Publication Date
Fall 2019
Journal
American Bankruptcy Law Journal
Abstract
"Mere conduit" is a legal fiction in fraudulent transfer and other avoidance cases. This article argues that the legal fiction is misleading, unnecessary and rendered obsolete by the Supreme Court's recent opinion in Merit Management Group v. FTI Consulting, Inc. (2018). The article further contends that a huge majority of leading cases confound fraudulent transfer law with the law of corporate theft. This error leads to depriving financial intermediaries of their opportunity to avoid liability on the ground of being bona fide transferees for value. Finally, courts often mistake banks as initial transferees of fraudulent transfers (absolutely liable in spite of good faith and value) when they are really transferees of the initial transferee (entitled to the good faith transferee for value defense). Courts paper over this error on an ad hoc basis by announcing that banks are mere conduits. Special scorn is reserved for Bonded Financial Services v. European American Bank (7th Cir. 1987), the leading case on "mere conduit," which will be revealed as contradictory. Bonded has led directly to the astonishing declaration in Meoli v. Huntington National Bank (6th Cir. 2017) that bad faith banks which service Ponzi schemes are innocent of liability for fraudulent transfers since they are "mere conduits." The goal of this article is to retire "mere conduit" from the lexicon forever.
Volume
93
Issue
3
First Page
475
Last Page
570
Publisher
National Conference of Bankruptcy Judges
Keywords
conduit, fraudulent transfer, fraudulent conveyance, conversion, deposit accounts, banking, bankruptcy, Ponzi schemes
Disciplines
Bankruptcy Law | Contracts | Education Law | Law
Recommended Citation
David G. Carlson,
Mere Conduit,
93
Am. Bankr. L.J.
475
(2019).
https://larc.cardozo.yu.edu/faculty-articles/801
Included in
Bankruptcy Law Commons, Contracts Commons, Education Law Commons
