                FOR PUBLICATION

 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

IN THE MATTER OF WALLDESIGN,           No. 15-56220
INC., a subchapter S. Corporation,
                             Debtor,      D.C. No.
                                       8:14-cv-01725-
                                            VAP
LISA ANNE HENRY, DBA Henry
West Designs,
                      Appellant,

                 v.

OFFICIAL COMMITTEE OF
UNSECURED CREDITORS OF
WALLDESIGN, INC.,
                          Appellee.



IN THE MATTER OF WALLDESIGN,           No. 15-56221
INC., a subchapter S. Corporation,
                             Debtor,      D.C. No.
                                       8:15-cv-00167-
                                            VAP
DONALD F. BURESH, an individual;
SHARON J. PHILLIPS, an individual,
                         Appellants,     OPINION

                 v.
2              IN THE MATTER OF WALLDESIGN

    OFFICIAL COMMITTEE OF
    UNSECURED CREDITORS OF
    WALLDESIGN, INC.,
                                 Appellee.


         Appeals from the United States District Court
             for the Central District of California
         Virginia A. Phillips, District Judge, Presiding

            Argued and Submitted March 10, 2017
                    Pasadena, California

                     Filed October 2, 2017

    Before: A. Wallace Tashima and Jacqueline H. Nguyen,
    Circuit Judges and Algenon L. Marbley, * District Judge.

                  Opinion by Judge Marbley;
                   Dissent by Judge Nguyen




     *
      The Honorable Algenon L. Marbley, United States District Court
Judge for the Southern District of Ohio, sitting by designation.
                IN THE MATTER OF WALLDESIGN                          3

                          SUMMARY **


                           Bankruptcy

    The panel affirmed the district court’s reversal of the
bankruptcy court’s summary judgments in favor of the
defendants in two adversary proceedings seeking recovery
of fraudulent transfers.

     Applying the “dominion test,” the panel held that
creditors who received misappropriated funds from the
debtor corporation’s sole shareholder, director, and
president were initial transferees under 11 U.S.C.
§ 550(a)(1). They therefore were not entitled to the safe
harbor of § 550(b)(1) for subsequent transferees, and the
Committee of Unsecured Creditors could recover the funds
both from the corporate cheat and those parties to whom he
first made payments from the corporate account.

    The panel affirmed the district court’s judgments in favor
of the Committee and remanded with instructions to remand
both cases to the bankruptcy court for further proceedings.

    Dissenting, Judge Nguyen wrote that the result of the
majority’s decision was not equitable. She wrote that the
court should consider adopting the “control test” used by
other circuits, or at least returning to a hybrid “dominion and
control” approach. In addition, even applying the dominion
test, the defendants were not initial transferees.



    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
4             IN THE MATTER OF WALLDESIGN

                        COUNSEL

Steven J. Katzman (argued) and Anthony Bisconti, Bienert
Miller & Katzman PLC, San Clemente, California, for
Appellants.

John P. Reitman (argued) and Jack A. Reitman, Landau
Gottfried & Berger LLP, Los Angeles, California, for
Appellees.


                         OPINION

MARBLEY, District Judge:

    It is said that bad facts make bad law. These appeals test
that maxim against the often esoteric backdrop of the
Bankruptcy Code. More specifically, the court must decide
who is liable for voidable payments in bankruptcy
proceedings when a debtor corporation’s sole shareholder,
director, and president misappropriates company funds to
fuel his own version of “lifestyles of the rich and famous.”

    The bankruptcy court held that the Committee of
Unsecured Creditors (“the Committee”) could recover the
fraudulently transferred funds solely from the corporate
cheat, because the appellants were subsequent transferees
who accepted the payments for value, in good faith, and
without knowledge of their voidability. See 11 U.S.C.
§ 550(b)(1) (the “safe-harbor” provision).

    The district court reversed, concluding that the
appellants were initial transferees under § 550(a)(1) and,
therefore, not entitled to the safe harbor under § 550(b)(1)
for subsequent transferees. Under the district court’s view,
the Committee could recover the funds from both the
                 IN THE MATTER OF WALLDESIGN                             5

corporate cheat and those parties to whom he first made
payments from the corporate account.

    Although the equities seem harsh at first glance, our
reading of the statute and the case law persuades us that the
district court was correct. By enacting 11 U.S.C. § 550,
Congress assigned liability for repaying voidable transfers to
both the “good guys” (initial transferees, like the appellants)
and the “bad guys” (those for whose benefit the transfer was
made, like corporate cheats), because “good guys” who are
party to those transfers generally stand in a better position to
guard against corporate fraud than do unsuspecting creditors.
We therefore AFFIRM the judgments of the district court in
favor of the Committee 1 and REMAND these cases to the
bankruptcy court for further proceedings.

                        I. BACKGROUND

    Sections 544 and 548 of the Bankruptcy Code empower
a liquidating trustee to enlarge the debtor’s estate by
invalidating fraudulent transfers of property, including
money, thereby making the property a part of the debtor’s
estate again. 11 U.S.C. §§ 544(b)(1), 548(a)(1)(B).

    Section 550, in turn, dictates who must reimburse the
trustee and, through the trustee, the debtor’s creditors, for
those fraudulent and “avoided” transfers. Id. § 550. These
appeals hinge on § 550 and determining whether the

    1
       Although the trustee of the liquidation trust established by
Walldesign’s confirmed Chapter 11 plan has replaced the Committee as
the real party in interest in these cases, all lower court proceedings and
the parties’ briefing on appeal still refer to the appellee as the Official
Committee of Unsecured Creditors of Walldesign, Inc. For ease of
reference and consistency with the record, our opinion will refer to the
appellee in these cases as “the Committee” as well.
6            IN THE MATTER OF WALLDESIGN

appellants were initial transferees of fraudulent payments
under § 550(a)(1), and thus strictly liable to the Committee,
or subsequent transferees, who may avail themselves of the
safe-harbor provision of § 550(b)(1).

                 A. Factual Background

    Michael Bello served as the sole shareholder, director,
and president of Walldesign, Inc., a California corporation
that installed drywall, acoustical material, and plaster in
construction projects in California, Nevada, and Arizona.
Bello oversaw Walldesign’s day-to-day business operations,
as well as the company’s finances.

    Walldesign maintained its primary bank account at
Comerica Bank in El Segundo, California. Walldesign
generally deposited its accounts receivable in and paid its
expenses from this primary account. The primary account
was disclosed in the general ledger and other books and
records of Walldesign. And, when Bello signed the
Schedules and Statement of Financial Affairs in
Walldesign’s bankruptcy case, he disclosed the company’s
primary account in those filings.

    In 2002, Bello opened a different bank account in
Walldesign’s name at Preferred Bank in Irvine, California.
When he opened this account, Bello used Walldesign’s
Federal Tax I.D. Number, a Statement by Domestic Stock
Corporation, Walldesign’s Articles of Incorporation, a
Unanimous Consent of Shareholder of Walldesign to
Corporate Action, and a signature card granting him
authority as an agent of Walldesign to open the account.
That said, Bello used his home as the secondary account’s
address; he did not disclose the account in Walldesign’s
general ledger or other records; and he later made his wife—
who was not a Walldesign employee—a signatory to the
              IN THE MATTER OF WALLDESIGN                     7

account. Bello, moreover, tried to conceal the secondary
account during Walldesign’s bankruptcy proceedings.

    Although most of Walldesign’s income and expenses
flowed through its primary account, Bello devised a system
whereby rebates from the company’s suppliers were
deposited into the secondary account instead. Rather than
deduct the rebates from Walldesign’s invoice, suppliers
issued checks to Walldesign for the difference. Bello then
deposited the rebate checks into Walldesign’s secondary
account, without disclosing the deposits to the company’s
management, its creditors, or even the bankruptcy court.
Bello channeled nearly $8 million of Walldesign funds into
the secondary account in the ten years he operated it.

