Stevens v. Sharif

Filing 73

MEMORANDUM Opinion and Order: For the foregoing reasons, Stevens' motion to dismiss 63 , is denied. Signed by the Honorable Thomas M. Durkin on 8/4/2016:Mailed notice(srn, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
WILLIAM J. STEVENS,
Plaintiff,

No. 15 C 1405

v.

Judge Thomas M. Durkin

RICHARD SHARIF,
Defendant.
MEMORANDUM OPINION AND ORDER
William Stevens, an attorney, alleges that his former client, Richard Sharif,
failed to pay him for legal services. R. 1. Sharif has filed a counterclaim for
malpractice against Stevens. R. 51. Stevens has moved to dismiss Sharif’s
counterclaim for failure to state a claim pursuant to Federal Rule of Civil Procedure
12(b)(6). R. 63. For the following reasons, Stevens’s motion is denied.
Legal Standard
A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g.,
Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th
Cir. 2009). A complaint must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to
provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels

and conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.’”
Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In
applying this standard, the Court accepts all well-pleaded facts as true and draws
all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.
Background
Stevens agreed to represent Sharif in bankruptcy proceedings and
subsequent appeals. R. 1 ¶ 7. Although neither party addresses the details of the
bankruptcy proceedings in this case, the Supreme Court reviewed the facts in
Wellness International Network, Ltd. v. Sharif, 135 S. Ct. 1932, 1940 (2015).
According to the Supreme Court, Sharif entered into a business contract with
Wellness International Network but later sued the company in a federal court in
Texas. Id. “Sharif repeatedly ignored Wellness’ discovery requests and other
litigation obligations, resulting in an entry of default judgment [and an award of
attorney’s fees] for Wellness.” Id.
In part as a result of the debt he incurred in the Wellness case, Sharif filed for
Chapter 7 bankruptcy in the Northern District of Illinois in 2009. Id. Sharif was
unable to discharge his debts, in part, because Wellness discovered a loan

2 

application document in which Sharif purported to own over $5 million in assets in
a trust established in the name of Sharif’s mother. Id.
Sharif alleges Stevens committed malpractice when he failed to present
evidence that Sharif did not own the trust. R. 51 ¶ 3. Sharif contends that this
evidence would have formed a basis for the bankruptcy court to discharge his debt.
Id. ¶ 10. Instead, in July 2010, the bankruptcy court found that the trust’s assets
were property of Sharif’s bankruptcy estate and subject to Sharif’s creditors. See
Wellness Int’l, 135 S. Ct. 1932 at 1941.
Sharif also alleges that Stevens committed malpractice when he failed to
raise an objection to the bankruptcy court’s jurisdiction on appeal. R. 51 ¶ 4. Before
briefing on Sharif’s appeal began in the district court, the Supreme Court decided
Stern v. Marshall, 564 U.S. 463 (2011). In Stern, the Supreme Court held that a
bankruptcy court could not “enter final judgment on a state law counterclaim that is
not resolved in the process of ruling on a creditor’s proof of claim,” id. at 503,
because the authority of bankruptcy courts is not derived from Article III of the
Constitution. Id. at 483-503. On the basis of the Stern decision, Sharif alleges that
the bankruptcy court lacked jurisdiction to enter a final judgment regarding
ownership of the trust, and that Stevens should have made this argument before
the district court and the Seventh Circuit. See R. 51.
Stevens failed to cite Stern in the briefs he filed on Sharif’s behalf in the
district court. See R. 68-1 at 1-2. Stevens did, however, move to file a supplemental
brief addressing Stern after the Seventh Circuit issued its decision in In re Ortiz,

3 

665 F.3d 906 (7th Cir. 2011), which explained Stern’s impact. Id. The district court
denied this motion and affirmed the bankruptcy court’s decision. See Sharifeh v.
Fox, 2012 WL 469980 (N.D. Ill. Feb. 10, 2012).
Sharif, again represented by Stevens, appealed the district court’s decision.
See R. 68-1. In his opening brief in the Seventh Circuit, Stevens again failed to
make an argument based on Stern. Id. at 2. He did, however, include this argument
in his reply brief. Id. Despite Steven’s failure to raise a Stern objection in his
opening brief, the Seventh Circuit held that a Stern objection could not be waived,
and reversed the district court, holding “the bankruptcy court lacked constitutional
authority to enter final judgment.” Wellness Int’l Network, Ltd. v. Sharif, 727 F.3d
751, 775-76 (7th Cir. 2013).
In 2015, the Supreme Court reversed the Seventh Circuit, holding that
adjudication by an Article III judicial body was a personal right and could be waived
by a litigant, as opposed to a constitutional right that cannot be waived. Wellness
Int’l, 135 S. Ct. at 1942-47. It remanded the case to the Seventh Circuit, with
instructions to decide whether Sharif waived this jurisdictional right by failing to
raise a Stern objection until his reply brief. Id. at 1949. On remand, the Seventh
Circuit held that Sharif “waited too long to raise his Stern objection because he did
not mention the issue until his reply brief,” and on that basis, the court affirmed the
district court’s decision against Sharif. Wellness Int’l Network, Ltd. v. Sharif, 617
Fed. App’x 589, 590-91 (7th Cir. 2015).

