Janvey v. Alguire

Case: 10-10617 Document: 00511322906 Page: 1 Date Filed: 12/15/2010

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT United States Court of Appeals

Fifth Circuit

FILED

December 15, 2010

No. 10-10617 Lyle W. Cayce

Clerk

RALPH S. JANVEY

Plaintiff–Appellee

v.

JAMES R. ALGUIRE, VICTORIA ANCTIL, TIFFANY ANGELLE, SYLVIA

AQUINO, JONATHAN BARRACK, ET AL. 1; TERAL BENNETT, SUSANA

CISNEROS, RON CLAYTON, JAMES FONTENOT, MARK GROESBECK,

ET AL. 2; and JASON GREEN

Defendants–Appellants

Appeal from the United States District Court

for the Northern District of Texas, Dallas Division.

Before STEWART, PRADO, and ELROD, Circuit Judges.

EDWARD C. PRADO, Circuit Judge:

The Securities Exchange Commission (“SEC”) brought suit against

Stanford Group Company (“SGC”), along with various other Stanford corporate

entities, including Stanford International Bank (“SIB”), for allegedly

perpetrating a massive Ponzi scheme.1 The district court appointed Robert

Janvey (the “Receiver”) to marshal the Stanford estate. In November, this Court

1

The alleged Ponzi scheme concerned more than one hundred corporate entities

controlled by R. Allen Stanford. The Receiver obtained a preliminary injunction maintaining

a freeze on accounts that belong to 117 of the defendants. Where the distinction is of no

moment, we will refer to the corporate entities collectively as “Stanford.”

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heard Janvey v. Adams, 588 F.3d 831 (5th Cir. 2009),2 a case concerning the

frozen accounts of Stanford investors. Although the Fifth Circuit ordered the

district court to thaw the accounts of the Stanford investors, the Receiver

subsequently obtained a preliminary injunction against numerous former

financial advisors and employees of SGC, freezing the accounts of those

individuals pending the outcome of trial.3

In this interlocutory appeal, the Employee Defendants contend that the

district court should have granted their motion to compel arbitration, and that

the district court had no power to grant the preliminary injunction when the

motion to compel arbitration was pending. Additionally, the Employee

Defendants claim that the district court abused its discretion when it granted

the preliminary injunction, and that the Receiver’s calculation of the amounts

subject to the injunction was overly broad. The Bennett Defendants appeal

separately, claiming that the district court erroneously found that SGC operated

as a Ponzi scheme.

We hold that (1) the district court had the power to decide the motion for

preliminary injunction before deciding the motion to compel arbitration; (2) the

district court did not abuse its discretion in granting a preliminary injunction;

(3) the preliminary injunction was not overbroad; (4) the district court acted

within its power to grant a Texas Uniform Fraudulent Transfer Act (“TUFTA”)

injunction rather than an attachment; and (5) the Receiver’s claims are not

subject to arbitration.

2

Judge Dennis authored the opinion, joined by Judge Garwood and Judge Prado.

3

There are numerous appellants, represented by various counsel. The district court

describes the approximately 330 former Stanford employees collectively as “Employee

Defendants.” We will continue this practice for the appellants in this proceeding. When we

have need to refer to the specific arguments by a particular group of defendants or a single

defendant, we will refer to the seventy-six financial advisor defendants who together filed a

brief as “FA Defendants,” to the defendants who filed the Teral Bennett et al. brief as the

“Bennett Defendants,” and to Jason Green as “Green.”

2

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I. FACTUAL AND PROCEDURAL BACKGROUND

A. Stanford, the Receiver, and Adams

This appeal shares its background facts with this Court’s prior Adams

opinion:

This case arises out of an alleged multi-billion-dollar Ponzi

scheme perpetrated by the Stanford companies . . . . According to

the SEC, the companies’ core objective was to sell certificates of

deposit (“CDs”) issued by [SIB]. Stanford achieved and maintained

a high volume of CD sales by promising above-market returns and

falsely assuring investors that the CDs were backed by safe, liquid

investments. For almost 15 years, [SIB] represented that it

consistently earned high returns on its investment of CD sales

proceeds, ranging from 12.7% in 2007 to 13.93% in 1994. In fact,

however, [SIB] had to use new CD sales proceeds to make interest

and redemption payments on pre-existing CDs, because it did not

have sufficient assets, reserves and investments to cover its

liabilities.

The SEC filed suit against R. Allen Stanford, [SIB], and

related companies on February 16, 2009. At the SEC’s request, the

district court issued a temporary order restraining the payment or

expenditure of funds belonging to the Stanford parties. The district

court also appointed [the Receiver] for the Stanford interests and

granted him the power to conserve, hold, manage, and preserve the

value of the receivership estate.

588 F.3d at 833. At the time the SEC filed suit, Stanford should have held

assets of greater than seven billion dollars, but actually held assets of less than

$1 billion.

Post-appointment, the Receiver froze millions of dollars in assets. These

frozen accounts allegedly contained funds dispersed by Stanford as purported

interest on CDs, reimbursement of CD principle, or compensation to former

Stanford employees. After time for review and assessment, the district court set

a date to thaw the frozen assets and ordered the Receiver to complete his review.

Adams, 588 F.3d at 833. The Receiver subsequently filed a series of claims,

naming hundreds of CD investors and the Employee Defendants as “relief

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defendants,” and seeking to recover funds from the frozen accounts. The district

court severed the investor defendants from the Employee Defendants.

The Receiver sought a preliminary injunction to continue the freeze as to

the investor defendants, which the district court granted in part and denied in

part, maintaining the freeze of the accounts of various CD investors who had

received payments of interest on their CDs. In Adams, the Fifth Circuit vacated

the district court’s grant of a preliminary injunction. 588 F.3d at 835. The

Adams Court found that the CD investors could not be properly named as “relief

defendants” because the CD investors had actual ownership interests in the CDs

and any proceeds of the CDs. Id. at 834–35. This Court did not address the

Employee Defendants’ frozen accounts.

B. Post-Adams Developments, the Employee Defendants, and the

Instant Appeal

The remaining frozen accounts represent accounts held at Pershing LLC

and JP Morgan Clearing Corp. by the Employee Defendants. After Adams, the

Receiver amended his complaint against the Employee Defendants, leaving

claims only for fraudulent transfer or unjust enrichment.

The Receiver subsequently reached a series of compromises with the

Employee Defendants, allowing for partial releases of their frozen assets. The

district court eventually entered an agreed order (the “April 6th Order”),

releasing all but “(1) commissions earned from the sale of SIB CDs; (2) SIB

quarterly bonuses; and (3) branch managing-director quarterly compensation.”

With the account freeze due to expire, the Receiver moved for a

preliminary injunction to continue the freeze as to the funds named in the April

6th Order. The Receiver claimed that the three named classes of funds

represented payments by Stanford to the Employee Defendants from the

proceeds of the Ponzi scheme and therefore constituted fraudulent transfers,

entitling the Receiver to disgorgement of those assets.

