DAVID C. GODBEY, District Judge.
This Order addresses Defendants the Democratic Senatorial Campaign Committee, Inc. ("DSCC"), and the Democratic Congressional Campaign Committee, Inc.'s ("DCCC"), (collectively, the "Democratic Committees") motion to dismiss [19], and Defendants the National Republican Congressional Committee ("NRCC"), the National Republican Senatorial Committee ("NRSC"), and the Republican National Committee's ("RNC") (collectively, the "Republican Committees" and, together with the Democratic Committees, the "Political Committees") motion to dismiss [16] and motion for summary judgment [91], as well as the Receiver's motion for summary judgment [36]. For the reasons that follow, the Court denies the Political Committees' motions to dismiss, denies the Republican Committees' motion for summary
This dispute presents another episode related to the Securities and Exchange Commission's (the "SEC") ongoing securities fraud action against R. Allen Stanford, his associates, and various entities under Stanford's control (the "Stanford Defendants"). As part of that litigation, this Court "assume[d] exclusive jurisdiction and t[ook] possession of the" "Receivership Assets" and "Receivership Records" (collectively, the "Receivership Estate"). See Second Am. Order Appointing Receiver, July 19, 2010 [1130] (the "Receivership Order"), in SEC v. Stanford Int'l Bank, Ltd., Civil Action No. 3:09-CV-0298-N (N.D.Tex. filed Feb. 17, 2009). The Court appointed Ralph S. Janvey to serve as Receiver of the Receivership Estate and vested him with "the full power of an equity receiver under common law as well as such powers as are enumerated" in the Receivership Order. Id. at 3.
Among these enumerated powers, the Court "authorized [the Receiver] to immediately take and have complete and exclusive control, possession, and custody of the Receivership Estate and to any assets traceable to assets owned by the Receivership Estate." Id. at 4. Additionally, the Court "specifically directed and authorized [the Receiver] to . . . [c]ollect, marshal, and take custody, control, and possession of all the funds, accounts, mail, and other assets of, or in the possession or under the control of, the Receivership Estate, or assets traceable to assets owned or controlled by the Receivership Estate, wherever situated," id., and to file in this Court "such actions or proceedings to impose a constructive trust, obtain possession, and/or recover judgment with respect to persons or entities who received assets or records traceable to the Receivership Estate." Id. at 5.
Pursuant to those powers, the Receiver filed this fraudulent transfer suit to recover approximately $1.6 million in contributions made by R. Allen Stanford, James Davis, and the Stanford Financial Group Company ("SFGC") to the Political Committees over a period of about eight years. The parties agree that the Stanford Defendants allocated their contributions as follows: $950,500 to the DSCC; $200,000 to the DCCC; $238,500 to the NRCC; $83,345 to the NRSC; and $128,500 to the RNC. See, e.g., Compl. at 7[1]. Nothing suggests that the Political Committees acted in bad faith. But, according to the Receiver, the Political Committees nonetheless must disgorge an amount equal to the contributions because they received Ponzi scheme proceeds without providing consideration of reasonably equivalent value in exchange. The Receiver now moves for summary judgment.
The Political Committees raise two primary objections to the Receiver's claims. First, the Political Committees argue that the Receiver untimely filed this action. Because Texas courts treat the time-bar provisions of the Texas Uniform Fraudulent Transfer Act ("TUFTA"), TEX. Bus. & COM.CODE § 24.001, et seq., as a statute of repose rather than a statute of limitations, the Political Committees contend that the Receiver cannot rely on equitable tolling doctrines to establish that he timely brought suit. Second, the Political Committees argue that federal campaign finance laws preempt the Receiver's claims. See Federal Election Campaign Act of 1971 ("FECA"), Pub. L. 92-225, 86 Stat. 3 (1972) (codified as amended at 2 U.S.C. § 431, et seq.); Bipartisan Campaign Reform Act of 2002 ("BCRA"), Pub. L. 107-155, 116 Stat. 81 (2002) (codified in scattered sections of FECA), abrogated in
Courts "shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED.R.CIV.P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In making this determination, courts must view all evidence and draw all reasonable inferences in the light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). Courts, however, need not sift through the record in search of triable issues. Adams v. Travelers Indem. Co. of Conn., 465 F.3d 156, 164 (5th Cir.2006).
The moving party bears the initial burden of informing the court of the basis for its belief that there is no genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once the movant has made this showing, the burden shifts to the nonmovant to establish that there is a genuine issue of material fact such that a reasonable jury might return a verdict in its favor. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Moreover, "[c]onclusory allegations, speculation, and unsubstantiated assertions" will not suffice to satisfy the nonmovant's burden. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1429 (5th Cir.1996) (en banc). Indeed, factual controversies are resolved in favor of the nonmoving party "`only when an actual controversy exists, that is, when both parties have submitted evidence of contradictory facts.'" Olabisiomotosho v. City of Houston, 185 F.3d 521, 525 (5th Cir. 1999) (quoting McCallum Highlands, Ltd. v. Washington Capital Dus, Inc., 66 F.3d 89, 92 (5th Cir.1995)).
The Court first addresses the Political Committees' argument that TUFTA's limitations provision "extinguished" the Receiver's cause of action prior to filing. In general, TUFTA operates to void certain fraudulent "transfers," which the statute defines in relevant part as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money." TEX. BUS. & COM.CODE § 24.002(12).
The Receiver brings his claim under section 24.005(a)(1), which provides that a transfer "is fraudulent as to a creditor, whether the creditor's claim arose before or within a reasonable time after the
As the Political Committees point out, TUFTA does not preserve indefinitely a plaintiffs cause of action. TUFTA "extinguish[es]" claims brought under section 24.005(a)(1) unless filed "within four years after the transfer was made or the obligation was incurred or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant." Id. § 24.010(a)(1). Because the Receiver almost exclusively seeks the return of funds contributed to the Political Committees more than four years before his appointment, the parties agree that the Receiver timely filed suit only if he did so within the "discovery rule" in section 24.010(a)(1)'s second clause.
