The Golf Channel Needs a Mulligan
“Mulligan,” in golf parlance, is the opportunity to hit a golf shot, a “do over,” when the previous shot was not quite the one desired by the golfer. The “Mulligan” replaces the previous shot, which then does not count toward the golfer’s score. Sometimes depending on the game and rules, the golfer pays for the “Mulligan;” sometimes it’s free.
The Golf Channel may be looking for “Mulligan” after the Fifth Circuit’s March 11, 2015 opinion in Janvey, Receiver for Stanford International Bank Limited, et al v. The Golf Channel Incorporated, Case No. 13-11305. For two decades, the Bank, through 130 affiliates (collectively “Stanford Financial”) ran a multi-billion dollar Ponzi scheme, promising investors exceptionally high interest in CDs. As in every Ponzi scheme, early investors who get out, do well. Later investors – no so much. Starting in 2005, Stanford Financial attempted to increase awareness of its brand among high net worth individuals, through advertising on The Golf Channel, paying $6 million for various ads. Janvey was appointed receiver for Stanford Financial in 2009 after the SEC uncovered the fraud. Janvey sued to recover the payments to The Golf Channel, as avoidable fraudulent transfers. The Fifth Circuit not only reversed the summary judgment previously entered in favor of the Golf Channel on competing summary judgment motions before the District Court, but granted judgment in favor of the Receiver on his claim that the $6 million paid by Stanford Financial for advertising was an avoidable, fraudulent transfer.
In support of its motion for summary judgment, The Golf Channel introduced evidence of the “market value” of its advertising services to Stanford Financial as its proof of value rendered in return for questioned payments. But, it did not introduce evidence of the value of the advertising services to the creditors of Stanford Financial. The Fifth Circuit relied heavily on the official comments to the Uniform Fraudulent Transfers Act as adopted in Texas. In defining “value” for purposes of The Golf Channel’s defense to the fraudulent transfer action, the Court noted: “Consideration having no utility from a creditor’s standpoint does not satisfy the statutory definition of ‘value.’”
The Fifth Circuit did not rule that the value of all services to a Ponzi enterprise is excluded as a defense from the definition of “value” given to the insolvent enterprise. However, The Golf Channel chose not to attempt to establish any value to the enterprise, other than the market value of the ads; The Golf Channel did not offer evidence “that its services preserved the value of Stanford’s estate or had any credibility from the creditors’ perspective.”
Perhaps, at this point, The Golf Channel’s “Mulligan” is an en banc review? The author previously wrote on other litigation by the Receiver: http://www.butlersnow.com/2013/12/avoidance-powers-of-a-federal-court-receiver-a-la-bankruptcy-trustee/