945 F.3d 943
5th Cir.2019Background
- Debtor Curtis DeBerry committed bankruptcy fraud and filed Chapter 7 in Feb. 2014; Trustee John Patrick Lowe sued to avoid and recover a $275,000 prepetition transfer as fraudulent.
- In Aug. 2013 Kathy DeBerry deposited a $275,000 cashier’s check into a Wells Fargo account opened jointly with Cheri Whitlock; three days later Kathy removed herself and Whitlock became sole accountholder.
- Over the next month Whitlock authorized several transfers; on Oct. 7 she wired $32,000 to Kathy DeBerry and $200,000 to MBC (Debtor’s LLC), leaving $241,500 at issue after settling one transfer.
- Bankruptcy court found the Aug. 26 transfer avoidable and that Whitlock was an initial transferee with dominion and control, then held Whitlock liable for the full $241,500—even though $232,000 had been returned prepetition.
- The district court affirmed; on appeal the Fifth Circuit held that a trustee may not "recover" under 11 U.S.C. § 550(a) property that a transferee returned to the debtor before the bankruptcy filing, vacating and remanding for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is Whitlock a “transferee” under § 550(a)? | Trustee: Whitlock had dominion and control (endorsed check, sole accountholder, executed transfers) and thus is an initial transferee liable under § 550(a). | Whitlock: she was a mere conduit; funds always belonged to the DeBerrys, so she is not a transferee liable under § 550(a). | Not decided on appeal; lower courts found Whitlock an initial transferee, but Fifth Circuit resolved case on other grounds. |
| Can Trustee recover prepetition-returned funds under § 550(a)/(d) (single-satisfaction rule)? | Trustee: § 550(a) allows recovery and § 550(d) limits only multiple recoveries under (a); a prepetition reconveyance to debtor does not bar a later recovery from another transferee. | Whitlock: once transferee returned funds prepetition, property cannot be "recovered" again; single-satisfaction/§ 550 bars double recovery and prevents windfalls. | Held for Whitlock: trustee cannot "recover" property under § 550(a) that was returned to the debtor before the petition; § 550(d) prevents double recovery. Case vacated and remanded for factual determination whether transfers actually returned funds to debtor. |
Key Cases Cited
- Picard v. Avellino, 917 F.3d 85 (2d Cir. 2019) (distinguishes avoidance from recovery under § 550).
- Soza v. Hill (In re Soza), 542 F.3d 1060 (5th Cir. 2008) (badges-of-fraud analysis for fraudulent-transfer intent).
- Sec. First Nat’l Bank v. Brunson (In re Coutee), 984 F.2d 138 (5th Cir. 1993) (dominion-and-control test for transferee status).
- IBT Int’l, Inc. v. Northern (In re Int’l Admin. Servs., Inc.), 408 F.3d 689 (11th Cir. 2005) (distinguishing avoidance and recovery principles).
- Acequia, Inc. v. Clinton (In re Acequia, Inc.), 34 F.3d 800 (9th Cir. 1994) (separate discussion of avoidance v. recovery).
- Bakst v. Wetzel (In re Kingsley), 518 F.3d 874 (11th Cir. 2008) (bankruptcy courts’ equitable discretion to prevent windfalls).
- Nostalgia Network, Inc. v. Lockwood, 315 F.3d 717 (7th Cir. 2002) (nonbankruptcy precedent involving retained use of transferred funds).
- Ultra Petroleum Corp. v. Ad Hoc Comm. of Unsecured Creditors (In re Ultra Petroleum Corp.), 943 F.3d 758 (5th Cir. 2019) (importance of uniform bankruptcy law).
- Merit Mgmt. Grp., LP v. FTI Consulting, Inc., 138 S. Ct. 883 (2018) (statutory-interpretation caution against adopting implausible readings of the Code).