Sharif v. Fox (In re Sharif)

• Court: U.S. Bankruptcy Court — Northern District of Illinois
• Writing for the Court: Jacqueline P. Cox, United States Bankruptcy Judge
• Citation: Sharif v. Fox (In re Sharif), 627 B.R. 889 (Bankr. N.D. Ill. 2021)
• Decision Date: 09 April 2021
• Docket Number: Case No. 09 B 05868,Adversary Pro. 20 A 00399
• Parties: IN RE: Richard SHARIF, Debtor. Richard Sharif, Plaintiff, v. Horace Fox Jr., et al., Defendants.

627 B.R. 889

IN RE: Richard SHARIF, Debtor.

Richard Sharif, Plaintiff,

v.Horace Fox Jr., et al., Defendants.

Case No. 09 B 05868

Adversary Pro. 20 A 00399

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

Signed April 9, 2021

Attorney Adam Goodman represented Luma Hambaroush-Sharif.

Attorney Brendan J. Nelligan represented Arthur Newman, Chicago.

Attorney Michael Corsi represented Bruce De'Medici and Bradley Block.

Attorney Edward Eberspacher represented Horace Fox Jr., Chicago

Attorney David Sorensen represented Jonathan Anderson, Wheaton.

Memorandum Opinion on Motions to Dismiss

(Docket Nos. 23, 32, 52, 53, 54, 56, 89 and 91)

Jacqueline P. Cox, United States Bankruptcy Judge

This adversary proceeding is Debtor Richard Sharif's latest, and hopefully final effort "to prolong this contumacious litigation for purposes of harassment or delay, or both." Sharif v. Wellness Int'l Network, Ltd. , 273 Fed.App'x 316, 317 (5th Cir. 2008).

This matter has its roots in a contract action litigated in the U.S. District Court for the Northern District of Texas. Richard Sharif ("Sharif") and others sued Wellness International Network, Ltd. and Ralph and Cathy Oats (collectively, "Wellness") alleging fraud and violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"). Sharif failed to comply with his discovery obligations; the district court granted summary judgment in favor of Wellness. The Fifth Circuit Court of Appeals affirmed, making the observation noted above about the purpose of the litigation. That Court also noted that "[t]ime is long overdue to terminate Appellants' feckless litigation ..." Id. On remand the Northern District of Texas ordered Sharif and his co-plaintiffs to pay Wellness attorneys fees in the amount of $655,596 as a sanction. Sharif v. Wellness Int'l Network, Ltd. , 2008 WL 2885186, * 4 (N.D. Tex. July 22, 2008).

When Wellness tried to enforce the sanctions award Sharif again refused to comply with discovery requests. He was held in contempt on February 10, 2009; he filed this bankruptcy case two weeks later on February 24, 2009.

Each Defendants' motions to dismiss will be granted with prejudice because Sharif's amended complaint is legally insufficient, devoid of grounds for recovery under all theories asserted. Trustee Fox has adopted the motion to dismiss filed by Defendants de'Medici and Block. Docket 54.

Sharif will be ordered to show cause why he should not be sanctioned under Federal Rule of Civil Procedure 11, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 9011, for pursuing the baseless allegations herein and refusing to abide by various appellate rulings. Sharif's sisters Ragda Sharifeh, Haifa Sharifeh and Attorney Maurice J. Salem were sanctioned pursuant to Civil Rule 11 in 2017 for failing to abide by appellate mandates that the Soad Wattar Trust was property of the bankruptcy estate when they filed groundless motions that caused unnecessary delay and increased the cost of litigation. In re Sharif, 564 B.R. 328 (Bankr. N.D. Ill. 2017) (Attorney Maurice Salem was fined $20,000 and barred from filing pleadings in this bankruptcy case and related adversary proceeding without first obtaining leave of court. The sisters were barred from filing pleadings in this case and related adversary proceedings. This matter is on appeal in the district court.).

I. Jurisdiction

Federal district courts have original and exclusive jurisdiction of all cases under title 11, the Bankruptcy Code. 28 U.S.C. § 1334(a). The district courts may refer cases under title 11, and any or all proceedings arising under title 11 or arising in or related to a case under title 11, to the bankruptcy judges for their district. 28 U.S.C. § 157(a). The District Court for the Northern District of Illinois has referred its bankruptcy cases to the Bankruptcy Court for the Northern District of Illinois. N.D. Ill. Operating Procedure 15(a).

Bankruptcy courts have statutory authority to "hear and determine all cases under title 11 and all core proceedings arising under title 11, or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title." 28 U.S.C. § 157(b)(1). Core proceedings include this matter concerning the administration of the estate - an effort to sue bankruptcy estate professionals and others regarding, in part, their involvement in the Debtor's bankruptcy and divorce cases, referred to this court by the district court. Docket 1, Order Transferring Civil Action 19-cv-6035 to this court. 28 U.S.C. § 157(b)(2)(A).

