Jacqueline P. Cox, U.S. Bankruptcy Judge.
On February 15, 2016, Ragda Sharifeh and Haifa Sharifeh brought a Motion for Leave to Commence an Action Against the Trustee and his Counsel. Bankr.09-05868, Dkt. 253.
For the reasons stated herein, the Motion for Leave to Commence an Action Against the Trustee and his Counsel should be denied for failure to establish a prima facie case for why the movants should be allowed to sue the Trustee. Moreover, at the February 18, 2016 hearing presenting these motions, counsel for the movants, Maurice J. Salem, was asked if there was any statutory or contractual basis for the Motion for Funds from the Trust. Mr. Salem failed to articulate any such basis for such a request in both open court and in his motion. Therefore that motion should also be denied. Next, dismissal of Adversary Proceeding 12-00430 should be granted without prejudice pursuant to Rule 41(a)(1)(A)(i) of the Federal Rules of Civil Procedure. Finally, per the Court's authority under Rule 9011(c)(1)(B) of the Federal Rules of Bankruptcy Procedure, the Court will issue an Order to Show Cause why Ragda Sharifeh, Haifa Sharifeh and Attorney Maurice Salem should not be sanctioned for violating Rule 9011 of the Federal Rules of Bankruptcy Procedure for filing frivolous pleadings.
The Court has jurisdiction to hear these matters pursuant to 28 U.S.C. § 1334(a) which provides that district courts have original and exclusive jurisdiction of all cases under title 11, the Bankruptcy Code ("Code"). Under 28 U.S.C. § 157(a), the district courts can refer title 11 cases to bankruptcy judges in their districts. The District Court for the Northern District of Illinois has promulgated Internal Operating Procedure 15(a) which refers its bankruptcy cases to the judges of this Court.
As allowed by 28 U.S.C. § 157(b)(1), a bankruptcy judge to whom a case has been referred may enter final judgment on core proceedings arising in or under the Bankruptcy Code. Core proceedings include "proceedings affecting the liquidation of the assets of the estate," 28 U.S.C. § 157(b)(2)(O), and matters concerning the administration of the estate. 28 U.S.C. § 157(b)(2)(A). Ragda Sharifeh's Motion for Funds from the Trust requests the turnover of funds from property of the estate. The remaining matters deal with issues involving the administration of the estate and this bankruptcy case as a whole. These matters, therefore, are core proceedings in which this Court may enter a final order.
The facts of this case have been the subject of numerous court rulings and should be familiar to all involved. However, given the moving parties' repeated attempts to play fast-and-loose with this and other courts, the Court will nonetheless take the time to recite the facts here for completeness of the record. The following facts are taken from the pleadings as well as from matters that the Court can take judicial notice of, such as the docket and public record. See e.g., In re Brent, 458 B.R. 444, 455 n. 5 (Bankr.N.D.Ill.2011) ("The court can take judicial notice of matters in its own records.").
This bankruptcy case is but the latest in a series of cases that date back to 2002. In 2002, the Debtor, and some co-plaintiffs, filed a lawsuit against Wellness International Network, LTD and its directors (collectively "WIN"). WIN was a producer of health and wellness supplies; it had an agreement with the Debtor for the Debtor to be WIN's distributor. When the relationship soured, the Debtor filed a lawsuit in the District Court for the Northern District of Illinois alleging that WIN was actually involved in an illegal pyramid scheme, violations of the Racketeer Influenced and Corrupt Organizations Act, federal securities law, violations of the Illinois Consumer Fraud Act, and criminal violations that allegedly voided the contracts as a matter of public policy. See Sharif v. Wellness Intern. Network, Ltd., 376 F.3d 720, 722 (7th Cir.2004).
WIN filed a motion to dismiss under Fed.R.Civ.P. 12(b)(6) and under 28 U.S.C. § 1406(a), alleging improper venue. Id. at 723. After two extensions for the Debtor and his co-plaintiffs, the motions were fully briefed and ready for ruling. Before ruling, the case was transferred to Judge Der-Yeghiayan, who set an initial status date for October 20, 2003. Only a docket entry reflects the status date and it is not
On October 20, 2003, WIN also brought a motion to compel arbitration. On October 23, 2003, the court held a hearing on the motion where attorneys for all parties were present. The court found that the motion to compel arbitration was "superfluous" because WIN's motion to dismiss already discussed both venue and the arbitration clause. The court ruled that it would deny the motion not on the merits but due to the pending motion to dismiss. See id. WIN appealed that ruling. WIN then moved to stay the proceedings pending appeal. The motion was fully briefed but at the next status date counsel for the plaintiffs failed to appear. Days later, the court dismissed the case without prejudice for want of prosecution. After the court denied two motions to vacate, the plaintiffs ultimately appealed as well. See id. On appeal, the Seventh Circuit vacated the dismissal order and reversed the denial of WIN's motion to compel arbitration. Id. at 727.
On remand, the court divided the plaintiffs' claims into two categories. The first category contained seven claims which the parties agreed were subject to the arbitration clause. The court granted WIN's motion to compel arbitration as to those claims. The second category contained claims which WIN claimed were subject to a forum selection clause indicating that the federal and state courts in Dallas County, Texas were the correct forum. The court agreed and dismissed those claims. See Sharif v. Wellness Int'l Network, Ltd., No. 02 C 3047, 2004 WL 3119025, at *3 (N.D.Ill. Dec. 2, 2004) aff'd sub nom. Muzumdar v. Wellness Int'l Network, Ltd., 438 F.3d 759 (7th Cir.2006).
On July 8, 2005, about half a year after the Northern District of Illinois case was dismissed, the Debtor filed a new case against WIN in the United States District Court for the Northern District of Texas. Adv. 09-00770, Dkt. 10, p. 2 (Amended Complaint Objecting to Discharge). The Debtor, as agent for Soad Watter, and his co-plaintiffs, which now included Haifa Kaj and Ragda Sharifeh, brought the suit asserting fraud, RICO violations, and claiming damages of nearly $1 million. Id. The Debtor and his co-plaintiffs did not conduct any discovery in that action and did not cooperate with WIN's efforts to obtain discovery. Id. The Debtor and his co-plaintiffs did not serve initial disclosures and failed to respond to written discovery. Id. The Debtor and his co-plaintiffs had admissions deemed against them for failure to respond to discovery requests. WIN subsequently moved for summary judgment on the grounds that the admissions negated all claims asserted; the Debtor and his co-plaintiffs failed to introduce any evidence in support of the claims. Id. The district court granted summary judgment on those grounds. Id.
The Debtor and his co-plaintiffs appealed the entry of summary judgment to the Fifth Circuit in 2007. Id. The Fifth Circuit affirmed all of the district court's rulings and noted:
Sharif v. Wellness Int'l Network, Ltd, 273 Fed.Appx. 316, 317 (5th Cir.2008) (emphasis added). On remand the district court awarded WIN's attorneys' fees in the amount of $655,596.13 as a sanction against the Debtor and his co-plaintiffs. See Sharif v. Wellness Int'l Network, Ltd, No. CIV.A.3:05-CV-01367-B, 2008 WL 2885186, at *4 (N.D.Tex. July 22, 2008).
WIN subsequently served the Debtor with post-judgment discovery and document requests. Adv. 09-00770, Dkt. 10, p. 3. The Debtor did not comply with the discovery request and did not tender responsive documents. Id. WIN filed a motion to compel post-judgment discovery on October 13, 2008. On November 19, 2008, the District Court for the Northern District of Texas ordered the Debtor to respond to outstanding discovery. Id. at pp. 3-4. Despite the orders compelling the Debtor to comply with discovery requests, the Debtor did not respond to the requests nor did he appear for a deposition. Id.
On December 4, 2008, WIN filed a motion for civil contempt against the Debtor for violating the district court's order on the motion to compel. Id. At a show cause hearing on January 13, 2009, at which the Debtor did not appear, the district court found clear and convincing evidence that the Debtor had violated several court orders compelling him to comply with out-standing discovery requests and the order to appear at the January 13, 2009 show cause hearing. Id. at p. 3. On February 10, 2009, the district court held the Debtor in civil contempt for his discovery violations and ordered him to respond to post-judgment discovery and reimburse his opponents for attorneys' fees and costs incurred to prepare and file the motion to compel and the motion for civil contempt. Id. at pp. 3-5. On February 24, 2009, two weeks after the Northern District of Texas's contempt finding, the Debtor filed the instant bankruptcy case.
Following the bankruptcy filing, there have been a series of adversary proceedings and contested matters filed. The relevant proceedings are outlined below.
On August 24, 2009, WIN filed a five-count adversary complaint against the Debtor. Count I of the adversary complaint alleges that the Debtor "has continuously concealed property that he owns by holding such property in the name of the Soad Wattar Living Trust ("Soad Wattar Trust") with improper intent to deceive" in violation of 11 U.S.C. § 727(a)(2). Adv. 09-00770, Dkt. 10, Amended Complaint ¶ 19. WIN also asserted that the Debtor was the trustee of the Soad Wattar Trust, exercised complete control over the Trust and held out the assets in the Trust as his own.
Count II alleged that the Debtor "concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information" in violation of 11 U.S.C. § 727(a)(3). Id. at ¶ 22.
Count IV alleged that the Debtor failed to explain the loss of $5 Million in assets that he claimed to own in a 2002 Washington Mutual Bank, N.A. Loan Application (the "Loan Application") in violation of 11 U.S.C. § 727(a)(5). The assets listed in the Loan Application included the following: (1) Logan Square, (2) Sharif Pharmacy, (3) Hermosa Medical Center, (4) three Banco Popular Accounts containing $90,000, $40,000 and $50,000, (5) $1,400,000 in a 401(k) retirement fund, and (6) $1,400,000 in real estate (collectively, the "Loan Application assets"). See Adv. 09-00770, Dkt. 38, Ex. 1 (Master Loan Application, pp. WM 0840-0842).
Count V sought a declaratory judgment that the Soad Wattar Trust was the alter ego of the Debtor because he exercised complete control over the Trust. WIN asserted that there was a unity of interest and identity between the Debtor and the Trust, that they were not separate, and that continuing to recognize the Debtor and the Trust as separate would promote injustice. Count V, the Soad Wattar Trust, and the Trust's assets have been, and continue to be, the subject of much litigation.
On April 15, 2010, WIN filed a Motion for Sanctions, Costs and Fees, and in the alternative, a Motion to Compel, Motion for Costs and Fees, and Motion to Modify Scheduling Order. Adv. 09-00770, Dkt. 38 (hereinafter the "Sanctions Motion"). The Court held a hearing on the Sanctions Motion on April 21, 2010. WIN argued that the Debtor had failed to comply with discovery requests and missed discovery deadlines for document production and responding to interrogatories. This Court entered an order on April 21, 2010 compelling the Debtor to comply with all out-standing discovery by April 28, 2010 or else an order of default would be entered against him. Adv. 09-00770, Dkt. 48. The hearing on the Sanctions Motion was continued to April 28, 2010.