The Political Committees contend, for a variety of reasons stemming from TUFTA's alleged status as a statute of repose,
In the alternative, the Political Committees argue second that, even if TUFTA's extinguishment provision operated as a statute of limitations that allowed equitable tolling, the Receiver should have filed his complaint no later than the first anniversary of his appointment, or February 16, 2010. See Order Appointing Receiver [10], in SEC v. Stanford Int'l Bank, Civil Action No. 3:09-CV-0298-N. This theory holds that the Receiver, in a singularity-like moment, inherited the Stanford Defendants' actual knowledge of the contributions immediately upon his appointment. See, e.g., Republican Committees' Mot. to Dismiss Br. at 7-9; Democratic Committees' Mot. to Dismiss Br. at 8-9. Finally, the Political Committees assert that the Receiver, simply by exercising reasonable diligence, could have discovered the contributions in the three-day window between the date of his appointment and February 19, 2009, the date one year prior to the date he filed suit. See, e.g., Democratic Committees' Mot. to Dismiss Br. at 9-11; Republican Committees' Summ. J. Reply at 7[98]. The Court addresses each of these objections in turn.
The Political Committees' first two objections assume that only the Court's use of equitable tolling, specifically the doctrine of adverse domination, may bring the Receiver's claims within the ambit of TUFTA's discovery rule. "Under the common law doctrine of adverse domination, the statute of limitations for an entity's claim is tolled when the entity is controlled or dominated by individuals engaged in conduct that is harmful to the entity." Warfield v. Carnie, 2007 WL 1112591, at *15 (N.D.Tex.2007) (Buchmeyer, J.) (citing, inter alia, FDIC v. Dawson, 4 F.3d 1303 (5th Cir.1993)). If TUFTA operates as a statute of repose, the argument goes, it renders unavailable adverse domination as a way to void the Stanford Defendants' ab initio knowledge of the contributions' fraudulent nature.
The viability of the Receiver's claims, however, does not hinge on equitable tolling. As an initial matter, the Political
More importantly, the Political Committees' first two objections depend on a cramped—and recently rejected—interpretation of the Receiver's authority to bring claims besides those available to the Stanford Defendants. The Fifth Circuit recently held in another asset recovery case that the Receiver may stand in the shoes of the Stanford Defendants and also represent defrauded creditors in their recovery efforts. See Janvey v. Alguire, 628 F.3d 164, 183 (5th Cir.2010) (noting that receivers are "legal hybrids" who "`stand[] in the shoes of the person for whom [they] ha[ve] been appointed,'" serve as "`instrument[s] of the court . . . acting also for the stockholders . . . and creditors of the corporation,'" and "are imbued with rights and obligations analogous to the various actors required to effectively manage an estate in the absence of the `true' owner" (quoting Armstrong v. McAlpin, 699 F.2d 79, 89 (2d Cir.1983); Drennen v. S. States Fire Ins. Co., 252 F. 776, 788 (5th Cir.1918))). Indeed, the Fifth Circuit explicitly held that the Receiver has standing to bring creditors' TUFTA claims. Alguire, 628 F.3d at 184-85.
The discovery rule's application here thus turns on whether the facts giving rise to the Receiver's claims were inherently undiscoverable to the Stanford Defendants' creditors; when the Stanford Defendants obtained knowledge of the contributions is irrelevant. Cf. Cadle Company, 136 S.W.3d at 350 ("The discovery rule defers the accrual of a cause of action until the plaintiff knew or, through the exercise of reasonable diligence, should have known of the facts giving rise to the cause of action.") (emphasis added) (citations omitted); Crook, 93 S.W.3d at 271-273 (rejecting TUFTA defendant's attempt to overturn trial court's denial of summary judgment because the defendant "did not conclusively establish when [the] Receiver knew or should have known about the allegedly fraudulent transfer" (citing Eckert v. Wendel, 120 Tex. 618, 40 S.W.2d 796, 797 (1931))) (emphasis added); Duran, 71 S.W.3d at 839 ("A creditor's cause of action to set aside a fraudulent conveyance accrues when the creditor acquires knowledge of the fraud, or would have acquired such knowledge in the exercise of ordinary care." (citing Eckert, 40 S.W.2d 796)) (emphasis added).
Texas courts generally apply the discovery rule when "the alleged wrongful act and resulting injury were inherently undiscoverable at the time they occurred but may be objectively verified." S.V. v. R.V., 933 S.W.2d 1, 6 (Tex.1996). "Requiring [both elements] assures that the policy underpinnings of statutes of limitations are met—balancing the possibility of stale or fraudulent claims against individual injustice." Computer Assocs. Int'l, Inc. v. Altai, Inc., 918 S.W.2d 453, 457 (Tex.1996). Under Texas law, "[a]n injury is inherently
The facts underlying the Receiver's claims were inherently undiscoverable to the Stanford Defendants' creditors, and the creditors' injuries are objectively verifiable. Even if the Stanford Defendants' contributions were publicly disclosed, the possibility that the Stanford Defendants essentially funneled their creditors' money to the Political Committees through an elaborate Ponzi scheme was not. The Stanford Defendants' creditors would have had notice of that only after the Receiver's appointment.
"A defendant moving for summary judgment on the affirmative defense of limitations has the burden to establish that defense conclusively." Cadle Company, 136 S.W.3d at 352 (citing KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex.1999)). To prevail, "the defendant must (1) conclusively prove when the cause of action accrued, and (2) negate the discovery rule, if it applies and has been pleaded or otherwise raised, by proving as a matter of law
According to the Political Committees, the Receiver reasonably could have discovered the Stanford Defendants' contributions before February 19, 2009. As evidence, they point primarily to the ostensibly vast resources at the Receiver's disposal, publicly-available FEC records, and certain websites, news articles, and blogs discussing the Stanford Defendants' many campaign and other political contributions. Under this view, the Receiver untimely filed his complaint outside of section 24.010(a)(1)'s one-year window because he did not sue until February 19, 2010.
