thousand and eight less than four months before that collapse gary magnus an entity's under his control took eighty eight million dollars from stanford international bank at trial magnus did not dispute that those transfers were fraudulent transfers under toughed of the texas uniform fraudulent transfer act instead the only issue at trial was whether magnus could satisfy tough does good faith affirmative defense thereby allowing him to keep all the money instead of returning it to the receiver for pro rata distribution to be shared among all of the defrauded victims of the scheme the jury found that at the time magnus took the money he was on the inquiry notice that stanford was a ponzi scheme and based on that finding the district court should have entered judgment on the verdict for the receiver who should today be the apple lease sitting over there rather than the appellant sitting over here in fact none of the receivers or arguments for reversal turns on any error on the part of the jury or challenges the sufficiency of the evidence and i hope to be able to address all four of our points at least briefly today to rendition points to new trial points i'd like to start with why the court should render judgment a direct entry of judgment for the receiver on the verdict based on that going green notice finding and whether it should do so terms on a pure question of law whether there is a so called fertility exception by which someone can be deemed to have taken a transfer in good faith despite first being on increased notice of fraudulent intent and second failing to  undertake a diligent investigation that allayed those fears and the answer should be no for at least four reasons the first is the statutory text which provides for no such utility exception good faith is the exception without it as a gift from the texas legislature someone who is on inquiry noticed a fraudulent intent must give the money back to the receiver that good faith exception is a benefit  a transfer must prove his entitlement to if you have as the cases hold a duty upon being on increased notice to diligently investigate the way to discharge the duty to investigate is to investigate a transferee ought to look at the duty of a diligent investigation as an opportunity a last chance a diligent inquiry is your final opportunity to stop being on notice second an investigation is never actually futile at the only time that matters which is at the time of the transfer tough as affirmative defense of good faith says that if  transferee takes took in good faith when they took that money then they may be able to keep it but at the time of the transfer when you're on increased notice you cannot possibly kno that it would be futile to investigate you cannot possibly know what your investigation would reveal would it a lady your concerns would it confirm your concerns would it deepen them and reveal things that you didn't even dream of despite being on in notice of something there is no way that a defendant on inquiry notice could possibly confirm that it would be futile because if so he wouldn't be on inquiry notice you cannot know that it would not be confirmed and therefore sitting back on your lazy boy instead of getting up and investigating is the very definition of bad faith and not good faith and there's another corollary to that and that is that whatever you learn is not useless if inquiry notice a fraud or insolvency here a ponzi scheme and you get up and investigate and your concerns are late that's a useful piece of information if they are deep and that's a useful piece of information it is never futile for someone who's notice to undertake the duty of a diligent investigation thirteen unsurprisingly given the foregoing there is no tough the case from this court from the texas courts from any court that so much as hints at the existence of futility exception except from the court below and in this receivership cases do however describe the good faith obligation as imposing this diligent investigation duty and they make clear that that duty is to prevent blindness in objective terms applied to someone who does nothing who is therefore ascribe all the knowledge that turned out later to be true precisely because tough to seek to encourage investigation rather than to discourage it the pattern jury charge cases from this court g e capital cases from texas court hombres love cases from the supreme court in a preach tough to or even off the time based on the same elizabeth an era concepts of good faith repeatedly state that when you're on in free notice your duty is to diligently investigate in the shower case that we've decided we've cited to you actually said that if you fail to do so game over lastly my final point as to why there is no futility exception today is that it does affirmatively encourage willful blindness the very thing that the statute in the cases seek to avoid and likewise and even worse it encourages that the transferees to avoid any diligent investigation thereby depriving the public the government other investors of the opportunity to have fraud uncovered more quickly in fact i expect you agree that if we agree with you in your second issues your rendition point about futility exception we can resolve the entire case the whole kit and caboodle on that issue absolutely it's an independent radiation point but i would ask that the court if it does i think it should do this because there are still many other transfer cases pending in the court below and there will be receivership to come as it does so the question becomes what is the transferee on in notice of and so even though this rendition point disposes of the case in resolving in answering it i think the court should say that the instructions were erroneous and with respect to increase notice the jury still got it even though it increased the burden on the receiver who did not bear the burden of proof it moved the goalposts right up to magnus who did bear the burden of proof by saying ponzi scheme the jury in this case was actually able to say yes they were in print notice of a ponzi scheme but that may not always be the case and certainly with respect to actual notice it was prejudicial palmful to the receiver matter if you recall the judge will add on this point as you suggest but for the guidance that you're going to provide in future cases the point is that as the pattern jury instruction in texas as all the cases say as this court decisions in re american housing foundation g e capital say the question is whether or not there on inquiry notice of fraud or ins money laundering not securities fraud or something else that turns out later in the day to have been what the fraud was because again at the timing problem when you're all in three noticed you can't possibly forecast with your crystal ball and see what the specific