    Bello then used the funds in Walldesign’s secondary
account to support his own lavish lifestyle rather than for
legitimate business purposes. You name it, Bello spent it,
including paying for the following: (1) to operate Bello’s
family vineyards; (2) to operate Bello’s horseracing stable;
(3) to operate other unrelated business entities Bello
controlled; (4) Bello’s Las Vegas casino bills; (5) Bello’s
personal expenses charged on his American Express credit
card; (6) Bello’s homeowners association and country club
fees for two private golf courses; and (7) to pay for a “tasting
room” property purchased by RU Investments, one of
Bello’s other business ventures. In total, Bello paid nearly
$8 million from the secondary account to roughly
130 individuals and entities. All of the payments that Bello
caused Walldesign to make from this secondary account
were for his personal expenses and not for the benefit of the
company or its creditors.

    Bello’s actions ultimately impacted the appellants,
Donald Buresh and Sharon Phillips (“the Bureshes”) and
Lisa Anne Henry. The Bureshes are a married couple who
8             IN THE MATTER OF WALLDESIGN

owned real property in St. Helena, California (“the
Property”). In 2009, they sold the Property to a Bello-
controlled entity, RU Investments, for roughly $220,000.
The Bureshes sold the Property for a fair value and at arms’
length. Over the next two years, Bello made payments to the
Bureshes from checks drawn on Walldesign’s secondary
account. These checks all bore the name “WALLDESIGN
INCORPORATED.” Ultimately, Bello located a Bello
Family Vineyard “tasting room” on the Property. Aside
from the sale of the Property, the Bureshes had no pre-
existing relationship and have no ongoing relationship with
Bello, his family, or any of his businesses.

    Ms. Henry is the owner of Henry West Design, a small
interior design firm. She met Bello through a client, who
referred her to Bello for design services on a building he (not
Walldesign) owned. She provided design- and construction-
related services for Bello over nine years, always at her
standard rates, in arms’ length transactions. Bello did not
personally pay for these services; instead, he drew checks
from Walldesign’s secondary account, as well as from other
businesses he operated. In total, Bello spent over $230,000
on Ms. Henry’s design services. Aside from providing these
services, Ms. Henry had no pre-existing or ongoing
relationship with Bello, his family, or any of his businesses.

                B. Procedural Background

    Walldesign petitioned for bankruptcy on January 4,
2012. The Committee was appointed to represent creditors’
interests a few days later. The Committee eventually
brought ninety-six separate adversary proceedings to
recover payments Bello made from the secondary account,
including the payments to the Bureshes and Ms. Henry. All
told, the Committee sought to recover $220,350.00 from the
Bureshes and $232,948.16 from Ms. Henry.
              IN THE MATTER OF WALLDESIGN                    9

    The Committee also filed a complaint against Bello, his
wife, and various other Bello-related individuals and
entities—seeking to recover an amount equal to all identified
payments made from the secondary account, including the
payments made to the Bureshes and Ms. Henry.

    In June 2014, the Bureshes and Ms. Henry filed motions
for partial summary judgment against the Committee. The
Bureshes and Ms. Henry argued that they were not liable to
the Committee for any fraudulent transfers because they
were not “initial transferees” under 11 U.S.C. § 550(a)(1)
but, rather, were subsequent transferees entitled to the safe
harbor under § 550(b)(1). The bankruptcy court granted the
motions for partial summary judgment, first in an oral order
on July 31, 2014, and later issued brief written orders in both
cases. The Committee then appealed both orders to the
district court.

    On July 17, 2015, the district court reversed the decision
of the bankruptcy court in the Bureshes’ case (the lead case).
In re Walldesign, Inc., No. SACV 15-00167-VAP, 2015 WL
4399843 (C.D. Cal. July 17, 2015). The district court found
the Bureshes strictly liable to the Committee because they
qualified as “initial transferees” of the fraudulent payments
that Bello made from Walldesign’s secondary account under
§ 550(a)(1). Id. at *7. In the same order, the court
administratively closed Ms. Henry’s appeal for the same
reason, thereby remanding both cases to the bankruptcy
court for further proceedings. Id.

   The Bureshes and Ms. Henry timely filed their notices of
appeal of the district court orders.
10            IN THE MATTER OF WALLDESIGN

             II. STANDARD OF REVIEW

    We review the district court’s decision on an appeal from
a bankruptcy court de novo. Barclay v. Mackenzie (In re AFI
Holding, Inc.), 525 F.3d 700, 702 (9th Cir. 2008). Because
these appeals stem from the grant of summary judgment, we
must determine whether the pleadings and supporting
documents show that there is no genuine dispute as to a
material fact and that the moving parties are entitled to
judgment as a matter of law. Id.

                     III. ANALYSIS

 A. Statutory Scheme: The Bankruptcy Code Draws a
  Critical Distinction Between Initial and Subsequent
                       Transferees.

    The Bankruptcy Code draws a critical distinction
between initial and subsequent transferees when it comes to
the recovery of fraudulent transfers. When a trustee has
proven the avoidability of a fraudulent transfer, the trustee
may recover the property (or its value) from “(1) the initial
transferee of such transfer or the entity for whose benefit
such transfer was made; or (2) any [subsequent] transferee
of such initial transferee.” 11 U.S.C. § 550(a). The trustee,
however, may not recover the property or its value from a
subsequent transferee if that transferee accepted the property
“for value . . . , in good faith, and without knowledge of the
voidability of the transfer.” Id. § 550(b)(1).

    This distinction between initial and subsequent
transferees is “critical.” Schafer v. Las Vegas Hilton Corp.
(In re Video Depot, Ltd.), 127 F.3d 1195, 1197 (9th Cir.
1997). Trustees have an absolute right of recovery against
the “initial transferee” and any “entity for whose benefit
such transfer was made.” Danning v. Miller (In re Bullion
              IN THE MATTER OF WALLDESIGN                  11

Reserve of N. Am.), 922 F.2d 544, 547 (9th Cir. 1991). While
trustees “[t]heoretically” can recover from subsequent
transferees as well, subsequent transferees who accepted the
property “for value, in good faith, and without knowledge”
of the voidability of the transfer may avail themselves of the
“‘good faith’ defense of section 550(b).” Id.; accord In re
Video Depot, 127 F.3d at 1198.

   B. Statutory Text: Who is an “Initial Transferee.”

    We look first to the statutory text to determine whether
the Bureshes and Ms. Henry qualify as initial transferees.
Lamie v. U.S. Tr., 540 U.S. 526, 534 (2004). If the statute’s
text “is plain,” we must “enforce it according to its terms,”
so long as the result is not absurd. Id. (quotation omitted).

    In a leading case on § 550, the Seventh Circuit explained
that “‘[t]ransferee’ is not a self-defining term; it must mean
something different from ‘possessor’ or ‘holder’ or ‘agent.’”
Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d
890, 894 (7th Cir. 1988). The court noted that treating
“anyone who touches the money” as a “transferee” could
lead to “absurd results” and require “useless [analytical]
steps.” Id. To avoid this result, the court opted to “slice
these [steps] off with Occam’s Razor and leave a more
functional rule” in their place. Id. Under that more
functional rule, the “minimum requirement [for] status as a
‘transferee’ is dominion over the money or other asset,” i.e.,
“the right to put the money to one’s own purposes.” Id. at
893 (emphasis added).

