In re: JON REY HURTADO and DENISE HURTADO v. Barbara Hurtado

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
ELECTRONIC CITATION: 2003 FED App. 0312P (6th Cir.)
File Name: 03a0312p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
In re: JON REY HURTADO and
DENISE HURTADO,
Debtors.
________________________
CHARLES J. TAUNT,
Plaintiff-Appellee,
v.
BARBARA HURTADO,
Defendant-Appellant.
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No. 02-1187
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 00-74374—Gerald E. Rosen, District Judge.
Argued: July 31, 2003
Decided and Filed: August 28, 2003
Before: DAUGHTREY, MOORE, and SUTTON, Circuit
Judges.
2 In re Hurtado et al. No. 02-1187
_________________
COUNSEL
ARGUED: Mark H. Shapiro, STEINBERG & SHAPIRO,
Southfield, Michigan, for Appellant. Joseph J. Bernardi,
KASIBORSKI, RONAYNE & FLASKA, Detroit, Michigan,
for Appellee. ON BRIEF: Mark H. Shapiro, STEINBERG
& SHAPIRO, Southfield, Michigan, for Appellant. Joseph J.
Bernardi, KASIBORSKI, RONAYNE & FLASKA, Detroit,
Michigan, for Appellee.
_________________
OPINION
_________________
KAREN NELSON MOORE, Circuit Judge. The defendant
Barbara Hurtado appeals the district court’s decision granting
summary judgment against her, in favor of the Trustee
Charles Taunt. Barbara Hurtado (“Hurtado”), the mother of
debtor Jon Rey Hurtado, was the recipient of a fraudulent
conveyance made by her son and her daughter-in-law, debtor
Denice Hurtado. The Hurtados eventually filed for Chapter
7 bankruptcy protection in 1998.
On appeal, Barbara Hurtado claims that she was not an
“initial transferee” from whom the Trustee could recover a
fraudulent conveyance under 11 U.S.C. § 550, because she
only distributed the funds according to the desires of the
debtors. She therefore claims to be a “mere conduit” for the
funds, lacking the requisite legal dominion over the funds
sufficient to be considered an initial transferee.
The bankruptcy court agreed with Barbara Hurtado and
rendered summary judgment in her favor. The district court
reversed and granted summary judgment in favor of the
Trustee. We AFFIRM the district court’s judgment.

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No. 02-1187 In re Hurtado et al. 3
I. BACKGROUND
Jon Rey Hurtado (sometimes referred to as Jon Rey) and
Denice Hurtado, who are married, are the debtors in this case.
They filed for Chapter 7 bankruptcy protection on September
9, 1998. Their debts were discharged on December 15, 1998.
The plaintiff in this case is Charles J. Taunt, the Trustee in the
underlying bankruptcy proceeding. The defendant, Barbara
Hurtado, is the mother of debtor Jon Rey Hurtado.
In the early 1990s, the two debtors incurred significant
financial obligations to various creditors. The creditors
included Comerica Bank, which obtained a judgment on
June 12, 1992, against the debtors in the amount of
$87,752.77, and the IRS, which was owed roughly $110,000
for taxes evidently dating back to 1990. Smaller debts were
owed to the state of Michigan, Michigan National Bank, and
Cigna Bank.
During the time in which the debtors were incurring these
debts, they received two significant blocks of income. In
September 1992, the debtors sold their house and received
proceeds of $83,247.93. In August 1995, the debtors settled
a lawsuit against Blue Cross and Blue Shield (“BCBS”) for
$130,795.00. Instead of going to the debtors’ creditors or into
the debtors’ accounts, however, the funds went immediately
to Hurtado’s mother, defendant Barbara Hurtado.
Barbara Hurtado deposited the checks into her savings
account at TNC Credit Union. Barbara Hurtado and her
husband Daniel were the only signatories on the account and
had exclusive control of the funds therein.
