Case: 22-10235 Document: 162-1 Page: 1 Date Filed: 08/26/2024
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
____________ FILED
August 26, 2024
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: 162-1 Page: 2 Date Filed: 08/26/2024
versus
Ralph S. Janvey,
Appellee.
______________________________
Appeal from the United States District Court
for the Northern District of Texas
USDC Nos. 3:15-CV-401, 3:09-CV-298
______________________________
ON SECOND PETITION FOR REHEARING EN BANC
Before Stewart, Dennis, and Southwick, Circuit Judges.
Leslie H. Southwick, Circuit Judge:
On March 20, 2024, the court denied rehearing en banc but withdrew
the initial opinion and substituted a new one. Janvey v. GMAG, L.L.C., 98
F.4th 127 (5th Cir. 2024). The mandate issued upon denial of rehearing. On
April 3, 2024, Defendants (whom in our previous opinions and again here are
referred to as “Magness”) filed another petition for rehearing en banc or by
the panel. We RECALL the mandate in order to rule on the petition. No
judge in regular active service requested the court be polled on rehearing en
banc; the second petition for rehearing en banc is therefore DENIED.
Rehearing by the panel is also DENIED.
I.
The most recent petition for rehearing argues it was error for us to
affirm the district court’s finding that Magness had “unclean hands” and
that a setoff would not be permitted. The error is said to be that the finding
of unclean hands must be made by a jury, and that has not occurred.
The issue of the role of jurors is one of Texas law. Before examining
that law, we review relevant procedural events in this long-running case. The
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determination of unclean hands was made by the district court based on a jury
finding in 2017, affirmed by this court in 2020, that when Magness received
the relevant transfer, he was on inquiry notice that the Stanford International
Bank (“SIB”) was a Ponzi scheme. Janvey v. GMAG, L.L.C., 977 F.3d 422,
426 (5th Cir. 2020). The Supreme Court of Texas had earlier answered a
certified question from this court about how being on inquiry notice but not
investigating suspicions affected a party’s “good faith” under the Texas
Uniform Fraudulent Transfer Act, or TUFTA. Janvey v. GMAG, L.L.C.,
592 S.W.3d 125, 126 (Tex. 2019); Tex. Bus. & Com. Code § 24.001, et
seq. The Texas court answered: “If a transferee has actual knowledge of facts
that would lead a reasonable person to suspect the transfer is voidable under
TUFTA but does not investigate, the transferee may not achieve good-faith
status to avoid TUFTA’s clawback provision.” Janvey, 592 S.W.3d at 128.
We applied the answer and held that the evidence “does not show the
[Magness] Parties accepted the fraudulent transfers in good faith.” Janvey,
977 F.3d at 428.
The specific ruling being contested now is the district court’s 2022
denial of a setoff, a denial the court explained this way:
But he who comes into a court of equity must do so with clean
hands. The Receiver has obtained a judgment against Magness
to rectify the latter’s receipt of tens of millions of dollars of
fraudulent transfers from the Stanford entities. By virtue of
this adverse judgment Magness seeks preferential treatment in
the form of what amounts to an option to put his CDs back to
the receivership estate at par. The Court will not countenance
this inequitable outcome.
We now consider whether a jury had to make the finding of unclean
hands. Magness’s rehearing petition cites three opinions that he argues
support that a jury must make the relevant finding about unclean hands, not
a judge: Chow v. McIntyre, No. 01-21-00658-CV, 2023 WL 7778602 (Tex.
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App.—Houston [1st Dist.] Nov. 16, 2023, no pet.); FDIC v. Murex LLC, 500
F. Supp. 3d 76 (S.D.N.Y. 2020); LL B Sheet 1, LLC v. Loskutoff,
362 F. Supp.
3d 804 (N.D. Cal. 2019). The list includes one Texas intermediate court
opinion and two federal district court opinions interpreting the law of other
states. Before reviewing them, we will examine precedents from the
Supreme Court of Texas. We then can decide if any of what at best may be
persuasive authorities that Magness offers affects what the Texas high court
has held.
As we consider the caselaw, we divide the analysis of unclean hands
into three logical steps: (1) what did the defendant do; (2) do those actions
constitute unclean hands; and (3) how should unclean hands affect any relief
granted in the case? As we will explain, it is clear that the first issue is for the
jury if the facts are contested and the third always for the court. Our question
is whether what we have identified as the second step is what the jury must
resolve to complete its work or whether it is the first part of the court’s task.
