In re: Simon Vernon Rodriguez and Marilyn Kay Schipull

FILED
APR 3 2023
ORDERED PUBLISHED
SUSAN M. SPRAUL, CLERK
U.S. BKCY. APP. PANEL
OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE NINTH CIRCUIT

In re: BAP No. NV-22-1174-CBG
SIMON VERNON RODRIGUEZ
and MARILYN KAY SCHIPULL, Bk. No. 2:21-bk-14112-MKN
Debtors.
Adv. No. 2:21-ap-01228-MKN
SIMON VERNON RODRIGUEZ,
Appellant,
v.
STEVEN A. HOTCHKISS; ANTHONY OPINION
WHITE; ROBIN SUNTHEIMER; TROY
SUNTHEIMER; STEPHENS
GHESQUIERE; JACKIE STONE; GAYLE
CHANY; KENDALL SMITH;
GABRIELLE LAVERMICOCCA;
ROBERT KAISER,
Appellees.

Argued and Submitted February 24, 2023 at Las Vegas, Nevada

Appeal from the United States Bankruptcy Court
for the District of Nevada
Mike K. Nakagawa, Bankruptcy Judge, Presiding

Before: CORBIT, BRAND, and GAN, Bankruptcy Judges.

APPEARANCES:
Matthew C. Zirzow of Larson & Zirzow LLC argued for appellant; David
Liebrader of the Law Offices of David Liebrader argued for appellees
CORBIT, Bankruptcy Judge:

INTRODUCTION

After a business enterprise went awry, several investors obtained a

judgment in state court against Mr. Simon Vernon Rodriguez for violations

of Nevada state securities laws (“Judgment Holders”). Mr. Rodriguez filed

for bankruptcy and attempted to discharge the judgment debt. Although a

debtor may discharge most debts in bankruptcy, a debtor may not

discharge debts that result from a court judgment “for the violation of . . .

securities laws.” § 523(a)(19). 1 The Judgment Holders filed an adversary

proceeding in which they asserted that § 523(a)(19)(A)(i) barred Mr.

Rodriguez from discharging the judgment debt.

Mr. Rodriguez answered that he was only vicariously and

secondarily liable for the violations of securities law and argued that

§ 523(a)(19)(A)(i) exempts debts from discharge only when the debtor is the

primary violator of the securities law. Because the state court specifically

found that Mr. Rodriguez violated Nevada securities law, the bankruptcy

court did not err in granting summary judgment on the Judgment Holders’

§ 523(a)(19) claim and excepting Mr. Rodriguez’s judgment debt from

discharge, and we AFFIRM. We publish to discuss the scope of debtor

culpability required by Sherman v. SEC (In re Sherman), 658 F.3d 1009 (9th

1
Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532 and all “NRS” references are to the Nevada
Revised Statutes.
2
Cir. 2011), abrogated on other grounds by Bullock v. BankChampaign, N.A., 569

U.S. 267 (2013).

FACTS

A. History

Mr. Simon Vernon Rodriguez, Appellant, was the Treasurer and

Chief Financial Officer of Virtual Communications Corporation (“VCC”). 2

He was also a Director of VCC and owned over 11 % of the company.

VCC was involved in many enterprises through its subsidiaries.3 One

of the products VCC developed was a virtual receptionist. However, VCC

needed additional capital to get the new technology to market. VCC raised

the money by issuing promissory notes to outside investors.

VCC created a PowerPoint presentation to show potential investors.

