SEC v. Dahlstrom ( 2003 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-21159
Summary Calendar
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff-Appellee,
versus
KARL L. DAHLSTROM; ET AL.,
Defendants,
KARL L. DAHLSTROM,
Defendant-Appellant.
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Appeal from the United States District Court
for the Southern District of Texas
USDC No. H-92-CV-2992
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January 6, 2003
Before JONES, DUHÉ, and CLEMENT, Circuit Judges.
PER CURIAM:1
Karl L. Dahlstrom, federal prisoner #12894-054, appeals from
the district court’s order finding him in contempt for failing to
comply with a disgorgement order because he failed to execute the
conveyances necessary to effect the sale of two properties on which
judicial liens were created. The liens were created in 1995 when
a 1993 consent judgment was abstracted and after the district court
1
Pursuant to 5TH CIR. R. 47.5, the court has determined
that this opinion should not be published and is not precedent
except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
ordered Dahlstrom to disgorge the amount agreed upon in the consent
judgment.
Dahlstrom contends that his contempt was criminal, not civil,
in nature. The contempt sanction in Dahlstrom’s case was designed
to force compliance with the disgorgement order for the benefit of
the SEC. The sanction therefore was civil in nature. Int’l Union,
United Mine Workers of America v. Bagwell, 512 U.S. 821, 827-28
(1994).
Dahlstrom raises several arguments seeking to challenge the
consent judgment and the disgorgement order. Both are final
orders. Dillon v. State of Mississippi Military Dep’t, 23 F.3d
915, 917 (5th Cir. 1994); In re TransAmerican Natural Gas Corp., 978
F.2d 1409, 1414-15 (5th Cir. 1992). Dahlstrom may not litigate
issues challenging the validity of those final orders pursuant to
the doctrine of res judicata. St. Paul Mercury Ins. Co. v.
Williamson, 224 F.3d 425, 436 (5th Cir. 2000). We may raise res
judicata sua sponte to affirm the district court. Russell v.
Sunamerica Securities, Inc., 962 F.2d 1169, 1172 (5th Cir. 1992).
Dahlstrom contends that the district court erred by finding
that the two subject properties were part of his individual estate.
According to Dahlstrom, the properties belonged to business trusts,
not to him.
2
The United States Tax Court determined that both business
trusts (and many others created by Dahlstrom) “were without
economic substance and were merely a scheme to evade tax.”
Dahlstrom v. Commissioner, 61 T.C.M. (CCH) 2876 (1991). We
affirmed the Tax Court’s decision. Dahlstrom v. Commissioner, Nos.
91-5101 & 91-5105 (5th Cir. Jul. 29, 1993) (unpublished). Because
the trusts were illegitimate, the district court did not err by
disregarding them.
Dahlstrom contends that the properties were shielded from
disgorgement because they were homestead properties under Texas
law. Dahlstrom has not shown that the district court abused its
discretion by rejecting his homestead-exemption contention. SEC v.
Huffman, 996 F.2d 800, 803 (5th Cir. 1993).
Dahlstrom contends that the SEC’s contempt motion was time-
barred under 28 U.S.C. § 2415(a), because the motion was filed more
than six years after the entry of the consent judgment, which he
argues created a debt for purposes of the Debt Collection Act.
Dahlstrom’s contention is without merit. A disgorgement obligation
created by a consent judgment is not a debt for purposes of the
Debt Collection Act. Huffman, 996 F.2d at 803. The Debt
Collection Act therefore does not apply.
Dahlstrom finally contends that the district court deprived
him of due process by failing to allow him to be present at any
contempt hearing held by the district court. Dahlstrom is
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technically correct to argue that the district court erred by not
holding a hearing, as is required by FED. R. CIV. P. 43(a). Sanders
v. Monsanto Co., 574 F.2d 198, 199-100 (5th Cir. 1978).
However, the relevant fact of Dahlstrom’s noncompliance with
the disgorgement order was never at issue in the district court.
Dahlstrom was able to present his arguments effectively in his
pleading opposing the SEC’s show-cause motion. Moreover, he does
not argue that the district court might have resolved any issues
differently, or that any evidence would have been presented, had a
hearing been held. Finally, Dahlstrom already was in prison when
the district court found him in contempt. The contempt order
therefore did not actually deprive him of his liberty. The
district court’s error was harmless. See King v. Gulf Oil Co., 581
F.2d 1184, 1187 (5th Cir. 1978).
AFFIRMED.
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