For summary judgment purposes, however, the Republican Committees fail to show conclusively when the Receiver's cause of action accrued or when he reasonably should have discovered the contributions. The Receiver avers that he did not discover the contributions until February 20, 2009. See, e.g., Receiver's Resp. to Mot. to Compel at 6[60]. The Political Committees have submitted no summary judgment evidence establishing that the Receiver actually discovered the contributions on February 16, 17, 18, or 19.
The Court concludes that no reasonable minds could differ as to the timeliness of the Receiver's discovery. It is simply unreasonable to expect the Receiver to have discovered the $1.6 million in contributions—out of a complex, long-lasting, intentionally-concealed, international scheme involving billions of dollars and myriad transactions—in less than four days. Under the circumstances, the Receiver reasonably might have taken longer. TUFTA requires only the exercise of reasonable diligence, not omniscience.
The Republican Committees next move for summary judgment on the admittedly "novel" grounds that federal election laws preempt the Receiver's state law fraudulent transfer claims.
The Political Committees argue broadly that FECA, BCRA, and their associated regulations "expressly preempt state law and comprehensively address what contributions are illegal, how the national committees are to handle illegal contributions, and when and how nonfederal contributions received by national political committees were to be disgorged." Republican Committees' Summ. J. Br. at 3 [91-1]. According to the Political Committees, the Receiver's TUFTA claims also "infringe on the domain set forth by Congress and the FEC" because, "even if [TUFTA's] purpose is completely unrelated to elections. . ., as applied, [it] encroach[es] on federal law" by effectively appending Ponzi scheme-derived contributions to FECA's "comprehensive"—and therefore exclusive—"list of prohibited contributions." Id. at 4. Combined with a "regulatory scheme [that also] instructs political committee treasurers on how to assess the legality of contributions . . . and sets the conditions and timetable of each contribution refund," federal law simply "leaves no room for additional `avoidance' at the behest of state law plaintiffs." Id. at 6. And, finally, because the Stanford Defendants' made primarily "soft money" contributions, the Political Committees contend that honoring the Receiver's request would "breach the long-standing principle of separating `soft money' from `hard money' . . . at the core of the FECA" by requiring the disgorgement of a now-prohibited type of contribution for which Congress provided two "sole" means of disposal. Id. at 8 (emphasis removed).
Because "[a] fundamental principle of the Constitution is that Congress has the
Explicit statutory or regulatory language provides the clearest expression of preemptive intent. See English v. Gen. Elec. Co., 496 U.S. 72, 79, 110 S.Ct. 2270, 110 L.Ed.2d 65 (1990); Hillsborough County v. Automated Med. Lab., Inc., 471 U.S. 707, 713, 105 S.Ct. 2371, 85 L.Ed.2d 714 (1985) (acknowledging and citing authorities holding that "state laws can be pre-empted by federal regulations as well as by federal statutes"). But, federal law also may preempt state law impliedly "[w]hen Congress intends federal law to occupy the field" regulated by the statute or "to the extent" state law creates "any conflict with a federal statute." Crosby, 530 U.S. at 372, 120 S.Ct. 2288 (internal quotation marks and citations omitted). Although not "rigidly distinct" conceptually, courts generally refer to these three broad categories as express, field, and conflict (or obstacle) preemption. English, 496 U.S. at 79 n. 5, 110 S.Ct. 2270. The Political Committees raise preemption arguments under all three varieties.
"When Congress has considered the issue of pre-emption and has included in the enacted legislation a provision explicitly addressing that issue, and when that provision provides a reliable indicium of congressional intent with respect to state authority, there is no need to infer congressional intent to pre-empt state laws from the substantive provisions of the legislation." Cipollone, 505 U.S. at 517, 112 S.Ct. 2608 (internal quotation marks and citations omitted). "[W]hen the text of a pre-emption clause is susceptible of more than one plausible reading," however, "courts ordinarily accept the reading that disfavors pre-emption." Altria, 129 S.Ct. at 543 (internal quotation marks and citation omitted). Because express and field preemption often operate "no different[ly] in practice," in many FECA cases "[t]he only real issue" for the court to determine
Given the background assumption against preemption of state law causes of action, the Court—in line with long-standing precedent—reads section 453 to allow the Receiver's claims.
A plain reading, however, must also take into account that FECA uses "election" and "Federal office" as terms of art. FECA defines "election" as
2 U.S.C. § 431(1). FECA provides that "[t]he term `Federal office' means the office of President or Vice President, or of Senator or Representative in, or Delegate or Resident Commissioner to, the Congress." 2 U.S.C. § 431(3). FECA also contains specific definitions for the terms "contribution" and "expenditure" that limit
These definitions demonstrate that TUFTA simply has nothing to do with "election to Federal office." The Political Committees concede, as they must, that TUFTA facially contains no provision that could be construed to touch on federal campaign finance or election law. See Republican Committees' Summ. J. Reply at 1, 4-5 (noting that, as opposed to a "broad" facial challenge, the Political Committees object to TUFTA "as applied"). But even as applied, the Receiver's claim implicates the covered elections and conventions only in the most tangential and immaterial way. The Court accepts that the Stanford Defendants contributed funds for election-related purposes,
Forcing the Political Committees to disgorge funds that presumably will come from present-day monies they would rather spend on core campaign-related activities may have a connection to topical areas, such as campaign finance, regulated by FECA. "'[B]ut that possibility does not change [the Receiver's] case from one about [fraudulent transfer] into one about'" election to Federal office. Altria, 129 S.Ct. at 546 (quoting Good v. Altria Grp., Inc., 501 F.3d 29, 44 (1st Cir.2007)). As with the issue of candidates' personal liability for state law contract claims, FECA says nothing concerning political parties and their affiliated campaign committees' liability for a host of state statutory and common law causes of action, including fraudulent transfers. Cf. Karl Rove, 39 F.3d at 1280. Accordingly, the Court concludes that FECA does not expressly preempt the Receiver's TUFTA claim.