At the hearing on May 24, 2010, WIN argued that the Debtor had not fully complied with discovery requests and should be sanctioned. The Debtor's specific discovery violations include:
Federal Rule of Civil Procedure 33(b), applicable to adversary proceedings pursuant to Federal Rule of Bankruptcy Procedure 7033, requires in pertinent part:
Fed.R.Civ.P. 33(b)(1), (3) & (5) (made applicable by Fed. R. Bankr.P. 7033). The Seventh Circuit Court of Appeals and the United States District Court for the Northern District of Illinois have determined that under Rule 33, answers to interrogatories must be verified and signed by the person answering the interrogatory, not only by the party's attorney. See, e.g., Hindmon v. Nat'l.-Ben Franklin Life Ins. Corp., 677 F.2d 617, 619 (7th Cir.1982) (observing that interrogatory answers signed by an attorney and not the party violated "the clear mandate of Federal Rule of Civil Procedure 33(a)"); accord Overton v. City of Harvey, 29 F.Supp.2d 894, 901 (N.D.Ill.1998) (striking as summary judgment exhibit plaintiff's unverified answers to interrogatories signed only by attorney).
The Debtor's interrogatory responses as trustee of the Soad Wattar Trust were signed by Debtor and Debtor's attorney but did not contain a statement verifying the interrogatory answers. See Hearing Transcript, p. 6; Richard Sharif's Answers to Interrogatories as Trustee of the Soad Wattar Revocable Living Trust, Hearing Ex. No. 3, p. 9 ("Sharif Trustee Interrog. Answers"). Similarly, the Debtor's individual interrogatory responses were signed by Debtor's attorney but did not contain a statement verifying the interrogatory answers. See Hearing Transcript, p. 6; Richard Sharif's Answers to Plaintiffs' First Request for Interrogatories, Hearing Ex. No. 4, p. 9 ("Sharif Individual Interrog. Answers"). They should have been signed by the Debtor under oath.
The Debtor was not present at the hearing and his attorney did not explain why the interrogatory responses were not signed as required by the Federal Rules.
During the Debtor's initial Section 341 meeting on March 25, 2009, WIN and the
Adv. 09-00770, Dkt. 59, pp. 60-61.
Subsequent to the Debtor's refusal to provide the documents requested at his second and third Section 341 meetings, the Debtor brought a Motion for Protective Order requesting that he be granted leave to tender documents relating to the Loan Application and the Soad Wattar Trust under a protective order to prevent disclosure of information to the Debtor's creditors and creditors' attorneys. See Bankr.09-05868, Dkt. 23. The Debtor's Motion for Protective Order was denied on June 11, 2009. See Bankr.09-05868, Dkt. 25. Despite this Court's denial of Debtor's Motion for Protective Order, the Debtor never tendered any documents relating to the Loan Application, prompting the Trustee to file a Motion for Turnover of Documents from Richard Sharif to Horace Fox, Jr. ("Trustee's Motion") on October 20, 2009. See Bankr.0905868, Dkt. 40. This
WIN served the Debtor with production requests requiring the Debtor to provide documents relating to each of the Loan Application assets. See Richard Sharif's Response to Plaintiffs' First Request for Production of Documents, Hearing Ex. No. 1, ¶¶ 15-22 ("Sharif Production Responses"). The Debtor failed to produce any documents relating to the Loan Application assets.
WIN asserted that the Debtor failed to disclose all requested information and documents relating to the Richard Sharif Revocable Trust despite interrogatory and production requests requiring him to do so.
The Debtor listed the Richard Sharif Revocable Trust in his Petition as property owned by another person that he controlled. See SOFA, ¶ 14. Based on this disclosure, WIN's interrogatories required the Debtor to identify each trust for the benefit of others that the Debtor had created or contributed to in the last five years. See Richard Sharif's Answers to Plaintiffs' First Request for Interrogatories, Hearing Ex. No. 4, p. 8, ¶ 11; Richard Sharif's Response as Trustee to Plaintiffs' First Request for Production of Documents, Hearing Ex. No. 2, p. 2, ¶ 11 ("Sharif Trustee Production Responses"). The Debtor responded "none" to the interrogatory, which is wholly inconsistent with his sworn bankruptcy schedules which list the Richard Sharif Revocable Trust on page 27. See Sharif Individual Interrog. Answers, p. 8, ¶ 11; Hearing Transcript, p. 9; SOFA ¶ 14.
WIN also asked that the Debtor produce all documents referencing or evidencing any assets held in trust to which the Debtor has a claim or interest. Sharif Production Responses, ¶ 42; Sharif Trustee Production Responses, ¶ 42. Again, despite Debtor's acknowledgment of having an interest in the Richard Sharif Revocable Trust (See SOFA, ¶ 14), he failed to produce any documents relating to that trust. Hearing Transcript, pp. 9-11.
WIN asserted that the Debtor failed to produce bank statements and records relating to financial transactions involving the Debtor individually and the Soad Wattar Trust. WIN asked the Debtor to produce documents evidencing any account at a financial institution in which the Debtor was a designated signatory. Sharif Trustee Production Responses, p. 7, ¶ 44; Sharif Production Responses, pp. 7-8, ¶ 44. The Debtor failed to produce any documents responsive to these requests and instead listed the names and addresses of three financial institutions with corresponding account numbers. See Sharif Production Responses, p. 7, ¶ 44; Sharif Trustee Production Responses, p. 7, ¶ 44; Hearing Transcript, p. 11.
WIN also asked the Debtor to produce documents relating to any checking, savings, money market, passbook, demand deposit, negotiable order of withdrawal or trust account in which the Debtor had an interest. Sharif Trustee Production Responses, p. 8, ¶ 49; Sharif Production Responses, p. 8, ¶ 49. The Debtor failed to produce any documents responsive to this request, even though he had a personal account at JP Morgan Chase Bank; he acknowledged his lack of compliance during
During their investigation, WIN independently discovered numerous documents that the Debtor failed to produce relating to assets held at AG Edwards in which the Debtor had an interest. They discovered account statements from AG Edwards for September to October of 2003 in the name of Soad Wattar, the Debtor's mother, and Richard Sharif as joint tenants. A.G. Edwards & Sons, Inc. Account Statements, Ex. No. 61 to Rule 2004 Examination of Debtor ("AG Statements"). The account statements revealed that approximately $752,050 in assets were held by AG Edwards in the joint tenancy of Soad Wattar and Richard Sharif. See AG Edward Statements. At his Rule 2004 examination the Debtor admitted that while he had documents relating to this AG Edwards account, he did not produce them. Transcript of Debtor's Rule 2004 Examination, pp. 172-173. The Debtor also stated that the assets in the AG Edwards account were transferred to Wachovia Bank, but the Debtor failed to produce any transfer documents. Transcript of Debtor's Rule 2004 Examination, p. 174. The Debtor also failed to disclose the AG Edwards accounts in his bankruptcy petition. The Debtor failed to produce information or documentation regarding the AG Edwards account or its disposition despite interrogatories and requests for production requiring him to produce all documents evidencing any interest he had in any account after 2002 along with all documents showing the disposition or transfer of such accounts after 2002. See Sharif Trustee Production Responses, p. 8, ¶ 49; Sharif Individual Interrog. Answers, nos. 6-7; Hearing Transcript, pp. 16-18.
WIN also discovered a variable annuity held at AG Edwards for the benefit of the Debtor and his sister, Ragda Sharifeh, as joint tenants. They also found an AG Edwards statement showing the TransAmerica Triple Advantage VA with a valuation of $39,248. AG Statements, pp. AGE 0180-0181. Once again, the Debtor failed to provide information or produce documentation relating to this annuity despite receiving interrogatories and document requests requiring him to do so. Hearing Transcript, p. 22. At his Rule 2004 examination the Debtor was unable to say where the $39,248 was. Transcript of Debtor's Rule 2004 Examination, pp. 178179.
WIN estimated that approximately $912,000 in assets were held at AG Edwards for the benefit of the Debtor individually or jointly with his mother and his sister, yet the Debtor provided no information or documentation regarding those accounts. Hearing Transcript, p. 24.
The Debtor also failed to provide any information or documentation evidencing other accounts that he admitted to having an interest in at his Rule 2004 Examination. Hearing Transcript, pp. 26-31. The Debtor admitted to holding the following accounts but produced no documentation or information about the accounts in response to discovery requests: Soad Wattar Living Trust account at Banco Popular; account at Raymond Jones; and a checking account at JP Morgan Chase Bank. During his Rule 2004 examination, the Debtor admitted his failure to produce the requested documents:
Transcript of Debtor's 2004 Examination, pp. 107-109; 143-144. WIN argued that even though the Debtor stated during the Rule 2004 Examination that he could produce documents relating to the undisclosed accounts, as shown above, the Debtor was grossly out of compliance with his discovery obligations despite the April 21, 2010 Order compelling him to comply with all outstanding discovery requests.
WIN asserted, and the Debtor's answers to interrogatories show, that the Debtor failed to provide information relating to the conveyance, disposal, or transfer of certain assets in which the Debtor once claimed an interest. See Sharif Individual Interrog. Answers and Sharif Trustee Interrog. Answers, pp. 6-7, ¶¶ 6-8. At his Rule 2004 examination the Debtor admitted that he had once owned a 10% interest in the Logan Square business and had relinquished such interest. See Transcript of Debtor's Rule 2004 Examination, p. 95. However, the Debtor never provided any information or documentation evidencing the disposition of his interest in Logan Square; he admitted the same at the Rule 2004 examination despite having received WIN's interrogatories and requests for production inquiring about the disposition of his interest in Logan Square. See Transcript of Debtor's Rule 2004 Examination, p. 96; Sharif Individual Interrog. Answers, p. 7, ¶¶ 6-8.
At his 2004 examination the Debtor denied ever having an ownership interest in Sharif Pharmacy. Transcript of Debtor's Rule 2004 Examination, p. 61. However, he produced a 2002 federal income tax return which stated that he owned 100% of
WIN asserted that the Debtor failed to produce corporate records for Sharif Pharmacy and the Hermosa Medical Center after 2006. Their discovery requests sought production of corporate records for Sharif Pharmacy and Hermosa Medical Center. See Sharif Trustee Production Responses, Hearing Ex. No. 2, ¶¶ 7-8; Sharif Production Responses, Hearing Ex. No. 1, ¶¶ 7-8. The Debtor never produced the requested documents even after entry of the April 21, 2010 Order compelling him to comply with all outstanding discovery requests. Hearing Transcript, pp. 34-36.
WIN asserted that the Debtor failed to produce documents relating to the formation and funding of the Soad Wattar Trust. Hearing Transcript, p. 38. They argued that those documents were critical because nearly everything the Debtor owned was in the Soad Wattar Trust.