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The Employee Defendants opposed the preliminary injunction and moved

to compel arbitration. They based their motion to compel on the existence of

Promissory Notes between the Employee Defendants and SGC. The Promissory

Notes concerned upfront loan payments that SGC paid to the Employee

Defendants when they joined Stanford. The Promissory Notes contained a broad

arbitration clause, which provided that any dispute “arising out of or relating to

this Note . . . would be submitted and settled by arbitration pursuant to the

constitution, bylaws, rules, and regulations of the Financial Industry Regulation

Authority (FINRA)” or the National Association of Securities Dealers (“NASD”),

FINRA’s predecessor. The Employee Defendants argued that because the

Receiver “stood in the shoes” of SGC, the Receiver was also bound by the

arbitration clause between the Employee Defendants and SGC.

The district court granted a temporary restraining order, and then granted

the preliminary injunction. The district court did not decide the merits of the

motion to compel arbitration, finding that it had the power to issue a

preliminary injunction pending resolution of that matter. Additionally, the

district court distinguished between a preliminary injunction under the Texas

Uniform Fraudulent Transfer Act (“TUFTA”) and a writ of attachment, expressly

granting the former. In granting the preliminary injunction, the district court

continued the account freeze as to the amounts named in the April 6th Order.

Various Employee Defendants appealed.

II. DISCUSSION

Various groups of the Employee Defendants have set forth five issues on

appeal: (1) whether the district court had the power to grant a preliminary

injunction before deciding the motion to compel arbitration; (2) whether the

district court abused its discretion when it granted the preliminary injunction;

(3) whether the district court’s preliminary injunction is overbroad; (4) whether

the district court properly granted a preliminary injunction rather than a writ

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of attachment; and (5) whether the Receiver’s claims against the Employee

Defendants are subject to arbitration. We address the five issues in turn.

A. Jurisdiction and Standard of Review for the Preliminary

Injunction Order

The Panel has jurisdiction over the appeal of the district court’s

preliminary injunction under 28 U.S.C. § 1292(a)(1).4

While “the standard to be applied by the district court in deciding whether

a plaintiff is entitled to a preliminary injunction is stringent, the standard of

appellate review is simply whether the issuance of the injunction, in the light of

the applicable standard, constituted an abuse of discretion.” Doran v. Salem

Inn, Inc., 422 U.S. 922, 931–32 (1975). Despite this deferential standard, “a

decision grounded in erroneous legal principles is reviewed de novo.” Byrum v.

Landreth, 566 F.3d 442, 445 (5th Cir. 2009) (citations omitted) (quotation marks

omitted). As to each element of the district court’s preliminary-injunction

analysis, the district court’s findings of fact “are subject to a clearly-erroneous

standard of review,” while conclusions of law “are subject to broad review and

will be reversed if incorrect.” White v. Carlucci, 862 F.2d 1209, 1211 (5th Cir.

1989) (citations and quotation omitted).

B. Power to Grant Preliminary Injunction

1. The Parties’ Arguments

The Employee Defendants argue that the district court lacked power to

issue a preliminary injunction because the Receiver’s claims against them are

subject to arbitration. The Receiver argues that case law, the FINRA rules, and

common sense allows the district court to issue a preliminary injunction pending

its resolution of a motion to compel arbitration. The district court found that it

4

The parties dispute whether the district court retained the power to grant the

preliminary injunction while the motion to compel arbitration was pending. We address this

dispute below.

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had power to grant preliminary relief before deciding whether to compel

arbitration. We agree with the district court.

While the Employee Defendants acknowledge that the grant of a

preliminary injunction lies within a district court’s discretion, they posit that a

motion to compel arbitration strips the district court of its power to grant an

injunction. The Employee Defendants contend that (1) SGC is and was subject

to arbitration for this dispute at all relevant times because it is a member of

FINRA and it is bound under the broad arbitration clause of each Promissory

Note, which requires any controversy arising out of or related to the Note be

submitted to arbitration pursuant to FINRA rules; (2) the dispute in this action

is arbitrable because the Receiver became subject to the FINRA rules and the

arbitration clauses when he stepped into the shoes of the received entity he

represents; and (3) the FINRA rules do not contemplate pre-arbitration

injunctive relief nor allow court-ordered injunctions lasting longer than 15 days.

The Employee Defendants argue that because the dispute is arbitrable and

subject to the FINRA rules, the district court did not have the discretion to issue

injunctive relief; it only had the power to decide the motion to compel

arbitration. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (“By

its terms, the Act leaves no room for the exercise of discretion by a district court,

but instead mandates that district courts shall direct the parties to proceed to

arbitration on issues as to which an arbitration agreement has been signed.”).

The Employee Defendants also argue that cases from both sides of a circuit

split support their contention that the district court does not have power to enter

an injunction. The circuit split concerns the power of a district court to issue an

injunction while arbitration is pending. The Fifth Circuit acknowledged the

circuit split in RGI, Inc. v. Tucker & Associates, Inc., 858 F.2d 227, 229 (5th Cir.

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1988), but did not enter the fray.5 The Employee Defendants contend that once

again we may avoid the fray and still decide the issue in their favor because both

the Eighth Circuit, on one side of the split, and the Seventh Circuit, on the other

side of the split, would not permit an injunction here. The Eighth Circuit held

that “where the [Federal Arbitration Act (“FAA”)] is applicable to the dispute

between the parties and no qualifying language has been alleged, the district

court errs in granting injunctive relief” because the judicial inquiry required to

determine “the propriety of injunctive relief necessarily would inject the court

into the merits of issues more appropriately left to the arbitrator.” Merrill

Lynch, Pierce, Fenner & Smith, Inc. v. Hovey, 726 F.2d 1286, 1292 (8th Cir.

1984). The Seventh Circuit held that the district court may only issue injunctive

relief that is effective only until the arbitration panel is able to address whether

the equitable relief should remain in effect. See Merrill Lynch, Pierce, Fenner

& Smith, Inc. v. Salvano, 999 F.2d 211, 215–16 (7th Cir. 1993).

The Receiver responds that the district court’s broad power to preserve the

status quo is well-established and supported by case law, FINRA rules, and

common sense. The Receiver notes that “even after a district court decides that

a case is subject to arbitration, most federal authority permits the district court

to issue a preliminary injunction to maintain the status quo pending

arbitration.” Further, the Receiver points out that under FINRA Rule 13804,

(1) parties can seek court-ordered temporary injunctive relief even where the

case is subject to mandatory arbitration, and (2) if a court issues a temporary

injunction in a dispute subject to arbitration, an arbitration panel will hold a

hearing within 15 days to determine whether to continue the injunctive relief.

