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Zedan v. Habash

June 16, 2008

NAJIB ZEDAN, PLAINTIFF-APPELLANT,
v.
BASEME. HABASH AND SUSAN HABASH, DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 06 C 4047-Elaine E. Bucklo, Judge.

The opinion of the court was delivered by: Kanne, Circuit Judge.

ARGUED NOVEMBER 8, 2007

Before EASTERBROOK, Chief Judge, and FLAUM and KANNE, Circuit Judges.

Basem Habash filed a voluntary bankruptcy petition in August 2004. Nearly 20 months later, Najib Zedan, a judgment creditor of Habash, initiated an adversary proceeding that objected to the discharge of Habash's debts because of alleged fraud by Habash in representing his income and assets to the bankruptcy trustee. See 11 U.S.C. §§ 523(a)(4); 727(d)(1). At the time Zedan filed the adversary complaint, the dead-line for creditors to object to a discharge had long passed, and the bankruptcy court had yet to grant a discharge to Habash. The bankruptcy court dismissed Zedan's complaint, and Zedan immediately appealed the decision to the district court, which affirmed the dismissal. See Zedan v. Habash (In re Habash),360 B.R. 775 (N.D. Ill. 2007). We also affirm the dismissal of Zedan's complaint.

I. HISTORY

Habash filed for bankruptcy in the Northern District of Illinois in late August 2004. The bankruptcy court scheduled the first meeting of creditors for late October 2004, and set a deadline of December 20, 2004, for creditors to file objections to the discharge of Habash's debts. See Fed. R. Bankr. P. 4004(a). Before the creditors' meeting, the appointed bankruptcy trustee resigned; consequently, the creditors' meeting was rescheduled for early December 2004. In late November 2004, Zedan, a judgment creditor, filed a motion to extend the time for creditors to object to the discharge. The bankruptcy court granted Zedan's motion and extended the creditors' deadline until February 4, 2005. In January 2005, the newly appointed bankruptcy trustee, Deborah Ebner, filed a motion to extend her own deadline to object to Habash's discharge. This motion, and a subsequent motion to extend, were both granted, and the trustee was ultimately given a September 2005 deadline to object to the discharge.

Zedan did not file any objection to Habash's discharge before February 4, 2005 (nor did any other creditor). For the next ten months, Habash cooperated with the trustee-he participated in discovery conducted by the trustee's attorney in September 2005, see Fed. R. Bankr. P. 2004, and negotiated a resolution of his case that would include an auction of his assets and the eventual dis- charge of his debts. The trustee did not object to the discharge, and in December 2005, the bankruptcy court entered an order approving the agreed-upon procedure for dividing Habash's non-exempt assets, and scheduled a sale for February 2006.

In January 2006, Zedan hired new counsel, who immediately filed a motion to postpone the scheduled sale. This eleventh-hour motion argued that the sale of Habash's assets should be postponed because, Zedan alleged, Habash had fraudulently represented his income and the value of his assets to the bankruptcy trustee. The bankruptcy trustee did not join in Zedan's objection. On February 8, 2006, the bankruptcy court denied Zedan's motion, and on February 15, 2006, the auction sale of Habash's non-exempt assets took place. The bankruptcy court approved the sale a few days later.

In April 2006, Zedan filed an adversary complaint in the bankruptcy court under 11 U.S.C. §§ 523(a)(4) and 727(d)(1), and also under Illinois law governing fraudulent transfer and misappropriation of corporate assets. The adversary complaint sought a judgment that Habash's debts were non-dischargeable, and reiterated most of the arguments that Zedan had raised in his motion to postpone the sale-the adversary complaint alleged fraud by Habash when disclosing his income, property value, and inventory to the trustee. See Habash, 360 B.R.at 777. In July 2006, without issuing an opinion, the bankruptcy court dismissed Zedan's adversary proceeding with prejudice- ostensibly because the bankruptcy court regarded the complaint as untimely.*fn1

Zedan immediately appealed the bankruptcy court's dismissal to the district court, asserting that the bankruptcy court failed to apply the proper legal standard when dismissing the adversary complaint and improperly dismissed the complaint as untimely. As for timeliness, Zedan argued that the adversary complaint was based on fraud that was not discovered until after the deadline to file objections had lapsed. As such, Zedan contended that his adversary complaint asserted a claim based on "newly discovered fraud" under 11 U.S.C. § 727(d)(1), and he argued that the timing requirement of 11 U.S.C. § 727(e)-which permits a creditor to pursue revocation of a discharge within one year of an actual discharge-should apply instead of the bankruptcy court's deadline for creditors to object to the discharge. The bankruptcy court still had not granted a discharge to Habash, and Zedan argued that "if one can file an adversary complaint based on fraud one year after discharge, then surely one can file it after a deadline has passed, but before a discharge."

In January 2007, the district court affirmed the bankruptcy court's dismissal of Zedan's adversary complaint "on different grounds." Habash, 360 B.R.at 778. In the district court's view, the bankruptcy court had erred as a matter of law because the February 2005 date to file objections did not bar Zedan from pursuing relief under 11 U.S.C. § 727(d)(1). See id. The district court held that because no discharge had ever been entered, Zedan had acted within the time limits set by 11 U.S.C. § 727(e). See id.

However, the district court adopted a different timeliness limitation: it stated that Zedan was required to file his adversary complaint within one year of discharge or within one year after the "cut-off date to file objections." See id. (citing Citibank N.A. v. Emery (In re Emery), 132 F.3d 892, 895-96 (2d Cir. 1998)). The district court then held that Zedan's adversary complaint was still untimely because he failed to file within one year of the cut-off date. See id. In addition to untimeliness, the district court also noted that Zedan's adversary complaint was legally insufficient because Zedan failed to plead his claim with particularity as required by Fed. R. Bank. P. 7009, and because he had failed to investigate and diligently pursue his claim despite being on notice of the alleged fraud. Habash, 360 B.R. at 778-80.Zedan filed a notice of appeal in this court on February 8, 2007.

II. ANALYSIS

Before we can consider the merits of Zedan's appeal, we must first address a question of appellate jurisdiction noticed by the panel. In re Salem, 465 F.3d 767, 771 (7th Cir. 2006); see also Chiplease, Inc. v. Steinberg (In re Res. Tech. Corp.), No. 07-1879, slip op. at 13 (7th Cir. May 15, 2008) ("Our first task is to confirm that we have jurisdiction to hear this appeal."). At the time Zedan filed his notice of appeal, the bankruptcy court had still not decided whether to grant a discharge to Habash. Shockingly, neither side's brief contained this fact-or any facts regarding the status of the bankruptcy case-as required by Circuit Rule 28(a)(3). See Fifth Third Bank, Ind. v. Edgar County Bank & Trust, 482 F.3d 904, 905(7th Cir. 2007) ("Circuit Rule 28(a)(3) . . . requires details on how the matters appealed in a bankruptcy case ...


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