The requests for production required the Debtor to produce documents establishing and funding the Soad Wattar Trust, evidencing the transfer of assets into the Trust, and all other documents related to assets held in the Trust. See Sharif Trustee Production Responses, Hearing Ex. No. 2, ¶¶ 27, 45-46, 49-50; Hearing Transcript, pp. 38-41. WIN specifically requested all deeds, records, titles, or other documents that related to assets in the name of the Soad Wattar Trust after 2002. The Debtor alleged that the Trust was funded with a $2,000,000 inheritance from his deceased father that came from an international wire transfer from Beirut, Lebanon through a financial entity in Dubai. Transcript of Debtor's Rule 2004 Examination, p. 109. However, the Debtor also admitted that he did not have any of the documents evidencing the wire transfers in his possession and that he had not produced such documents. Transcript of Debtor's Rule 2004 Examination, pp. 110-111. The Debtor also admitted that except for one asset, the Revere house, he failed to produce any documents evidencing transfers of assets into the Soad Wattar Trust since 1992. Id. at 104-105. In summary, Debtor failed to produce documentation of the origin of the money and property in the Soad Wattar Trust.
WIN also requested the 1992 trust instrument that purportedly established the Soad Wattar Trust. Sharif's Trustee Responses at ¶ 11 concern amendments to the Soad Wattar Trust and not the original document that established the Trust. Debtor admitted in his Rule 2004 examination that he failed to produce the original
WIN argued that the Debtor failed to produce signed tax returns or any of the underlying source documents used to prepare tax returns. Hearing Transcript, p. 44. While they received some federal and state tax returns from 2003-2008 from the Debtor, not one of the tax returns received was signed. See Hearing Transcript, p. 44; Sharif Production Responses, ¶ 10; Sharif Trustee Production Responses, ¶ 10. When the Debtor was questioned about the unsigned tax returns at his Rule 2004 examination, he stated that he was 100% sure that the tax returns that went to the government were signed, but he never produced signed tax returns. See Transcript of Debtor's Rule 2004 Examination, pp. 130-131. The Debtor also stated that he did not attempt to obtain signed tax returns from the IRS. Id. at 130.
The Debtor also failed to produce the source documents used to prepare his tax returns; he admitted this at his Rule 2004 examination. Id. at 135.
WIN argued that the Debtor failed to produce any documents underlying the debts that he owed to his family members. See Sharif Production Responses and Sharif Trustee Production Responses at ¶¶ 34-37; Hearing Transcript, p. 54. The Debtor's bankruptcy petition listed several debts owed to his relatives: (1) $49,000 to Haifa Kaj, the Debtor's sister; (2) $39,000 to Jamal Sharif, the Debtor's brother; (3) $93,000 to Ragda Sharifeh, the Debtor's sister; and (4) $90,000 to Soad Wattar, the Debtor's mother. See Petition, Schedule F, p. 17; Hearing Transcript, p. 55. Based on these disclosures, WIN requested that the Debtor produce documents referencing or evidencing the debts owed to the above family members. See Sharif Production Responses, Hearing Ex. No. 1 at ¶¶ 34-37; Sharif Trustee Production Responses, Hearing Ex. No. 2 at ¶¶ 34-37. The Debtor failed to produce any documents evidencing the amounts he owed to his relatives and asserted that those debts were created via oral agreements. See Sharif Production Responses, ¶¶ 34-37; Hearing Transcript, p. 56. WIN contended, and the Court agreed, that it is hard to believe that $271,000 was transferred as loans to the Debtor when no documents such as wire transfer forms, bank statements, canceled checks, emails, enclosure letters, etc. were created in doing so.
In response to the assertions regarding the Debtor's non-compliance, his attorney argued that while there may have been some deficiencies in his discovery responses, the Debtor made a good faith effort to comply with all of the discovery requests. Hearing Transcript, pp. 75-76. His attorney pointed out that the Debtor was initially unable to meet the discovery deadlines because he was in Syria attending to his ill mother who subsequently passed away. Hearing Transcript, p. 68. When the Court requested proof of the Debtor's whereabouts, his attorney produced airline tickets to Syria and a copy of the mother's death certificates. Id. This Court, however, did not believe that the Debtor made a serious effort to comply with the discovery requests before or after his mother's death.
The Debtor's attorney argued that WIN's counsel did not call him to object to the sufficiency of the discovery responses before filing the motion for sanctions.
The Debtor's attorney contended that he produced some documents after the Debtor's Rule 2004 examination. He argued that he surmised at the Debtor's Rule 2004 examination that WIN wanted more documents than they had received based on the questions that were posed to the Debtor. The Debtor's attorney took it upon himself to produce bank statements from several financial institutions relating to the Soad Wattar Trust, the Debtor's personal bank accounts and the Sharif Pharmacy. Hearing Transcript, pp. 70-71. Debtor's attorney did not specify which documents were produced after the Rule 2004 examination so it was unclear what was contained in the late production, whether the documents were responsive to the requests, and why they were not produced sooner. The Court noted that the Debtor's Rule 2004 examination took place on May 13, 2010, so any documents produced after that were well outside of the April 28, 2010 deadline the Court gave the Debtor to complete all outstanding discovery and prevented WIN from questioning the Debtor about them at the Rule 2004 examination.
Based on the aforementioned discovery violations, the Court found that it was apparent that the Debtor failed to comply with most of the discovery requests. Moreover, the Court found that the Debtor's disclosures were inadequate given the order compelling the Debtor to comply with all outstanding discovery by April 28, 2010. At no time did the Debtor contend that he needed more time to comply with discovery requests. The Debtor's lack of compliance evidenced a pattern that continued from the time of the underlying litigation in Texas.
As a sanction for the Debtor's failure to comply with discovery requests, this Court entered a default judgment against the Debtor and in favor of WIN. Judgment was entered in favor of WIN on all counts of the amended adversary complaint.
On Count I the Court found that the Debtor, with the intent to hinder, delay, or defraud WIN, transferred, removed, destroyed, mutilated, or concealed property of the Debtor, within one year before the filing of the petition in violation of 11 U.S.C. § 727(a)(2). Specifically, the Debtor failed to produce any documents regarding the assets in the Loan Application, which the Debtor once claimed to own, or what property was transferred into the Soad Wattar Trust. In addition, the Debtor failed to produce any documents evidencing the formation or funding of the Soad Wattar Trust, or the disposition of the $5 Million in assets listed in the Loan Application. The Court found that the Debtor transferred, removed, destroyed, mutilated, or concealed the documents with the intent to hinder or delay WIN from discovering assets that could be used to satisfy the judgment entered in its favor by the Texas District Court.
On Count II the Court found that the Debtor concealed, destroyed, falsified, or failed to keep or preserve any recorded information, including books, documents,
On Count III the Court found that the Debtor knowingly and fraudulently made a false oath in connection with his bankruptcy case in violation of 11 U.S.C. § 727(a)(4)(A). Specifically, the Debtor omitted material information from his bankruptcy schedules including the companies in which he was an officer within six years of the petition date.
On Count IV the Court found that the Debtor failed to satisfactorily explain the loss of the assets listed in the Loan Application in violation of 11 U.S.C. § 727(a)(5).
On Count V the Court entered a declaratory judgment and found that the Soad Wattar Trust was the alter ego of the Debtor-Defendant Richard Sharif because he treated its assets as his own property and it would be unjust to allow him to maintain the Trust as a separate entity.
The Debtor was directed to reimburse WIN for attorneys' fees incurred to file and prosecute the Sanctions Motion and the supplemental sanctions motion filed after the Debtor's Rule 2004 Examination. The Debtor was directed to reimburse WIN for costs incurred in obtaining the Debtor's Rule 2004 examination, including court reporter and videographer costs.
WIN was allowed to submit an affidavit setting forth the attorneys' fees and costs associated with pursuing the Sanctions Motion and its supplement.
The default judgment order was entered on July 6, 2010 and provided that:
Adv. 09-00770, Dkt. 68 (hereinafter the "July 6, 2010 Order"). Importantly for this proceeding, the order provided that the Soad Wattar Trust was the Debtor's alter ego, and thereby made its assets property of the Debtor's bankruptcy estate. The Debtor appealed this decision.
Prior to entry of the default judgment, Ragda Sharifeh filed an appearance in the adversary proceeding. Adv. 09-00770, Dkt. 43. However, her sole participation in that adversary proceeding was limited to responding to a motion seeking to hold her in contempt for failing to respond to a subpoena and her own motion for Rule 9011 sanctions for having to defend against the motion for contempt. Adv. 09-00770, Dkt. 42; Dkt. 56.
Following entry of the July 6, 2010 Order, the Trustee brought a motion for turnover of assets pursuant to §§ 521 and 542 of the Bankruptcy Code. Bankr.09-05868, Dkt. 59. The motion requested that the Court order the Debtor to account for and turnover the following as they relate to the Debtor, Soad Wattar, or the Soad Wattar Trust:
Id.
On August 5, 2010, the Court entered an order granting the Trustee's request for turnover. Bankr.09-05868, Dkt. 63 (hereinafter the "August 5, 2010 Order"). Of note, the order also provided that:
Id. at ¶ D. The order was not appealed but was the subject of a number of attempts to vacate which will be addressed herein.
On December 3, 2010, Ragda Sharifeh ("Ragda"), in her alleged capacity as the successor trustee and successor beneficiary of the Soad Wattar Trust, brought a motion in the main bankruptcy case to intervene in regards to the July 6, 2010 Order and the August 5, 2010 Order. Bankr.09-05868, Dkt. 68. The motion made a number of allegations regarding both the Loan Application and the Soad Wattar Trust, as discussed in Adversary Proceeding 09-00770. Specifically:
The motion was fully briefed. Bankr.09-05868, Dkts. 68, 82, 84. On March 9, 2011, this Court ruled on the motion. Bankr.09-05868, Dkt. 93. On March 10, 2011, the Court amended its earlier ruling. Bankr.09-05868, Dkt. 94 (hereinafter the "March 10, 2011 order").
The March 10, 2011 Order made a number of conclusions regarding the motion. First, relying on Rule 24 of the Federal Rules of Civil Procedure, made applicable by Federal Rule of Bankruptcy Procedure 7024, the Court held that Ragda could not intervene at that time because she had failed to do so in a timely manner. Specifically, the Court pointed out that she was listed as a creditor in the Debtor's Schedules and therefore should have known of the bankruptcy proceeding and subsequent adversary proceedings. March 10, 2011 Order, p. 20. Furthermore, she was subpoenaed in Adversary Proceeding 09-00770 and had her deposition taken. Id. Moreover, she filed an appearance and two separate pleadings in the adversary proceeding. Id.; see also Adv. 09-00770, Dkts. 42, 43, 56 (Ragda's response to a motion for sanctions, appearance in the adversary proceeding, and motion for sanctions, respectively). All this happened prior to the July 6, 2010 Order. Seeking to intervene in that proceeding, five months after its close was far too late.
Second, the Court found that Ragda's proposition that she was the successor beneficiary to the Soad Wattar Trust was unsupported. Even if it was, under the Illinois Trusts and Trustees Act, trustees, not beneficiaries, are vested with the power to pursue "claims in favor or against the trust estate." The trustee has the power to "compromise, contest, prosecute or abandon claims or other charges in favor of or against the trust estate." In re Schneider, 417 B.R. 907, 913 (Bankr. N.D.Ill.2009); 760 ILCS 5/4.11. The trustee, not the beneficiaries, has the exclusive authority to sue third parties who injure the beneficiaries' interest in the trust. Godfrey v. Kamin, No. 99 C 3230, 2000 WL 1847768, **3-4 (N.D.Ill. Dec. 14, 2000). Therefore, Ragda, as a beneficiary, had no standing to intervene.
