Marcia Meoli v. The Huntington Nat'l Bank
848 F.3d 716
6th Cir.2017Background
- Cyberco ran a Ponzi scheme via a shell company, Teleservices, which received loan proceeds and funneled them to Cyberco; Cyberco used those funds to pay salaries and to repay loans at Huntington National Bank.
- Huntington was Cyberco’s bank and creditor from 2002–2004, holding Cyberco deposits and a perfected security interest in Cyberco’s assets, and extending loans that grew to ~$16 million.
- Trustee Meoli (Teleservices’ trustee) sued Huntington to recover three categories of transfers from Teleservices: (1) direct loan repayments sent straight to Huntington; (2) indirect loan repayments sent to Cyberco’s Huntington deposit account and later applied to Cyberco’s Huntington debt; and (3) excess deposits remaining in Cyberco’s account and later withdrawn or seized.
- Bankruptcy and district courts held Huntington liable as a “transferee” for all three types; Huntington appealed, arguing it was not a transferee of excess deposits and that it received repayments in good faith; Trustee cross-appealed prejudgment interest rate.
- The Sixth Circuit: (a) held Huntington was a transferee of direct and indirect loan repayments but not of excess deposits (bank deposits generally do not confer “dominion and control”); (b) held Huntington failed to prove good faith after April 30, 2004 due to a critical internal communication breakdown; (c) remanded to determine whether Huntington had knowledge of voidability for some indirect repayments between Sept 25, 2003 and Apr 30, 2004; and (d) upheld use of the statutory prejudgment interest rate as permissible but left rate discretion to the district court on remand.
Issues
| Issue | Plaintiff's Argument (Meoli) | Defendant's Argument (Huntington) | Held |
|---|---|---|---|
| Was Huntington a “transferee” of Cyberco’s excess deposits under 11 U.S.C. §550? | Huntington’s possession and perfected security interest made it a transferee of deposits. | A depository bank lacks dominion and control over customer deposits; security interest did not transfer dominion over excess funds. | Huntington is not a transferee of excess deposits; banks maintaining deposit accounts generally do not obtain the requisite dominion and control. |
| Was Huntington a transferee of direct and indirect loan repayments? | Trustee: yes—these reduced Cyberco’s estate and were avoidable. | Huntington conceded it was a transferee but raised good-faith defenses. | Huntington is a transferee of direct repayments (initial) and of indirect repayments (subsequent). |
| Did Huntington receive the repayments in "good faith" (11 U.S.C. §§548(c), 550(b)(1))? | Trustee: Huntington lacked good faith earlier; bank’s red flags and suspicious conduct undermine good-faith defense. | Huntington: acted in good faith and cooperated with the FBI; lacked actual knowledge of fraud. | Huntington’s corporate good faith ceased on Apr 30, 2004 (investigator discovered Watson’s fraud but failed to inform account manager); thus transfers after that date are recoverable. |
| Did Huntington have "knowledge of the voidability" for indirect repayments between Sept 25, 2003 and Apr 30, 2004? | Trustee: inquiry notice as of Sept 25, 2003 defeats Huntington’s §550(b)(1) defense. | Huntington: Nordic Village does not mandate finding knowledge; factual inquiry required. | Nordic Village does not rigidly compel that result; remand required to decide whether facts would have alerted a reasonable person and made Huntington "without knowledge" ineligible for the defense. |
Key Cases Cited
- Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890 (7th Cir. 1988) (bank as depository lacks dominion over customer deposits until instructed to apply funds to bank debt)
- Taunt v. Hurtado (In re Hurtado), 342 F.3d 528 (6th Cir. 2003) (dominion-and-control test for transferee status; depositor may retain dominion)
- Nordberg v. Societe Generale (In re Chase & Sanborn Corp.), 848 F.2d 1196 (11th Cir. 1988) (bank receiving funds for deposit is not an initial transferee)
- Universal Serv. Admin. Co. v. Post-Confirmation Comm. of Unsecured Creditors of Incomnet (In re Incomnet, Inc.), 463 F.3d 1064 (9th Cir. 2006) (depository bank acts as conduit; lacks dominion over deposits)
- IRS v. Nordic Village, Inc. (In re Nordic Village, Inc.), 915 F.2d 1049 (6th Cir. 1990) (inquiry notice can suffice to show knowledge of voidability under §550(b)(1))
- Schumacher v. AK Steel Corp., 711 F.3d 675 (6th Cir. 2013) (district court must consider case-specific factors when applying statutory prejudgment interest rate)
- Ford v. Uniroyal Pension Plan, 154 F.3d 613 (6th Cir. 1998) (statutory postjudgment rate is a reasonable method for prejudgment interest)