Schouten v. Jakubiak (In re Jakubiak)

• Decision Date: 01 October 2018
• Docket Number: Case No. 15-21424-GMH,Adv. Proc. No. 16-02141-GMH
• Citation: 591 B.R. 364
• Parties: IN RE: Robert J. JAKUBIAK, Debtor. Gilbert Schouten, Plaintiff, v. Robert J. Jakubiak, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

591 B.R. 364

IN RE: Robert J. JAKUBIAK, Debtor.Gilbert Schouten, Plaintiff,

v.Robert J. Jakubiak, Defendant.

Case No. 15-21424-GMH

Adv. Proc. No. 16-02141-GMH

United States Bankruptcy Court, E.D. Wisconsin.

October 1, 2018

Lauren L. Wick, Gutglass, Erickson, Bonville, and Larson, Milwaukee, WI, for Plaintiff.

Michael P. Dunn, Kerkman Wagner & Dunn, Richard A. Check, Bankruptcy Law Office of Richard A. Check, Milwaukee, WI, for Defendant.

AMENDED DECISION

G. Michael Halfenger, United States Bankruptcy Judge

Gilbert Schouten gave debtor Robert Jakubiak a loan, and Jakubiak gave Schouten investment advice. The loan went unpaid. The advice was bad.

Schouten sued. He commenced an arbitration proceeding with the Financial Industry Regulatory Authority (FINRA) against Jakubiak; Jakubiak's cohort, Timothy Stout; and Jakubiak's former employer, MML Investors Services, LLC, an entity regulated by FINRA. After Jakubiak failed to answer the arbitration complaint, the arbitrator awarded Schouten $75,000 against Jakubiak. A Wisconsin Circuit Court entered a judgment confirming that award.

When Schouten tried to collect, he discovered for the first time that this court had granted Jakubiak a chapter 7 discharge. Schouten hadn't received notice of Jakubiak's bankruptcy because Jakubiak hadn't listed Schouten, scheduled his debt to Schouten, or included Schouten on the mailing matrix. Schouten now asks this court to declare that Jakubiak's discharge does not bar Schouten from collecting his $75,000 judgment. Both parties seek summary judgment.

I

The following facts are uncontested, except as otherwise noted.

A

Schouten had retired before the dealings with Jakubiak happened. His income came from a modest retirement fund. CM-ECF Doc. No. 18, ¶¶ 22-24.¹

Schouten says that he and Jakubiak were bowling buddies. CM-ECF Doc. No. 14, at 2. Beginning in May 2006, Jakubiak, who has worked as a financial advisor, offered to assist Schouten with his investments. CM-ECF Doc. No. 18, ¶¶ 25, 26, 28 & 30.

Jakubiak advised Schouten to make several transfers of Schouten's retirement funds among a variety of index-based annuities. Id. ¶¶ 28, 44; CM-ECF Doc. No. 25-2, ¶ 8. Acting on Jakubiak's advice, Schouten moved his retirement funds several times: first to Physician's Mutual in 2006; then to American Investor's Life in 2007, which became AVIVA; then to Forethought Destination Indexed Annuity in 2009. CM-ECF Doc. No. 18, ¶¶ 28, 31, 37–38 & 45. Jakubiak signed as "Agent" for the 2006 and 2007 transfers. Id. ¶¶ 29 & 32. Stout, Jakubiak's colleague at MML Investors Services, LLC, was the agent for the 2009 transfer, though Jakubiak referred to himself as "agent" on a cover letter for the annuity contract with Forethought. Id. ¶¶ 38–39.

In August 2008, Jakubiak first asked Schouten for a loan. Id. ¶ 34. Schouten agreed. He loaned Jakubiak $25,000 sometime between August 30 and September 2, 2008; $10,000 on September 8, 2008; $15,000 in December 2008; and another $25,000 in November 2009. Id. ¶¶ 34–35; CM-ECF Doc. No. 16, at 35. To make these loans, Schouten drew down on a line of credit secured by his home. CM-ECF Doc. No. 18, ¶ 35.

Jakubiak's promises of repayment went unfulfilled. He repaid only $338.25. Id. ¶ 43.

In 2011, Jakubiak recommended that Schouten transfer the annuity funds from Forethought back to AVIVA. Id. ¶¶ 45–46. A Forethought representative tipped off Schouten that Jakubiak, pretending to be Schouten, had been calling Forethought to expedite issuance of a surrender check. Id. ¶¶ 47–56. This revelation led Schouten to ask Tony Drake, a certified financial planner, about how the funds had been handled. Id. ¶ 57. According to Schouten, Drake discovered that the Jakubiak-advised annuity transfers followed a path of escalating commissions, and the Forethought application misrepresented Schouten's net worth and assets. Id. ¶¶ 58–60; CM-ECF Doc. No. 16, at 13, ¶ 30. After meeting with Drake, Schouten stopped the Forethought-AVIVA transfer and his dealings with Jakubiak. CM-ECF Doc. No. 18, ¶ 59; CM-ECF Doc. No. 16, at 14, ¶ 32.

