Securities and Exch v. Dahlstrom ( 1997 )

  •                   UNITED STATES COURT OF APPEALS
                           For the Fifth Circuit
                       No. 95-20591 c/w No. 95-20804
                              Summary Calendar
                            KARL DAHLSTROM ET AL
                               KARL DAHLSTROM
               Appeal from the United States District Court
                    For the Southern District of Texas
                             December 15, 1997
    Before DUHÉ, DeMOSS, and DENNIS, Circuit Judges.
          Karl Dahlstrom has appealed the district court’s order denying
    his motion for reconsideration of the district court’s nunc pro
    tunc order requiring disgorgement of funds received by Dahlstrom as
       Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
    opinion should not be published and is not precedent except under
    the limited circumstances set forth in 5TH CIR. R. 47.5.4.
    a result of the sale of stock of two corporations in violation of
    the securities laws.     Dahlstrom contends that his disgorgement
    obligation was discharged in bankruptcy.     The resolution of this
    issue involves the interpretation of statutory law and we therefore
    review de novo.    See In re Reading Co., 
    115 F.3d 1111
    , 1123-24 (3d
    Cir. 1997) (stating that question whether corporation’s obligation
    under CERCLA had been discharged in bankruptcy was subject to
    plenary review); see also In re Bruner, 
    55 F.3d 195
    , 197 (5th Cir.
    1995) (district court’s interpretation of Bankruptcy Code on review
    of bankruptcy court’s ruling on dischargeability complaint was
    reviewed de novo.)    Based upon a careful review of the applicable
    law, the arguments of the parties and the record on appeal, we hold
    that Dahlstrom’s obligation under the securities laws to disgorge
    the funds was not discharged in Dahlstrom’s bankruptcy.
         The bankruptcy code provides for the discharge of all debts
    that are the personal property of the debtor which arose before
    debtor filed for bankruptcy.     See 11 U.S.C. §§ 524   and 727(b).
    Debt is defined as “liability on a claim,” 11 U.S.C. § 101(12), and
    “claim” is described broadly to include a “right to payment”.    11
    U.S.C. § 101(5); see In re Southmark, Inc., 
    88 F.3d 311
    , 317 (5th
    Cir. 1996), cert. denied, 
    117 S. Ct. 686
     (1997).          Since the
    Bankruptcy Code does not define “right to payment”,       when such
    rights arise is determined by non-bankruptcy state or federal
    substantive law.     See Lemelle v. Universal Mfg. Corp., 
    18 F.3d 1268
    , 1274 (5th Cir. 1994).      The federal securities laws make
    clear that the SEC’s “right to payment” for bankruptcy purposes
    arose at the time Dahlstrom committed the acts which gave rise to
    the claim for disgorgement.
         Dahlstrom’s Chapter VII bankruptcy petition was filed on
    August 1, 1990.   The SEC’s statement of undisputed facts filed in
    connection with the motion for summary judgment provides that the
    stock offerings complained of in its complaint were made between
    April 10, 1991, and December 5, 1991.   These events occurred after
    the filing of the bankruptcy.
         Dahlstrom also argues that the district court erred in failing
    to stay execution of its nunc pro tunc order pending appellate
    review.   Because Dahlstrom’s substantive appeal is without merit,
    he cannot show that the district court abused its discretion in
    refusing to stay enforcement of the disgorgement order.