5

In RGI, we found that we need not decide whether a district court may issue a

preliminary injunction while arbitration is pending because the agreement in that case clearly

provided for preliminary injunctions. Id. at 231. The parties do not attempt to establish or

distinguish similar facts here.

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The Receiver argues that if FINRA rules allow court-ordered injunctive relief

when a party loses on the motion to compel arbitration, then he is entitled to

such relief while the motion is still pending. Finally, the Receiver notes that a

rule that would prohibit the district court from preserving the status quo when

a motion to compel arbitration is filed would enable any party “to strip the trial

court of its authority to enjoin the party’s conduct simply by filing a motion to

compel arbitration.”

2. Analysis

In its order, the district court relied on its equitable powers to preserve the

status quo, and expressly reserved the question of whether the Receiver’s claims

were subject to arbitration. In so doing, the district court noted that the cases

in the circuit split did not specifically address the issue in this case: whether a

court may preserve the status quo pending its resolution of a motion to compel

arbitration, not pending the actual arbitration itself. We agree with the district

court: The district court can grant preliminary relief before deciding whether to

compel arbitration.

The language of the FAA does not touch on the ancillary power of the

federal court to act before it decides whether the dispute is arbitrable. The

federal law of arbitration is governed by the FAA. 9 U.S.C. §§ 1–16. As the

Employee Defendants note, the Supreme Court has consistently expressed a

strong preference for arbitration. See Southland Corp. v. Keating, 465 U.S. 1,

10 (1984) (“In enacting § 2 of the [FAA], Congress declared a national policy

favoring arbitration . . . .”). However, these sections do not provide guidance on

the issue of whether a court may issue a preliminary injunction before deciding

whether the dispute is arbitrable. Section 3 provides:

If any suit or proceeding be brought in any of the courts of the

United States upon any issue referable to arbitration under an

agreement in writing for such arbitration, the court in which such

suit is pending, upon being satisfied that the issue involved in such

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suit or proceeding is referable to arbitration under such an

agreement, shall on application of one of the parties stay the trial of

the action until such arbitration has been had in accordance with

the terms of the agreement, providing the applicant for the stay is

not in default in proceeding with such arbitration.

9 U.S.C. § 3 (emphasis added). Similarly, section 4 provides:

A party aggrieved by the alleged failure, neglect, or refusal of

another to arbitrate under a written agreement for arbitration may

petition any United States district court . . . for an order directing

that such arbitration proceed in the manner provided for in such

agreement. . . . The court shall hear the parties, and upon being

satisfied that the making of the agreement for arbitration or the

failure to comply therewith is not in issue, the court shall make an

order directing the parties to proceed to arbitration in accordance

with the terms of the agreement.

9 U.S.C. § 4 (emphasis added). Section 3 only speaks to what the court should

do once it is satisfied that the issue is referable to arbitration. Similarly,

section 4 mandates that the court must direct the parties to proceed to

arbitration only after it is satisfied that there is no issue as to whether a party

failed to comply with the arbitration agreement. Both of these sections speak

only to situations after the court has decided arbitration must ensue.

Here, the court has not yet made up its mind as to arbitrability. The

district court relied on its equitable powers to preserve the status quo, but

expressly reserved the issue of whether the Receiver’s claims were subject to

arbitration for resolution at a later date. Nothing in the FAA controls a district

court’s approach to its docket. While the Supreme Court has stated that

“Congress’[s] clear intent, in the [FAA], [was] to move the parties to an

arbitrable dispute out of court and into arbitration as quickly and easily as

possible[,]” there is nothing to control the district court’s expeditious

determination of arbitrability. Moses H. Cone Hosp. v. Mercury Constr. Corp.,

460 U.S. 1, 22 (1983) (emphasis added).

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The cases cited by the Employee Defendants also do not bar the exercise

of the district court’s equitable powers here. The RGI Court found that “[t]he

crux of the problem [in the circuit split] is whether the commands of the [FAA]

require that a federal court immediately divest itself of any power to act to

maintain the status quo once it decides that the case before it is arbitrable.” RGI,

858 F.2d at 228–29 (emphasis added). Here, however, the district court has not

yet decided whether the case is arbitrable and thus the circuit-split cases are not

applicable. The Receiver’s request for a preliminary injunction was entered

before the motion to compel arbitration. We agree with the district court that

if we were to reverse and hold that the district court must stop everything and

consider the motion to compel arbitration, such a holding

would create a harsh procedural rule: in order to avoid irreparable

injury, motions to compel arbitration where a request for injunctive

relief is involved must be resolved before any temporary restraining

order expires. Such a rule would be both burdensome for district

courts and impracticable, given the time it takes motions to compel

arbitration to become ripe for ruling, even if no discovery is

required.

(Supp. R. #3 at 4273 n.5.)

Though the circuit-split cases do not apply here, the reasoning of those

circuits holding that a court may issue an injunction pending arbitration applies

here.6 As explained by the First Circuit, “the congressional desire to enforce

arbitration agreements would frequently be frustrated if the courts were

precluded from issuing preliminary injunctive relief to preserve the status quo

pending arbitration and, ipso facto, the meaningfulness of the arbitration

process.” Teradyne v. Mostek Corp., 797 F.2d 43, 51 (1st Cir.1986). Here, the

6

Given that the facts at issue here do not require us to enter the circuit split, we

reserve for another day the issues of whether a district court divests itself of the discretion to

maintain the status quo once it decides the case before it is arbitrable, and if not, what the

limits of that discretion may be.

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district court merely sought to preserve the status quo before deciding the

motion to compel arbitration, and by doing so they sought to preserve the

meaningfulness of any arbitration that might take place.

Even if applicable to the facts here, the Seventh Circuit case cited by the

Employee Defendants would not bar the preliminary injunction issued by the

district court. In Salvano, the Seventh Circuit held that the district court may

issue injunctive relief only until the arbitration panel is able to address whether

the equitable relief should remain in effect. 999 F.2d at 215–16. In the instant

case, the district court expressly stated that if it decides to compel arbitration,

the defendants may ask the district court to reconsider the preliminary

injunction in light of Fifth Circuit precedent and the terms of the contracts.

The matter of arbitrability has not yet been decided, and the district court

did not overreach when it decided the preliminary injunction motion.

C. Decision to Grant Preliminary Injunction

The four elements a plaintiff must establish to secure a preliminary

injunction are:

(1) a substantial likelihood of success on the merits, (2) a substantial

threat of irreparable injury if the injunction is not issued, (3) that

the threatened injury if the injunction is denied outweighs any

harm that will result if the injunction is granted, and (4) that the

grant of an injunction will not disserve the public interest.

Byrum, 566 F.3d at 445 (quotation marks omitted). The Receiver bore the

burden of establishing each element. Bluefield Water Ass’n, Inc. v. City of

Starkville, Miss., 577 F.3d 250, 253 (5th Cir. 2009). The district court analyzed

each of the elements in its grant of the preliminary injunction to the Receiver.

