Whitlock v. Lowe

Filing 11

MEMORANDUM OPINION. Signed by Judge Royce C. Lamberth. (aej)

UNITED STATES DISTRICT COURT

FILED

FOR THE WESTERN DISTRICT OF TEXAS

MAR

22

)

CHERI ANN WHITLOCK,

)

CLERK,

2017

U.S. DISTRICT

CLERK

)

Appellant,

)

'I

)

v.

)

DEPtIrY

Case No: 5:16-cv-49-RCL

)

JOHN PATRICK LOWE,
Chapter 7 Trustee,

)
)
)

Appellee.

)

MEMORANDUM OPINION
I.

INTRODUCTION
This case comes before the Court on appeal from the Bankruptcy Court's October 13, 2015

grant of judgment in favor of the trustee, and the Bankruptcy Court's subsequent December 4,
2015 Order granting in part and denting in part the trustee's motion for attorneys' fees. The debtor

in this case, Curtis DeBerry, who is not a party to this appeal, filed a Chapter 7 bankruptcy petition
on February 10, 2014. Prior to filing this petition, Mr. DeBerry fraudulently transferred $275,000
to his sister-in-law Cheri Ann Whitlock, the appellant here, to be deposited in a joint bank account

held by Ms. Whitlock and Mr. DeBerry's wife, Kathy DeBerry. At some point, Kathy DeBerry's
name was taken off the account and it remained solely in the name of Ms. Whitlock. At the
direction of the DeBerrys, and still before Mr. DeBerry filed for bankruptcy, Ms. Whitlock made
several transfers of money out of that account. After Mr. DeBerry disclosed the $275,000 transfer

in the course of his bankruptcy case, the trustee, the appellee here, filed an adversary proceeding
seeking to avoid the fraudulent transfer and recover the $275,000 from Ms. Whitlock.

On June 24,2015, the Bankruptcy Court granted partial summary judgment in favor of the

trustee, finding that the $275,000 transfer from Mr. DeBerry was fraudulent and avoidable, and

that Ms. Whitlock was an "initial transferee" from whom the trustee could recover the funds.' The
Bankruptcy Court found, however, that a material issue of fact existed regarding whether the

trustee was seeking double recovery of some of the funds in violation of the "single satisfaction"
rule, specifically, the $32,000 transferred to Kathy DeBerry and the $200,000 transferred to MBC.
After briefing and the presentation of evidence, the Bankruptcy Court concluded that allowing the

trustee to recover the $232,000 from Ms. Whitlock did not violate the single satisfaction rule. The
Bankruptcy Court later ordered Ms. Whitlock to pay the trustee's attorneys' fees and costs in the

amount of $80,409.40.
Ms. Whitlock has appealed the final judgment and the order of attorneys' fees, arguing that

the Bankruptcy Court erred in not applying the single satisfaction rule to the funds transferred back
to Mr. DeBerry prior to his bankruptcy filing, that it erred in finding that Ms. Whitlock was an

initial transferee, that it should not have proceeded to summary judgment or trial before Ms.
Whitlock had the opportunity to obtain Kathy DeBerry's testimony, and that the award of

attorneys' fees was therefore improper.
The Court finds that the Bankruptcy Court did not err in finding that Ms. Whitlock was an

initial transferee, did not err in not applying the single satisfaction rule to the funds allegedly

transferred back to Mr. DeBerry, did not err in proceeding to summary judgment and trial before
Ms. Whitlock had an opportunity to depose Kathy DeBerry, and therefore did not err in awarding

attorneys' fees to the trustee. The decision of the Bankruptcy Court will be affirmed.

Because of a settlement with Chantel DeBerry, Ms. Whitlock was entitled to a credit of $33,500the amount
transferred to Chantel from the account. Therefore, the Bankruptcy Court granted judgment against Ms. Whitlock in
the amount of $241,500.
1

2

II.

BACKGROUND
A.

