                                                                                 PUBLISH

                      IN THE UNITED STATES COURT OF APPEALS

                              FOR THE ELEVENTH CIRCUIT

                                                                              FILED
                                                              U.S. COURT OF APPEALS
                                         No. 96-3634            ELEVENTH CIRCUIT
                                                                     09/09/98
                                                                 THOMAS K. KAHN
                             D.C. Docket No. 96-513-CIV-T-23B         CLERK
                                               91-10466-8P7

IN RE: PAUL A. BILZERIAN,
                                                                                          Debtor.



SECURITIES AND EXCHANGE COMMISSION,
                                                                               Plaintiff-Appellee,

             versus


PAUL A. BILZERIAN,
                                                                             Defendant-Appellant.



                      Appeal from the United States District Court for the
                                  Middle District of Florida

                                     (September 9, 1998)


Before DUBINA and MARCUS, Circuit Judges, and CLARK, Senior Circuit Judge.


PER CURIAM:
            Paul A. Bilzerian appeals the district court’s order applying collateral

estoppel in the Securities and Exchange Commission's (SEC) action to except a debt

from discharge in bankruptcy. The district court found that Bilzerian’s previous

criminal conviction for securities fraud, combined with a civil judgment requiring

Bilzerian to disgorge fraudulently obtained profits, satisfied the requirements for

application of 11 U.S.C. § 523(a)(2)(A), which excepts from discharge in bankruptcy

debts for money obtained by fraud. Bilzerian also raises a constitutional challenge

to the grant of exception from discharge. We affirm.

                                     FACTS

            Bilzerian was convicted of federal securities fraud for his failure to

properly report his stock transactions with two corporations, Cluett, Peabody &

Company, Inc. (Cluett) and Hammermill Paper Company (Hammermill). The

securities laws require investors who commence a tender offer of a publicly traded

company to make certain disclosures to the SEC in order to inform investors about

any potential takeover attempt. Bilzerian did not file the required disclosures in a

timely fashion, and his disclosures were misleading because he listed as “personal

funds” money he had actually borrowed. He also failed to disclose that he had

entered into an accumulation agreement with a broker. As a result of Bilzerian’s

misleading disclosures, Cluett and Hammermill believed that Bilzerian posed a


                                         2
credible threat to mount a hostile takeover, and they sought the aid of friendly “white

knights,” who eventually outbid Bilzerian. Bilzerian then sold his shares in Cluett

and Hammermill for a substantial profit.

                In 1989, Bilzerian was convicted of nine counts of securities fraud for

violations of § 10(b) of the Securities Exchange Act of 1934, which is the general

anti-fraud provision of the securities laws.1 Subsequently, the SEC brought civil

proceedings against Bilzerian to force him to disgorge his fraudulently obtained

profits. The district court for the District of Columbia found that, on the basis of his

criminal conviction, Bilzerian was collaterally estopped from challenging the civil

action and ordered Bilzerian to disgorge approximately $33 million plus interest. The

D.C. Circuit Court upheld the civil judgment.2

                During the litigation in the district court, Bilzerian filed for bankruptcy.

After the disgorgement award was upheld, the SEC sought to except the disgorgement

award from discharge in bankruptcy under § 523(a)(2)(A) on the ground that it was

a debt for money obtained by fraud. The SEC argued that the doctrine of collateral

estoppel compelled a decision in their favor. The bankruptcy court disagreed, holding

that the SEC did not have standing to pursue a § 523(a)(2)(A) claim, and that the

       1
          United States v. Bilzerian, 926 F.2d 1285 (2d Cir.), cert. denied, 502 U.S. 813, 112
S.Ct. 63, 116 L.Ed.2d 39 (1991).
       2
           SEC v. Bilzerian, 29 F.3d 689 (D.C.Cir. 1994).

                                                 3
complaint failed to state a claim because obtaining illegal profits was not part of

§ 523(a)(2)(A). The district court reversed, holding that because Bilzerian owed the

SEC money, it had standing to pursue exception from discharge. On remand, the

bankruptcy court granted summary judgment for Bilzerian, holding that the previous

judgments against Bilzerian did not meet the loss and reliance requirements of

§ 523(a)(2)(A).3 The district court again reversed, finding all elements of collateral

estoppel well established in the record.4 Bilzerian appeals the district court’s order

reversing the bankruptcy court.

                                         DISCUSSION

                This court reviews the bankruptcy court’s order independently of the

district court, reviewing conclusions of law de novo and factual findings under a

clearly erroneous standard.5 The bankruptcy court found that “this Court is satisfied

that there are no genuine issues of material fact, and now the only remaining question

is whether the SEC is entitled to a judgment as a matter of law based on the

undisputed facts.”6



      3
          In re Bilzerian, 196 B.R. 907 (Bankr. M.D. Fla. 1996).
      4
          In re Bilzerian, (M.D. Fla. Oct 22, 1996).
      5
          In re Bush, 62 F.3d 1319, 1322 (11th Cir. 1995).
      6
          In re Bilzerian, 196 B.R. at 910.