Section 108.7(b) provides that "Federal law supersedes State law concerning the (1) Organization and registration of political committees supporting Federal candidates; (2) Disclosure of receipts and expenditures by Federal candidates and political committees; and (3) Limitation on contributions and expenditures regarding Federal candidates and political committees." Although the Political Committees do not make the point clearly, they appear to argue that as applied
The Court disagrees. The Receiver's claims limit neither contributions or expenditures as those terms are used in section 108.7(b)(3). FECA's regulations, like the statute itself, rely on terms of art that render incomplete plain-text readings that are uninformed by the statute or regulation's intent in using a particular term. In relevant part, the regulations use "contribution" to refer to a "gift ... or deposit of money or anything of value made by any person for the purpose of influencing any election for Federal office," 11 C.F.R. § 100.52(a), and "expenditure" to refer to any "purchase, payment, distribution, loan..., advance, deposit, or gift of money or anything of value, made by any person for the purpose of influencing any election for Federal office." 11 C.F.R. § 100.111(a). Neither FECA nor its regulations define the word "limitation," but the first nontautological definition supplied by Black's defines it as "a restriction." BLACK'S LAW DICTIONARY 947 (8th ed. 2004). Section 108.7(b)(3), therefore, preempts only state laws that place restrictions on those contributions and expenditures "made ... for the purpose of influencing any election for Federal office."
In this light, the Receiver's claims fall outside of section 108.7(b)(3)'s scope. The Receiver deploys TUFTA here to compel the Political Committees to disgorge the value of contributions made by the Stanford Defendants—with others' money— years ago,
The Political Committees' section 108.7(b)(3) argument, moreover, reads the provision in isolation. Section 108.7(b)(3)'s reference to "[l]imitation[s] on contributions and expenditures" must be analyzed in light of Congress and the FEC's use of that phrasing in other places. As the Court discusses in more detail below in analyzing FECA's preemptive scope, the statute and its regulations expressly concern only certain types of "contribution and expenditure limitations and prohibitions." 11 C.F.R. § § 110.1-.20; see also 2 U.S.C. § 441a ("Limitations on contributions and expenditures"). Read in context, section 108.7(b)(3) expressly preempts only state laws that impose restrictions on contributions and expenditures, such as contribution caps, similar to those already provided for in FECA—not any generally applicable state law that might conceivably implicate contributions and expenditures. Cf. Karl Rove, 39 F.3d at 1280 ("Although [the defendant] attempts to stretch § 453 far enough to create a preemptive bar to applying state law to hold federal candidates personally liable, we cannot read FECA as extending that far."). Accordingly, the Court concludes that neither FECA nor its implementing regulations expressly preempt the Receiver's TUFTA claims.
Although the presence of an express preemption provision "means that [courts] need not go beyond [the provision's] language to determine whether Congress intended the [statute] to preempt
"[A]gainst a background of dissatisfaction with [FECA as enacted in 1971]," Congress amended FECA in 1974
1974 House Report at 1-2; FECA 1974 Compilation at 635-36; see also Federal Election Campaign Act Amendments of 1974, Pub. L. 93-443, 88 Stat. 1263 (1974) [hereinafter the "1974 Amendments"]. Among a plethora of other amendments, the House Committee version "contain[ed] two separate provisions relating to the preemption of State laws." 1974 House Report at 10; FECA 1974 Compilation at 644. Referencing then-18 U.S.C. § 591,
The congressional reports related to the 1974 Amendments show that Congress intended FECA to preempt a much narrower domain than the Political Committees claim. To take the most off-the-mark argument first, the Political Committees quote from the 1974 Conference Report,
The Political Committees' arguments as to Congress's intended scope for section 453 fare no better. The Political Committees correctly note that the relevant House committee intended "to make certain that [FECA] is construed to occupy the field." 1974 House Report at 10; FECA 1974 Compilation at 644. But, it showed no signs of intending to effect a wideranging preemption of all state and local laws that might peripherally touch on an election. The House committee meant for FECA to preempt state law "with respect to elections to Federal office and ... [to] be the sole authority under which such elections will be regulated." Id.
The House committee focused specifically on state laws' treatment of certain federal reports. Although FECA as originally enacted required candidates for federal office to file federal reports with appropriate state election officials, it only "encourage[d]" the state officials "to accept [the] Federal reports in satisfaction of State reporting requirements." Id. The 1974 Amendments made acceptance of the federal reports mandatory. It was this provision that the committee explicitly intended to have preemptive effect. See id. ("[T]he provision relating to encouraging State officials to accept Federal reports to satisfy State reporting requirements is deleted. Under [FECA], Federal reporting requirements will be the only reporting requirements and copies of the Federal reports must be filed with appropriate State officials.").
The 1974 Conference Report bolsters this narrow reading of Congress's intent. The Senate and the House bills included almost identical title III preemption provisions, which the Conference committee believed would have amended FECA "in essentially the same manner."
Read in context, the legislative history shows a much more restricted conception of FECA's preemptive reach than that urged by the Political Committees. Because TUFTA's disgorgement remedy is not a criminal sanction, the preemptive reach of FECA's long-repealed title I preemption provision is irrelevant to this case. And, no one suggests that the Receiver's claims touch on FECA's reporting and disclosure requirements. Accordingly, the Political Committees' proffered legislative history provides no grounds for construing section 453 expressly to preempt the Receiver's TUFTA claims.