Third, the Court also questioned if Ragda was in fact the "successor trustee." Ragda failed to produce any evidence that she was the successor trustee. Moreover, Ragda claimed to have become the successor trustee after July 21, 2010 when the Debtor "resigned" as trustee. However, as of July 6, 2010, the Trust no longer existed and the actions of both the Debtor and Ragrda were meaningless. Furthermore, "[i]t is well established that property of the Debtor in the possession, custody and control of [his] alter ego comprises property of the estate at the commencement of the case, and that bankruptcy courts have the power to disregard separate corporate entities so as to reach the assets of its non-debtor alter ego to satisfy the debts of the Debtor." In re Sklarin, 69 B.R. 949, 954 (Bankr.S.D.Fla.1987) (quoting In re F & C Services, Inc., 44 B.R. 863, 868 (S.D.Fla.1984)). The effect of the July 6, 2010 Order, therefore, made all of the Soad Wattar Trust assets property of the estate as of the filing of the bankruptcy case in February of 2009. Therefore, it was not clear what exactly
Using the Court's discretion, the Court found that intervention, five months after the close of Adversary Proceeding 09-00770, would "unduly delay and prejudice the adjudication of the original parties' rights" and therefore denied the motion.
Along with the previous motion, on December 3, 2010, Ragda, once again, in her capacity as the successor trustee and individually as the successor beneficiary of the Soad Wattar Trust, brought a motion to either vacate the July 6, 2010 Order and the August 5, 2010 Order, or to stay the August 5, 2010 Order pending resolution of Adversary Proceeding 10-02239.
On March 14, 2011, this Court entered an order denying Ragda's motion. Bankr. 0905868, Dkt. 95 (hereinafter "March 14, 2011 Order"). The Court repeated its findings from the March 10, 2011 Order as to Ragda being able to sue in her capacity as beneficiary of the Soad Wattar Trust and her alleged position as the Trust's successor trustee. See Id. at pp. 17-18. The Court also discussed both of Ragda's requests on their merits.
Ragda asked the Court to stay enforcement of the August 5, 2010 Order pending the resolution of Adversary Proceeding 10-02239. While not a "stay pending appeal," the Court nonetheless applied appeal stay standards to her motion. The Court considered: "(1) the movant's likelihood of success on the merits of the appeal; (2) whether the movant will suffer irreparable injury if a stay pending the appeal is not granted; (3) whether other parties will suffer substantial harm if the stay is issued; (4) whether there will be harm to the public interest if the stay is issued." In re Maurice, 167 B.R. 136, 138 (Bankr.N.D.Ill.1994).
Doing so, the Court determined that Ragda had not provided the Court with any legal or factual grounds on which it could find that she was likely to succeed in pursuing the claims in Adversary Proceeding 10-02239. Further, the Court found that she had failed to show that she was the appropriate party to seek relief on behalf of the Soad Wattar Trust. Therefore, the Court found that Ragda's unsupported allegations as to the likelihood of success and irreparable harm carried no weight.
On the other hand, the Court saw that a stay of the August 5, 2010 Order would substantially harm WIN as it had been trying to enforce the $655,596.13 judgment of the District Court of the Northern District of Texas for many years in the face of appeals, the bankruptcy filing, and the Debtor's refusal to disclose information. Ragda could have litigated her concerns in this bankruptcy case before it was adjudicated while she was involved as a creditor and as a witness, but chose not to. Delaying the bankruptcy estate's progress, therefore, would have been unfair.
Finally, staying the enforcement of the August 5, 2010 Order would not have been in the public interest. The public interest lies in maintaining a transparent, efficient bankruptcy system. Delaying the disposition of the assets that the Trustee had on hand while a nonparty to the underlying
Ragda's request to vacate the July 6, 2010 Order, and the subsequent August 5, 2010 Order, was equally unfounded. Rule 60 of the Federal Rules of Civil Procedure allows for relief from judgements or orders based on:
Fed.R.Civ.P. 60(b) (made applicable by Fed. R. Bankr.P. 9024).
Ragda sought relief from the part of the July 6, 2010 Order that provided that the Soad Wattar Trust was the Debtor's alter ego. She asserted that WIN did not have standing to pursue an alter ego claim against Richard Sharif.
On November 3, 2010, Ragda brought her first adversary proceeding in this bankruptcy case. Ragda brought the adversary proceeding "in her capacity as Successor Trustee and Successor Beneficiary of the Soad Wattar Revocable Living Trust" and against "Richard Sharif in his capacity as former Trustee of the Soad Wattar Revocable Living Trust and Horace Fox, Jr., in his capacity as the U.S. Trustee of Richard Sharif's bankruptcy estate."
The two-count complaint alleged that 1) the Trustee wrongfully converted the property of the Soad Wattar Trust and requested the turnover of the trust property, and 2) declaratory judgment that the property in the Soad Wattar Trust was not
On August 30, 2011, this Court entered an order dismissing the adversary proceeding. Adv. 10-02239, Dkt. 61. Based on the rulings in the March 10, 2011 Order and the March 14, 2011 Order, the Court once again reiterated its concern with Ragda's standing to proceed as the Trust's successor beneficiary or successor trustee. The Court then addressed the specific counts alleged in the complaint.
Having determined that Ragda was neither the successor beneficiary with capacity to sue nor the successor trustee of the Soad Wattar Trust, this Court proceeded to dismiss the complaint. Count I, which alleged wrongful conversion, was dismissed for two reasons: "(1) as an alleged beneficiary she has no authority to sue Trustee Fox under Illinois law and (2) she alleges that she became the trust's trustee after July 20, 2010, after it ceased to exist and its assets had been declared to be property of Debtor Richard Sharif's bankruptcy estate." Adv. 1002239, Dkt. 61, p. 23. Moreover, the Court found a number of allegations which were completely unsubstantiated:
Ragda appeared to suggest that Trustee Fox took possession of certain assets based on information gained from third parties that he should not have believed. However, he gained possession of certain assets pursuant to the July 6, 2010 Order after the Court gave all parties concerned an unlimited opportunity to contest WIN's allegations about the Debtor's refusal to satisfy discovery obligations.
This factual allegation was unsupported. Specifically, Ragda failed to identify what was produced, whether the production was timely and complete, and whether the alleged production preceded depositions and Federal Rule of Bankruptcy Procedure 2004 examinations of the Debtor and others involved in the Trust's formation and funding. Regardless of what Ragda tried to argue, the Court had already ruled that the Debtor failed to produce many items of discovery, and it was this failure that led to the entry of the July 6, 2010 Order against him in Adversary Proceeding 09-00770, which, on February 10, 2012, the district court affirmed on appeal and the Seventh Circuit ultimately affirmed as well on August 4, 2015.
The Trustee is not responsible for determining the validity of the Trust. This Court has to make that determination on the record after all parties are accorded appropriate access to discovery. The Debtor failed to disclose records of its formation and operation.
The Trustee could not be held responsible for knowing anything about the alter
The Trustee could not be held responsible for the existence of documents under the circumstances herein where he was unreasonably denied access to the records of the Trust's formation and operation in time to question involved parties about them.
Ragda did not pinpoint where in her deposition such disclosure could be found. In any event, this allegation did not indicate that if the alleged disclosure was made, that it was timely in terms of allowing WIN and the Trustee to investigate it in relation to the formation and operation of the Soad Wattar Trust.
The allegation was deficient in that it did not allege when such a communication was made. Moreover, that statement could have been made validly after the Court entered the July 6, 2010 Order.
The allegation did not point to which motion it concerned. In addition, the allegation did not explain what was incorrect about the statement.
The allegation did not indicate when the Debtor did not have possession of the original Soad Wattar Trust documents. Nor did the allegation indicate what amendments it refers to.
By July 27, 2010 Trustee Fox may have acted pursuant to this Court's order that declared that the assets in question were property of the bankruptcy estate.
The Trustee and his attorney may have been acting pursuant to the July 6, 2010
It was of no importance whether Ragda was a successor beneficiary before or after July 6, 2010, as the law is that a trust beneficiary generally does not have standing to sue third parties absent the wrongful refusal of the trustee to do so. In this matter, where the trustee is being sued, he was not refusing to pursue a cause of action on behalf of the Trust. The exception to the prohibition against a beneficiary being allowed to sue on behalf of a trust does not apply herein because to date Ragda, the alleged beneficiary, has not complained about her trustee's conduct. In re Stoll, 252 B.R. 492, 495 (9th Cir. BAP 2000); Saks v. Damon Raike & Co., 7 Cal.App.4th 419, 8 Cal.Rptr.2d 869, 874-75 (1992). Moreover, "[a]bsent special circumstances, an action prosecuted for the benefit of a trust estate by a person other than the trustee is not brought in the name of a real party in interest and is demurrable." Powers v. Ashton, 45 Cal.App.3d 783, 119 Cal.Rptr. 729, 787 (1975). The Court noted that Ragda did not allege in her Adversary Complaint that the Debtor, as trustee of the Soad Wattar Trust, did anything improper. He had been named in the caption of her Adversary Complaint as a defendant; however, there were no allegations made against him therein. Her failure to complain may have reflected that she was satisfied with his conduct in refusing to cooperate with discovery in both the bankruptcy case and WIN's Adversary Proceeding. Ragda could have, but did not, seek leave to intervene in the bankruptcy case or WIN's Adversary Proceeding before those matters were adjudicated.
The Trustee owed notice to the parties involved in the litigation in issue. As a beneficiary, Ragda was not a party; her trustee, the Debtor, was the party who represented the Soad Wattar Trust. In addition, Ragda did not indicate with specificity what pleading this allegation concerns. The Court noted that WIN requested that the Trust's assets be declared the Debtor's alter ego in Count V of the Amended Complaint in Adversary Proceeding 09-00770. Moreover, as discussed earlier, Ragda clearly knew of Adversary Proceeding 09-00770 as she was involved therein as a deposed witness.
The Trustee had a Court order allowing him to take possession of the assets in question. He did not act without constitutional and legal right. The Court did not accept as true those unsupported legal conclusions.
Ragda failed to cite to any statute or other legal authority to support her claim that the Trustee converted the Trust assets when he took possession of them as allowed by the July 6, 2010 Order and the August 5, 2010 Order. To support an allegation of conversion, Ragda had to plead and prove that "(1) [she] has a right to the property; (2) [she] has an absolute and unconditional right to the immediate
Even after accepting all allegations of the complaint as true and construing the allegations in the light most favorable to Ragda, the Court found that her claim for conversion failed. Nowhere in the Adversary Complaint did Ragda allege that the Trustee's conduct was unauthorized. Rather, the Trustee's acts in taking possession of the Trust assets were authorized by the July 6, 2010 Order and the August 5, 2010 Order.
Her allegations that the Trustee knew that the Soad Wattar Trust was valid fails to account for the fact that both the Trustee and WIN sought information about the formation and operation of the Trust to no avail. The Debtor's lack of cooperation is documented herein. Ragda should not have expected legal professionals to rely on her bald assertions that a trust exists, that she is the Trust's beneficiary or that she is the Trust's trustee.
