gage and was a “slow-pay.” On the other hand, the jury heard that
SCB “paid [its] bills every Friday,” and had no creditors who were not being
paid. Courts interpreting TUFTA have concluded that evidence merely
showing a significant debt and occasional late payments does not establish
insolvency as a matter of law. See Williams, 508 B.R. at 18 (rejecting summary
judgment on the insolvency badge despite evidence showing that “during the
relevant periods, [the transferor] was behind on payments to some of its
creditors,” and evidence showing that “[the transferor] refinanced some debt
that was due and incurred substantial overdraft fees in the year the challenged
transfers began”); Basley, 373 S.W.3d at 584 (“[Creditors] merely proved
[Debtor] was failing to pay the debt for which judgment had been taken and
was delinquent on another debt. This evidence was insufficient to establish
that [Debtor] was generally not paying her debts as they became due.”);
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Iridium Operating LLC, 373 B.R. at 343 (“[T]he failure to make one $90 million
interest payment one month prior to its bankruptcy filing does not, by itself,
support a finding that Iridium was not paying its debts as they became due.”).
Accordingly, the jury was not required to find that SCB was insolvent at the
time of the transfers.
3
Viewing both the direct and circumstantial evidence of fraud as a whole
we conclude that a rational jury could have found that SCB did not act with
fraudulent intent. Janvey only established one badge of fraud—incurrence of
a substantial debt close in time to the transfers—as a matter of law. Against
this single badge of fraud, the jury heard significant evidence from which it
could have inferred that SCB did not make the transfers with fraudulent
intent. Accordingly, we affirm the jury verdict.
B
Janvey next argues that a new trial is needed because the jury
instructions were misleading and erroneous. Janvey raises four challenges to
the jury instructions. We conclude that each is without merit.
Jury instructions are reviewed for abuse of discretion. Jowers v. Lincoln
Elec. Co., 617 F.3d 346, 352 (5th Cir. 2010). Instructions that hinge on a
question of statutory construction are reviewed de novo. GE Capital, 754 F.3d
at 302. Reversal is appropriate when the “charge as a whole leaves [the court]
with substantial and ineradicable doubt whether the jury [was] properly
guided in its deliberations” and the challenged instructions, separately or
collectively, “affected the outcome of the case.” Jowers, 617 F.3d at 352
(quoting Bender v. Brumley, 1 F.3d 271, 276–77 (5th Cir. 1993)). Similarly,
when a challenge involves the trial court’s failure to give a requested jury
instruction, the court will find reversible error only if the requested instruction
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“1) was a substantially correct statement of law, 2) was not substantially
covered in the charge as a whole, and 3) concerned an important point in the
trial such that the failure to instruct the jury on the issue seriously impaired
the [party’s] ability to present a given [claim].” Baisden v. I’m Ready Prods.,
Inc., 693 F.3d 491, 505 (5th Cir. 2012) (citation omitted).
1
Janvey first argues that the jury instructions were erroneous because
they failed to define the word “intent.” For the purpose of determining whether
SCB’s transfers to Dillon Gage were fraudulent, the district court instructed
the jury that “[a] transfer made by SCB is fraudulent if SCB made the transfer
with actual intent to hinder, delay, or defraud any creditor of SCB.” Janvey
requested this additional instruction:
[I]f you find that SCB disregarded the substantial
certainty that SCB’s creditors would be hindered,
delayed, or defrauded by the transfers to Dillon Gage,
then the transfers were made with actual intent to
hinder, delay, or defraud those creditors. SCB acted
with such disregard if, at the time that it made the
transfers to Dillon Gage, SCB knew that it could not
pay existing creditors.
Janvey argues that “the proposed instruction would have provided a
critical clarification” because the legal definition of intent is broader than the
common-sense meaning of the term. Specifically, Janvey argues that the legal
definition of intent, unlike the colloquial definition, includes cases in which a
party “disregarded the substantial risk or certainty that a particular
consequence would occur” even if the party did not desire the result.