Factual Background

The debtor in this case, Curtis DeBerry, is the former owner of a produce company in
Texas. On February 10,2014, Mr. DeBerry filed a voluntary Chapter 7 bankruptcy petition.2 Prior
to the filing of this petition, on August 26, 2013, Mr. DeBerry's wife, Kathy DeBerry, and his

sister-in law, Cheri Whitlock opened a joint account at Wells Fargo Bank. That same day, Mr.
and Mrs. DeBerry withdrew $275,000 from one of their bank accounts and obtained a cashier's

check in the same amount made payable to Ms. Whitlock. Ms. Whitlock endorsed the check and
deposited it into the Wells Fargo account. On August 29,2013, a Relationship Change Application
was submitted to Wells Fargo Bank whereby Kathy DeBerry relinquished her ownership interest
in the account, leaving the account only in Ms. Whitlock's name.3
Ms. Whitlock subsequently completed the following wire transfers out of the Wells Fargo

account: 1) $33,500 to Chantel DeBerry (Curtis and Kathy DeBerry's daughter); 2) $9,200 to

Marla Bainbridge; 3) $32,000 to Kathy DeBerry; 4) $200,000 to Masterbaiter Charters, LLC
("MBC").4 MBC is a Texas limited liability company owned by the debtor, Curtis DeBerry.5 The

Mr. DeBerry was indicted on several charges including wire fraud, making false statements to a financial institution,
making false declarations in a bankruptcy proceeding, and concealing assets in bankruptcy. See United States v. Curtis
DeBerry, No. 5: 14-cr-524 (W.D. Tex).
2

Ms. Whitlock claims that Kathy DeBerry removed her name from the account without informing Ms. Whitlock, and
that Ms. Whitlock only learned of this action after she was sued. Ms. Whitlock states that although she signed the
Relationship Change Application, she was never shown page 1, which states the change in ownership of the account.
The trustee argues that the pages that Ms. Whitlock did see and sign reflected that the form was a "Consumer Deposit
Account Relationship Change Application," and that Ms. Whitlock signed as the sole "Tax Responsible Customer"
and the sole "New/Remaining Account Owner." The Court need not decide this issue because it finds that Ms.
Whitlock was the initial transferee regardless, as explained below.

"Ms. Whitlock claims that although she signed each wire transfer, she did not initiate the transfers, did not fill out the
transfer requests, and did not direct to whom the money was sent. Rather, Kathy DeBerry would call and tell Ms.
Whitlock that a wire transfer was waiting at the bank for her signature, and then Ms. Whitlock would sign. Ms.
Whitlock argues that she was only following the DeBerrys instructions. As explained below, the Court finds that even
if Ms. Whitlock was following directions, she is still liable to the trustee as an initial transferee.
One of the disputes on appeal is whether the money transferred to MBC and Kathy DeBerry was in essence
transferred to the debtor. Ms. Whitlock argues that the money was in fact transferred to the debtor because MBC was

money transferred to Kathy DeBerry and MBC was spent prior to the bankruptcy filing. In

response to a question regarding why the $200,000 was returned to MBC when the funds had
previously belonged to the Mr. DeBerry, he responded "because I told her to

. . .

because that's

where I needed it."
B.

Bankruptcy Court Decision

After Mr. DeBerry filed his bankruptcy petition, and after he (belatedly) disclosed the
existence of the $275,000 transfer, the bankruptcy trustee initiated an adversary proceeding against
Ms. Whitlock to avoid the transfer and recover the funds, and later moved for summary judgment.

The Bankruptcy Court first found that the $275,000 transfer to Ms. Whitlock was made with the
actual intent to hinder, delay or defraud creditors under
Texas Business and commercial code

§

11

U.S.C.

§

544 and

§

548(A)(l)(A), and

24.005(A)(l) as evidenced by the following badges of

fraud: 1) Ms. Whitlock did not provide any consideration for the funds; 2) Ms. Whitlock is a family

member of Mr. DeBerry's; 3) Mr. DeBerry instructed Ms. Whitlock to transfer $200,000 to MBC;
4) Mr. DeBerry transferred the funds while under great financial stress; 5) the transfer was

concealed by Mr. DeBerry; and 6) Mr. DeBerry had been sued prior to the transfer (by Eclipse
Berry Farms for fraud in connection with an agreement to obtain strawberries). The Bankruptcy
Court also found that the $275,000 transfer was constructively fraudulent and avoidable under
U.S.C.