Moreover, Ragda's allegation that the Trustee knew that the Soad Wattar Trust was not the Debtor's alter ego failed to account for the fact that when it was convenient and in his interest to do so, with Ragda's permission or at her direction, the Debtor claimed the Trust's assets as his own. As discussed in the next section, Ragda's testimony in this regard was noted. In this adversary proceeding, however, Ragda was trying to assert otherwise.
Moreover, as discussed earlier, even if Ragda was a successor beneficiary of the Soad Wattar Trust, she did not have standing to sue Trustee Fox for conversion. See 760 ILCS 5/4.11; see also In re Schneider, 417 B.R. at 913. The Trustee did not err if he did not notify Ragda when he filed pleadings in the bankruptcy court to have the assets contained in the Soad Wattar Trust turned over to him. As a beneficiary, she was not the real party in interest regarding the Trust and there is nothing unconstitutional about a bankruptcy Trustee's inquiry about assets being held by a debtor and seeking turnover of the same.
The Court noted that before the Trust's assets were declared to be the Debtor's alter ego on July 6, 2010, Ragda appeared in the WIN Adversary Proceeding on May 14, 2010. See Adv. 09-00770, Dkt. 56. While she did not have authority to sue on behalf of the Trust, since she was not its trustee, she had an unlimited opportunity to inform herself of the litigation involving the efforts of WIN and of the Trustee to gain access to the assets of the Soad Wattar Trust. She could have sought to intervene at that time to argue that the Debtor was not protecting her interests as a beneficiary; she could have asked for leave to litigate the issues involved.
Ragda could have asked, on May 14, 2010, to be allowed to sue on behalf of the Trust.
Regardless of what she could have done, at the very least she was on notice by May 14, 2010 that WIN was seeking to have the Trust declared to be the Debtor's alter ego. The request for that relief was made in Count V of the Amended Adversary Complaint which was filed on November 3, 2009, eight months before her motion was filed on May 14, 2010. Moreover, Ragda was generally notified of the bankruptcy case as she was listed as an unsecured creditor on the Debtor's Schedule F no later than February 28, 2009.
The Court dismissed Count I of Ragda's complaint with prejudice. The Court found that there was no set of facts on which Plaintiff Ragda Sharifeh could recover against the Trustee for conversion.
As with Count I, the Court accepted all of Ragda's allegation in Count II as true. She essentially requested that the Court enter declaratory judgment that the assets of the Soad Wattar Trust were not property of the Debtor's estate. She based this on five basic factual allegations:
See Adv.10-02239, Dkt. 61, p. 31. Once again, the Court found that even if accepted as true, the facts did not support her request for declaratory judgment.
The Court noted that Ragda had testified that the Debtor acted as her agent in the conduct of the Texas federal court litigation from which WIN's judgment originated. She directed the Debtor to file the litigation, instructed him on how to proceed with the litigation, and instructed him to represent to third parties that he owned the Loan Application assets.
Specifically, at page 95 of the Ragda's deposition, she testified about telling the Debtor to use property to buy a house for their mother:
Id. at p. 95.
Further, on page 96 of the Deposition, Ragda testified that the assets were being held out by the Debtor as his own although he was not the owner of them:
Id. at p. 96.
At page 39 of the Deposition, Ragda was asked whether she discussed the lawsuit herein with the Debtor:
Id. at p. 39.
At page 41 of the Deposition, Ragda was asked if she knew about the Debtor's bankruptcy filing. She answered:
Id. at p. 41.
At pages 45-51 of the Deposition, Ragda was asked why she authorized the Debtor to bring a lawsuit against WIN:
Id. at pp. 45-51.
On page 116 of the Deposition, Ragda testified about the Loan Application assets:
Id. at 116.
In short, when it suited their interests, Ragda allowed the Debtor to claim ownership of certain assets.
The Court also noted that Ragda, like her brother, also refused to cooperate with the judicial process. At page 24 of her Deposition she was asked whether she complied with Request to Produce No. 4:
Id. at p. 24.
Her conduct was as offensive as the conduct that the Fifth Circuit Court of Appeals condemned. Ragda wanted to rely on documents that purported to establish that she is a beneficiary and trustee of the Soad Wattar Trust while she refused to cooperate with the discovery process herein regarding those documents and issues.
The Court also pointed out that if Ragda wanted a declaratory judgment concerning the Trust, then the record clearly showed that she had a declaration concerning her rights regarding the Soad Wattar Trust in the form of this Court's July 6, 2010 Order, March 10, 2011 Order, and March 14, 2011 Order. As a matter of law, because the facts alleged in the adversary did not support her request for relief, and because there were no set of facts on which Ragda could have been awarded the declaratory judgment she sought, this Court dismissed Count II with prejudice.
In the motion to dismiss, the Trustee also asked that Ragda's Adversary Proceeding be dismissed on res judicata and collateral estoppel grounds. Because each
The Court found that the doctrine of res judicata was applicable
Res judicata also applied to bar the relitigation of the issues involved in Adversary Proceeding 10-02239 based on the March 10, 2011 Order, denying Ragda's Motion to Intervene, and the March 14, 2011 Order, denying Ragda's Motion to Vacate or Stay Proceeding. Those Orders were not appealed. The three requirements for res judicata had been met: the underlying motions were both filed on Ragda Sharifeh's behalf (same parties); they involved the ownership of the Trust's assets (same issues), and they were litigated to final unappealed orders (final judgment on the merits).
Furthermore, the Court found that the doctrine of collateral estoppel, or issue preclusion as it is formally known, also prevented Ragda from relitigating issues that she had previously litigated and lost.
Ragda, as a beneficiary, was represented by the Debtor as the trustee of the Soad Wattar Trust throughout the prior matters which have to be given preclusive effect because she is bound, as a matter of law, by the orders resolving the matters previously before this Court. In Anderson v. Elliott, 1 Ill.App.2d 448, 453, 117 N.E.2d 876 (1954), the Illinois Appellate Court held that a beneficiary is bound by the outcome of a lawsuit involving the trustee
The Court found that the issues in the March 10, 2011 Order and the March 14, 2011 Order determine the same issues that Ragda raised in the adversary proceeding, importantly whether she could intervene on behalf of the Trust and who had legal and equitable title to the Trust assets. The Court found that by filing the adversary proceeding, Ragda was asking this Court to declare that "the assets are not property of Richard Sharif's bankruptcy estate," and that "Ragda Sharifeh is the legal and equitable owner of the assets contained in the Soad Wattar Revocable Living Trust" when those issues were clearly resolved by the Court's March 10, 2011 Order and March 14, 2011 Order. Ragda did not appeal those orders. Instead, she wants to relitigate them.
Next, the Court noted that the issues were actually litigated. At the time, the Court did not rely on the default judgment order in Adversary Proceeding 09-00770 because of Seventh Circuit precedent holding that a default judgment is not a proper basis for collateral estoppel. See Grip-Pak, Inc. v. Ill. Tool Works, Inc., 694 F.2d 466, 469 (7th Cir.1992).
The final issue, whether Ragda Sharifeh was fully represented at each stage involving the litigation of the Motion to Intervene and the Motion to Vacate was also met. Ragda was represented by her counsel of record herein, Mr. Garrett S. Reidy, in both the Motion to Intervene and the Motion to Vacate. See Bankr.09-05868, Dkt. 66 (Garrett S. Reidy's Appearance). That attorney also represented her in Adversary Proceeding 10-02239.
Accordingly, the Court found that Ragda was bound by the July 6, 2010 Order based on the conduct of her trustee, Debtor Richard Sharif. She was bound by the two adverse rulings regarding the two motions she independently filed in December, 2010. She could not be allowed to relitigate the same issues regarding her authority to sue on behalf of the Soad Wattar Trust as a successor beneficiary or as a successor trustee, the issues she did not prevail on previously. The Court also held that Ragda was precluded from attempting to relitigate those matters based on the doctrines of res judicta and collateral estoppel.
Having determined such, the Court stated that the adversary proceeding was nothing more than Ragda's attempt to get yet another bite at the apple. She had her first bite of the apple when she stayed on the sidelines while Adversary Proceeding 09-00770 was litigated. She got her second and third bites when she filed the motions to vacate and to intervene on December 3, 2010. Therefore, on August 30, 2011, the Court ordered:
Adv. 10-02239, Dkt. 61, p. 42. Ragda appealed the ruling; the appeal was consolidated with a number of other matters in the district court. On November 17, 2015, the district court dismissed the appeal with prejudice. See Adv. 10-02239, Dkt. 75 (Order transmitted from district court).
On February 10, 2012, the district court ruled on the Debtor's appeal of the July 6, 2010 Order in Adversary Proceeding 09-00770. See Sharifeh v. Fox, No. 09 BK 05868, 2012 WL 469980, at *1 (N.D.Ill.
First, the Debtor challenged the factual basis of this Court's order. The Debtor pointed to a motion for summary judgment that he filed in the adversary proceeding and its accompanying affidavits as a demonstration of how weak WIN's claim was. Id at *7-8; see also Adv. 09-00770, Dkt. 65 (Debtor's Motion for Summary Judgment). However, the district court stated that the Debtor's arguments were unpersuasive because WIN never responded to the motion because it was stricken as moot following the entry of the July 6, 2010 Order. Moreover, the Debtor could not reasonably expect the district court "to accept his version of events, particularly as to the ownership of the Soad Wattar Trust, when he was defaulted for failing to provide discovery on this very matter." Sharifeh v. Fox, 2012 WL 469980, at *8.
Next, the Debtor argued, presumably, that "the Bankruptcy Court, and not [WIN], violated his right to due process when it granted the motion to compel although the parties had not conferred after [WIN] supplemented its motion." Id. The district noted that while "[i]t is true that the imposition of sanctions under [Fed. R.Civ.P.] 37 must follow notice and the opportunity to respond.... Here, however, Sharif received both." Id. (internal citations omitted). The district court pointed to this Court's April 21, 2010 order that specifically stated "in event Richard Sharif fails to comply by April 28, 2010, an order of default will be entered against him in the proceeding." 2012 WL 469980, at *8; see also Adv. 09-00770, Dkt. 48. Moreover, the lengthy hearing on May 24, 2010 also gave the Debtor time to explain himself and comply. The district court ultimately agreed with this Court and stated that the Debtor "has shown, time and time again, an unwillingness to turn over information that would allow [WIN] to collect its judgment against him. There is no reason to think an additional phone call from [WIN's] counsel would have solved the problem. Sharifeh v. Fox, 2012 WL 469980, at *9.
The Debtor also argued that this Court abused its discretion, specifically claiming that this Court failed to provide any insight into the deficiencies of the Debtor's discovery responses. The district court
Lastly, the Debtor argued that this Court abused its discretion in seizing the Soad Wattar Trust and turning it over to the Trustee. The Debtor claimed it was a real trust with real beneficiaries, i.e. Ragda. The district court refused to rule on that issue as Ragda's appeal of Adversary Proceeding 10-02239 was before a different judge. The district court affirmed this Court's rulings on February 12, 2012. The Debtor subsequently appealed to the Seventh Circuit.