As a general matter, “[t]erms which are reasonably within the common
understanding of juries, and which are not technical or ambiguous, need not
be defined in the trial court’s charge.” United States v. Anderton, 629 F.2d
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1044, 1048–49 (5th Cir. 1980). Nonetheless, “[w]hen the instruction uses a
term of legal significance, its meaning must be explained, especially when
there is a request for clarifying instructions.” Id. at 1049.
Texas’s model TUFTA jury instructions do not define intent. See Texas
Pattern Jury Instruction, Business, Consumer, Insurance & Employment §
105.25 (2016). And Texas’s approach is consistent with the model jury
instructions from other states that have adopted the UFTA. See, e.g., Alabama
Pattern Jury Instructions § 18.22 (3d ed. 2015); California Model Jury
Instruction §4200 (2016); North Carolina Civil Pattern Jury Instruction §
814.50 (2015). Moreover, in federal cases when intent is an element, we too
have approved jury instructions that have left the term undefined. See, e.g.,
United States v. Sanchez-Sotelo, 8 F.3d 202, 212 (5th Cir. 1993). Accordingly,
we conclude that the district court did not err by declining to define intent.
In any event, failure to give Janvey’s proposed instruction did not impair
his presentation of his claim. Although the jury was instructed to consider
whether SCB acted with “actual intent,” the charge went on to instruct the jury
that “actual intent” could be determined through consideration of, among other
factors, the badges of fraud. And, the badges of fraud list objective measures
of the debtor’s assets, liabilities, and conduct as being probative of intent.
Accordingly, under the instructions as given, the jury was told to consider not
just the state of mind of SCB’s principals in determining intent but also the
objective facts surrounding the challenged transfers. The instructions
therefore allowed Janvey to argue his “substantial-certainty” theory to the jury
and signaled to the jury that they should take the theory seriously. Thus, the
jury charge was not reversible error. See Baisden, 693 F.3d at 504–05.
2
Janvey next argues that “[t]he instructions also improperly increased the
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Receiver’s burden of proof because they did not specify that the Receiver did
not have to prove most or all of TUFTA’s eleven badges of fraud to show SCB’s
fraudulent intent.” Specifically, Janvey complains that by listing all eleven
badges of fraud in the jury instructions, but not instructing the jury that all
eleven need not be found to find fraudulent intent, the jury could have been
misled.
Contrary to Janvey’s claim, the jury instruction as given communicated
to the jury that not all eleven badges needed to be found. The district court
instructed the jury that “[i]n determining actual intent, consideration may be
given, among other factors, to” the badges of fraud. This instruction closely
mirrors the Texas Pattern Instruction. See Texas Pattern Jury Instruction,
Business, Consumer, Insurance & Employment § 105.25 (2016) (“In
determining actual intent, you may consider, among other factors [the badges
of fraud].”). The use of the term “may” instructed the jury that they could, but
did not have to, consider any of the badges of fraud. Bryan Garner, Black’s
Law Dictionary 1068 (9th ed. 2009) (defining “may” as “to be permitted to”).
Similarly, the use of the phrase “among other factors” instructed the jury that
the badges of fraud were a nonexhaustive list. The charge therefore properly
instructed the jury that they could, but were not required to, consider the
badges of fraud and that they could also consider any other relevant factor.
3
Janvey next argues that the district court’s instruction on debtor
preferences was erroneous. The district court instructed the jury that “[a]
debtor’s mere intention to prefer one creditor over another does not indicate
fraudulent intent, provided that the creditor does not receive more than is
reasonably necessary to pay its debts.” Janvey contends that the district
court’s instruction was “prejudicial . . . because it incorrectly suggested that
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preferential transfers and fraudulent transfers are mutually exclusive.”
