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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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PUBLISH 

FILED 

United States Court of Appeals Tenth circuit 

IN THE UNITED STATES COURT OF APPEALS SEP 0 7 1990 

FOR THE TENTH CIRCUIT 

KAISER STEEL CORPORATION, ) 

) 

Plaintiff-Appellant, ) 

) 

v. ) 

) 

CHARLES SCHWAB & CO., INC.; ) 

SECURITIES AND EXCHANGE COMMISSION, ) 

) 

Defendants-Appellees, ) 

) 

and ) 

) 

NATIONAL FINANCIAL SERVICES INC.; ) 

UNTERBERG, TOWBIN, SHEARSON LEHMAN ) 

BROTHERS/AMERICAN EXPRESS INC.; ) 

AMSOUTH BANK, N.A.; BANK OF NEW ) 

ENGLAND; BANK OF NEW ENGLAND-WEST; ) 

BOETTCHER & COMPANY, INC . ; DREXEL, ) 

BURNHAM & LAMBERT, INC.; BROWN BROTHERS ) 

INVESTMENT COMPANY, Brown Brothers ) 

Harriman & Co.; BURKE, CHRISTENSEN & ) 

LEWIS SECURITIES, INC.; PIPER, JAFFRAY ) 

& HOPWOOD, INCORPORATED; SSPEAK, LEEDS ) 

& KELLOGG; THE CHICAGO CORPORATION; ) 

SLK-SEG; TWEEDY BROWN CLEARING ) 

CORPORATION; DILLON, READ & CO.; ) 

EDWARD D. JONES & CO.; FAHNESTOCK & CO.;) 

EDWARD A. VINER & CO.; FIRST ALBANY ) 

CORP.; TUCKER, ANTHONY & R.L. DAY, INC.;) 

THOMPSON, MCKINNON & CO., INC.; WELLS ) 

FARGO; CROCKER NATIONAL BANK; KELLNER, ) 

DILEO & CO., INC.; MABON, NUGENT & CO.; ) 

ERNST & COMPANY; EVANS & CO., INC.; ) 

JW CHARLES SECURITIES, INC.; ) 

JOSEPHTHAL & CO., INC.; HERZFELD & ) 

STERN, n/k/a JII Securities, Inc.; ) 

LEWCO SECURITIES CORP.; NATIONAL BANK ) 

OF DETROIT; MAY FINANCIAL CORPORATION; ) 

MANUFACTURERS AND TRADERS TRUST CO.; ) 

BANKERS TRUST OF NEW YORK; OLDE ) 

DISCOUNT CORPORATION; RONEY & CO.; ) 

ROBERT L. HOECKER 

Clerk 

No. 90-1078 

Appellate Case: 90-1078 Document: 01019708239 Date Filed: 09/07/1990 Page: 1 
STIFEL NICOLOUS & COMPANY; UNITED 

STATES TRUST COMPANY OF NEW YORK; 

PACIFIC & CO.; SECURITIES SETTLEMENT 

CORPORATION; STEPHENS, INC.; CHEMICAL 

BANK; MORGAN GUARANTY TRUST COMPANY OF 

NEW YORK; MILLIKIN NATIONAL BANK OF 

DECATUR, 

Defendants, 

and 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

BEAR STEARNS & CO., INC.; COWEN & CO.; ) 

DOFT & CO., INC.; L.F. ROTHSCHILD & ) 

CO., INC.; SMITH, BARNEY, HARRIS, ) 

UPHAM & CO., INC.; HERZOG, HEINE & ) 

GEDULD, INC.; M.H. DAVIDSON & CO. INC.; ) 

CASCADE FUND, ) 

Defendants-Intervenors. 

) 

) 

APPEAL PROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. No. 89-K-1731) 

Susan M. Freeman, Lewis and Roca, Phoenix, Arizona (Marty Harper, 

Lewis and Roca, Phoenix, Arizona, G. Stephen Long, and David J. 

Richman, Coghill & Goodspeed, Denver, Colorado, with her on the 

briefs), Attorneys for Appellant. 

