## Facts

- In 1984, Kaiser Steel Corporation was acquired in a buyout financed largely with debt, and Kaiser agreed to purchase outstanding shares of its own stock for cash.
- Many shares were held of record by securities brokers for their customers, who were the beneficial shareholders.
- Kaiser purchased the shares from the brokers and paid the brokers directly; the brokers then transmitted the cash (or its equivalent) to the beneficial shareholders whose shares were tendered.
- In 1987, Kaiser filed for Chapter 11 bankruptcy and, as debtor-in-possession, sued to avoid the buyout and recover the related payments as fraudulent conveyances.
- Kaiser sought recovery from the beneficial shareholders who received the buyout consideration.
- A group of beneficial shareholders moved for summary judgment, arguing the payments were “settlement payments” exempt from avoidance under 11 U.S.C. § 546(e) because they were made by or to securities brokers in connection with a securities transaction.
- Kaiser argued § 546(e) did not apply because the payments were not settlement payments connected to a securities trade in the way Congress intended.
- The district court granted summary judgment for the defendants, and Kaiser appealed.

## Issues

1. Whether cash paid in connection with Kaiser’s 1984 stock buyout, made to securities brokers who held shares for beneficial owners, constitutes a “settlement payment” protected from avoidance by 11 U.S.C. § 546(e).
2. Whether § 546(e) applies when Kaiser sought to recover from beneficial shareholders, even though the transfer at issue passed through (and was made to) covered intermediaries such as stockbrokers.
3. Whether summary judgment was proper where the mechanics of the payments were not disputed and the question was the scope of § 546(e).

## Decision

- The Tenth Circuit affirmed the district court’s grant of summary judgment for the defendants.
- The court held the buyout payments were “settlement payments” as that term is broadly defined in the Bankruptcy Code and used in the securities context.
- Because the payments were made “by or to” stockbrokers in connection with the stock transaction, § 546(e) barred Kaiser’s avoidance claims based on constructive fraudulent conveyance theories.
- With no genuine dispute of material fact, the defendants were entitled to judgment as a matter of law.

## Legal Principles

- “Settlement payment” under 11 U.S.C. §§ 546(e) and 741(8) is read broadly to include transfers of cash (or securities) that complete a securities transaction.
- Section 546(e) protects a covered transfer if it is made by or to a listed market intermediary (including a stockbroker or financial institution), even if the economic beneficiary is a non-protected party such as a shareholder.
- A debtor-in-possession may not avoid a covered settlement payment under constructive fraudulent transfer provisions when § 546(e) applies.
- Summary judgment is appropriate when transaction steps are undisputed and the result depends on statutory interpretation.

## Conclusion

In *In re Kaiser Steel*, the Tenth Circuit held that Kaiser’s buyout-related payments to stockbrokers—who held shares for and forwarded payment to beneficial shareholders—were protected “settlement payments” under § 546(e), so Kaiser could not avoid and recover those payments on constructive fraudulent conveyance theories, and summary judgment for the defendants was properly affirmed.


In re Kaiser Steel, 952 F.2d 1230 (1991)