Wasatch Factoring, Inc. v. Martin (In re Wasatch Factoring, Inc.)
APPEAL
Unpublished
Debtor issued a check, postpetition, to three of its officers and directors to indemnify them for expenses incurred defending themselves from lawsuits against them in their corporate capacities. The officers transferred the check to their attorney, who placed the check funds into an account, withdrew them in payment of legal fees, and returned the balance to officers. Debtor sought to recover the attorney's fee amount from attorney under 11 U.S.C. § 550(a), alleging the fee payment was a voidable postpetition transfer under 11 U.S.C. § 549(a). The bankruptcy court entered summary judgment in favor of debtor under § 550(a)(1), concluding that attorney was the entity for whose benefit debtor's transfer had been made. The district court disagreed, concluding that the funds were transferred by debtor to the officers for their benefit, and it did not matter if attorney ultimately benefitted as well. However, the district court also concluded that attorney was an immediate transferee of officers, within the meaning of § 550(a)(2), and would therefore be required to relinquish the fee unless he could prove that he gave value for the funds in good faith, as required by § 550(b). Because there were issues of fact regarding attorney's good faith, the case was remanded for further proceedings in the bankruptcy court.