In re Dental Profile Inc. And Dentist

• Decision Date: 31 March 2011
• Docket Number: 08–17149.,Nos. 08–17148,s. 08–17148
• Citation: 446 B.R. 885
• Parties: In re DENTAL PROFILE, INC. and Dentist, P.C., Debtors.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

446 B.R. 885

In re DENTAL PROFILE, INC. and Dentist, P.C., Debtors.

Nos. 08–17148

08–17149.

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

March 31, 2011.

Ariel Weissberg, Weissberg & Associates, Ltd., Cindy M. Johnson, Johnson Legal Group LLC, Chicago, IL, Paul M. Bach, Penelope N. Bach, Bach Law Offices, Northbrook, IL, for Debtors.

MEMORANDUM OPINION

JACQUELINE P. COX, Bankruptcy Judge.

This matter is before the Court for ruling on the motion of Nereida Mendez (“Mendez”) for sanctions against debtors Dental Profile, Inc. (“Dental Profile”) and Dentist, P.C. (collectively, the “Debtors”); Dr. Husam Aldairi (“Aldairi”), the sole owner of the Debtors; Paul M. Bach (“Bach”), former counsel for the Debtors; and Cindy M. Johnson (“Johnson”), counsel for Aldairi.¹ Pursuant to Federal Rule of Bankruptcy Procedure 9011 and section 105(a) of the Bankruptcy Code, the motion seeks reimbursement from the Debtors, Aldairi, and Bach of all attorneys' fees and costs incurred during the Debtors' bankruptcy case, as well as disgorgement of any attorneys' fees accepted by Bach and Johnson throughout the pendency of the bankruptcy proceedings.

For the reasons that follow, the Court finds that the Debtors' Chapter 11 bankruptcy petitions were filed for the improper purpose of frustrating, hindering, and delaying Mendez in the collection of her judgment and imposes sanctions pursuant to Bankruptcy Rule 9011 solely against the Debtors and Aldairi in the amount of $314,536.34.

I. JURISDICTION

The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. § 1334 and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(0). See In re Volpert, 110 F.3d 494, 497 & n. 1 (7th Cir.1997) (finding that motions for sanctions are core proceedings and, therefore, matters over which the bankruptcy court has the authority to hear and adjudicate); Troost v. Kitchin (In re Kitchin), 327 B.R. 337, 359 (Bankr.N.D.Ill.2005) (same). Venue is proper under 28 U.S.C. § 1409.

Despite the dismissal of the underlying bankruptcy case, the Court may retain jurisdiction to consider collateral issues, such as the imposition of sanctions. Kitchin, 327 B.R. at 359; see also In re Carl F. Semrau D.D.S., Ltd., 356 B.R. 677, 689 (Bankr.N.D.Ill.2006) (noting that “logic compels the conclusion that the Debtors' invocation of § 105 of the Bankruptcy Code ... vests this Court with subject matter jurisdiction”); In re Am. Telecom Corp., 319 B.R. 857, 862 (Bankr.N.D.Ill.2004) (finding that the court “may retain jurisdiction after the dismissal of a case for the limited purpose of adjudicating Rule 11 (or Rule 9011) litigation”).

II. FACTS AND BACKGROUND

Over the course of several months, ten days of hearings were held and dozens of exhibits admitted in connection with the motion for sanctions currently before the Court. During the hearings, numerous witnesses testified, including Bach, Aldairi, the Debtors' accountant Mohammad Abu Ghoush (“Abu Ghoush”), judgment creditor Mendez, and Mendez's attorney Dana Kurtz (“Kurtz”). Much of the testimony, particularly Aldairi's and Abu Ghoush's, was inconsistent and evasive, frequently confusing matters rather than clarifying them, and many of the exhibits were incomplete, unclear, or simply missing from the exhibit books submitted to the Court. Despite the inconsistencies and lack of clarity, the Court is able to glean the following facts.

Aldairi, a dentist licensed to practice in the state of Illinois, is the president and sole shareholder of debtors Dental Profile and Dentist, P.C. ( See Bankr.Case No. 08–17148, Dkt. Nos. 98, 278 at 34:16–24; 377 at 136:11–16.) According to United States income tax returns filed for 2008, Aldairi also owns, in whole or in part, five other dental companies—Aya Dental Ltd., Hyde Park Dental Profile, Ltd., Elgin Dental Profile Ltd., AKA Dental Ltd., and Dental Profile Michigan—all of which are headquartered at 120 East Lake Street in Addison, Illinois.² ( See Debtors' Exs. 22–26.) Through these corporations, Aldairi owns and operates various dental clinics in the city of Chicago and its surrounding suburbs.

