Haifa Sharifeh v. Horace Fox, Jr. ( 2023 )


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  •                               In the
    United States Court of Appeals
    For the Seventh Circuit
    ____________________
    No. 17‐1615
    ESTATE OF SOAD WATTAR, et al.,
    Intervenors‐Appellants,
    v.
    HORACE FOX, JR.,
    Trustee‐Appellee.
    ____________________
    Appeal from the United States District Court for the
    Northern District of Illinois, Eastern Division.
    No. 16‐cv‐4699 — Robert M. Dow, Jr., Judge.
    ____________________
    No. 18‐2197
    IN RE: RICHARD SHARIF.
    Debtor,
    APPEAL OF: MAURICE SALEM
    ____________________
    Appeal from the United States District Court for the
    Northern District of Illinois, Eastern Division.
    No. 17‐cv‐1500 — Robert M. Dow, Jr., Judge.
    ____________________
    2                                    Nos. 17‐1615, 18‐2197 & 22‐2826
    No. 22‐2826
    HAIFA SHARIFEH,
    Intervenor‐Appellant,
    v.
    HORACE FOX, JR.,
    Trustee‐Appellee.
    ____________________
    Appeal from the United States District Court for the
    Northern District of Illinois, Eastern Division.
    No. 18‐cv‐8508 — Martha M. Pacold, Judge.
    ____________________
    SUBMITTED APRIL 13, 2023* — DECIDED APRIL 21, 2023
    RE‐ISSUED JUNE 16, 2023†
    ____________________
    Before EASTERBROOK, WOOD, and KIRSCH, Circuit Judges.
    PER CURIAM. In 2010, the United States Bankruptcy Court
    for the Northern District of Illinois ruled that all assets held
    by the Soad Wattar Revocable Living Trust—including the
    Wattar family home—were part of the bankruptcy estate of
    * We have agreed to decide each of the three cases discussed in this
    opinion without oral argument, because the briefs and the record ade‐
    quately present the facts and legal arguments, and thus oral argument
    would not significantly aid the court. FED. R. APP. P. 34(a)(2)(C).
    † An earlier version of this opinion was originally issued as a nonprec‐
    edential order. Upon request of the bankruptcy judges of the Northern
    District of Illinois, the court has decided to revise and re‐issue it as a for‐
    mal opinion.
    Nos. 17‐1615, 18‐2197 & 22‐2826                                   3
    Richard Sharif. Sharif was the son of Soad Wattar, now de‐
    ceased. As the sole trustee of the Wattar trust, Sharif had full
    control of its assets. Sharif’s sisters, Haifa and Ragda Sharifeh,
    soon launched an effort to keep the trust proceeds out of their
    brother’s bankruptcy estate; their strategy was to show that it
    was they who owned the trust assets, not their brother.
    At issue in these appeals are the bankruptcy court’s rul‐
    ings on three motions: (1) Haifa’s 2015 motion to vacate the
    court’s decision that all trust assets belonged to the bank‐
    ruptcy estate; (2) the sisters’ joint 2016 motion for leave to sue
    the Chapter 7 trustee assigned to Sharif’s bankruptcy for pur‐
    ported due‐process violations; and (3) Ragda’s 2016 motion
    seeking both reimbursement of money she allegedly spent on
    the family home and the proceeds from Wattar’s life insur‐
    ance policy, which the court had found to be an asset of the
    trust and therefore part of the bankruptcy estate. The bank‐
    ruptcy court denied all three motions and sanctioned the sis‐
    ters and their lawyer, Maurice Salem. Each ruling was af‐
    firmed on appeal to the district court. We are no more per‐
    suaded by the appellants’ arguments (to the extent they de‐
    velop any) than were the judges who already rejected them,
    and so we affirm.
