In re Shakir

Decision Date06 September 2022
Docket NumberBankruptcy No. 20 B 01252,Adversary No. 21 A 00008
Citation643 B.R. 203
Parties IN RE: Sohail A. SHAKIR, Debtor. Philip V. Martino, not individually, but solely in his capacity as the duly appointed Trustee for the estate of Sohail A. Shakir, Plaintiff, v. Sohail A. Shakir; Rubina Shakir; Osama Shakir; Surrosh Shakir; Green Dot Builders, LLC ; RSS Homes, LLC; The Rubina Shakir 2002 Living Trust; and 550 22nd LLC, Defendants.
CourtU.S. Bankruptcy Court — Northern District of Illinois

643 B.R. 203

IN RE: Sohail A. SHAKIR, Debtor.

Philip V. Martino, not individually, but solely in his capacity as the duly appointed Trustee for the estate of Sohail A. Shakir, Plaintiff,
v.
Sohail A. Shakir; Rubina Shakir; Osama Shakir; Surrosh Shakir; Green Dot Builders, LLC ; RSS Homes, LLC; The Rubina Shakir 2002 Living Trust; and 550 22nd LLC, Defendants.

Bankruptcy No. 20 B 01252
Adversary No. 21 A 00008

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

Date of Issuance: September 6, 2022


643 B.R. 207

Attorney for Plaintiff: Kevin A. Sterling, The Sterling Law Office LLC, 411 North LaSalle Street, Suite 200, Chicago, Illinois 60654.

Attorney for Defendants: Michael W. Ott, Ice Miller LLP, 200 W. Madison Street, Suite 3500, Chicago, IL 60606.

ORDER DENYING DEFENDANTS’ MOTION TO DISMISS (Adv. Dkt. No. 64)

Donald R. Cassling, United States Bankruptcy Judge

This matter is before the Court on Defendants’ Motion to Dismiss Counts I through VI of Trustee's Amended Complaint. Counts I through III seek declaratory judgments that three limited liability companies are Debtor's alter egos. Counts IV and V seek declaratory judgments that the Debtor is the equitable owner of a trust's corpus and certain financial accounts nominally held in his wife's name. Count VI seeks turnover of these properties under Section 542(a) of the Bankruptcy Code. For the following reasons, the Court denies Defendants’ motion.

A. BACKGROUND

In preparing its ruling, the Court has considered the Amended Complaint (Adv. Dkt. No. 61), Defendants’ motion (Adv. Dkt. No. 64), and the parties’ briefs (Adv. Dkt. Nos. 70-71). Solely for purposes of ruling on Defendants’ motion, the Court takes all well-pleaded factual allegations in the Amended Complaint as true. Silha v. ACT, Inc. , 807 F.3d 169, 173-74 (7th Cir. 2015). The Court also takes judicial notice of the contents of Debtor's bankruptcy case and adversary proceeding dockets, including his Chapter 7 voluntary petition (Bankr. Dkt. No. 1); Schedules A/B, C, D, E/F, G, H, I, and J (Bankr. Dkt. No. 12); Statement of Financial Affairs (Bankr. Dkt. No. 13); and Statement of Current Monthly Income (Bankr. Dkt. No. 14). See Tellabs, Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (explaining that courts

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ruling on Federal Rule 12(b)(6) motions "must consider the complaint in its entirety, as well as... documents incorporated into the complaint by reference, and matters of which a court may take judicial notice."). Pursuant to the Tellabs rule, the Court also considers the transcript of Debtor's testimony at his Bankruptcy Rule 2004 examination (Adv. No. 20 A 00352, Dkt. No. 1 at Ex. C (cited infra as "2004 Exam at __")), for the Amended Complaint refers to that testimony many times. (E.g. , Compl. ¶¶ 9, 13, and 85.)

1. Procedural History

The Trustee filed his original complaint on January 11, 2021. The Defendants answered the original complaint on March 9, 2021. The parties then commenced discovery, which has been lengthy and contentious, requiring the Trustee to move to compel discovery from various Defendants three times.

About a year after the pleadings had closed, a dispute arose between the parties regarding their differing interpretations of what claims the original complaint actually asserted. Defendants’ newly retained counsel1 argued that the Trustee was "really" seeking to unwind time-barred fraudulent transfers, notwithstanding the fact that the Trustee did not plead any fraudulent-transfer claims, and instead had brought alter ego claims. The Defendants also argued that if, in fact, the Trustee was "really" pursuing alter ego claims, he lacked standing to do so (a claim that Defendants repeat in the present motion and which is discussed below).

In order to sharpen the issues and clarify any ambiguities in the original complaint, the Court directed the Trustee to file an amendment to his complaint that would not add any new causes of action but would clarify and lay out the facts supporting his alter ego claims in a more fulsome manner. This course of action appeared to the Court to be a more expeditious and less expensive way to resolve the legal arguments between the parties than having the parties address the original complaint's alleged defects in a summary judgment motion,2 particularly when the parties disputed what the original complaint actually asserted.

