Fore Warned: Fifth Circuit Sticks to its Guns

A prior Ask the Receiver® discussed the Fifth Circuit case Janvey v. The Golf Channel, Inc., 780 F. 3d 641 (5th Cir. 2015) (“Golf Channel I”). There the court found The Golf Channel liable to return $6,000,000 paid to it for advertising services it provided, that were used to help solicit investors in the Allen Stanford Ponzi scheme. The court found the advertising did not provide “reasonably equivalent value,” from the standpoint of the Stanford creditors, and, therefore, could not be used to support The Golf Channel’s defense to the receiver’s fraudulent transfer claim. The court stated that under the Uniform Fraudulent Transfer Act, which was modeled after the Bankruptcy Code, consideration having no utility, from a creditor standpoint, does not satisfy the statutory definition. The court cited a number of cases and held “we measure value ‘from the standpoint of the creditors,’ and not from that of a buyer in the marketplace,” Id. at 644.

The Fifth Circuit’s decision received a lot of press. In response to The Golf Channel’s petition for rehearing, the Fifth Circuit vacated its opinion and certified to the Supreme Court of Texas the question of whether the definition of “value” in the Texas version of the Uniform Fraudulent Transfer Act (“TUFTA”), found in Texas Business & Commerce Code § 24.004(d), is to be viewed from a creditor’s viewpoint. Janvey v. The Golf Channel, Inc., 792 F.3d 539 (5th Cir. 2015) (“Golf Channel II”).

The Supreme Court of Texas in Janvey v. Golf Channel, Inc., 47 S.W. 3d 560 (Tex. 2016), in response to the Fifth Circuit’s certification, held that under the TUFTA “the ‘reasonable equivalent value’ requirement can be satisfied with evidence that the transferee (1) fully performed under a lawful, arms-length contract for fair market value, (2) provided consideration that had objective value at the time of the transaction, and (3) made the exchange in the ordinary course of the transferees business.” Id. at 564. In other words, the Texas Supreme Court held that “reasonably equivalent value” exists if the goods or services provided would have been available to another buyer at market rates had they not been purchased by the operator of the Ponzi scheme, whether or not they constituted value from the standpoint of creditors.

The Texas Supreme Court went on to note: “Uniformity is a stated objective of the statute but TUFTA is unique among fraudulent transfer laws because it provides a specific market value definition of reasonable equivalent value.” Id. at 573.1

In response to the Texas Supreme Court’s decision, the Fifth Circuit in Janvey v. Golf Channel, Inc., 834 F. 3d 570 (2016) (“Golf Channel III”), held that, because the Texas Supreme Court is the arbitrator of Texas law, its interpretation of Texas law was binding and, therefore, reversed its prior holding and affirmed the district court’s grant of summary judgment in favor of The Golf Channel against the receiver. However, the Fifth Circuit went on to state that it believed the Supreme Court of Texas’ interpretation of value under Texas law is different from the definition under other states’ fraudulent transfer laws and under § 548(c) of the Bankruptcy Code. It specifically cited to its own decision in Warfield v. Byron, 436 F.3d 551, 560 (5th Cir. 2016), where it held, applying Washington law, that services rendered in furtherance of a Ponzi scheme were not for “value” because “[t]he primary consideration in analyzing the exchange of value of any transfer is the degree to which the transferor’s net worth is preserved.” Golf Channel III at 573. In other words, courts should view the transaction from the creditor’s standpoint, as it had originally held. Faced with this dichotomy, the court held that when interpreting the Texas fraudulent transfer law, courts in the Fifth Circuit would have to comply with the Supreme Court of Texas’ interpretation but: “When interpreting a federal statute or statute different from a different state, ‘we are not bound by the state court’s interpretation of a similar-or even identical-state statute.” Id. As a result, the Fifth Circuit took the position that so long as Texas law does not apply, receivers and bankruptcy trustees can pursue fraudulent transfer claims in Ponzi schemes against third parties who provided goods and services to the Ponzi scheme, if those goods or services did not provide value “from the standpoint of the creditors.” This should also be the result in California which, as indicated, does not have the specific “reasonably equivalent value” definition found in Texas law.

1 Texas Business & Commerce Code §24.004(a) provides: “‘Reasonably equivalent value’ includes without limitation, a transfer or obligation that is within the range of values for which the transferor would have sold the assets in an arm’s length transaction.” California’s UFTA and new Voidable Transactions Act has no similar provision.

This blog is intended to discuss current trends in receivership law and practice.  It should not be construed as representing advice on specific, individual legal matters, but rather as an overview of the subject discussed. Your questions and comments are always welcome. Please do not hesitate to contact me at or (310) 281-6363 to further discuss this blog or to answer any questions.

Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP.  His practice includes all aspects of receivership and bankruptcy law.  He also acts as a receiver, conservator and monitor in state and federal court.


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