4 

Analysis
Under Illinois state law, “[i]n an action for legal malpractice the plaintiff
must plead and prove that: the defendant attorney owed the plaintiff a duty of due
care arising from the attorney-client relationship; that the defendant breached that
duty; and that as a proximate result, the plaintiff suffered injury in the form of
actual damages.” Governmental Interinsurance Exch. v. Judge, 850 N.E.2d 183, 18687 (Ill. 2006). “In Illinois the question of whether a lawyer has exercised a
reasonable degree of care and skill in representing and advising his client had
always been one of fact.” Nelson v. Quarles and Brady, LLP, 997 N.E.2d 872, 880
(Ill. App. Ct. 1st Dist. 2013). “However, although the question of whether a lawyer
has breached a duty to his client presents a factual question, courts have held that
the issue may be decided as a matter of law under the doctrine of judgmental
immunity which provides that an attorney will generally be immune from liability,
as a matter of law, for acts or omissions during the conduct of litigation, which are
the result of an honest exercise of professional judgment.” Id. at 880-81; see also
Smiley v. Manchester Ins. & Indem. Co., 375 N.E.2d 118, 122 (Ill. 1978) (“It is clear
that an attorney is liable to his client only when he fails to exercise a reasonable
degree of care and skill; and he is not liable for mere errors of judgment.”).
Additionally, many courts have characterized “judgmental immunity” as protecting
an attorney from liability for a decision “where the law is unsettled” or “the decision
is tactical.” See Nelson, 997 N.E.2d at 882-83 and n.3 (citing cases); see also Smith v.
Singletary, 170 F.3d 1051, 1054 (11th Cir. 1999) (“the rule that an attorney is not

5 

liable for an error of judgment on an unsettled proposition of law is universally
recognized”). But an attorney can be liable for even a tactical decision if that
decision does not evince “a reasonable degree of skill and care.” Nelson, 997 N.E.2d
at 883.
Sharif alleges that Stevens should have raised a Stern objection on appeal,
and that his failure to do so resulted in Sharif waiving what the Seventh Circuit
had ruled was an otherwise meritorious argument in its 2013 decision. See R. 51 ¶
9. In his defense, Stevens contends that prior to the Supreme Court’s decision in
Wellness International Network v. Sharif the law regarding whether a Stern
objection could be waived was unsettled. As Stevens points out, this contention
cannot reasonably be disputed because the Supreme Court’s decision on that issue
overturned a Seventh Circuit decision, and a dispute among the judges of the
Seventh Circuit and the justices of the Supreme Court is a differing of reasonable
minds if there ever was one. In light of this unsettled law, Stevens argues that his
decision not to raise a Stern objection was a judgment call that cannot form the
basis of a malpractice claim.
But the real issue here is not whether the law regarding waiver was
unsettled, but whether Stevens acted reasonably in leaving the Stern objection to
the reply brief even though by the time of Sharif’s appeal the Stern objection was
clearly settled law. Even if Stevens was unaware of, or did not understand, the force
of the Stern decision immediately upon its issuance by the Supreme Court, he
certainly understood it once the Seventh Circuit explained it in In re Ortiz. That

6 

decision precipitated Stevens’s motion to supplement his briefing in the district
court, and in that brief, Stevens demonstrated that he understood the implications
of Stern for Sharif’s case.
Indeed, the fact that the law regarding waiver was unsettled—meaning that
waiver of such an issue was still a possibility—was a reason for Stevens to ensure
that he made the Stern objection in his opening brief in the Seventh Circuit.
Presumably, to the extent waiver was possible, it was Stevens’s job to avoid it.
Stevens alludes to the idea that waiting to raise the Stern objection until the reply
was somehow a strategic decision, but he does not expressly make this argument
and provides no explanation for the basis of the judgment he might have made in
that regard. Absent such argument or explanation, the pleadings in this case do not
provide a basis for the Court to determine as a matter of law that Stevens’s decision
is protected by judgmental immunity. Rather, the pleadings present a factual
question regarding whether Stevens actually made a reasoned decision to omit the
Stern objection, or negligently failed to include it in his brief. That question is not
appropriate for resolution on motion made pursuant to Rule 12(b)(6), but must
await discovery. See Nelson, 997 N.E.2d at 578 (“Defendant’s argument that its
conduct involved, at most, a mere error of judgment presupposes that an actual
‘decision’ was made on its part, which is not reflected in the record at this stage.”).

7 

Conclusion
For the foregoing reasons, Stevens’ motion to dismiss, R. 63, is denied.
ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge

Dated: August 4, 2016

8