§

11

548(a)(1)(B) because Mr. DeBerry, the debtor, received less than a reasonably equivalent

value in exchange for the transfer and was insolvent at the time. It also found that the transfer was
avoidable under

11

U.S.C.

§

544 and Texas Business & Commercial Code

§

24.006(A).

the alter ego of the debtor, and because the money transferred to Kathy DeBerry was a community property asset of
Curtis and Kathy DeBerry. The Court need not determine whether Ms. Whitlock is correct because it fmds that the
single satisfaction rule does not apply for other reasons, as explained below.

4

Finally, the Bankruptcy Court held that Ms. Whitlock was an "initial transferee" from
whom the trustee could recover the funds. Section 550 provides "to the extent that a transfer is

avoided. . . 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

(2) any immediate or mediate transferee of such initial transferee." 11 U.S.C. § 550(a). Relying

on the Fifth Circuit's "dominion or control" test to determine whether a party is an initial

transferee, the Bankruptcy Court found that, regardless of whether Ms. Whitlock knew that Ms.

DeBerry had removed her name from the account and whether she was simply being directed by
the DeBerrys to make transfers out of the account, she had sufficient dominion and control. The
$275,000 check was made out solely to Ms. Whitlock and she endorsed it. She was, in fact, the
sole owner of the Wells Fargo account, each of the transfers made from the account were executed

by Ms. Whitlock. In sum, Ms. Whitlock had legal title to the funds and no legal obligation to

follow the DeBerry' s instructions on where to distribute the funds. Therefore, the trustee could
recover the funds from Ms. Whitlock as an initial transferee.
The Bankruptcy Court then received additional briefing and evidence regarding whether

the trustee was seeking double recovery in violation of the single satisfaction rule of Section 550,

which states that "[t]he trustee is entitled to only a single satisfaction under subsection (a) of this
section." 11 U.S.C. § 550(d). On September 28, 2015, the Bankruptcy Court read onto the record
its finding that the trustee did not violate the single satisfaction rule. The court first found that the

single satisfaction rule does not apply to pre-petition transfers. Acknowledging that there is little
caselaw on point and that no case specifically says when the transfer should be examined in this
context, the court agreed with the trustee that the issue was one of statutory interpretation. It

concluded that Section 550(a) discusses evaluating fraudulent transfers as they affect the

5

bankruptcy estate and does not relate to the pre-petition relationship between the parties. Noting
that a court may not use its equitable powers to circumvent a clear statute, the court found that the
statute was clear and that it had to examine the transfers at the time the petition was filed.
Furthermore, the court noted that initial transferees are strictly liable for any fraudulent transfers
they receive. Thus, it found "that the application of the statute requires the court to look at the
transfers that benefited the estate. Here, there is no showing that that occurred. The [d]efendant
is strictly liable for the transfers." Transcript Regarding Hearing Held 9/28/2015 at 10:5-9, No.

14-ap-5044 (Bankr. W.D. Tex. Sept. 28, 2015). The Bankruptcy Court later ordered Ms. Whitlock
to pay the trustee's attorneys' fees and costs in the amount of $80,409.40.

III.

JURISDICTION AND STANDARD OF REVIEW
This

Court

has jurisdiction to hear this appeal pursuant to 28 U.S.C.

provides that district

courts

§

158(a) which

have jurisdiction to hear appeals from final judgments and orders of

bankruptcy judges.
When a district
appellate

court,

court

reviews the decision of a bankruptcy

court,

it "functions as an

applying the standards of review generally applied in federal appeals

Harvey Gulf Int'l Marine, Inc.

v.

courts."

Bennu Oil & Gas, LLC, 559 B.R. 152, 154 (S.D. Tex. 2016).

