Janvey v. GMAG ( 2023 )

Case: 22-10235 Document: 00516768578 Page: 1 Date Filed: 05/30/2023
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
____________ FILED
May 30, 2023
No. 22-10235 Lyle W. Cayce
____________ Clerk
Ralph S. Janvey, in his Capacity as Court-Appointed Receiver for The
Stanford International Bank Limited, et al.,
Plaintiff—Appellee,
versus
GMAG, L.L.C.; Magness Securities, L.L.C.; Gary D.
Magness; Mango Five Family Incorporated, in its Capacity as
Trustee for The Gary D. Magness Irrevocable Trust,
Defendants—Appellants,
consolidated with
_____________
No. 22-10429
_____________
Securities and Exchange Commission, et al.,
Plaintiffs,
versus
GMAG, L.L.C.; Gary D. Magness Irrevocable Trust;
Gary D. Magness; Magness Securities, L.L.C.,
Defendants—Appellants,
Case: 22-10235 Document: 00516768578 Page: 2 Date Filed: 05/30/2023
versus
Ralph S. Janvey,
Appellee.
______________________________
Appeals from the United States District Court
for the Northern District of Texas
USDC Nos. 3:15-CV-401, 3:09-CV-298
______________________________
Before Stewart, Dennis, and Southwick, Circuit Judges.
Leslie H. Southwick, Circuit Judge:
In 2009, Stanford International Bank was exposed as a Ponzi scheme
and placed into receivership. Since then, the Receiver has been recovering
Stanford’s assets and distributing them to victims of the scheme. To that
end, the Receiver sued Gary Magness, a Stanford investor, to recover funds
for the Receivership estate. The district court entered judgment against
Magness. Magness now seeks to exercise setoff rights against that judgment.
Because Magness did not timely raise those setoff rights, they have been
forfeited. AFFIRMED.
FACTUAL AND PROCEDURAL BACKGROUND
This case stems from the collapse of the Stanford International Bank
(“SIB”), which has been the subject of several appeals before this court. 1 We
summarize the facts as relevant to this appeal.
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1
Janvey v. Brown, 767 F.3d 430 (5th Cir. 2014); Janvey v. GMAG, L.L.C., 913 F.3d
452 (5th Cir. 2019), vacated & superseded by 925 F.3d 229 (5th Cir. 2019); Janvey v. GMAG,
L.L.C., 977 F.3d 422 (5th Cir. 2020); Janvey v. GMAG, L.L.C., No. 21-10483 c/w 21-
10882, 2022 WL 4102067 (5th Cir. Sept. 7, 2022).
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In 2009, the Securities and Exchange Commission (“SEC”) exposed
the fraudulent operations of SIB. Janvey v. GMAG, L.L.C., 977 F.3d 422,
425 (5th Cir. 2020). For nearly two decades, SIB had issued fraudulent
certificates of deposit, or CDs, that paid above-market interest rates. Id. The
payments, though, were derived from new investors’ funds. Id. The scheme
ultimately left thousands of investors with $7 billion in losses. Id.Defendants-Appellants are Gary D. Magness and several entities in
which he maintains his wealth. We will refer to all as “Magness.”
Between December 2004 and October 2006, Magness purchased $79
million in CDs issued by SIB. Id. After reports that the SEC was
investigating SIB, Magness sought to redeem his investments. Id. SIB
informed Magness that redemptions were not possible but agreed to loan
Magness money instead. Id. In October 2008, through a series of loans,
Magness received $88.2 million in cash from SIB. Id.In 2009, in a proceeding brought by the SEC, the U.S. District Court
for the Northern District of Texas appointed Plaintiff-Appellant Ralph S.
Janvey as Receiver to recover SIB’s assets and distribute them to victims. Id.The district court later entered a stay order. That order, amended in 2010,
restrains creditors from bringing “any judicial . . . proceeding against the
Receiver” and from “[t]he set off of any debt owed by the Receivership
Estate.”
In 2012, the district court established a claims process allowing
creditors to file claims against the Receivership and to participate in
distributions. Magness filed three proofs of claim. Those claims remain
pending.
The Receiver has brought suits to recover assets for the Receivership
estate. In a separate case also in the Northern District of Texas, the Receiver
sued Magness, alleging the loans he received from SIB were fraudulent
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transfers and seeking return of those funds. Magness agreed that the
payments were fraudulent but argued that they were taken in good faith
under Texas law.
