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In re Sherif

United States District Court, N.D. Illinois, Eastern Division

May 15, 1996

HORACE FOX, JR., in his capacity as the Trustee of Debtor's Estate, Appellee. THE ESTATE OF SOAD WATTAR, Haifa Sharifeh as Executrix, and RAGDA SHARIFEH, Intervenors-Appellants,

         On appeal from the U.S. Bankruptcy Court for the Northern District of Illinois, Eastern Division Bankr. Case No. 09-BK-05868



         This case is on appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division, Case No. 09-BK-05868. Intervenor-Appellants Ragda Sharifeh (“Ragda”) and Haifa Sharifeh, purportedly as executrix of the Estate of her mother, Soad Wattar (“Haifa”) (collectively, “Intervenors”), appeal from three orders entered by the Bankruptcy Court: (1) an order denying Intervenors' motion for leave to commence an action against the Trustee, Horace Fox Jr. (the “Trustee”) and his attorney in their individual capacities [26-4]; (2) an order denying Ragda's motion for reimbursement [26-5]; and (3) a memorandum opinion and order setting out the Bankruptcy Court's analysis supporting the first two orders [26-7] at 15-36. In addition, the Trustee has filed a motion for leave to supplement the record on appeal [39] and Intervenors have filed a motion to transfer a related appeal, Case No. 16-cv-11076, from Judge Bucklo's docket to this Court [43]. For the reasons set forth below, the Court affirms the Bankruptcy Court's three challenged orders and denies as moot the Trustee's motion for leave to supplement the record on appeal [39]. Finally, the Court grants Intervenors' motion to transfer Case No. 16-cv-11076 to this Court as a related case [43], for the reasons explained at the hearing on the motion, see [45]. That appeal, which is still being briefed, will proceed as Case No. 16-cv-11076. The instant appeal, No. 16-cv-4699, is closed.

         I. Background[1]

         Soad Wattar (“Wattar”) was the mother of Debtor Richard Sharif (“Debtor”), Ragda, Haifa, and other children who are not directly involved in this appeal. In 1992, Wattar allegedly established a trust called the Soad Wattar Revocable Trust of 1992 (“Trust”). On February 24, 2009, Debtor filed Bankruptcy Case No. 09-BK-05868 in the Bankruptcy Court for the Northern District of Illinois. Intervenors were both listed in Schedule F as a creditors of Debtor and both received notice of Debtor's filing of the bankruptcy case.

         On August 24, 2009, one of Debtor's creditors, WIN, initiated an adversary proceeding against Debtor in the bankruptcy case, naming Debtor both individually and in his capacity as trustee of the Trust. WIN alleged that Debtor was concealing assets by holding them in the Trust's name and that the Trust was Debtor's alter ego. In his answer to WIN's amended complaint, Debtor stated that he was the Trustee of the Trust. Debtor also produced a purported trust agreement Dated: May 15, 1996 (the “1996 Trust Agreement”), which (1) named Debtor as Trustee; (2) assigned and conveyed to the Trustee all of Wattar's real and personal property; (3) granted the Trustee authorization to do all acts of an owner; and (4) granted the Trustee absolute discretion to litigate any claim in favor of or against Wattar's estate.

         On March 17, 2010, Wattar died. According to a will that debtor produced in discovery (the “April 26, 2007 Will”), Wattar left all of her estate (“Estate”) to the Trustee of the Trust acting at the time of her death (i.e., Debtor). The Will named Debtor as executor and Ragda as successor executor of Wattar's Estate.

         On July 6, 2010, the Bankruptcy Court entered default judgment against Debtor and in favor of WIN in the adversary proceeding. The Bankruptcy Court determined that the Trust was the alter ego of Debtor, because Debtor treated the Trust's assets as his own property and, therefore, it would be unjust to allow him to maintain that the Trust was a separate entity. Based on its finding that Debtor failed to meet his discovery obligations and violated 11 U.S.C. § 727, the Bankruptcy Court denied Debtor a discharge pursuant to 11 U.S.C. § 727(a)(2)-(a)(6). Intervenors were served notice that Debtor had been denied a discharge in bankruptcy. See Bankruptcy Case No. 09-05868, Docket Entry 55.

         Debtor appealed the Bankruptcy Court's July 6, 2010 order to the District Court. See Case Nos. 10-cv-5303, 10-cv-5333 (Leinenweber, J.). A few weeks later, while the federal appeal was pending, Intervenors filed a lawsuit in the Circuit Court for Cook County, Illinois (No. 2010-CH-30432) seeking a preliminary injunction and an order compelling Wells Fargo to transfer approximately $700, 000 in Trust assets to Ragda. In their amended complaint, Intervenors alleged that, pursuant to an amendment made to the Trust on October 8, 2007 (the “2007 Trust Amendment”), Ragda became the successor beneficiary of the Trust at the time of Wattar's death on March 17, 2010. They further alleged that, on July 21, 2010, Debtor resigned as the trustee of the Trust. They acknowledged, however, that the Bankruptcy Court had already found in its July 6, 2010 order that the Trust was Richard Sharif's alter ego. [15-4] at 3, ¶ 7. The Cook County Circuit Court denied Ragda's and Intervenor's motion on the basis that the case was subject to the jurisdiction of the Bankruptcy Court.

