Court Opinion

ID: 4221679
Source: CourtListenerOpinion
Date Created: 2017-11-17 21:00:41.951505+00
Date Added: 2024-06-11T07:47:50.013478
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                            NOV 17 2017
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

TRADEX GLOBAL MASTER FUND                        No.   16-16971
SPC LTD, a British Virgin Islands limited
liability company and TRADEX                     D.C. No. 3:15-cv-04744-WHA
GLOBAL ADVISORS LLC, a Delaware
limited liability company,
                                                 MEMORANDUM*
              Plaintiffs-Appellants,

 v.

BENJAMIN PUI-YUN CHUI,

              Defendant-Appellee.

                    Appeal from the United States District Court
                      for the Northern District of California
                     William Alsup, District Judge, Presiding

                          Submitted November 15, 2017**
                             San Francisco, California

Before: THOMAS, Chief Judge, and W. FLETCHER and PAEZ, Circuit Judges.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
             The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
      Tradex Global Master Fund SPC, LTD. and Tradex Global Advisors LLC

(collectively, “Tradex”) appeal the district court’s order affirming the bankruptcy

court’s judgment, in an adversary proceeding, denying Tradex’s dischargeability

claim under 11 U.S.C. §§ 523(a)(4) and 523(a)(19) following a bench trial. We

affirm. Because the parties are familiar with the history of this case, we need not

recount it here.

      A debt may not be discharged in a Chapter 7 bankruptcy if it results from a

violation of state or federal securities laws. 11 U.S.C. § 523(a)(19). To establish

that exception to discharge, the debt must (1) be “for” a securities law violation or

fraud in connection with a sale of a security, and (2) “result from” some judicial or

administrative proceeding or a settlement agreement. Id. In an extensive opinion

issued after a bench trial, the bankruptcy court held that Tradex had not satisfied its

burden to establish the exception.

      Tradex does not appeal from that merits decision, but argues only that it

should have been granted summary judgment based on a Securities and Exchange

Commission “Order Instituting Administrative and Cease-and-Desist Proceedings”

(“the Order”) issued against Chui, contending that it satisfies the requirements of

11 U.S.C. § 523(a)(19) as a matter of law.

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      However, as both the district and bankruptcy courts observed, Tradex was

required to establish that its debt actually “resulted from” the Order. 11 U.S.C. §

523(a)(19)(B). It did not. The SEC Order never mentions Tradex. Further, the

Order specifically provides that it was entered “[s]olely for the purpose of these

proceedings and any other proceedings brought by or on behalf of the Commission,

or to which the Commission is a party.” The Order thus plainly does not create

liability against Chui in favor of Tradex; at most, it creates liability against Chui in

favor of the SEC. The district and bankruptcy courts properly concluded that the

Order did not satisfy the requirements of 11 U.S.C. § 523(a)(19)(B).1

      Tradex argues that 11 U.S.C. § 523(a)(19) permits the bankruptcy court to

engage in a “broad inquiry,” and that the court had the power to enter its own

judgment. Here, the bankruptcy court conducted a bench trial and made detailed

      1
        To the extent that Tradex contends that collateral estoppel affords the SEC
Order preclusive effect independently of § 523(a)(19), we must reject it. The
doctrine of collateral estoppel cannot supplant the § 523(a)(19) statutory
requirements and grant a new independent avenue to a discharge exception.
Invocation of collateral estoppel cannot correct a § 523(a)(19)(B) deficiency.
       Further, as the bankruptcy court noted, the SEC Order does not satisfy the
elements of collateral estoppel. The Order was limited to SEC proceedings and
provided that Chui was not admitting any liability. Thus, the issue of the Tradex
debt was not “actually litigated” before the SEC; there was no final judgment; and
Tradex was not a party nor, on the face of the Order, in privity with a party to the
administrative action. See IRS v. Palmer (In re Palmer), 207 F.3d 566, 568 (9th
Cir. 2000) (describing collateral estoppel elements).

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findings against Tradex on those issues, which Tradex does not appeal. Rather, the

only question on appeal is whether, as a matter of law, the SEC Order satisfied the

requirements of 11 U.S.C. § 523(a)(19). It did not.

      We need not, and do not, determine any other issue urged by the parties,

including the question of the bankruptcy court’s scope of authority to enter a new

independent judgment—apart from the judgment of the non-bankruptcy

tribunal—on claims based on violations of securities laws under 11 U.S.C. §

523(a)(19).

      AFFIRMED.

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