Opinion ID: 4208266
Heading Depth: 4
Heading Rank: 2

Heading: Application of the Dominion Test in Corporate

Text: 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.
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.
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 initialtransferee 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.