The presentation explained the technology VCC wanted to market and

promised investors a 9% annual interest return. Investors were assured the

investment was safe because the notes (defined as “securities” in the

presentation) were personally guaranteed by R.J. Robinson, Chief

2
The facts are taken from the state trial court’s factual findings as stated in the
Memorandum Decision, Findings of Facts and Conclusions of Law, and Judgment.
Hotchkiss v. Robinson, No. A-17-762264-C, 2020 WL 13158120 (Nev. Dist. Ct. Apr. 27,
2020); Hotchkiss v. Robinson, No. A-17-762264-C, 2020 WL 13158121 (Nev. Dist. Ct. Aug.
20, 2020); Hotchkiss v. Robinson, No. A-17-762264-C, 2020 WL 13158119 (Nev. Dist. Ct.
Aug. 21, 2020).
3 VCC is a holding company that manages its wholly-owned subsidiaries

including WinTech, LLC.
3
Executive Officer of VCC. The investor presentation explained that

investing in VCC was a wise and financially secure investment.

Importantly, the investor presentation included information about

Mr. Rodriguez. Potential investors learned Mr. Rodriguez was the Chief

Financial Officer of VCC and that Mr. Rodriguez had “over 40 years of

senior management experience,” and that he was “specially qualified to

oversee the operations, marketing and development” of the company. The

final slide of the investor presentation included Mr. Rodriguez’s contact

information and directed any questions about the note offering to Mr.

Rodriguez.

B. State Court Action

As a result of the investor presentations, VCC raised over four

million dollars. However, in February 2015 VCC defaulted after failing to

make payments on the outstanding notes. In September 2017 several

investors filed a Nevada state court action against Mr. Rodriguez, Mr.

Robinson, and others for the losses incurred related to the purchase of the

notes. The complaint alleged claims for: (1) fraud, misrepresentations and

omissions, (2) violation of Nevada securities laws NRS 90.310, 90.460

(licensing and registration); and (3) violation of NRS 90.570 and 90.660

(misrepresentations and omissions), and (4) breach of a written contract.

After a two-day bench trial and submission of closing briefs, the state

court issued a (1) memorandum decision followed by (2) findings of facts

and conclusions of law on liability, and (3) findings of facts and

4
conclusions of law on damages and attorney’s fees, (collectively, the “State

Court Decisions”).

In summary, the Nevada trial court held that (1) the notes issued by

VCC constituted a security within the meaning of the Nevada Securities

Act, NRS 90.295, (2) VCC sold unregistered nonexempt securities to the

Plaintiffs in violation of NRS 90.460, and (3) Mr. Rodriguez and Mr.

Robinson were both control persons of VCC as defined under Nev. Admin.

Code 90.0354 and therefore, responsible for VCC selling unregistered

securities in violation of Nevada securities laws.

The state court entered judgment against both Mr. Rodriguez and

Mr. Robinson jointly and severely pursuant to NRS 90.660 (civil liability

under Nevada Securities Laws) (“Judgment”). Mr. Rodriguez did not

appeal the State Court Decisions or the Judgment. 5

C. Bankruptcy

On August 20, 2021, Mr. Rodriguez and his wife, Marilyn Kay

Schipull filed a voluntary Chapter 7 petition. Soon thereafter, the Judgment

Holders from the state court action timely commenced an adversary

4 Nevada defines a "control person" as an individual who (1) owns or controls 10
percent or more of the voting stock of a corporation; (2) is an officer or director of a
corporation; or (3) is in a position to influence the decision-making processes of a
corporation. Nev. Admin. Code 90.035.
5 Pursuant to Fed. R. Evid. 201(b) we exercise our discretion to take judicial notice

of materials electronically filed in the underlying cases. See Atwood v. Chase Manhattan
Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003); see also Burbank-
Glendale-Pasadena Airport Auth. v. City of Burbank, 136 F.3d 1360, 1364 (9th Cir. 1998)
(taking judicial notice of court filings in a state court case).
5
proceeding in which they objected to Mr. Rodriguez discharging the debt

resulting from the state court Judgment (“Judgment Debt”). Id.

