     Case: 14-10857   Document: 00513856519     Page: 1   Date Filed: 01/31/2017




        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                                 United States Court of Appeals
                                                                          Fifth Circuit
                                 No. 14-10857                           FILED
                                                                  January 31, 2017

RALPH S. JANVEY,                                                   Lyle W. Cayce
                                                                        Clerk
             Plaintiff – Appellee,

v.

JAMES R. ALGUIRE; VICTORIA ANCTIL; TIFFANY ANGELLE; SYLVIA
AQUINO; JONATHAN BARRACK; MARK TIDWELL; CHARLES RAWL;
SUSANA ANGUIANO; TERAL BENNETT; LORI BENSING; SUSANA
CISNEROS; RON CLAYTON, JOHN D. ORCUTT, et al.,

             Defendants – Appellants.

_____________________________

CONSOLIDATED WITH 14-10945

RALPH S. JANVEY, in his capacity as Court-Appointed Receiver for the
Stanford International Bank, Limited, et al.,

             Plaintiff – Appellee,

v.

ORESTE TONARELLI,

             Defendant – Appellant.


_____________________________

CONSOLIDATED WITH 14-11014
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                               No. 14-10857
                 Cons. w/Nos. 14-10945, 14-11014, 14-11093
RALPH S. JANVEY, in his capacity as Court-Appointed Receiver for the
Stanford International Bank, Limited, et al.,

             Plaintiff – Appellee,

v.

JUAN ALBERTO RINCON,

             Defendant – Appellant.

_______________________________

CONSOLIDATED WITH 14-11093

RALPH S. JANVEY, in his capacity as Court Appointed Receiver for the
Stanford International Bank Limited, et al.; OFFICIAL STANFORD
INVESTORS COMMITTEE,

             Plaintiffs – Appellees,

v.

LUIS GIUSTI,

             Defendant – Appellant.




                Appeals from the United States District Court
                     for the Northern District of Texas


Before HIGGINBOTHAM, OWEN, and ELROD, Circuit Judges.
PER CURIAM:
      This case is the latest in a number of appeals arising from the collapse
of Allen Stanford’s massive Ponzi scheme. Ralph Janvey, the Receiver for the

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                               No. 14-10857
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Stanford entities, seeks to use the Texas Uniform Fraudulent Transfer Act to
take back money paid to employees of various Stanford entities. The district
court denied these employees’ motions to compel arbitration based on
arbitration agreements included in the terms of contracts with the Stanford
Group Company. We AFFIRM.
                                       I.
      R. Allen Stanford created a large network of interconnected companies
that sold certificates of deposit to investors through the Stanford International
Bank, Ltd. (the “Bank”).     These certificates of deposit promised favorable
returns and drew over $7 billion in investments in the nearly ten years that
the scheme operated. Stanford generated the promised returns not by wisely
managing the investors’ money but by using payments from new investors to
cover the gains paid to older investors—a classic Ponzi scheme. Stanford and
his Chief Financial Officer, James Davis, pleaded guilty to a number of federal
offenses and are currently incarcerated.
      In an effort to unwind the scheme, the Securities and Exchange
Commission sued Stanford, the Stanford Group Company (the “Company”),
and numerous other Stanford entities. At the SEC’s request, the district court
appointed Janvey as Receiver and “charged him with preserving corporate
resources and recovering corporate assets that had been transferred in
fraudulent conveyances.” Janvey v. Brown, 767 F.3d 430, 433 (5th Cir. 2014).
      The Receiver sued a large group of individuals who profited from the
Stanford scheme and froze assets in Stanford entity accounts tied to those
individuals. The district court severed the Receiver’s claims against investor-
defendants from the Receiver’s claims against employee-defendants.          This




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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
court has dealt separately with various claims against the investor-defendants
and they are not at issue here. 1
      The defendants in the present action all previously worked in various
capacities for the Stanford enterprises and received salary, commissions,
bonuses, or later-forgiven loans from the Stanford entities.
      Shortly after the Receiver initiated his claims against these former
employees, they moved to compel arbitration.                 The motions to compel
arbitration relied on arbitration agreements between the Company or Stanford
Group Holdings, Inc. (another Stanford entity) and the former employees. 2
The agreements were contained in: (1) promissory notes between the
defendants and the Company that governed the upfront loan payments that
the Company awarded to the defendants when they joined Stanford; (2) the
broker-dealer forms that the Company submitted to the Financial Industry
Regulation Authority (FINRA) when registering the employee-defendants as
brokers; (3) FINRA’s internal rules governing disputes between brokers and
their employers; and (4) Stanford Group Holdings, Inc.’s Performance
Appreciation Rights plan. The arbitration clauses in the promissory notes
provide that: “any controversy arising out of or relating to this Note, or default
on this Note, shall be submitted to and settled by arbitration pursuant to the
constitution, by-laws, rules and regulations of the National Association of




       1 A more exhaustive factual background can be found in other cases involving the
Stanford Ponzi scheme. See, e.g., United States v. Stanford, 805 F.3d 557, 563–65 (5th Cir.
2015), cert denied, 137 S. Ct. 491 (2016); Brown, 767 F.3d at 432–34; Janvey v. Democratic
Senatorial Campaign Committee, Inc., 712 F.3d 185, 188–89 (5th Cir. 2013); Janvey v.
Alguire, 647 F.3d 585, 589–91 (5th Cir. 2011); Janvey v. Adams, 588 F.3d 831, 833–35 (5th
Cir. 2009).
       2 One of the employee-defendants, Luis Giusti, signed an arbitration agreement in

which the Bank was the counterparty.
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                                 No. 14-10857
                   Cons. w/Nos. 14-10945, 14-11014, 14-11093
Securities Dealers (NASD) . . . .” 3 The other arbitration clauses are materially
indistinguishable for purposes of this case.
      While the motions to compel arbitration were pending, the district court
issued a preliminary injunction preventing the employees from accessing the
frozen assets. The defendants challenged the injunction in an interlocutory
appeal.    We held that: (1) the district court had power to consider the
preliminary injunction before deciding the motion to compel arbitration; (2) the
district court did not abuse its discretion by issuing the preliminary injunction;
(3) the preliminary injunction was neither an attachment nor overly broad; and
(4) although the district court had not yet ruled on the motion to compel
arbitration, the Receiver’s claims were not subject to the arbitration agreement
because the Receiver was suing not on behalf of the Stanford entities, but
rather on behalf of creditors who were not parties to the arbitration
agreements. Janvey v. Alguire (Alguire I), 628 F.3d 164, 185 (5th Cir. 2010).
We then withdrew that opinion and replaced it with another opinion that
repeated the first three holdings but concluded that we lacked jurisdiction over
the still-pending motion to compel arbitration and remanded to the district
court for consideration of the motion in the first instance. Janvey v. Alguire
(Alguire II), 647 F.3d 585, 605 (5th Cir. 2011).
      The district court, although not bound by our decision in Alguire I,
agreed with its reasoning and denied the motions to compel arbitration. As we
had in Alguire I, the district court reasoned that the Receiver’s claims, brought
on behalf of third-party creditors, were not affected by the promissory notes
between the defendants and the Company. Janvey v. Alguire, No. 3:09-cv-724,
2011 WL 10893950, at *4 (N.D. Tex. Aug. 26, 2011).


