S.E.C. v. Stanford Int’l Bank, Ltd (Due Process Rights of Creditors)

In S.E.C. v. Stanford Int’l Bank, Ltd., 12-10822, 2014 WL 60143 (5th Cir. Jan. 8, 2014), the Fifth Circuit addressed the objections of an alleged secured party to a turn over order issued by the District Court in a receivership action. Pursuant to a previous ruling of the Fifth Circuit disallowing the issuer of a letter of credit, Trustmark, to offset its obligation with funds of a receivership entity held in a deposit account, the District Court issued an order requiring Trustmark to turn over the funds to the Receiver. Trustmark then moved to modify the order to allow it to turn over the funds to the District Court instead of the Receiver, and appealed the negative ruling to the Fifth Circuit, principally arguing violation of procedural due process. In upholding the District Court’s order, the Fifth Circuit rejected Trustmark’s procedural due process claim, by which it had argued that the taking of the funds destroyed its security interest and the claims process was not an adequate substitute. While not ruling on the issue of whether a security interest is in fact a property right of which Trustmark could be deprived, the Court noted that a receiver takes all claims subject to all liens, priorities and privileges and Trustmark will have the opportunity to assert its priority as part of the claims process.