Although the funds stayed in Barbara Hurtado’s account,
she spent them only at the direction of the debtors. The
debtors used the funds to pay living expenses, which
amounted to $4,000 a month, and to pay certain specific
creditors. When the debtors needed to pay some particular
living expense, they would instruct Barbara Hurtado to write
4 In re Hurtado et al. No. 02-1187
a check on their behalf. Throughout the period of this
arrangement, Barbara Hurtado kept the debtors’ money
separate from her own and never spent any portion of it on
herself. The funds from the sale of the debtors’ house and the
settled lawsuit against BCBS were depleted by mid-1996, two
years before the debtors declared bankruptcy. Barbara
Hurtado had held funds for the debtors for over three years.
No consideration was given in exchange for her aid.
Although Barbara Hurtado characterizes the funds as
always belonging to the debtors (and herself as a mere agent
at their direction), there was, of course, a reason why the
debtors insisted on having Barbara Hurtado take legal control
of the money. With Barbara Hurtado legally in control of the
funds, the creditors had no access to them. The funds were
not, for example, listed as the debtors’ assets on the 433-A
form filed with the IRS by the debtors in February 1996.
There is no question that the transfer of funds was done
deliberately to circumvent the creditors’ rights. Jon Hurtado
baldly admitted this in deposition. When asked why he gave
the funds to his mother to place in her account rather than his
own, Jon Hurtado responded, “Well, several reasons.
Number one, I mean I’ve got creditors and creditors. I will
just be very candid with you, you know, judgments and so
forth, and I needed to survive.” J.A. at 120 (Dep. Test. of Jon
Hurtado). Barbara Hurtado also knew that the money was
being used to pay certain creditors, for she was the individual
writing checks to them.
The Trustee filed a complaint to avoid and recover the
transfer of conveyances and to revoke the debtors’ discharge
in May 1999. The complaint was filed against the debtors as
well as Barbara Hurtado. The debtors were later dismissed
from the action by the bankruptcy court, and that decision was
not appealed.
The bankruptcy court granted Barbara Hurtado’s motion for
summary judgment and denied the Trustee’s summary-

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No. 02-1187 In re Hurtado et al. 5
judgment motion, on the ground that Hurtado was not liable
under 11 U.S.C. § 550. The bankruptcy court reasoned that
Barbara Hurtado never had sufficient control over the money
for liability to attach; instead, she was a mere conduit of the
funds. The district court reversed, finding that Hurtado was
liable as an initial transferee under 11 U.S.C. § 550. The
district court issued a limited remand in the case for
consideration of whether the statute of limitations barred the
Trustee from recovering the portion of the funds that came
from the 1992 sale of the debtors’ home. On remand, the
Trustee quickly conceded the issue. The bankruptcy court
then entered a final judgment in favor of the Trustee on
November 9, 2001, in the amount of the 1995 BCBS
proceeds, and the district court affirmed. Hurtado appealed
to this court, raising solely the question of whether she is
liable under 11 U.S.C. § 550 with regard to the BCBS
proceeds.
II. ANALYSIS
A. Standard of Review
“In a case which comes to us from the bankruptcy court by
way of an appeal from a decision of a district court, we
review directly the decision of the bankruptcy court. We
accord no deference to the district court’s decision; we apply
the clearly erroneous standard to the bankruptcy court’s
findings of fact, and we review de novo the bankruptcy
court’s conclusions of law.” Brady-Morris v. Schilling (In re
Kenneth Allen Knight Trust), 303 F.3d 671, 676 (6th Cir.
2002).
B. The Power of Avoidance Under 11 U.S.C. § 544
Two provisions of the bankruptcy code are of particular
importance in this case, 11 U.S.C. § 544 and 11 U.S.C. § 550.
The former allows a Trustee to avoid certain types of
fraudulent transfers; the latter empowers the Trustee to
recover the property transferred.
6 In re Hurtado et al. No. 02-1187
1These statutes were repealed in 1998 when M ichigan passed the
Uniform Fraudulent Transfer Act. Nevertheless, the changes made by
that Act are not material to this case. Conveyances that are made with
actual intent to defraud creditors are still fraudulent under the new MICH .