District courts "review[] orders granting summary judgment de novo, guided by the same standard
as the Bankruptcy

Court:

L'JiIUtiIfl

Federal Rule of Civil Procedure 56." Id.

iii

Ms. Whitlock first challenges the Bankruptcy

Court's

finding that she was an initial

transferee liable to the trustee for the fraudulently transferred funds. She argues that the

Court

should take into account equitable considerations. Specifically, that she never considered the
money in the account to belong to her and that Kathy's name was removed from the account

without her knowledge, and therefore she never knew that she was the sole owner. The Court
finds that the Bankruptcy Court did not err in finding that Ms. Whitlock was an initial transferee.
A.

Legal Standards

The Bankruptcy Code provides that "to the extent that a transfer is avoided.. . 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

. . .

the initial transferee."

11

U.S.C.

§

550(a). Transfers may be

avoided if they are fraudulent, as is conceded here. Trustees may recover fraudulent transfers from
initial transferees regardless of the initial transferee's good faith. See Matter of Criswell, 102 F.3d
1411, 1418 (5th Cir. 1997). Initial transferees are "strictly liable for any fraudulent transfers they

receive." In re Hurtado, 342 F.3d 528, 532 (6th Cir. 2003)
The Code does not define "initial transferee." The Fifth Circuit has therefore adopted the

"dominion or control" test, under which "a party that receives a transfer directly from the debtor

will not be considered the initial transferee unless that party gains actual dominion or control over
the funds." Matter of Coutee, 984 F.2d 138, 141 (5th Cir. 1993). "Dominion or control means
legal dominion or control." Id. at 141 n.4. A transferee must have "legal right to put the funds to
its own use," Le, it is

"free to invest the whole [amount] in lottery tickets or uranium stocks' if it

wishes." Id. at 141.

If a transferee receives the funds, but is only is a mere conduit or an agent for a party in the
transaction, the transferee does not have dominion over the funds. Id. at 141 n.3. This situation
occurs when "the equitable ownership of the payment is clearly identified as resting in some party
other than the one who deposited the check," for example when parties "are operating in areas
where the relationship between the defendant and the debtor is highly regulated such as attorneys
with escrow accounts, insurance brokers with client trust accounts, and banks with depository

accounts."

In re Dunhill Res., Inc., No.

03-41264-112-7, 2006 WL 2668847, at *4 (Bankr. S.D.

Tex. Sept. 14, 2006).

B.

Analysis

The Court finds that the Bankruptcy Court did not err in concluding that Ms. Whitlock was
an initial transferee under Section 550(a). It is undisputed that the $275,000 check
was made

payable to her and that she endorsed and deposited it. At the time of the transfer, despite the joint
status of the account, Ms. Whitlock was authorized to withdraw funds from the account.
Ms.

Whitlock argues that "during the lifetime of all parties to a joint account, the account belongs
to

the parties in proportion to the net contribution by each party to the sums of the
deposit," Tex. Est.
Code

§

113.102, and therefore because the money deposited into the account was provided
by

Kathy and Curtis DeBerry, that money belonged to Kathy DeBerry, not Ms. Whitlock.
This
provision of the Texas Estate Code, however, is "do[es] not affect the withdrawal power of
those
persons under the terms of an account contract." Tex. Est. Code 113.101(2).
§
Furthermore, it is undisputed that on August 29, 2013, Ms. Whitlock became the sole legal
owner of the account and was the only person authorized to withdraw money from it.
Whether
she knew that the status

of the account had changed from a joint account with Kathy DeBerry to

an account solely under her name, Ms. Whitlock had the legal right to put the funds
to any use she
wished. She had legal dominion and control over the funds and was therefore the initial
transferee

under Section 550(a). Cf

In re Hurtado,

342 F.3d at 534-35 (finding that the mother of a debtor

who was the recipient of a fraudulent conveyance made by her son and her
daughter in law
qualified as the initial transferee because she was given legal title to funds when the funds
were

placed in her bank account (in order to insulate the debtors), which was inaccessible to
the debtors
without going through her; she had legal authority to do what she liked with the funds;
and she

8

was under no legal obligation to obey the commands of the debtor); In re Lacina, 451 B.R. 485,
492 (Bankr. D. Minn. 2011) (finding that the mother of a debtor who received a fraudulent transfer

from her daughter and son-in-law into her bank account over which she had sole ownership and

dominion was an initial transferee because she "was freely given the funds, effectively eliminating
the payment as an asset of the debtors, and she had actual and complete dominion over the funds").
Ms. Whitlock was not a "mere conduit" or agent of the DeBenys with no right to use the

funds as she wished. Cf Janvey

v.