The Seventh Circuit decided the Debtor's appeal from the district court on August 21, 2013. In its opinion, the Seventh Circuit did two things. First, it affirmed the district court's judgment affirming this Court's entry of default judgment denying the discharge of the Debtor's debts (i.e Counts I-IV of Adversary Complaint 09-00770). Importantly, the Seventh Circuit pointed out that "WIN satisfied its Rule 37(a) obligation to confer in good faith with [the Debtor] prior to filing its motion to compel with the bankruptcy court." Wellness Int'l Network, Ltd. v. Sharif, 727 F.3d 751, 779-780 (7th Cir.2013). The Debtor neither timely produced nor completely produced the documents requested. Id. at 780. Moreover, what was produced was deficient. Id. Furthermore, the Debtor did have notice and opportunity to be heard on the motion for sanctions. The Seventh Circuit even went so far as to state that "[t]his is not a case where the question of compliance is a close call." Id (emphasis in original). Finally, the Seventh Circuit concluded "that the bankruptcy court's implied finding of willfulness, bad faith, or fault was not clearly erroneous and that it did not abuse its discretion in imposing the severe sanction of default." Id. at 781.
Second, the Seventh Circuit vacated this Court's judgment as to Count V, the alter-ego claim, and remanded the case back to the district court. It is crucial to understand that the Seventh Circuit did not do so on the merits. Rather, the Seventh Circuit determined that "WIN's alter-ego claim is a state-law claim between private parties that is wholly independent of federal bankruptcy law and is not resolved in the claims-allowance process." Id. at 775. This put it in the realm of the so-called Stern claims,
Following the Debtor's success in the Seventh Circuit case, Ragda filed a second motion to vacate the August 5, 2010 Order on November 4, 2013. Bankr.09-5868, Dkt. 151. She sought to vacate the order based on Rule 60(b)(5), which grants relief from judgment if the judgment "is based on an earlier judgment that has been reversed or vacated." Fed.R.Civ.P. 60(b)(5). Because the Seventh Circuit vacated and remanded the July 6, 2010 Order as applied to the alter-ego claim, Ragda argued that the August 5, 2010 Order should also be vacated as it was based on the July 6, 2010 Order.
On December 12, 2013, this Court entered an Order on the Motion to Vacate declining to make a ruling on the motion. Bankr.09-05868, Dkt. 155. The Court pointed out that Ragda misstated the legal effect of the Seventh Circuit ruling. The Seventh Circuit remanded the case to the district court to enter findings consistent with its opinion. Sharif, 727 F.3d at 777. Specifically, the Seventh Circuit stated that:
Id. No such ruling had been made by the district court and no remand back to this Court had occurred. The Court, therefore, declined to rule on the motion as any order by this Court could have interfered with the district court's authority or limited its options as to remedies. Bankr.09-05868, Dkt. 155, p. 12.
The question before the Supreme Court was whether non-Article III courts, such as the bankruptcy courts, can adjudicate a claim for which litigants are constitutionally entitled to an Article III adjudication with the litigants' consent. Wellness Int'l Network, Ltd. v. Sharif, ___ U.S. ___, 135 S.Ct. 1932, 1939, 191 L.Ed.2d 911 (2015). On May 26, 2015, the Supreme Court held that they can. Id.
The Supreme Court determined that "[a]djudication by consent is nothing new. Indeed, `[d]uring the early years of the
Having determined that litigants can consent to non-Article III adjudication, the Supreme Court next addressed whether consent has to be express or if it can be implied. In this regard, it ruled that consent can be express or implied, so long as the consent is knowing and voluntary. Id. at 1948. With that, the Supreme Court reversed the Seventh Circuit and remanded the case for the Seventh Circuit to decide whether there was knowing and voluntary consent in this case. Id. at 1949.
On August 4, 2015, the Seventh Circuit issued a short opinion, which concluded that the Debtor "forfeited his Stern argument when he was first before [the court]." Wellness Int'l Network, Ltd. v. Sharif, 617 Fed.Appx. 589, 590 (7th Cir.2015). The Seventh Circuit explained that "[b]y waiting until his reply brief to challenge the bankruptcy court's authority to decided the alter-ego claim, [the Debtor] failed to preserve his challenge[.]" Id. at 591. The Seventh Circuit then affirmed the district court's ruling, and by extension this Court's ruling as to Count V, the alter-ego claim. Id. The Seventh Circuit's order was not appealed. With that, both the Seventh Circuit and the Northern District of Illinois have placed their stamp of approval on this Court's ruling that the Soad Wattar Trust was the Debtor's alter-ego and therefore the Trust assets were rightly property of the Debtor's bankruptcy estate.
Having discussed the litigation involving Adversary Proceeding 09-00770, the Court
This complaint was, once again, predicated on the same facts as discussed in Ragda's Motion to Intervene, Motion to Vacate, and Adversary Proceeding 10-02239. Count I reiterated the same wrongful conversion claim against the Trustee that Ragda had previously brought in Adversary 10-02239. Adv. 12-00430, Dkt. 1, Removed Complaint, ¶¶ 26-48. Count II was against Wells Fargo Financial Advisors for allegedly breaching its fiduciary duty to Ragda when it complied with the August 5, 2010 Order, requiring the turnover of Trust assets to the bankruptcy estate. Id. at ¶¶ 49-53. Count III requested injunctive relief against Green Bank, the bank in which the Trustee deposited funds related to this case, and sought to prohibit Green Bank from disbursing said funds. Id. at ¶¶ 54-56. Count IV was nearly identical to Count II in Adversary Proceeding 10-02239, where Ragda sought a declaratory judgment that she is the equitable and legal owner of the assets in the Soad Wattar Trust. Compare Adv. 12-00430, Dkt. 1, Removed Complaint, ¶¶ 57-67 with Adv. 10-02239, Dkt. 1, ¶¶ 48-62.
On July 11, 2012, WIN's motion to intervene was granted and it appeared in this adversary as well. Adv. 12-00430, Dkt. 10. On August 8, 2012, the Court granted a motion to stay the proceeding pending resolution of the appeals in the district court, and by extension the Seventh Circuit. Adv. 12-00430, Dkt. 21.
Once the appeals were resolved, Wells Fargo filed a motion to dismiss the part of the complaint that was directed against it on January 5, 2016. Adv. 12-00430, Dkt. 40. The Trustee then filed a Motion to Dismiss the whole complaint on January 15, 2016. Adv. 12-00430, Dkt. 43. The Trustee's motion made numerous arguments why the complaint should be dismissed, including 1) violation of the Barton Doctrine,
On January 19, 2016, this Court set briefing schedules for both motions. Ragda was to respond to Wells Fargo's motion by January 28, 2016 and to the Trustee's motion by February 8, 2016. Adv. 12-00430, Dkt. 46, 47. No responses were filed. Instead, on the eve of this Court's hearing the motions to dismiss, Ragda filed a Notice of Voluntary Dismissal pursuant
After the Supreme Court, Seventh Circuit, and the district court left intact this Court's disposition of the Trust and its assets, it appeared that the issues surrounding the Soad Wattar Trust were finally coming to a close. However, on September 12, 2015, Haifa Sharifeh
On October 20, 2015, the Trustee filed an amended objection to Haifa's motion, which included 19 attached exhibits. See Bankr.09-05868, Dkt. 209. Of note is Exhibit 6, which purports to be Soad Wattar's Last Will and Testament dated April 26, 2007. Id. at Ex. 6 (hereinafter "April 26 Will"). Nowhere in the Will does it name Haifa as executrix of Soad Wattar's estate. In fact, it names Richard Sharif, the Debtor, as executor and Ragda Sharifeh as successor executor. April 26 Will, p. 9. Moreover, Article 3.01 of the Will bequeathed all of Soad Wattar's tangible personal property to the trustee of the Soad Wattar Trust, "to be added to such Trust and administered and distributed under the provisions of said Trust Agreement." Soad Wattar Will, p. 3. Similarly, Article 5.01 bequeathed the "rest, residue, and remainder of [Soad Wattar's] Estate" to the trustee of the Soad Wattar Trust under the same terms as Article 3.01. Id. at p. 4.
In response, Haifa's reply contains an additional Will of Soad Wattar dated April
Regardless of the discrepancy in the Wills, the Court ultimately denied the motion on November 25, 2015. Bankr.09-05868, Dkt. 232. The Court reasoned that the issues concerning the Soad Wattar Trust assets were well settled. Moreover, Haifa's request for relief was directed against the Trustee and the motion was filed without leave of court. The Barton doctrine states that bankruptcy trustees may not be sued unless their appointing court allows the claimant to proceed. Barton v. Barbour, 104 U.S. 126, 136, 26 L.Ed. 672 (1881); Matter of Linton, 136 F.3d 544, 545 (7th Cir.1998). A party seeking to sue a trustee "must make a prima facie case against the trustee, showing that its claim is not without foundation." In re Morris Senior Living, 504 B.R. 490, 491 (Bankr.N.D.Ill.2014). The Court found that Haifa did not comply with the Barton doctrine. Specifically:
Bankr.09-05868, Dkt. 232, pp. 23-24.
While not directly related to the Soad Wattar Trust assets at issue here, Garrett Reidy's Motion for Leave to Withdraw as Counsel for Ragda nonetheless bears some discussion. See Bankr.09-05868, Dkt. 202. Haifa's motion to vacate, discussed above, alleged a number of new facts and for the first time attached documents in support of those assertions. Of note was a document which purported to have made Ragda the successor trustee to the Soad Wattar Trust in November of 2007 (before the Debtor's bankruptcy) and was purportedly signed by Ragda, the Debtor, and Soad Wattar. Bankr.09-05868, Dkt. 194, ex. D. This appeared highly suspect considering that both the Debtor and Ragda have repeatedly claimed that at the time of filing for bankruptcy the Debtor was the trustee and that Ragda did not become trustee until after the Debtor resigned in 2010 following Ragda's first state court lawsuit.
Mr. Reidy's motion shed some light on this discrepancy. He too observed the conflicting testimony and evidence, and requested information from Ragda. Bankr.09-05868, Dkt. 202, ¶ 7. However, Mr. Reidy, just like WIN and the Trustee before him, never received a reply. Id. Instead, Mr. Reidy provided a sworn declaration from Stacy Franceschi that was filed as part of the Debtor's attorney's motion to withdraw as counsel in the Seventh Circuit. Id. at Ex. 1. Ms. Franceschi stated that she, along with Edward Bontkowski, signed and witnessed two documents related to the Soad Wattar Trust. Id. One document purported to change the beneficiaries of the Hartford Life Insurance Policy, the other made Ragda the beneficiary of the Trust. Id. Both documents were signed and witnessed by Ms. Franceschi on October 8, 2007. However, in her sworn declaration, Ms. Franceschi stated that she did not actually sign and witness this until mid-2009. Id. at ¶ 3. In fact, Ms. Franceschi did not meet the debtor until mid-2009. Id. at ¶ 4. At the time, the Debtor explained that they needed the documents to be back-dated because the original amendments to the Trust had been lost. Id. at ¶ 5. Moreover, Ms. Franceschi explains that the public notary, who claimed to have witnessed the signatures, was not present when Ms. Franceschi signed. Id. at ¶ 7. This, coupled with the earlier sworn testimony by the Debtor and Ragda, made the purported amendments to the Trust highly suspect.