CO M P. LAWS § 56 6.34(1)(a) (1999), although the “badges of fraud” are
now explicitly listed in the statute, see § 56 6.34 (2) (1 999 ). Similarly,
conveyances made by an insolvent debtor without reasonably equivalent
value received in exchange are still considered fraudulent under
§ 566.35 (1) (1999).
The parties do not dispute that there has been a fraudulent
transfer under 11 U.S.C. § 544 in this case. Section 544
“allows the trustee to step into the shoes of a creditor in order
to nullify transfers voidable under state fraudulent
conveyance acts for the benefit of all creditors.” Corzin v.
Fordu (In re Fordu), 201 F.3d 693, 697 n.3 (6th Cir. 1999)
(quotation omitted); see also Mason v. Young (In re Young),
238 B.R. 112, 114 (B.A.P. 6th Cir. 1999).
At the time of the transfer, there were two provisions of
Michigan law that potentially rendered the transfer fraudulent,
namely MICH. COMP. LAWS § 566.14 and § 566.17. Section
566.14 deems fraudulent any conveyance made by an
insolvent debtor without a fair consideration; Section 566.17
deems fraudulent any conveyance made “with actual intent
. . . to hinder, delay, or defraud” any of a debtor’s present or
future creditors. MICH. COMP. LAWS § 566.14, § 566.17
(1998).1
The debtors do not dispute that their conveyance of the
BCBS funds to Barbara Hurtado was fraudulent under
Michigan law. There is no doubt either that the conveyance
was made to hinder the debtors’ creditors or that the debtors
were insolvent and did not receive any reasonably equivalent
value in exchange for the transfer to Barbara Hurtado.
Because the conveyance was fraudulent under Michigan law,
11 U.S.C. § 544 vests the Trustee with the right to avoid the
transfer.

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No. 02-1187 In re Hurtado et al. 7
C. The Power of Recovery Under 11 U.S.C. § 550
The disputed issue in this case is whether the Trustee can
recover the improper transfer under 11 U.S.C. § 550.
Although related conceptually, these two issues must be kept
analytically separate. See Suhar v. Burns (In re Burns), 322
F.3d 421, 427 (6th Cir. 2003) (explaining that “avoidance and
recovery are distinct concepts and processes” that “are
addressed in two separate sections of the code”). Section 550
provides as follows:
(a) Except as otherwise provided in this section, to the
extent that a transfer is avoided under section 544,
545, 547, 548, 549, 553(b), or 724(a) of this title, the
trustee may recover, for the benefit of the estate, the
property transferred, or, if the court so orders, the
value of such property, from —
(1) the initial transferee of such transfer or the
entity for whose benefit such transfer was
made; or
(2) any immediate or mediate transferee of such
initial transferee.
(b) The trustee may not recover under section (a)(2) of
this section from—
(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.
11 U.S.C. § 550(a) & (b) (footnote omitted). As is plain from
its text, section 550(a)(1) holds initial transferees strictly
liable for any fraudulent transfers they receive. See Christy
v. Alexander & Alexander of N.Y. Inc. (In re Finley, Kumble,
Wagner, Heine, Underberg, Manley, Myerson & Casey), 130
F.3d 52, 57 (2d Cir. 1997), cert. denied, 524 U.S. 912 (1998).
8 In re Hurtado et al. No. 02-1187
Because Barbara Hurtado received the funds directly from the
debtors, it at first glance seems unquestionable that she must
be considered an initial transferee and that the Trustee be
allowed to recover from her. See First Nat’l Bank of
Barnesville v. Rafoth (In re Baker & Getty Fin. Servs., Inc.),
974 F.2d 712, 722 (6th Cir. 1992) (explaining that “[a]n
initial transferee is one who receives money from a person or
entity later in bankruptcy, and has dominion over the funds”);
see also 5 COLLIER ON BANKRUPTCY ¶ 550.02[4][a], at 550-
18 (15th ed. 1996) (explaining that although “[t]he 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”).