Thomas H. Young (Michael J. Guyerson with him on the brief), 

Rothgerber, Appel, Powers & Johnson, Denver, Colorado, Attorneys 

for Appellee, Charles Schwab & Co., Inc. 

Katharine Gresham, Assistant General Counsel (Paul Genson, 

Solicitor [Of Counsel], James R. Doty, General Counsel, Jacob H. 

Stillman, Associate General Counsel, and Joseph H. Harrington, 

Attorney, with her on the brief), Securities and Exchange Commission, Washington, D.C., Attorneys for Appellee, Securities and 

Exchange Commission. 

David I. Blejwas, Hahn & Hessen, New York, New York, Attorneys for 

Defendants-Intervenors. 

Before HOLLOWAY, Chief Judge, ANDERSON, and TACHA, Circuit Judges. 

ANDERSON, Circuit Judge. 

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Appellate Case: 90-1078 Document: 01019708239 Date Filed: 09/07/1990 Page: 2 
Debtor-in-possession Kaiser Steel Resources, Inc. ("Kaiser"), 

formerly known as Kaiser Steel Corporation ("Kaiser Steel"), 

appeals from the district court's reversal of the bankruptcy 

court's order denying defendant Charles Schwab & Company, Inc. 

("Schwab") summary judgment. We affirm. 

In late 1983, the board of directors of Kaiser Steel, a 

publicly-traded corporation, agreed to a leveraged buyout ("LBO") 

by a group of outside investors ("the acquisition group"). Under 

the plan, a new entity owned by the acquisition group would 

purchase all outstanding Kaiser Steel common stock and merge with 

Kaiser Steel. Each share of Kaiser Steel common stock would be 

converted into the right to receive twenty-two dollars and two 

shares of preferred stock1 in the surviving entity. The money, 

which amounted to $162 million, was to come from Kaiser Steel's 

cash reserves and a $100 million loan from Citibank secured by the 

corporation's assets. R. Vol. I, Tab 10 at 3-4, Ex. 17 at 27-37. 

The shareholders approved the LBO on January 18, 1984. As of 

the effective date of the merger, February 29, 1984, holders of 

Kaiser Steel common stock were required to tender their shares to 

Kaiser's disbursing agent, Bank of America, which distributed the 

cash and preferred stock. R. Vol. I, Tab 10 at 4. The New York 

Stock Exchange delisted the stock the following day. R. Vol. II, 

Tab 46, Ex. 1 at 1. 

Among the holders of Kaiser Steel common stock were customers 

of Schwab, a securities broker. Most of the certificates were in 

1 The surv~v~ng entity's common stock would be owned entirely 

by the acquisition group. 

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Appellate Case: 90-1078 Document: 01019708239 Date Filed: 09/07/1990 Page: 3 
the possession of the Depository Trust Company ("DTC"), a securities clearinghouse. DTC tendered the shares to Bank of America, 

and received the cash and preferred stock in the surviving entity. 

DTC transferred the money to Schwab through the National Securities Clearing Corporation, which sponsors Schwab's participation 

in DTC. R. Vol. I, Tab 9 at 1, 4-6. Some of the transfers were 

made directly between Schwab and Bank of America because DTC 

stopped handling Kaiser stock. Id. at 6-7; R. Vol. II, Tab 12, 

Ex. A at 2. Schwab credited its customers' accounts within a few 

days of receiving the funds. R. Vol. II, Tab 12, Ex. B at 2-3. 

All told, Schwab handled approximately $450,000. R. Vol. I, Tab 9 

at 8. 

In 1987, Kaiser filed for bankruptcy. The debtor-inpossession commenced this fraudulent conveyance action against a 

number of defendants, seeking to avoid the LBO and recover the 

$162 million. Schwab moved for summary judgment on two grounds: 

that it was not liable because it was a "mere conduit" rather than 

a transferee, see 11 u.s.c. § 550(a), and that the LBO payments 

were exempt from avoidance as settlement payments, ~ 11 u.s.c. 