The Employee Defendants challenge all aspects of the district court’s analysis.

We disagree with the Employee Defendants that the district court abused its

discretion in issuing the preliminary injunction. We address each element in

turn, reviewing the district court’s ultimate decision to grant the preliminary

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injunction and its findings of fact for abuse of discretion and its legal

determinations de novo. Byrum, 566 F.3d at 445.

1. Likelihood of Success on the Merits

The district court did not err in finding the Receiver carried his burden of

proving likelihood of success on the merits. To satisfy the first element of

likelihood of success on the merits, the Receiver’s evidence in the preliminary

injunction proceeding “is not required to prove [his] entitlement to summary

judgment.” Byrum, 566 F.3d at 446; see also C HARLES A LAN W RIGHT, A RTHUR R.

M ILLER, M ARY K AY K ANE, 11A F EDERAL P RACTICE & P ROCEDURE § 2948.3 (2d ed.

1995) (“All courts agree that plaintiff must present a prima facie case but need

not show that he is certain to win.” (footnote omitted)). To assess the likelihood

of success on the merits, we look to “standards provided by the substantive law.”

Roho, Inc. v. Marquis, 902 F.2d 356, 358 (5th Cir. 1990) (citation omitted). Here,

the Receiver contends that there is liability under TUFTA. Under TUFTA, the

trial court may find substantial likelihood of success on the merits when it is

“presented with evidence of intent to defraud the creditor.” See Tanguy v. Laux,

259 S.W.3d 851, 858 (Tex. App.—Houston [1st Dist.] 2008) (citing Tel. Equip.

Network, Inc. v. TA/Westchase Place, Ltd., 80 S.W.3d 601, 609

(Tex.App.—Houston [1st Dist.] 2002)).

The Receiver and the Employee Defendants offer competing versions of

what evidence is necessary to satisfy TUFTA’s requirements. The Bennett

Defendants contend that the Receiver failed to establish that Stanford operated

as a Ponzi scheme.7 The FA Defendants argue that because they received their

compensation from SGC and not SIB, they did not receive compensation from the

7

The Bennett Defendants do not tie this argument to any element of the preliminary

injunction standard, instead lodging a general objection to the district court’s determination

that Stanford operated as a Ponzi scheme. Because the Ponzi scheme determination has the

greatest impact on the likelihood of success element, we address the Bennett Defendants’

argument in this section.

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Ponzi scheme. The Employee Defendants contend that the district court erred

by allowing the Receiver to group all the former employees of Stanford together

rather than requiring the Receiver to prove that each individual Defendant

received fraudulent transfers of money from the Stanford scheme. Finally, the

Employee Defendants also contend that the Receiver failed to follow the

heightened pleading requirements of Federal Rule of Civil Procedure 9(b). The

Receiver responds that (1) there is sufficient evidence to prove Stanford operated

as a Ponzi scheme from the very beginning; (2) the Receiver has presented

sufficient evidence to prove that each individual Defendant received transfers

of money from the Stanford Ponzi scheme; and (3) this Court need not decide

whether the Receiver’s pleading satisfies the rules, and even if it did, Rule 9(b)

does not apply to fraudulent transfer cases.

The district court agreed with the Receiver. It found that there was a

Ponzi scheme and held that “‘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.’” (Supp. R. #3 at 4277 (quoting Quilling

v. Schonsky, 247 F. App’x 583, 586 (5th Cir. 2007) (unpublished) (citing Warfield

v. Byron, 436 F.3d 551, 559 (5th Cir. 2006))).) Therefore, the district court found

that the Receiver satisfied his obligation to show an actual intent to defraud

under TUFTA. The district court further found that the Receiver presented

sufficient evidence that the assets implicated by the injunction request

“represented transfers of Stanford CD proceeds.”

We address first whether the Receiver presented sufficient evidence that

Stanford operated as a Ponzi scheme, then discuss whether the Receiver

adequately established that the Employee Defendants received proceeds of a

fraudulent transfer, and finally address whether this satisfies the requirements

of this element.

a. Whether Stanford Operated as a Ponzi Scheme

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The Bennett Defendants spend the bulk of their brief disputing whether

Stanford operated as a Ponzi scheme ab initio. The FA Defendants separate

SGC from SIB, and claim that the Receiver failed to establish that SGC, the

entity that provided compensation to the FA Defendants, was a Ponzi scheme.

In large part, the Receiver relies upon the guilty plea of James Davis (the “Davis

Plea”), the former Chief Financial Officer of SIB, to demonstrate that the

Stanford enterprise operated as a Ponzi scheme. The district court relied upon

the Davis Plea in its order, along with the declarations of the Receiver’s forensic

accountant, Karyl Van Tassel, to find that a Ponzi scheme existed. We find that

the district court did not err in finding that the Stanford enterprise operated as

a Ponzi scheme.

A Ponzi scheme is a “fraudulent investment scheme in which money

contributed by later investors generates artificially high dividends or returns for

the original investors, whose example attracts even larger investments.”

B LACK’S L AW D ICTIONARY 1198 (8th ed. 2004); see also U.S. v. Setser, 568 F.3d

482, 486 (5th Cir. 2009) (“in a classic Ponzi scheme, as new investments [come]

in . . ., some of the new money [is] used to pay earlier investors”). The Second

Circuit also provides a good description of a Ponzi scheme:

A [P]onzi scheme is a scheme whereby a corporation operates and

continues to operate at a loss. The corporation gives the appearance

of being profitable by obtaining new investors and using those

investments to pay for the high premiums promised to earlier

investors. The effect of such a scheme is to put the corporation

farther and farther into debt by incurring more and more liability

and to give the corporation the false appearance of profitability in

order to obtain new investors.

Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1088 n.3 (2d Cir. 1995). This

Circuit has found that a Ponzi scheme “is, as a matter of law, insolvent from its

inception.” Warfield, 436 F.3d at 558 (citing Cunningham v. Brown, 265 U.S. 1,

7–8 (1924)).

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The Davis Plea and the Van Tassel Declarations provide sufficient

evidence to support a conclusion that there is a substantial likelihood of success

on the merits that the Stanford enterprise operated as Ponzi scheme. In his

plea, Davis, who is singularly positioned to provide insight into the workings of

Stanford, admitted that the “continued routine false reporting . . . upon which

CD investors routinely relied in making their investment decisions, in effect,

created an ever-widening hole between reported assets and actual liabilities,

causing the creation of a massive Ponzi scheme whereby CD redemptions

ultimately could only be accomplished with new infusions of investor funds.”