The Political Committees' expressio unius-style argument,
Viewed in that context, the relevant provisions in FECA sections 441a through 441k delineate the realm of unlawful contributions and expenditures for enforcement purposes—not to list all situations that might cause a candidate or political committee to pay out funds from its campaign coffers. The FEC has taken the view that, "[i]n general, debt claims and liabilities are subject to relevant State law, and the Committee's `responsibility' for satisfying the obligations [are] determined with reference to those laws." FEC Adv. Op. 1975-102 at 1 (Jan. 29, 1976). To that end—and pursuant to "long held" FEC policy—candidates and political committees regulated by FECA routinely use funds originally obtained in the form of contributions to satisfy debts, judgments, and other liabilities. See, e.g., FEC Adv. Op. 1989-02 at 2 (Apr. 25, 1989) ("[FECA] and [FEC] regulations do not preclude the Committee's paying the judgment rendered under State [contract] law, although this may require the Committee to use all or most of its cash on hand."). Despite numerous amendments to FECA over its forty-year history, neither Congress nor the FEC has attempted to graft any of these potential uses of erstwhile campaign contributions onto the purportedly exclusive list of prohibited limitations on contributions and expenditures. Cf. FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 155-56, 120 S.Ct. 1291, 146 L.Ed.2d 121 (2000) (inferring "effective ratifi[cation]" of agency position when Congress has enacted statutes "against [a] background of the [agency] repeatedly and consistently asserting" a particular policy interpretation); see also Young v. Cmty. Nutrition Inst., 476 U.S. 974, 983, 106 S.Ct. 2360, 90 L.Ed.2d 959 (1986) ("This failure to change the scheme under which the FDA operated is significant, for a congressional failure to revise or repeal the agency's interpretation is persuasive evidence that the interpretation is the one intended by Congress.") (citations and internal quotation marks omitted). This strongly suggests that, although FECA's domain may reach a host of activities and laws with respect to election for federal office, its occupied field does not include political committees' paying on obligations incurred pursuant to state law.
Even as applied, TUFTA falls squarely within this nonpreempted zone of state laws. The Receiver seeks only a judgment making the Political Committees liable to the Stanford Defendants' creditors under Texas fraudulent transfer law.
The regulation promulgated by the FEC to provide clarity to section 453's preemptive scope,
Thus, the FEC's failure specifically to list in section 108.7(c) those state laws that could permissibly impose liability on candidates and political committees does not
Accordingly, FECA and its regulations support the Court's narrow reading of FECA's preemptive scope. Even if the Court were to credit the Political Committees' contentions that FECA contains an exclusive list of illegal contributions and expenditures, no basis exists for concluding that the Receiver's claims fall within the realm of prohibited activities, let alone attempt to contrive a wholly new type of forbidden campaign funding. At most the Receiver's claim will result in a judgment payable by the Political Committees' to the Stanford Defendants' creditors, who are represented here by the Receiver. The FEC views similar state law judgments as falling outside FECA's purview. And, FEC regulations specifically provide for the resolution of such "debts owed by candidates and political committees." 11 C.F.R. §§ 116.1-.12. The Stanford Defendants' contributions might have made the Political Committees' liable under TUFTA. But, that (at best) tangential connection to election to federal office does not transform TUFTA as used here into a campaign finance regulation.
Subsequent caselaw has taken the same tack. Courts that have found FECA preemption have done so in the context of state laws directly touching on federal elections or campaign finance.
Although "[a]t best there is an inference that an express pre-emption clause forecloses implied pre-emption," the Supreme Court has consistently "reject[ed] the more absolute argument that the presence of the express pre-emption provision entirely foreclosed the possibility of conflict pre-emption." Geier v. Am. Honda Motor Co., 529 U.S. 861, 872, 120 S.Ct. 1913, 146 L.Ed.2d 914 (2000) (internal quotation marks and citations omitted) (alterations in original) (emphasis removed). Conflict preemption principles apply whenever a state law, "`under the
To avoid a "freewheeling, extratextual, and broad evaluation[ ]" of FECA's purposes and objectives, Wyeth v. Levine, 555 U.S. 555, 129 S.Ct. 1187, 1217, 173 L.Ed.2d 51 (2009) (Thomas, J., concurring), the Court limits its analysis to only the specific alleged conflicts identified by the Political Committees. The Political Committees first assert that the Receiver's claims implicate FEC regulations governing the handling and disposal of illegal contributions. Because the Court determined above that the Receiver's claims do not depend on categorizing the Stanford Defendants' contributions as illegal contributions under FECA, that objection fails. See, e.g., Republican Committees' Summ. J. Br. at 5. Disgorgement made to satisfy a judgment rendered pursuant to state fraudulent transfer law has no connection to the Political Committees' treasurers' assessing, processing, and refunding of campaign contributions potentially violative of FECA. And, as suggested by both the presence of regulatory provisions governing the Political Committees' handling of debts, see 11 C.F.R. § § 116.1-.12, and the FEC's position on paying state law judgments, disgorging funds need not exclusively concern illegal contributions.
The Political Committees' second conflict preemption objection concerns BCRA's soft money prohibitions. The Court reads the Political Committees to make two distinct arguments in this vein. First, and most broadly, the Republican Committees contend that paying the Receiver would require the "use [of] recently contributed `hard money' to refund [the Stanford Defendants' largely] `soft money' contributions[,] .... breach[ing] the longstanding principle of separating `soft money' from `hard money'" at FECA's "core." Republican Committees' Summ. J. Br. at 8. Second, because "BCRA prescribed specific, exclusive rules for how national party committees could spend those soft money contributions [before and] after November 6, 2002," the Political Committees argue that the Receiver's claims implicate funds that may be used only for certain, statutorily-defined purposes. See, e.g., Democratic Committees' Mot. to Dismiss Br. at 18. Neither argument supplies grounds for concluding that the Receiver's claims pose an obstacle to FECA's purposes and objectives.
McConnell, 540 U.S. at 122-23, 124 S.Ct. 619 (emphasis in original).
"BCRA's central provisions are designed to address Congress' concerns about the increasing use of soft money and issue advertising to influence federal elections. Title I," relevant here, "regulates the use of soft money by political parties, officeholders, and candidates." Id. at 132, 124 S.Ct. 619. Congress placed the bulk of BCRA's soft money provisions in FECA section 323, eventually codified in 2 U.S.C. § 441i.