The adversary complaint sought a determination of

nondischargeability of the Judgment Debt based on § 523(a)(19)(A)(i),

which dictates a debt nondischargeable if the debt “is for . . . the violation

of any . . . Federal . . . [or] State securities laws” and the debt results from

“any judgment [or] order” filed “before, on, or after the date on which the

petition was filed.” § 523(a)(19)(A)(i), (B)(i).6

1. Cross motions for summary judgment in the bankruptcy
adversary proceeding.

After filing the adversary complaint, the Judgment Holders filed a

motion for summary judgment. In the motion, the Judgment Holders

argued that the State Court Decisions and Judgment, when read together,

had preclusive effect in establishing the elements for excepting the

Judgment Debt from Mr. Rodriguez’s discharge under § 523(a)(19).

According to the Judgment Holders, the Nevada trial court found

that Mr. Rodriguez violated Nevada securities law and the resulting

Judgment was entered against Mr. Rodriguez based on his securities law

violations. Therefore, the Judgment Holders argued that Mr. Rodriguez’s

Judgment Debt “result[ed] . . . from a[] judgment” that was “for the

violation of . . . [Nevada] State securities laws” and should not be

discharged. § 523(a)(19)(A)(i), (B)(i).

6
Mr. Rodriguez’s wife was not named in the adversary complaint.
6
 Mr. Rodriguez opposed the motion for summary judgment and filed

a countermotion for summary judgment. Mr. Rodriguez assured the court

he was not trying to collaterally attack the underlying decisions nor was he

seeking review of the factual findings of the state court. Rather, he was

calling into question whether the State Court Decisions made sufficient

findings for purposes of satisfying § 523(a)(19).

According to Mr. Rodriguez, despite the plain language of the

statute, the Ninth Circuit holding in Sherman imposes an additional

requirement; that the debtor be the primary wrongdoer before determining

the debt is “for” a securities violation and therefore, nondischargeable

under § 523(a)(19). In re Sherman, 658 F.3d at 1018.

Mr. Rodriguez argued that his liability for violating securities law

was imputed solely due to his positions within the company and not

because of any actions on his part related to the note offerings. Mr.

Rodriguez posited that he was not the actual wrongdoer who committed

the securities law violation, rather, he was only secondarily and vicariously

liable for violating Nevada securities laws. Consequently, Mr. Rodriguez

reasoned, the State Court Decisions were insufficient for the bankruptcy

court to conclude that his Judgment Debt was “for” a violation of securities

law and excepted from discharge under § 523(a)(19).

The Judgment Holders filed a reply arguing that contrary to Mr.

Rodriguez’s assertions, nothing in § 523(a)(19) distinguishes between

primary or control person liability, mentions vicarious liability, or requires

7
intentional conduct by the debtor. Furthermore, unlike the debtor in

Sherman who was not a named party in the securities law violation action

nor found liable of any securities violations, Mr. Rodriguez was a named

party and found jointly and severely liable for a securities law violation.

Hence, the holding of Sherman did not provide a valid basis to dispute

whether the Judgment Debt was “for” a securities violation.

2. The bankruptcy court grants the Judgment Holders’ motion
for summary judgment.

After extensive briefing and a hearing, the bankruptcy court issued a

written decision. The court found summary judgment appropriate after

rejecting Mr. Rodriguez’s interpretation of Sherman. The court explained

that unlike the debtor in Sherman, Mr. Rodriguez was a responsible

wrongdoer as to the securities law violation. Whereas the debtor in

Sherman was a third party who was neither named in a securities law

violation action nor found liable of securities violations, Mr. Rodriguez was

both a named party and found liable in the securities law violation action.

Therefore, contrary to Mr. Rodriguez’s assertions, the holding of Sherman

did not create a genuine dispute as to whether the Judgment Debt was

“for” a securities violation.

The bankruptcy court also found issue preclusion applied after

rejecting Mr. Rodriguez’s claims that the Nevada trial court failed to fully

consider or rule on his personal liability as to the securities law violation.