This statement reflects a classic Ponzi scheme and directly contradicts the

Bennett Defendants’ assertion that the district court relied upon a novel

definition of a Ponzi scheme in its order. The Van Tassel Declarations also

provide clear, numerical support for the creative reverse engineering undertaken

by Stanford executives to accomplish the Ponzi scheme:

We found within SIB’s accounting records worksheets used to derive

fictitious SIB revenues back to 2004. The Ponzi scheme

conspirators would simply determine what level of revenues SIB

needed to report in order to both look good to investors and

regulators and to purport to cover CD obligations and other

expenses. They would then back into that total amount by

assigning equally fictitious revenue amounts to each category

(equity, fixed income, precious metals, alternative) of a fictitious

investment allocation.

Van Tassel then goes on to specifically itemize how specific returns were based

on fictitious asset totals.

The Bennett Defendants’ argument that the Receiver failed to establish,

and that the district court incorrectly assumed, that the Stanford entities

constituted a Ponzi scheme ab initio is unavailing. The Davis Plea, when read

as a whole, provides sufficient evidence for the district court to assume that the

Stanford enterprise constituted a Ponzi scheme ab initio. In outlining the

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factual basis for the guilty plea, the Davis Plea describes how in 1988, Stanford

directed Davis to “make false entries into the general ledger for the purpose of

reporting false revenues and false investment portfolio balances to the banking

regulators” shortly after opening Guardian International Bank, as SIB was then

known, in Montserrat. The Plea further states that Stanford closed Guardian’s

operations in Montserrat in 1989 and moved the banking operations to Antigua

under the name of SIB to avoid heightened scrutiny from bank regulators in

Montserrat.

Finally, the FA Defendants’ position that SGC should be separated from

SIB is of no moment. As made clear by the Van Tassel Declarations, SGC

received the bulk of its revenue from commissions for the sale of the SIB CDs

and fees for other services it provided to SIB related to the CD investment

portfolio. The Receiver seeks to recoup those proceeds because they were the

assets of the alleged Ponzi scheme. The district court did not err when it found,

for the purposes of this preliminary injunction proceeding, that Stanford

operated as a Ponzi scheme.

b. Whether the Receiver Offered Sufficient Proof of the

Source of the Frozen Accounts.

The Employee Defendants also argue that the district court erred in

grouping all the transactions rather than examining evidence of claims against

individuals. Contrary to the Employee Defendants’ assertion, the district court

found that the Receiver came forward with “competent evidence that each

individual [Employee Defendant] received transfers of money representing CD

sale proceeds from the Stanford Ponzi scheme.” We agree. The Receiver’s

evidence is a spreadsheet in the Van Tassel Declarations that lists each former

employee, the form of compensation (loan, commission, or quarterly bonus), and

the amount that Stanford paid each employee. The Van Tassel Declarations

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sufficiently establish that Stanford paid the Employee Defendants from the

alleged Ponzi scheme for the purposes of the preliminary injunction proceeding.

c. Likelihood of Success on the Merits

The district court did not abuse its discretion in finding the Receiver

carried his burden of proving a substantial likelihood of success on the merits for

his TUFTA claim. TUFTA requires that the debtor transferor make the transfer

“with actual intent to . . . defraud any creditor of the debtor.” T EX. B US. & C OM.

C ODE A NN. § 24.005(a)(1). “In this circuit, proving that [a transferor] operated

as a Ponzi scheme establishes the fraudulent intent behind the transfers it

made.” SEC v. Res. Dev. Int’l, LLC, 487 F.3d 295, 301 (5th Cir. 2007) (citing

Warfield, 436 F.3d at 558). In other words, “‘the transferees’ knowing

participation is irrelevant under the statute’ for purposes of establishing the

premise (as opposed to liability for) a fraudulent transfer.” Id. (analyzing

TUFTA) (quoting Warfield, 436 F.3d at 559 (analyzing Washington state law)).

The Receiver carried his burden of proving that he is likely to succeed in his

prima facie case by providing sufficient evidence that a Ponzi scheme

existed—thereby obviating the need to prove fraudulent intent of the

transferees—and sufficient proof that each individual received transfers of

money from the Ponzi scheme. The Defendants did not refute this by showing

that they are likely to succeed in proving a TUFTA statutory affirmative

defense. Consequently, the district court did not err in finding a substantial

likelihood of success.

The parties dispute whether Rule 9(b) applies to this case and whether

this affects the district court’s finding of substantial likelihood of success. The

Employee Defendants argue that the Receiver was obligated to abide by Rule

9(b)’s heightened pleading standards for his fraud claims, and that he failed to

meet this standard when he “lump[ed] together” the claims against all former

Stanford employees. The Receiver asserts that Rule 9(b) does not apply to

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fraudulent transfer cases. We need not and do not address the issue of whether

heightened pleading is required. As the district court notes in its Preliminary

Injunction Order, it has not yet ruled on the defendants’ pending motions to

dismiss. The only question that the district court had to decide on this element

in the preliminary injunction proceeding was whether the Receiver had shown

a substantial likelihood of ultimately succeeding on the merits, see Doe v.

Marshall, 622 F.2d 118, 119 n.2 (5th Cir. 1980), potential procedural hurdles

notwithstanding. The Receiver carried this burden.

2. Threat of Irreparable Harm

The Employee Defendants argue that the Receiver did not carry his

burden of proving the second element of the preliminary injunction standard:

threat of irreparable harm. The Employee Defendants argue that because the

Receiver merely seeks a return of the fraudulently transferred CD proceeds,

there is no threat of irreparable harm. The Employee Defendants contend that

difficulty securing economic damages is insufficient to demonstrate irreparable

harm. The Employee Defendants further argue that the Receiver was required

to establish a likelihood that each individual defendant would remove or

dissipate the frozen assets but for a preliminary injunction. The Receiver replies

that TUFTA itself creates a presumption of dissipation. The Receiver then

argues that its inability to collect a money judgment should the Employee

Defendants dissipate the frozen accounts is sufficient to show a threat of

irreparable harm. Finally, the Receiver agrees with the district court that he is

not required to make an individualized showing of likely dissipation.

The district court found that “dissipation of the assets that are the subject

of this suit . . . would impair the Court’s ability to grant an effective remedy[,]”

particularly because much of the relief the Receiver seeks under TUFTA is

“equitable in nature and involves the assets that are . . . frozen.” The district

court further held that the Receiver need not show that each individual

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defendant would dissipate the frozen assets absent an injunction. The court

reasoned that the Receiver was entitled to a presumption that the Employee

Defendants would dissipate the frozen assets absent a preliminary injunction

because the assets were fraudulently transferred as part of a Ponzi scheme. We

find that the Receiver carried his burden of proving this element.

To satisfy the second element of the preliminary injunction standard, the

Receiver must demonstrate that if the district court denied the grant of a

preliminary injunction, irreparable harm would result. Holland Am. Ins. Co. v.