The Receiver's fraudulent transfer claim poses no obstacle to the achievement of
Before turning to the Political Committees' narrower soft money expenditure argument, the Court stops to address an even broader objection implicit in the Republican Committees' purposes-and-objectives contention: that state law actions conceivably implicating soft money contributions inherently conflict with FECA and BCRA's amendments, and that, therefore, claims based on those contributions should be channeled through FECA's comprehensive regulatory scheme. The practical import of this argument is that courts must read FECA to preempt state law claims against the Political Committees whenever soft money may be an issue. But, "[i]f Congress thought state-law suits posed an obstacle to its objectives, it surely would have enacted an express pre-emption provision [to that end] at some point." Wyeth, 129 S.Ct. at 1200. BCRA itself, however, lacked an express preemption provision, see McConnell, 540 U.S. at 186, 124 S.Ct. 619, despite the FEC's longstanding policy that state law suits against political actors such as the Political Committees generally fall outside of FECA's preempted domain and Congress's then thirty-year failure to address that issue in another manner. The reasonable inference from this is that section 453 adequately addressed any preemptive intent Congress had when it enacted BCRA. Cf. Wyeth, 129 S.Ct. at 1200 ("[Congress's] silence on the issue, coupled with its certain awareness of the prevalence of state tort litigation, is powerful evidence that
Accordingly, FECA, post-BCRA, preempts state laws no differently than before. Section 453 remains the sole preemption provision applicable to the Receiver's claims. The Court has already determined that section 453's text, narrowly construed, expressly preempts state laws only "with respect to"—not "in connection with"—"election to Federal office." 2 U.S.C. 453(a). Thus, as it concerns soft money, FECA preempts state laws that either facially or as applied directly regulate the actual contributing or spending of soft money to influence federal elections. The Receiver's claims do no such thing, nor do they touch on FECA's preempted domain. The Court therefore rejects the Political Committees' attempt to insulate themselves from liability on' any state law cause of action that potentially implicates soft money contributions.
Democratic Committees's Mot. to Dismiss Br. at 18 (emphasis in original) (quoting BCRA, Pub. L. 107-155, § 402(b)(2)(B)(i)). Any soft money funds not used for either purpose, the Political Committees further argue, could have been only "disgorged to the United States Treasury, or returned by check to the donors." Republican Committees' Summ. J. Br. at 5-6 (quoting 11 C.F.R. § 300.12(c)). By bringing a fraudulent transfer claim based primarily on soft money contributions, the Receiver allegedly seeks to "craft another use for those funds" in contravention of Congress's purposes in enacting BCRA. Democratic Committees' Mot. to Dismiss Br. at 18.
Context, however, demonstrates that Congress intended the cited provisions to apply during the limited "transitional" period surrounding BCRA's effective date of November 6, 2002, BCRA § 402(b)(2), and then only to "excess soft money funds." BCRA § 402(b)(2)(B). The Court agrees that BCRA established exclusive procedures for campaign committees' use of soft
After the 2002 midterms, the Political Committees could spend any remaining soft money funds as the Political Committees contend, e.g. on "retiring outstanding debts and obligations that were incurred solely in connection with an election held prior to November 6, 2002," BCRA § 402(b)(2)(B)(i)(I), but only "prior to January 1, 2003." BCRA § 402(b)(2)(B)(i). Only those "[soft money] funds remaining after [this] payment of debts and obligations" qualified for disgorgement to the U.S. Treasury or to the Political Committees' respective donors. 11 C.F.R. § 300.12(c). Even this provision, however, was time limited. The Political Committees had to turnover funds to the U.S. Treasury or send checks to donors "no later than December 31, 2002." Id. In no event was disgorgement to occur later than March 31, 2003, the date by which the Political Committees were to hand over soft money funds remaining from "[a]ny [donor] refund checks not cashed by February 28, 2003." Id. Accordingly, the Political Committees should have exhausted their soft money funds by April 1, 2003.
Even if the Receiver sought actual soft money contributions—and he does not
The Republican Committees' summary judgment evidence showing that they disgorged $20,000 to the U.S. Treasury may demonstrate their compliance with BCRA's transitional soft money restrictions, see Republican Committees' Summ. J. App. Ex. 3192], but that does not provide a defense to liability under TUFTA. It just proves that the Political Committees appropriately spent soft money funds. And, spending Ponzi scheme proceeds does not shield a recipient of fraudulently transferred funds from liability. See, e.g., Donell v. Kowell, 533 F.3d 762, 776 & n. 9 (9th Cir.2008) (noting, in case where Receiver brought an UFTA claim against a recipient of Ponzi scheme funds, that disgorgement may occur "years after the money has been received and spent"); Capital Distrib. Servs., Ltd. v. Ducor Exp. Airlines, Inc., 440 F.Supp.2d 195, 204 (E.D.N.Y.2006) (acknowledging that New York fraudulent conveyance law allows, "where the assets fraudulently transferred no longer exist or are no longer in the possession of the transferee, a money judgment [to] be entered against the transferee in an amount up to the value of the fraudulently transferred assets"); Scholes v. African Enter., Inc., 854 F.Supp. 1315,
The Political Committees' preemption defenses fail as a matter of law. The Receiver's claims neither effect a regulation with respect to election to federal office nor require the Political Committees to disgorge funds for the purpose of influencing federal election. The Court therefore adheres to precedent and the background presumption against preemption of state law causes of action and narrowly construes FECA's express preemption provision to allow the Receiver's claims. The Political Committees proffer legislative history that does not support their expansive interpretation of FECA's preempted domain, and they fail to provide evidence showing that the FEC considers claims such as the Receiver's to fall within its zone of enforcement. In light of longstanding FEC policy holding that liability for state law causes of action should be determined and paid in light of applicable state law, the Court furthermore concludes that the Receiver's claims do not seek to create a new form of illegal contribution or expenditure under FECA. And, finally, the Receiver's claims pose no obstacle to FECA's anticorruption and soft money regulatory purposes and objectives. The Court therefore denies the Democratic Committees' motion to dismiss and the Republican Committees' motion for summary judgment.
