Court Opinion

ID: 802194
Source: CourtListenerOpinion
Date Created: 2012-06-13 17:28:15+00
Date Added: 2024-06-11T18:00:03.178589
License: Public Domain

Case: 12-10240     Document: 00511885340         Page: 1     Date Filed: 06/13/2012

            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                                            FILED
                                                                           June 13, 2012

                                       No. 12-10240                        Lyle W. Cayce
                                                                                Clerk

RALPH S. JANVEY, In His Capacity as Court-Appointed Receiver for the
Stanford International Bank, Limited, Et Al.,

                                                  Plaintiff - Appellant
v.

LIBYAN INVESTMENT AUTHORITY; LIBYAN FOREIGN INVESTMENT
COMPANY,

                                                  Defendants - Appellees

                   Appeal from the United States District Court
                        for the Northern District of Texas
                             USDC No. 3:11-CV-1177

Before JOLLY, DeMOSS, and STEWART, Circuit Judges.
PER CURIAM:*
        Ralph S. Janvey, Receiver of the entities comprising the Stanford
Receivership, seeks to impose a preliminary injunction on funds belonging to the
Libyan Investment Authority (“LIA”). The district court denied Janvey’s motion
for a preliminary injunction. Because we conclude that the Foreign Sovereign

        *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
   Case: 12-10240   Document: 00511885340      Page: 2   Date Filed: 06/13/2012

                                  No. 12-10240

Immunities Act (“FSIA”), 28 U.S.C. § 1602, et seq., prevents the entry of such an
injunction, we AFFIRM the district court’s judgment.
                                        I.
      Allen Stanford sold certificates of deposit (“CDs”) through Stanford
International Bank, Ltd. (“SIB”). Stanford operated a Ponzi scheme by paying
fictitious interest to investors through SIB. When the Securities and Exchange
Commission began investigating Stanford’s scheme, the district court assumed
jurisdiction over the assets and records under Stanford’s control. These assets
and records became the receivership estate. In a Receivership Order, the district
court appointed Ralph S. Janvey to serve as Receiver and vested him with “the
full power of an equity receiver under common law as well as such powers as are
enumerated” in the Order.
      Among the investors in Stanford’s Ponzi scheme was the Libyan Foreign
Investment Company (“LFICO”), an entity established by the government of
Libya. In 1981, the Libyan government created LFICO’s predecessor, the Libyan
Arab Foreign Investment Company, for the purpose of investing Libyan money
outside of Libya. LFICO invested $138.9 million in SIB CDs between March
2006 and August 2007. Starting in October 2008, LFICO began to withdraw
significant amounts of money from the Stanford CDs. Between November 2008
and January 2009, LFICO withdrew approximately $51.6 million from its
accounts with SIB; according to Janvey, $6.7 million of this was fictitious
interest. Despite these withdrawals, at the time the fraud was revealed, LFICO
had over $100 million in investments with SIB, making it, in the words of the
district court, the “biggest net loser” in the Ponzi scheme.
      In this proceeding, however, the Receiver does not seek funds belonging
to LFICO. Instead, he seeks funds in the possession of the LIA, another entity
established by the Libyan government.        In 2006, the Libyan government

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                                       No. 12-10240

established the LIA for the “object of . . . invest[ing] and grow[ing] the funds
allocated to it.” The LIA is currently the sole shareholder of LFICO.
       The Receiver alleges that approximately $55 million to $101 million
dollars in proceeds of SIB had been transferred fraudulently to LFICO. He
further alleges that the transfer of these funds to LFICO had benefitted the LIA,
given the relationship between the two entities. Accordingly, Janvey sought a
temporary restraining order freezing funds in the amount of $54,823,740.83, and
a preliminary injunction preventing the LIA and LFICO from dissipating those
funds, which are currently held in accounts at Citibank, N.A.
       The district court issued a temporary restraining order on June 6, 2011,
and then held a hearing on January 27, 2012 to consider Janvey’s request for a
preliminary injunction. Id. The district court denied the motion. Id. It ruled
that Janvey had not shown a likelihood of success on the merits, because Janvey
had not shown that LFICO had acted for the “benefit” of the LIA and had not
shown that the LIA was an alter ego of LFICO.
       On appeal, the Receiver argues that the district court’s preliminary
injunction analysis was erroneous. The LIA and LFICO maintain that the
district court correctly concluded that Janvey has not satisfied the prerequisites
for a preliminary injunction, or, alternatively, that the district court’s ruling
should be affirmed on the ground that the FSIA bars the relief sought by the
Receiver.1