    Our court followed suit in Universal Service
Administrative Co. v. Post-Confirmation Committee of
Unsecured Creditors (In re Incomnet), 463 F.3d 1064 (9th
Cir. 2006). There, we first noted that “Section 550(a) does
not define the phrase ‘initial transferee.’” Id. at 1069. But
12             IN THE MATTER OF WALLDESIGN

rather than relying on an over-simplistic syllogism from the
meaning of “transfer,” as the Bureshes and Ms. Henry
propose, we joined the Seventh Circuit in adopting the
“dominion test.” Id. at 1069–71 (describing Bonded
Financial Services as “[t]he leading case” on § 550 and
adopting its formulation of the “dominion test” to determine
initial-transferee status).      Moreover, we adopted the
dominion test despite some “concerns that, by focusing on
whether a party had dominion over funds, courts may lose
track of the original question proposed by the statute—
namely, whether a party is a transferee.” Id. at 1073 n.11.
In 2014, our court again held that “[i]n the absence of a
statutory definition, we apply the so-called ‘dominion test’
to determine whether a party is the initial transferee.” Mano-
Y & M, Ltd. v. Field (In re Mortg. Store, Inc.), 773 F.3d 990,
995 (9th Cir. 2014). There, we confirmed that “[t]he proper
standard is the In re Incomnet dominion test” and that under
that test, “the touchstones . . . for initial transferee status are
legal title and the ability of the transferee to freely
appropriate the transferred funds.” Id. at 996.

   Thus, any reliance on the meaning of “transfer” in
11 U.S.C. § 101(54)(D) is misplaced in connection with the
inquiry at hand: determining whether the Bureshes and Ms.
Henry qualify as “initial transferees” under § 550(a)(1).

  C. Under the Dominion Test, the Bureshes and Ms.
       Henry Qualify as “Initial Transferees.”

   As explained below, the Bureshes and Ms. Henry qualify
as the “initial transferees” of payments made from
Walldesign’s secondary account under the dominion test.
As such, they remain strictly liable to the Committee.
              IN THE MATTER OF WALLDESIGN                     13

              1. The Dominion Test Explained

    Under the dominion test, “a transferee is one who . . . has
dominion over the money or other asset,”—in other words,
one with “the right to put the money to one’s own purposes.”
In re Mortg. Store, 773 F.3d at 995 (quoting In re Incomnet,
463 F.3d at 1070). The “key[s]” to this test are “‘whether
the recipient of funds has legal title to them’ and whether the
recipient has ‘the ability to use [the funds] as he sees fit.’”
Id. (quoting In re Incomnet, 463 F.3d at 1071). We further
explained that, “an individual will have dominion over a
transfer if, for example, he is ‘free to invest the whole
[amount] in lottery tickets or uranium stocks.’” Id. (quoting
Bonded Fin. Servs., 838 F.2d at 894). “The first party to
establish dominion over the funds after they leave the
transferor is the initial transferee; other transferees are
subsequent transferees.” Id. (citations omitted).

     In adopting the “more restrictive ‘dominion test’” from
Bonded Financial Services, our court stressed that the test
“focuses on whether the recipient of funds has legal title to
them”; that “dominion . . . strongly correlates with legal
title”; and that “dominion . . . [is] akin to legal control.” In
re Incomnet, 463 F.3d at 1071, 1073 (emphasis added)
(quotation omitted); In re Mortg. Store, 773 F.3d at 996
(“[T]he touchstones . . . for initial transferee status are legal
title and the ability of the transferee to freely appropriate the
transferred funds.” (emphasis added)).

    Indeed, in adopting the dominion test, we took care both
to distinguish it from the often-conflated “control test,” and
to reject that more lenient standard for determining initial-
transferee status. In re Incomnet, 463 F.3d at 1069–71
(explaining that “the ‘dominion test’ and the ‘control test,’
as originally stated, are not merely different names for the
same inquiry”). While the dominion test focuses on who had
14            IN THE MATTER OF WALLDESIGN

“legal authority over the money,” the control test involves a
more gestalt analysis and requires courts to “view the entire
transaction as a whole to determine who truly had control of
the money.” Id. at 1070 (emphasis added) (citations
omitted). After noting that some courts “combined these
tests” or their names, we held that the tests are
distinguishable. Id. at 1071. We then adopted the “more
restrictive ‘dominion test’” and rejected the “more lenient
‘control test.’” Id. (quotations omitted); see also In re
Mortg. Store, 773 F.3d at 995–96 (adhering to “the pure
dominion test”).

     2. Application of the Dominion Test in Corporate
     Misappropriation Cases: A One-Step or Two-Step
                        Transaction?

   With these considerations in mind, courts have taken two
approaches when applying § 550 to fraudulent transfers
involving the misappropriation of corporate funds by
company directors, officers, or other insiders.

                 a. The Majority Approach

    Under the majority approach, or “one-step transaction”
approach, courts hold that a principal of a debtor corporation
who misappropriates company funds to satisfy personal
obligations is not an initial transferee. In re Video Depot,
127 F.3d at 1198–99 (collecting cases); Sklar v.
Susquehanna Bank (In re Global Prot.), 546 B.R. 586, 622–
23 (Bankr. D. N.J. 2016) (same). These courts reason that
“[t]he mere power of a principal to direct the allocation of
corporate resources does not amount to legal dominion and
control,” which is required for initial-transferee status. In re
Video Depot, 127 F.3d at 1199 (emphasis added).
             IN THE MATTER OF WALLDESIGN                  15

    As the Tenth Circuit has explained, “[m]any principals
presumably exercise de facto control over the funds of the
corporations they manage” and “can choose to cause their
corporations to use those funds appropriately or
inappropriately.” Id. (quoting Rupp v. Markgraf, 95 F.3d
936, 941 (10th Cir. 1996)). But “[this] distinction is only
relevant to the question whether the principal’s conduct
amounted to a breach of duty to the corporation.” Id.
(quotation omitted). The distinction is not relevant to
whether the principal qualifies as an initial transferee. Id.
Thus, a principal’s control over the business operations of a
corporation “does not, in itself, compel a finding that [the
principal] had dominion . . . over the funds transferred from
[the corporation] to [a third party].” Id. at 1200.

    Three reasons support the majority approach and
viewing direct corporate misappropriations as “single-step
transactions.” First, the text of § 550(a)(1) compels this
result:

       Determining the initial transferee of a
       transaction is necessarily a temporal inquiry;
       there must be a transfer before there can be a
       transferee. The extent to which a principal
       has de facto control over the debtor before the
       funds are transferred from the debtor, and the
       extent to which the principal uses this control
       for his or her own benefit in causing the
       debtor to make a transfer, are not relevant
       considerations in determining the initial
       transferee under § 550.

See Rupp, 95 F.3d at 941.

    In other words, the “flow of funds” matters, and “receipt
of the transferred property is a necessary element for that
16            IN THE MATTER OF WALLDESIGN

entity to be a transferee under § 550.” Id. at 942 (emphasis
added) (quotation omitted). But “[s]imply directing a
transfer, i.e., such as directing a debtor to transfer funds, is
not enough.” Id. (emphasis added) (quotation omitted).

     A principal, therefore, may establish dominion “by first
directing a transfer into his or her personal bank account and
then making the payment from his personal account to the
creditor.” See In re Video Depot, 127 F.3d at 1199. But a
principal does not establish dominion by misdirecting
company funds directly to a third party for personal gain.
See id. In that situation, the principal is not a transferee at
all but, rather, is the party for whose benefit the transfer was
made. In re Global Prot., 546 B.R. at 624.

    Second, the structure of § 550(a)(1) indicates that a
principal does not become an initial transferee simply by
using his or her control over corporate assets to effect a
fraudulent transfer. See Gen. Elec. Capital Auto Lease, Inc.
v. Broach (In re Lucas Dallas), 185 B.R. 801, 809–10
(B.A.P. 9th Cir. 1995); In re Global Prot., 546 B.R. at 624;
In re Red Dot Scenic, Inc., 293 B.R. 116, 121 (Bankr.
S.D.N.Y. 2003), aff’d, 351 F.3d 57 (2d Cir. 2003). Section
550 imposes strict liability on both initial transferees and any
beneficiaries of the fraudulent transfers.           11 U.S.C.
§ 550(a)(1). From that starting point, the Ninth Circuit
Bankruptcy Appellate Panel (“BAP”) has reasoned:

        [I]f the distinction between an initial and a
        subsequent transferee turns on whether the
        party benefitting from the transfer “forced”
        the debtor to make the transfer, then the scope
        of liability under section 550 is unduly
        narrowed. Section 550(a)(1) subjects to strict
        liability not only the initial transferee, but
        also “the entity for whose benefit such
              IN THE MATTER OF WALLDESIGN                     17

       transfer was made.” 11 U.S.C. § 550(a)(1).
       The party who forces a debtor to make a
       transfer is almost always “the entity for
       whose benefit such transfer was made,” and
       thus is generally always subject to strict
       liability. Yet Congress intended to make
       initial transferees also strictly liable . . . .
       “The implication is that the entity for whose
       benefit the transfer was made is different
       from a transferee, immediate or otherwise.”
       Bullion Reserve, 922 F.2d at 548.
       Consideration of whether the beneficiary of
       the transfer “forced” the debtor to make the
       transfer would collapse the two prongs of
       strict liability into a single party. . . . There is
       nothing in the statute or otherwise to justify
       this result.

