                  FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


IN RE: THE MORTGAGE                    No. 13-16020
STORE, INC.,
                   Debtor.                Nos.
                                  CV 12-0653 JMS KSC;
                                   10-03454 (Chapter 7)
MANO-Y&M, LTD.,
                     Appellant,        Adv. Pro. No.
                                        10-90146
             v.

DANE S. FIELD, Trustee;                    OPINION
GEORGE W. LINDELL; KAREN
K. LINDELL; HECTOR &
ALICIA INVESTMENTS, LLC;
HECTOR GUERRA,
                   Appellees.


      Appeal from the United States District Court
               for the District of Hawaii
     J. Michael Seabright, District Judge, Presiding

                Argued and Submitted
          October 7, 2014—Honolulu, Hawaii

                  Filed December 5, 2014

  Before: A. Wallace Tashima, Johnnie B. Rawlinson,
        and Richard R. Clifton, Circuit Judges.
2             IN RE: THE MORTGAGE STORE, INC.

                   Opinion by Judge Tashima


                           SUMMARY*


                            Bankruptcy

    The panel affirmed the district court’s decision affirming
the bankruptcy court’s summary judgment in an adversary
proceeding seeking avoidance of a fraudulent transfer.

     Applying the “dominion test,” the panel held that under
11 U.S.C. § 550, appellant Mano-Y&M Ltd. was the initial
transferee, rather than a subsequent transferee, of
$311,065.25 paid by the bankruptcy debtor, The Mortgage
Store, Inc., in connection with the sale of a shopping plaza.
The panel concluded that McCarty v. Richard James Enters.,
Inc. (In re Presidential Corp.), 180 B.R. 233 (9th Cir. BAP
1995), which applied in part the “control test” for identifying
initial transferees, is no longer good law.


                            COUNSEL

Christopher J. Muzzi (argued) and Leila Rothwell Sullivan,
Tsugawa, Biehl, Lau & Muzzi, Honolulu, Hawaii, for
Appellant.




  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
            IN RE: THE MORTGAGE STORE, INC.                 3

Simon Klevansky (argued), Alika L. Piper, and Nicole D.
Stucki, Klevansky Piper, LLP, Honolulu, Hawaii, for
Appellee Dane S. Field.


                         OPINION

TASHIMA, Circuit Judge:

    Appellant Mano-Y&M, Ltd. (“Mano”) appeals from the
judgment of the district court holding that under 11 U.S.C.
§ 550 Mano was the initial transferee of $311,065.25 paid by
the debtor, The Mortgage Store, Inc., in connection with the
sale of a shopping plaza. We affirm.

                              I.

    Mano owned the Raymondville Plaza, a six-acre shopping
plaza in Raymondville, Texas. In 2008, Mano was
approached by representatives of George Lindell (“Lindell”)
who offered, on Lindell’s behalf, to buy the plaza. In mid-
December 2008, Mano and Lindell entered into a contract for
Mano to sell the plaza to Lindell for $2.2 million. Lindell
was to pay $300,000 cash; the remainder of the purchase
price was to be covered by a seller-financed mortgage. The
contract obligated both parties to pay fees associated with
closing. Additionally, Lindell was to pay $10,000 of the
purchase price immediately as earnest money. The contract
was signed by Lindell and Paulrajan Manoharan on behalf of
Mano.

     The contract also assigned responsibilities to two third-
parties. First, Sierra Title Company (“Sierra”), listed as the
“title company” in the contract, was to take possession of the
4           IN RE: THE MORTGAGE STORE, INC.

earnest money after the contract was signed and distribute it
to the appropriate party upon closing or cancellation of the
contract. Second, attorney Mark Freeland (“Freeland”) was
assigned responsibilities related to the closing. Freeland was
to receive the purchase money, distribute that money
according to the contract, record the deed and closing
documents, and distribute documents and copies according to
the parties’ instructions. Prior to and after the execution of
the contract, Freeland apparently served as Mano’s attorney
on other matters. However, under the contract Freeland was
entitled to payment from both Mano and Lindell.

