Court Opinion

ID: 9398373
Source: CourtListenerOpinion
Date Created: 2023-05-31 00:00:52.651525+00
Date Added: 2024-06-11T17:19:33.114705
License: Public Domain

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.

           _____________________
           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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                                     No. 22-10235
                                   c/w No. 22-10429

          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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                                     No. 22-10235
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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.

            _____________________
            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

           _____________________
   proceeding because that is where the stay order, which bars adjudication of setoff rights,
   was entered.

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                                     No. 22-10235
                                   c/w No. 22-10429

   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

           _____________________
           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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                                    No. 22-10235
                                  c/w No. 22-10429

   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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