Barr, No. 3:lO-CV-0725-N, 2015 WL 12681608, at *3 (N.D.

Tex. Aug. 5, 2015) (finding that executors of an estate who had possession of the assets at issue,

but "had no legal option but to distribute the proceeds as commanded" by Texas law and by the

decedent's will, were not initial transferees); In re Goushey, No. 07-42541, 2011 WL 2470029, at
*3 (Bankr. E.D. Tex. June
17, 2011) (finding that a party who was

"at most, a messenger" and

who "had no right to cash a check made out to [a different party] or to spend any of the money on

groceries, let alone lottery tickets or uranium stocks" was not an initial transferee). Although she

claims that she was merely following the instructions of the DeBerrys with regard to transfers out

of the account, and there is evidence that Curtis DeBerry was in fact instructing her to make such
transfers, Ms. Whitlock has failed to point to evidence that legal impediments existed that limited

her ability to use or transfer the funds in the account. She may have felt pressure to follow the
instructions of her family members, but there is no evidence that she was legally obligated to do
so.

Cf In re Hurtado, 342 F.3d at 536 (finding that transferee was an initial transferee in part

because there was "no evidence of some formal contractual arrangement that required her to obey
the debtors' commands" and "[t]he fact that she did not choose to use the funds [for her own
benefit] in no way undercuts the fact that she had that ability"); In re Blatstein, 260 B.R. 698, 717
(E.D. Pa. 2001) (finding that the bankruptcy court, which found that the

transfereethe wife of

the

debtor"was merely a pawn who used

the monies deposited into her accounts where [the

debtor] directed her to do so," erred in holding that she was not an initial transferee because she

"always possessed the

rightwhether she exercised it or notto decline to follow [the debtor's]

instructions").
The Court concludes that Ms. Whitlock qualified as an initial transferee under Section
550(a) and that the Bankruptcy Court did not err in finding the same.
V.

SINGLE SATISFACTION RULE
Ms. Whitlock argues that because $232,000 of the money fraudulently transferred to her

was transferred back to the debtor, and that allowing the trustee to recover that sum from her
violates the single satisfaction rule. The Court finds that it does not.
A.

Legal Standards and The Parties' Arguments

Although trustees may recover fraudulent transfers from transferees under Section 550(a),
they are "entitled to only a single satisfaction under.

. .

this section."

11

U.S.C.

§

550(d). Under

Section 550(d), "the Trustee cannot obtain twice the full value of a fraudulent transfer by

recovering that value from both the initial transferee and a subsequent transferee. The Trustee is
limited to a single recovery for each transfer." In re Prudential ofFlorida Leasing, Inc., 478 F.3d
1291, 1297 (11th Cir. 2007).

The parties devote much of their arguments on appeal to whether a pre-petition return of

transferred funds to the debtor can trigger the single satisfaction rule. When a debtor files for
bankruptcy, this action "creates an estate.

. .

comprised of.

debtor in property as of the commencement of the case."

11

. .

all legal or equitable interests of the

U. S.C. § 541(a); see also In re Zibman,

268 F.3d 298, 302 (5th Cir. 2001). Ms. Whitlock notes that "the purpose of the avoidance statutes
is 'to restore the estate to the financial condition it would have enjoyed

10

if the transfer had not

occurred." Appellant Reply Brief at 7, ECF No. 10. Because she argues that she returned some

of the funds to the debtor, she is therefore entitled to credit for the funds returned, and cites several
cases holding that the pre-petition return of assets to the debtor "is sufficient to get the transferee

off the hook for liability, at least to the extent such returns were made." Id at 8. These decisions
stem in large part from Dobin

v.