                                                4
                     Section 523(a)(2)(A) of the Bankruptcy Code excepts from discharge in

bankruptcy any debt “for money . . . to the extent obtained by . . . false pretenses, a

false representation, or actual fraud.”7                  We agree with the district court that

Bilzerian’s debt is one for money, and that the disgorgement judgment was designed

to remedy fraudulent behavior. Bilzerian owes the SEC a judgment in the form of

money.           It is well established that the term "debt" in the Bankruptcy Code

encompasses a “right to payment,”8 and that this includes a money judgment entered

by a court of competent jurisdiction.9

                     The question in this case is whether a criminal conviction for securities

fraud, combined with a civil disgorgement judgment in favor of the SEC, satisfies the

requirements of collateral estoppel for determining “fraud” under § 523(a)(2)(A).

Collateral estoppel requires that: (1) the issue be identical in both the prior and current

action; (2) the issue was actually litigated; (3) the determination of the issue was

critical and necessary to the judgment in the prior action; and (4) the burden of

persuasion in the subsequent action not be significantly heavier.10 Because discharge


          7
               11 U.S.C. § 523(a)(2)(A).
          8
               Cohen v. De La Cruz, --- U.S. ---, ---, 118 S.Ct. 1212, 1216, --- L.Ed.2d --- (1998).
          9
               See St. Laurent, II v. Ambrose, 991 F.2d 672, 678-79 (11th Cir. 1993).
          10
               In re Bilzerian, 100 F.3d 886, 892 (11th Cir. 1996), cert. denied, 118 S.Ct. 1559
(1998).

                                                      5
under § 523(a)(2)(A) only requires proof by a preponderance of the evidence

standard,11 only the first three elements are disputed in this case.

                 Courts have generally interpreted § 523(a)(2)(A) to require the

traditional elements of common law fraud. A creditor must prove that: (1) the debtor

made a false representation to deceive the creditor, (2) the creditor relied on the

misrepresentation, (3) the reliance was justified, and (4) the creditor sustained a loss

as a result of the misrepresentation.12 Elements one and three are easily met, because

Bilzerian’s criminal conviction for securities fraud established that he made a false

statement on which a reasonable investor would have relied.13 The District of

Columbia district court found that Bilzerian had violated the reporting requirements

of the securities laws, specifically, “Exchange Act § 10(b) by engaging in fraudulent

activity with respect to the purchases and sales of Cluett and Hammermill

securities.”14 The issues in this case, then, are whether the other two elements, loss

and actual reliance, were critical to the previous litigation and resolved in favor of the

SEC.

       11
            See Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991).
       12
           See In re Bilzerian, 100 F.3d at 892. See also Field v. Mans, 516 U.S. 59, 73-75, 116
S.Ct. 437, 445-46, 133 L.Ed.2d 351 (1995) (holding that § 523(a)(2)(A) requires justifiable
rather than reasonable reliance).
       13
            See United States v. Bilzerian, 926 F.2d at 1298.
       14
            SEC v. Bilzerian, 814 F.Supp. 116, 121, aff’d, 29 F.3d 689 (D.C.Cir. 1994).

                                                 6
                Common law fraud and securities fraud have traditionally had related but

distinct causation requirements. Whereas common law fraud requires proof of loss

and reliance, securities fraud has substituted the concept of “materiality.”15 Rule 10b-

5 makes it unlawful to “employ any device, scheme, or artifice to defraud . . . make

any untrue statement of a material fact” or “engage in any act, practice, or course of

business which operates or would operate as a fraud or deceit upon any person, in

connection with the purchase or sale of any security.”16 As the district court

recognized, courts require proof of causation and loss as elements of a private cause

of action based on violations of Rule 10b-5.17

                While some courts have not required proof of actual reliance in SEC

enforcement actions,18 we nevertheless believe that the causation requirement of

       15
          The elements of a primary section 10b-5 claim are: "(1) a misstatement or omission
(2) of a material fact (3) made with scienter (4) upon which the plaintiff relied (5) that
proximately caused the plaintiff's loss." McDonald v. Alan Bush Brokerage Co., 863 F.2d 809,
814 (11th Cir.1989)(citation omitted).
       16
            17 CFR § 240.10b-5 (1997).
       17
           See Basic, Inc. v. Levinson, 485 U.S. 224, 243, 108 S.Ct. 978, 989, 99 L.Ed.2d 194
(1988) (“We agree that reliance is an element of a Rule 10b-5 cause of action.”); Kowal v. MCI
Communications Corp., 16 F.3d 1271, 1276 (D.C.Cir. 1994) (“To state a claim for securities
fraud under Rule 10b-5, a plaintiff must allege that the defendant knowingly or recklessly made
a false or misleading statement of material fact in connection with the purchase or sale of a
security, upon which plaintiff reasonably relied, proximately causing his injury.”).
       18
          See SEC v. Rana Research, Inc., 8 F.3d 1358, 1363-64 (9th Cir. 1993) (proof of
reliance not necessary in SEC action to enjoin violations of Rule 10b-5); SEC v. Rind, 991 F.2d
1486, 1490 (9th Cir. 1993) (“a district court may grant the Commission’s request for
disgorgement even where no injured investors can be identified”), cert. denied, 510 U.S. 963,