§ 546(e). 2 The bankruptcy court denied the motion. In re Kaiser 

Steel Corp. (Kaiser Steel Corp. v. Jacobs), 105 Bankr. 639 (Bankr. 

D. Colo. 1989). The district court accepted an interlocutory 

appeal and reversed the bankruptcy court on both issues. In re 

Kaiser Steel Corp. (Kaiser Steel Resources, Inc. v. Jacobs), 110 

2 Actually, Schwab's motion only raised the conduit question. 

The settlement payment issue was raised by other defendants which 

were allowed to intervene. We permitted these defendants to 

intervene before this court as well. 

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Appellate Case: 90-1078 Document: 01019708239 Date Filed: 09/07/1990 Page: 4 
Bankr. 514 (D. Colo. 1990). The district court then entered a 

final judgment in the matter pursuant to Rule 54(b) of the Federal 

Rules of Civil Procedure. Because we affirm on the settlement 

issue, we do not reach the conduit question. 

A trustee or debtor-in-possession may not avoid 

"a transfer that is a margin payment, as defined in section 741(5) or 761(15) of this title, or a settlement 

payment, as defined in section 741(8) of this title, 

made by or to a commodity broker, forward contract 

merchant, stockbroker, financial institution or securities clearing agency, that is made before the commencement of the case, except under section 548(a)(1)[3] of 

this title." 

11 u.s.c. § 546(e). Section 741(8) defines settlement payment as 

"a preliminary settlement payment, an interim settlement payment, 

a settlement payment on account, a final settlement payment, or 

any other similar payment commonly used in the securities trade." 

11 U.S.C. § 741(8). We agree with the district court that the 

transfer of the consideration in the LBO was a settlement payment. 

The definition in section 741(8), while somewhat circular, is 

"extremely broad," In re Bevill. Bresler & Schulman Asset Management Corp. (Bevill, Bresler & Schulman Asset Management Corp. v. 

Spencer Savings & Loan Ass'n), 878 F.2d 742, 751 (3d Cir. 1989), 

in that it clearly includes anything which may be considered a 

settlement payment. See In re Blanton (Blanton v. PrudentialBache Securities, Inc.), 105 Bankr. 321, 347 (Bankr. E.D. Va. 

1989) (because margin and settlement payment are "very broadly 

defined by the Bankruptcy Code," court accepts the argument that 

3 11 u.s.c. § 548(a)(1) applies to transfers made within a year 

of the bankruptcy filing with actual intent to hinder, delay, or 

defraud a creditor. 

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Appellate Case: 90-1078 Document: 01019708239 Date Filed: 09/07/1990 Page: 5 
"any payment by [the debtor] which was used to reduce a deficiency 

in his margin account constituted either a margin or settlement 

payment for purposes of the exception under§ 546(e)"); see also 

In re Bevill, Bresler & Schulman Asset Management Corp. (Cohen v. 

Savings Building & Loan Co.), 896 F.2d 54, 61 (3d Cir. 1990) 

(holding that transferring securities to a safekeeping account for 

a purchaser is a settlement payment; apparently overruling In re 

Bevill, Bresler & Schulman, Inc. (Hill v. Spencer Savings & Loan 

Ass'n), 94 Bankr. 817, 828-29 (D.N.J. 1989)). But cf. In re 

Edelsberg (Edelsberg v. Thompson McKinnon Securities, Inc.), 101 

Bankr. 386, 389 (Bankr. S.D. Fla. 1989) (execution of judgment on 

debt for settlement payment is not itself a settlement payment). 

Such an interpretation "is consistent with the legislative 

intent behind § 546 to protect the nation's financial markets from 

the instability caused by the reversal of settled securities 

transactions." Kaiser Steel Resources, Inc. v. Jacobs, 110 Bankr. 

at 522. 