On October 12, 2015, Mr. Salem, on behalf of Haifa, filed an objection to Mr. Reidy's motion arguing that Mr. Reidy should not be allowed to withdraw until he accounts for money he took from a Raymond James Financial Services account. Bankr.09-05868, Dkt. 205. Mr. Salem attached a letter, in which Mr. Reidy, on behalf of Ragda, directed Raymond James to liquidate an account belonging to the Soad Wattar Trust and transfer the funds to Ragda. Id. at Ex. A. The letter was
Mr. Reidy wanted additional time to respond to the objection, however he never returned to prosecute it and the motion was ultimately stricken. Bankr.09-05868, Dkt. 252. Regardless, this episode highlighted the problems in this case, and provided possible evidence of Ragda's clear attempts to take possession of property of the estate in violation of a clear court order and § 362 of the Bankruptcy Code.
At last the Court arrives at the matters currently before it. Patient readers will recall that in Adversary Proceeding 12-00430, Ragda, now through Mr. Salem, filed a notice of dismissal without prejudice as per Rule 41(a)(1)(A)(i) on February 15, 2016. Adv. 12-00430, Dkt. 48. Moreover, this notice came after Ragda failed to meet a deadline to respond to a motion to dismiss.
In the first motion, Mr. Salem, on behalf of Haifa, as Executrix of the Estate of Soad Wattar, and Ragda, individually, requests leave to sue the Trustee pursuant to the Barton doctrine. Bankr.09-05868, Dkt. 253. When trying to explain the prima facie case, however, the motion merely trails off midsentence and never provides an explanation.
The second motion, brought on behalf of Ragda (in her individual capacity it seems), is a request for funds from the Trustee of the bankruptcy estate. Bankr.09-05868, Dkt. 254. In this motion, Mr. Salem appears to have forgotten the Barton doctrine, which he adequately described in the Motion for Leave, and, essentially, sues the Chapter 7 Trustee to recover funds that Ragda spent in maintaining certain real property that is part of the Soad Wattar Trust. The motion also requests the turnover of the Hartford Life Insurance Proceeds, which Ragda is now claiming to be exempt.
Now that the Court has finished its lengthy discussion of the history of this case, the Court can discuss these motions, Ragda's request to dismiss Adversary Proceeding 12-00430 without prejudice, as well as the Court's own order for Rule to Show Cause why these parties should not be held to be in violation of Rule 9011.
The Court begins by once again noting that the Haifa and Ragda's Motion for Leave, on its face, is devoid of any cognizable explanation as to how they establish a prima facie case against the Trustee. Bankr.09-05868, Dkt. 253. However, in the interest of establishing a complete record, the Court examined the Proposed Complaint; it fails to establish a prima facie case.
In the Proposed Complaint, Ragda and Haifa (the "Proposed Plaintiffs") seek to sue Hartford Life and Annuity Insurance, Wells Fargo, and the Trustee (the "Proposed Defendants"). The Proposed Complaint contains seven counts. Counts I-III are directed at Hartford Life and Annuity Insurance Company for breach of contract, breach of fiduciary duty, and negligence, respectively. It alleges that Hartford had a life insurance policy for Soad Wattar
Before turning to the individual counts, the Court notes that the Proposed Complaint contains no attached documents supporting these allegations. The Court also notes that the Proposed Complaint is predicated on essentially the same argument that Haifa used in the Third Motion to Vacate, i.e. that Haifa, as executrix for the estate of Soad Wattar, was entitled to the Soad Wattar Trust assets and that she was damaged when the assets were not turned over to her. See Bankr.09-05868, Dkt. 194. However, as discussed earlier, due to the discrepancy between the various Soad Wattar Wills, it is still unclear who has standing to pursue claims on behalf of Soad Wattar's estate. Is it Haifa? Ragda? The Debtor? The Court does not know because the Proposed Plaintiffs have not provided anything that answers these questions.
Furthermore, even if the Court were to accept, arguendo, that April 28 Will, making Haifa executrix and granting all the Soad Wattar Trust property to the estate of Soad Wattar, then it still would not justify granting the Proposed Plaintiffs' request to sue the Proposed Defendants. The Court learned of the April 28 Will when it was attached to the Haifa's reply supporting her motion to vacate the August 5, 2010 Order filed on November 16, 2015. Bankr.09-05868, Dkt. 228. By all indications, the Proposed Defendants may not have learned of this Will until then as well. They may have been operating under the belief that the April 26 Will, naming the Debtor as executor and giving all of Soad Wattar's assets to the Trust, was valid. If so, then the Proposed Defendants' actions complied with the April 26 Will.
Finally, the argument, that the various assets of the Soad Wattar Trust were turned over to the Trustee without notice to the parties, is also entirely without merit. As the Court has mentioned many times in this Opinion, all the parties
Even if the Court were to accept that Soad Wattar's estate became the rightful holder of the Soad Wattar Trust assets upon the death of Soad Wattar, which the Court does not,
Therefore, even if the estate of Soad Wattar is the rightful successor of the Trust assets as of Soad Wattar's death, then the estate of Soad Wattar would still not be entitled to those assets because by Soad Wattar's death, the assets were property of the Debtor's bankruptcy estate. If anything, the estate of Soad Wattar would have a cause of action against the Debtor, not the Proposed Defendants, for breach of the Debtor's fiduciary duties to the Soad Wattar Trust. No such cause of action has ever been asserted and it may be too late to do so.
Having discussed the general flaws with the Proposed Complaint, the Court will now turned to the individual counts.
The Court will discuss Counts I-VI together because they present essentially identical arguments against two different Proposed Defendants. Even if all the allegations within these Counts were taken as true, they would still fail to state a claim upon which relief can be granted.
First, Ragda and Haifa allege that they became entitled to these assets when their mother, Soad Wattar, passed away on March 17, 2010. However, the Debtor had filed for bankruptcy on February 24, 2009. As of August 24, 2009, WIN had filed its Adversary Proceeding which alleged that the Soad Wattar Trust was the alter-ego of the Debtor. Moreover, Haifa, Ragda, and Soad Wattar all had notice of the bankruptcy,
Second, these assets were part of the Soad Wattar Trust. On July 6, 2010, this Court ruled that the Soad Wattar Trust was the Debtor's alter-ego and therefore the assets of the Trust were part of the Debtor's bankruptcy estate. As the Court has stated many times, "[i]t is well established that property of the Debtor in the possession, custody and control of [his] alter ego comprises property of the estate at the commencement of the case, and that bankruptcy courts have the power to disregard separate corporate entities so as to reach the assets of its non-debtor alter ego to satisfy the debts of the Debtor." In re Sklarin, 69 B.R. 949, 954 (Bankr.S.D.Fla. 1987) (emphasis added). These assets were therefore property of the bankruptcy estate, and any transfer to Ragda or Haifa outside the claims allowance process would have been a violation of the automatic stay.
The Proposed Complaint, therefore, seems to imply that Hartford and Wells Fargo should have violated the law in order complete their duties to the Proposed Plaintiffs. Such a request is superfluous and lacks any merit. The Proposed Defendants should not have been expected to violate the automatic stay. Rather, if these assets were truly the property of the Proposed Plaintiffs, which this Court doubts, then they should have moved to intervene, moved to lift the stay, or simply assisted WIN and the Trustee with discovery. The burden was on Haifa and Ragda to act, not on Hartford and Wells Fargo to violate the law.
Third, Haifa and Ragda failed to explain how they were entitled to this property. Up until this latest string of filings, the narrative was that Ragda was the successor trustee and successor beneficiary of the Soad Wattar Trust, and therefore deserved to have the Trust and its assets turnover to her. As the Court outlined above, this argument had failed many times. Now they argue that the estate of Soad Wattar should receive the assets. The Proposed Complaint does not indicate whether Soad Wattar's interest was a trust estate or a testamentary probate estate. Finally, even if these were valid claims, this Court questions its jurisdiction to hear them. The breach of contract, breach of fiduciary, and negligence claims are state law claims that neither arise in, arise under, nor relate to the bankruptcy proceeding. They are seeking to sue third parties over property that has no bearing on the Debtor's estate.
As a result, the Court finds that the Proposed Plaintiffs have failed to make a prima facie case as to Counts I-VI and therefore the motion should be denied.
Count VII seeks the same damages as listed in Counts I-VII, except this time from the Trustee. Count VII also seeks $6,300,000 in punitive damages. The claim, styled as a Bivens claim, alleges that the Trustee, acting as a federal agent and under the color of federal law, used his position to seize the Proposed Plaintiffs' "assets from Hartford and Wells Fargo without authority and without notice or a hearing, to Plaintiff, the Estate of Soad Wattar." Bankr.09-05868, Dkt. 253, Ex. 1, ¶ 61. The Proposed Complaint further alleges that the Trustee and his counsel did so in deprivation of the Proposed Plaintiffs' substantive due process rights.
First, the Bivens doctrine provides an implied cause of action against federal officials who deprived a plaintiff of his or her constitutional rights. See Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388, 399, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971). "[T]o state a Bivens claim, the defendant must be a federal officer and must not have judicial immunity from suit." Lerch v. Boyer, 929 F.Supp. 319, 323 (N.D.Ind. 1996). The Proposed Plaintiffs' Bivens claim stems from their assertion that Mr. Fox is the U.S. Trustee and therefore a federal officer. In fact, time and again Ragda and Haifa have referred to Mr. Fox as the U.S. Trustee, but they are entirely mistaken. Mr. Fox is the Chapter 7 Trustee for the bankruptcy estate of Richard Sharif. The Office of the U.S. Trustee is an entirely separate entity. The U.S. Trustee is a federal official. Mr. Fox, as the Chapter 7 Trustee, is not, and Mr. Fox's counsel is definitely not a federal official. While the United States Trustee appoints the private Chapter 7 Trustee, a Chapter 7 Trustee is by no means an "agent" of the United States Trustee. 28 U.S.C. § 586(a)(1). The Chapter 7 Trustee is merely the legal representative of the bankruptcy estate. 11 U.S.C. § 323; see also In re Hughes Drilling Co., 75 B.R. 196, 197 (Bankr.W.D.Okla.1987) ("The trustee is a representative of the estate, not an officer, agent, or instrumentality of the United States.").
Alternatively, the Trustee also has immunity for actions undertaken pursuant to a court order. A bankruptcy trustee "is entitled to quasi-judicial immunity for carrying out the orders of the bankruptcy court." Lerch, 929 F.Supp. at 323; see also Henry v. Farmer City State Bank, 808 F.2d 1228, 1238 (7th Cir.1986) ("Non-judicial
Second, any notion that the Proposed Plaintiffs did not receive notice has been debunked many times. Either they received notice as creditors of the Debtor, through Ragda's participation in Adversary Proceeding 09-00770, or through the Debtor as their agent.