In re Lucas Dallas, 185 B.R. at 809–10. This distinction
between the beneficiaries of a transfer and initial transferees
“thus strongly indicates that, as a general rule, beneficiaries
and initial transferees are separate parties to a fraudulent
transfer.” In re Red Dot, 293 B.R. at 121.

    Third, the policy concerns underlying § 550 counsel in
favor of treating beneficiaries, initial transferees, and
subsequent transferees separately and requiring “legal
control” over the funds as opposed to mere “de facto” control
for initial-transferee status. In re Mortg. Store, 773 F.3d at
997–98 & n.1; In re Video Depot, 127 F.3d at 1199. The
alternative approach—by which “every agent or principal of
a corporation [is] deemed the initial transferee when he or
she effected a transfer of property in his or her representative
capacity”—both misallocates the monitoring costs that
§ 550 sought to impose and deprives the trustee of a
18            IN THE MATTER OF WALLDESIGN

potential source of recovery for creditors. See In re Video
Depot, 127 F.3d at 1199; In re Red Dot, 293 B.R. at 121.
After all, foxes (like corporate cheats) rarely guard
henhouses (like corporate treasuries) with much success. In
re Mortg. Store, 773 F.3d at 998 n.1. And Congress likely
decided that “recovery from [an] embezzling principal
would be difficult, thus it also made the first recipient of
those funds liable to returning them.” See In re Global Prot.,
546 B.R. at 625.

    As these cases demonstrate, a corporate principal
(whether a shareholder, director, officer, or other insider)
who effects a transfer of company funds in his or her
representative capacity does not have dominion over those
funds in his or her personal capacity. Therefore, such a
principal does not qualify as an initial transferee under
§ 550(a)(1) of the Bankruptcy Code.

                 b. The Minority Approach

     To be sure, a minority of courts view misappropriation
cases differently and reason that corporate principals may be
strictly liable as initial transferees when they misuse
company funds for personal gain. See, e.g., Internal
Revenue Serv. v. Nordic Vill., Inc. (In re Nordic Vill., Inc.),
915 F.2d 1049, 1055 (6th Cir. 1990), rev’d on other grounds,
United States v. Nordic Vill., Inc., 503 U.S. 30 (1992).

    Under this “two-step transaction” approach, the debtor
company is deemed to have made the initial transfer to the
corporate principal, thus making him or her strictly liable as
the initial transferee. See In re Nordic Vill., 915 F.2d at 1055
(“If Lah is viewed as having taken money illegally from
Nordic, he is the ‘initial transferee’ and the delivery of the
cashier’s check to the IRS makes the IRS ‘[a subsequent]
transferee . . . .’”); see id. (“If the IRS is considered as an
              IN THE MATTER OF WALLDESIGN                     19

‘immediate transferee’ of Lah, the IRS can prevail if . . . it
took for value, in good faith, and without knowledge of the
voidability of the transfer.”).

   c. The Ninth Circuit Follows the Majority Approach

    Because the minority approach suffers from several
flaws, our court has rejected it. In re Video Depot, 127 F.3d
at 1198–1200; see In re Mortg. Store, 773 F.3d at 995–96.
For starters, the minority approach draws largely on
equitable principles and a concern that seemingly “innocent”
third parties will be held liable for fraudulent transfers unless
corporate principals are deemed the initial transferees. In re
Global Prot., 546 B.R. at 624. But our court has noted that
these types of “equitable considerations fit much more
comfortably under the control test,” which we repeatedly
have rejected. See In re Mortg. Store, 773 F.3d at 996.

    The minority approach also predates Bonded Financial
Services, on which we have relied so heavily in adopting the
dominion test, and focuses instead on the separate definition
of “transfer” from 11 U.S.C. § 101(50). E.g., In re Nordic
Vill., 915 F.2d at 1055 & n.3 (citing a pair of pre-Bonded
district court cases for the proposition that “[t]here is
substantial support for the conclusion that when a corporate
officer takes checks drawn from corporate funds to pay
personal debts, the corporate officer, and not the payee on
the check[,] is the initial transferee”).

    Due to these shortcomings (and others), we have
declined to follow the minority approach. In fact, in In re
Video Depot, we acknowledged that although “the Sixth
Circuit has expressed tentative support for [the minority
approach], . . . no circuit has based a decision on it,” and,
therefore, we expressly “decline[d] to depart from the
considered judgment of the other circuits.” 127 F.3d at 1199
20            IN THE MATTER OF WALLDESIGN

(citing In re Nordic Vill., 915 F.2d at 1049). In the process,
we also rejected both lower-court decisions on which the
Sixth Circuit based its reasoning. Id. at 1198 (declining to
follow both In re Auto-Pak, Inc., 73 B.R. 52 (D.D.C. 1987),
and In re Jorges Carpet Mills, Inc., 50 B.R. 84 (Bankr. E.D.
Tenn. 1985)); see In re Nordic Vill., 915 F.2d at 1055 n.3
(citing In re Auto-Pak and In re Jorges Carpet Mills).

    In recent years, we have moved even further away from
the equitable concerns that drive the minority approach in
favor of strict application of “the pure dominion test” and its
focus on legal control. See In re Mortg. Store, 773 F.3d at
996–98 & n.1.

 3. Application of the Majority Approach in These Cases

      Here, application of the majority approach proves
straight-forward: Bello was not the initial transferee of the
funds in the secondary account because he lacked dominion
over them. Rather than possessing legal title to the funds
and the ability to freely appropriate them, Bello abused his
power as a principal to direct company funds to third parties
for his own benefit. Because “[l]egal control over the funds
. . . passed directly from [Walldesign] to [the Bureshes and
Ms. Henry],” Bello is not the initial transferee. See In re
Video Depot, 127 F.3d at 1199.

    Recall the facts, which are not in dispute. Bello, acting
as an agent for Walldesign, established a bank account in the
company’s name using Walldesign’s Federal Tax I.D.
Number, a Statement by Domestic Stock Corporation,
Walldesign’s Articles of Incorporation, a Unanimous
Consent of Shareholder of Walldesign to Corporate Action,
and a signature card granting him signing authority as
Walldesign’s agent to open the secondary account. As all
parties necessarily agree, the secondary account belonged to
                 IN THE MATTER OF WALLDESIGN                            21

Walldesign—not to Bello. Bello then deposited Walldesign
funds (and Walldesign funds alone) into the secondary
account. 2 Bello later misdirected those company funds
directly to third parties like the Bureshes and Ms. Henry, by
way of         company checks           clearly  emblazoned
“WALLDESIGN INCORPORATED,” without ever
depositing them in his own personal account or otherwise
taking legal control of them.