Succession of Roy, 777 F.2d 992, 997 (5th Cir. 1985).8 In general, a harm is

irreparable where there is no adequate remedy at law, such as monetary

damages. Deerfield Med. Ctr. v. City of Deerfield Beach, 661 F.2d 328, 338 (5th

Cir. Unit B 1981); Parker v. Dunlop, 517 F.2d 785, 787 (5th Cir. 1975). However,

the mere fact that economic damages may be available does not always mean

that a remedy at law is “adequate.” For example, some courts have found that

a remedy at law is inadequate if legal redress may be obtained only by pursuing

a multiplicity of actions. See, e.g., Lee v. Bickell, 292 U.S. 415, 421 (1934) (“we

are not in doubt, the multiplicity of actions necessary for redress at law [is]

sufficient . . . to uphold the remedy by injunction”). We have previously stated

that where a district court has determined that a meaningful decision on the

merits would be impossible without an injunction, the district court may

maintain the status quo and issue a preliminary injunction to protect a remedy,

including a damages remedy, when the freezing of the assets is limited to the

8

The Receiver argues that TUFTA effectively creates a statutory presumption of

irreparable harm. We disagree. TUFTA specifically provides that the claimant may obtain

“an injunction against further disposition by the debtor or a transferee, or both, of the asset

transferred.” TEX . BUS . & COM . CODE § 24.008(a)(3)(A). However, the statute explicitly states

that this remedy is “subject to applicable principles of equity and in accordance with applicable

rules of civil procedure.” TEX . BUS . & COM . CODE § 24.008(a)(3)(A). Clearly, TUFTA

contemplates the application of equitable standards, encompassing the usual elements

necessary to obtain a preliminary injunction.

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property in dispute or its direct, traceable proceeds. See Productos Carnic, S.A.

v. Cent. Amer. Beef & Seafood Trading Co., 621 F.2d 683, 686–87 (5th Cir. 1980)

(“[E]ven were [plaintiff’s] remedy limited to damages, an injunction may issue

to protect that remedy.” (dicta)). Finally, a showing of “[s]peculative injury is

not sufficient; there must be more than an unfounded fear on the part of the

applicant.” Id. (citing Carter v. Heard, 593 F.2d 10, 12 (5th Cir.1979)).

We agree with the district court that the Receiver carried his burden of

proving this element. First, we agree with the district court that the “Receiver

successfully show[ed] that the threatened harm—dissipation of the assets that

are the subject of this suit—would impair the [district court’s] ability to grant an

effective remedy.” The relief that the Receiver ultimately seeks is equitable in

nature; the Receiver seeks “avoidance of the transfer or obligation to the extent

necessary to satisfy the creditor’s claim.” T EX. B US. & C OM. C ODE § 24.008(a)(1).

In his complaint, the Receiver asks the court for an order (1) establishing that

the CD proceeds received by the Employee Defendants are property of the

Receivership Estate held pursuant to a constructive trust for the benefit of the

creditors, and (2) allowing him to withdraw proceeds from the segregated escrow

account and add them to the Receivership Estate. He does not seek damages

for breach of contract or tort. If the defendants were to dissipate or transfer

these assets out of the jurisdiction, the district court would not be able to grant

the effective remedy, either in equity or in law, that the Receiver seeks. The

assets that the Receiver requests stay frozen are assets that are directly

traceable to the Stanford Ponzi scheme and are the subject of this dispute. The

Receiver merely asks that those assets continue to be held immovable while his

case proceeds to judgment. We do not find that the district court erred in

determining that a preliminary injunction was appropriate to protect against

monetary asset dissipation.

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The party seeking a preliminary injunction must also show that the

threatened harm is more than mere speculation. Succession of Roy, 777 F.2d at

997. Here, the Receiver provided evidence of a massive Ponzi scheme and proof

that each individual received proceeds from the fraudulent scheme. This is

sufficient to prove the likelihood of each individual removing or dissipating the

frozen assets but for the preliminary injunction. Accordingly, we find that the

district court did not err in finding that irreparable harm would result in the

absence of a preliminary injunction.

3. The Balance of Harms and Service of the Public Interest

On these elements, the district court weighed the interests of the

Employee Defendants against the interests represented by the Receiver (the

creditors) and looked to the broader ramifications of any potential recovery by

the Receiver. The district court noted the extremely limited array of assets

remaining to provide compensation to Stanford Ponzi scheme victims. The

record supports the fact that Stanford, when it entered receivership, was grossly

undercapitalized. Additionally, the Receiver and the Employee Defendants

reached consent agreements to thaw all but certain discrete categories of

compensation. These last elements of the district court’s preliminary injunction

analysis implicate the discretion of that court to craft a remedy and weigh the

evidence. We do not believe that the district court abused its discretion when it

found that these elements weighed in favor of the Receiver.

D. Scope of District Court’s Grant of Preliminary Injunction

The Employee Defendants also challenge the breadth of the injunction.

On appeal, the Employee Defendants renew a number of arguments that they

brought before the district court. First, the Employee Defendants contend that

any frozen IRA account is exempt from the Receiver’s claim. Second, the FA

Defendants argue that the account freeze improperly extends to pre-tax amounts

because they already paid taxes on those earnings. Third, the FA Defendants

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argue that they are entitled to an offset of amounts they lost on their personal

investments in Stanford CDs. We address each of the Employee Defendants’

arguments in turn.

1. Frozen IRA Accounts

According to Texas law, IRA accounts are exempt from seizure. T EX. P ROP.

C ODE § 42.0021(a). However, the party claiming the exemption must establish

that she has a legal right to the funds in the IRA to be entitled to the exemption.

Jones v. Am. Airlines, Inc., 131 S.W.3d 261, 270 (Tex. App.—Fort Worth, 2004,

no pet.). It is undisputed that some of the frozen accounts are IRA accounts.

The Employee Defendants had the burden of proving that they have a right to

the funds in the accounts, particularly in light of the Receiver’s extensive

evidence that the Employee Defendants received these funds as a fraudulent

transfer from the Stanford Ponzi scheme. The mere fact that an account is an

IRA account does not automatically entitle the Employee Defendants to the

exemption; it does not relieve the Employee Defendants of carrying the burden

of proving they have a legal right to the account. Consequently, the district

court did not err when it kept the IRA accounts frozen under the preliminary

injunction.

2. Tax Matters

The FA Defendants argue that the Receiver improperly calculated the

amounts represented by the account freeze because the Receiver did not account

for taxes paid by the Employee Defendants on the compensation. The district

court rejected this argument, relying heavily on Donell v. Kowell, in which the

Ninth Circuit declined to offset for taxes paid. 533 F.3d 762, 779 (9th Cir. 2008).

The Ninth Circuit first reasoned that if it allowed offsets for amounts paid in

good faith as taxes, logic would suggest that the court also permits offsets for

bank transfer fees, other fund management fees, and a myriad of other expenses.