An initial transferee must have “dominion” over the funds
to be an “initial transferee” under the statute. This point was
emphasized by the Seventh Circuit in Bonded Financial
Services, Inc. v. European American Bank, 838 F.2d 890 (7th
Cir. 1988). In Bonded, Michael Ryan was an insider of
Bonded Financial Services and the full owner of his unrelated
business, Shamrock Hill Farm (“Shamrock”). On January 21,
1983, Ryan caused Bonded to send European American Bank
(“European”) a check for $200,000 with a note instructing
European to deposit the check in Ryan’s account. European
complied. Ten days later, on January 31, Ryan authorized
European to apply the $200,000 to a large debt Shamrock
owed European. After Bonded (and Ryan) went bankrupt, the
Trustee sued European, claiming that European became the
initial transferee of the funds on January 21 because it was the
payee of the check from Bonded. Although European did not
receive any benefit from the funds until January 31, and until
that point was essentially “no different from a courier or an
intermediary on a wire transfer,” id. at 893, the Trustee
argued that European (rather than Ryan) was the initial
transferee. The Seventh Circuit rejected this argument,
requiring that a party do more than merely touch the money
before becoming a “transferee”:

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No. 02-1187 In re Hurtado et al. 9
[W]e think 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.
Id. From January 21 until January 31, full control over the
funds remained with Ryan, who “was free to invest the whole
$200,000 in lottery tickets or uranium stocks.” Id. at 894. In
contrast, while European technically held the money, it was
legally bound to follow Ryan’s instructions.
The test Bonded created has come to be known as the
dominion-and-control test, and has been “widely adopted.”
See Finley, 130 F.3d at 57-58. This court applied this test in
In re Baker & Getty, 974 F.2d at 712. In Baker & Getty,
Baker and Getty Financial Services (“B&G”) had been
formed by two individuals, Philip Cordek and Steven
Medved. Cordek and one of B&G’s customers, Byron Rice,
received a loan of $1.1 million from First National Bank. The
Bank, however, failed to secure the loan properly. It began
receiving payments from B&G accounts, including one of
$200,000 originating from the sale of a B&G airplane. In
exchange for the airplane, B&G received a $200,000 cashier’s
check endorsed in blank. Cordek gave the check to Rice and
told Rice to apply it to the bank-loan indebtedness. Rice tried
to apply the cashier’s check to the loan, but the Bank told
Rice to deposit it into his account until it cleared. When the
check cleared, the money was given immediately to the Bank.
We rejected the argument that Rice was the initial transferee,
instead holding that the Bank was the initial transferee of the
cashier’s check. For while it was true “that as a matter of
commercial law, Rice could have applied the endorsed
cashier’s check to any purpose he chose . . . in law the money
was not his and he was simply acting at the direction of
Cordek.” Id. at 722. The money, we held, always belonged
to Cordek and not Rice, “even though as a matter of raw
power, Rice could have violated his instructions and taken the
10 In re Hurtado et al. No. 02-1187
2Barbara Hurtado’s brief actually makes this argument in two
different ways. It first argues that Hurtado lacked the requisite dominion
and contro l over the funds to be an initial transferee within the meaning
of § 55 0. It then goes on to argue that even if Hurtado is an initial
transferee, she should be excused from the liability § 550 imposes under
principles of equity because she wa s a “mere co nduit” for the funds.
These two arguments, however, are merely different sides of the same
coin, as entities will be considered “mere conduits” if and only if they
lack dom inion and co ntrol over the relevant funds. See, e.g., Christy v.
Alexander & Alexand er of N .Y. Inc. (In re Finley, Kum ble, Wagner,
Heine, Underberg, Manley, Myerson & Casey), 130 F.3d 52, 57 (2d Cir.
1997) (joining “other circuits in adopting the ‘mere conduit’ test for
determ ining who is an initial transferee”), cert. denied, 524 U.S. 912
(1998); see also Bailey v. Big Sky Motors, Ltd. (In re Ogden), 314 F.3d
1190, 1196 (10th Cir. 2002) (“Financial conduits are those entities that do
not exercise ‘dominion and control’ over the funds.”).
