Summary
The Ninth Circuit affirmed the district court’s decision upholding summary judgment that Mano-Y&M, Ltd. was the initial transferee of $311,065.25 paid by The Mortgage Store, Inc. in connection with a shopping-plaza sale. Applying the dominion test under 11 U.S.C. § 550, the court held that the party receiving funds through an agent was not the initial transferee because it lacked legal title and the ability to control the funds. The court also held that Mano waived its alternative argument concerning liability for the entire transfer amount.
Topics
Practice areas
Questions Presented
- Whether Mano-Y&M was the initial transferee of the $311,065.25 transfer under 11 U.S.C. § 550.
- Whether the Ninth Circuit Bankruptcy Appellate Panel's decision in In re Presidential remained valid to the extent it applied a control-oriented approach rather than the pure dominion test.
- Whether the court should consider Mano-Y&M's alternative argument that it was not responsible for the entire transferred amount despite failing to raise that argument in the bankruptcy court.
Holdings
- Under the pure dominion test, Mano-Y&M was the initial transferee because it obtained the first legally cognizable right to the transferred funds and had the right to receive them under the completed plaza-sale transaction.
- In re Presidential is no longer good law in the Ninth Circuit insofar as it conflicts with the pure dominion test articulated in In re Incomnet.
- The court declined to consider Mano-Y&M's alternative argument because it was waived by failure to raise it in the bankruptcy court and no exceptional circumstances justified appellate review.
Key quotations
“Under the dominion test, a transferee is one who . . . has dominion over the money or other asset, the right to put the money to one’s own purposes.” (Section III.A)
“Because we conclude that the BAP’s conclusions rested primarily on the control test, we now hold that In re Presidential is no longer good law in this Circuit insofar as it conflicts with the pure dominion test articulated in Incomnet.” (Section III.A)
“Accordingly, we deem Mano’s alternative argument waived and do not exercise our discretion to consider the issue.” (Section IV)
Factual background
Mano-Y&M sold a shopping plaza to George Lindell under a contract requiring cash and seller-financed payment. The Mortgage Store, which Lindell had controlled and continued to influence financially, wired $311,065.25 to the closing attorney, who deposited and then disbursed the funds under the contract. The Mortgage Store later filed Chapter 7 bankruptcy, and an audit revealed that it had operated a Ponzi scheme. The trustee sought to avoid and recover the transfer from Mano.
Procedural history
The Chapter 7 trustee of The Mortgage Store, Inc. sued to avoid and recover a $311,065.25 transfer made in connection with the sale of a shopping plaza. The bankruptcy court granted summary judgment, determined that Mano-Y&M was the initial transferee, and later held Mano responsible as an initial transferee. The District of Hawaii affirmed and declined to consider Mano's alternative argument concerning the amount recoverable because it had not been raised below. The Ninth Circuit affirmed.