Fifth Circuit Update: Stanford Receiver's Temporary Injunction Affirmed
Yesterday, December 15, 2010, the Fifth Circuit released Janvey v. Alguire (pdf), another chapter the ongoing litigation over R. Allen Stanford and his alleged Ponzi scheme. The District Court had entered an injunction essentially freezing the accounts of certain former employees and advisers of the Stanford Group. The Fifth Circuit affirmed and Judge Prado wrote the Court's opinion.
The Court held:
the district court had the power to decide the motion for preliminary injunction before deciding the motion to compel arbitration;
the district court did not abuse its discretion in granting a preliminary injunction;
the preliminary injunction was not overbroad;
the district court acted within its power to grant a Texas Uniform Fraudulent Transfer Act (“TUFTA”) injunction rather than an attachment; and
- the Receiver’s claims are not subject to arbitration.
The case presents a potential conflict between the Federal Arbitration Act (intended to avoid judicial resolution of the merits) and the power of courts to grant an injunction (which may involve entanglement in the merits). The Court noted different approaches taken by different circuits and ultimately held that the FAA did not impair a district court's ability to preserve the status quo while it was deciding whether a claim was arbitrable and before that arbitration decision had been made.
Here, the Court also affirmed the denial of the motion to compel arbitration on the grounds that the receiver stood in the shoes of the Stanford creditors, not the Stanford Companies who were parties to the employee arbitration agreements.