      3 Later arbitration agreements required arbitration governed by the rules of FINRA,
the successor to NASD.
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                                No. 14-10857
                  Cons. w/Nos. 14-10945, 14-11014, 14-11093
      While the appeal from that decision was pending, we held in another
Stanford scheme appeal that the Receiver represented the creditors, not the
Stanford entities. Janvey v. Democratic Senatorial Campaign Committee, Inc.
(DSCC I), 699 F.3d 848 (5th Cir. 2012). We withdrew that opinion and issued
another, concluding instead that:
      [A] federal equity receiver has standing to assert only the claims
      of the entities in receivership, and not the claims of the entities’
      investor-creditors, but the knowledge and effects of the fraud of the
      principal of a Ponzi scheme in making fraudulent conveyances of
      the funds of the corporations under his evil coercion are not
      imputed to his captive corporations. Thus, once freed of his
      coercion by the court’s appointment of a receiver, the corporations
      in receivership, through the receiver, may recover assets or funds
      that the principal fraudulently diverted to third parties without
      receiving reasonably equivalent value.
Janvey v. Democratic Senatorial Campaign Committee, Inc. (DSCC II), 712
F.3d 185, 190 (5th Cir. 2013). This holding invalidated the basis for the district
court’s denial of the motions to compel arbitration. As a result, we vacated the
denial of the motion to compel and remanded once again for the district court
to reconsider the motions in light of DSCC II. Janvey v. Alguire (Alguire III),
539 F. App’x 478, 480–81 (5th Cir. 2013).
      The district court once again denied the motions to compel, resting its
result on three major conclusions.       First, the district court rejected the
Receiver’s argument that he can choose the Stanford entity on whose behalf he
sues, instead requiring the Receiver to sue on behalf of the Company, which
was party to the arbitration agreements. Janvey v. Alguire (Denial Order), No.
3:09-cv-724, ECF No. 1093, at 9–10 (N.D. Tex. July 30, 2014) (order denying
motions to compel arbitration).
      Second, the district court concluded that the Receiver had rejected the
arbitration agreements and that such rejection was permissible. Id. at 16–25.

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                               No. 14-10857
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The district court, drawing from well-established bankruptcy law, determined
that an equity receiver, like a bankruptcy trustee, has the power to assume or
reject any executory contract. The district court concluded that executory
arbitration agreements are analyzed as separable from the contracts in which
they are contained. Turning to the arbitration agreements in this case, the
district court rejected the defendants’ argument that the Receiver had not
rejected the agreements, noting that federal equity receivers have no obligation
to affirmatively reject an executory contract. The district court determined
that the Receiver’s rejection of the arbitration agreements was permissible,
explaining that it would be “unjust and inequitable” to burden and deplete the
receivership estate by requiring the Receiver to adopt the arbitration
agreements.
      Finally, the district court concluded in the alternative that arbitration of
the Receiver’s claims would conflict with the central purposes and objectives of
the federal equity receivership statutory scheme, and therefore exercised its
discretion to deny the motions to compel arbitration. Id. at 26–49. The district
court noted that in the receivership statutes Congress had “clearly emphasized
the importance of consolidating in one court all matters involving the
receivership estate and assets,” that courts have consistently held that
Congress intended for federal equity receivers to be utilized in situations
involving federal securities laws, and that the federal multidistrict litigation
scheme implicated in this receivership also emphasizes consolidation before
one court. Id. at 33–36. Drawing from case law involving conflicts between the
purposes of the Bankruptcy Code and the Federal Arbitration Act (FAA), the
district court concluded that
      a specific conflict arises between arbitrating the Receiver’s
      fraudulent transfer claims under the Employee Defendants’
      arbitration agreements and certain central purposes of the federal
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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
       equity receivership statutory framework, especially in the added
       context of the Stanford receivership being a multidistrict litigation
       SEC receivership over a Ponzi scheme.
Id. at 41. Considering that “[a]rbitration decentralizes, deconsolidates, strips
the court and the receiver of exclusive jurisdiction over the receivership assets,
interferes with the broad powers of both the court and the receiver to
adjudicate all issues affecting receivership assets,” id. at 46, and interferes
with equal distribution of assets, the district court exercised its discretion to
deny the motions to compel arbitration. Id. at 47–49.
       In separate orders, the district court denied motions to compel
arbitration filed by Juan Rincon (the former Executive Vice President and
Chief Financial Officer of the Company), 4 Luis Giusti (a former member of the
Bank’s advisory board), 5 and Oreste Tonarelli (a former managing director of
the Company’s Private Clients Group). 6 The defendants appeal and their
appeals were consolidated.
                                             II.
       We have jurisdiction to consider this appeal even though the district
court’s denials of the motions to compel arbitration are interlocutory orders.
In re Mirant Corp., 613 F.3d 584, 588 (5th Cir. 2010). We review the denial of
a motion to compel arbitration de novo, but we review the district court’s
factual findings for clear error. Id.