    This was a classic “one-step transaction”—with funds
moving from Walldesign (the transferor) to the Bureshes and
Ms. Henry (the initial transferees), on behalf of Bello (the
party for whose benefit the transfers were made). Bello may
have exercised de facto control over those funds as a
corporate principal, but he never exercised legal control over
them, as required for initial-transferee status. See, e.g., In re
Video Depot, 127 F.3d at 1199 (suggesting that “a principal
may establish legal control and dominion by first directing a
transfer into his or her personal bank account and then
making the payment from his personal account to the
creditor,” but holding that a principal does not establish
dominion simply by misdirecting corporate funds “directly
from [the company] to [a third party]”); Rupp, 95 F.3d at
941–42 (rejecting argument that “a principal who directs and
benefits from a fraudulent transfer of funds from a debtor to
a third party is ipso facto the initial transferee” where “the
debtor’s funds moved directly to the third party” (quotation
omitted)); see also 5 Collier on Bankruptcy ¶ 555.02[4][a] at
550–18 (15th ed. 1996) (explaining that although “[t]he

    2
      The fact that Bello later decided to use the checks made payable to
Walldesign for his own personal gain does not negate that the money
legally belonged to Walldesign. See Cal. Com. Code § 3110(a) (“The
person to whom an instrument is initially payable is determined by the
intent of the person . . . signing as . . . the issuer of the instrument.”).
22            IN THE MATTER OF WALLDESIGN

Code does not define the term [] ‘initial transferee’ . . .
[g]enerally, the party who receives a transfer of property
directly from the debtor is the initial transferee” (emphasis
added)).

    Thus, Bello is strictly liable as the party for whose
benefit such transfers were made, while the Bureshes and
Ms. Henry are strictly liable as initial transferees. Several
cases bear this out. In In re Global Protection, for example,
the bankruptcy court held that a corporate principal was not
the initial transferee where he misdirected company funds
directly to a bank to pay his personal debts because “[t]he
money never passed through [his] hands.” 546 B.R. at 623.
The court instead held that the bank, as recipient of the funds,
was the initial transferee, but that both the bank and the
principal were strictly liable under § 550(a)(1). Id. at 625.
Likewise, in In re Red Dot, the court held that a corporate
principal was “the party for whose benefit the transfer was
made,” and not an initial transferee, where he “caused the
debtor . . . to transfer money direct[ly] to a personal creditor”
without any “intermediary step between the Debtor’s
issuance of the check and the [creditor’s] receipt of the
funds.” 293 B.R. at 122 (quotation omitted). There again,
the court held both parties strictly liable under § 550(a)(1).
Id.

    Although this result may “elevate[] form over
substance,” as the Bureshes and Ms. Henry suggest, form
matters a great deal in fraudulent-transfer cases due to the
policy concerns underlying § 550. In re Video Depot,
127 F.3d at 1199; Richardson v. U.S. Internal Revenue Serv.
(In re Anton Noll, Inc.), 277 B.R. 875, 882 (B.A.P. 1st Cir.
2002) (“[D]ifferentiating between a one step and a two step
transaction has real legal significance—it is not merely an
act of upholding form over substance.”).
              IN THE MATTER OF WALLDESIGN                    23

    The majority approach, which we employ, allocates the
monitoring costs and risks of repayment among the parties
as Congress intended. In re Video Depot, 127 F.3d at 1199.
It would undermine § 550 to declare Bello the initial
transferee because it is “unreasonable to assume” that an
insider who misappropriates company funds “ha[s] the
proper incentives to monitor [the company] for fraud.” See
In re Mortg. Store, 773 F.3d at 998 n.1. Appellant suggested
at oral argument that Bello’s wife, who also was a signatory
to the secondary account, had the ability and incentive to
monitor the company for fraud. This suggestion assumes
facts not in the record—namely, that Bello’s wife was an
innocent signatory on the account, and not acting in cahoots
with her husband. In truth, we have no indication what role,
if any, Bello’s wife played as a signatory on the account. It
seems equally likely that Bello’s wife knew what her
husband was doing but turned a blind eye anyway.

    Likewise, it is fair to view the Bureshes and Ms. Henry
as the initial transferees since they “receive[d] funds directly
from [the] debtor,” and thus, their “capacity [and burden] to
monitor . . . [were] at [their] greatest.” In re Video Depot,
127 F.3d at 1199. Although the Bureshes and Ms. Henry
suggest that they lacked the ability to monitor for fraud, the
record shows otherwise. It is undisputed that the Bureshes
sold their Property to a Bello-controlled entity called “RU
Investments.” Yet they received all payments for that sale
from checks bearing the name “WALLDESIGN
INCORPORATED”—providing at least some indication
that something was amiss. Likewise, Ms. Henry performed
all services for Bello in his individual capacity. Yet she
received all payments from checks bearing the name
“WALLDESIGN INCORPORATED” or from one of
Bello’s other businesses—again, providing at least some
indication of an irregularity in the payments. As between
24            IN THE MATTER OF WALLDESIGN

Walldesign’s creditors, who had no idea of the fraudulent
transfers, and the Bureshes and Ms. Henry, who had some
indication of these irregularities, the Bureshes and Ms.
Henry stood in a better position to monitor for fraud. See In
re Mortg. Store, 773 F.3d at 997.

     Finally, viewing the Bureshes and Ms. Henry as the
initial transferees, while viewing Bello as the party for
whose benefit the transfers were made, allows the
Committee to recover from all parties under § 550(a)(1), as
Congress intended. After all, “Section 550 expressly allows
the trustee to recover from either party, indicating that, as a
matter of policy, the option should be preserved where
possible.” Rupp, 95 F.3d at 943; see also In re Global Prot.,
546 B.R. at 624–25 (recognizing importance of permitting
recovery from “good guys” and “bad guys” alike, because
“recover[ing] from the embezzling principal would be
difficult”); In re Red Dot, 293 B.R. at 122 (noting that “[a]n
alternative result would be inconsistent with the Bonded
[Financial Services] framework and would contravene the
structure and purpose of section 550(a)”).

     4. The Bureshes’ and Ms. Henry’s Arguments to the
                   Contrary Lack Merit

    The Bureshes and Ms. Henry offer several rejoinders, but
they all lack merit. First, they argue that we should scrap
the dominion test from In re Incomnet in favor of the control
test that the Eleventh Circuit employs. See In re Chase &
Sanborn Corp., 848 F.2d 1196, 1199 (11th Cir. 1988). We
have been down this road twice before, and both times, we
explicitly declined similar invitations. In re Mortg. Store,
773 F.3d at 996 (“[I]n In re Incomnet, we explicitly rejected
the control test’s flexible, equitable approach and embraced
the pure dominion test.”); In re Incomnet, 463 F.3d at 1071
(“[W]e take care not to apply the more lenient ‘control test’
              IN THE MATTER OF WALLDESIGN                    25

put forth in In re Chase & Sanborn Corp.”). Because we
cannot overrule a prior panel’s decision without intervening
Supreme Court (or en banc) precedent, this argument is a
non-starter. Koerner v. Grigas, 328 F.3d 1039, 1050 (9th
Cir. 2003) (citing Hart v. Massanari, 266 F.3d 1155, 1171–
72 (9th Cir. 2001)). For better or worse, we must employ
“the pure dominion test” in these cases. In re Mortg. Store,
773 F.3d at 996.

    Second, they suggest that we should “clarify” the
dominion test by confining it to cases involving “mere
conduits,” like banks operating under the express direction
of a depositor or trustees who direct the disbursement of the
funds in a trust account they manage. See In re Incomnet,
463 F.3d at 1073–74 (outlining two mere-conduit scenarios
where dominion test is especially useful). This argument is
wrong twice over.

