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Supreme Court of Texas
October 8, 2019, Argued; December 20, 2019, Opinion Delivered
[*126] The Texas Uniform Fraudulent Transfer Act (TUFTA) is "designed to protect creditors from being defrauded or left without recourse due to the actions of unscrupulous debtors." KCM Fin. LLC v. Bradshaw, 457 S.W.3d 70, 89 (Tex. 2015). Creditors may invoke TUFTA to "claw back" fraudulent transfers from their debtors to third-party transferees. Yet even if a transfer is fraudulent, the statute does not always require the transferee to relinquish the transferred asset. If the transferee proves as an affirmative defense that it acted in good faith and the transfer was for a reasonably equivalent value, it may keep the transferred asset.
The U.S. Court of Appeals for the Fifth Circuit has requested our guidance on what constitutes good faith under TUFTA. Specifically, the Fifth Circuit asks whether a transferee on inquiry notice of fraudulent intent can achieve good faith without investigating its suspicions. Without comprehensively defining the contours of TUFTA's good-faith defense, we answer the question no. ] When a transferee on inquiry notice attempts to use TUFTA's affirmative defense to shield the [**2] transfer from the statute's clawback provision, it must show at minimum that it investigated its suspicions diligently. The investigation may not turn up additional evidence of fraud that should be imputed to the transferee, but that result does not negate the suspicions that a transferee on inquiry notice has at the time of the transfer. An investigation is an opportunity for the transferee to demonstrate its good faith, and requiring proof of an investigation negates any incentive transferees may have to remain willfully ignorant of fraud.
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592 S.W.3d 125 *; 2019 Tex. LEXIS 1267 **; 63 Tex. Sup. J. 250; 2019 WL 6972237
RALPH S. JANVEY, IN HIS CAPACITY AS COURT-APPOINTED RECEIVER FOR THE STANFORD INTERNATIONAL BANK LIMITED, ET AL., APPELLANTS, v. 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, APPELLEES
Prior History: [**1] ON CERTIFIED QUESTION FROM THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT.
Janvey v. GMAG, L.L.C., 925 F.3d 229, 2019 U.S. App. LEXIS 15604 (5th Cir. Tex., May 24, 2019)
good faith, inquiry notice, suspicions, investigate, actual knowledge, fraudulent, fraudulent transfer, fraudulent intent, reasonable person, constructive knowledge, good-faith, diligent investigation, diligent inquiry, diligently, affirmative defense, district court, investors, certified question, defraud a creditor, ignorance, clawback, willful, notice
Civil Procedure, Judgments, Enforcement & Execution, Fraudulent Transfers, Evidence, Burdens of Proof, Allocation, Appeals, Appellate Jurisdiction, Certified Questions, Governments, Legislation, Statutory Remedies & Rights, Courts, Common Law, Interpretation