       4 Janvey v. Rincon, No. 3:11-cv-1659, ECF No. 44 (N.D. Tex. Aug. 29, 2014) (order
denying motion to compel arbitration). The district court concluded that Rincon had waived
his right to arbitration and, in the alternative, concluded that his motion would fail for the
same reasons expressed in the Denial Order.
       5 Janvey v. Giusti, No. 3:11-cv-292, ECF No. 116 (N.D. Tex. Sept. 23, 2014) (order

denying motion to compel arbitration). The district court denied the motion on the grounds
expressed in the Denial Order.
       6 Janvey v. Tonarelli, No. 3:10-cv-1955, ECF No. 43 (N.D. Tex. Aug. 1, 2014) (order

denying motion to dismiss or, in the alternative, to compel arbitration). The district court
again denied the motion on the grounds expressed in the Denial Order.
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                               No. 14-10857
                 Cons. w/Nos. 14-10945, 14-11014, 14-11093
      “[A]rbitration is a matter of contract and a party cannot be required to
submit to arbitration any dispute which he has not agreed so to submit.”
United Steelworks of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (1960).
As a result, we analyze whether a party can be compelled to arbitrate using a
two-step process.    “First, we ask if the party has agreed to arbitrate the
dispute.” Sherer v. Green Tree Serv. L.L.C., 548 F.3d 379, 381 (5th Cir. 2008).
“While there is a strong federal policy favoring arbitration, the policy does not
apply to the initial determination whether there is a valid agreement to
arbitrate.” Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 429 (5th Cir.
2004). If the party opposing arbitration has agreed to arbitrate, “we then ask
if ‘any federal statute or policy renders the claims nonarbitrable.’” Sherer, 548
F.3d at 381 (quoting JP Morgan Chase & Co. v. Conegie, 492 F.3d 596, 598 (5th
Cir. 2007)).
                                      III.
      The Receiver argues that he is bringing his claims on behalf of the Bank,
which has not agreed to arbitrate with the defendants, except in the case of
Giusti. In the alternative, the Receiver argues that the arbitration agreements
on which the defendants’ motions are based should be rejected as part of the
fraudulent scheme, and that his equitable authority as Receiver empowers him
to reject executory contracts, including the arbitration clauses. Finally, the
Receiver argues there is “an inherent conflict between arbitration and the
[federal receiver] statute’s underlying purpose” such that federal law does not
permit the court to compel arbitration.        Shearson/Am. Express, Inc. v.
McMahon, 482 U.S. 220, 227 (1987). The various defendants disagree and also




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                                   No. 14-10857
                     Cons. w/Nos. 14-10945, 14-11014, 14-11093
argue that the district court exceeded the scope of our mandate in Alguire III
by allowing the Receiver to avoid arbitration. 7
                                               A.
       The Receiver first argues that he is free to bring his TUFTA claims on
behalf of any of the Stanford entities and that, by bringing the claims on behalf
of the Bank, which was not a signatory to the arbitration agreements (except
for the agreement with Giusti), he is not bound by the arbitration agreements.
The district court disagreed, reasoning that allowing the Receiver to pick the
entity on whose behalf he brought the claims “would be inconsistent with [the
district court’s] previous rulings and inconsistent with equity.” Denial Order
at 10. 8
       We have previously considered at great length the Receiver’s
representative role. In DSCC II we concluded that the Receiver “has standing
to assert the claims of [the Bank], and any other Stanford entity in
receivership.” 712 F.3d at 192. We clarified, however, that “the knowledge
and effects of the fraud of the principal of a Ponzi scheme in making fraudulent
conveyances of the funds of the corporations under his evil coercion are not
imputed to his captive corporations.” Id. at 190. Therefore, “once freed of his
coercion by the court’s appointment of a receiver, the corporations in
receivership, through the receiver, may recover assets or funds that the


       7  The various defendants have collectively filed ten initial briefs and six reply briefs,
and there is substantial overlap in their arguments. Except where otherwise noted, we refer
to the defendants collectively without distinguishing between their arguments.
        8 The district court also observed that certain difficulties might arise if the Receiver

brought actions on behalf of the Bank, because the Receiver would have to challenge two
fraudulent transfers: first, the transfer of funds from the Bank to the Company and, second,
the transfer from the Company to the employee-defendants. The district court stated that
although TUFTA permits claims against subsequent transferees, Tex. Bus. & Comm. Code §
24.009(b)(2), the Receiver would need to show that the first transfer was fraudulent and
would have to do so while representing both sides of the transaction (the Bank and the
Company).
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                                No. 14-10857
                  Cons. w/Nos. 14-10945, 14-11014, 14-11093
principal fraudulently diverted to third parties . . . .”    Id.   We based our
decision in that case on the Seventh Circuit’s holding in Scholes that
corporations involved in a fraudulent scheme, although “[the defrauder’s]
robotic tools, were nevertheless in the eyes of the law separate legal entities
with rights and duties.” Scholes v. Lehmann, 56 F.3d 750, 754 (7th Cir. 1995).
      Scholes, like DSCC II, determined that a receiver has standing to sue on
behalf of formerly captive corporations and that the corporations, once freed
from the control of the scheme’s perpetrator, are not barred from recovery by
the defense of in pari delicto. Id. at 754–55; DSCC II, 712 F.3d at 191–92.
Although these cases do not directly answer our question, their reasoning
compels a single outcome. If the corporations retain identities distinct from
Stanford himself, as “separate legal entities with rights and duties,” it logically
follows that they are distinct from one another. Scholes, 56 F.3d at 754. Now
that Stanford no longer controls the Bank and the Company for the benefit of
an integrated criminal scheme, the Bank and the Company are separate
actors. The Receiver, appointed by the court to represent all of the Stanford
entities, may bring his claim on behalf of whichever of the entities he chooses,
provided that the entity has a claim against the defendant in question.
      The Receiver has exercised his authority to bring claims on behalf of the
Stanford entities individually and argues that he brings his claims against the
employee-defendants on behalf of the Bank. The Bank collected deposits from
investors. The Receiver alleges that Stanford diverted those deposits from the
Bank into the Company and then arranged for the Company to pay the
employee-defendants in furtherance of his illegal scheme. These allegations
satisfy the requirements of TUFTA, which allows any creditor to reclaim
fraudulently transferred assets from the initial transferee (here the Company)
or “any subsequent transferee other than a good faith transferee who took for

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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
value.” Tex. Bus. & Comm. Code § 24.009. The Bank, which has a “right to
payment or property,” is a creditor under TUFTA. Id. § 24.002(3), (4). TUFTA
thus allows the Receiver to bring a claim on behalf of the Bank against the
defendants as “subsequent transferee[s]” of the fraudulent transfers. 9
       The Bank is not a signatory to any of the promissory notes apart from
Giusti’s, nor is it a member or associated person bound to arbitrate under
FINRA’s rules.       Moreover, the references to “affiliates” in the arbitration
agreements are insufficient to bind the Bank. See In re Merrill Lynch Trust
Co. FSB, 235 S.W.3d 185, 191 (Tex. 2007) (“‘A corporate relationship is
generally not enough to bind a nonsignatory to an arbitration agreement.’
Unlike a corporation and its employees, corporate affiliates are generally
created to separate the businesses, liabilities, and contracts of each. Thus, a
contract with one corporation—including a contract to arbitrate disputes—is
generally not a contract with any other corporate affiliates.”) (citations
omitted) (declining to allow affiliates referenced in arbitration agreement to
compel arbitration in the absence of an “alter-ego exception”). Because the
Receiver brings his claims on behalf of the Bank and the Bank has not
consented to arbitration, the motions to compel arbitration fail.
       The defendants’ arguments to the contrary are unavailing. They argue
that three different equitable doctrines bind the Bank as a third party to the
arbitration agreements between the Company and the defendants: alter ego,
estoppel, and third-party beneficiary. These doctrines permit a court to impose


