(1) a transferee that takes for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided; or

(2) any immediate or mediate good faith transferee of such transferee.

The applicability of § 550(a)(1) determines whether a party can avail itself of the defenses available to a mediate transferee under § 550(b), including that it received the transfer for value, in good faith, and without knowledge of the voidability of the transfer.

Section 550 affords trustees greater flexibility in the recovery of avoided transfers from multiple defendants. In re Mill Street, Inc., 96 B.R. 268, 270 (B.A.P. 9th Cir. 1989). By definition, the term “transferee” necessarily implies that the party from whom recovery is sought received the property. In re Lucas Dallas, Inc., 185 B.R. 801, 809 (B.A.P. 9th Cir. 1995). The distinction in § 550 between an initial transferee and a mediate transferee strikes a balance between the policies of protecting creditors from diminutions of the asset pool and imposing the duty of inquiry on all transferees. In re Video Depot, Ltd., 127 F.3d 1195, 1198 (9th Cir. 1997). An initial transferee is exposed to stricter risk of liability because it is in the best position to evaluate whether a transfer is fraudulent. Id. at 1199; In re Cohen, 236 B.R. 1, 6 (B.A.P. 9th Cir. 1999). The transferee’s burden to monitor the transaction is at its greatest when it receives funds directly from the debtor. Video Depot, 127 F.3d at 1199. The defenses in § 550(b) do not apply to an initial transferee, and a trustee’s power to recover from an initial transferee is absolute. In re Bullion Reserve of North America, 922 F.2d 544, 547 (9th Cir. 1991).

A limited exception to the absolute liability of initial transferees exists where the recipient serves as a mere conduit of the funds. See In re First Security Mortgage Co., 33 F.3d 42 (10th Cir. 1994)(bank acting as financial intermediary making funds available per instruction); In re Dominion Corporation, 199 B.R. 410 (B.A.P. 9th Cir. 1996)(brokerage firm acting as mere facilitator of transactions). While not applicable to the United States in this case, this exception illustrates that § 550 is not strictly applied and that equitable considerations govern its application. Dominion Corp., 199 B.R. at 414.

The determinative factor that dictates whether a party is an initial transferee is the exercise of dominion and control over the asset transferred. The Ninth Circuit adopted the “control test” in Bullion Reserve of North America to determine whether one has sufficient control and dominion over assets to come within the definition of a “transferee” for purposes of § 550(a). Bullion Reserve , 922 F.2d at 548-49. Bullion Reserve involved a transfer from a corporate debtor to its president, who loaned the funds to purchase the stock of another entity, The Commercial Bank of California (“CBC”), on behalf of two directors of CBC. The directors pledged the stock to secure the loan from the debtor’s president. It was stipulated that the transfer to the debtor’s president was avoidable because it was without consideration. However, the question then arose whether the director in whose name the stock was acquired was also liable as a transferee. “[T]he minimum requirement for the status as a ‘transferee’ is dominion over the money or other asset, the right to put the money to one’s own purposes.” Id. at 548 (citing Bonded Fin. Services v. European American Bank, 838 F.2d 890, 895 (7th Cir. 1988)). “[A]n entity does not have ‘dominion over the money’ until it is, in essence, ‘free to invest the whole [amount] in lottery tickets or uranium stocks.’” Id. at 549 (citing Bonded Fin. Services, 838 F.2d at 894).

The test . . . is a very flexible, pragmatic one; in deciding whether debtors had controlled property subsequently sought by their trustees, courts must “look beyond the particular transfers in question to the entire circumstances of the transactions.”

The control test . . . simply requires courts to step back and evaluate a transaction in its entirety to make sure that their conclusions are logical and equitable. . . . [T]he general approach . . . applies regardless of whether a debtor controlled the . . . funds it transferred to a defendant or a defendant gained control over the funds transferred to it.

Id. at 548-49 (quoting Nordberg v. Societe Generale (In re Chase and Sanborn Corp.), 848 F.2d 1196, 1199 (11th Cir. 1988). The Ninth Circuit reversed the decision below, concluding that the director was not a transferee for purposes of § 550 because he did not have sufficient dominion and control over the property that he was contractually obligated to pledge. Bullion Reserve, 922 F.2d at 549.

A principal or agent does not have “dominion or control” unless he or she has “legal dominion or control .” Video Depot, 127 F.3d at 1198. The Ninth Circuit in Video Depot considered whether the principal of a debtor corporation necessarily is the initial transferee of corporate funds used to pay a personal obligation. The case involved the principal’s payment to the Las Vegas Hilton of a personal gambling debt by a cashier’s check purchased with the corporation’s funds and made payable directly to the Hilton. The Ninth Circuit held that simply because a principal has the authority to direct the allocation of corporate resources does not mean the principal has sufficient legal dominion and control to be an initial transferee. Id. at 1199. Legal control over the funds passed directly from Video Depot to the Hilton, and the principal’s control over the business operations did not compel a finding that the principal had dominion or control over the transferred funds. This principle holds true even where the principal delivers the check to the creditor. See id. at 1200; Rupp v. Markgraf, 95 F.3d 936, 940 (10th Cir. 1996).

The Ninth Circuit concluded that the Hilton was the initial transferee even though the corporation’s principal directed the transfer. Video Depot, 127 F.3d at 1199-1200. The Ninth Circuit’s view comports with the weight of authority in other circuits holding that the creditor that received the payment is the initial transferee. See In re Southeast Hotel Properties Limited Partnership, 99 F.3d 151 (4th Cir. 1996)(payment by debtor’s management company of debt to speedway by other corporation owned by company’s principal); Rupp v. Markgraf, 95 F.3d 936 (instruction by primary shareholder and officer of corporate debtor for bank to issue check from debtor’s account to officer’s personal judgment creditor); In re Chase & Sanborn Corp., 904 F.2d 588 (11th Cir. 1990)(direct repayment by corporation with instructions to apply to principal’s bank loan). See also Lucas Dallas, 185 B.R. at 809; In re M. Blackburn Mitchell, Inc., 164 B.R. 117, 127 (Bankr. N.D. Cal. 1994).

An evaluation of this transaction in its entirety leads to the conclusion that the United States was the initial transferee. The argument by the United States that Hunt directed the transfers by the ABL is the same one asserted by Las Vegas Hilton in Video Depot. Once the debtor disbursed the settlement funds to the United States, Hunt did not have sufficient dominion over the payments to be the initial transferee. The United States was in the best position to evaluate whether the transfer was fraudulent. It was aware that the payor was the ABL and that the ABL did not, in fact, owe an obligation to the United States when it made the payments. Video Depot is controlling, and the United States is the initial transferee of the settlement payments that it received directly from the ABL. The Plan Administrator’s ability to recover from the United States would be absolute if the transfers ultimately are avoided. This finding renders it unnecessary to conduct a trial on the applicability of the defenses under § 550(b) as to the United States.

Conclusion

For the reasons set forth, the Court grants partial summary adjudication for the Plan Administrator with respect to: (1) the debtor’s insolvency under § 548(a); and (2) the liability of the United States as an initial transferee under § 550(a)(1) from which the Plan Administrator may recover avoided transfers. The Plan Administrator’s motion is denied with respect to: (1) whether reasonably equivalent value was given; and (2) the claim under § 544 on the basis that, although stock redemptions constitute prohibited distributions to shareholders, the United States was not a shareholder as defined in the California Corporations Code from whom recovery may be sought.

Good cause appearing, IT IS SO ORDERED.

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Original Filed September, 2001