The bankruptcy court cited to portions of the State Court Decisions in

8
which the state court explicitly found that Mr. Rodriguez was aware of,

and involved in, VCC’s selling of unregistered securities in violation of

Nevada securities law. Therefore, despite Mr. Rodriguez’s assertions to the

contrary, the bankruptcy court concluded that the evidentiary record

demonstrated that the claim for violation of NRS 90.660 was actually and

necessarily litigated on the merits in the State Court Action and resulted in

a final judgment against the Mr. Rodriguez for his violation of Nevada

securities law.

Accordingly, the bankruptcy court applied issue preclusion to the

State Court Decisions and Judgment after finding the underlying decisions

fully satisfied the requirements of § 523(a)(19). Because there was no

genuine issue of material fact left for the bankruptcy court to decide, the

Judgment Holders’ § 523(a)(19) motion for summary judgment was

granted and the Judgment Debt was excepted from Mr. Rodriguez’s

discharge.

JURISDICTION

The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(I). We have jurisdiction under 28 U.S.C. § 158.

ISSUE

Did the bankruptcy court err in granting summary judgment to the

Judgment Holders on their § 523(a)(19) claim based on the issue preclusive

effect of the State Court Decisions and Judgment?

9
 STANDARDS OF REVIEW

We review de novo the bankruptcy court's summary judgment

rulings and its determination to except a debt from discharge. Ilko v. Cal. St.

Bd. of Equalization (In re Ilko), 651 F.3d 1049, 1052 (9th Cir. 2011). We also

review de novo the bankruptcy court's determination that issue preclusion

is available. Lopez v. Emergency Serv. Restoration, Inc. (In re Lopez), 367 B.R.

99, 103 (9th Cir. BAP 2007).

If we determine that issue preclusion is available, we then review the

bankruptcy court's decision to apply it for an abuse of discretion. Id. A

bankruptcy court abuses its discretion if it applies the wrong legal standard

or its findings of fact are illogical, implausible or without support in the

record. TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011).

DISCUSSION

A. Legal standards for summary judgment and issue preclusion.

1. Summary judgment standards

Summary judgment is appropriate when the pleadings and

supplemental materials show that there is no genuine issue as to any

material fact and the moving party is entitled to judgment as a matter of

law. Fed. R. Civ. P. 56(a) (incorporated by Fed. R. Bankr. P. 7056); Roussos v.

Michaelides (In re Roussos), 251 B.R. 86, 91 (9th Cir. BAP 2000), aff'd, 33 F.

App'x 365 (9th Cir. 2002). The moving party bears the initial burden of

demonstrating an absence of a genuine issue of material fact. Once the

moving party has met its initial burden, the non-moving party must show
10
specific facts establishing the existence of genuine issues of fact for trial.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986).

2. Issue preclusion standards

Issue preclusion applies in dischargeability proceedings to preclude

relitigation of state court findings relevant to exceptions to discharge.

Grogan v. Garner, 498 U.S. 279, 284 n.11 (1991). Bankruptcy courts may

apply the doctrine to an existing state court judgment as the basis for

granting summary judgment. See Khaligh v. Hadaegh (In re Khaligh), 338 B.R.

817, 832 (9th Cir. BAP 2006), aff'd, 506 F.3d 956 (9th Cir. 2007). Issue

preclusion in nondischargeability proceedings is governed by the

preclusion law of the state in which the judgment was issued, which in this

case is Nevada. Harmon v. Kobrin (In re Harmon), 250 F.3d 1240, 1245 (9th

Cir. 2001).

Under Nevada law, issue preclusion applies if (1) the issue decided in

the prior litigation is identical to the issue presented in the current action;

(2) the initial ruling was on the merits and has become final; (3) the party

against whom the judgment was asserted is the party or is in privity with a

party to the prior litigation; and (4) the issue was actually and necessarily

litigated. Five Star Cap. Corp. v. Ruby, 194 P.3d 709, 713 (Nev. 2008).