       9 Wiand v. Schneiderman, 778 F.3d 917 (11th Cir. 2015), on which the defendants rely
for the proposition that a receiver cannot avoid arbitration by asserting claims on behalf of
non-signatory receivership entities, is distinguishable on this ground. Wiand held that where
the non-signatory entities had “no relationship at all with [the defendant],” they had no
standing to pursue standalone claims against the defendant so as to provide an avenue for
vacating an arbitration award. Id. at 925. Here, in contrast, the Bank has standing under
TUFTA to bring its claims directly against the defendants.
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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
a contract on a third party who is not a signatory to the contract. See Bridas
S.A.P.I.C. v. Gov’t of Turkmenistan, 345 F.3d 347, 356, 358–63 (5th Cir. 2003).
These three doctrines sound in equity. We do not apply equitable principles
rigidly, but rather circumspectly, because they are “grounded in fairness . . . .
‘In all cases, the lynchpin . . . is equity, and the point of applying it to compel
application of a contractual provision is to prevent a situation that would fly
in the face of fairness.’” Bahamas Sales Assoc., L.L.C. v. Byers, 701 F.3d 1335,
1342 (11th Cir. 2012) (alterations and citation omitted). None of the three
doctrines bind the Bank.
      The doctrine of alter ego allows a court to pierce the corporate veil and
impose on an owner the obligations of its subsidiary “when their conduct
demonstrates a virtual abandonment of separateness.” Bridas, 345 F.3d at
359 (quoting Thomson-CSF, S.A. v. Am. Arbitration Ass’n, 64 F.3d 773, 777
(2d. Cir. 1995)).    “Courts do not lightly pierce the corporate veil even in
deference to the strong policy favoring arbitration.”          Id. (quoting ARW
Exploration Corp. v. Aguirre, 45 F.3d 1455, 1461 (10th Cir. 1995)). In prior
litigation, we have made clear that the blurring of corporate boundaries and
the wrongful acts taken by Stanford no longer equitably affect the hostage
corporations now that they are under the control of the Receiver. See DSCC
II, 712 F.3d at 192. Just as Stanford’s removal from the scene vitiated the
defendants’ defense of in pari delicto, so it vitiates their defense of alter ego.
      The defendants advance two theories of equitable estoppel, both of which
are inapplicable. The “intertwined claims” theory governs motions to compel
arbitration when a signatory-plaintiff brings an action against a nonsignatory-
defendant asserting claims dependent on a contract that includes an
arbitration agreement that the defendant did not sign. Grigson v. Creative
Artists Agency, L.L.C., 210 F.3d 524, 527–28 (5th Cir. 2000). It does not govern

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                               No. 14-10857
                 Cons. w/Nos. 14-10945, 14-11014, 14-11093
the present case, where a signatory-defendant seeks to compel arbitration with
a nonsignatory-plaintiff. Bridas, 345 F.3d at 361. The “direct benefits” theory
of equitable estoppel “prevents a nonsignatory from knowingly exploiting an
agreement containing the arbitration clause.” Graves v. BP Am., Inc., 568 F.3d
221, 223 (5th Cir. 2009).    That is, “a nonsignatory cannot sue under an
agreement while at the same time avoiding its arbitration clause.” Id. This
theory is inapplicable here because the Receiver does not seek to enforce the
various contracts containing the arbitration agreements; rather, he seeks to
unwind them and reclaim the benefits fraudulently distributed to the
defendants under the contracts.
      Finally, the third-party beneficiary doctrine prevents the intended
beneficiary of a contract from avoiding the terms of the contract. It does not
apply when a person merely is directly affected by the parties’ conduct or has
a substantial interest in a contract’s enforcement. Bridas, 345 F.3d at 362.
Rather, “[p]arties are presumed to be contracting for themselves only,” and a
third party is bound only “if the intent to make someone a third-party
beneficiary is ‘clearly written or evidenced in the contract.’”      Id. (citing
Fleetwood Ent., Inc. v. Gaskamp, 280 F.3d 1069, 1075–76 (5th Cir. 2002)).
There is no indication in the contracts or promissory notes that the Company
and the defendants intended the Bank to be the beneficiary of their
agreements. The defendants argue that the inflated commissions paid to them
under the contracts benefited the Bank because they induced more creditors to
invest in the Bank, but this argument conflates Stanford with his victim
corporations.   Expanding the number of defrauded investors in the Bank
merely expanded the Bank’s ultimate liabilities and increased the injury to the
Bank; it did not benefit the Bank as a corporate entity distinct from the
fraudster, Stanford. See Warfield v. Byron, 436 F.3d 551, 560 (5th Cir. 2006)

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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
(“It takes cheek to contend that in exchange for the payments [an investor and
promoter] received, the RDI Ponzi scheme benefitted from his efforts to extend
the fraud by securing new investments.”).
       Because the Receiver may sue on behalf of any of the Stanford entities
that has a claim against the defendants, because he has chosen to sue on behalf
of the Bank, which has not consented to arbitrate claims against any of the
defendants, except Giusti, and because none of the equitable doctrines urged
by the defendants applies, the Receiver cannot be compelled to arbitrate his
claims against these defendants.
       We also conclude, though on different grounds, that the Receiver cannot
be compelled to arbitrate its claims against Giusti, who did enter into an
agreement to arbitrate with the Bank.             10   A party who has entered into an
agreement to arbitrate must insist on this right, lest it be waived. “Under this
circuit’s precedent, a party waives its right to arbitrate if it (1) substantially
invokes the judicial process and (2) thereby causes detriment or prejudice to
the other party.” Al Rushaid v. Nat’l Oilwell Varco, Inc., 757 F.3d 416, 421
(5th Cir. 2014) (internal quotation marks omitted). While waiver should not be
inferred lightly, we conclude that Giusti’s conduct in this case clears the waiver
threshold.    After the Receiver sued Giusti in 2011, Giusti participated in
discovery and other pre-trial litigation. 11 Giusti ultimately moved to compel
arbitration in 2014, and continued to litigate while that motion was pending.