W e believe the only question to be whether Hurtado is an initial
transferee within the meaning of § 550. To the extent that she is exempt
from liability under § 5 50, it is because she d oes not fall under the
statutory definition of initial transferee; we reject Hurtado’s position that
equitable principles alone exempt her from the po tential statuto ry liability
in this case. Cf. Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d
890, 894 (7th Cir. 1988) (noting that while “some courts say that an agent
. . . is an ‘initial transferee’ but that courts may excuse the transferee from
repaying using equitable powers,” such analyses are “misleading” and
“introduce useless steps”).
cash to a race track or a jewelry store.” Id. It was therefore
the Bank, not Rice, that was the initial transferee.
Citing Bonded and Baker & Getty, Hurtado argues that she
too should not be considered an initial transferee, analogizing
her situation to that of European in Bonded and Rice in Baker
& Getty. Because all of her actions were taken at the
direction of the debtors, Hurtado argues that she was no more
than their agent, lacking the necessary dominion over the
funds to be an initial transferee.2 While as a matter of raw
power, she could have absconded with the debtors’ funds, she
argues that the money in reality continued to belong to the
debtors.

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No. 02-1187 In re Hurtado et al. 11
We reject Hurtado’s argument, finding her to be unlike the
alleged initial transferees in Baker & Getty and Bonded. The
results in Baker & Getty and Bonded turned on the distinction
between mere possession and ownership. The parties found
not to be initial transferees in both cases never had legal title
to the funds; they merely possessed the funds and were acting
as agents for the principals, who retained legal right to the
funds. These cases stand for the proposition that a party is
not to be considered an initial transferee if it is merely an
agent who has no legal authority to stop the principal from
doing what he or she likes with the funds at issue. See 5
COLLIER ON BANKRUPTCY ¶ 550.02[4][a], at 550-18, 550-19
(15th ed. 1996) (listing examples); see also Davis v.
Davenport (In re Davenport), 147 B.R. 172, 185-86 (Bankr.
E.D. Mo. 1992) (refusing to hold a debtor’s son liable as an
initial transferee, because although the debtor held funds in an
account with his son’s name, the debtor had the authority to,
and did in fact, write checks on the account without his son’s
consent); Bumgardner v. Ross (In Re Ste. Jan-Marie, Inc.),
151 B.R. 984, 988 (Bankr. S.D. Fla. 1993) (holding a debtor’s
bookkeeper not to be an initial transferee when she drafted
and cashed salary checks, because she was merely an agent of
the business).
Barbara Hurtado here was given legal title to the funds.
This was, in fact, the very point of the fraudulent conveyance
— in order to insulate the debtors from the money (and thus
from their creditors), legal title to the funds had to be turned
over entirely to Barbara Hurtado. Through this mechanism,
the funds could no longer be considered assets of the debtors
— note that, for example, this scheme enabled the debtors to
avoid listing the funds on the 433-A form they filed with the
IRS in early 1996. The funds were placed in Hurtado’s bank
account (which the debtors could not access without going
through Hurtado). With that established, Barbara Hurtado
had legal authority to do what she liked with the funds; she
could have invested the funds in “lottery tickets or uranium
stocks.” Bonded, 838 F.2d at 894. This fact distinguishes
both Bonded and Baker & Getty, where European and Rice
12 In re Hurtado et al. No. 02-1187
3One case in particular is quite similar to this one and reaches the
same result we reach here. This case is 718 Arch St. Assocs., Ltd. v.