B. Exceptions to discharge under § 523(a)(19)

Usually, all debts arising prior to the filing of the bankruptcy petition

will be discharged. Although this is the general rule, the statutory

provisions of § 523(a) (governing nondischargeable debt) reflect a

11
congressional decision to exclude certain liabilities from discharge ensuring

the Bankruptcy Code's fresh start policy is only available to “honest but

unfortunate debtor[s].” Grogan, 498 U.S. at 287.

At issue in this case is § 523(a)(19)(A)(i) which prohibits debtors from

discharging debts for securities violations. Section 523(a)(19) was added as

an additional exception to discharge in 2002 as part of the Sarbanes-Oxley

Act to “prevent wrongdoers from using the bankruptcy laws as a shield

and to allow defrauded investors to recover as much as possible.” In re

Sherman, 658 F.3d at 1016 (quoting 148 Cong. Rec. S7418-19 (2002)

(statement of Sen. Leahy)).

Specifically, Section 523(a)(19) makes nondischargeable any debt that:

(A) is for—
(i) the violation of any of the Federal securities laws (as that
term is defined in section 3(a)(47) of the Securities Exchange
Act of 1934), any of the State securities laws, or any regulation
or order issued under such Federal or State securities laws; or

(ii) common law fraud, deceit, or manipulation in connection
with the purchase or sale of any security; and

(B) results, before, on, or after the date on which the petition was
filed, from—

(i) any judgment, order, consent order, or decree entered in any
Federal or State judicial or administrative proceeding;

(ii) any settlement agreement entered into by the debtor; or

12
 (iii) any court or administrative order for any damages, fine,
penalty, citation, restitutionary payment, disgorgement
payment, attorney fee, cost, or other payment owed by the
debtor.

As evidenced by the plain language of the statute, § 523(a)(19)(A)(i),

(B)(i) sets forth an expedited process that accords preclusive effect to

appropriately memorialized judgments arising from liability for securities

law violations and securities fraud.

Prior to the addition of § 523(a)(19), a judgment creditor was often

required to relitigate the securities violations in bankruptcy court because

the elements of a state or federal securities violation did not align with the

elements necessary to establish nondischargeability under § 523(a). S. Rep.

No. 107-146, at 2-16 (2002). By adding § 523(a)(19), Congress created an

expedited preclusive process intended to protect a victim’s ability to

recover their losses by both eliminating the need to relitigate the securities

violations in bankruptcy court and by making the judgments and

settlements based upon securities law violations nondischargeable. See id.

at 2-8.

C. The bankruptcy court did not err in applying issue preclusion
because the State Court Decisions and Judgment expressly state
that Mr. Rodriguez violated Nevada securities law.

Mr. Rodriguez argues that the bankruptcy court erred in applying

issue preclusion because the state court did not decide his personal

culpability as to the securities violations and therefore his violation of

13
securities laws was not actually and necessarily litigated. In the alternative,

Mr. Rodriguez argues that he was only found to be secondarily or

vicariously liable of violating Nevada securities laws and therefore, the

issue decided in the state court action was not identical to the finding

necessary to exempt a debt from discharge pursuant to § 523(a)(19)(A)(i).

1. Mr. Rodriguez’s various arguments against preclusion are
without merit and are belied by the plain language of the
State Court Decisions and Judgment.

Contrary to Mr. Rodriguez’s assertions, the bankruptcy court did not

abuse its discretion in finding that Mr. Rodriguez violated a state securities

law and applying issue preclusion to the State Court Decisions and

Judgment.

After conducting a preclusion analysis, the bankruptcy court found

Nevada’s requirements for applying issue preclusion satisfied. The

bankruptcy court found that the same parties were in both actions and that

the state court rendered a valid and final judgment on the merits. The

bankruptcy court also found that the claims alleged involved violations of

Nevada securities law and that the claims of securities law violations were

actually and necessarily litigated culminating at a trial at which the

credibility of the evidence and witnesses were assessed including that of

Mr. Rodriguez.