The court went on to state, “There is simply no principle by which to limit such

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offsets . . . . If each net winner could shield his gains in their entirety in this

manner, the purpose of UFTA would be defeated, and the multitude of victims

who lost their entire investment would receive no recovery.” Id. at 779. Second,

the court found that allowing offsets in even a few areas like taxes paid would

“introduce complex problems of proof and tracing into each case,” thereby

“severely reduc[ing] the receiver’s ability to gather what few assets can be

located in the wake of a failed Ponzi scheme.” Id.

Although, as the FA Defendants note, the Donell case involved taxes paid

by an investor after receiving fraudulent funds, id. at 778, we find the Donell

reasoning persuasive, particularly because there is no basis for this offset in

TUFTA. We do not find the district court erred in declining to offset the prepaid

tax amounts with respect to the preliminary injunction.

3. Losses on Personal Investments

The FA Defendants also argue that the Receiver’s figures do not account

for the Defendants’ losses on their own investments in Stanford CDs. The

defendants have not offered any case law or statutory language on point, nor did

we find any authority, entitling the Employee Defendants to offsets for their

personal losses on Stanford investments. We agree with the district court that

the Defendants must seek these amounts through the Receiver’s claims process

like other creditors.

E. Type of Equitable Relief Granted

The Employee Defendants also renew their contention that the Receiver

obtained, in essence, a writ of attachment, arguing that the “substance” of the

Receiver’s suit was a request to hold assets “in order to satisfy a money

judgment.” While the Receiver also requested an attachment, the district court

did not consider this request and expressly granted an injunction. In doing so,

the district court differentiated between a TUFTA injunction and a writ of

attachment.

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As the district court noted, TUFTA provides for both injunctions and

attachments. See T EX. B US. & C OM. C ODE § 24.008(a)(2) (attachment); id.

§ 24.008(a)(3)(A) (injunction). The district court relied upon Telephone

Equipment Network, Inc. v. TA/Westchase Place, Ltd., for the proposition that

a claim for fraudulent transfer under Texas law contemplates the issuance of a

preliminary injunction. 80 S.W.3d at 610.9 The district court’s reliance was well

placed. TUFTA provides that the claimant “may obtain an injunction against

further disposition of ‘the asset transferred or of other property.’” Id. (quoting

T EX. B US. & C OM. C ODE A NN. § 24.008(a)(3)). Furthermore, the district court’s

order granting the preliminary injunction lacks the hallmarks of an attachment:

namely, a “seizure” or “lien.”

The Receiver claims that Stanford fraudulently transferred proceeds from

the alleged Ponzi scheme to the Employee Defendants and sought an injunction

to prevent the dissipation of those proceeds, now held in the frozen accounts.

TUFTA expressly provides for an injunction and the district court exercised its

discretion to grant that injunction.

F. Motion to Compel Arbitration

The parties also dispute whether the Receiver’s claims against the

Employee Defendants are subject to arbitration. The district court did not

decide the motion to compel arbitration, but both parties ask this Court to decide

this question. As the parties note, the issue has been fully briefed as the

Receiver had an opportunity to file a response to the motion to compel

arbitration.

9

Although the Telephone Equipment court uses the acronym “UFTA,” it is apparent

that the court cited to and analyzed provisions of TUFTA. Id. at 607 (“UFTA lists 11,

non-exhaustive ‘badges of fraud’ to assist in determining whether the debtor made the transfer

with the requisite fraudulent intent.”) (citing TEX . BUS . & COM . CODE ANN . § 24.005(a)(1)).

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We must first decide whether this issue is before us as a part of the appeal

of the preliminary injunction. We have previously held that our “jurisdiction

under 28 U.S.C. §1292(a)(1) is not limited to the specific order appealed from.”

In re Lease Oil Antitrust Litig., 200 F.3d 317, 319–20 (5th Cir. 2000) (citation

omitted). To avoid “wast[ing] judicial resources without any offsetting benefit

in the form of a fully developed record,” we have held that “[j]urisdiction extends

to certain related issues that have been sufficiently developed so as not to

require further development at the trial court level.” Id. at 320. We decide this

issue to conserve judicial resources and expedite the disposition of this complex

case. Refraining to do so would mean money wasted in litigation costs that could

be used to compensate victims and more time spent before the Employee

Defendants’ assets are freed.

Given that the district court has not yet decided this matter, we

necessarily review the motion to compel arbitration de novo. Therefore, we

“perform a two step inquiry to determine whether to compel a party to

arbitrate.” Dealer Computer Servs., Inc. v. Old Colony Motors, Inc., 588 F.3d

884, 886 (5th Cir. 2009) (citation omitted). In the first step, we “determin[e]

whether the parties agreed to arbitrate the dispute.” Fleetwood Enters., Inc. v.

Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002). This step is further sub-divided

into an inquiry into whether “(1) . . . there is a valid agreement to arbitrate the

claims and (2) . . . the dispute in question fall[s] within the scope of that

arbitration agreement.” Sherer v. Green Tree Servicing, 548 F.3d 279, 381 (5th

Cir. 2008). If we find affirmatively as to the first step, then we must determine

whether “any federal statute or policy renders the claims nonarbitrable.” Id.

(quotations and citations omitted). We find that this issue can be decided in the

first step: The Receiver, acting on behalf of the creditors, is not party to the

arbitration obligations between SGC and the Employee Defendants.

1. The Receiver’s Powers

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The parties expend considerable energy debating what we believe may be

distilled to a simple question: in what capacity is the Receiver suing the

Employee Defendants? This question goes to the first sub-part of the first step

of the arbitrability assessment.

From the Employee Defendants’ perspective, the Receiver stands in SGC’s

shoes when it seeks to disgorge compensation that SGC paid to the Employee

Defendants. The Employee Defendants contend that the Receiver is bound by

any pertinent agreements or rules that govern the relationship between SGC

and the Employee Defendants. Thus, because SGC and the Employee

Defendants are members of FINRA, and the Promissory Notes contained

arbitration clauses, the Receiver must arbitrate any disputes with them.

The Receiver conceptualizes his rights and obligations differently. The

Receiver contends that he is suing as a creditor or as a representative on behalf

of other creditors. Although the Receiver acknowledges that he is marshaling

the assets of the Stanford estate, the Receiver claims that here, he is suing for

the fraudulent transfer of assets, and he contends that there is substantial

precedent standing for the proposition that receivers may assert the rights of

creditors to avoid fraudulent transfers. Because Stanford’s creditors are not

party to the arbitration obligations between SGC and the Employee Defendants,

the Receiver concludes that he need not arbitrate his claims here. We believe

that the Receiver’s characterization of this case and the pertinent case law is

more accurate.

The district court appointed the Receiver, “grant[ing] him the power to

conserve, hold, manage, and preserve the value of the receivership estate,”

Adams, 588 F.3d at 833, and vesting him “with full power of an equity receiver

under the common law as well as such powers as are enumerated herein in this

order.” (Supp. R. #3 at 4270.) It is a general rule that “the receiver cannot

recover, except where recovery could have been had by the corporation.”