The testimony regarding which individual clinics Aldairi owned and when he owned them is inconsistent and muddled. At his 2004 examination, Aldairi testified that, as of March 2007, he owned and operated clinics on Montrose Avenue, Pulaski, North Avenue, Addison Avenue, Michigan Avenue, and Central Avenue, as well as a clinic in Elgin and another in Hyde Park.³ (Aldairi 2004 Exam at 8–13, 15.) He testified that, prior to 2007, he also owned other dental clinics, including one in Melrose Park, which he subsequently sold or relinquished ownership of. At trial, Aldairi testified that he closed the clinic on Michigan Avenue in about 2009 (Bankr.Case No. 08–17148, Dkt. No. 377 at 182–84), sold the clinic in Burbank to a practicing dentist who assumed the corresponding loans ( id. at 185–86), sold a clinic located on Sedgwick, again to a dentist who assumed the loans ( id. at 187), sold the Melrose Park clinic for more than $500,000 ( id. Dkt. No. 336 at 95), sold the clinic on 26th Street for about $900,000 ( id. at 109–112), and sold a clinic on North Broadway in about 2005 or 2006 ( id. at 113:6–13). Although Aldairi was uncertain as to when and for how much he sold each of the clinics, he testified that he did not sell any of them after the bankruptcy filing. ( Id. at 115–16, 118:12–14.)

According to the Debtors' schedules, only the Montrose Avenue and Addison Avenue locations operate under the Dental Profile corporation, and only the North Avenue location operates under the name Dentist, P.C.⁴ ( Id. Dkt. No. 17; Bankr. Case No. 08–17149, Dkt. No. 21.) The other locations seem to operate under the names of Aldairi's other corporate entities, although he testified that all but the Michigan Avenue location bear the Dental Profile name on their exteriors. (Aldairi 2004 Exam at 58–59.) Aldairi owns the property on which some of his dental clinics operate; for the clinics on other properties, he pays rent. ( See id. at 45–58.)

According to the testimony at trial, all of Aldairi's dental clinics and corporations use one account at Broadway Bank, held under the name Dental Profile, for all of their banking needs.⁵ (Bankr.Case No. 08–17148, Dkt.Nos. 326 at 37:13–15, 41:10–17; 336 at 40:10–11.) All monies generated from all locations go into that one account, and all expenses for all locations are paid out of that one account. ( Id., Dkt. Nos. 326 at 41:10–12, 42:5–6; 336 at 57–60.) Additionally, Aldairi's personal expenses are paid from the single account at Broadway Bank. ( Id., Dkt. Nos. 326 at 42:7–8; 336 at 139–46.) From 2007 through 2009, those personal expenses totaled $1.6 million, according to the testimony of Patricia Cosentino, an attorney and certified public accountant, who reviewed a Quicken data file, tax returns, and other financial documents provided to her by Abu Ghoush. ( Id., Dkt. Nos. 278 at 99:7–11, 108–09; 302 at 33–34.) The evidence of record demonstrates that numerous checks were written against the Broadway Bank account for a variety of Aldairi's personal expenses, including personal credit card payments, house cleaning, residential utilities, car payments, and insurance payments. ( Id., Dkt. No. 336 at 139–46, 190–91.) Despite the commingling of funds, both Aldairi and Abu Ghoush testified that each deposit and expense is coded to indicate whether it is a personal or business entry and then, further, each business entry is coded according to clinic location. ( Id., Dkt. Nos. 326 at 41:17–22, 42:7–11; 337 at 91:4–12, 92:23–25, 169–73.)

In addition to his dental businesses, Aldairi owns other companies, as well as various pieces of real estate and personal property. According to his individual income tax return for 2008, he is the sole shareholder of an investment firm called Al Dairi Investment and also owns, in whole or in part, a limited liability company by the name of Husgus LLC, the nature of which is unknown. ( See Debtors' Ex. 21; see also Aldairi 2004 Exam at 13–14.) As for real estate, Aldairi owns a variety of residential properties, including a single-family home in Burr Ridge; three single-family homes in Hinsdale; eight townhouses in Hinsdale; a condominium in the South Loop; a lavish, 45,000–square–foot estate on 4.5 acres in Burr Ridge called the Villa Taj; and a condominium in Miami, Florida. (Aldairi 2004 Exam at 25–41.) He also owns a warehouse in Bridgeview, Illinois. ( Id. at 42.) The current value of all of these properties is unknown, although Aldairi testified that the purchase prices totaled many millions of dollars. ( Id. at 25–42.) He also stated that the mortgage on the Village Taj alone is $7.7 million.⁶ ( See id. at 39:5–6.) According to Aldairi, most of the properties he owns are either unoccupied or being rented, and all of the residential properties are currently in foreclosure. ( Id. at 25–42; Bankr.Case No. 08–17148, Dkt. No. 337 at 34–35.) Additionally, Aldairi has, or at one time had, at least three luxury vehicles, including a Bentley that he acquired through either purchase or lease in 2008. ( See Bankr.Case. No. 08–17148, Dkt. No. 336 at 145–46.)

Prior to its sale, Mendez worked in Aldairi's Melrose Park dental clinic. ( Id. at 63:20–22.) During her employment there, she was subjected to “verbal and physical sexual advances and other sexual harassment.” (Mot. for Sanctions, Ex. 2 at 1.) After being terminated, Mendez filed a complaint in the District Court for the Northern District of Illinois against Perla Dental, Dental Profile, and two of the doctors who directly participated in the harassment, alleging claims of, inter alia, gender discrimination, hostile work environment, and retaliatory discharge, all in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C....