II. Background

The Plaintiff in this adversary proceeding is Debtor Richard Sharif ("Sharif") who alleges that the Defendants, his wife, Luma Hambaroush-Sharif, Bankruptcy Trustee Horace Fox Jr., the Trustee's Attorneys Bruce de'Medici and Bradley Block, Arthur Newman and Jonathan Anderson are civilly liable to him for violations of the Racketeer Influenced & Corrupt Organizations Act ("RICO"), 18 U.S.C. 1962(c), breach of fiduciary duty, negligence and conspiracy.

RICO makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt." 18 U.S.C. § 1962(c).

While the amended complaint, at Adversary Proceeding 20-00399, Docket 1, Parts 63-66, describes some of the elements of a civil RICO claim, it does not satisfy Federal Rule of Civil Procedure 9, made applicable by Federal Rule of Bankruptcy Procedure 7009. Rule 9 requires that allegations of fraud or mistake be stated specifically, describing the circumstances amounting to fraud or mistake.

If a RICO claim is based on an allegation of fraud, the complaint must specify (1) the precise statements, documents, or misrepresentations made; (2) the time and place of and person responsible for the statement; (3) the content and manner in which the statements misled the Plaintiffs; and (4) what the Defendants gained by the alleged fraud.

Nero v. Mayan Mainstreet Inv. 1, LLC , 645 Fed.Appx. 864, 868 (11th Cir. 2016) (RICO claim dismissed for failure to state a claim) (internal citation omitted). Civil RICO allegations are subject to Civil Rule 9(b)'s heightened pleading standards for fraud allegations. In re Testosterone Replacement Therapy Products Liability Coordinated Pretrial Proceedings v. Abbvie, 159 F.Supp.3d 898, 909 (N.D. Ill. 2016).

The Defendants seek dismissal of the amended complaint under Civil Rules 12(b)(1) for lack of subject matter jurisdiction and 12(b)(6) for failure to state a claim.

Civil RICO claims have to include (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity. Menzies v. Seyfarth Shaw LLP, 943 F.3d 328, 336 (7th Cir. 2019). A pattern requires at least two predicate acts of racketeering activity that are related and continuous. Boneta v. Rolex Watch USA, Inc. , 232 F.Supp.3d 354, 358 (S.D.N.Y. 2017). In addition, a plaintiff who claims to have been injured by reason of a RICO predicate offense has to show that the offense not only was a "but for" cause of his injury, but was the proximate cause as well. Hemi Group, LLC v. City of New York , 559 U.S. 1, 2, 130 S.Ct. 983, 175 L.Ed.2d 943 (2010). In Hemi the City of New York sued an out-of-state cigarette retailer asserting civil RICO claims because the retailer did not file sales reports with the state of New York that would have been sent to the City by the state to allow the City to collect its tax on the possession of cigarettes. The court ruled that to show that an injury came about by reason of a civil RICO offense, a plaintiff has to show that a predicate offense not only was a but for cause of his injury, but was the proximate cause. It said that the City's theory required the court to extend RICO liability to situations where the defendant's fraud on the third party (the State) has made it easier for a fourth party (the taxpayer) to cause harm to the plaintiff, the City, and that the City was directly harmed by the customers, not by Hemi. Id. , at p. 3, 130 S.Ct. 983. A civil RICO plaintiff has to show a direct link between its injury and the injurious conduct alleged. Sharif has not alleged a direct link, that a predicate offense caused his injury. He has not alleged with specificity something that the Defendants did, just conclusions.

District Judge Leinenweber affirmed this court's entry of a default judgment that declared, as requested by Wellness, that the Soad Wattar Trust be found to be Sharif's alter ego. Sharif is responsible for the entry of the default judgment that denied him a discharge as well as the declaration about the trust, making it property of the bankruptcy estate from the date he sought bankruptcy relief. Sharifeh v. Fox, 2012 WL 469980 (N.D. Ill. February 10, 2012).

III. Civil Rule 12(b)(6) Motions to Dismiss

The pleading requirements of Federal Rule of Civil Procedure 8(a)(1), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7008, requires that a complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief."

The Defendants ask that Sharif's amended complaint be dismissed for failure to state claims upon which relief can be granted and for lack of jurisdiction based on the exclusion of federal jurisdiction for domestic relations matters. Motions to dismiss for failure to state a claim test the legal sufficiency of the plaintiff's claims. The court takes as true the well-pleaded allegations in the amended complaint and draws all reasonable inferences in favor of the non-movant, Sharif.

Viamedia, Inc. v. Comcast Corp ., 951 F.3d 429, 454 (7th Cir. 2020), citing Goldberg v. United States , 881 F.3d 529, 531 (7th Cir. 2018) (In...