                                               7
“materiality” in Rule 10b(5) satisfies the requirement for actual reliance necessary to

apply collateral estoppel in a § 523(A)(2)(A) case.19 Any other decision would

conflict with the general principles behind § 523(a)(2)(A). This court has taken an

expansive view of “debts obtained by fraud” because “the malefic debtor may not

hoist the Bankruptcy Code as protection from the full consequences of fraudulent

conduct.”20

                  In appealing the disgorgement award, Bilzerian argued that disgorgement

was not proper because no one was injured by his fraudulent schemes.21 Although the

D.C. Circuit Court stated that whether his actions injured others was irrelevant, the

court found that “others were injured by Bilzerian’s deceptions – investors paid

Bilzerian an inflated price for his stocks because of his illegal actions.”22 The injured

parties are identifiable — the “white knights” West Point Pepperell and International




114 S.Ct. 439, 126 L.Ed.2d 372 (1993).
       19
           See Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54, 92 S.Ct. 1456,
1472, 31 L.Ed.2d 741 (1972)(causation in fact presumed if plaintiff’s claim based on defendant’s
failure to disclose material information); see also Basic Inc. v. Levinson, 485 U.S. at 243-47, 108
S.Ct. at 989-91(fraud-on-the-market theory permits plaintiffs to rely on integrity of open, well-
developed markets rather than requiring proof of direct reliance).
       20
         St. Laurent, 991 F.2d at 680 (11th Cir. 1993) (holding that punitive damage award
would be excepted from discharge in bankruptcy under § 523(a)(2)(A)).
       21
            SEC v. Bilzerian, 29 F.3d at 697.
       22
            Id.

                                                 8
Paper Company.23 We affirm the district court’s holding that collateral estoppel

prevents Bilzerian from challenging the SEC’s action to except the discharge of his

debt in bankruptcy.24

                    Bilzerian also raises constitutional objections, claiming that an order

holding the disgorgement judgment nondischargeable would violate the Double

Jeopardy Clause and would constitute an excessive fine in violation of the Eighth

Amendment. These constitutional claims are groundless. A civil remedy following

criminal conviction only constitutes “punishment” for purposes of the Double

Jeopardy Clause when it is so severe or so unrelated to remedial goals that it amounts

to a second criminal punishment.25 While the fraud exception to discharge does have

a deterrent goal, it is clearly not “punitive,” because Bilzerian’s disgorgement was


          23
               814 F.Supp. at 118-120.
          24
          Recently, this court faced this same issue involving the same debtor and a private
creditor who had won a judgment against Bilzerian. In re Bilzerian, 100 F.3d 886 (11th Cir.
1996). In a previous case, the creditor had alleged that Bilzerian made a series of
misrepresentations in order to induce it to invest $20.4 million in a limited partnership, and that
he had agreed to purchase the creditor’s interest in the partnership at the creditor’s election. Id.
at 888. The facts do not specify whether the creditor suffered an actual loss, although a jury had
awarded the creditor $19.839 million in compensatory damages and $1.224 million in punitive
damages. Id. Bilzerian argued that the creditor did not sustain a loss, and this court addressed
that argument in one sentence: “Finally, Bilzerian’s argument that [the creditor] did not sustain a
loss is meritless in light of the money judgment entered in favor of [the creditor] in the [previous
action]. Id. at 892-93. We follow that panel’s approach, and deduce from the award of judgment
to the SEC in the disgorgement action that a loss occurred.
          25
               United States v. Ursery, 518 U.S. 267, 287-88, 116 S.Ct. 2135, 2147, 135 L.Ed.2d 549
(1996).

                                                   9
explicitly limited to profits resulting from illegal conduct.26 Moreover, exception

from discharge in bankruptcy is not an excessive fine because it is not

disproportionate to the wrongful conduct it was designed to remedy.27

                The district court's ruling is AFFIRMED.




      26
           See SEC v Bilzerian, 29 F.3d at 696.
      27
         See United States v. One Parcel Property Located at 427 and 429 Hall Street, 74
F.3d 1165, 1172 (11th Cir. 1996).

                                                  10