Presidential Fin. Corp. of Delaware Valley (In re Cybridge

Corp.), where the court, considering whether the trustee could recover from the debtor's lender

post-petition collections on the debtor's accounts receivable, held that "Section 550(d) of the Code
empowers courts to prohibit a trustee from recovering under Section 550(a) from a transferee that

has already returned to the estate that which was taken in violation of the Code." 312 B.R. 262,
271 (D.N.J. 2004).

The decisions cited by Ms. Whitlock stand for the proposition that even certain pre-petition
transfers back to the debtor are sufficient to prohibit the trustee from recovering from the
transferee. See Grossman v. Bonefant (In re Bonefant), No. 12-16482-JNF, 2016 WL 1238855, at
*9 (Bankr. D. Mass. Mar. 29, 2016) (finding
that the trustee could not recover from the debtor's

father funds fraudulently transferred from the debtor to his father, then transferred back to the

debtor pre-petition, because "[w}hile the estate was depleted by the Debtor's fraudulent transfers,
the financial condition of the bankruptcy estate was restored by the pre-petition repayments of the

fraudulent transfers" and a "judgment in the full amount of the Debtor's deposits would result in
a windfall to the bankruptcy estate and cause incalculable harm to the Defendant"); Kapila

v.

Suntrust Mortg. (In re Peariman), 515 B.R. 887, 896-97 (Bankr. M.D. Fla. 2014) (finding that

"single satisfaction rule' seeks to limit the trustee to a single recovery for his or her fraudulent
transfer claim to ensure the bankruptcy estate is put back in its pre-transfer position but receives
no windfall through the avoidance provisions" and that "{c}ourts also use

11

§

550(d).

. .

to temper

the harsh application of

§ 5 50(a)

when the estate already has received full repayment of the

challenged transfers before the bankruptcy case was filed"); Lassman

v.

Patts (In re Patts), 470

B.R. 234, 243 (Bankr. D. Mass. 2012) ("The asset the Trustee seeks to recapture, namely the

interest in the Property the Debtor conveyed to [the wife] or its equivalent value, was part of the

Debtor's bankruptcy estate on the date the estate was created, having been reconveyed to the
Debtor through the Retransfer Deed.... Simply stated, the transfer the Trustee seeks to avoid has
already been undone and the undiminished value of the transferred asset has been restored to the

bankruptcy estate. Accordingly, any 'recovery' for the benefit of the estate has already been
completed."); Bakst v. Clarkston (in re Clarkston), 387 B.R. 882, 889-91 (Bankr. S.D. Fla. 2008)

("If the Trustee was permitted to recover [proceeds from a home, which had been fraudulently
transferred to the defendant then sold, and which were then given to the debtor] from the
Defendant, the estate would essentially recover the payments twice and receive a windfall.

.

Crediting the Defendant for payments made to the Debtor between the date of transfer and the

Petition Date will restore the estate to the financial condition that would have existed had the

transfer never occurred."); Bakst v. Wetzel (In re Kingsley), No. 06-12096-BKC-PGH, 2007 WL
1491188, at *4 (Bankr. S.D. Fla. May 17, 2007), aff'd, 518 F.3d 874 (11th Cir. 2008) (finding that
"{t]he Trustee possesses the power to avoid fraudulent transfers in order to prevent the depletion

of the estate, to promote an equitable distribution of the debtor's assets, and to protect creditors
who advanced credit in ignorance of the fraud," but, noting "the issue of windfall to the estate,"

finding that "to the extent that the fraudulent transfer is repaid pre-petition, the claim is satisfied");

Bakst

v.

Sawran (In re Sawran), 359 B.R. 348, 352-53 (Bankr. S.D. Fla. 2007) (finding that

permitting the trustee to recover funds transferred to the debtor's father prior to filing for
bankruptcy, but returned to the debtor (via other family members and the defendants in the

12

adversary case) pre-petition, "would create a windfall of $12,000.00 that violates the single
satisfaction rule of section 550(d)").