"To recover the transfers from [the Stanford Defendants] to [the Political Committees], the Receiver [is] required to demonstrate that [the Political Committees] received transfers from [the Stanford Defendants] that were made with actual intent to defraud." Warfield v. Byron, 436 F.3d 551, 558 (5th Cir.2006) (citing actual intent provision of the Washington State UFTA, WASH. REV.CODE § 19.40.041(a)(1)).
The Receiver carries his summary judgment burden. The evidence he provides establishes that the Stanford Defendants operated a Ponzi scheme and were therefore insolvent at least as early as 1999 and perhaps much earlier—Van Tassel's forensic accounting of the Stanford entities remains ongoing. See Van Tassel Decl.; Van Tassel Supp. Decl.
The Political Committees also fail to establish a fact issue concerning reasonably equivalent value. See id. § 24.004(a) & (d) ("Value is given for a transfer ... if, in exchange ..., property is transferred or an antecedent debt is secured or satisfied.... `Reasonably equivalent value' includes without limitation, a transfer or obligation that is within the range of values for which the transferor would have sold the assets in an arm's length transaction."). "The relevant inquiry under [TUFTA] is whether the debtor received monetary ... consideration." Zahra Spiritual Trust v. United States, 910 F.2d 240, 249 (5th Cir.1990). Courts considering the issue have ruled that political contributions are—at most—. given for "minimal" consideration. See, e.g., 1992 Republican Senate-House Dinner Comm. v. Carolina's Pride Seafood, Inc., 858 F.Supp. 243, 249 (D.D.C.1994) (noting also that "courts have been reluctant to place a value on non-monetary consideration"), vacated on other grounds, 158 F.R.D. 223 (vacating due to settlement) [hereinafter Republican Dinner].
The Receiver has produced evidence that the Stanford Defendants operated a Ponzi scheme. The Political Committees have failed to point to any evidence contradicting that showing or establishing the exchange of consideration of a reasonably equivalent value. The "only reasonable inference" to be drawn under the circumstances is that the Stanford Defendants made their contributions with the intent to defraud their creditors. McDermott at 174 (quoting Merrill v. Abbott (In re Indep. Clearing House Co.), 77 B.R. 843, 860 (D.Utah 1987)). The Court, therefore, grants summary judgment in favor of the Receiver.
Because the Stanford Defendants' scheme was inherently undiscoverable to their creditors and the creditors' injuries are objectively verifiable, TUFTA's discovery rule applies to the Receiver's claims. And, because no reasonable jury would conclude that the Receiver should have discovered the Stanford Defendants' contributions within seventy-two hours of his appointment, the Receiver timely brings his claims as a matter of law. The Political Committees fail to establish that federal campaign finance laws preempt state law fraudulent transfer claims. Accordingly, the Court denies the Political Committees' motions to dismiss and the Republican Committees' motion for summary judgment.
The Receiver, on the other hand, produces evidence showing that the Stanford Defendants operated a Ponzi scheme and that their contributions were derived from Ponzi scheme proceeds. The Political Committees fail to create a fact issue concerning the Ponzi scheme's existence or the contributions' source and make no attempt to show that the contributions were made in exchange for consideration of reasonably equivalent value. The Court, therefore, grants the Receiver's motion for summary judgment.
"Ponzi schemes leave no true winners once the scheme collapses." Donell, 533 F.3d at 779. In recognition of that unpleasant reality, courts adhere to "the principle that equality is equity" in dealing with the aftermath of an imploded Ponzi scheme. Id. (citing Cunningham, 265 U.S. at 13, 44 S.Ct. 424). In disgorging the Stanford Defendants' contributions, the Political Committees will endure no greater hardship than that suffered by other innocent victims of the Stanford Defendants' Ponzi scheme who must do the same. See id. at 776 & n. 9. Indeed, disgorgement "years after the money has been received and spent" has been recognized as "yet another common tragic result of a Ponzi scheme." Id. Although as innocent
Galbraith Eng'g Consultants, Inc. v. Pochucha, 290 S.W.3d 863, 866 (Tex.2009) (internal citations and quotation marks omitted).
The federal courts follow the same practice. See, e.g., In re Supplement Spot, LLC, 409 B.R. 187 (Bankr.S.D.Tex.2009) (repose); In re Moore, 379 B.R. 284 (Bankr.N.D.Tex.2007) (limitations). But, the federal courts citing the most on point Texas caselaw, Cadle Company and Duran, almost uniformly identify the provision as a statute of repose. See, e.g., American Founders, 365 B.R. 647. As explained below, the Court finds the issue irrelevant because the Political Committees first two objections depend on the (incorrect) theory that the Receiver stands only in the Stanford Defendants' shoes.
Second, TUFTA expressly provides creditors with potentially expansive equitable remedies. See TEX. BUS. & COM.CODE § 24.008(a)(3) (providing that "subject to applicable principles of equity and in accordance with applicable rules of civil procedure" TUFTA claimants may obtain injunctive relief, the appointment of a receiver, or "any other relief the circumstances may require"). Although not incompatible with viewing section 24.010 as a statute of repose in toto, this does counsel against reading in an intent on the part of the Texas Legislature to inhibit courts' recourse to equitable principles when deciding TUFTA cases. Indeed, the Texas Legislature adopted the Uniform Fraudulent Transfer Act's "Supplementary Provisions" section wholesale. See TEX. Bus. & COM.CODE § 24.011 ("Unless displaced by the provisions of this chapter, the principles of law and equity, including the law merchant and the law relating to principal and agent, estoppel, laches, fraud, misrepresentation, duress, coercion, mistake, insolvency, or other validating or invalidating cause, supplement its provisions."); Unif. Fraudulent Transfer Act § 10 (1984) (same, except that Texas uses "chapter" in place of "Act"). Because nothing in section 24.010 explicitly "displaces" equitable principles, it is not at all clear that applying equitable doctrines like adverse domination to section 24.010(a)(1) would constitute an impermissible "elevat[ion] [of] the Court's own judgment regarding equity above the Texas State Legislature's, [as] embodied by the plain-language of the statute." In re IFS Fin. Corp., 417 B.R. 419, 447-48 (Bankr.S:D.Tex.2009); cf. Young v. United States, 535 U.S. 43, 49, 122 S.Ct. 1036, 152 L.Ed.2d 79 (2002) (noting that "limitations periods are customarily subject to equitable tolling, unless tolling would be inconsistent with the text of the relevant statute") (internal citations and quotation marks omitted).
