Nos. 15-2308/2362
Appeal from the United States District Court
for the Western District of Michigan at Grand Rapids.
No. 1:12-cv-01113—Paul Lewis Maloney, District Judge.
Argued: September 29, 2016
Decided and Filed: February 8, 2017
Before: MOORE, ROGERS, and SENTELLE, Circuit Judges.


ROGERS, Circuit Judge. In this bankruptcy case, Trustee Marcia Meoli seeks to recover allegedly fraudulent transfers of funds from the now-bankrupt company, Teleservices, to Huntington National Bank. Huntington lent money to, and maintained the deposits of, another company called Cyberco, which had created Teleservices to perpetuate a Ponzi scheme. As a part of the scheme, Cyberco and Teleservices shuttled the fraud’s proceeds between their bank accounts.

The Trustee sought to recover from Huntington three types of transfers from Teleservices: (i) direct loan repayments, which Teleservices sent directly to Huntington to pay down Cyberco’s debt to Huntington; (ii) indirect loan repayments, which Teleservices sent to Cyberco’s deposit account at Huntington, and which Cyberco later used to repay its debt to Huntington; and (iii) excess deposits, which Teleservices sent to Cyberco’s deposit account at Huntington, and which Cyberco later withdrew or the government later seized. The bankruptcy court held that the Trustee could recover all three types of transfers from Huntington. The district court agreed. Huntington appeals, arguing that it is not a transferee of the excess deposits, and that it received the loan repayments in good faith. The Trustee cross-appeals, challenging as unreasonably low the bankruptcy court’s calculation of prejudgment interest on the recoverable transfers.

Because Cyberco was free to withdraw its money from its deposit account, Cyberco retained “dominion and control” over the deposits, despite Huntington’s security interest in them. Huntington gained dominion and control only over the money that it received in satisfaction of Cyberco’s debt to it; Huntington is a transferee of the direct and indirect loan repayments, but not of the excess deposits. Furthermore, because Huntington’s investigator discovered a critical clue to Cyberco’s fraud on April 30, 2004, and because that investigator failed to share that discovery with Huntington’s manager who oversaw the Cyberco account, Huntington has failed to prove that it continued to receive transfers from Teleservices in good faith after that date. But this court’s precedent does not necessarily require recoverability of transfers before that date, just because Huntington had earlier inquiry notice of fraud. Finally, the bankruptcy court did not err in calculating prejudgment interest using the statutory rate.