       10  Though the district court did not resolve Giusti’s motion to arbitrate on these
grounds, we may affirm the district court on any ground “presented by the parties,” even if
not “relied on by the [district] court.” See Resolution Performance Prod., LLC v. Paper Allied
Indus. Chem. & Energy Workers Int’l Union, Local 4-1201, 480 F.3d 760, 767 n.20 (5th Cir.
2007); Bickford v. Int’l Speedway Corp., 654 F.2d 1028, 1031 (5th Cir. 1981) (district court
may be affirmed “on any grounds, regardless of whether those grounds were used by the
district court”).
        11 For instance, Giusti moved to dismiss, filed an initial answer and amended answer,

sent written discovery, and answered discovery.
                                             15
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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
See In re Mirant Corp., 613 F.3d at 589–91 (holding that a party substantially
invoked the judicial process by, inter alia, submitting three motions to dismiss
before moving to compel arbitration). One of the primary justifications for
enforcement of private dispute resolution is the avoidance of large litigation
costs, including discovery.     Parties cannot enjoy the benefits of federal
discovery, and then, after doing so, seek to enforce a decision through private
resolution.    We therefore conclude that Giusti substantially invoked the
judicial process.
      We also conclude that Giusti’s participation in the judicial process
prejudiced the Bank. In re Mirant Corp., 613 F.3d at 591 (“In addition to
invocation of the judicial process, the party opposing arbitration must
demonstrate prejudice before we will find a waiver of the right to arbitrate.”).
Prejudice, in this context, “refers to delay, expense, and damage to a party’s
legal position.” Id. It is apparent on the face of the record before us that the
Bank was prejudiced, both by delay and increased litigation expenses, as a
result of Giusti’s decision to litigate for nearly three years before moving to
compel arbitration. Therefore, we conclude that Giusti has waived his right to
arbitration, and so the Receiver cannot be compelled to arbitrate its claims
against him.
      Accordingly, we conclude that the Receiver cannot be compelled to
arbitrate its claims against any of the defendants.
                                       B.
      The Receiver also argues that these particular arbitration agreements
are additionally unenforceable because they were instruments of the fraud
inasmuch as the privacy they provided facilitated the fraud and because the
Stanford entities were coerced into accepting them by Stanford as part of his



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                                   No. 14-10857
                     Cons. w/Nos. 14-10945, 14-11014, 14-11093
Ponzi scheme. 12 As a result, the Receiver argues that, under the logic of DSCC
II, the Company cannot be bound to them now that Stanford is removed from
the scene unless the Receiver affirmatively assents to them, and that
enforcement of the arbitration agreements would give effect to the very fraud
the Receiver is charged with unwinding by diminishing his ability to return
fraudulently transferred assets to the creditors. The Receiver makes a strong
argument that if we hold that he is bound by the terms of the contracts involved
in Stanford’s Ponzi scheme, there would be no basis for recovering the funds
that were fraudulently transferred to the scheme’s net winners pursuant to
their employment contracts. We need not reach this issue as we have already
determined, on other grounds, that the Receiver cannot be compelled to
arbitrate its claims against any of the defendants.
       Nor do we reach the Receiver’s similar but broader policy argument that
the underlying purpose of the federal equity receivership statutes is at odds
with the FAA’s mandate in favor of arbitration. In support of this alternative
basis for denying the motions to compel arbitration, the district court raised
important concerns about undermining Congress’s goal of consolidating
receivership claims before a single court. However, we are wary of endorsing
these broad policy arguments in the absence of specific direction from the
Supreme Court. Cf., e.g., DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463, 471


       12 The defendants counter that the validity of the arbitration clause is a question for
the arbitrator because “where parties have formed an agreement which contains an
arbitration clause, any attempt to dissolve that agreement by having the entire agreement
declared voidable or void is for the arbitrator.” Will-Drill Res., Inc. v. Samson Res. Co., 352
F.3d 211, 218 (5th Cir. 2003). However, the Receiver does not, at this stage, argue that the
entirety of the contracts between the employee-defendants and the Company are void.
Although he will undoubtedly argue that proposition as part of the litigation on the merits,
at the moment he merely argues that arbitration provisions, standing on their own as
severable provisions of the contract, are void. “[A] gateway dispute about whether the parties
are bound by a given arbitration clause raises a ‘question of arbitrability’ for a court to
decide.” Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002).
                                              17
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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
(2015) (rejecting interpretation of law that “does not give ‘due regard . . . to the
federal policy favoring arbitration’”) (quoting Volt Info. Scis., Inc. v. Bd. of
Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 476 (1989)). 13
                                             C.
       Finally, we reject the arguments raised by some of the defendants that
the district court’s order exceeded the scope of our mandate in Alguire III. “We
review de novo a district court’s application of the remand order, including
whether the law-of-the-case doctrine or mandate rule forecloses the district
court’s actions on remand.” United States v. Teel, 691 F.3d 578, 583 (5th Cir.
2012) (citation omitted).
       In Alguire III, we stated:
       On appeal, the parties have focused primarily on whether the
       Receiver has standing to sue on behalf of creditors and not on
       whether he is bound by the arbitration clauses if he sues, as he
       must, on behalf of the Stanford Entities. The district court did not
       address this issue. We therefore remand to allow the district court
       to consider that question in the first instance.
539 F. App’x at 480. Whether the Receiver is bound by the arbitration clauses
if he sues on behalf of the Stanford entities (which includes the Bank) is
precisely the question argued by the Receiver and answered by the district
court, according to our instruction. We see no violation of the mandate rule.
       Nor has the Receiver waived his arguments raised for the first time in
the district court, because those arguments were made in response to our
mandate that the district court consider a new issue in the first instance.
Moreover, the reason for the remand in Alguire III was that DSCC II effected
an intervening change in the law governing the Receiver’s standing to sue on


       13 Likewise, we do not reach the parties’ various other arguments, such as whether
some of the defendants have waived their right to arbitration or whether Giusti’s arbitration
clause is unreasonable, as these issues are moot in light of our holdings here.
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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
behalf of non-receivership entities. Before DSCC II, there was no need for the
Receiver to raise his current arguments as to why, when suing on behalf of the
receivership entities, he is not bound by the arbitration agreements. Under
these circumstances, the Receiver properly raised new arguments to address
the new question before the district court. 14
                                            IV.
       Because the Receiver properly brings his TUFTA claims on behalf of the
Stanford International Bank, which did not consent to arbitration with any of
the defendant employees, other than Giusti, it cannot be compelled to arbitrate
with those defendants.          Moreover, because Giusti waived his right to
arbitration, the Receiver cannot be compelled to arbitrate its claims against
him either.      Accordingly, we AFFIRM the district court’s denial of the
defendants’ motions to compel arbitration.




