600 B.R. 561
Bankr. W.D. Tex.2019Background
- Plaintiff Nola Jenkins (Trustee) obtained a FINRA arbitration award against Clyde Jones for $625,000 (compensatory), $250,000 (attorney fees), and $30,000 (costs) based on claims including violations of the Texas Securities Act and breach of fiduciary duty. The award was confirmed in Bexar County, Texas.
- Jones filed bankruptcy (Chapter 7) after the FINRA Award; Plaintiff initiated this adversary proceeding seeking a declaration that the FINRA Award is nondischargeable under 11 U.S.C. §§ 523(a)(4) and (a)(19).
- Plaintiff moved for summary judgment under § 523(a)(19); the motion did not advance § 523(a)(4) arguments, so the court addressed only § 523(a)(19).
- Jones filed an unsigned/insufficiently verified notarized affidavit and an attached memorandum (prepared by a law student) in opposition; the court found these did not satisfy the verification/personal-knowledge requirements for summary-judgment evidence and disregarded them.
- The court considered whether the FINRA Award, a non-bankruptcy tribunal determination addressing securities-law-related claims, satisfies § 523(a)(19)’s requirements for nondischargeability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of Jones's affidavit and attached memorandum | The affidavit and memorandum oppose summary judgment and assert lack of findings of wrongdoing | The affidavit was notarized and should be considered; memorandum presents legal arguments | Court disregarded both: affidavit not verified under penalty of perjury; memorandum lacks personal-knowledge and is improper legal submission |
| Appropriate forum / effect of FINRA letter | Bankruptcy court decides dischargeability; FINRA letter does not bind bankruptcy court | FINRA's letter suggested award may be discharged in bankruptcy, undermining nondischargeability | Court held FINRA letter is not binding; bankruptcy court determines nondischargeability under federal law |
| Nondischargeability under § 523(a)(19) | FINRA Award is a non-bankruptcy tribunal decision on securities claims and thus renders the debt nondischargeable without relitigation | Award lacks explicit findings tying damages to specific securities violations or fraud | Court held FINRA Award satisfied § 523(a)(19): it arose from securities-related claims and was memorialized by the arbitration award and confirmed judgment, so debt is nondischargeable |
| Scope of adjudication in this adversary | Plaintiff seeks declaration under §§ 523(a)(4) and (a)(19) | Jones contested both; court previously denied dismissal motion | Court addressed only § 523(a)(19) because plaintiff made no § 523(a)(4) argument in summary-judgment motion; § 523(a)(19) granted |
Key Cases Cited
- Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment standard)
- Nissho-Iwai Am. Corp. v. Kline, 845 F.2d 1300 (5th Cir. 1988) (unsworn/insufficiently verified affidavits inadmissible on summary judgment)
- Grogan v. Garner, 498 U.S. 279 (creditor bears burden to prove nondischargeability)
- Davis v. Fort Bend Cnty., 765 F.3d 480 (5th Cir. 2014) (nonmovant cannot rely on conclusory allegations to defeat summary judgment)
- McGraw & Pfeifer Sutter Fam. LLC v. Collier (In re Collier), 497 B.R. 877 (Bankr. E.D. Ark.) (judgments/settlements from securities proceedings can render debts nondischargeable under § 523(a)(19))
- Wright v. Minardi (In re Minardi), 536 B.R. 171 (Bankr. E.D. Tex.) (two-prong test for § 523(a)(19): underlying securities/fraud and memorialization in order or settlement)