B

On September 25, 2012, Schouten filed an arbitration claim with FINRA against Jakubiak; Stout; and MML Investors Services, Jakubiak's and Stout's former employer. CM-ECF Doc. No. 18, ¶ 1. Schouten alleged four claims against Jakubiak: (1) fraud and misrepresentation, (2) breach of a duty to recommend only suitable investments, (3) breach of contract, and (4) breach of fiduciary duty. CM-ECF Doc. No. 22-1, ¶¶ 36–64. Schouten alleged against all of the defendants "jointly and severally" actual total damages of $216,418.58: he claimed alleged losses of $74,705.62 in surrender charges from annuity flipping; $67,712.96 of lost interest accrual; and $75,000 of unpaid loans (which a keen reader will realize totals $217,418.58, rather than $216,418.58). CM-ECF Doc. No. 16, at 7–24; CM-ECF Doc. No. 22-1, at 22. Jakubiak did not appear or otherwise contest the claims. CM-ECF Doc. No. 18, ¶¶ 3 & 5.

On February 10, 2014, the FINRA arbitrator issued a $75,000 default award against Jakubiak. CM-ECF Doc. No. 20-2. The award states:

Respondent Jakubiak knew, or should have known, that securities law prohibits brokers from borrowing money from clients. Attachments to claim (Exhibits C, D, E & H) [i]ndicate that Respondent Jakubiak personally received four checks from Claimant Schouten without an indicated investment purpose or action for Claimant.... Respondent, Robert Joseph Jakubiak, is liable for and shall pay to Claimant $75,000.00 in compensatory damages.

Id. at 2. The award further states, "All other relief requests are denied." Id.

Schouten filed a petition in the Milwaukee County Circuit Court to confirm the award. CM-ECF Doc. No. 18, ¶ 12. Jakubiak did not appear. Id. ¶¶ 13–14. On July 8, 2014, the circuit court entered an order for default judgment directing entry of judgment against Jakubiak in the amount of $75,000, plus $1,283.73 in prejudgment interest. CM-ECF Doc. No. 1, Ex. L. The circuit court docketed a judgment to that effect on December 4, 2014. Id. at 3; CM-ECF Doc. No. 18, ¶ 15.

II

A

On February 19, 2015, Jakubiak and his wife jointly petitioned for bankruptcy under chapter 7. Case No. 15-21424 (Bankr. E.D. Wis.). The Jakubiaks did not list Schouten in their list of creditors or schedule the debt owed Schouten. Case No. 15-21424, CM-ECF Doc. No. 1. The clerk notified the Jakubiaks' listed creditors that the Jakubiaks' bankruptcy estate appeared to have no assets to distribute to creditors, so creditors should not file a proof of claim unless later told to do so. Case No. 15-21424, CM-ECF Doc. No. 3 & 4.

On May 1, 2015, soon after the Jakubiaks amended their schedules to list additional personal property and claim further exemptions, the chapter 7 trustee reported that the estate had no property available for distribution. The court granted the Jakubiaks a discharge on June 3, 2015, two days after the June 1, 2015 deadline for objecting to discharge or dischargeability. Case No. 15-21424, CM-ECF Doc. No. 9. The court then closed the case.

B

Six months later, Schouten moved to reopen the Jakubiaks' case to file a complaint seeking a determination that the $75,000 judgment was not discharged. Case No. 15-21424, CM-ECF Doc. No. 11. No one objected to that request, so the court granted it. Case No. 15-21424, CM-ECF Doc. No. 13.

Two adversary proceedings followed. Schouten filed this proceeding. The United States trustee filed an adversary proceeding requesting that the court revoke the Jakubiaks' discharge, alleging that the Jakubiaks had falsely testified that they had listed all their creditors and scheduled all of their debts, even though they had failed to list Schouten and schedule their debt to him. Adv. Proc. No. 16-2194 (Bankr. E.D. Wis. filed May 31, 2016), CM-ECF Doc. No. 1.

Several months later, the U.S. trustee moved to dismiss his proceeding. Adv. Proc. No. 16-2194, CM-ECF Doc. No. 7. In so doing, he reported only that counsel for the Jakubiaks in the adversary proceedings had made an "admission that the errors and omissions that were the basis for the Complaint were not intentional on the part of the Debtors but rather were due to an oversight of [the Jakubiaks' former] bankruptcy counsel." Adv. Proc. No. 16-2194, CM-ECF Doc. No. 7, at 2. No one objected. The court dismissed that proceeding. Adv. Proc. No. 16-2194, CM-ECF Doc. No. 10.

Schouten then actively pursued in this proceeding a declaration that Jakubiak's debt to him is excepted from the discharge. After discovery closed, both parties moved for summary judgment. CM-ECF Doc. Nos. 13 & 19.

III

A

This court has jurisdiction over this adversary proceeding by operation of 28 U.S.C. § 1334 and the Eastern District of Wisconsin's order of reference under 28 U.S.C. § 157(a). See Order of Reference (E.D. Wis. July 10, 1984), available at http://www.wied.uscourts.gov/local-rules-and-orders. This proceeding to determine the dischargeability of a debt is a core proceeding under 28 U.S.C. § 157(b)(2)(I). Thus, § 157(b)(1) authorizes this court to enter a final judgment.

B

Federal Rule of Civil Procedure 56(a) (made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7056 ) provides, "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." The court must "construe the evidence in the light most favorable to the non-moving party ... and give that party the benefit of genuine conflicts in the evidence and all reasonable, favorable inferences." Carman v. Tinkes , 762 F.3d 565, 566 (7th Cir. 2014).

IV

A chapter 7 discharge order "discharges the debtor from all debts that arose before the date of the order for relief under this chapter", "[e]xcept as provided in section 523 of this title". 11 U.S.C. § 727(b). Jakubiak's debt to Schouten arose before the order for relief, so the debt has been discharged unless § 523 provides otherwise. The...