    I
    Sharif filed for Chapter 7 bankruptcy in 2009. His mother,
    Soad Wattar, had established a living trust, of which he was
    the sole trustee. (His sisters would later argue that a 2007 trust
    amendment had made Ragda the sole trustee, but that led no‐
    where.) When Wattar died in March 2010, Sharif produced a
    will that named him executor of her estate and provided for
    all Wattar’s assets to pass into the trust. In June 2010, in a cred‐
    itor’s adversary proceeding against Sharif, the bankruptcy
    4                              Nos. 17‐1615, 18‐2197 & 22‐2826
    court ruled that the trust’s assets were part of the bankruptcy
    estate because Sharif had sole control over them and treated
    them as if they were his personal property. On the motion of
    the Chapter 7 bankruptcy trustee, Horace Fox, the bankruptcy
    court then ordered the trust assets to be turned over to the
    bankruptcy estate. (The parties refer to this as the turnover
    order.)
    While Sharif appealed this ruling, see Wellness Interna‐
    tional Network, Ltd. v. Sharif, 
    727 F.3d 751
     (7th Cir. 2013),
    rev’d, 
    575 U.S. 665
     (2015), Haifa and Ragda sought control of
    the trust assets, first in state court and then as intervenors in
    Sharif’s bankruptcy case. None of their efforts succeeded. By
    the bankruptcy court’s count, at least ten rulings between
    2010 and 2015 addressed who owned the trust assets and
    ruled against the sisters. Among these decisions was our 2015
    affirmance of the bankruptcy court’s initial decision that the
    trust and Sharif were alter egos, issued on remand from the
    Supreme Court of the United States. See Wellness Int’l Net‐
    work, Ltd. v. Sharif, 
    617 F. App’x 589
    , 591 (7th Cir. 2015).
    These rulings also included the bankruptcy court’s denial
    of Haifa’s 2015 motion on behalf of her mother’s estate to va‐
    cate the turnover order. See Fed. R. Civ. P. 60(b)(4). When the
    trustee opposed the motion, Haifa attached to her reply brief
    a theretofore‐unknown second will. Dated April 28, 2007—
    two days after the will Sharif had produced five years ear‐
    lier—it purported to name Haifa the executor of their
    mother’s estate. Haifa argued that the turnover order was in‐
    valid because the court had no power to dispose of the Wattar
    estate’s assets until the true executor received notice, and
    Haifa allegedly had not been notified at the proper time.
    Nos. 17‐1615, 18‐2197 & 22‐2826                                  5
    The bankruptcy court denied Haifa’s motion after making
    some critical findings: (1) Haifa had in fact received notice of
    the proceedings; (2) the second will was forged; (3) even if it
    were genuine, Haifa still lacked an interest in the disputed as‐
    sets, which were property of the trust no matter who the will’s
    executor was; and (4) in any event, laches barred Haifa’s claim
    because she had unreasonably delayed pursuing it. Along the
    way, the court found that Haifa’s testimony that she had not
    received notice of the bankruptcy proceedings or turnover or‐
    der was not credible. The district court (Judge Pacold) af‐
    firmed.
    In 2016, the sisters requested leave of the bankruptcy court
    to sue Trustee Fox and his attorney for violating their rights
    when the trustee moved for the transfer of trust assets to Sha‐
    rif’s bankruptcy estate. Advance permission from the bank‐
    ruptcy court is required to sue a trustee for actions taken in
    that capacity. See In re Linton, 
    136 F.3d 544
    , 545 (7th Cir. 1998).
    The sisters, now represented by Maurice Salem, identified
    their prospective suit as a Fifth Amendment due‐process
    claim under Bivens v. Six Unknown Named Agents of Federal Bu‐
    reau of Narcotics, 
    403 U.S. 388
     (1971). At the same time, Ragda
    moved for funds from the bankruptcy estate to reimburse her‐
    self for mortgage and tax payments she claimed to have made
    on the family home between 2010 and 2015. She also asserted
    that she was the proper beneficiary of Wattar’s life insurance
    policy and was owed the proceeds because they were exempt
    from bankruptcy under Illinois law. See 735 ILCS 5/12‐1001(f).