The instruction, however, was a correct statement of Texas law. Under
Texas law, “a debtor has the right to prefer his obligation to one creditor over
an obligation to another creditor.” Englert v. Englert, 881 S.W.2d 517, 518
(Tex. App.—Amarillo 1994, no writ); see also Quinn v. Dupree, 303 S.W.2d 769,
774 (Tex. 1957) (“[E]very debtor has the right to pay or secure one or more of
his just debts with any property he has, provided that no m[or]e property is
transferred than is reasonably necessary to pay or secure the debt. A mere
intention to prefer one creditor over the other thus will not vitiate the
transaction, and the conveyance or security instrument will not be h[el]d void
as to creditors unless it was executed with fraudulent intent or amounts to a
fraud in law.”) (alterations in original); Jackson Law Office, 37 S.W.3d at 25
(“The general rule is that a debtor has the right to prefer his obligation to one
creditor over an obligation to another creditor.”). Texas’s preference law
“remain[s] valid notwithstanding the subsequent enactment of the TUFTA . . .
.” Alexander v. Holden Bus. Forms, Inc., No. 4:08-CV-614-Y, 2009 WL 2176582,
at *7 (N.D. Tex. July 20, 2009). Accordingly, “[a] debtor in Texas has the right
to prefer an obligation to one creditor over an obligation to another creditor, as
long as the debtor’s preference is devoid of fraudulent intent.” Geneva Corp.
Fin., Inc. v. Waddell, 251 F.3d 157, at *2 (5th Cir. 2001) (unpublished); see also
Janvey v. Golf Channel, Inc., 792 F.3d 539, 543 (5th Cir. 2015) (noting that the
“right to prefer does not extend to transfers made in fraud of the rights of the
other creditors” (citing Englert, 881 S.W.2d at 518)).
The district court instructed the jury that a debtor’s “mere intention” to
prefer one creditor over another creditor “does not indicate fraudulent intent.”
The use of the word “mere” is critical. “Mere” means “being nothing more
than.” Merriam-Webster’s Collegiate Dictionary 726 (10th ed. 2002). The
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instruction thus told the jury that a debtor’s intention to prefer a specific
creditor, standing alone, is not fraudulent. That is an accurate summary of
Texas law. See Englert, 881 S.W.2d at 518 (noting that fraudulent intent must
be affirmatively shown and that the debtor’s mere knowledge that there were
other creditors who were not receiving payment was insufficient to show
fraudulent intent).
Janvey argues that even if the instruction was a technically correct
statement of law, it was misleading “because it suggested that as long as SCB
made a transfer with the intent of satisfying one of its creditors—in this case,
Dillon Gage—then that transfer could never be avoidable under TUFTA.” But
the instruction does not suggest that a preferential transfer can never be
fraudulent. Instead, it says that a “mere intention” does not “indicate”
fraudulent intent. The word “mere” alerted the jury that the instruction
referred to preferences standing alone, not preferences in conjunction with
other indicators of fraud. Moreover, the word “indicate” told the jury that the
instruction dealt with evidentiary conclusions that could be drawn from the
debtor’s preference. See Merriam-Webster’s Collegiate Dictionary 590 (10th
ed. 2002) (defining “indicate” as “to be a sign, symptom, or index of”). Taken
together, the instruction informed the jury that a debtor’s intent to prefer one
creditor over another was not evidence of fraud. It did not instruct the jury
that a debtor’s intent to prefer one creditor insulated the debtor from fraud.
4
Finally, Janvey objects to the district court’s definition of assets. The
parties’ dispute over the “assets” instruction centers on Section 24.003 of
TUFTA, which defines insolvency. Section 24.003(a) provides that “[a] debtor
is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s
assets at a fair valuation.” Tex. Bus. & Com. Code § 24.003(a). Section
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24.003(d) excludes specific kinds of assets from the calculation of assets
prescribed by Section 24.003(a): “[a]ssets under this section do not include
property that has been transferred, concealed, or removed with intent to
hinder, delay, or defraud creditors or that has been transferred in a manner
making the transfer voidable under this chapter.” Tex. Bus. & Com. Code
§ 24.003(d).