As another preliminary matter, it will be helpful to know how Texas
courts define the relevant concept. “Unclean hands” means that a party’s
“conduct in connection with the same matter or transaction has been
unconscientious, unjust, or marked by a want of good faith, or one who has
violated the principles of equity and righteous dealing.” In re Jim Walter
Homes, Inc., 207 S.W.3d 888, 899 (Tex. App.—Houston [14th Dist.] 2006,
no pet.) (quoting Thomas v. McNair,
882 S.W.2d 870, 880 (Tex. App.—
Corpus Christi-Edinburg 1994, no writ)). Further, “[i]t is a matter within
the sound discretion of the trial court to determine whether [a party] has
come into court with clean hands.” Thomas,
882 S.W. 2d at 880. We get
ahead of ourselves — supreme court opinions first.
In a 1999 decision, the Supreme Court of Texas discussed whether an
attorney had to forfeit his entire fee because of his breach of a fiduciary duty
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to his client. Burrow v. Arce, 997 S.W.2d 229, 245 (Tex. 1999). The issues
for the court were described this way:
Thus, when forfeiture of an attorney’s fee is claimed, a
trial court must determine from the parties whether factual
disputes exist that must be decided by a jury before the court can
determine whether a clear and serious violation of duty has occurred,
whether forfeiture is appropriate, and if so, whether all or only
part of the attorney’s fee should be forfeited. Such factual
disputes may include, without limitation, whether or when the
misconduct complained of occurred, the attorney’s mental
state at the time, and the existence or extent of any harm to the
client. If the relevant facts are undisputed, these issues may, of
course, be determined by the court as a matter of law.
Id. at 246 (emphasis added). Thus, the court held that it was for the court to
decide the seriousness of the violation of a duty, i.e., whether it was
“unconscientious, unjust, or marked by a want of good faith.” In re Jim
Walter Homes, Inc.,
207 S.W.3d at 899.
In a later decision, that same court set out some general principles and
discussed its Burrow decision. In general terms, it described the issue of the
division of responsibility for jury and judge:
[W]hen contested fact issues must be resolved before equitable
relief can be determined, a party is entitled to have that
resolution made by a jury. Once any such necessary factual
disputes have been resolved, the weighing of all equitable
considerations . . . and the ultimate decision of how much, if any,
equitable relief should be awarded, must be determined by the
trial court.
Hill v. Shamoun & Norman, LLP, 544 S.W.3d 724, 741 (Tex. 2018)
(alterations in original) (emphasis added) (citations omitted).
The court then made this more pointed statement of law: “[I]n a
quantum-meruit case, once the jury decides the disputed fact issues, the trial
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court should weigh ʻall equitable considerations (such as whether . . . the
plaintiff has “unclean hands”).’” Id. at 741–42 (emphasis added)
(summarizing Hudson v. Cooper,
162 S.W.3d 685, 688 (Tex. App.—Houston
[14th Dist.] 2005, no pet.)).
In the Hudson case on which the supreme court relied, the court
elaborated on the unclean hands issue being one for the trial court:
Once any such necessary factual disputes have been resolved,
the weighing of all equitable considerations (such as whether
the defendant has been unjustly enriched, the plaintiff would
be unjustly penalized if the defendant retained the benefits of
the partial performance without paying for them, and the
plaintiff had “unclean hands”) and the ultimate decision of
how much, if any, equitable relief should be awarded, must be
determined by the trial court (rather than a jury).
162 S.W.3d at 688 (citing Burrow, 997 S.W.2d at 245–46).
Similarly, there are several Texas appellate court opinions that make
a holding much like the following: “The determination of whether a party has
come to court with unclean hands is left to the discretion of the trial court.”
Dunnagan v. Watson, 204 S.W.3d 30, 41 (Tex. App.—Fort Worth 2006, pet.
denied) (citing In re Francis,
186 S.W.3d 534, 551 (Tex. 2006) (Wainwright,
J., dissenting)). The cited Francis dissent discussed unclean hands, but the
majority did not. The dissent explained that “[w]hether a party has come to
court with clean hands is a determination left to the discretion of the trial
court.” Francis,
186 S.W.3d at 551 (Wainwright, J., dissenting) (citing Grohn
v. Marquardt,
657 S.W.2d 851, 855 (Tex. App.—San Antonio 1983, writ ref’d
n.r.e.)). The cited Grohn decision used the same language, that a
“determination of whether a party has come to court with unclean hands is
left to the discretion of the trial court.”
657 S.W.2d at 855.
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Each decision makes clear that once disputed facts of what a defendant
did are resolved, it is the court that determines if that conduct constitutes
unclean hands and how unclean hands should affect the relief in the case.
Next to be considered are the three opinions that Magness cites to us.