         On August 5, 2010, the Bankruptcy Court granted the Trustee's July 30, 2010 motion to turn certain assets of the Trust over to the Trustee. Specifically, the Bankruptcy Court ordered the Hartford Financial Services Group, Inc. (“Hartford”) to convey to the Trustee all interest in any life insurance policies issued by any Hartford insurance entity related to the Debtor, Wattar, or the Trust. The Bankruptcy Court also ordered Wells Fargo Financial Advisors (“Wells Fargo”) to convert the owners in two specified accounts from the Trust to the Trustee. In addition, because Wattar transferred all of her assets to the Trust, the Bankruptcy Court ordered Debtor to turn over all interest in any assets related to Debtor, Wattar, or the Trust. The Bankruptcy Court further ordered Debtor, Ragda, and Haifa to cease any act to exercise any control over property of the bankruptcy estate.

         On February 10, 2012, Judge Leinenweber, considering consolidated appeals filed by Debtor and Ragda, affirmed the Bankruptcy Court orders declaring Debtor in default, denying Debtor a discharge, and finding that the Trust was the property of the bankruptcy estate. See Case No. 11-cv-8811, Docket Entry 16. Judge Leinenweiber's decision was ultimately upheld by the Supreme Court. Wellness Int'l Network, Ltd. v. Sharif, 135 S.Ct. 1932 (U.S. 2015).

         Following the Supreme Court's ruling, Haifa, purportedly as Executrix of Wattar's Estate, filed a motion seeking an order vacating the Bankruptcy Court's August 5, 2010 turnover order pursuant to Rule 60(b)(4) of the Federal Rules of Civil Procedure. Haifa asserted that Ragda became the Trustee of the Trust on November 1, 2007 and attached a copy of the 2007 Trust Amendment. Haifa argued that the Estate was never served with process and therefore (1) the Bankruptcy Court did not have personal jurisdiction over the Estate and (2) the Bankruptcy Court's August 5, 2010 order requiring the turnover of property held in the Trust was void.

         In her reply brief, Haifa attached for the first time documents purporting to be copies of the most recent version of Wattar's will, dated April 28, 2007 (the “April 28, 2007 Will”). Based on the April 28, 2007 Will, Haifa claimed that (1) she became the executrix of Wattar's estate when Wattar died in March 2010; (2) she was therefore entitled to notice before the Bankruptcy Court ordered the turnover of property of Soad Wattar to the bankruptcy estate on August 5, 2010; and (3) because she did not receive notice, the Bankruptcy Court's order violated Due Process and was void. Haifa also alleged that Ragda had been the trustee of the Trust since 2007. The Bankruptcy Court denied Haifa's Rule 60(b)(4) motion.

         This Court affirmed the Bankruptcy Court's ruling on appeal on September 26, 2016 (Case No. 15-cv-10694). This Court determined that: (1) Haifa waived her due process arguments on appeal by failing to support them with any pertinent authority; (2) Haifa could not demonstrate that pursuant to the 2007 Trust Amendment Ragda, rather than Debtor, was the Trustee of the Estate when Debtor filed for bankruptcy, because the Seventh Circuit already rejected that argument; (3) the 2007 Trust Amendment was not properly authenticated; (4) Haifa waived her right to rely on the April 28, 2007 Will by waiting until her reply brief to raise it in the Bankruptcy Court; (5) Haifa failed to properly authenticate the April 28, 2007 Will; and (6) Haifa's due process rights were not violated because she received actual, timely notice of Debtor's bankruptcy and the Bankruptcy Court's decision that the Trust was Debtor's alter ego and therefore all of the assets in the Trust would be included in the bankruptcy estate. See In re Sharif, 2016 WL 5373199, at *11 (N.D. Ill. Sept. 26, 2016).

         While the appeal in this Court was pending, Haifa and Ragda filed a motion in the Bankruptcy Court for leave to sue the Trustee and his counsel individually. They also sought to sue Hartford and Wells Fargo individually. Their motion did not explain why they should be granted leave to sue. Their attached proposed complaint asserted a single claim against the Trustee and his counsel, a Bivens violation for using their alleged authority as federal agents to take property that belonged to Wattar's Estate-namely, the proceeds of the Hartford policy and the assets of the Estate held by Wells Fargo-without notice or hearing (Count VII). See Bankruptcy Docket 09-05868 [253-1] at 11. Intervenors alleged that this violated the Estate's procedural ...

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