The bankruptcy court properly rejected Mr. Rodriguez’s assertion

that his liability for the securities violation stemmed solely from his

14
position within the company and not from any overt acts on his part and

therefore, his liability was not actually and fully litigated. Drawing upon

the extensive evidentiary record, the bankruptcy court found that Mr.

Rodriguez’s primary defense at the trial court was his characterization of

himself as an innocent bystander who was unaware and not involved in

VCC’s notes offering until after VCC defaulted. The trial court, however,

was not persuaded; instead, finding Mr. Rodriguez personally liable for the

securities law violation because he was aware, involved, and influenced

VCC’s issuance of the notes.

In its decision, the bankruptcy court identified specific evidence and

testimony cited in the State Court Decisions demonstrating that the trial

court rejected Mr. Rodriguez’s attempts to minimize his involvement and

liability.7 According to the trial court, Mr. Rodriguez failed to present any

evidence demonstrating that he was not directly or indirectly involved in

the acts regarding the violation of Nevada security regulations. Rather, the

preponderance of the evidence demonstrated that both Mr. Robinson and

Mr. Rodriguez were directly and intimately involved in creating the

material to sell the Notes.8

7
For example, the state trial court found that Mr. Rodriguez was the CFO, was
designated as the point of contact for investors who had questions about the promissory
note offering, was fully involved in the finances of the company, and was aware of the
PowerPoint presentations that were prepared by VCC to show to prospective investors.
8 Because Mr. Rodriguez chose not to appeal the State Court Decisions or

Judgment, the Nevada trial court’s factual findings are not in dispute.
15
 To the extent that Mr. Rodriguez argued that others were the primary

violators or more culpable, the bankruptcy court properly found such

assertions irrelevant when determining whether Mr. Rodriguez’s Judgment

Debt should be excepted from discharge under § 523(a)(19)(A)(i).

Based on the record, the bankruptcy court did not abuse its discretion

in giving preclusive effect to the State Court Decisions and Judgment

because Mr. Rodriguez fully participated in the state court action resulting

in a full and fair opportunity to dispute his liability. The state trial court

found Mr. Rodriguez personally violated Nevada securities laws based on

testimony and evidence presented. Therefore, the elements for

nondischargeability under § 523(a)(19)(A)(i) were actually litigated and

necessarily decided in rendering the State Court Decisions and Judgment.

2. Because proof of the entry of the State Court Decisions and
Judgment was tendered to the bankruptcy court, the
Judgment Debt was rendered nondischargeable under
§ 523(a)(19) without proof of any additional element.

Importantly, the bankruptcy court’s issue preclusion analysis was

unnecessary because the plain language of the State Court Decisions

confirms that Mr. Rodriguez violated securities law and the resulting

Judgment was “for” a securities law violation. There is no need to look

behind a judgment to a trial court’s factual findings when the judgment is

against the debtor (as opposed to a third party) and the judgment and

underlying decision found the debtor violated a state or federal securities

law. Accordingly, once a determination of a securities violation has been
16
made, and proof of the entry of that order is tendered to the bankruptcy

court, the debt is rendered nondischargeable under § 523(a)(19) without

proof of any additional element or analysis.

D. The bankruptcy court did not err in granting summary judgment
because there was no genuine dispute that the Judgment Debt was
for a securities violation.

The bankruptcy court did not err in granting summary judgment and

rejecting Mr. Rodriguez’s attempts to impose a primary liability element to

§ 523(a)(19)(A)(i).

1. Sherman does not impose a primary liability requirement.

Mr. Rodriguez argues the bankruptcy court erred by failing to

impose a “primary liability” standard he contends flows from the holding

of Sherman. Mr. Rodriguez is mistaken. Although Mr. Rodriguez is correct

that the Sherman court focused its analysis on the culpability of the debtor,

the Sherman court did not impose a primarily liable or most liable standard

as Mr. Rodriguez insists.

