In re Sharif

• Decision Date: 10 March 2011
• Docket Number: No. 09 B 05868.,09 B 05868.
• Parties: In re Richard SHARIF, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

447 B.R. 853

In re Richard SHARIF, Debtor.

No. 09 B 05868.

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

March 9, 2011.As Amended March 10, 2011.

Gina B. Krol, Cohen & Krol, Chicago, IL, for Wellness Intern. Networks, Ltd.Ean L. Kryska, SmithAmundsen LLC, Chicago, IL, for Horace Fox, Jr.Garrett S. Reidy, Westchester, IL, for Soad Wattar Revocable Living Trust of 1992, Ragda Sharifeh.William Stevens, William J. Stevens, Lakeside, MI, for Richard Sharif.Bruce E de‘Medici, Belongia, Shapiro & Franklin, LLP, Chicago, IL, for Horace Fox, Jr., for Bruce de'Medici.

ORDER ON PETITION TO INTERVENE ON BEHALF OF THE SOAD WATTAR REVOCABLE LIVING TRUST OF 1992 AND RAGDA SHARIFEH (Dkt. 68)

JACQUELINE P. COX, Bankruptcy Judge.

Ragda Sharifeh claims to be both the successor trustee and the successor beneficiary of the Soad Wattar Revocable Living Trust of 1992 (“Soad Wattar Trust”). In those capacities and on her own behalf she asks pursuant to Federal Rule of Bankruptcy Procedure 2018 that she be allowed to intervene in this matter as to the following two orders: the July 6, 2010 order (dkt. no. 53) where this court held that the Soad Wattar Trust was the alter ego of the Debtor, Richard Sharif, and the August 5, 2010 order (dkt. no. 63) directing Wells Fargo Financial Advisors to turn over assets held in the name of the Soad Wattar Trust to Horace Fox, Jr., in his capacity as the Trustee of the Debtor's bankruptcy estate.

I. Background

Prior to filing his chapter 7 petition, the Debtor, Richard Sharif, was involved in litigation in the Federal District Court for the Northern District of Texas. The Debtor and several other parties filed a complaint on July 8, 2005 against Wellness International Network, Ltd.; WIN Network, Inc.; Ralph Oats; Cathy Oats and Sheri Matthews (collectively “WIN”) in the United States District Court for the Northern District of Texas asserting fraud, RICO and other claims, seeking damages of nearly $1 million. Amended Complaint Objecting to Discharge, Case No. 09 B 05868, Adversary Proceeding No. 09–00770, dkt. no. 10, at p. 2 (the “Am. Compl.”). The Debtor and his co-plaintiffs did not initiate discovery in that action and did not cooperate with WIN's efforts to obtain discovery. Id. The Debtor and his co-plaintiffs had admissions deemed against them for their failure to respond to discovery requests. WIN moved for summary judgment on the ground 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 against the Debtor Richard Sharif and his co-plaintiffs 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:

A review of the record on appeal demonstrates that Appellants' untimely performance in this court mirrors a lengthy history in the district court of dilatoriness and hollow posturing interspersed with periods of nonperformance or insubstantial performance and compliance by Appellants and their counsel, leaving the unmistakable impression that they have no purpose other than to prolong this contumacious litigation for purposes of harassment or delay, or both. The time is long overdue to terminate Appellants' feckless litigation at the obvious cost of time and money to the Defendants by affirming all rulings of the district court but remanding the case to that court for the reinstatement of its consideration of Appellees' motion for attorney's fees. In so doing, we caution Appellants that any further efforts to prolong or continue proceedings in this court, including the filing of petitions for rehearing, will potentially expose them to the full panoply of penalties, sanctions, damages, and double costs pursuant to FRAP 38 at our disposal.

Id. at 2–3 (citing Sharif v. Wellness Int'l Network, Ltd., 273 Fed.Appx. 316, 317, 2008 U.S.App. Lexis 7483, at *2 (5th Cir.2008)). On remand the district court awarded WIN attorneys' fees in the amount of $655,596.13 as a sanction against the Debtor and his co-plaintiffs. See Order on Mot. for Civil Contempt, Civil Action No. 3:05–CV–01367–B, dkt. no. 180 at p. 1, District Court for the Northern District of Texas, Dallas Division. The Debtor was served with post-judgment discovery and document requests. Id. The Debtor never complied with WIN's discovery requests. Id.