       1
         The district court did not decide whether the FSIA barred the injunction sought by
the Receiver. In a footnote, it did state that, if it had reached the issue because the Receiver
had demonstrated a likelihood of success on the merits, it “would [have] most likely [held] that
the FSIA provision did not apply.” In the footnote, the district court explained that a ruling
that the Receiver had shown a likelihood of success would imply that the LIA did not possess
the “property of a foreign state,” as such a ruling would necessarily rest on a conclusion that
the funds sought by the Receiver had been the subject of a fraudulent transfer.

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   Case: 12-10240      Document: 00511885340         Page: 4     Date Filed: 06/13/2012

                                      No. 12-10240

                                             II.
       The LIA and LFICO are correct that the FSIA did not permit the district
court to enter an injunction under these circumstances.2 Under the FSIA,
“[s]ubject to existing international agreements to which the United States is a
party at the time of enactment of this Act the property in the United States of
a foreign state shall be immune from attachment arrest and execution except as
provided in sections 1610 and 1611 of this chapter.” 28 U.S.C. § 1609. The
following circumstance provides one such exception:
       The property of a foreign state, as defined in section 1603(a) of this
       chapter, used for a commercial activity in the United States, shall
       not be immune from attachment prior to the entry of judgment in
       any action brought in a court of the United States or of a State, or
       prior to the elapse of the period of time provided in subsection (c) of
       this section, if – (1) the foreign state has explicitly waived its
       immunity from attachment prior to judgment, notwithstanding any
       withdrawal of the waiver the foreign state may purport to effect
       except in accordance with the terms of the waiver, and (2) the
       purpose of the attachment is to secure satisfaction of a judgment
       that has been or may ultimately be entered against the foreign
       state, and not to obtain jurisdiction.
Id. § 1610(d).
       The Receiver does not dispute that the LIA, an agency of the Libyan
government, has not explicitly waived its immunity from attachment prior to a
judgment on the merits in this case; instead, he contends that § 1610(d) is
inapplicable to the circumstances here because, first, the preliminary injunction
he seeks is not functionally equivalent to an attachment; and, second, the LIA
does not hold legal or equitable title to any funds fraudulently transferred from
SIB to LFICO for the “benefit” of the LIA.

       2
          Because the FSIA disposes of this case, we do not reach the district court’s ruling
that the Receiver had failed to satisfy the prerequisites for an injunction.

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   Case: 12-10240   Document: 00511885340      Page: 5   Date Filed: 06/13/2012

                                  No. 12-10240

      We reject both arguments. With respect to the Receiver’s first argument,
the preliminary injunction sought by the Receiver would effectively freeze the
funds belonging to the LIA pending the district court’s resolution of the merits
of the case. Accordingly, in this case, a preliminary injunction would serve the
same purpose as an attachment. See Atwood Turnkey Drilling, Inc. v. Petroleo
Brasileiro, S.A., 875 F.2d 1174, 1177 (5th Cir. 1989). For this reason, the FSIA’s
prohibition on “attachment[s]” of property belonging to a foreign sovereign
prevented the district court from entering a preliminary injunction here.
      Moreover, with respect to the Receiver’s second argument, no evidence has
been presented that, in these specific circumstances, the LIA received any
“benefit” that would make the funds belonging to the LIA subject to relief under
Texas’s version of the Uniform Fraudulent Transfer Act. See Tex. Bus. & Com.
Code § 24.009(b)(1). As a consequence, the Receiver fails to demonstrate that
the LIA does not hold legal or equitable title to the funds he seeks. In other
words, the Receiver’s argument that the funds are not “property of a foreign
state” for purposes of 28 U.S.C. § 1610(d) has no merit because there is no
evidence that the funds at issue in this particular case have ever been the
subject of a fraudulent transfer by the SIB.
      Thus, under the language of the FSIA, the funds sought by the Receiver
are “property of a foreign state” and are not subject to attachment. Because the
preliminary injunction sought by the Receiver is functionally equivalent to an
attachment, the Receiver’s motion cannot be granted.
                                       III.
      The district court’s judgment denying the Receiver’s motion for a
preliminary injunction is therefore AFFIRMED.

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