Mano-Y&M, Ltd v. Field (In re The Mortgage Store, Inc.)

Summarized by David Hercher , U.S. Bankruptcy Court, District of Oregon
11 years 2 months ago

Citation:

In re The Mortgage Store, Inc., No. 13-16020 (9th Cir. Dec. 5, 2014).

Tag(s):

Ruling:

An initial transferee under § 550(a)(1) is one who has “dominion” over the transferred property by both holding legal title to the property and having the ability to use it as the transferee sees fit. Control alone does not suffice.

Procedural context:

The chapter 7 trustee brought an action against Mano-Y&M, Ltd. (“Mano”), to avoid and recover a fraudulent transfer made by the debtor. Mano appealed to the district court and to the Ninth Circuit, both of which affirmed.

Facts:

Mano sold a shopping plaza to Lindell, the debtor’s principal. The debtor paid the down payment for the purchase. The trustee contended that Mano was the initial transferee of the down payment, and Mano contended that the initial transferee was Lindell. The Ninth Circuit applies the so-called “dominion test” to determine whether a party is an initial transferee. Under that test, a transferee has dominion over transferred property if the transferee has both legal title to the property and the ability to use the property as the transferee sees fit. The first party to establish dominion over transferred property after it leaves the transferor is the initial transferee; other transferees are subsequent transferees. Here, Lindell’s interest in the down payment was too constrained to satisfy the dominion test. Under the purchase agreement, when the debtor transferred the down payment to the escrow agent, Lindell had no right to control the distribution of the down payment. Thus, Mano was the initial transferee.

Judge(s):

A. Wallace Tashima, Johnnie B. Rawlinson, and Richard R. Clifton, Circuit Judges.

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