    The bankruptcy court denied the sisters leave to sue after
    concluding that they failed to make the required initial show‐
    ing that their claims had some foundation. Their one‐page
    motion trailed off midsentence, and the attached complaint
    6                              Nos. 17‐1615, 18‐2197 & 22‐2826
    sought to sue Fox and his attorney under Bivens for depriving
    them of property without “notice and a hearing.” As for
    Ragda’s motion, the bankruptcy court concluded that she
    cited no statutory or contractual basis for recouping her al‐
    leged expenditures on the home. Indeed, Ragda conceded
    that the payments were voluntary. Further, the bankruptcy
    exemption she invoked for the insurance proceeds did not ap‐
    ply to her; it is for dependents of the insured, which Ragda
    was not. Furthermore, only debtors can invoke exemptions,
    and Ragda had no claim to be the debtor.
    The bankruptcy court then ordered Salem, Ragda, and
    Haifa to show cause why they should not be sanctioned. After
    receiving their responses and holding a hearing, the bank‐
    ruptcy court concluded that their 2016 motions violated Fed‐
    eral Rule of Bankruptcy Procedure 9011 because they lacked
    a basis in law or evidence. The court further concluded that
    the motions had been filed “to harass the bankruptcy trustee,
    cause unnecessary delay and … increase the cost of litiga‐
    tion,” and actually had increased the bankruptcy estate’s liti‐
    gation expenses. After reviewing in detail the history of the
    decade‐plus bankruptcy litigation and the sisters’ attempts to
    siphon off assets controlled by Sharif (and his other creditors),
    the court further determined that Salem, Ragda, and Haifa
    displayed “repeated disregard for the facts and the law” and
    that “[t]ime and again, [they] have shown a complete disre‐
    gard for the judicial system, making blatant attempts to cir‐
    cumvent it.” On that basis, the court issued sanctions: it
    barred Salem, Ragda, and Haifa from any further filings in the
    bankruptcy case and fined Salem $20,000. On appeal, the dis‐
    trict court (Judge Dow) affirmed the denial of the motions and
    imposition of sanctions.
    Nos. 17‐1615, 18‐2197 & 22‐2826                                 7
    These events resulted in three separate appeals to this
    court. We initially consolidated the appeals of the rulings on
    the 2016 motions and sanctions, while Haifa’s appeal of the
    denial of her motion to vacate proceeded in parallel. We now
    conclude that further consolidation is desirable. All three ap‐
    peals spring from the same bankruptcy case and rest on a
    common factual background, and so it makes sense to resolve
    them together. We note that Salem has been suspended from
    the practice of law and, because he is proceeding pro se, he
    may represent only himself. Nevertheless, in their joint brief
    Haifa and Ragda adopt Salem’s appellate arguments about
    their 2016 motions and sanctions. See Fed. R. App. P. 28(i).
    II
    On appeal, Haifa challenges the denial of her 2015 motion
    to vacate the turnover of trust assets; Haifa and Ragda chal‐
    lenge the denial of their 2016 motions; and the two sisters and
    Salem all challenge the sanctions. Each of the challenged rul‐
    ings pertains to a discrete matter within the overarching
    bankruptcy, and the bankruptcy court disposed of each one
    definitively. Both the district court and this court thus have
    jurisdiction over the appeals. 
    28 U.S.C. §§ 158
    (a), (d)(1); Ritzen
    Grp., Inc. v. Jackson Masonry, LLC, 
    140 S. Ct. 582
    , 586–87 (2020).
    We review the bankruptcy court’s findings of fact for clear er‐
    ror and the legal conclusions of both the bankruptcy court and
    district court de novo, with special deference to the bankruptcy
    court’s assessment of credibility. In re Dimas, 
    14 F.4th 634
    ,
    639–40, 642 (7th Cir. 2021). We may affirm on any basis sup‐
    ported by the record, as long as it was raised below and the
    appellants had the opportunity to contest it. McHenry County
    v. Raoul, 
    44 F.4th 581
    , 588 (7th Cir. 2022); In re Airadigm
    8                              Nos. 17‐1615, 18‐2197 & 22‐2826
    Commcʹns, Inc., 
    616 F.3d 642
    , 652 (7th Cir. 2010) (bankruptcy
    appeal).
    A. Motion to Vacate the Turnover of Trust Assets
    Recall that in 2015 Haifa moved to vacate the court’s order
    requiring the trust assets to be turned over to the bankruptcy
    estate. Haifa contends that this step was necessary because,
    after the bankruptcy court’s ruling, she obtained a newer ver‐
    sion of the second will—this one certified by a Syrian court—
    that proves its veracity. She repeats her argument that her
    mother’s estate was not bound by the turnover order because
    she, as purported executor, never received notice.