WIN filed a Motion to Compel post-judgment discovery on October 13, 2008; the motion was granted on November 19, 2008; the Texas district court ordered the Debtor to respond to outstanding discovery requests. Id. at 1–2. Despite the district court's order compelling the Debtor to comply with discovery requests, the Debtor did not respond to such requests nor did he appear for his deposition. Id.

On December 4, 2008, WIN filed a Motion for Civil Contempt against the Debtor for violating the Texas 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 Texas court found clear and convincing evidence that he had violated several court orders compelling him to comply with outstanding discovery requests and the order to appear at the January 13, 2009 show cause hearing. Id. at 3. On February 10, 2009 the Texas court held the Debtor in civil contempt for discovery violations. He was ordered to respond to post-judgment discovery and to reimburse WIN for attorneys' fees and costs incurred to prepare and file the motion to compel and the motion for civil contempt. Id. at 3–5. On February 24, 2009, two weeks after the Texas court's contempt ruling, the Debtor filed the instant bankruptcy case.

On August 24, 2009, Wellness International Network, Ltd., Ralph Oats and Cathy Oats (“the WIN Plaintiffs”) filed adversary proceeding 09–00770 asking the court to deny Debtor a discharge pursuant to 11 U.S.C. § 727. Count I of the amended adversary complaint, 09–00770, dkt. no. 10, alleges in part that the Debtor has “continuously concealed property that he admitted under penalty of perjury that he owned by claiming that such property is currently owned by the Soad Wattar Living Trust” in violation of 11 U.S.C. § 727(a)(2)(A). Am. Compl. ¶ 20. The WIN Plaintiffs also allege that the Debtor was the Trustee of the Soad Wattar Trust, exercised complete control over the trust, and held out the assets of the trust as his own. Am. Compl., ¶ 21.

Count II alleges in part that “the Debtor has 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 ¶¶ 24–25.

Count III alleges in part that he “knowingly and fraudulently, in or in connection with the case made a false oath or account” in violation of 11 U.S.C. § 727(a)(4)(A). Am. Compl., ¶ ¶ 27–28. Specifically, the WIN Plaintiffs assert that the Debtor failed to disclose companies in which he was an officer within the past 6 years despite the fact that the bankruptcy petition requires the Debtor to disclose all businesses in which he was an officer, director, partner or managing executive of a corporation during the past 6 years. The Debtor did not disclose any businesses in response to this query. See Statement of Financial Affairs (“SOFA”), Voluntary Chapter 7 Bankruptcy Petition (the “Petition”), Case No. 09 B 05868, dkt. no. 1 at p. 29, ¶ 18.

Count IV alleges 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). Am. Compl., ¶ 32. The assets listed in the Loan Application included the following: (1) Logan Square MRI Center; (2) Sharif Pharmacy; (3) Hermosa Medical Center; (4) three Banco Popular Accounts containing $90,000, $40,000 and $50,000, respectively; (5) $1,400,000 in a 401(k) retirement fund; and (6) $1,400,000 in real estate (collectively, the “Loan Application assets”). See Loan Application, Adversary Proceeding 09–00770, dkt. no. 17–1. The Debtor later claimed at his 2004 examination that he did not own any of the property that he claimed to own in the Loan Application. May 13, 2010 Transcript of Debtor's 2004 Examination, Adversary Proceeding 09–00770, Ex. 59 at 60–61. He has failed to explain the loss or disposition of the $5 million of assets in issue.

Count V seeks a declaratory judgment that the Soad Wattar Trust is the alter ego of the Debtor because the Debtor exercises complete control over the trust, resulting in the unity of interest between the Debtor and the trust such that separate personalities do not exist. Count V also alleges that to the extent that the Loan Application assets have been transferred into the trust, the trust is organized and operated as a mere tool or business conduit of the Debtor. Am. Compl., ¶ 35.

On April 15, 2010, the WIN Plaintiffs 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 (hereinafter the “Sanctions Motion”), Adversary Proceeding 09–00770, dkt. no. 39. The court held a hearing on the Sanctions Motion on April 21, 2010. The WIN Plaintiffs argued that the Debtor had failed to comply with discovery requests and missed discovery deadlines for document production and responding to interrogatories. On April 21, 2010 an order was entered compelling the Debtor to comply with all outstanding discovery by April 28, 2010 or risk an order of default being entered against him. The hearing on the Sanctions Motion was continued to April 28, 2010.

On April 28, 2010, the WIN Plaintiffs reported that the Debtor had produced some documents along with certain interrogatory responses on the afternoon of April 27, 2010. The hearing was continued to May 24, 2010 to allow the WIN Plaintiffs time to assess...