test folder

126 defense. Some transferees, particularly financial institutions, have also argued that since they served as "mere conduits," rather than as "transferees," to a transfer, they should not be an entity from whom the trustee can recover property under Section 550. See, e.g., In re Manhattan Inv. Fund LTD., 359 B.R. 510 (Bankr. S.D.N.Y. 2007). According to these transferees, a "conduit" acts as a middle man between the debtor and an initial transferee, and, therefore, such entities have argued that recovery should only be sought from the initial transferees. As Judge Easterbrook articulated, "the minimum requirement of status as a 'transferee' is dominion over the money or other asset, the right to put the money to one's own purposes. When A gives a check to B as agent for C, then C is the 'initial transferee;' the agent may be disregarded." Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890, 893 (7th Cir. 1988). To distinguish between a conduit and a transferee, courts have a applied a "dominion and control" test. See In re Manhattan Inv. Fund LTD., 359 B.R. 510 (Bankr. S.D.N.Y. 2007), aff'd in part, rev'd in part, 397 B.R. 1 (S.D.N.Y. 2007). Factors that courts have considered in this context include: (i) the level of control the recipient had over the property; (ii) whether the recipient received consideration or compensation for the transfer; (iii) whether the recipient had any liability in the transaction; and (iv) whether the recipient held any security interest in the property transferred. See id. Section 550(e) also protects good faith transferees to the extent of the lesser of the cost of any improvement (i.e., physical additions or changes to the property, repairs, payment of taxes on the property, payment of a debt secured by a lien on the property, discharge of a lien on the property, and preservation of the property) the transferee makes in the property less any profit to the transferee from such property, or any increase in value of the property as a result of the improvement. Courts have held that a good faith transferee must (i) take the property in an arm's-length transaction; (ii) with an honest belief in the propriety of the activities in question; (iii) with no intent to take unconscionable advantage of others; and (iv) with no intent to, or knowledge of the

• Cover