    Though Haifa primarily challenges the bankruptcy court’s
    finding that the second will is a forgery, we can resolve her
    appeal without wading into that morass. Even if Haifa were
    really the executor, she simply waited too long to assert the
    estate’s rights. In the bankruptcy and district courts, the trus‐
    tee raised the equitable defense of laches, which cuts off the
    right to sue when (1) the plaintiff has inexcusably delayed
    bringing suit, and (2) that delay harmed the defendant. See
    Teamsters & Emps. Welfare Tr. v. Gorman Bros. Ready Mix, 
    283 F.3d 877
    , 880 (7th Cir. 2002). Haifa does not meaningfully dis‐
    pute the assertion that the delay was prejudicial to the bank‐
    ruptcy estate, nor could she: if the second will controls, the
    trustee has been allocating assets improperly for years. We
    therefore focus on whether the delay is excusable.
    Haifa’s explanation for her years‐long delay in producing
    and seeking to enforce the second will is unconvincing. She
    first argues that she lacked notice of the bankruptcy proceed‐
    ings or turnover order. But even if, despite being a creditor,
    she was not served with filings or copies of rulings, we see no
    Nos. 17‐1615, 18‐2197 & 22‐2826                               9
    error in the bankruptcy court’s determination that Haifa had
    actual notice. Among other things, the record shows that
    Haifa and Ragda filed a state‐court complaint in July 2010 that
    discussed the bankruptcy and the alter‐ego order. Haifa gives
    us no reason not to defer to the bankruptcy court’s assess‐
    ment—based on inconsistent statements in other proceedings
    and her participation in the state‐court litigation—that
    Haifa’s testimony about when she learned of the bankruptcy
    was not credible. Dimas, 14 F.4th at 642.
    Haifa next argues that she could not act until 2015 because
    the Supreme Court was considering a decision of this court,
    which, according to Haifa had “vacated” the turnover order
    in Sharif’s appeal. Our decision, Haifa says, meant that the
    probate estate was “winning the trust” back from the bank‐
    ruptcy estate, and she had to wait for her brother’s Supreme
    Court appeal to conclude. That was not the nature of Sharif’s
    appeal. But, in any case, we issued our decision in August
    2013, meaning that Haifa had three years before then to chal‐
    lenge the turnover order. After all, she purports to have been
    aware of the second will from the time it was executed in 2007
    and does not explain why she did not invoke it as soon as her
    brother began to act as executor. Further, Haifa’s assertion is
    simply that she was the executor, and in that capacity was en‐
    titled to notice—she never has disputed that even under her
    version of the will, her mother’s assets passed directly to the
    trust, which Haifa has never controlled. In short, her reasons
    for waiting are muddled at best and do not outweigh the prej‐
    udice to the bankruptcy estate.
    The district court gave other reasons, including collateral
    estoppel, for rejecting Haifa’s attempt to invalidate the
    10                             Nos. 17‐1615, 18‐2197 & 22‐2826
    turnover order. We have no reason to reach these issues and
    express no opinion on them.
    B. The 2016 Motions
    Next, both sisters assert that the district court applied the
    wrong standard when it reviewed the bankruptcy court’s de‐
    nial of their motion for leave to sue the trustee. They assert
    that the district court should have reversed because the bank‐
    ruptcy court failed to assess whether they made a prima facie
    case for the trustee’s violation of their rights. But the bank‐
    ruptcy court committed no such error. In its lengthy order dis‐
    cussing the motion’s failings, the court simply made an as‐
    sessment with which they disagree.
    The bankruptcy court correctly concluded that the motion
    did not set forth a prima facie case for a right to relief against
    the trustee. It made no case at all: the motion trails off and
    does not even present a complete argument. And the argu‐
    ment it does attempt to present is frivolous. The sisters did
    not explain then—nor do they now—why they could sue a
    Chapter 7 trustee under Bivens.