       14 We also agree with the district court that the Receiver is not estopped from
contesting the arbitrability of his claims against defendants Charles Rawl and Mark Tidwell.
As the district court noted, although Stanford Group Company initiated arbitration
proceedings against Rawl and Tidwell, that arbitration occurred before the appointment of
the Receiver and involved claims and issues wholly distinct from those in the instant case.
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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
PATRICK E. HIGGINBOTHAM, Circuit Judge, concurring:
      I concur in the majority opinion but write separately to state what is, to
these eyes, a more fundamental reason that the arbitration clauses in this case
are not enforceable. Simply put, arbitration agreements may be rejected when
they are instruments of a criminal enterprise, as these arbitration agreements
were. The Federal Arbitration Act (“FAA”) evinces Congress’s desire to enforce
arbitration agreements, 1 an expression warmly embraced by the judiciary.
But, there are limits. Those limits here control.
      I write against an informing backdrop of a decision of the Court of
Exchequer nearly 300 years ago. In the 1725 case of Everet v. Williams, also
known as the Highwayman’s Case, 2 highwaymen Everet and Williams entered
into a partnership to share robbery proceeds. They took their dispute over the
proper division of their booty to court, filing a Bill in Equity at the Court of
Exchequer. The court considered the Bill to be “scandalous and impertinent.” 3
Both Everet and Williams were arrested and hanged. Counsel were punished
with costs and one was sentenced to hang, but was ultimately banished. 4 The
present case concerns the proper division of illegally procured booty from
victims of a criminal enterprise—over $200 million, payable but frozen in
accounts of sales persons of the enterprise, some having earned in excess of $2
million for their role in the scheme. In short, we have in judicial control over
$200 million in booty, undisputed to be proceeds from the criminal scheme.




      1  See Am. Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2308–09 (2013); AT&T
Mobility LLC v. Concepcion, 563 U.S. 333, 344–46 (2011).
       2 9 L.Q. Rev. 197 (1893).
       3 U.S. S.E.C. v. Lyttle, 538 F.3d 601, 605 (7th Cir. 2008).
       4 See id.; Thomas v. UBS AG, 706 F.3d 846, 851 (7th Cir. 2013).

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                                   No. 14-10857
                     Cons. w/Nos. 14-10945, 14-11014, 14-11093
       This case is only one of many attempting to sift the ruins of Allen
Stanford’s massive Ponzi scheme, 5 a simply constructed vintage fraud. “[A]
Ponzi scheme is one where the ‘swindler uses money from later victims to pay
earlier victims.’” 6 Its name derives from Charles Ponzi, whose fraud the
Supreme Court described almost a century ago:
       In December, 1919, with a capital of $150, [Charles Ponzi] began
       the business of borrowing money on his promissory notes. He did
       not profess to receive money for investment for account of the
       lender. He borrowed the money on his credit only. He spread the
       false tale that on his own account he was engaged in buying
       international postal coupons in foreign countries and selling them
       in other countries at 100 per cent. profit, and that this was made
       possible by the excessive differences in the rates of exchange
       following the war. He was willing, he said, to give others the
       opportunity to share with him this profit. By a written promise in
       90 days to pay them $150 for every $100 loaned, he induced
       thousands to lend him . . . Within eight months he took in
       $9,582,000, for which he issued his notes for $14,374,000. He paid
       his agents a commission of 10 per cent. With the 50 per cent.
       promised to lenders, every loan paid in full with the profit would
       cost him 60 per cent. He was always insolvent, and became daily
       more so, the more his business succeeded. He made no investments
       of any kind, so that all the money he had at any time was solely
       the result of loans by his dupes. 7

       At its core, a Ponzi scheme must have in its operation the ability to lull
an investor by assuring payments from money of later investors, as there are
few if any funds being generated by management of their investments. Its



       5 See United States v. Stanford, 805 F.3d 557, 564 (5th Cir. 2015), cert. denied, 137 S.
Ct. 491 (2016); Zelaya v. United States, 781 F.3d 1315, 1318 (11th Cir. 2015) (describing
Stanford’s scheme as “one of the largest Ponzi schemes in American history”).
       6 Stanford, 805 F.3d at 564 n.1 (quoting United States v. Murray, 648 F.3d 251, 256

(5th Cir. 2011)).
       7 Cunningham v. Brown, 265 U.S. 1, 7–8 (1924). Ponzi was apparently not the first to

come up with such a scheme. See CHARLES DICKENS, THE LIFE AND ADVENTURES OF MARTIN
CHUZZLEWIT (1844).
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                                   No. 14-10857
                     Cons. w/Nos. 14-10945, 14-11014, 14-11093
essence is to present an air of legitimacy, while simultaneously masking the
source of the “return on investment,” a reality that must not be exposed—to
borrow from Gertrude Stein, that “there is no there there.” 8 To this end,
arbitration is a valuable tool. Arbitration helps ensure that the occasional
dispute with an investor or employee remains private.
       Arbitration as we presently know it was built on a bedrock interest of
autonomy and its correlative, privacy. That interest has persisted. 9 The
Supreme Court has accepted privacy as an expectation, if not an essential, of
arbitration, 10 as has this Court. 11 In Stolt-Nielsen S.A. v. AnimalFeeds
International Corporation, for example, the Supreme Court considered
“whether imposing class arbitration on parties whose arbitration clauses are
‘silent’ on that issue is consistent with the [FAA].” 12 In finding that class
arbitration in such instances was inconsistent with the FAA, 13 Justice Alito
described some “fundamental changes” between bilateral and class-action
arbitration. 14 Notably, citing the Amicus Brief for the American Arbitration
Association, Justice Alito explained, “[u]nder the Class Rules, ‘the presumption
of privacy and confidentiality’ that applies in many bilateral arbitrations ‘shall
not apply in class arbitrations,’ thus potentially frustrating the parties’
assumptions when they agreed to arbitrate.” 15 One year later in AT&T
Mobility, Justice Scalia echoed the observation of arbitration’s confidential


       8 EVERYBODY’S AUTOBIOGRAPHY (1937).
       9 See Judith Resnik, Diffusing Disputes: The Public in the Private of Arbitration, the
Private in Courts, and the Erasure of Rights, 124 YALE L.J. 2804, 2894–95 (2015).
       10 See AT&T Mobility, 563 U.S. at 348.
       11 Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159, 175 (5th Cir.