The district court instructed the jury:
A debtor is insolvent if the sum of the debtor’s debts is
greater than all of the debtor’s assets at a fair
valuation. . . . Assets under this section do not include
property that has been transferred, concealed, or
removed with intent to hinder, delay, or defraud
creditors or that has been transferred in a manner
making the transfer voidable.
A transfer made by the Stanford Ponzi scheme to SCB
is presumed to be voidable, unless the transfer is taken
in good faith and for reasonably equivalent value.
Janvey objects to the second paragraph of the instruction. He argues
that the instruction was a misstatement of law because it allowed the jury to
count money transferred from the Stanford Ponzi scheme to SCB as SCB’s
assets.
Even assuming that the district court erred in giving the instruction,
which we doubt, the error was harmless. We will remand to correct a flawed
jury instruction only if the error “affected the outcome of the case.” Jowers,
617 F.3d at 352 (quoting Bender, 1 F.3d at 276); see also Rubinstein v. Admins.
of Tulane Educ. Fund, 218 F.3d 392, 404 (5th Cir. 2000) (“Further, and
importantly to this case, review of jury instructions is for harmful error. Even
if an instruction erroneously states the applicable law or provides insufficient
guidance, this Court will not disturb the judgment unless the error could have
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affected the outcome of the trial.”).
As Janvey himself recognizes, the issue of which of SCB’s assets count
as “assets” under Section 24.003(d) is only relevant to determining whether
SCB’s debts were greater than its assets at a fair valuation, which is one of two
ways to show insolvency under TUFTA (the other being general failure to pay
debts as they become due). See Tex. Bus. & Com. Code § 24.003. However,
Janvey did not attempt to prove SCB’s insolvency through a comparison of
SCB’s debts and assets. Janvey’s expert testified that she did not attempt to
value SCB’s debts or assets. In fact, Janvey’s expert testified that she had not
even attempted to determine what SCB’s assets were. The district court noted
that “[o]n the issue about insolvency and debts greater than all assets at fair
valuation, I agree with [Dillon Gage] that no single expert witness testified to
that and that plaintiff’s expert disclaimed any opinion on the definition of
insolvency.” Moreover, no witness gave a complete accounting of SCB’s debts
and assets. And we have held that balance-sheet insolvency cannot be
determined when evidence of the debtor’s assets is not introduced. Lamar
Haddox, 40 F.3d at 121–22. Thus, any miscalculation of SCB’s assets could
not have led to a different outcome on the insolvency badge because no party
has argued (even on appeal) that SCB was balance-sheet insolvent or offered
evidence showing SCB’s full assets and debts at a fair valuation. We conclude
that any error with respect to the assets instruction was harmless.
III
We now turn to Dillon Gage’s cross-appeal concerning attorney’s fees.
Following trial, Dillon Gage requested an award of $278,603 in attorney’s fees.
The district court denied the motion, concluding that Janvey’s claims “were not
frivolous, unreasonable, or without foundation[,]” that the litigation
represented Janvey’s “most likely avenue by which he can fulfill his goal of
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maximizing recovery to make whole the Stanford Ponzi scheme’s defrauded
investors[,]” and that “an award of attorney’s fees for Dillon Gage would not be
equitable and just.”
This court reviews awards or denials of attorney’s fees for abuse of
discretion; factual findings supporting a fee award are reviewed for clear error,
and legal conclusions underlying a fee award are reviewed de novo. Dearmore
v. City of Garland, 519 F.3d 517, 520 (5th Cir. 2008). The standard of review
is substantially the same under Texas law. See Shaw v. Cty. of Dallas, 251
S.W.3d 165, 171 (Tex. App.—Dallas 2008, pet. denied) (“We will reverse a trial
court’s ruling on a request for attorney’s fees under [a discretionary fee statute]
only if the court’s decision is arbitrary, unreasonable, and without regard to
guiding legal principles.”).