As such, after evaluating the claims presented in the Proposed Complaint, the Court concludes that the Proposed Plaintiffs have failed to establish a prima facie case for why they should be allowed to sue the Trustee and his attorney. As such, the Motion is denied.
In the second new matter, the Motion for Funds from the Trust, Ragda is seeking compensation from the Trustee for money she spent maintaining real property located at 36 Revere Drive, South Barrington, Illinois (hereinafter "Revere Drive Property"). The Revere Drive Property was an asset of the Soad Wattar Trust and is property of the bankruptcy estate, which her attorney admits. See Bankr.09-0586, Dkt. 254, ¶ 2 ("A house at 36 Revere Drive, South Barrington, Illinois is one of the assets in the Trust."). According to the motion, she is owed $435,949.80 for paying the mortgage, taxes, and insurance on the property. Additionally, she "demands", as beneficiary of the Hartford Life Insurance Policy, the proceeds of that policy. She claims that the life insurance policy was exempt under Illinois state law and therefore should not be part of the bankruptcy estate. This motion is without merit and should be denied.
As a preliminary matter, as was stated earlier, this motion seeks to sue the Trustee for damages and therefore violates the Barton doctrine as she neither sought nor has permission from this Court to sue the Trustee. Indeed, Ragda clearly knew of this doctrine as the previous motion, at the very least, properly sought leave of Court before bringing suit against the Trustee.
With regards to the Revere Drive Property, Ragda has failed to explain why she is entitled to this money. At the most basic level, Ragda has not provided any sort of calculation of the source of the $435,949.80 figure. She also fails to provide any evidence that she did indeed maintain the property. The Debtor's
Moreover, Ragda's unsupported assertions here contradict the Debtor's sworn testimony given at his Rule 2004 examination. There the Debtor stated that "Wells Fargo, Wachovia, which is now Wells Fargo, has a mortgage payment for the house because it comes out of the mother's living trust every month." Transcript of Debtor's Rule 2004 Examination, pp. 108-109 (Emphasis added). The house discussed was the Revere Drive Property and the trust is the Soad Wattar Trust. Based on this testimony the trust may have already paid the mortgage on the Revere Drive Property.
On a more technical level, Ragda cites no authority as to why she should be compensated. In Court, Mr. Salem, on Ragda's behalf, argued that the Trustee is responsible for maintaining the property, yet Ragda was doing so and now seeks compensation. However, Mr. Salem was not able to articulate to the Court a contractual or statutory basis for Ragda's request. Specifically:
Transcript of February 18, 2016 Hearing, pp. 11-12. As the discussion in court may show, Ragda may have had some sort of separate legal obligation to pay the mortgage. This claim against the Trustee is not grounded on a statutory duty or a contractual duty.
In fact, Mr. Salem clearly stated that she made the payment on the mistaken belief that by maintaining the property she would be able to retain it. That is not a valid ground for requiring the Trustee to reimburse Ragda, nor does one exist.
Furthermore, if Mr. Salem's Amendment to Haifa's Objection to Mr. Reidy withdrawing as counsel for Ragda is to be believed, Ragda used property of the estate to make mortgage and tax payments. In the amendment, Mr. Salem, then on behalf of only Haifa, stated that "[u]pon direct first hand information received from Ragda Sharifeh ... the money received by Ragda Sharifeh was used to pay the mortgage payments of a house that is owned by the trust." Bankr.09-05868, Dkt. 246. Is the Revere Drive Property the house that Mr. Salem spoke of? If so, then Ragda clearly used property of the estate to make those payments. If anything, she should be required to pay that money back to the Trustee as she used and transferred property of the estate in direct violation of the automatic stay and the injunction in the August 5, 2010 Order.
Ragda claims that, as the daughter of Soad Wattar and the beneficiary of the Hartford Life Insurance Policy, she is entitled to the proceeds of the policy because they are exempt under 735 ILCS 5/12-1001(f).
The Bankruptcy Code provides that debtors may choose between the exemptions provided by section 522(b)(2) (the so-called "federal" exemptions) or, in the alternative, the exemptions listed in section 522(b)(3), which include exemptions provided by state law and federal nonbankruptcy law. 11 U.S.C. § 522(b)(1); see In re Bauman, 11 B 32418, 2014 WL 816407, at *11 (Bankr.N.D.Ill. Mar. 4, 2014) (citation omitted). If a state "opts out" of the federal exemption scheme provided in section 522(b)(2), debtors who reside in that state may no longer choose and thus are limited to the exemptions set forth in section 522(b)(3). 11 U.S.C. § 522(b)(2); see Bauman, 2014 WL 816407, at *12. Illinois has "opted out" of the federal exemption scheme. 735 ILCS 5/12-1201. Accordingly, Illinois debtors are restricted to exemptions under section 522(b)(3), which, in turn, include Illinois exemption statutes.
Ragda claims an exemption under 735 ILCS 5/12-1001(f), which, in relevant part, exempts from judgment "[a]ll proceeds payable because of the death of the insured and the aggregate net cash value of any or all life insurance and endowment polices and annuity contracts payable to a wife or husband of the insured, or a child, parent, or other person dependent upon the insured." There are, however, a slew of problems with her assertion.
First, the Code allows only the Debtor to claim an exemption in property of the estate. See § 522(1). The Code does allow a "dependent of the debtor" to file a list of exemptions or claim exemptions from property of the estate on behalf of the debtor. Id. Ragda is neither the Debtor, nor is there any indication that she is a dependent of the Debtor. Therefore, she is not able to claim the exemption for the Debtor.
Third, even if this would be property that the Debtor could claim as exempt, it is too late to do so. This case has been pending since February of 2009. The parties have known that this property had been ruled to be property of the estate since the July 6, 2010 Order. The Debtor had plenty of time to amend his schedules and has not done so. Amending the schedules now, after seven years of litigation in this case is far too late. See In re Kercheval, 416 B.R. 293, 303-304 (Bankr. N.D.Tex.2009). In Kercheval, the debtor attempted to amend his schedules to exempt life insurance proceeds following a settlement between the Chapter 7 trustee for his case and a creditor which transferred the proceeds of the policy to the creditor. The amendment came eight months after filing of the bankruptcy case. The court held that it was too late to claim the exemption and doing so would be highly prejudicial to the settling parties. If eight months is too long to wait to claim an exemption, waiting seven years is overkill. Moreover, given the plethora of litigation that has occurred in those seven years, claiming the funds exempt now would also be highly prejudicial.
Therefore, for the reasons stated above, the Motion For funds From the Trust is denied.
On February 15, 2016, after missing the deadline to respond to a motion to dismiss, Ragda filed a notice of dismissal under Rule 41(a)(1)(A)(i) of the Federal Rules of Civil Procedure, made applicable by Federal Rule of Bankruptcy Procedure 7041. In open court, the Trustee urged the Court to deny the notice and instead dismiss the case with prejudice. The Court, however, cannot.
Rule 41(a)(1)(A)(i) provides that a plaintiff can dismiss an action without court order by filing "a notice of dismissal before the opposing party serves either an answer or motion for summary judgment." Fed.R.Civ.P. 41(a)(1)(A)(i). The effect is that the dismissal is without prejudice. Fed.R.Civ.P. 41(a)(1)(B). The Seventh Circuit has stated that "one doesn't need a good reason, or even a sane or any reason, to dismiss a suit voluntarily. The right is absolute, as Rule 41(a)(1) and the cases interpreting it make clear[.]" Marques v. Fed. Reserve Bank of Chicago, 286 F.3d 1014, 1017 (7th Cir.2002) (collecting cases). The right is absolute until the defendant serves an answer or a motion for summary judgment. See id. The motions to dismiss filed by the Trustee and Wells Fargo are neither answers nor motions for summary judgment. Therefore, Ragda is allowed to dismiss the adversary without prejudice.
This, however, should not be interpreted as giving Ragda free reign to refile the complaint. Her ability to do so is subject to the limitations outlined in the Order to Show Cause, which the Court will now address.
Rule 9011 of the Federal Rules of Bankruptcy Procedure provides that:
Fed. R. Bankr.P. 9011(b). If these provisions are violated, after notice and hearing the Court may issue appropriate sanctions. Id. at 9011(c). Rule 9011(c)(1)(B) states that "[o]n its own initiative, the court may enter an order describing the specific conduct that appears to violate subdivision (b) and directing an attorney, law firm, or party to show cause why it has not violated subdivision (b) with respect thereto." Id. at 9011(c)(1)(B).
As described in this Opinion, in the seven years that this bankruptcy case has been before this Court, this Court, and others, have had to rule on the issue of the Soad Wattar Trust numerous times. To recap in chronological order:
Despite no less than ten rulings on the subject, Ragda and Haifa
Moreover, the parties continuously misstate the law and the facts. A clear example is the repeated assertion the Mr. Fox is the U.S. Trustee in an attempt to establish some sort of Bivens claim. See e.g., Bankr.09-05868, Dkt. 67, ¶ 8; Dkt. 68, p. 1; Adv. 10-02239, Dkt. 1, ¶ 6; Adv. 12-00430, Dkt. 1, Ex. A, ¶ 2 (containing select instances where the parties incorrectly refer to Mr. Fox as the U.S. Trustee). The Proposed Plaintiffs also have consistently made numerous inappropriate, hostile, and incorrect statements regarding the Court as well as the Trustee. The most recent
Furthermore, on August 4, 2015 the Seventh Circuit affirmed the district court ruling on Count V of Adversary Proceeding 09-00770. Sharif, 617 Fed.Appx. 589. For those who do not remember, such as the Proposed Plaintiffs here, Count V requested "a declaration that a trust Sharif administered [(the Soad Wattar Trust)] was actually his alter ego, and that the trust's assets should be considered part of his bankruptcy estate." Id. This Court held that the Trust was the Debtor's alter ego. July 6, 2010 Order. The District Court affirmed. Sharifeh v. Fox, 2012 WL 469980. The Seventh Circuit affirmed the District Court. Sharif, 617 Fed.Appx. 589. The Seventh Circuit's August 4, 2015 ruling was not appealed. This issue is therefore settled. The Soad Wattar Trust is the Debtor's alter ego; its assets are property of the Debtor's bankruptcy estate. If the Proposed Plaintiffs have a problem with that ruling, the proper course of action is to appeal, which they did and lost. The wrong course of action is to continuously bring new causes of action through new plaintiffs in the hope of circumventing settled rulings.
Time and again, the Proposed Plaintiffs have shown a complete disregard for the judicial system and blatant attempts at circumventing it. When one plaintiff failed, they have brought in another to assert similar claims.
Therefore, Ragda, Haifa, their joint counsel Mr. Maurice Salem,
For the aforementioned reasons, the Court finds that:
Transcript of February 18, 2016 Hearing, pp. 8-9.
Transcript of February 18, 2016 Hearing, p. 8. Mr. Salem, however, cannot wait until a later date in the hopes of establishing standing today. If he truly wishes to bring the Proposed Complaint now he needs to have sufficient support to substantiate his basic allegations now. He cannot wait until later to prove that his clients have standing.