2004) (“[T]he plaintiffs’ attack on the confidentiality provision is, in part, an attack on the
character of arbitration itself.”).
       12 559 U.S. 662, 666 (2010).
       13 See id. at 684.
       14 Id. at 686.
       15 Id. (citation omitted).

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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
nature. In concluding that class arbitration was inconsistent with the FAA,
Justice Scalia pointed out differences between bilateral arbitration and class-
action arbitration. 16 For one, “[c]onfidentiality becomes more difficult.” 17 Such
sentiments not only acknowledge confidentiality as a bargained-for virtue of
arbitration, but also bring a judicial view that it is to be protected.
      One thus understands why the operator of a Ponzi scheme would be
attracted to arbitration. A single lawsuit—even one unrelated to the scheme—
may, by the discovery process of a state or federal court, expose the source of
an “investor’s return”—the fraud. Swindlers can use arbitration to mitigate
discovery and cabin attending risk of exposing fraudulent activity while
presenting arbitration, not as a tool of fraud, but as business as usual. In short,
arbitration can assume a not insignificant role in protecting defendants’
privacy, 18 as we will see it did here.
       “Stanford created and owned a network of entities . . . that sold
certificates of deposit (“CDs”) to investors through the Stanford International
Bank, Ltd.” 19 “When the scheme collapsed in early 2009, the Stanford entities
had raised over $7 billion from sales of fraudulent CDs.” 20 At the SEC’s
request, the court appointed Ralph Janvey “as receiver over Stanford, his
associates, his corporations, and their assets.” 21 The Receiver, standing in the
shoes of the Stanford entities, 22 sued the employees, e.g., brokers, of the
various Stanford entities to recover assets like salaries and bonuses earned


       16 AT&T Mobility, 563 U.S. at 347–48.
       17 Id. at 348.
       18 See generally Resnik, supra note 9, at 2894–96 (discussing real and perceived

privacy in arbitration).
       19 Janvey v. Brown, 767 F.3d 430, 433 (5th Cir. 2014) (citation omitted).
       20 Id. (citation omitted).
       21 Janvey v. Democratic Senatorial Campaign Comm., Inc., 712 F.3d 185, 189 (5th Cir.

2013) [hereinafter DSCC II].
       22 Janvey v. Alguire, 539 F. App’x 478, 480 (5th Cir. 2013) (unpublished).

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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
from the scheme. Those employee-defendants object, claiming that the
Receiver is required to arbitrate. Simply stated, the employee-defendants,
Appellants here, had contracts containing arbitration clauses with Stanford
entities. The employee-defendants argue that, since the Receiver stands in the
shoes of the Stanford entities, he is bound to arbitrate as per their contracts
with those entities. The Receiver disagrees, mounting a variety of attacks,
including that “[t]he agreements were part of the fraud and coerced by the
principals,” and “[h]olding that the Entities remain bound to these agreements
when represented by the Receiver is illogical and fundamentally at odds with
the holding of DSCC II.” I agree.
      The general principles of arbitration are easily stated, more so than
applied. That an arbitration clause be treated as a contract distinct from the
contract in which it appears is essential to forcing resolution of a dispute to
arbitration. 23 Said differently, arbitration clauses are severable from the
contracts they are contained within, and any resistance to arbitration must
target the arbitration clause itself. 24 As the Court embraced arbitration, Prima
Paint followed as night from day, holding that a claim of fraud in the
inducement and fraud on the contract do not vitiate the independent
arbitration clause. 25 Indeed, mine-run assertions of fraud and failed
performance of contractual promises will seldom touch the arbitration clause,
and the full case will proceed to arbitration. But Prima Paint also drew a line:
although “claims of fraud in the inducement of the contract generally” must be



      23  Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 445 (2006) (“[A]s a matter
of substantive federal arbitration law, an arbitration provision is severable from the
remainder of the contract.”).
       24 Id. at 445–46; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403–

04 (1967); Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 71 (2010).
       25 See Prima Paint Corp., 388 U.S. at 404.

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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
arbitrated, claims of “fraud in the inducement of the arbitration clause itself”
may be litigated. 26 In my opinion, the latter category encompasses an
arbitration agreement used as an instrument of a criminal enterprise.
       While the Supreme Court continues to staunchly enforce arbitration to
resolve disputes arising from contracts with arbitration clauses, it has not
faded the Prima Paint boundary. The Supreme Court has long enforced
agreements to arbitrate statutory claims, 27 including claims under § 10(b) of
the Securities Exchange Act of 1934 and claims under the Racketeer
Influenced and Corrupt Organizations Act (RICO). 28 And, citing § 2 of the
FAA, 29 it has reaffirmed that the FAA’s “saving clause permits agreements to
arbitrate to be invalidated by ‘generally applicable contract defenses, such as
fraud, duress, or unconscionability,’” but, it has noted, “not by defenses that
apply only to arbitration or that derive their meaning from the fact that an
agreement to arbitrate is at issue.” 30 In American Express Co. v. Italian Colors




       26  Id. at 403–04; accord Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
U.S. 614, 627 (1985) (“[C]ourts should remain attuned to well-supported claims that the
agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that
would provide grounds ‘for the revocation of any contract.’” (citations omitted)).
        27 See Mitsubishi Motors Corp., 473 U.S. at 626–27.
        28 Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 222, 238, 242 (1987).
        29 AT&T Mobility, 563 U.S. at 339 (“‘A written provision in any maritime transaction

or a contract evidencing a transaction involving commerce to settle by arbitration a
controversy thereafter arising out of such contract or transaction ... shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract.’” (quoting 9 U.S.C. § 2)).
        30 Id. at 339–40 (citations omitted). That arbitration agreements are instruments of a

fraudulent scheme is not an arbitration-specific defense. Any contract employed as an
instrument of a fraudulent scheme would similarly be invalid. In any event, the cases cited
by the Court evidence its concern for state laws targeting arbitration clauses. E.g., Doctor’s
Associates, Inc. v. Casarotto, 517 U.S. 681, 683 (1996) (holding “that Montana’s first-page
notice requirement, which governs not ‘any contract,’ but specifically and solely contracts
‘subject to arbitration,’ conflicts with the FAA and is therefore displaced by the federal
measure.”).
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                                   No. 14-10857
                     Cons. w/Nos. 14-10945, 14-11014, 14-11093
Restaurant, 31 the Supreme Court enforced a waiver of class arbitration against
merchants suing American Express for a Sherman Act violation, 32 even though
the cost of proving such a claim would far exceed the potential recovery for any
individual plaintiff. 33 The Court found that “[n]o contrary congressional
command,”—the antitrust laws or Rule 23—required it “to reject the waiver of
class arbitration.” 34 It also considered and rejected the “effective vindication”
exception to the FAA. 35 “[T]he exception finds its origin in the desire to prevent
‘prospective waiver of a party’s right to pursue statutory remedies,’” 36 the Court
reasoned, “[b]ut the fact that it is not worth the expense involved in proving a
statutory remedy does not constitute the elimination of the right to pursue that
remedy.” 37 These cases demonstrate the Court’s firm defense of arbitration,
but do not suggest that when arbitration has been used as an instrument in
fraud itself, arbitration should nevertheless be enforced. 38