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Drennen v. S. States Fire Ins. Co., 252 F. 776, 789 (5th Cir. 1918). In this sense,

a receiver “stands in the shoes of the person for whom he has been appointed

and can assert only those claims which that person could have asserted.”

Armstrong v. McAlpin, 699 F.2d 79, 89 (2d Cir. 1983). Were this general rule the

only rule, we believe the Employee Defendants would prevail and the Receiver

would be bound by the arbitration agreements. As is often the case, however,

the general rule comes with a few caveats.

A receiver is also “an instrument of court; he is acting also for the

stockholders of the corporation, and the creditors of the corporation.” Drennen,

252 F. at 788. In this manner, receivers are legal hybrids, imbued with rights

and obligations analogous to the various actors required to effectively manage

an estate in the absence of the “true” owner. See, e.g., Setser, 568 F.3d at 487–88

(discussing the ability of a receiver to enter and search estate property without

a warrant and relinquish property to law enforcement officials). It is well settled

that, at different points during the pendency of the receivership, a receiver may

represent different interests.10 The Receiver argues here that he should be able

to represent the creditors’ fraudulent transfer claims, and thereby avoid the

matter of arbitrability. We must address whether the Receiver’s claims are,

indeed, fraudulent transfer claims and whether this posture avoids the

arbitration clauses between SGC and the Employee Defendants.

2. Fraudulent Transfer

The Receiver asserts his claims against the Employee Defendants under

a theory of fraudulent transfer, claiming that Stanford gave proceeds of the

Ponzi scheme to the Employee Defendants. In Texas, fraudulent transfer claims

10

See, e.g., McGinness v. United States, 90 F.3d 143, 146 (6th Cir. 1996) (finding, under

Ohio law, that “[w]hile it is true that the receiver can acquire no greater legal rights or powers

with respect to the property than [the taxpayer] possesses . . . , the receiver’s powers are not

limited to the legal rights of the debtor-taxpayer, [because] [u]pon his appointment, the

receiver succeeded to the rights of not only the debtor, but also the creditor”).

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are governed by TUFTA. T EX. B US. & C OM. C ODE A NN. § 24.008. TUFTA’s

remedies are expressly directed toward creditors: “In an action for relief against

a transfer or obligation under this chapter, a creditor, subject to the limitations

in Section 24.009 of this code, may obtain” relief. Id. § 24.008(a) (emphasis

added). The Receiver claims the right to represent “creditors” under that section

and to assert his disgorgement claims against the Employee Defendants. To

support his position, the Receiver contends that receivers have long held the

power to assert creditor claims. We agree.

In analyzing Texas law, we have previously rejected a challenge to a

receiver’s standing to sue on behalf of creditors. Meyers v. Moody, 693 F.2d 1196,

1206 (5th Cir. 1982). The Meyers Court quoted from Cotten v. Republic National

Bank of Dallas, which held that:

Certainly a receiver for an insolvent insurance corporation . . . has

a right to maintain a suit which is necessary to preserve the

corporation’s assets and to recover assets of which the corporation

has been wrongfully deprived through fraud. In such a suit the

receiver may be said to sue as the representative of the corporation

and its creditors, stockholders and policyholders . . . .

395 S.W.2d 930, 941 (Tex. Civ. App.—Dall. 1965, writ ref’d n.r.e.). This position

enjoys wide support.11

11

See Wheeler v. Am. Nat’l Bank of Beaumont, 338 S.W.2d 486, 495 (Tex.

App.—Beaumont 1960, writ granted) (“[T]here are instances where a corporation itself would

not be permitted to sue for recovery of a true corporate asset because of its own fraudulent

conduct in connection with the loss of the same. However, the receiver would not be so

estopped. In such instances he may disaffirm or repudiate the fraudulent acts of the corporate

officers and seek recovery of such assets for the benefit of the corporation and creditors. This

is the rule in Texas.”), aff’d in part and rev’d on other grounds by 347 S.W.2d 918 (Tex. 1961);

Guardian Consumer Fin. Corp. v. Langdeau, 329 S.W.2d 926, 934 (Tex. Civ. App.—Austin

1959, no writ) (“[W]hen the receiver acts to protect innocent creditors of insolvent

corporations . . . the receiver acts in a dual capacity, as a trustee for both the stockholders and

the creditors, and as trustee for the creditors he can maintain and defend actions done in fraud

of creditors even though the corporation would not be permitted to do so.”); see also SEC v.

Cook, No. CA 3:00-CV-272-R, 2001 WL 256172, at *2 (N.D. Tex. Mar. 8, 2001) (holding that

receiver had standing to pursue fraudulent transfer claim); 64 TEX . JUR . 3D Receivers § 179

(2010) (noting power); 66 AM . JUR . 2d Receivers § 450 (1973) (same).

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The Employee Defendants provide no contrary support concerning the

power of the Receiver to bring a claim under TUFTA, instead contending that

the Receiver merely “stands in the shoes” of SGC.12 We believe that in this case,

the Receiver is acting on behalf of creditors, who are not party to the arbitration

agreements and therefore he is not bound by the arbitration agreement. We

therefore remand to the district court for action in accordance with this decision.

CONCLUSION

The Receiver is in an unenviable position: although the Stanford estate

has many thousands of claimants, there are startlingly few assets to disperse to

the Stanford victims. In this appeal concerning the Receiver’s attempt to

marshal estate assets, we hold: (1) The district court acted within its power

when it considered and decided the motion for preliminary injunction before

deciding the outstanding motion to compel arbitration. (2) The district court did

not abuse its discretion in issuing the preliminary injunction. (3) The

preliminary injunction was not an attachment, nor was it overly broad. And

(4) The Receiver’s claims are not subject to arbitration because he is suing on

behalf of estate creditors.

AFFIRMED and REMANDED.

12

The Employee Defendants rely heavily on Javitch v. First Union Securities, Inc., 315

F.3d 619 (6th Cir. 2003), to support their claim that receivers are also bound by arbitration

agreements. Javitch is easily distinguishable. The Javitch receiver brought suit against a

number of brokers and financial institutions that provided services to the insolvent

corporation. Id. at 622. Akin to the instant case, the receiver claimed to bring the claims for

defrauded investor creditors. Id. at 625. However, the receiver alleged that the defendants

provided negligent services and breached fiduciary duties owed to the insolvent corporation.

Id. at 622. Because the Javitch receiver sued on behalf of the insolvent corporation, and that

corporation had enforceable arbitration agreements with the defendants, the Sixth Circuit

held that the receiver was bound to arbitrate. Id. at 627. Here, as explained above, the

Receiver’s fraudulent transfer claims are brought on behalf of defrauded creditors under

TUFTA, which looks to the actions of Stanford and not to the services provided by the

Employee Defendants. TEX . BUS . & COM . CODE ANN . § 24.005.

30