    The contract provided for a 30-day inspection period
following its “effective date,” defined as the date of “the last
of the signatures by Seller and Buyer . . . and Title
Company.” During this period, Lindell had the right to
terminate the contract for any reason, but after the 30-day
period expired, Lindell was contractually obligated to
purchase the property from Mano. The contract itself was not
dated, but the district court concluded that the contract’s
effective date was no later than December 16, 2008, because
that was the date on which Freeland sent the signed contract
and the earnest money to Sierra. In re the Mortg. Store, Inc.,
Civ. No. 12-0653 JMS, 2013 WL 1680636, at *2 (D. Haw.
Apr. 16, 2013). Thus, based on the contract and its effective
date, the thirty-day inspection period was to end no later than
January 15, 2009.

    Lindell did not terminate the contract during the
inspection period. On January 19, 2009, a few days after the
end of the inspection period, Mano, Lindell, and Freeland
executed a settlement statement to close the contract. Several
other documents were also executed on January 19. Paulrajan
Manoharan, on behalf of Mano, signed a special warranty
            IN RE: THE MORTGAGE STORE, INC.                  5

deed granting the property to Lindell. Lindell executed an
assignment of rents and a promissory note for $1.9 million to
Mano, and a deed of trust to Freeland as trustee.
Additionally, Yalini Manoharan, Paulrajan Manoharan’s
wife, signed the deed on behalf of Mano the following day.
    On January 20, 2009, The Mortgage Store wired
$311,065.25 to Freeland in satisfaction of Lindell’s
obligations under the contract. Freeland deposited the money
in a trust account he held with Compass Bank. The parties
dispute who was entitled to receive this money under the
settlement agreement. Mano contends that $34,635.42 of the
transfer was intended to cover closing costs Lindell owed to
entities other than Mano, including the Mosley Insurance
Agency, Sierra, and Freeland. Appellees contend that
because Lindell owed Mano $290,000 under the contract at
the time of the transfer, and the transfer was for $311,065.25,
the maximum amount of the transfer that could have been
intended for recipients other than Mano was $21,065.25. On
January 21, 2009, Freeland disbursed the money paid by The
Mortgage Store pursuant to the contract.

    Lindell had a longstanding relationship with The
Mortgage Store. Lindell was the sole shareholder and
president of The Mortgage Store from 1996 to 2008. In 2009,
Lindell transferred ownership and management to his
daughter, but he retained control over The Mortgage Store’s
finances. On the other hand, Mano contends that it had no
contact with The Mortgage Store before December 2010.

   In November 2010, The Mortgage Store filed for
bankruptcy protection under Chapter 7. After an audit, it
became clear that The Mortgage Store was operating a Ponzi
scheme. The trustee, Dane S. Field, commenced this action
in December 2010, alleging that The Mortgage Store’s
6           IN RE: THE MORTGAGE STORE, INC.

transfer in connection with the plaza transaction was
fraudulent under 11 U.S.C. §§ 544(b), 548(a)(1), and Haw.
Rev. Stat. § 651C-4(a), and seeking to avoid the transfer and
recoup the funds from Mano. On the trustee’s motion for
summary judgment, the bankruptcy court held that the
transfer was fraudulent; it later determined that Mano was the
initial transferee, rather than a subsequent transferee. Mano
appealed to the U.S. District Court for the District of Hawaii,
which (1) affirmed that Mano was an initial transferee, and
(2) refused to consider Mano’s alternative argument that it
should not be held responsible for the entire $311,065.25
amount because Mano waived the argument by not raising it
in the bankruptcy court. In re the Mortg. Store, 2013 WL
1680636 at *7, *10. Mano now appeals the district court’s
judgment to this Court.

                              II.

    We review the district court’s decision on an appeal from
the bankruptcy court de novo. Feder v. Lazar (In re Lazar),
83 F.3d 306, 308 (9th Cir. 1996). We apply the same
standard of review to the bankruptcy court’s findings as did
the district court. Id. Findings of fact are reviewed under the
clearly erroneous standard of review and legal conclusions
are reviewed de novo. Id. Because this dispute was decided
on summary judgment, we must determine whether “viewing
all evidence in the light most favorable to the nonmoving
party, there are any genuine issues of material fact and
whether the district court correctly applied the relevant
substantive law.” Whitman v. Mineta, 541 F.3d 929, 931 (9th
Cir. 2008).
            IN RE: THE MORTGAGE STORE, INC.                  7

                             III.