Section 546 was first enacted in 1978, and applied only to 

commodities markets. See 11 u.s.c. § 764(c) (repealed 1982). 4 

"Settlement payment" was not defined. Congress sought to "promote 

customer confidence in commodity markets generally" via "the 

protection of commodity market stability." s. Rep. No. 989, 95th 

4 Commodities markets were singled out because the measure was 

a response to the decision in Seligson v. New York Produce 

Exchange, 394 F. Supp. 125 (S.D.N.Y. 1975), that a trustee could 

recover a margin payment made to a commodities clearinghouse. 

White, The Commodity-Related Provisions of the Bankruptcy Act of 

1978, 34 Rec. Bar. A. Bar City of New York 262, 269-71 (1979); ~ 

H.R. Rep. No. 989, 95th Cong., 2d Sess. 106 (1978), reprinted in 

1978 U.S. Code Cong. & Admin. News 5787, 5892. 

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Appellate Case: 90-1078 Document: 01019708239 Date Filed: 09/07/1990 Page: 6 
Cong., 2d Sess. 8 (1978), reprinted in 1978 u.s. Code Cong. & 

Admin. News 5787, 5794. However, because the provision only applied to margin payments to brokers and settlement payments from 

clearing organizations, it could be said only to "protect[] the 

ordinary course of business in the market." H.R. Rep. No. 595, 

95th Cong., 2d Sess. 392 (1978), reprinted in 1978 U.S. Code Cong. 

& Admin. News 5963, 6348. But~ 124 Cong. Rec. 17,433 (1978) 

(the section "protect[s] all margin payments in the customerbroker-clearinghouse chain") (statement of Sen. Mathias). 

In 1982, "Congress was concerned about the volatile nature of 

the commodities and securities markets ... ," Bevill. Bresler & 

Schulman Asset Management Corp. v. Spencer Savings & Loan Ass'n, 

878 F.2d at 747, so former section 764(c) was replaced by sections 

546(e) and 741(5) and (8) "to clarify and, in some instances, 

broaden the commodities market protections and expressly extend 

similar protections to the securities market." H.R. Rep. No. 420, 

97th Cong., 2d Sess. 2 (1982), reprinted in 1982 u.s. Code Cong. & 

Admin. News 583, 583. The protection was expanded beyond the 

ordinary course of business to include margin and settlement payments to and from brokers, clearing organizations, and financial 

institutions. 5 Again, Congress's purpose was "to minimize the 

displacement caused in the commodities and securities markets in 

5 One commentator takes the position that the 1982 amendment 

did not expand the provision. See 4 L. King, Collier on 

Bankruptcy, 546.05, at 546-24 (15th ed. 1990). We reject this 

position, for it ignores significant changes in the statutory 

language. "Where the words of a later statute differ from those 

of a previous one on the same or related subject, the Congress 

must have intended them to have a different meaning." Muscogee 

(Creek) Nation v. Hodel, 851 F.2d 1439, 1444 (D.C. Cir. 1988), 

cert. denied, 109 s. Ct. 795 (1989). 

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Appellate Case: 90-1078 Document: 01019708239 Date Filed: 09/07/1990 Page: 7 
the event of a major bankruptcy affecting those industries." Id. 

at 1, reprinted in 1982 u.s. Code Cong. & Admin. News at 583. The 

danger of a "ripple effect," id., on the entire market is at least 

as inherent in the avoidance of an LBO as it is in the avoidance 

of a routine stock sale. 

Finally, interpreting "settlement payment" to include the 

transfer of consideration in an LBO is consistent with the way 

"settlement" is defined in the securities industry. Settlement is 

"the completion of a securities transaction." A. Pessin & J. 