kind of fraud will turn out to be instead your job is to say i'm one in three know this i now need if i'm going to keep this money instead of sharing it with all these other people who are going to pinney's on the dollars that have me getting a dollar on the dollar i need to allay concerns of fraud or in if i might you know just just briefly address some of those other points your honor the upon the instruction regardless of whether you address it in the context of a rendition point or a new trial point we hope it's a rendition point of course it should instruction should not be one that under lessons the burden on that defend in the way that was done by this instruction here we have an additional point on new trial again i hope that you won't need to reach this because we think that you should render a direct entry of judgment but four days before the trial began the thursday before the monday trial the district court to a spontaneous reversed its own denial of summary judgment on unjust enrichment and this is an important point as well it may well arise in future cases if you reverse and render you don't need to address it although it's something that i fear will come before you again in some other case and that is that the district court made three statements at that pre ch e conference that explained why he was taking from the receiver the constitutional rights to a jury to decide that question first that magnus just bought his own money back so it wasn't enrichment as a matter of law that clearly is wrong as a matter of law because a ponzi scheme by definition means that you're never getting your own money back that's the whole point is you're getting somebody else's money the district court also held that it was a duplicative statutory remedy just with a higher burden on the receiver and thought that the receivers agenda in bring it on just enrichment claim was simply to be able to go first it was odd to flip the order but that isn't the primary just the primary agend receiver had was to be able to obtain relief under unjust enrichment should the jury not rule for him under tough to and the idea that it's a depleted of statutory remedy is itself erroneous as a matter of law because for example unjust enrichment does not focus as i said several times the way the tough the does at the moment of the transfer unjust enrichment asks at the time of the lawsuit do you have something that doesn't belong to you and the equity in good conscience says belong to someone else and so for example just to make one brief point the jury could well have said we cannot find that magnus was on notice in october of two thousand and eight but by january of two thousand and nine when he scrambling around to get stanford which at this point itself is scrambling around as all three members of this panel know having heard these cases you know in this court or another court they were scrambling to do whatever they could to stave off the feet and so they agreed to cancel out these loans that were taken or that set of transactions could well be something that a jury could have said is not relevant to tasca but might well be relevant to on just enrichment unjust enrichment does not have a good faith defense that is not something that is essential for establishing unjust enrichment as an equitable standard that the receiver should have had the opportunity to present to the jury if you were in their judgment for us it doesn't matter in this case but it was a serious error of law and lastly i'll just say a moment i'm happy to rest on the briefs on our stop a point i do think that there is no good way to read the english words in the forms eighty to seventy five were filed for tax year two thousand and eight due to the investigation in october two thousand and i took this money i was scared about the loss of my principal feared that my principal in a bank was in jeopardy in when you have money in a supposedly safe world class rock solid platinum bank and you fear that your principal is in jeopardy which means at risk of loss that can only be because you fear that it is insolvent and in fact there's ample evidence in this record that the magnus parties had just that notice that they were able to conclude that but it wouldn't matter because he had said in those forms eighty to seventy five that he was concerned about that and thought us disputing that in this trial is something that he should be stopped from contending you cannot simultaneously tell the i r s i would like to save eight million dollars which is what he saved by saying i was concerned about the loss of my principle therefore there therefore don't treat it as interest which is what it was treated as principle i have no taxes i say eight million dollars on it and then telling a federal court can years later oh i had no concerns at all about that that's just not wasn't on my mind at all i thought it was the most amazing investment opportunity ever known to man at that point federal courts deserve better they have the right and indeed the obligation to protect themselves from manipulation as this court has held in the over his g e case and i would suggest that this court should consider the possibility of addressing that because if it was good enough for a much more modest better like davidson this court decision by encrypt the case alimony payments small little case it's got to be good enough for a billionaire who's trying to extract eight million dollars from the united states and a tax context and then to extract seventy nine million dollars after the net winnings from all the victims of this fraud so that he can keep one hundred cents on the dollar there are no questions all  authority first section five forty eight a one of the bankruptcy code is useful here and that's because the uniform act was modeled on the bankruptcy code section and toughed of course follows from the uniform and the third foundational item like to bring up is this court likewise media c c and brown has previously noted the out this was not discoverable that no investor could have discovered this scheme fraud without having the benefit of having the books and records and having mr davis i'm guilty plea in that investors he didn't hear oh ever we can go a step further because we had a seven day jury trial in which all of these matters were presented and at the close as counsel has said there's no challenge to the jury's finding at the close that this could not be discovered it was on the next question which is what is incurring notice it's actually if you think about in some respects a misnomer in korean notice is really constructive knowledge what inquiry noticed s that if you have a reason to enquire then what you could have discovered without inquiry is attributed to you this is not novel this is not new the third circuit the seventh circuit the eighth