In Sherman, the SEC brought an enforcement action against certain

companies. 658 F.3d at 1010. Sherman was an attorney who represented

some of the defendants in the enforcement action. Id. As part of the action,

Sherman was ordered to disgorge retainer advances “he had received . . .

but had not [yet] earned” from his clients/defendants. Id. The SEC did not

accuse or charge Sherman with any securities violations.9 Id.

9
The disgorgement order was not at issue in Sherman as “Sherman lacked any
17
 After being ordered to disgorge the advancements, Sherman filed for

chapter 7 bankruptcy relief. Id. In a related adversary proceeding, Sherman

sought a declaratory judgment finding that the debt to the SEC resulting

from the disgorgement order did not arise from a violation of securities

laws and was therefore dischargeable. Id. at 1011. The bankruptcy court

granted summary judgment in Sherman's favor, concluding as a matter of

law that the SEC disgorgement order did not arise from the debtor's

violation of a securities law. Id. The district court reversed, adopting a

broad interpretation of § 523(a)(19). Id.

On appeal, the Ninth Circuit reversed the district court. Id. at 1018.

After analyzing the statutory history of § 523(a)(19) and the goals of

bankruptcy, the Sherman court held that § 523(a)(19) only prevents the

discharge of a debt for a securities violation “when the debtor is

responsible for that violation.” Id. at 1019. Because Sherman was a third

party and he was not named in the securities law violation action nor was

he found liable for violating securities law, the debt was not “for” a

securities law violation. 10 Id. at 1018. According to the Sherman court,

interest in the money because he was obligated by the California Rules of Professional
Conduct to return the amount by which his advances exceeded his ultimate fee.” In re
Sherman, 658 F.3d at 1010.
10 The Sherman court found that wrongdoing could not be imputed to the debtor

based on the disgorgement order. According to the Sherman court, requiring Sherman to
disgorge the retainer advancements was very different from deciding that he was
prevented from discharging those debts in bankruptcy. The “theories and the reasons
behind disgorgement and discharge are quite distinct.” In re Sherman, 658 F.3d at 1017.
18
Sherman was the “honest but unfortunate debtor,” § 523(a)(19) was

inapplicable, and the debt was discharged. Id.

2. Mr. Rodriguez’s Judgment Debt is “for” a securities violation.

In this case, Sherman is distinguishable, and Mr. Rodriguez’s attempts

to analogize his facts to Sherman are in vain. In Sherman, the court refused

to find a debt was “for” a securities violation when the wrongdoer was a

third party, not the debtor. Thus, Sherman stands only for the proposition

that the debtor be culpable for the securities violation, holding that

§ 523(a)(19) only “prevents the discharge of a debt for a securities violation

when the debtor is responsible for that violation” and does not apply to

debtors who receive funds derived from a securities law violation. In re

Sherman, 658 F.3d at 1017-19. Sherman does not stand for the proposition

that the debtor must be the most culpable or the primary violator as

advocated by Mr. Rodriguez. 11

Accordingly, the bankruptcy court did not err in finding there was no

genuine issue of material fact that the Judgment Debt was “for” a securities

law violation and granting summary judgment to the Judgment Holders.

CONCLUSION

On this record, we conclude that issue preclusion was available with

respect to the securities violation claim based on the State Court Decisions

11 The cases cited by Mr. Rodriguez on appeal add little to the argument as each
pertains to a different subsection of § 523(a) and/or were published prior to the
enactment of the Sarbanes-Oxley Act, and thus predate the creation of the § 523(a)(19)
exception.
19
and that the bankruptcy court did not abuse its discretion in applying issue

preclusion to the State Court Decisions and Judgment. As that left no

genuine dispute of material fact for the bankruptcy court to adjudicate, it

did not err in granting summary judgment in the Judgment Holders' favor

and finding that the Judgment Debt was nondischargeable under §

523(a)(19). We AFFIRM.

20