The case proceeded to trial. Because Magness had returned to the
Receiver the amount he was loaned in excess of his original investment, the
only issue presented to the jury was whether Magness was acting in good faith
when he received $79 million in loans from SIB. We will explain the trial in
more detail below. For now, we highlight that the pretrial order did not
identify a setoff defense, and the parties stipulated that setoff would not be
presented at trial.
After trial, the district court entered judgment in Magness’s favor,
finding he had received the funds in good faith. Id. at 426. Since Magness
had no obligation to disgorge funds, setoff was not an issue. We certified to
the Supreme Court of Texas the question of whether good faith was a defense
in these circumstances; the answer was “no.” Id.; Janvey v. GMAG, L.L.C.,
592 S.W.3d 125, 133 (Tex. 2019). In October 2020, we reversed and rendered
judgment for the Receiver as to Magness’s liability. Janvey, 977 F.3d at 431.
Following our decision, the Receiver moved in district court for entry
of final judgment. Magness opposed, but his opposition did not include any
reference to a setoff defense. On April 9, 2021, the district court entered final
judgment for $79 million, prejudgment interest, and costs.
On May 6, 2021, Magness moved in district court for a stay of the final
judgment pending (1) his appeal of that final judgment to this court and (2)
his seeking a writ of certiorari from the United States Supreme Court for
review of this court’s liability judgment. To obtain that relief, Magness
agreed to deposit a cash supersedeas bond. As we detail further below,
Magness represented that he would not oppose release of the cash to satisfy
the final judgment when no further appeal was possible. On May 11, 2021,
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the district court granted the requested relief. Magness then petitioned the
Supreme Court for a writ of certiorari regarding this court’s liability
judgment.
On August 4, 2021, the district court entered final judgment on
attorneys’ fees. In a consolidated appeal to this court, Magness challenged
the district court’s award of prejudgment interest, costs, and attorneys’ fees.
Before our decision on the appeal, the Supreme Court on December 13, 2021,
denied Magness’s petition to review this court’s liability judgment. We later
affirmed the district court’s award. Janvey v. GMAG, L.L.C., No. 21-10483
c/w 21-10882, 2022 WL 4102067 (5th Cir. Sept. 7, 2022).
After our decision, the Receiver moved in district court to release
funds from the court registry for the $79 million, plus post-judgment interest.
Despite his prior representation that he would not oppose the release of
funds, Magness moved for leave to file a complaint in the proceedings the
Receiver had initiated against him, i.e., Janvey v. GMAG, 22-10325.
Magness’s proposed complaint asserted that the final judgment was subject
to setoff rights that had never been adjudicated. Magness asserted that the
district court should first resolve his setoff claim before releasing any funds.
In what we will call the “Initial Setoff Order,” the district court denied
Magness’s motion for leave and granted the Receiver’s motion to release
funds.
In the main SEC Receivership proceeding, Magness filed a second,
nearly identical motion for leave to file his proposed complaint. 2 In what we
will call the “Second Setoff Order,” the district court also denied leave.
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2
Magness notes that his initial leave was filed in Janvey v. GMAG, 22-10235,
because it was in that proceeding that judgment was entered and the Receiver had sought
to release the supersedeas bond. Magness then moved for identical leave in the SEC
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Magness appealed both the Initial Setoff Order and the Second Setoff
Order. This court consolidated the appeals.
DISCUSSION
Magness seeks relief from the district court’s stay order, which
restrains creditors from seeking setoffs. “We review the district court’s
actions pursuant to the injunction it issued for an abuse of discretion.” Newby
v. Enron Corp., 542 F.3d 463, 468 (5th Cir. 2008). A district court’s actions
in supervising an equity receivership, and its denials of leave, are likewise
reviewed for abuse of discretion. SEC v. Safety Fin. Serv., Inc., 674 F.2d 368,
373 (5th Cir. 1982); Schiller v. Physicians Res. Grp. Inc., 342 F.3d 563, 566 (5th
Cir. 2003).
The Receiver asserts that Magness has waived any setoff defense. We
address that argument first, and last.
“[F]orfeiture is the failure to make the timely assertion of a right.”
Rollins v. Home Depot USA, 8 F.4th 393, 397 (5th Cir. 2021) (quotation marks
and citation omitted). “A party forfeits an argument by failing to raise it in
the first instance in the district court.” Id. Waiver, a related concept, “is
the intentional relinquishment or abandonment of a known right.” Id.(quotation marks and citations omitted).