As the statute itself makes clear, moreover, the Texas Legislature adopted TUFTA with the specific purpose that it be applied uniformly with other states' versions of the Act. See TEX. BUS. & COM.CODE § 24.012 ("This chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among states enacting it."). Other courts, it turns out, have used adverse domination in the context of similar UFTA statutes. See, e.g., Wing v. Kendrick, 2009 WL 1362383, at *3 (D.Utah 2009) (Utah UFTA) (citing similar holding in Quilling v. Cristell, 2006 WL 316981, at *6 (W.D.N.C.2006)); Carnie, 2007 WL 1112591, at *15-19 (Washington State UFTA). Indeed, as a matter of "[c]ommon sense and . . . statutory purpose," the Washington Supreme Court overruled an intermediate appellate court's construction of the Washington State UFTA as a statute of repose. Freitag v. McGhie, 133 Wn.2d 816, 947 P.2d 1186, 1189-90 (1997) ("[N]othing in the UFTA leads us to conclude that the UFTA sought to eliminate the common law and the former UFCA [discovery] rule that a claimant have knowledge of the fraudulent nature of a transfer before the statute of limitations begins to run.").
Van Tassel Decl. at 4-5 (App. at 37-38). Among other things, Van Tassel drew her conclusions from objectively verifiable Stanford entity, customer, and third party records, worksheets, and databases "using reliable practices and methodologies that are standard in the fields of accounting and finance." Id. at 3-4 (App. at 36-37). In particular, Van Tassel's investigation discovered SIB worksheets designed to "reverse engineer" desired revenue levels by giving "fictitious revenue amounts to each category . . . of a fictitious investment allocation." Id. at 7 (App. at 40).
The Court overrules the various objections to the Receiver's summary judgment evidence. Davis's guilty plea constitutes admissible evidence that Van Tassel may rely upon even if hearsay. See FED.R.EVID. 807, 803(22), & 703; In re Slatkin, 525 F.3d 805, 812-13 (9th Cir.2008) (holding that Ponzi schemer's plea was admissible under Federal Rule of Evidence 807 and, accordingly, that district court did not abuse its discretion in considering the plea as summary judgment evidence); First Nat'l Bank of Louisville v. Lustig, 96 F.3d 1554, 1576 (5th Cir.1996) ("Experts may rely on hearsay evidence in forming their opinions." (citing Moss v. Ole South Real Estate, Inc., 933 F.2d 1300, 1309 (5th Cir. 1991))).
Van Tassel later supplemented her report, "[b]ased on [her] continued investigation." App. to Receiver's Opp. to Republican's Mot. for Summ. J. at 5 [hereinafter "Van Tassel Supp. Decl."] [94-1]. Among other things, she revised her conclusion concerning the length of time the Stanford Defendants operated a Ponzi scheme from 2004 to 1999 and determined that: (1) "SIB was insolvent . . . from at least 1999 forward," (2) R. Allen Stanford's income was derived "almost exclusively from the Stanford Entities, including proceeds from SIB CDs," and (3) "SFGC was insolvent . . . from at least 2000 and received SIB CD funds." Id.
Although the Court denied the Republican Committees' motion to strike Van Tassel's Supplemental Declaration, it granted the Republican Committees leave to file a supplemental response. In it, the Republican Committees maintain their objections. See, e.g., Republican Committees' Supp. Reply Br. at 1 n. 1[105]. The Court, however, overrules those objections, too. See, e.g., In re Enron Corp. Sec., Derivative & "ERISA" Litig., 491 F.Supp.2d 690, 704-05 (S.D.Tex.2007) ("[A] district court may rely on arguments and evidence presented for the first time in a reply brief as long as the court gives the nonmovant an adequate opportunity to respond." (quoting Vais Arms, Inc. v. Vais, 383 F.3d 287, 292 & n. 10 (5th Cir.2004)) and collecting cases). To the extent the Republican Committees believe Van Tassel failed to reference certain methodologies and other material statements from her first declaration, Van Tassel expressly incorporated into her Supplemental Declaration "[a]ll of the opinions and statements contained" in the original. Van Tassel Supp. Decl. at 1. The Court therefore properly references Van Tassel's Supplemental Declaration.
Given FECA and its regulations' Byzantine reporting requirements, the Political Committees almost certainly are required to report to the FEC the use of funds to pay judgments. But that does not prevent the Receiver from bringing his claims. To hold otherwise effectively would read section 441i(a) and section 453 to work in tandem to exempt entirely the Political Committees from state law liability unless brought about as the result of FEC enforcement. Section 441i(a) lacks any—let alone a "clear and manifest"—indication that Congress intended that result. Cf. Cipollone, 505 U.S. at 516, 112 S.Ct. 2608 (citation omitted).
McConnell, 540 U.S. at 133-34, 124 S.Ct. 619.
This distinction is lost on the Court. FECA similarly fails to address campaign committees' liability for state law fraudulent transfer claims. The Political Committees point to no history of the FEC asserting jurisdiction over similar claims, and the Court has found none. It makes no difference that the FEC has yet to issue a formal opinion on the matter. Sometimes silence speaks. And, the only reasonably inference from decades of inaction is that the FEC does not interpret FECA to preempt claims like the Receiver's.