Blatstein (In re B latstein), 244 B.R. 290 (Bankr. E.D. Pa. 2000)
(“Blatstein I”), rev’d, 260 B.R. 698 (E .D. Pa. 2001) (“Blatstein II”). To
protect his funds from creditors, Eric Blatstein fraudulently conveyed his
assets to his wife, Lori, who had engaged in no fraud or other
had legal obligations to follow the commands of their
respective principals. See Baker & Getty, 974 F.2d at 722
(noting that “in law the money was not [Rice’s] and he was
simply acting at the direction of Cordek”); Bonded, 838 F.2d
at 893 (pointing out that “[u]nder the law of contracts, the
Bank had to follow the instructions that came with the
check”). Here, Hurtado was not under any legal obligation to
follow the debtors’ directions. The funds placed in her
account were presumptively hers under Michigan law, see
Muskegon Lumber & Fuel Co. v. Johnson, 62 N.W.2d 619,
622 (Mich. 1954) (noting “the rule that a bank deposit is
prima facie the property of the person in whose name the
deposit is made and that an adverse claimant must show a
clear and perfect title to it”), and there has been no evidence
of some formal contractual arrangement that required her to
obey the debtors’ commands. Even if such an arrangement
existed, it would have been void because it lacked
consideration, see Yerkovich v. AAA, 610 N.W.2d 542, 546
(Mich. 2000) (noting that “[a]n essential element of a contract
is legal consideration” and voiding a contractual agreement
for lack of it), and because the very purpose of the contract
would have been to carry out a fraudulent conveyance illegal
under Michigan law, see Kukla v. Perry, 105 N.W.2d 176,
183 (Mich. 1960) (noting that “where an illegal contract is
involved, the court will not enforce it or grant relief
thereunder”). Hurtado had control over the bank account in
this case for a number of years, exercising control on many
occasions to write checks on the account; she points to no
legal recourse that the debtors would have had if she had
chosen to use the funds to her own benefit. The fact that she
did not choose to use the funds in that manner in no way
undercuts the fact that she had that ability.3

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No. 02-1187 In re Hurtado et al. 13
wrongdoing. Blatstein I, 244 B.R. at 292-93. At his direction, Lori spent
all of the funds. Blatstein II, 260 B.R. at 705. After Blatstein declared
bankruptcy, the question became whether Lori should be considered an
initial transferee within the meaning of 11 U.S.C § 550. The bankruptcy
court in Blatstein (like the bankruptcy court below in the case at bar) held
that she was not an initial transferee, because she “lacked ‘dominion’ over
the monies in question.” Blatstein I, 244 B.R. at 303. Instead, she “was
merely a pawn who used the monies deposited into her accounts where
Blatstein directed her to do so.” Id. Stating that it would make no sense
for a mere pawn to be liable for Eric Blatstein’s fraud, the bankru ptcy
court found her no t to be an initial transferee. Id. The d istrict court in
Blatstein reversed, holding that Lori must be considered an initial
transferee. The district court noted that “Lori clearly had the right to put
the transferred funds to her own purpose” and held that it was irrelevant
that she “may or may not have exercised control” over the funds.
Blatstein II, 260 B.R . at 717. Concluding that “the ‘dominion and
control’ test is purely concerned with rights,” the district court held Lori
to be an initial transferee. Id. at 718. For the reasons explained above, we
think the reasoning of the district court in Blatstein more persuasive than
that of the Blatstein bankruptcy court.
4In this regard, this case is quite unlike the prototypical dominion-
and-control case, where a party claims it is not an initial transferee
because some other party (which had legal authority over the funds) was
actually the initial transferee. Here, however, Barbara Hurtado is not
arguing that som e other party was the initial transferee; she is claiming
that there was never any transfer at all.
We believe it clear that Hurtado was vested with legal
authority to do what she liked with the funds, and so we reject
her argument that she was not an initial transferee. We add,
however, that Barbara Hurtado’s argument that she was never
really given legal control over the funds runs into an
additional problem — it proves far too much. To the extent
that Barbara Hurtado alleges that she was never really given
the funds in question, she is not merely disputing her status as
an initial transferee — she is questioning whether there ever
was a conveyance at all.4 Yet Barbara Hurtado never
contested the finding of a fraudulent conveyance, either in the
bankruptcy or district courts, or in her appellate briefs to this
court. Moreover, at oral argument, when asked whether there
was a disagreement regarding whether there was a fraudulent
14 In re Hurtado et al. No. 02-1187
conveyance under Michigan law, her counsel responded, “I
don’t believe so, your Honor.” Having admitted that there
was a fraudulent conveyance under Michigan law, Barbara
Hurtado cannot now argue that there was never any actual
conveyance of the funds in question.
III. CONCLUSION
For the foregoing reasons, we hold that Barbara Hurtado
did have the requisite dominion and control over the disputed
funds as to make her an initial transferee subject to liability
under 11 U.S.C. § 550. We therefore AFFIRM the judgment
of the district court.

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