The Receiver contends that Magness waived his setoff defense
because it was not included in the pretrial order in the Janvey v. GMAG
proceeding. A pretrial order supersedes all pleadings. Elvis Presley Enters.,
Inc. v. Capece, 141 F.3d 188, 206 (5th Cir. 1998). “Once [a] pretrial order is
entered, it controls the scope and course of the trial. If a claim or issue is
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proceeding because that is where the stay order, which bars adjudication of setoff rights,
was entered.
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omitted from the order, it is waived.” Valley Ranch Dev. Co., v. F.D.I.C., 960
F.2d 550, 554 (5th Cir. 1992) (quotation marks, citations, and alterations
omitted).
Here, Magness initially raised a setoff defense in his answer to the
Receiver’s complaint. The Receiver moved in limine to exclude any setoff
defenses before trial, arguing that any reference to setoff would be “unfairly
prejudicial” and “an attempt to sidestep the claims process.”
Later, in a joint stipulation, the parties “agree[d] that during the trial
of this matter,” they would “not present . . . any reference to the Magness
Parties’ affirmative defenses of . . . setoff/offset.” The district court also
entered a pretrial order, which made no mention of any setoff defense, even
in sections of the order that listed contested issues of law.
The Receiver argues that the failure to include the setoff defense in
the pretrial order constituted a waiver of that right. Magness responds that
the omission is not fatal because the setoff defense was not for the jury. The
pretrial order, though, listed several contested issues of law that were not for
the jury. Further, we have held that even issues of law should be included in
the pretrial order or else they are waived. See Elvis Presley Enters., Inc., 141
F.3d at 206 (concluding that plaintiff waived right to attorneys’ fees under
the Texas Property Code because plaintiff “never reference[d]” the relevant
Texas statute in the pretrial order).
On the other hand, the parties’ joint stipulation provided only that
setoff would not be presented “during [] trial.” Should that be interpreted
as reserving the issue until its relevance post-trial became clear? There
certainly was no explicit statement that Magness was abandoning the issue of
a possible setoff. We will not create law that the facts of this case do, or do
not, knowingly waive the setoff defense. That is because we conclude that,
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later, Magness did either intentionally waive or unintentionally forfeit the
defense. We will use forfeiture as the concept.
As we mentioned earlier, in 2020, after receiving the answer to our
certified question, we held that Magness was liable to the Receiver for $79
million and related amounts. See Janvey, 977 F.3d at 431. Back in district
court, the Receiver moved for entry of final judgment. Magness opposed
entry of final judgment. His opposition, however, did not include any
reference to a setoff defense. In April 2021, the district court entered final
judgment.
Forfeiture occurred then. If Magness sought to raise a setoff defense,
he should have done so before the district court entered final judgment.
Indeed, there was no barrier to raising a setoff defense prior to the district
court’s final judgment. Magness failed “to make the timely assertion of a
right” and therefore forfeited any setoff defense. See Rollins, 8 F.4th at 397
(quotation marks and citation omitted).
Magness responds that his setoff rights only arose after the Supreme
Court denied his petition to review this court’s liability judgment in
December 2021, well after the district court’s entry of final judgment in April
2021. As the Receiver states, however, Magness’s setoff defense did not
suddenly spring from the Supreme Court’s denial of certiorari. That setoff
defense was viable after this court’s 2020 decision and the case had returned
to district court, but Magness did not then assert it. 3 Magness does not direct
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3
Had Magness raised setoff, and the district court allowed or refused the setoff,
the aggrieved party could have appealed to this court. Magness did appeal the district
court’s award of prejudgment interest, costs, and attorneys’ fees. See Janvey, 2022 WL
4102067.
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us to authority supporting that he was entitled to wait until the Supreme
Court denied certiorari before raising his defense.
Moreover, in May 2021, when Magness moved for a stay of the district
court’s final judgment, he represented that, should the Supreme Court deny
certiorari, he would “not oppose a motion by the Receiver to release”
funds. Yet, when the Supreme Court denied certiorari, Magness changed
course and registered his opposition. Further, during his appeal to this court
challenging the district court’s award of prejudgment interest, costs, and
attorneys’ fees, Magness similarly represented that “this Court’s mandate
[in Janvey v. GMAG, L.L.C., 977 F.3d 422 (5th Cir. 2020)] unquestionably
required Magness to pay” the $79 million in fraudulent transfers. Magness
later again changed course, pursuing this appeal to assert setoff rights and
thereby reduce his obligations.
Because Magness failed to raise his setoff defense before the district
court’s entry of final judgment, he has forfeited that defense.
AFFIRMED.
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