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On April 5, 2022, the Trustee filed his Amended Complaint setting forth the factual allegations in his claims in greater detail than he had provided in the original complaint. As instructed by the Court, he did not assert any new legal theories in the Amended Complaint. Although Defendants’ answer or other responsive pleading was due 14 days thereafter,3 Defendants waited 27 days to file their motion to dismiss. Defendants’ motion is, therefore, untimely and could be denied on that ground alone. However, the motion is also denied on the merits, for the reasons discussed below.

2. Summary of Key Allegations in the Amended Complaint

The Debtor filed his voluntary petition for relief under Chapter 7 of the Bankruptcy Code on January 16, 2020. The United States Trustee appointed Plaintiff Philip V. Martino to serve as trustee in Debtor's bankruptcy case shortly thereafter. Fulfilling his statutory duties, the Trustee began investigating Debtor's financial affairs and marshaling the estate's assets for liquidation. That investigation has led the Trustee to conclude that, in the run-up to his bankruptcy case, the Debtor began forming new companies—nominally owned by his immediate family but managed by Debtor—through which to conduct his business affairs.

In general terms, the Trustee alleges that the reason the Debtor did this was to escape a multimillion-dollar liability he faced under his personal guaranty of his company's obligations under a contract to construct a banquet hall. The Trustee alleges that Debtor set up his new companies after his company defaulted under the construction contract, and the other party to the contract sued both his company under the contract and the Debtor under his guaranty. Accordingly, the Trustee commenced this proceeding to seek a declaration that the Debtor is the true equitable owner of those assets, while the Debtor claims they rightfully belong to his immediate family members.

More specifically, the Amended Complaint alleges that the Debtor formed a construction company, Green Dot Builders, LLC ("Green Dot"), in 2013, and that he caused Green Dot to enter into a contract in 2014 to construct a banquet hall for the owner of a mall in suburban Chicago. (Compl. ¶¶ 19, and 23-26.) As additional security for Green Dot's obligations under the contract, the Debtor executed a personal guaranty in favor of the mall owner.

Relying on that agreement, the mall's owner evicted some of its commercial tenants and demolished a portion of its property in order to make room for the proposed banquet hall. But the Debtor and his company reneged on their obligation to build it. (Id . ¶ 25.) The mall's owner sued in state court, eventually obtaining a seven-figure judgment against the Debtor. (Debtor's Schedule E/F at p. 5.)

The Amended Complaint alleges that, while that state-court case was pending, the Debtor engaged in a five-step scheme to shield his own and Green Dot's assets

643 B.R. 210

from exposure to the mall owner's lawsuit by:

• causing new companies to be formed in his family members’ names, while leaving Debtor in complete control by naming him as those companies’ sole manager. (E.g. , Compl. ¶¶ 3, 20-21, 33, and 107.)

• financing these new companies’ operations and land acquisitions with the seven-figure proceeds of Debtor's sale of three gas stations, which he personally owned. (E.g. , id . ¶¶ 26, 40-41, 54-57, and 60.)

• providing Green Dot's services exclusively to these new companies without charging them fair-market fees or expenses. (E.g. , id . ¶¶ 47-48.)

• ladening these new companies with debt obligations to himself and Green Dot. (E.g. , id . ¶¶ 2, and 60.)

• pocketing part of the revenue generated by these new companies to fund his family's lifestyle and depositing the rest in bank accounts owned by various family members. (E.g. , id . ¶¶ 64-67, and 86.)

The Amended Complaint alleges that, while Debtor's family members were nominally granted ownership of these new companies and the revenues they generated, they were really only figureheads. For example, Debtor's wife, Rubina Shakir, suffered a traumatic brain injury in an accident in 2017 and is disabled. (Id . ¶ 12.) Debtor's daughter, Surrosh Shakir, is also disabled. (Id . ¶ 18.) In fact, neither Rubina nor Surrosh are able to manage their own affairs, much less run a business.4 Debtor's remaining two children, Osama and Hamza, are both college educated but have never been employed until recently. (Id . ¶¶ 16-17.) Three of the remaining Defendants—Green Dot Builders, LLC; RSS Homes, LLC; and 550 22nd LLC—are limited liability companies formed under Illinois law. The fourth remaining Defendant—The Rubina Shakir 2002 Living Trust—is the inter vivos trust into which Rubina and the Debtor conveyed the Residence's title. (Id . ¶ 14.)

The Trustee argues that the Debtor is the true owner and controller of all of these entities and their activities. In spite of the disabilities of his wife and daughter, and the lack of business experience of his remaining two children, the Defendants assert in their motion to dismiss that each of Debtor's family members started up and ran these new businesses on their own.

B. ANALYSIS

In ruling on a Federal Rule 12(b)(6) motion, the primary question to be decided is whether or not "the...

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