The trustee contends that this line of cases were wrongly decided. He argues that the plain

language of the Bankruptcy Code directs such a result: "Section 550(d) plainly applies only to
preclude a trustee from recovering more than one satisfaction pursuant to § 550(a). Section 550(a),
in turn, plainly applies only to recovery of transfers found to be fraudulent or preferential. Because

nothing about § 550(a) applies to the funds already in the estate at the time a bankruptcy case is
filed,

§

550(d) cannot be read to consider funds already in the estate as a 'recovery' that would

factor in to whether a 'double recovery' has occurred." Appellee Brief at 14, ECF No. 9. And,
"[b]efore a bankruptcy petition is filed, there is no bankruptcy estate. While

§

550(d) limits the

trustee to a single satisfaction in recovering property for the benefit of the estate under

§ 5 50(a),

under the plain meaning of the statute, property that does not benefit the estate cannot satisfy an
obligation owed under

§

550(a)." Id at 15. When Ms. Whitlock transferred the funds to Kathy

and MBC there was no bankruptcy petition and therefore no estate existed, so these transfers could

not have benefitted the estate. Id. The Bankruptcy Court agreed, finding that "the Court may not
use its equitable powers under Section 105 to circumvent an otherwise harsh result where the
statute is clear. And in this context, the Court thinks the statute is clear that it has to examine the
transfers at the time the petition was filed." Transcript Regarding Hearing Held 9/28/2015 at 9:1220.
B.

Analysis

The Court finds that it need not enter the murky world of statutory interpretation, nor does
it need to find that the above cited cases were wrongly decided. Those cases focus on the inequities

of potential "windfalls" to the trustee if he or she were able to recover from the transferee a sum

13

that was already been given back to the debtor and had thus become part of the bankruptcy estate
(at the time of petition) over which the trustee had control. See Bonefant, 2016 WL 1238855, at
*9; Peariman, 515 B.R. at 897-98;
Patts, 470 B.R. at 243; Clarkston, 387 B.R. at 891; Kingsley,

2007 WL 1491188, at *4_6; Sawran, 359 B.R. at 353. As such, "Section 550(d)'s primary aim is
to prevent the estate from receiving a windfall." Peariman, 515 B.R. at 898 (emphasis added).

The concerns of a windfall to the trustee are not present here. It is undisputed that $200,000
was transferred from Ms. Whitlock to MBC and that $32,000 was transferred from Ms. Whitlock

to Kathy

DeBerry.6

It is also undisputed that after these transfers, this money was spent prior to

Mr. DeBerry's bankruptcy

petition.7

As a result, that money could not have become part of the

bankruptcy estate, which consists of "all legal or equitable interests of the debtor in property as of
the commencement ofthe case." 11 U.S.C. § 541(a) (emphasis added). There is simply no danger

of a windfall to the trustee when that money does not exist for the purposes of defining the
bankruptcy estate. There has been no satisfaction of the trustee's avoidance action. Cf Belford v.

Cantavero (In re Bassett), 221 B.R. 49, 55 (Bankr. D. Conn. 1998) (finding that the defendant, the
transferee of real estate from her husband, who received it from the debtor, and who refinanced
the property thereby paying off a note originally executed by the debtor and releasing the mortgage,
was "shielded from recovery by an even more fundamental defensesatisfaction," and that "the

PlaintiffTrustee's avoidance action was satisfied before it was ever commenced"). If the purpose

of Section 550 is, as Ms. Whitlock argues, to restore the estate to the financial condition it would
have enjoyed if the fraudulent transfer had not occurred, that purpose has not been fulfilled. The

6

For purposes of this appeal, the Court assumes, without deciding, that these transfers were de facto transfers to the
debtor, Curtis DeBerry.
7Although Ms. Whitlock does not outwardly acknowledge that the money was spent, she does not refute the trustee's
assertions that both the $32,000 transferred to Kathy DeBerry and the $200,000 transferred to MBC was spent prior
to the bankruptcy filing.

14

$232,000 at issue here never became part of the estate, even if it was transferred to the debtor. The

estate, was not restored to its pre-transfer petition because that money is gone.
Ms. Whitlock also argues that the fact that the debtor spent the money pre-petition should

not change the analysis because the debtor's estate was not diminished. The Court disagrees.
Although the debtor perhaps may have had his hands on the money, his bankruptcy estate was not

created until after that money was spent. Section 5 50(d) is used "to temper the harsh application

of § 550(a) when the estate already has receivedfull repayment of the challenged transfers before
the bankruptcy case was filed.