                              A.

     We first address Mano’s argument that it was not the
initial transferee under 11 U.S.C. § 550. Pursuant to § 550(a),
upon the avoidance of certain transfers, the trustee may
recover the property transferred or the value of such property
from the initial transferee or the entity for whose benefit the
avoided transfer was made.” Under § 550(a), “[t]he trustee’s
right to recover from an initial transferee is absolute.”
Schafer v. Las Vegas Hilton Corp. (In re Video Depot, Ltd.),
127 F.3d 1195, 1197–98 (9th Cir. 1997). A trustee may
recover from a subsequent transferee – that is, any transferee
not an initial transferee – but the subsequent transferee will
be allowed to assert affirmative defenses that, if successful,
will prevent recovery. 11 U.S.C. § 550(b)(1); see Danning v.
Miller (In re Bullion Reserve of N. Am.), 922 F.2d 544, 547
(9th Cir. 1991). Whether the transfer was avoidable and
whether Mano’s affirmative defenses would succeed are not
at issue in this appeal. Rather, we must determine only
whether Mano was the initial or a subsequent transferee of the
funds remitted by The Mortgage Store as partial payment for
the plaza sale.

      Section 550(a) does not define the term “initial
transferee.” In the absence of a statutory definition, we apply
the so-called “dominion test” to determine whether a party is
the initial transferee. Universal Serv. Admin. Co. v. Post-
Confirmation Comm. of Unsecured Creditors of Incomnet
Commc’n Corp. (In re Incomnet), 463 F.3d 1064, 1071 (9th
Cir. 2006). “Under the dominion test, a transferee is one who
. . . has dominion over the money or other asset, the right to
put the money to one’s own purposes.” Id. at 1070 (9th Cir.
8           IN RE: THE MORTGAGE STORE, INC.

2006) (quoting Abele v. Modern Fin. Plans Serv., Inc. (In re
Cohen), 300 F.3d 1097, 1102 (9th Cir. 2002)) (internal
quotation marks omitted). Key in the dominion test is
“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. at 1071. As the Seventh Circuit explained in the
widely-cited case Bonded Financial Services, Inc. v.
European American Bank, 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.” 838 F.2d 890,
894 (7th Cir. 1988); see In re Incomnet, 463 F.3d at 1070
(characterizing Bonded Fin. Serv. as the “leading case in this
area”). The first party to establish dominion over the funds
after they leave the transferor is the initial transferee; other
transferees are subsequent transferees. See In re Cohen,
300 F.3d at 1102–07; In re Bullion Reserve, 922 F.2d at
547–49.

    Mano does not dispute that the dominion test is the proper
method for determining the initial transferee, but, relying on
McCarty v. Richard James Enters., Inc. (In re Presidential
Corp.), 180 B.R. 233 (9th Cir. BAP 1995), it argues that a
party should be deemed the initial transferee when another
party receives and distributes funds on its behalf.

     In In re Presidential, Manoukian, the sole shareholder of
Presidential Corp., directed Presidential to transfer a sum of
money to an escrow agent to pay for his personal residence.
Id. at 234–35. The escrow agent received the money and held
it in escrow until the transaction closed, at which time the
escrow agent distributed the money to parties entitled to
payment under the contract, including Richard James
Enterprises (“Richard James”). Id. After Presidential went
bankrupt, the trustee sought to avoid the transfer to Richard
            IN RE: THE MORTGAGE STORE, INC.                   9

James and the issue became whether Manoukian or Richard
James was the initial transferee. Id. The Ninth Circuit
Bankruptcy Appellate Panel (“BAP”) reasoned that “[w]here
a principal controls the disposition of funds through an agent
. . . the dominion or control test has been met.” Id. at 238.
Although Manoukian could not exercise direct control over
the funds nor “change his mind as to their disposition,” they
“were not beyond Manoukian’s dominion or control in
another sense, however, because he was applying them for his
personal benefit in accordance with his sole wishes.” Id. The
BAP concluded that Manoukian, not Richard James, was the
initial transferee. Id.