TUFTA provides that “the court may award costs and reasonable
attorney’s fees as are equitable and just.” Tex. Bus. & Com. Code § 24.013.
“This provision of TUFTA gives the trial court the sound discretion to award
attorney’s fees based on the evidence the trial court heard.” Walker v.
Anderson, 232 S.W.3d 899, 919 (Tex. App.—Dallas 2007, no pet.). “The Court’s
exercise of this discretion is subject to the following limitations: any fees
awarded must be reasonable and necessary, and must also be equitable and
just.” Janvey v. Romero, No. 3:11-CV-0297-N, 2015 WL 11017950, at *1 (N.D.
Tex. Sept. 22, 2015) (citing Qui Phuoc Ho v. MacArthur Ranch, LLC, No. 05-
14-00741-CV, 2015 WL 5093273, at *10 (Tex. App.—Dallas Aug. 28, 2015, pet.
denied)). A number of factors are relevant to determining whether a fee award
is “equitable and just” under TUFTA, including: (1) whether the case involved
egregious conduct, In re Pace, 456 B.R. 253, 283 (Bankr. W.D. Tex. 2011); (2)
whether an award of fees accomplishes the goals of TUFTA, In re Edwards,
537 B.R. 797, 806 (Bankr. S.D. Tex. 2015); (3) the evidence heard by the trial
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court, Citizens Nat. Bank of Tex. v. NXS Const., Inc., 387 S.W.3d 74, 87 (Tex.
App.—Houston [14th Dist.] 2012, no pet.); and (4) “evidence of bad faith,
vexation, wantonness, oppression, or harassment relating to the filing or the
maintenance of this action[,]” RFAR Grp., LLC v. Epiar, Inc., No. 11-CV-3432,
2013 WL 1743880, at *3 (N.D. Tex. Jan. 9, 2013), report and recommendation
adopted, 3:11-CV-3432-L, 2013 WL 1748619 (N.D. Tex. Apr. 23, 2013).
Dillon Gage does not assert that the district court relied on improper
considerations when it denied the fee request; instead, it contends that the
district court impermissibly placed a higher burden on prevailing defendants
than prevailing plaintiffs by focusing on the frivolousness of Janvey’s claim
here and by not focusing on the frivolousness of the defenses in other cases in
which the receiver prevailed. However, nothing in the district court’s order
suggests that it treated Dillon Gage differently merely because it was a
prevailing defendant. The closest the district court came to signaling a
different standard between prevailing plaintiffs and defendants is its
statement that this case “and other similar claims” represented the Receiver’s
best chance at maximizing his recovery. But, even that statement does not
insist that all prevailing TUFTA plaintiffs must be awarded fees. Instead, read
in context, the district court was saying that the goals of the receivership are
best served when the receiver brings claims similar to those brought in this
litigation—namely non-frivolous claims. Moreover, Dillon Gage’s contention
that Romero, 2015 WL 11017950, demonstrates unequal treatment is without
merit. In Romero, the district court awarded fees to a prevailing receiver. See
id. at *3–4. Dillon Gage argues that in Romero “the court held that it would
always be ‘equitable and just’ to award fees to a receiver who prevailed at trial
in view of a receivership’s ‘goals and purposes.’” But that simply is not what
Romero says. Instead, the district court in Romero found that a fee award was
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“equitable, just, and reasonable based on the evidence” including “the case’s
outcome and the receivership’s goals and purposes.” Id. at *2–3. Nowhere did
the district court say that prevailing receivers must always recover. Id.
Accordingly, we hold that the district court did not apply the wrong standard
in assessing Dillon Gage’s fee request.

Outcome: We AFFIRM the jury verdict. We AFFIRM the district court’s order
denying attorney’s fees.

Plaintiff's Experts:

Defendant's Experts:

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