630 B.R. 388
S.D.N.Y.2021Background
- JVJ Pharmacy (the Debtor) petitioned for bankruptcy; its principal James F. Zambri used the company debit card (while the Debtor was insolvent) to obtain cash advances at Harrah’s Atlantic City casino totaling $859,040.
- ATM services at the Casino were provided under an Ultron agreement; Global Cash Access Inc. (Global Payments) contracted with Harrah’s to authorize/process cash-advance transactions initiated at Casino ATMs.
- Practically, Harrah’s cashiers dispensed physical cash from Harrah’s drawers after verifying a Global Payments authorization; Global Payments then reimbursed Harrah’s by bulk wire the next federal business day, and Chase later paid Global Payments from the Debtor’s account (fees retained as provided in the contract).
- The Chapter 7 Trustee sued Harrah’s under 11 U.S.C. § 548(a)(1)(B) (constructive fraudulent transfer) seeking recovery under § 550, alleging Harrah’s was the initial transferee (or the entity for whose benefit transfers were made).
- The Bankruptcy Court granted summary judgment for the Trustee, finding Global Payments was Harrah’s agent and Harrah’s the initial transferee, and entered judgment for $923,582.94.
- The District Court vacated the Bankruptcy Court’s agency/initial-transferee finding (remanding for further fact-finding), but affirmed that the Debtor received less than reasonably equivalent value (so the Transfers are avoidable) and remanded remaining issues (transferee status, defenses, tracing) to the Bankruptcy Court.
Issues
| Issue | Plaintiff's Argument (Trustee) | Defendant's Argument (Harrah’s) | Held |
|---|---|---|---|
| Whether Global Payments acted as Harrah’s agent for the cash advances | Global Payments was Harrah’s agent under their MSA; Global Payments merely processed on Harrah’s behalf, lacked independent economic stake, and reimbursed Harrah’s, so Harrah’s is the principal/initial transferee | The MSA disclaims agency (calls Global Payments an independent contractor); Global Payments operated independently and had its own procedures and discretion | Agency finding vacated: genuine disputes of material fact exist about control; agency not decided on summary judgment and remanded |
| Whether the Debtor received reasonably equivalent value for the Transfers (element of §548(a)(1)(B)) | Zambri — not the Debtor — received the cash for personal use; no evidence Debtor received value | Harrah’s speculates Zambri may have used funds to benefit the Debtor (e.g., pay debts, gamble to win funds) | Held for Trustee: no genuine dispute; Debtor received less than reasonably equivalent value; Transfers avoidable under §548(a)(1)(B) |
| Whether Harrah’s or Global Payments is the initial transferee or whether Global Payments was a mere conduit | Trustee: if Global Payments was agent or mere conduit, Harrah’s is initial transferee/benefited party and liable | Harrah’s: Global Payments (and Harrah’s) were mere conduits facilitating Zambri’s withdrawal; or Global Payments was the initial transferee (with different defenses) | Remanded: unresolved agency and dominion/control facts preclude deciding initial-transferee/conduit status on appeal |
| Availability of §550 defenses (good‑faith/for‑value, tracing) | Trustee: Harrah’s not entitled to §548(c) defense because it didn’t give value to Debtor; if subsequent transferee, §550(b) defenses may be asserted by Harrah’s | Harrah’s: if it is a subsequent transferee it can assert §550(b) defenses (for value, in good faith, without knowledge) and argue tracing fails | Premature on appeal; Bankruptcy Court to determine after resolving transferee/conduit and factual issues |
Key Cases Cited
- Christy v. Alexander & Alexander of N.Y. Inc. (In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey), 130 F.3d 52 (2d Cir.) (mere-conduit and initial-transferee dominion analysis)
- Picard v. Ida Fishman Revocable Tr., 917 F.3d 85 (2d Cir. 2019) (§550 tracing and relationship between avoidance and recovery)
- Shulman Transp. Enters., Inc. v. Pan Am. World Airways, Inc. (In re Shulman Transp. Enters., Inc.), 744 F.2d 293 (2d Cir. 1984) (control/dominion standards in commercial agency contexts)
- Bonded Financial Servs. v. European Am. Bank, 838 F.2d 890 (7th Cir.) (practical allocation of monitoring risk between initial and subsequent transferees)
- Bigio v. Coca‑Cola Co., 675 F.3d 163 (2d Cir. 2012) (New York agency law—manifestation, consent, and control)
- BFP v. Resolution Trust Corp., 511 U.S. 531 (1994) (interpretation of §548 elements and related standards)
- EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11 (N.Y. 2005) (contracts/labels do not determine fiduciary/agency obligations)