    The facts of In re Presidential resemble those here, so it
is necessary for us to address In re Presidential’s continuing
validity as precedent. Although we “treat the BAP’s
decisions as persuasive authority,” we are not bound by its
decisions. State Comp. Ins. Fund v. Zamora (In re
Silverman), 616 F.3d 1001, 1005 n.1 (9th Cir. 2010). In fact,
as the BAP has recognized, our decisions are binding
precedent that the BAP must follow. See Ball v. Payco Gen.
Am. Credits, Inc. (In re Ball), 185 B.R. 595, 597 (9th Cir.
BAP 1995) (“We will not overrule our prior rulings unless a
Ninth Circuit Court of Appeals decision, Supreme Court
decision or subsequent legislation has undermined those
rulings.).

     In 1995, when In re Presidential was decided, we
employed a hybrid “dominion and control” test to identify
initial transferees. See In re Video Depot, 127 F.3d at
1199–1200. Although this test included elements of the
dominion test, it also drew from the alternative “control test,”
which “requires courts to step back and evaluate a transaction
in its entirety to make sure that their conclusions are logical
10           IN RE: THE MORTGAGE STORE, INC.

and equitable.” Nordberg v. Societe Generale (In re Chase
& Sanborn Corp.), 848 F.2d 1196, 1199 (11th Cir. 1988); see
In re Incomnet, 463 F.3d at 1070–71. The control test, which
has had influence in our sister circuits, “is a very flexible,
pragmatic one” that does not depend on “facial
appearance[s].” Andreini & Co. v. Pony Express Delivery
Servs. (In re Pony Express Delivery Servs., Inc.), 440 F.3d
1296, 1302 (11th Cir. 2006) (quoting In re Chase & Sanborn,
848 F.2d at 1199). However, in In re Incomnet, we explicitly
rejected the control test’s flexible, equitable approach and
embraced the pure dominion test. See In re Incomnet,
463 F.3d at 1071. In so doing, we clarified that the
touchstones in this circuit for initial transferee status are legal
title and the ability of the transferee to freely appropriate the
transferred funds. Id.

    Although In re Presidential referenced both the dominion
test and the control test, the panel’s reasoning aligned more
closely with the control test. See In re Presidential, 180 B.R.
at 238–39. Rather than focusing on Manoukian’s ability to
direct the funds to whatever legal end he desired, as our most
recent precedents require, the BAP’s analysis turned on
whether the funds were being applied for Manoukian’s
benefit and in accordance with his prior wishes. Id. Such
equitable considerations fit much more comfortably under the
control test. Cf. In re Pony Express Delivery Servs., 440 F.3d
at 1303 (placing weight, under the control test, on the
“purpose” of a disputed transfer). Put differently, had the
BAP in In re Presidential applied the pure dominion test as
later articulated in In re Incomnet, it would have been
compelled to deem Richard James the initial transferee.
Because we conclude that the BAP’s conclusions rested
primarily on the control test, we now hold that In re
Presidential is no longer good law in this Circuit insofar as it
            IN RE: THE MORTGAGE STORE, INC.                  11

conflicts with the pure dominion test articulated in In re
Incomnet.     Accordingly, Mano’s reliance on In re
Presidential is misplaced. The proper standard is the In re
Incomnet dominion test.

                              B.

    We now apply the dominion test to the facts of this case
to ascertain which party was the initial transferee. Mano
asserts that Lindell was the initial transferee and argues that
Lindell had dominion over the funds from the time they were
received by Freeland to the time Freeland transferred them to
the parties so entitled under the contract. Although Lindell
did not actually possess the funds, Mano argues that
Freeland’s receipt and distribution of the funds on Lindell’s
behalf was sufficient to give Lindell dominion.