    The Supreme Court has repeatedly “emphasized that rec‐
    ognizing a cause of action under Bivens is ‘a disfavored judi‐
    cial activity.’” Egbert v. Boule, 
    142 S. Ct. 1793
    , 1802 (2022)
    (quoting Ziglar v. Abbasi, 
    582 U.S. 120
    , 135 (2017)). To deter‐
    mine whether a plaintiff has stated a Bivens claim, we first
    must “ask whether the case presents ‘a new Bivens context’—
    i.e., is it ‘meaningful[ly]’ different from the three cases in
    which the Court has implied a damages action.” Id. at 1803
    (quoting Ziglar, 582 U.S. at 139). If so, we consider whether
    “there are ‘special factors’ indicating that the Judiciary is at
    least arguably less equipped than Congress ‘to weigh the
    Nos. 17‐1615, 18‐2197 & 22‐2826                                11
    costs and benefits of allowing a damages action to proceed.’”
    Id. (quoting Ziglar, 582 U.S. at 136). “[E]ven a single reason to
    pause” is sufficient to bar the recognition of a new Bivens the‐
    ory. Id. (internal quotations omitted).
    The proposed claim here fails both steps. First, there is no
    doubt that the sisters’ claim that the Chapter 7 trustee and his
    counsel violated their Fifth Amendment due‐process rights
    represents a new Bivens context. See id. at 1803 (stating that
    cases involving “a new category of defendants” represent
    new contexts (internal quotations omitted)). Second, the
    unique nature of a bankruptcy trustee’s role is more than suf‐
    ficient reason to pause before recognizing a Bivens action
    against a trustee. Trustees have attributes of both private and
    state actors. They are not federal employees; they are private
    representatives appointed or elected to protect a bankruptcy
    estate. See 
    11 U.S.C. § 701
    (a)(1) (granting the U.S. Trustee the
    power to appoint a “disinterested person” from “the panel of
    private trustees” as an interim trustee). Nor are Chapter 7
    trustees fully on the government’s payroll. Aside from a nom‐
    inal fee of $60 to $120 per case, trustees are paid by the bank‐
    ruptcy estate, not the federal government. See 
    11 U.S.C. §§ 330
    (b), 330(e) (nominal flat fees); 
    11 U.S.C. §§ 326
    (a), 330(a)
    (variable compensation tied to the value of assets in the es‐
    tate). And like public defenders, who the Supreme Court has
    held are not state actors for purposes of section 1983 claims
    despite their government employment, see Polk County v.
    Dodson, 
    454 U.S. 312
    , 325 (1981), private trustees must repre‐
    sent the interests of the bankruptcy estate, not the interests of
    the government. See Dechert v. Cadle Co., 
    333 F.3d 801
    , 802 (7th
    Cir. 2003) (explaining that trustees “hav[e] fiduciary obliga‐
    tions exclusively to the estate in bankruptcy”). Indeed, like
    public defenders, trustees may sometimes find themselves to
    12                              Nos. 17‐1615, 18‐2197 & 22‐2826
    be the state’s adversaries. See, e.g., United States v. Nordic Vil‐
    lage Inc., 
    503 U.S. 30
     (1992) (abrogated by statute) (involving a
    suit brought by a trustee against the IRS).
    In some contexts, however, the bankruptcy trustee may be
    viewed as a sort of “court officer.” See Norton Bankr. L. & P.
    3d § 28:1, Westlaw (database updated May 2023). From this
    perspective, “a trustee in bankruptcy is working in effect for
    the court that appointed or approved him, administering
    property that has come under the court’s control by virtue of
    the Bankruptcy Code.” In re Linton, 
    136 F.3d at 545
    . For that
    reason, courts have long held that a plaintiff seeking to sue a
    trustee “concerning actions taken by him in the course of his
    trusteeship must obtain the permission of the bankruptcy
    court.” See 
    id.
