Opinion ID: 221659
Heading Depth: 2
Heading Rank: 4

Heading: Scope of District Court's Grant of Preliminary Injunction

Text: 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 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.
According to Texas law, IRA accounts are exempt from seizure. TEX. PROP.CODE § 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.
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 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.
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.