    In evaluating this assertion, we note first that Lindell
never held legal title to the funds at issue, a factor the In re
Incomnet court identified as highly significant in the
dominion analysis. In re Incomnet, 463 F.3d at 1073; see
also In re Cohen, 300 F.3d at 1102. Lindell may have had
some equitable interest in the funds while they were in
Freeland’s possession, but that interest was too constrained to
satisfy the dominion test. Because the conditions precedent
for the contract’s consummation had been satisfied by the
time The Mortgage Store transferred the funds to Freeland,
Lindell had no right to control their distribution. Lindell
could not have prevented the distribution of funds to Mano,
much less chosen to invest them in “lottery tickets or uranium
stocks.” Bonded Fin. Serv., 838 F.2d at 894. Ultimately,
whether Freeland was acting on Lindell’s behalf when he
received the funds from The Mortgage Store and distributed
them is irrelevant to whether Lindell had dominion. What
12          IN RE: THE MORTGAGE STORE, INC.

matters is whether Lindell had the ability to manipulate the
funds on his own accord. See In re Incomnet, 463 F.3d at
1071–73. The record shows Lindell did not. Because we
conclude Lindell was not a transferee and Mano has not
argued that any other party was the initial transferee, we hold
that the district court did not err in deeming Mano the initial
transferee of the disputed funds.

    We acknowledge that the result this case produces may
seem harsh, given that Mano was not involved in the
impropriety that brought about the trustee’s action. However,
Congress’ intent in enacting § 550 and our precedents
construing it compel judgment for appellees. In virtually
every case involving a bankrupt entity, a third party will be
injured because the debtor’s obligations to creditors, by
definition, outstrip its assets. In the case of a debtor’s
fraudulent conveyance, injury must fall on either the
transferee of the conveyance or the debtor’s creditors. For
creditors, letting a fraudulent transfer lie would result in a
“last-minute diminution[ ] of the pool of assets in which they
have interests.” Bonded Fin. Serv., 838 F.2d at 892. The aim
of § 550, and this Court’s aim, to the extent our discretion is
not constrained, must be to allocate risk such that the parties
tending to have the lowest monitoring costs must bear the
costs of a debtor’s failings. Id. at 892–93; see Durkin v.
Shields (Imperial Corp. of Am.), No. 92-1003-IEG, 1997 WL
808628, at *8–*9 (S.D. Cal. Aug. 20, 1997).

    In distinguishing between initial and subsequent
transferees, Congress determined that, as between creditors
and transferees, “[t]he initial transferee is the best monitor.”
Bonded Fin. Serv., 838 F.2d at 892. Unlike subsequent
transferees, who “usually do not know where the assets came
from and would be ineffectual monitors if they did,” initial
               IN RE: THE MORTGAGE STORE, INC.                          13

transferees tend to have relationships and influence with the
debtor. Id. at 892–93; see also In re Video Depot, 172 F.3d
at 1199 (“An initial transferee is exposed to stricter liability
than a subsequent transferee because the initial transferee is
in the best position to evaluate whether the conveyance is
fraudulent.”). By placing the risk on initial transferees rather
than creditors, Congress ensured that creditors “need not
monitor debtors so closely,” the idea being that “savings in
monitoring costs make businesses more productive.” Bonded
Fin. Serv., 838 F.2d at 892 (citing Douglas G. Baird &
Thomas H. Jackson, Fraudulent Conveyance Law and Its
Proper Domain, 38 Vand. L. Rev. 829 (1985); Robert Charles
Clark, The Duties of the Corporate Debtor to Its Creditors,
90 Harv. L. Rev. 505, 554–60 (1977)); see also Tese-Miller
v. Brune (In re Red Dot Scenic, Inc.), 293 B.R. 116, 121
(S.D.N.Y. 2003) (noting that strict liability for initial
transferees “lowers the cost of credit”). We need not weigh
the merits of this trade-off because Congress’ intent is clear
in § 550’s text. It would be inappropriate for us to second-
guess Congress’ considered judgment on this matter of
policy.1 See Clark v. Balcor Real Estate Fin., Inc. (In re

 1
   Holding Mano liable also comports with the broader purposes of § 550.
Although Mano asserts it did not have direct contact with the debtor until
well after the transfer, Mano was represented by counsel in the transaction
and entered a contract that allowed Lindell to satisfy his obligations under
the contract through a third party. In so doing, Mano accepted the risk
that Lindell’s obligation would be satisfied through an avoidable
conveyance. Cf. Scholes v. Lehmann, 56 F.3d 750, 761 (7th Cir. 1995)
(noting that conveyance recipients could hold cash reserves or obtain
liability insurance to hedge against the possibility of a fraudulent
conveyance).

