591 B.R. 364
Bankr. E.D. Wis.2018Background
- Schouten loaned Jakubiak $75,000 over several transactions; Jakubiak repaid only a small amount. Schouten also alleges Jakubiak gave unsuitable annuity advice that produced surrender charges.
- Schouten filed a FINRA arbitration (2012) against Jakubiak, Stout, and MML; Jakubiak defaulted and the arbitrator awarded Schouten $75,000 against Jakubiak and other sums against Stout. A Wisconsin court later confirmed the award and entered judgment.
- Jakubiak filed a joint Chapter 7 bankruptcy (Feb. 2015) but did not list Schouten as a creditor or schedule the debt; the case was treated as a no-asset case and closed after a discharge was entered (June 2015).
- Schouten did not receive notice of the bankruptcy and therefore missed the Rule 4007 deadline to commence nondischargeability adversary proceedings under § 523(a)(2) and (6); he later moved to reopen and filed this adversary action under § 523 seeking an exception to discharge.
- The parties cross-moved for summary judgment. The court resolved whether Schouten’s judgment is nondischargeable under § 523(a)(19), § 523(a)(2), § 523(a)(6), and § 523(a)(3), addressing preclusion, the meaning of the arbitration award, deadline rules for proofs of claim in no-asset cases, and the equitable Stark line of authority.
Issues
| Issue | Plaintiff's Argument (Schouten) | Defendant's Argument (Jakubiak) | Held |
|---|---|---|---|
| Whether Rooker–Feldman or preclusion bars relitigation of the arbitration/judgment for §523 purposes | Rooker–Feldman and claim/issue preclusion make the state-court confirmation conclusive so §523(a)(19) applies | Preclusion cuts the other way; arbitration award does not show a securities-law violation | Rooker–Feldman inapplicable; res judicata/issue preclusion do not resolve §523 issues here (default award precludes issue preclusion) |
| Whether the confirmed award is "for" violation of federal/state securities laws (§523(a)(19)) | The award’s reference to "securities law" and broker-loan prohibition shows it is for securities-law violations (FINRA rule violation qualifies) | The award compensates unpaid loans (breach of contract); FINRA rules are not federal securities laws/regulations under §523(a)(19) | Ambiguous award: FINRA rules are not §523(a)(19) securities laws; ambiguity resolved for debtor — summary judgment for Jakubiak on §523(a)(19) |
| Whether §523(a)(2) or (6) nondischargeability claims survive summary judgment despite untimely adversary complaint | Schouten: facts support fraud/false pretenses or willful/malicious injury claims | Jakubiak: Schouten missed the Rule 4007 deadline; those claims are time-barred | §523(a)(2) and (6) claims are time-barred — summary judgment for Jakubiak on those counts |
| Whether debt is excepted from discharge under §523(a)(3) because debtor failed to list/schedule creditor and Schouten lacked notice | Schouten: debt excepted under §523(a)(3)(A)/(B) because it was unscheduled and he lacked notice, and the debt may be of a kind under §523(a)(2)/(6) | Jakubiak: Stark and related authority allow reopening/no-asset equitable treatment; scheduling amendments may avoid nondischargeability; §3002(c)(5)/no-asset rules control | Court denies summary judgment to both: debt unscheduled and Schouten lacked notice (triggers §523(a)(3)), but Stark-related equitable issues, proof that debt is of a kind under §523(a)(2) or (6), and whether reopening/amendment cures nondischargeability require further resolution |
Key Cases Cited
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005) (federal courts lack appellate jurisdiction to overturn state-court judgments under Rooker–Feldman)
- District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983) (Rooker–Feldman principles explained)
- Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) (foundational Rooker doctrine)
- Grogan v. Garner, 498 U.S. 279 (1991) (collateral estoppel may apply in discharge exception proceedings)
- Cohen v. de la Cruz, 523 U.S. 213 (1998) (nondischargeability statutes construed narrowly; interpretation of "results from" language)
- Stark v. St. Mary's Hosp. (In re Stark), 717 F.2d 322 (7th Cir. 1983) (no-asset/reopening equitable relief recognized; often read to permit reopening and amendment in innocently omitted creditor cases)
- Tidwell v. Smith (In re Smith), 582 F.3d 767 (7th Cir. 2009) (§523(a)(3)(B) requires unscheduled debt + lack of timely notice; debtor’s intent irrelevant to (B))
- Law v. Siegel, 571 U.S. 415 (2014) (bankruptcy courts’ equitable powers are confined by the Bankruptcy Code)
- Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950) (due process requires notice reasonably calculated to apprise interested parties)