Lynn H. Martinez v. Steven D. Hutton, 628 F.3d 1312

Martinez, as Chapter 7 trustee, sued Hutton and his firm for recovery of $500,000 Harwell’s settlement proceeds funneled through Hutton’s trust account.
Bankruptcy court assumed Hutton masterminded and coordinated the transfers to Harwell, his family, and selected creditors, in the settlement distributions.
Colorado judgment against Harwell ($1.396 million) spurred Hill’s domestication action in Florida, with Hutton representing Harwell.
Settlement payments: $100,000 to Harwell from CFE and $400,000 to Harwell from SEI, deposited into Hutton’s trust account and disbursed to multiple payees on Harwell’s instruction.
Hill obtained a turnover order; after garnishment, Hutton ceased certain payments but later disbursed other sums; some transfers were later traced to Harwell’s Chapter 11 filing.
Bankruptcy court granted summary judgment, holding Hutton was not an initial transferee under § 550(a)(1); district court affirmed, prompting this appeal.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Is Hutton an initial transferee under §550(a)(1)?	Martinez argues Hutton received funds initially and therefore is liable.	Hutton contends he was a mere conduit, not the initial transferee, thus not liable.	Hutton is the initial transferee; remand for good faith/control analysis.
Must good faith be shown to sustain a mere conduit defense to §550(a)(1)?	Even as mastermind, Hutton should be liable; no good-faith requirement for initial transferees beyond conduit status.	Mere conduit defense requires good faith and lack of control; without it, liability follows.	Good faith is required; remand to determine Hutton's control and bad faith.

Chase & Sanborn Corp. v. General Coffee Corp., 813 F.2d 1177 (11th Cir. 1987) (developed control/mere conduit approach to initial transferee analysis)
Nordberg v. Societe Generale, 848 F.2d 1196 (11th Cir. 1988) (emphasized equitable, fact-intensive control test; conduits may escape liability)
IBT Int’l, Inc. v. Northern (In re Int’l Admin. Servs., Inc.), 408 F.3d 689 (11th Cir. 2005) (conduit rule exceptions; emphasizes good faith and lack of control)
Andreini & Co. v. Pony Express Delivery Services, Inc. (In re Pony Express Delivery Services, Inc.), 440 F.3d 1296 (11th Cir. 2006) (reaffirmed flexible control/conduit test; fiduciaries may be initial transferees if they exercise control)
Bank of Marin v. England, 385 U.S. 99 (Supreme Court 1966) (principle that equitable considerations govern bankruptcy jurisdiction)