Under 11 USC 550, initial transferees of fraudulent transfers are strictly liable to refund the transfer; whereas subsequent transferees are not liable if they received the transfers for value, in good faith, and without knowledge of their voidability.  The 9th Circuit determines “initial transferee” by the “dominion” test, under which the first party to receive the property that has the legal right to spend or dispose of the property as it pleases is the initial transferee.  An embezzling employee is the initial transferee under this test only if he places the funds in an account in his own name.  If the employee deposits the funds in an account in the employer’s name, the employee still owes a fiduciary duty to use the money for the employer’s benefit and so lacks “dominion” over the funds.  In this case, the employee deposited the employer’s money in an account opened in the employer’s name (but of which it had no knowledge) from which the employee spent the money for his own benefit.  Held, the persons who received the checks from this account were the initial transferees and thus strictly liable to repay what they had received.  They were in a better position to stop the embezzlement by noticing that the checks were on a corporate account but had been spent for the personal benefit of the employee.

Ninth Circuit Court of Appeals (Marbley, J., sitting by designation; Nguyen, J., dissenting); October 2, 2017; 2017 WL 4341746