. . .

The crux of the argument holds that if the bankruptcy estate

receives pre-petition repayment of fraudulent transfers, then the estate, at filing, is in the same

position it would have been in notwithstanding the transfers." Peariman, 515 B.R. at 896-97
(emphasis added). The estate here, at filing, was not in the same position it would have been in
had the transfers not occurred, because the money was no longer in the debtor's possession. And,
while it is possible that the trustee could have brought suit to recover such funds from the new

transferees, Section 550 gives trustees the option to recover from the initial transferee or any
immediate or mediate transferees.

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U.S.C.

§

550(a). Ms. Whitlock was the initial transferee,

and, as such, the trustee was free to seek recovery from her.
In sum, because the money transferred to the debtor from Ms. Whitlock was spent, it never

became part of the bankruptcy estate and the trustee never had access to it. If he recovers this
money from Ms. Whitlock, there is no danger of a double recovery or a windfall to the trustee.
The Bankruptcy Court did not err in finding that the single satisfaction rule did not prohibit the
trustee from recovering from Ms. Whitlock.

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VI.

DEPOSITION OF KATHY DEBERRY
Finally, Ms. Whitlock argues that the Bankruptcy Court should not have proceeded to

summary judgment or trial before she was able to depose and obtain the testimony of Kathy
DeBerry. At the time of her deposition, Kathy DeBeny pled the Fifth Amendment and did not
testify about the Wells Fargo account. Ms. Whitlock states that she issued a subpoena to force

Kathy DeBerry to appear at trial as a witness, but that Kathy avoided having the subpoena served
on her. With respect to this issue, the Bankruptcy Court found that "under the context right now,
under a notice of deposition, where Ms. DeBerry apparently agreed to show up but did not give
any testimony other than stating her name, that if.

. .

Ms. Whitlock wants further assistance from

the Court in compelling Ms. DeBerry to do certain things, such as testify, then it's going to have
to be subject to a subpoena." Transcript Regarding Hearing Held 9/28/20 15 at 11:3-10.
The Court finds that the Bankruptcy Court did not err in proceeding to summary judgment
and trial before Ms. Whitlock was able to depose Kathy DeBerry. Ms. Whitlock does not offer
any support for her statement that she issued a subpoena to Kathy DeBerry, or that Kathy avoided

having the subpoena served on her. She also offers no support for her assertions regarding the
content of Kathy's presumed testimony, or for the implied assertion that Ms. DeBerry would not
simply have pled the Fifth Amendment again. The Bankruptcy Court found that if Ms. Whitlock

wanted Kathy to testify, she needed to serve her with a subpoena. It did not have the authority to
compel Kathy's testimony without one. Absent evidence that Ms. Whitlock attempted to subpoena
Ms. DeBerry and was unable to do so, the Court finds that the Bankruptcy Court did not err in not

staying proceedings pending the obtainment of testimony from Kathy DeBerry.

VII.

ATTORNEYS' FEES
Ms. Whitlock's only argument on appeal is that if the decision of the Bankruptcy Court is

reversed for any reason, its award of attorneys' fees to the trustee cannot stand. Because this Court
affirms the decision of the Bankruptcy Court and reverses no part of it, there is no basis to reverse
its decision regarding attorneys' fees.

VIII. CONCLUSION
The Court will affirm in full the decision of the Bankruptcy Court. The Bankruptcy Court

did not err in finding that Ms. Whitlock was an initial transferee, did not err in not applying the
single satisfaction rule to the funds allegedly transferred back to Mr. DeBerry, did not err in

proceeding to summary judgment and trial before Ms. Whitlock had an opportunity to depose
Kathy DeBerry, and therefore did not err in awarding attorneys' fees to the trustee.
A separate order accompanies this Memorandum Opinion.

Date:March2Ol7
Royce C. Lamberth
United States District Judge

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