    For one thing, our decision in In re Incomnet began with
the proposition that “[t]he dominion test we have crafted
strongly correlates with legal title,” and is “akin to legal
control.” 463 F.3d at 1073 (emphasis added) (quotation
omitted). Thus, “[i]n the vast majority of cases, possessing
legal title to funds will equate to having dominion over
them.”      Id.      Only after establishing this baseline
understanding, which runs directly counter to the Bureshes’
and Ms. Henry’s position in these appeals, did we
acknowledge that in “unusual situations” involving mere
conduits, “legal title to funds and the right to put those funds
to use” may be separated and, thus, “[t]he focus on
‘dominion’” may be especially useful. Id. at 1073–74. We
therefore recognized that while “conduit cases” seem “most
likely to fall into the narrow set of circumstances where the
identity of the transferee is sufficiently unclear as to require
the application of the dominion test,” that test applies with
26             IN THE MATTER OF WALLDESIGN

equal force in all transfer cases and “is not limited to the
context of ‘conduit cases.’” Id. at 1073 n.11. Later, of
course, we applied the dominion test in In re Mortgage
Store, which itself was not a mere conduit case. 773 F.3d at
996. Here again, a pair of prior panel decisions forecloses
the Bureshes’ and Ms. Henry’s argument. Legal title is the
starting point to the dominion inquiry, not an afterthought.
Id. (“[T]he touchstones in this circuit for initial transferee
status are legal title and the ability of the transferee to freely
appropriate the transferred funds.” (emphasis added)).

    After arguing that we should not apply the dominion test
because these cases did not involve a conduit scenario, the
Bureshes and Ms. Henry turn around and try to force the
facts in these cases into both of the two “unusual [conduit]
situations” we identified “in which legal title to funds and
the right to put those funds to use have been separated.” See
In re Incomnet, 463 F.3d at 1073–74. This attempt fails on
every level. Walldesign was not akin to a bank, operating at
the direction of a depositor, because the funds belonged to
Walldesign (not Bello), and there was no legal obligation for
Walldesign to follow Bello’s instructions. See In re
Incomnet, 463 F.3d at 1074 (outlining first example). Bello
may have had de facto control over the funds, but he lacked
legal control over them. See Rupp, 95 F.3d at 941.

    Likewise, Bello was not akin to a trustee, “who is able to
direct the disbursement of the funds in a trust account he
manages, even though he does not own them.” See In re
Incomnet, 463 F.3d at 1074 (outlining second example).
This argument again conflates “control” with “dominion.”
Corporate principals simply do not have unfettered legal
authority to do as they wish with company funds, the way
that trustees have nearly unfettered legal authority over trust
funds. See In re Ferrall’s Estate, 41 Cal. 2d 166, 176–77
             IN THE MATTER OF WALLDESIGN                  27

(Cal. 1953) (noting that trustees generally have “absolute or
unlimited or uncontrolled discretion” over disbursement of
trust funds). Corporate principals have, at most, de facto
control over company funds.

    Third, the Bureshes and Ms. Henry argue that Bello
qualifies as the initial transferee, even under the dominion
test from In re Incomnet. They note that Bello kept the
secondary account “secret” from Walldesign, that he
dominated the company to use the secondary account as his
own “personal piggy bank,” and that he made his wife a
signatory on the account, thus meeting the requisite level of
“dominion” for initial-transferee status.

    Make no mistake: Bello did his best to conceal the
secondary account from Walldesign’s books and ledgers, its
employees, and even the bankruptcy court. Bello, through
his oversized role at Walldesign and spendthrift ways,
likewise served as a poster boy for dominating a corporation
and its assets solely for personal gain. And he did make his
wife a signatory on the secondary account.

    But the Bureshes and Ms. Henry do not explain why
these facts change the outcome under the dominion test. As
for the secrecy of the secondary account, California law
imputes to a corporation any “[k]nowledge of an officer of
[that] corporation within the scope of his duties.” Peregrine
Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP,
35 Cal. Rptr. 3d 31, 46 (Ct. App. 2005). This rule applies
even when an owner/officer of a debtor corporation defrauds
the company. Id. at 46–47 (collecting cases). Because Bello
was the sole shareholder, director, and president of
Walldesign, he acted within the scope of his duties in
opening a corporate bank account—thereby imputing
knowledge of the secondary account to Walldesign. See
Mem’l Hosp. Ass’n v. Pac. Grape Prods. Co., 45 Cal. 2d
28            IN THE MATTER OF WALLDESIGN

634, 637 (Cal. 1955) (“Where the president of a corporation
is also its general manager . . . he has implied authority to
make any contract or do any other act appropriate in the
ordinary course of its business.”). In any event, the Bureshes
and Ms. Henry point to no authority holding that company
knowledge is the sine qua non for initial-transferee status in
corporate misappropriation cases. Presumably, secrecy will
remain a hallmark of these types of cases—whether it be
secrecy in individual transactions that skim from a company
account or secrecy in the underlying account itself. See
Bowers v. Atlanta Motor Speedway, Inc. (In re Se. Hotel
Props. Ltd. P’ship), 99 F.3d 151, 152–53 (4th Cir. 1996)
(explaining how corporate principal “caused an employee
. . . to create certain false documents to reflect the
disbursement of $22,500 as refunds of guests’ deposits for
group tours booked with [debtor hotel]” to hide skimming
for personal gain).

    Likewise, Bello’s level of de facto control, while
troubling, does not amount to “dominion” and initial-
transferee status. A principal who “utterly dominates a
corporation . . . may be forced to assume a corporation’s
liabilities under an alter ego theory or he may be otherwise
liable for breach of fiduciary duty.” In re Red Dot, 293 B.R.
at 124. But “he does not, simply by virtue of such
domination, become an initial transferee.” Id. As the Tenth
Circuit explained, “[t]he extent to which a principal has de
facto control over the debtor . . . and the extent to which the
principal uses this control for his or her own benefit in
causing the debtor to make a transfer, are not relevant
considerations in determining the initial transferee under
§ 550.” Rupp, 95 F.3d at 941; accord In re Se. Hotel Props.,
99 F.3d at 156 (following Rupp’s analysis); In re Global
Prot., 546 B.R. at 591, 623 (concluding that corporate
              IN THE MATTER OF WALLDESIGN                  29

principal who was “100% owner of the Debtor” nevertheless
failed to qualify for initial-transferee status).

    And while Bello made his wife a signatory to
Walldesign’s secondary account, the Bureshes and Ms.
Henry did not cite any authority for the proposition that by
so doing, he transformed the company’s bank account into
his own personal account or otherwise became an initial
transferee. See Cal. Com. Code § 4104(a)(5) (“[Bank]
‘Customer’ means a person having an account with a bank
or for whom a bank has agreed to collect items . . . .”);
Rodriguez, 75 Cal. Rptr. 3d at 547 (rejecting argument that
“the name on the signature card determines the identity of
the [bank] customer”).             Corporations, churches,
associations, and other entities are free to structure their
banking needs as they see fit (within the bounds of
applicable banking laws), and they often add non-employees
like accountants, spouses, or other closely associated
individuals as signatories to their accounts. This act alone,
however, does not change legal ownership over the
depository account.

    Relying on California law, the dissent argues that Bello’s
opening of the sham account should not be imputed to
Walldesign because, by acting adversely to the corporation
in opening the account, he did so in his personal capacity
rather than as an officer of the company. See Diss. Op. at
36–37. According to the dissent, under Software Design &
Application, Ltd. v. Hoefer & Arnett, Inc., 56 Cal. Rptr. 2d
756 (Ct. App. 1996) and Rodriguez v. Bank of the West, 75
Cal. Rptr. 3d 543 (Ct. App. 2008), Bello acted in his personal
capacity despite “using his ostensible authority as
Walldesign’s president in opening the account.” Diss. Op.
at 37. While the dissent is correct that here, “[a]s in both
Software Design and Rodriguez, the rogue agent opened a
30              IN THE MATTER OF WALLDESIGN

secret bank account, purportedly on behalf of the principal,
for the agent’s own nefarious ends,” id. at 38, Software
Design and Rodriguez are distinguishable. In Software
Design, the sham accounts were set up in the name of a
fictitious entity, not the name of the corporation. Software
Design, 56 Cal. Rptr. 2d at 476–77. And in Rodriguez, the
law firm’s office manager opened the sham accounts and
forged the principal’s signature on checks drawn on the
accounts to steal client money. Rodriguez, 76 Cal. Rptr. 3d
at 545. Here, by contrast, Bello opened the sham account in
Walldesign’s name, using Walldesign’s documents, and a
signature card granting Bello authority as Walldesign’s
agent to open the account. Thus, Bello’s actions, while
certainly fraudulent, do not transform the sham account into
his personal account. 3

