The Ninth Circuit recently affirmed a District Court ruling that applied the “dominion test” instead of the “control test” to determine initial transferees of fraudulent transfers. In the case, Henry v. Official Comm. of Unsecured Creditors of Walldesign, Inc. (In re Walldesign, Inc.), 872 F.3d 954 (9th Cir. 2017), Michael Bello served as the sole shareholder, director, and president of Walldesign, Inc., a California corporation. In 2002, Mr. Bello opened 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. Mr. Bello funneled nearly $8 million of Walldesign funds into this account. He then used funds from the account to support a lavish lifestyle. Transfers out of this account included payments to Mr. and Mrs. Buresh and Ms. Henry, the appellants. All parties agreed that this account belonged to Walldesign, not to Mr. Bello. Mr. Bello never deposited the funds into a personal account before making payments to the Bureshes and Ms. Henry. The Ninth Circuit addressed the distinction between initial transferees and subsequent transferees in the recovery of fraudulent transfers. Pursuant to 11 U.S.C. 550(a), when there is an avoidable transfer, the trustee has an absolute right of recovery against the initial transferee and any entity for whose benefit such transfer was made. A trustee may recover from a subsequent transferee, but the law offers a safe harbor provision to subsequent transferees who accepted the property for value, in good faith, and without knowledge. The Ninth Circuit first determined who could be considered a “transferee.” The Court adopted the “dominion test” and ruled that a transferee must have dominion over the money or asset such that he has legal title to the funds and the right to put the money to one’s own purposes. The Court rejected the more lenient “control test,” which requires the court to view the entire transaction as a whole to determine who truly had control of the money. When applying the dominion test to cases involving corporate misappropriation, the Court adopted the majority, one-step transaction approach. Under this approach, the principal of a debtor corporation who misappropriates company funds to satisfy personal obligations is not an initial transferee. The funds in the Walldesign account remained under the dominion of Walldesign, Inc. Despite Mr. Bello’s de facto control over the account, he never had the legal authority to spend the money as he did. Therefore, Mr. Bello was never a transferee of these funds. Rather, he misappropriated corporate funds to the Bureshes and Ms. Henry. The Ninth Circuit considered this a classic one-step transaction which resulted in the Bureshes and Ms. Henry being strictly liable as initial transferees and Mr. Bello strictly liable as the party for whose benefit the transfers were made. The Court noted that despite assigning responsibility to seemingly innocent initial transferees, as a matter of policy, the option to recover from all parties should be preserved where possible. Maintaining the possibility of recovering fraudulent transfers from “good guys” and “bad guys” alike is critical because recovering from the embezzling principal is difficult. The Committee was limited to seeking a single satisfaction from Mr. Bello, the Bureshes and Ms. Henry. 11 U.S.C. 550(d).