from the United States District Court for the Western
District of Texas
CLEMENT, DUNCAN, and OLDHAM, Circuit Judges.
S. OLDHAM, CIRCUIT JUDGE:
Bankruptcy Code empowers a trustee to "avoid"
certain pre-petition transactions and "recover"
funds rightfully owed to the bankruptcy estate. The question
presented is whether the trustee can double-recover
funds that were already returned. The district and bankruptcy
courts below said yes, disagreeing with every other court
that has considered the question. We vacate and remand.
DeBerry owned a produce-distribution business in San Antonio.
He filed a Chapter 7 bankruptcy petition in February 2014. He
committed bankruptcy fraud, so the district court sentenced
him to 24 months in prison. Ours is not the criminal case,
however. This is an adversary proceeding filed by the trustee
of his bankruptcy estate, Appellee John Patrick Lowe
months before Mr. DeBerry filed for bankruptcy, his wife,
Kathy DeBerry (née Whitlock), opened a joint bank
account at Wells Fargo with her sister-in-law, Appellant
Cheri Whitlock. Mrs. DeBerry allegedly wanted to use the
account to transfer money to her children, who were away at
school. It's unclear why she needed a joint bank account
with Ms. Whitlock to do that.
August 26, 2013, Ms. Whitlock went with Mrs. DeBerry to open
the account at a Wells Fargo branch. Mrs. DeBerry gave her a
cashier's check for $275, 000 withdrawn from the
DeBerrys' joint account. Ms. Whitlock endorsed the check,
and they deposited it in the new Wells Fargo account.
days later, Mrs. DeBerry removed herself from the Wells Fargo
account, leaving it solely in Ms. Whitlock's name. Ms.
Whitlock signed the form that made her the sole
accountholder, but she attested that Mrs. DeBerry showed her
only the signature pages when asking her for a signature. She
did not know Mrs. DeBerry was removing herself from the
account, and she "would have never signed a document
permitting that to happen."
Whitlock explained that her sister-in-law was "always
busy with work." "I didn't work at the
time," Ms. Whitlock testified, "[s]o, she would ask
me can you go sign this paper [at the bank] and I'd say,
yeah, I'll pop in." She "never questioned why
Kathy wasn't signing the documents" herself.
"I was doing a favor for my sister-in-law and never
asked," Ms. Whitlock testified.
money didn't stay in the Wells Fargo account for long.
Starting about a month after the sisters-in-law opened the
account, the $275, 000 was transferred out. On September 23,
Ms. Whitlock wired $33, 500 to The International CC, LLC,
with a notation for Chantel DeBerry (the DeBerrys'
daughter). Ms. Whitlock said the transfer paid for
Chantel's culinary school. That same day, Ms. Whitlock
authorized an automatic transfer of $9, 200 to Marla
Bainbridge. Ms. Whitlock does not know who Marla Bainbridge
is. Ms. Whitlock did not fill out the information on either
of these transfer request forms-she testified she only signed
them at Mrs. DeBerry's request.
October 7, Ms. Whitlock signed the two wire transfers at the
heart of this case. The first transferred $32, 000 from the
Wells Fargo account to Kathy DeBerry's personal bank
account, which was in her name only. The second transferred
$200, 000 to an account owned by Mr. DeBerry's LLC,
"MBC." Ms. Whitlock testified that she signed the
October 7 wire transfers, like the others, at Mrs.
DeBerry's request and that she neither filled out the
forms nor asked about their destinations or purposes.
Whitlock testified: "It never occurred to me to review
the transfer request or the reasons why the transfers were
being made. . . . Because the monies belonged to Kathy
[DeBerry], I did not question what she wanted to do with
Trustee filed an adversary proceeding against Ms. Whitlock
(and others) to avoid and recover the $275, 000 as a
fraudulent transfer. He settled with Chantel DeBerry, so the
$33, 500 transferred on September 23 is no longer at issue.
That leaves $241, 500. The Trustee argues Ms. Whitlock is
liable for all $241, 500 under 11 U.S.C. § 550, which
allows a bankruptcy trustee to recover fraudulently
transferred funds from transferees. Ms. Whitlock denies
liability based on two arguments. First, she contends she is
not a "transferee" because the money really
belonged to the DeBerrys all along; she was a "mere
conduit." Second, she contends the ...