       31  133 S. Ct. 2304 (2013).
       32  Id. at 2308 (“According to respondents, American Express used its monopoly power
in the market for charge cards to force merchants to accept credit cards at rates
approximately 30% higher than the fees for competing credit cards. This tying arrangement,
respondents said, violated § 1 of the Sherman Act.” (footnote omitted)).
        33 Id. at 2316 (Kagan, J., dissenting) (“Italian Colors could take home up to $38,549.

But a problem looms. As this case comes to us, the evidence shows that Italian Colors cannot
prevail in arbitration without an economic analysis defining the relevant markets,
establishing Amex’s monopoly power, showing anticompetitive effects, and measuring
damages. And that expert report would cost between several hundred thousand and one
million dollars.” (footnote omitted)).
        34 Id. at 2309 (majority opinion).
        35 Id. at 2310 (“The ‘effective vindication’ exception to which respondents allude

originated as dictum in Mitsubishi Motors, where we expressed a willingness to invalidate,
on ‘public policy’ grounds, arbitration agreements that ‘operat[e] ... as a prospective waiver
of a party’s right to pursue statutory remedies.’” (citation omitted)).
        36 Id. (citation omitted).
        37 Id. at 2311 (citation omitted).
        38 Id. at 2312 (2013) (Thomas, J., concurring) (“[T]he FAA requires that an agreement

to arbitrate be enforced unless a party successfully challenges the formation of the arbitration
agreement, such as by proving fraud or duress.” (citation and quotation marks omitted)).
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                                  No. 14-10857
                    Cons. w/Nos. 14-10945, 14-11014, 14-11093
       I am persuaded that the Receiver—standing in the shoes of the Stanford
entities—is not bound by the arbitration agreements because those
agreements were instruments of Stanford’s fraud. Stanford and his co-
conspirators exercised complete control over the receivership entities before
the scheme collapsed, 39 and that control included the agreements to arbitrate,
which were part of the contracts that had to be signed by the entities. 40 The
arbitration agreements were central to the Stanford Ponzi scheme with its
inherent need for privacy. As part of their employment contracts, the brokers
fed the enterprise by the ongoing sale of CDs, for which they were handsomely
compensated. Perversely, some employee-defendants claim they were deceived
by the Ponzi scheme, yet the privacy of arbitration helped keep it hidden. The
arbitration clauses, including their ostensible compliance with FINRA rules,
perpetuated the Ponzi scheme by shielding the fraudulent activity from
potentially revealing discovery while giving the scheme an air of legitimacy. 41
It signifies that a Ponzi scheme is extrinsic to the enforcement of promises of
contracts that only in aggregation become illegal. This case does not present
single inducement claims upon distinct contracts, rather it presents the claims




       39  See Brown, 767 F.3d at 437–39; DSCC II, 712 F.3d at 193 (“Because the Stanford
corporations were the robotic tools of Stanford’s Ponzi scheme, knowledge of the fraud could
not be imputed to them while they were under Stanford’s coercion.”); id. at 198 (concluding
“that the evidence presented to the district court overwhelmingly established that, from at
least as early as 1999, the Stanford corporations were nothing more than robotic tools of
Stanford’s elaborate Ponzi scheme”).
        40 Because this Court has embraced the principles in Scholes v. Lehmann, 56 F.3d 750

(7th Cir. 1995), see Brown, 767 F.3d at 437; DSCC II, 712 F.3d at 190–92, the receivership
entities are not responsible for actions directed by Allen Stanford to perpetuate the
fraudulent Ponzi scheme.
        41 Granted, there are exceptions to the general privacy afforded in arbitration. See

Resnik, supra note 9, at 2896–97. For instance, FINRA rules require arbitration awards to
be publicly available. FINRA Rules 12904(h), 13904(h). Nevertheless, the basic disputes
remain concealed.
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                                   No. 14-10857
                     Cons. w/Nos. 14-10945, 14-11014, 14-11093
of many swept into the vortex of a criminal enterprise collectively providing its
fuel of new investors.
      One lesson of the Highwayman’s Case is that efforts to enforce contracts
in service of criminal enterprise ought receive a cold reception in the courts.
Surely we would not enforce an arbitration clause in the agreement between
Everet and Williams. Their autonomous right to dial out of the sovereign’s
courts to frustrate its criminal law ought be no more enforceable than the
court’s direct enforcement of their agreements to share the booty—at the least
when its felonious nature has been established by conviction of the architect of
the criminal scheme.
      It is oft-repeated that “[t]he FAA was enacted in 1925 in response to
widespread judicial hostility to arbitration agreements.” 42 Since then,
dispelling any notion of lingering hostility, courts have steadily increased their
defense of arbitration, posing the question of its limits. I offer no new limit and
break no new legal ground. There are outer boundaries to the enforcement of
arbitration agreements, and they surely hit shoal water as they encounter the
criminal enterprise, the existence of which here has been judicially determined
and for which its principals have been convicted and sent to prison. 43
      Privacy remains a significant attractant to arbitration even as the cost
of arbitration approaches that of litigation. In a Ponzi scheme, covering the
eyes and ears of lulled investors by using arbitration, with its obstruction of
the powerful discovery process of federal courts, mitigates the risks of a torch
in a hay barn where a hot ember can take it down. It is no accident that even
promissory notes with the sales personnel contained arbitration provisions.
Here, the risk of discovery is so high as to pull the arbitration clause to the


      42   AT&T Mobility, 563 U.S. at 339; accord Am. Express Co., 133 S. Ct. at 2308–09.
      43   Stanford, 805 F.3d at 563; DSCC II, 712 F.3d at 189.
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                               No. 14-10857
                 Cons. w/Nos. 14-10945, 14-11014, 14-11093
heart of the criminal enterprise and from the bite of Prima Paint. This is not
to gainsay the strong support of arbitration by the Congress and the courts.
Rather, refusing to enforce arbitration provisions deployed in service of an
illegal scheme travels with and reinforces this foundational support—a friend,
not an enemy, of arbitration.




                                     29