     at 545–47 (discussing the development of the
    doctrine and affirming its applicability to suits against trus‐
    tees in state court). Relatedly, courts have recognized that
    trustees enjoy some degree of immunity for acts taken pursu‐
    ant to court orders or within the scope of their trusteeship,
    though the contours of this doctrine remain unsettled. See,
    e.g., In re McKenzie, 
    716 F.3d 404
    , 413 (6th Cir. 2013) (explain‐
    ing that, although “[b]ankruptcy trustees serve in a variety of
    functions and may be immune for some but not all of those
    functions, … a bankruptcy trustee is ordinarily entitled to
    quasi‐judicial (or derivative) immunity from suit by third par‐
    ties for actions taken in his official capacity”); In re Harris, 
    590 F.3d 730
    , 742 (9th Cir. 2009) (“Bankruptcy trustees are entitled
    to broad immunity from suit when acting within the scope of
    their authority and pursuant to court order.” (quoting Bennett
    v. Williams, 
    892 F.2d 822
    , 823 (9th Cir. 1989))).
    In sum, the unique nature of the trustee’s role is sufficient
    to counsel hesitation before recognizing an implied cause of
    Nos. 17‐1615, 18‐2197 & 22‐2826                               13
    action for money damages against a trustee, especially in light
    of Congress’s broad power to “establish … uniform Laws on
    the subject of Bankruptcies throughout the United States.”
    U.S. Const. art. I, § 8, cl. 4. We therefore decline to recognize
    the proposed Bivens claim.
    The sisters also develop no argument supporting a legal
    basis for Ragda to recoup the mortgage and tax payments she
    allegedly made, or to receive the life insurance proceeds that
    were payable to the trust as beneficiary (and then transferred
    to the bankruptcy estate). The sisters’ challenges to the denial
    of the 2016 motions are underdeveloped and unsupported by
    law. Indeed, we would have been within our rights to con‐
    sider them waived, see Puffer v. Allstate Ins. Co., 
    675 F.3d 709
    ,
    718 (7th Cir. 2012), but we have attempted to address the ar‐
    guments we can discern.
    C. The Bankruptcy Court’s Sanctions
    We review for abuse of discretion the bankruptcy court’s
    imposition of sanctions on Ragda, Haifa, and Salem. See In re
    Rinaldi, 
    778 F.3d 672
    , 676 (7th Cir. 2015). Those sanctions in‐
    cluded a bar on further filings in the bankruptcy case plus a
    $20,000 fine for Salem. We find no such abuse here—indeed,
    we find nothing wrong with the court’s action. Salem princi‐
    pally argues that sanctions were inappropriate because the
    motions he filed were not “another attempt to obtain the same
    relief” sought in previous motions and were therefore not re‐
    petitive. While this may be true in the narrow sense—no party
    previously sought to sue the bankruptcy trustee under
    Bivens—the bankruptcy court reasonably concluded that
    these motions represented yet another refusal to accept its de‐
    cision that the trust assets were part of the bankruptcy estate.
    14                             Nos. 17‐1615, 18‐2197 & 22‐2826
    Salem’s focus on repetitiveness misses the point. The
    bankruptcy court determined that no argument in the 2016
    motions was supported by fact or law and that the motions
    were intended to harass the trustee and increase the cost of
    litigation. See Fed. R. Bankr. P. 9011(b)(1)–(2). As discussed
    above, the appellants present no legal basis for their motions,
    even as they appeal the rulings. And they do not address the
    bankruptcy court’s finding that those motions were intended
    to harass the trustee and needlessly increase the cost of litiga‐
    tion. They offer only the bare and incorrect assertion that the
    bankruptcy court’s lengthy sanctions order failed to address
    certain issues. The burden is on the appellants to tell us why
    the sanctions were so off‐base that imposing them was an
    abuse of discretion. They cannot prevail when they fail to en‐
    gage with the reasons why the bankruptcy court imposed,
    and the district court upheld, the sanctions. See Klein v.
    OʹBrien, 
    884 F.3d 754
    , 757 (7th Cir. 2018). We add that barring
    these litigants from further filings in the bankruptcy action
    was a sensible response to their frivolous attempts to under‐
    mine long‐settled issues.
    III
    We have considered appellants’ other arguments, includ‐
    ing Salem’s umbrage at the documentation of his history of
    litigation misconduct outside of these cases and a frivolous
    suggestion that the sanctions chill protected speech. None has
    merit. We thus AFFIRM the judgments of the district courts.