    Moreover, accepting Mano’s proposed resolution to this case and
deeming Lindell the initial transferee would raise troubling implications.
Lindell, the record indicates, was the long-time president of The Mortgage
14             IN RE: THE MORTGAGE STORE, INC.

Meridith Hoffman Partners), 12 F.3d 1549, 1557 (10th Cir.
1993) (explaining, in the bankruptcy context, that “courts’
equitable powers do not permit them to disregard the clear
language of the statute, regardless of how unfair it may seem
to be”).

                                    IV.

    Mano argues in the alternative that it should not be held
responsible for the entire $311,065.25 transfer because some
of that amount was received by parties other than Mano. We
decline to address the merits of this argument because Mano
waived it by failing to raise the issue in the bankruptcy court.

    In general, “a federal appellate court does not consider an
issue not passed upon below.” Singleton v. Wulff, 428 U.S.
106, 120 (1976). A litigant may waive an issue by failing to
raise it in a bankruptcy court. See Kieslich v. United States
(In re Kieslich), 258 F.3d 968, 971 (9th Cir. 2001); Price v.
Lehtinen (In re Lehtinen), 332 B.R. 404, 411 (9th Cir. BAP


Store and maintained close ties with the company when the transfer
occurred. Given these ties, it is unreasonable to assume that Lindell had
the proper incentives to monitor The Mortgage Store for fraud. Yet
naming Lindell the initial transferee would make precisely that
assumption. See Bonded Fin. Serv., 838 F.3d at 892–93. Most instances
in which one party covers another party’s contractual obligations likely
arise from a close relationship. Charging a party with monitoring for
fraud the entity that pays its debts, as Mano suggests, thus would
undermine the very structure of § 550. Cf. In re Video Depot, 127 F.3d at
1199 (noting that a rule making “every agent or principal of a corporation
. . . the initial transferee when he or she effected a transfer of property in
his or her representative capacity” would “give[ ] too much power to an
unscrupulous insider to effect a fraudulent transfer” (quoting Richardson
v. FDIC (In re M. Blackburn Mitchell, Inc.), 164 B.R. 117, 128 (Bankr.
N.D. Cal. 1994))).
             IN RE: THE MORTGAGE STORE, INC.                  15

2005). We have discretion to consider arguments raised for
the first time on appeal, but do so only if there are
“exceptional circumstances.” El Paso City of Tex. v. Am. W.
Airlines, Inc. (In re Am. W. Airlines), 217 F.3d 1161, 1165
(9th Cir. 2000). We will address a waived issue (1) when
review is required to “prevent a miscarriage of justice or to
preserve the integrity of the judicial process,” (2) “when a
new issue arises while appeal is pending because of a change
in the law,” and (3) “when the issue presented is purely one
of law and either does not depend on the factual record
developed below, or the pertinent record has been fully
developed.” In re Mercury Interactive Corp. Sec. Litig.,
618 F.3d 988, 992 (9th Cir. 2010) (quoting Bolker v.
Commissioner, 760 F.2d 1039, 1042 (9th Cir. 1985)).

    In this case, Mano made no mention of the alternative
argument in its memoranda opposing summary judgment in
the bankruptcy court. No change in law occurred while this
case was pending that would justify this failure to raise the
issue. Whether Mano is liable for the entire transfer from
Freeland is not a pure issue of law; rather, it is a disputed and
poorly developed factual question. No miscarriage of justice
is apparent. Accordingly, we deem Mano’s alternative
argument waived and do not exercise our discretion to
consider the issue.

                               V.

    For the foregoing reasons, we conclude that the district
court did not err in determining that Mano was the initial
transferee of the disputed funds and in declining to address
Mano’s alternative argument because it was waived. The
judgment of the district court is AFFIRMED.