   Fourth, the Bureshes and Ms. Henry argue that we
should follow the BAP decisions in Poonja v. Charles
Schwab & Co. (In re Dominion Corp.), 199 B.R. 410, 415
(B.A.P. 9th Cir. 1996) and Ross v. John Mitchell, Inc. (In re

     3
      The dissent also asserts that “Meyer [v. Glenmoor Homes, Inc.,
54 Cal. Rptr. 786, 794 (Ct. App. 1966)] clearly rejected the majority’s
conclusion that a corporate officer’s fraudulent transaction should be
imputed to the company merely because the officer had authority to
perform that type of transaction in other circumstances.” Diss. Op. at 35.
A close reading of Meyer, however, does not support this assertion. On
the issue of authority, the court stated “the uncontradicted testimony
shows that the directors of the corporation plaintiff never sold or
authorized a sale of, the two blocks in controversy, nor did its president
ever agree to sell them, and that the deed, when signed, was a blank, and
was never acknowledged. Under these circumstances, the deed was . . .
absolutely void . . . .” Meyer, 54 Cal. Rptr. at 794. Moreover, in Meyer,
authority was a contested issue at trial. Here, Bello’s authority is
uncontroverted. As the dissent admits, [n]o one disputes that Bello had
authority generally to open a bank account on Walldesign’s behalf.”
Diss. Op. at 36–37.
              IN THE MATTER OF WALLDESIGN                   31

Deitz), 94 B.R. 637, 642–43 (B.A.P. 9th Cir. 1988) by
declaring this a two-step transaction. As the district court
properly held, however, decisions of the BAP are not
binding on this court; rather, it’s the other way around. In re
Mortg. Store, 773 F.3d at 995–96 (“Although we treat the
BAP’s decisions as persuasive authority, we are not bound
by its decisions. In fact, as the BAP has recognized, our
decisions are binding precedent that the BAP must follow.”
(quotation omitted)). The BAP decisions cited not only
predate our opinion in In re Video Depot; they conflict with
it. See In re Video Depot, 127 F.3d at 1199. Accordingly,
In re Video Depot controls, and this remains a one-step
transaction because the funds “passed directly from
[Walldesign] to [the Bureshes and Ms. Henry],” without
Bello assuming legal dominion or control of them. Id.

     Finally—and at bottom, what all of their other arguments
boil down to—the Bureshes and Ms. Henry suggest that
Bello was the initial transferee because any other holding
would be inequitable to them. That may be so. But in any
event, “[w]e need not weigh the merits of th[e] trade-off”
between assigning responsibility to seemingly innocent
initial transferees, like the Bureshes and Ms. Henry, and
creditors, like the Committee, because Congress already
performed that task for us. In re Mortg. Store, 773 F.3d at
997. Here, as in In re Mortgage Store and other cases, “[i]t
would be inappropriate for us to second-guess Congress’
considered judgment on this matter of policy.” Id. at 997–
98. Moreover, it’s not as if by holding the Bureshes and Ms.
Henry strictly liable we somehow are allowing Bello to
escape scot-free. Instead, Bello remains strictly liable too as
the party for whose benefit the fraudulent transfers were
made. See id. at 994. And the Committee is limited to
seeking “a single satisfaction” from Bello, the Bureshes, and
Ms. Henry. 11 U.S.C. § 550(d).
32           IN THE MATTER OF WALLDESIGN

    In sum, we agree that the Bureshes and Ms. Henry (as
opposed to Bello) qualify as initial transferees under this
Circuit’s dominion test. This was a classic one-step
transaction.

                   IV. CONCLUSION

    The Bureshes and Ms. Henry are strictly liable to the
Committee as initial transferees. 11 U.S.C. § 550(a)(1).
Bello is strictly liable to the Committee as the party for
whose benefit the transfers were made. Id. And the
Committee may seek a “single satisfaction” from all three
parties, jointly and severally. Id. § 550(d).

    We AFFIRM the judgments of the district court in favor
of the Committee and REMAND both cases to the district
court with directions to in turn remand these cases to the
bankruptcy court for further proceedings consistent with this
opinion.



NGUYEN, Circuit Judge, dissenting:

    Bankruptcy courts “are courts of equity” that “appl[y]
the principles and rules of equity jurisprudence.” Young v.
United States, 535 U.S. 43, 50 (2002) (quoting Pepper v.
Litton, 308 U.S. 295, 304 (1939)). There is nothing
equitable about today’s decision.

    Donald Buresh, Sharon Phillips, and Lisa Henry are not
Michael Bello’s family members, friends, or even close
associates. They are a married couple who sold their
property to Bello to fund their retirement and a small
business owner who performed design and construction
services for him. Unbeknownst to them, the checks with
              IN THE MATTER OF WALLDESIGN                   33

which Bello paid them, which bore the name of his company,
were in fact drawn from a sham bank account that he created
to fraudulently siphon money away from his company and
use for his personal expenses. Their dealings with Bello
were legitimate, arms-length transactions. Yet they each
now owe Bello’s creditors hundreds of thousands of
dollars—a ruinous sum for most retirees and small
businesses. I strongly disagree with this result.

                              I.

    For many years, “we employed a hybrid ‘dominion and
control’ test to identify initial transferees.” In re Mortg.
Store, Inc., 773 F.3d 990, 996 (9th Cir. 2014) (citing In re
Video Depot, Ltd., 127 F.3d 1195, 1199–1200 (9th Cir.
1997)).      Because the hybrid test incorporated the
“pragmatic” control test used in other circuits, id., it would
have produced the correct result here without fuss and held
Bello personally liable for his fraudulent acts as the initial
transferee.

    Unfortunately, in In re Incomnet, Inc., 463 F.3d 1064
(9th Cir. 2006), “we explicitly rejected the control test’s
flexible, equitable approach and embraced the pure
dominion test.” Mortg. Store, 773 F.3d at 996. There was
no reason to do so. Incomnet’s “resolution . . . [did] not turn
on the question of which of the[] two standards governs in
this circuit.” Incomnet, 463 F.3d at 1069–70.

    Here, while I disagree with the majority that the
Bureshes and Henry were the initial transferees under the
dominion test, the very fact of our disagreement shows how
difficult it can be to determine who had legal control over
funds in situations where practical control is clear. We
should consider ditching the dominion test and adopting the
control test used successfully by other circuits. At the very
34            IN THE MATTER OF WALLDESIGN

least, we should return to a hybrid approach that allows us
“to step back and evaluate a transaction in its entirety to
make sure that [our] conclusions are logical and equitable.”
Mortg. Store, 773 F.3d at 996 (quoting In re Chase &
Sanborn Corp., 848 F.2d 1196, 1199 (11th Cir. 1988)).

                              II.

    Even applying the dominion test, as we must, the
Bureshes and Henry were not the initial transferees. The
majority concludes that Bello didn’t possess legal title to the
misappropriated funds or the ability to freely appropriate
them because the sham bank account actually belonged to
Walldesign. According to the majority, Bello merely
“abused his power as a principal to direct company funds to
third parties for his own benefit.” Maj. Op. at 20. I disagree.
Under the dominion test, the sham account never belonged
to Walldesign.

    As the majority acknowledges, in a one-step transaction,
“a principal who directs a debtor corporation . . . to pay for
a personal debt is not an initial transferee” because “[t]he
mere power of a principal to direct the allocation of
corporate resources does not amount to legal dominion and
control.” Video Depot, 127 F.3d at 1199 (citing In re S.E.
Hotel Props. LP, 99 F.3d 151, 155–56 (4th Cir. 1996); Rupp
v. Markgraf, 95 F.3d 936, 941 (10th Cir. 1996)). Therefore,
had Bello paid the Bureshes and Henry directly from
Walldesign’s account at Comerica Bank, the transactions
unquestionably would have taken place in one step.