circuit the ninth circuit the tenth circuit have all laid down this two part tell us that says inquiry notice a reasonable person presented with these facts we got we ask questions here on those questions would lead to the discovery of the fraud a ponzi scheme whatever the particular issue is i'm referring to but let's start with greed is sort of the poster child that's that's a fairly recent case in the stack of the five that i've just given you doesn't that particular case now the receiver comes back and says well that case didn't use the word futility didn't even talk about what that case did instead was talk about whether it would have been fruitless that's what the district court said found it was fruitless for that particular entity transfer look at what was going on the case came up to the seventh circuit and the seventh circuit said well based on the findings of fact the trial court has already entered if we apply the standard test which is would a reasonable person objectively have asked for their questions put on inquiry notice and if they had asked those questions when they have discovered the problem here the district court findings evidence  actually with judge already found they had discovered the problem and knew it was there so ended up in a different place but that because it was because it had different factual findings here we have after a seven day jury trial the jury coming in and considering all the evidence all the receiver's arguments and saying no reasonable person could have discovered this ponzi scheme it was a very well done fraud as the receiver acknowledged it was next issue then is the instruction judge god be sat there for seven days of course and listen to the trial and what charge god he told the parties during the instruction conference and it's part of the objections process that went on with the instructions is you tried a ponzi scheme case that's what i'm going to instruct the jury on and let me give you an example of sort of a key part of the record that i'm going to turn to in terms of how this case was presented as a ponzi scheme and i'm looking at pages one eight nine seven three and seven four of the record and this is the testimony of carols and task the forensic accountant who the receiver hired long ago receiver are right out of the blocks and has been working on this case for years and years and years and what ms fantail still on response to questions from counsel for the receiver said was ponzi scheme is really just a type of financial fraud financial fraud and it's it's common base is really that there's been some kind of false statement and a company has to make that false statement because they're covering up a lie either that there's assets that don't exist or sales that don't exist maybe inventory whatever that line may be and then steve you can use on a little bit that excerpt of it but that's how the case was tried and the proof of that is when you come down to the jury instructions it's only after the trial that the receiver comes back and says oh we want to talk about different kinds of fraud and insolvency and there was no doubt evidence during the case about other types of fraud that was why judge godby ruled the way he did and on insolvency if you look through testimony she didn't speak to at all this is the forensic accountant the forensic accountant did not come in and testified that looking at the evidence objective really a reasonable person would have determined that the stanford scheme was insolvent or in our particular case the stanford international bank was insolvent and then when you get to the instructions the receiver did not even ask for an instruction defining insolvenc is not a concept that you can just throw out to a lay jury and expect them to understand this court has previously set down there's two ways to determine insolvency that would have been guidance to the jury have that been an issue and the receiver didn't ask for the receiver didn't after the instructions were formed by judge god he didn't object on the basis of the absence of an insolvent instruction and in the receivers thread objection to the instructions did not give any offer of what other evidence would have been a deuce or what he would have tried to present that would have showed some different kind of fraud than the ponzi s or that would have shown insolvency and on those bases we think the judge was entirely correct in first of all forming the to protest the second part of which which says if you would investigate and could not discover what was there or no other words your only an inquiry notice of what was discoverable that by definition includes futility and that's not novel we've pointed out other areas of texas law where looking at inquiry noticed slash constructive knowledge that's what the lawyers you're only responsible for what you should have known and at that point in time it doesn't matter whether you investigate or not that's because that knowledge is deemed by law attributable to you if you investigated or not that doesn't matter if you conduct an investigation that it was excellent or it was poor or was middling that also doesn't matter so the parties this court should refer the district court's entry of judgment in favor of the mag's parties for two additional reasons the first being that the district court properly granted summary judgment dismissing the receiver essentially were getting back their own investment and there is no one just in richmond as a matter of law under texas law of unjust enrichment for such a situation what do you make of the authorities that the receiver cites in their unjust enrichment claim in the context of a uniform pluggable a transfer type situation but in this particular situation the facts are very different from those cases and the receiver is not cited a single case where there was a claw back of principle under texas law enrichment claim in this context of a clawback a principal in both of the two texas cases that we've identified ct and walker they're both texas court of appeals cases they both reject an unjust enrichment claim in the context of return of principle because in those cases the court looked at all of the circumstances and it's a factually intensive determination that has to happen for not just the richmond claim and they determined that in those cases those investors acted in good face and provided reasonably equivalent value and there was no unjust enrichment claim there where it was a claw back a principle and that's exactly what we have here this is what was submitted to the jury on this as part of the tough to claim and the jury determined as part of the tough to claim that there was a good face and the judge  so forth and if you're an investor in your money in their dicks sort of the notion of getting a return on your investment seems a little