Second Circuit Insulates Innocent Friend from Corporate Debtor's Fraudulent Transfer Liability

Relevance

The Code does not define "initial transferee", leading to a raft of fact-intensive appellate decisions on the subject. Generally, a financial intermediary or conduit would not be a "transferee" of the debtor's property because it does not have control over that property. See, e.g., In re Pony Express Delivery Servs. Inc., 440 F.3d 1296, 1304 (11th Cir. 2006) (insurance broker received premium payments from debtor more than three weeks after paying insurance carriers on debtor's behalf; held, insurance broker was not initial transferee under §550); Christy v. Alexander & Alexander Inc., 130 F.3d 52, 59 (2d Cir. 1997) (insurance broker mere conduit), cert denied, 524 U.S. 912 (1998); In re Red Dot Scenic, Inc., 351 F.3d 57, 58 (2d Cir. 2003) (debtor's purchasing shareholder paid personal debt with checks drawn on debtor's corporate accounts; held, recipient of checks was initial transferee "and was therefore required to return the funds regardless of any potential good faith defense"; purchasing shareholder was not initial transferee because "he exercised no control over funds at issue once they were transferred from [debtor's] account"); Bonded Fin Servs., Inc. v. European AM Bank, 838 F.2d 890, 893 (7th Cir. 1988) ("minimum requirement of status as a 'transferee' is dominion over the money or other asset, the right to put the money to one's own purposes").