    In a two-step transaction, “a principal may establish legal
control and dominion by first directing a transfer into his or
her personal bank account and then making the payment
from his personal account to the creditor.” Id. (citing Rupp,
95 F.3d at 939). The question here then is whether the
              IN THE MATTER OF WALLDESIGN                  35

second account, which Bello secretly used as his “personal
piggy bank” in stealing money from Walldesign, Maj. Op. at
27, should be treated as Bello’s personal account or imputed
to the company. In that regard, “[s]tate law . . . determines
the nature and extent of a debtor’s interest in property.” In
re Cohen, 300 F.3d 1097, 1104 (9th Cir. 2002) (quoting In
re Richmond Produce Co., 151 B.R. 1012, 1016 (Bankr.
N.D. Cal. 1993)).

    The majority says that “California law imputes to a
corporation any ‘[k]nowledge of an officer of [that]
corporation within the scope of his duties,’” and Bello “acted
within the scope of his duties in opening a corporate bank
account.” Maj. Op. at 27 (quoting Peregrine Funding, Inc.
v. Sheppard Mullin Richter & Hampton LLP, 35 Cal. Rptr.
3d 31, 46 (Ct. App. 2005)). But “in order to have authority
[to act on behalf of a corporation] which is implied in fact
the agent, be he president or general manager of a
corporation, or both, must be performing an act which is
‘appropriate in the ordinary course of its business.’” Meyer
v. Glenmoor Homes, Inc., 54 Cal. Rptr. 786, 794 (Ct. App.
1966) (quoting Mem’l Hosp. Ass’n of Stanislaus Cnty. v.
Pac. Grape Prods. Co., 290 P.2d 481, 483 (Cal. 1955)).

     Meyer clearly rejected the majority’s conclusion that a
corporate officer’s fraudulent transaction should be imputed
to the company merely because the officer had authority to
perform that type of transaction in other circumstances. In
Meyer, the general manager had authority to buy land on the
corporation’s behalf and had previously done so by taking
title in the name of individuals, and such transactions were
sometimes signed by only one officer and did not always
appear in the corporate minutes. Id. at 795. In the
transaction at issue, the general manager secretly purchased
36              IN THE MATTER OF WALLDESIGN

land for himself in exchange for a promissory note
purportedly obligating the corporation.

     The court held that the transaction could not be imputed
to the corporation because the corporation “[n]ever engaged
in transactions where it became obligated to pay for land . . .
which was conveyed to another for the use and benefit of that
grantee as distinguished from the use and benefit of the
corporation.” Id. (emphasis added). “The knowledge
acquired by the agent who is acting adversely to his principal
will not be attributed to the principal.” Id. at 801 (citing
People v. Parker, 44 Cal. Rptr. 900, 905–06 (Ct. App. 1965);
Commercial Lumber Co. v. Ukiah Lumber Mills, 210 P.2d
276, 279 (Ct. App. 1949)); see also Peregrine Funding,
35 Cal. Rptr. 3d at 47 (“Nor is a corporation chargeable with
the knowledge of an officer who collaborates with outsiders
to defraud the corporation.” (citing Meyer, 54 Cal. Rptr. at
801)). 1

    The circumstances here are the same. No one disputes
that Bello had authority generally to open a bank account on
Walldesign’s behalf. But Bello’s authority to do so didn’t
extend to opening a secret account solely for his own
personal benefit at the company’s expense. He owed
Walldesign a fiduciary duty to act in good faith in the
company’s best interests. See, e.g., Sheley v. Harrop,
215 Cal. Rptr. 3d 606, 624 (Ct. App. 2017). Because Bello

     1
       The majority speculates that Bello’s wife, who was a signatory to
the sham account despite not having any affiliation with Walldesign,
could have been “acting in cahoots with her husband.” Maj. Op. at 23.
If so, then the sham account was not attributable to Walldesign because
Bello was collaborating with an outsider to defraud it. At a minimum,
this is a factual issue that should be resolved by the bankruptcy court
before we decide as a matter of law that the account belonged to the
corporation.
              IN THE MATTER OF WALLDESIGN                  37

was acting adversely to Walldesign in opening the sham
account, he did so in his personal capacity, not as an officer
of the company.

    That Bello used his ostensible authority as Walldesign’s
president in opening the account makes no difference. For
example, in Software Design & Application, Ltd. v. Hoefer
& Arnett, Inc., 56 Cal. Rptr. 2d 756 (Ct. App. 1996), a
financial consultant with authority to handle a corporation’s
investment funds placed the funds into a brokerage account
in the name of a fictitious partnership with the same name as
the corporation. He never reported the brokerage accounts
to the corporation and had the monthly statements sent to a
post office box that he falsely represented as the
partnership’s. Id. at 759. The court held that at the time of
these deposits, the consultant “had already stolen money and
securities from [the owners], having wrested control of these
funds by placing them in bogus accounts.” Id. at 763.

    Similarly in Rodriguez v. Bank of the West, 75 Cal. Rptr.
3d 543 (Ct. App. 2008), the office manager of a law firm
opened two sham bank accounts in the lawyer’s name and
forged his signature on numerous checks that she used to
steal client money from the law firm. Id. at 544–45. In
rejecting the lawyer’s negligence claims against the banks,
the court explained that the banks had no duty to the lawyer
because, despite being the named accountholder, he was not
their customer: “he did not consent to the creation of any of
the accounts and, indeed, did not even know of their
existence until after [the office manager’s] wrongful acts
were completed.” Id. at 546. Instead, the office manager
was the banks’ true customer because she “opened accounts
at banks at which [the lawyer] had no existing relationship,
then converted the money to her own use.” Id. at 548. The
38            IN THE MATTER OF WALLDESIGN

court found these facts “indistinguishable” from Software
Design. Id.

    Here too, the putative accountholder, Walldesign, was
not the true owner of Bello’s sham bank account. As in both
Software Design and Rodriguez, the rogue agent opened a
secret bank account, purportedly on behalf of the principal,
for the agent’s own nefarious ends. As in Rodriguez,
Walldesign had no relationship with the bank. As in
Software Design, the account address of record—Bello’s
home—was one belonging to him personally rather than to
Walldesign.

    This was a classic two-step transaction. First, Bello
converted corporate funds by transferring them into his
personal account, making him the initial transferee. Then,
he transferred the funds to others, including the Bureshes and
Henry, who were subsequent transferees.

                             III.

     In arguing that Bello wasn’t in the best position to
monitor the fraud, the majority quips that “foxes (like
corporate cheats) rarely guard henhouses (like corporate
treasuries) with much success.” Maj. Op. at 18 (citing
Mortg. Store, 773 F.3d at 998 n.1). But allowing a corporate
cheat to easily shift liability for his wrongdoing onto
innocent third parties simply by signing the corporation’s
name on a secret bank account instead of his own only
encourages this kind of embezzlement. As the majority
notes, the Committee is entitled to a single satisfaction from
Bello, on the one hand, and the Bureshes and Henry on the
other. Id. at 33 (citing 11 U.S.C. § 550(d)). Every dollar the
Committee is able to recover from the Bureshes and Henry
is a dollar for which Bello is off the hook.
             IN THE MATTER OF WALLDESIGN                39

    The majority admits that its holding “may be”
inequitable, Maj. Op. at 31, but suggests that the Bureshes
and Henry nonetheless should have monitored for fraud,
since they “had some indication of . . . irregularities”
because Bello’s checks bore Walldesign’s name. Id. at 23–
24. I disagree. Businesses often pay for their executives’
personal expenses, and it’s not unusual for individuals to
structure their transactions through corporations for tax
reasons. I don’t see anything inherently suspicious about
Bello paying his personal debts from the account of a
closely-held corporation. Recipients of such payments, like
the Bureshes and Henry, are generally not well placed to
question the legitimacy of a reputable organization’s bank
account.

   I respectfully dissent.