Ross, Words of Wall Street: 2000 Investment Terms Defined 227 

(1983); accord D. Brownstone & I. Franck, The VNR Investor's 

Dictionary 279 (1981) ("finishing up of a transaction or group of 

transactions"); Group of Thirty, Clearance and Settlement Systems 

in the World's Securities Markets 86 (1989) ("[t]he completion of 

a transaction, wherein securities and corresponding funds are 

delivered and credited to the appropriate accounts"); New York 

Stock Exchange, Language of Investing Glossary 30 (1981) 

("[c]onclusion of a securities transaction when a customer pays a 

broker/dealer for securities purchased or delivers securities sold 

and receives from the broker the proceeds of a sale"); D. Scott, 

Wall Street Words 320 (1988) ("[t]ransfer of the security (for the 

seller) or cash (for the buyer) in order to complete a security 

transaction"). 6 The Securities and Exchange Commission has taken 

6 Some sources limit the concept of "settlement" to the 

consummation of routine securities transactions. See, ~' C. 

Ammer, The A to z of Investing 243 (1986); M. Thomsett, Webster's 

New World Investment and Securities Dictionary 261 (1986). 

Kaiser's expert witness held this view. See R. Vol. II, Tab 46, 

Ex. 2 at 2-3. So narrow a definition has already been rejected. 

[footnote continued] 

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Appellate Case: 90-1078 Document: 01019708239 Date Filed: 09/07/1990 Page: 8 
the position before this court that the consummation of an LBO is 

a "settlement payment" exempted from avoidance by section 546(e). 7 

Kaiser's position that section 546(e) was only intended to 

insulate from avoidance routine securities transactions is not 

without merit. Neither LBOs nor other exceptional transactions 

were even mentioned in any of the discussions of the securities 

industry in the reports, debates, and hearings on the bill. See 

Bankruptcy of Commodity and Securities Brokers: Hearings Before 

the Subcomm. on Monopolies and Commercial Law of the House Comm. 

on the Judiciary, 97th Cong., 1st Sess. 238-349 (1981). However, 

because of the variety and scope of different securities transactions, and the absence of any restrictions in sections 546(e) 

and 741(8), it would be an act of judicial legislation to 

establish such a limitation. 

What occurred in this case was "the delivery and receipt of 

funds and securities." National Securities Clearing Corp., 42 

Fed. Reg. 3916, 3920 n.56 (1977). The LBO was a securities trans-

[footnote continued] 

See Bevill. Bresler & Schulman Asset Management Corp. v. Spencer 

Savings & Loan Ass'n, 878 F.2d at 751-52 (declining to "accept the 

district court's interpretation of 'settlement payment' as a 

transaction that is completed within five days of the original 

agreement" ) . 

7 The SEC filed a brief in this case and participated in oral 

argument. As a statutory party in corporate reorganization 

proceedings, the Commission acts as a special advisor to the 

courts. See 11 u.s.c. § 1109(a). Although precluded from 

initiating an appeal when appearing in this capacity, the 

Commission may participate in an appeal taken by others. 

Sheftelman v. Standard Metals Corp., 839 F.2d 1383, 1386 (lOth 

Cir. 1987), cert. dismissed, 109 s. Ct. 201 (1988). 

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Appellate Case: 90-1078 Document: 01019708239 Date Filed: 09/07/1990 Page: 9 
action. 8 The transfer of money and preferred stock was the 

settlement of that transaction. Therefore, the transfers to 

Schwab were exempt from avoidance under section 546(e) as "settlement payment [ s] • . . to a . . . stockbroker. " 

The judgment of the district court is AFFIRMED. 

8 Because Kaiser Steel common stock was converted from 

incidents of corporate ownership into the right to receive cash 

and preferred stock in the surviving entity, and could no longer 

be traded on the New York Stock Exchange, Kaiser contends that the 

shares were no longer securities, so the LBO was not a securities 

transaction. 

We disagree. The shares were securities when the parties 

agreed to the LBO. A technical change in how Kaiser regarded them 

after the merger should not obscure the more sensible interpretation of the transaction: that the owners of Kaiser Steel sold 

their common stock for cash and preferred stock. That LBOs of 

publicly-traded companies are securities transactions is shown by 

the fact that they are within the purview of the Securities and 

Exchange Commission. See 17 C.F.R. 240.13e-3; ~also Regulatory 

Flexibility Agenda and Rules Scheduled for Review, 54 Fed. Reg. 

451646 ( 1989) o 

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