This section contains the nature of the case and procedural background.

Arlynn was the president of Video Depot, a consumer electronics company. He controlled virtually all of Video Depot's operations. He was also an addicted gambler. Between 1985 and 1990, he made approximately 60 trips to D. In 1987, Arlynn obtained a permanent line of credit with D in the amount of $50,000, which was increased to $ 75,000 in 1990. Arlynn regularly repaid his losses in full either at the end of each stay or at the beginning of the next trip. Until 1990, Arlynn's balance only twice exceeded $100,000 and never exceeded $125,000. In May of 1990, he incurred a debt of $225,000, and he did not make a payment towards this debt before he left Las Vegas. In May of 1990, he incurred a debt of $225,000, and he did not make a payment towards this debt before he left Las Vegas. On June 15, Video Depot purchased a cashier's check payable to D in the amount of $ 65,000. The check clearly indicated that Video Depot was the purchaser. On June 16, he gave two checks to D: the $ 65,000 cashier's check from Video Depot and a personal cashier's check in the amount of $10,000. He had never before presented either a cashier's check or a check purchased by Video Depot to cover his gambling losses. Video Depot commenced bankruptcy on September 14, 1990. P, the trustee, was appointed shortly thereafter. P filed suit against D to recover the proceeds of the $65,000 cashier's check. Both parties stipulated that the check was a fraudulent transfer within the meaning of § 548, and the bankruptcy court proceeded to determine whether D was an initial transferee under § 550(a) or a subsequent transferee lacking good faith knowledge of the voidability of the transfer within the meaning of 1§ 550(b). Eventually, the bankruptcy court determined that D was the initial transferee and therefore was strictly liable to the bankruptcy estate under § 550(a)(1). The court held, even if D were a subsequent transferee, it had failed to establish a defense under § 550(b). The district court affirmed. D appealed. D contends that Arlynn, not it, was the initial transferee because Arlynn controlled Video Depot and directed that the funds be transferred to D. D argues that Arlynn was the initial transferee because Video Depot's ledger appears to indicate that the cashier's check was a 'loan' to Arlynn.

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