We start with the Texas court of appeals decision that says “[t]he jury was
not asked to find whether Chow and Holloway’s conduct was inequitable,
which is a fact question.” Chow, 2023 WL 7778602, at *16. It cited another
intermediate appellate court opinion that made a similar holding. See Grant
v. Laughlin Env’t, No. 01-07-00227-CV,
2009 WL 793638, at *11 (Tex.
App.—Houston [1st Dist.] Mar. 26, 2009, pet. denied) (mem. op.). In the
case before us, of course, a jury has already made one central decision,
namely, that Magness was on inquiry notice of possible fraud. Moreover,
decisions by the supreme court override any contrary intermediate-court
holdings.
Magness also cites two out-of-circuit district court cases. One of them
applied New York law. See Murex, 500 F. Supp. 3d at 121–22. The court
found disputed fact issues regarding what the allegedly unjust party had done.
Id. at 122. Further, “Murex has not offered any argument or case authority
— and the Court finds none — that such a lapse constitutes the ʻimmoral,
unconscionable conduct’ required for the unclean-hands defense to apply.”
Id. Looking for case authority that certain conduct constitutes unclean hands
is looking for what courts have held, not juries.
The other cited opinion applied California law. Loskutoff, 362 F.
Supp. 3d at 821. It rejected an argument about unclean hands because it
found that the evidence at most supported negligent conduct.
Id. Magness
relies on one phrase at the end of the analysis, that “no reasonable juror could
find that Plaintiff acted with unclean hands.”
Id. That court cited no
authority that the unclean-hands issue under California law was for the jury.
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Magness also insists that no authority supports that fault under
TUFTA automatically results in unclean hands. We do not interpret the
district court’s decision here as having been automatic. Instead, it was a
finding based on this judge’s thorough knowledge of the facts of the transfer.
In conclusion, Magness found one intermediate Texas appellate court
opinion that gives some support that it is a jury question whether certain facts
constitute inequitable conduct. The jury finding made as to Magness may
satisfy that holding, but regardless, we take our direction from the state’s
supreme court. We see no disputed facts about the relevant conduct. A jury
in 2017 found that Magness was on inquiry notice that SIB was engaged in
fraud. This court in 2020 concluded that the evidence did not support that
Magness had acted in good faith when he received the relevant transfers and
that the result would be to deny a setoff.
We return to the point made earlier in this opinion that the analysis of
unclean hands could be divided into three sequential questions — what did
the party do; should those deeds be labeled unclean hands; if so, what is the
effect on any relief in the case? The controlling caselaw gives that second
question to the court, not a jury. Even if there is some role for a jury under
Texas law as to that second question, the role was satisfied in this case.
The district court, with all the evidence before it, held that Magness
was not entitled to a setoff. There was no error in that decision. That court
did not hold that all TUFTA violations barred a setoff, but this one did.
Indeed, nothing in our opinion should be interpreted as a holding that when
TUFTA is violated, a setoff is categorically disallowed.
II.
There are a few other issues.
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We agree with Magness that a factual recitation in our earlier opinion
denying rehearing mislabeled what he was seeking leave to file. Our opinion
stated the district court denied leave to amend his complaint when leave was
sought to file a new complaint. The difference has no effect here.
Magness also takes issue with three other statements from our
opinion. (1) “[A] jury found Magness had enough notice of SIB’s possible
financial improprieties to be suspicious. Magness may well have been acting
on those suspicions in seeking a loan.” (2) “It is a fair assessment that
Magness obtained the $79 million loan because he contemplated significant
financial troubles ahead for SIB.” (3) “After reports that the SEC was
investigating SIB, Magness sought to redeem his investments.” Janvey, 98
F.4th at 130–31, 143–44 (citation omitted).
The first two numbered statements are not independent fact findings.
Our opinion properly reviewed the district court’s denial of equitable relief
under an abuse of discretion standard. Further, the statement of what “may
well” have occurred is not a fact finding.
As to the third, Magness asserts “[t]hat statement is derived from
[this court’s 2020 opinion]. However, that portion of [the opinion] does not
cite to the record and is inaccurate.” The portion of the opinion it references
is this: “In July 2008, Bloomberg reported that the SEC was investigating
SIB. On October 1, 2008, the investment committee met and, given its
perceived risk associated with continued investment in SIB, persuaded
Magness to take back, at minimum, his accumulated interest from SIB.”
Janvey , 977 F.3d at 425. To the extent Magness contests a factual recitation
in a 2020 opinion, a petition for rehearing now is far too late. Further, the
statement that “Magness sought to redeem his investments” once learning
of an SEC investigation of SIB is correct. Janvey, 98 F.4th at 130–31.
The petition for rehearing and all pending motions are DENIED.
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