odd because the notion of return investment you know you've been put money in something that's bonafide in as an accounting matter you identify the numbers that match up with what you put in but if what you put your money and turns out to be a fr sham it's poison money it's whatever it is in importing the concept of getting back out what on the spreadsheet looks equivalent to what you put into the fortun that in this situation you know in this case or is a lot of money it seems convenient to be able to say i put in you know fifty million i can identify twenty you know and i get it programming course and scheme money so it is a little bit of dissonance between just being able to make the bookkeeping introduce second in a for this amount and getting out when in fact your money has been transfer act cases as this court look and the after context and gender the brown determined there is no tough to claim for every claim to to clawback principle ok it's only for net winnings and because of the good fa defense in this case when you look at the unjust enrichment context immediately under texas law there is not any precedent where the court has allowed this sort of equitable in unjust enrichment to just because it would be generally fair it in fact that the case law specifically says unjust enrichment does not lie because it would just be generally fair you have to show fraud duress or the taking of undue advantage and in this situation where the magnus party is established that they acted in good faith it's not the situations in those cases and these are in reva lente and klein versus back and in both of those cases the offer to claim was not displaced because we had a situation there was a situation those cases different than the one here it was neither of those cases involve the principal in kind versus back it was specifically the interest that was clawed back on an unjust enrichment and the reason why that had to happen in the end just enrichment claim and not of the up to claim in that case was because in the uk to claim that there was a tough to claim allowing the unjust enrichment claim to go forward in this case we don't have that the interest enrichment claim in the top to claim are going to be considering the same exact facts and because of that oh and i have just a few seconds i wanted to underscore on the causing a stop all argument on judge gobby correctly determined based on the facts presented at trial that there was no inconsistency in the madness parties tax filings and there's also no mutual ty of parties and i wanted to point out specifically on the tax filings it says that the magnus purchased in october of two thousand and eight comma the taxpayer received funds period and so that  temporal limitation in the tax filings is limited to in october two thousand and eight and then continues to say due to the investigation of stanford that was active in two thousand and eight the taxpayer was concerned and so i would just finish by saying that second sentence is limited by the concerns regarding stanford they were active in two thousand and eight receiver himself could possibly have discovered these claims our contention of course is that magnus was in a very different situation is the whole point of the good faith claims secondly no circuit has adopted in tough know i don't think even in bankruptcy section five forty eight and if you tell any exceptions for all the reasons that are taken that it would actually undermine both provisions but by rejecting it as a matter of texas law the texas legislature means what it says actual good faith the court certainly not bind itself to construing a different statute g e capital says the two things are not overlapping to terminus you have the opportunity to consider the bankruptcy case and i doubt that you'll adopt to the futility exception there but you would free to do so if you so wished third even if it were true that it were impossible for magnus to discover the ponzi scheme and even if utility were indeed a valid exception to the good faith defense it was still prejudicial error for limiting that question to ponzi schemes for reasons that we've discussed the record does indeed i don't think all of us would agree on a big u confirm that it was a ponzi scheme but as i mentioned tough has focused on what the transferee could have known at the time of the transfer not what turned out to clearly be the case later the receiver said i knew it was a fraud but it took him awhile to discover that it was a scheme and that's something we wouldn't expect magnus to necessarily have a crystal ball about but the record shows plenty of certain circumstances in which he knew in october two thousand and eight when the jury after all found that he was an increase notice of a ponzi scheme that he could have differing about it was the district court that replaced it with ponies humans as as the instruction for the jury and i'm a little confused about the idea that we didn't object you can look in the record excerpts to the receivers objections to the court charged with a jury of eleven six fifty eight of and sixty nine of the record aren't objections to questions one a one b said that you need to ask whether there was angry notices stanford was engaged in a fraud or was insolvent we also record two more very quick points on unjust enrichment it's often brought in tough the cases i don't really know what the idea of a principle all back was but i think that it begs the question of the whole point of a ponzi scheme is that it's not your own principle that was the first error that i mentioned the district judge made in this is just collapsing into that same mistake and if it's not your money or your daughter's question i think articulated then you're taking it all the pretending that it is means that when the music stops somebody else to say when it was actually money money i also put in much less than the magnus he put in a lot of money but others put in some and now they can't get it but they would have equally the same claim to say it is my money and if it's not your money mr magnus takes it despite it not being his money and everybody else tries that and they will say you've got my money that is the very definition of an unjust enrichment claim and lastly i w by turning back to the good faith definition which is objective if someone sits on the lazy boy and does nothing it doesn't matter what their subjective reason for it is objectively as a matter of law in order for tufted to work done ten years later ten years in a month right now later try to get a jury to say oh it would have been futile nobody sensibly would conduct a diligent investigation under those circumstances folks that's robust case to say the least but give it our best shot to unravel right before we take up the last case for the morning will stand a short recess