Wattar et al v. Sharif

Filing 53

MEMORANDUM OPINION AND ORDER Signed by the Honorable Robert M. Dow, Jr. on 3/10/2017. Mailed notice(cdh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
)
)
)
Debtor.
____________________________________ )
)
THE ESTATE OF SOAD WATTAR, Haifa )
Sharifeh as Executrix, and RAGDA
)
)
SHARIFEH,
)
Intervenors-Appellants,
)
)
v.
)
)
)
HORACE FOX, JR., in his capacity as the
)
Chapter 7 Trustee of Debtor’s Estate,
)
)
Appellee.
RICHARD SHARIF,

Case No. 16-cv-4699
Judge Robert M. Dow, Jr.

On appeal from the U.S. Bankruptcy Court
for the Northern District of Illinois,
Eastern Division
Bankr. Case No. 09-BK-05868

MEMORANDUM OPINION AND ORDER
This case is on appeal from the United States Bankruptcy Court for the Northern District
of Illinois, Eastern Division, Case No. 09-BK-05868. Intervenor-Appellants Ragda Sharifeh
(“Ragda”) and Haifa Sharifeh, purportedly as executrix of the Estate of her mother, Soad Wattar
(“Haifa”) (collectively, “Intervenors”), appeal from three orders entered by the Bankruptcy
Court: (1) an order denying Intervenors’ motion for leave to commence an action against the
Trustee, Horace Fox Jr. (the “Trustee”) and his attorney in their individual capacities [26-4]; (2)
an order denying Ragda’s motion for reimbursement [26-5]; and (3) a memorandum opinion and
order setting out the Bankruptcy Court’s analysis supporting the first two orders [26-7] at 15-36.
In addition, the Trustee has filed a motion for leave to supplement the record on appeal [39] and
Intervenors have filed a motion to transfer a related appeal, Case No. 16-cv-11076, from Judge
Bucklo’s docket to this Court [43]. For the reasons set forth below, the Court affirms the
Bankruptcy Court’s three challenged orders and denies as moot the Trustee’s motion for leave to

supplement the record on appeal [39]. Finally, the Court grants Intervenors’ motion to transfer
Case No. 16-cv-11076 to this Court as a related case [43], for the reasons explained at the
hearing on the motion, see [45]. That appeal, which is still being briefed, will proceed as Case
No. 16-cv-11076. The instant appeal, No. 16-cv-4699, is closed.
I.

Background1
Soad Wattar (“Wattar”) was the mother of Debtor Richard Sharif (“Debtor”), Ragda,

Haifa, and other children who are not directly involved in this appeal. In 1992, Wattar allegedly
established a trust called the Soad Wattar Revocable Trust of 1992 (“Trust”). On February 24,
2009, Debtor filed Bankruptcy Case No. 09-BK-05868 in the Bankruptcy Court for the Northern
District of Illinois. Intervenors were both listed in Schedule F as a creditors of Debtor and both
received notice of Debtor’s filing of the bankruptcy case.
On August 24, 2009, one of Debtor’s creditors, WIN, initiated an adversary proceeding
against Debtor in the bankruptcy case, naming Debtor both individually and in his capacity as
trustee of the Trust. WIN alleged that Debtor was concealing assets by holding them in the
Trust’s name and that the Trust was Debtor’s alter ego. In his answer to WIN’s amended
complaint, Debtor stated that he was the Trustee of the Trust. Debtor also produced a purported
trust agreement signed on May 15, 1996 (the “1996 Trust Agreement”), which (1) named Debtor
as Trustee; (2) assigned and conveyed to the Trustee all of Wattar’s real and personal property;
(3) granted the Trustee authorization to do all acts of an owner; and (4) granted the Trustee
absolute discretion to litigate any claim in favor of or against Wattar’s estate.
On March 17, 2010, Wattar died. According to a will that debtor produced in discovery
(the “April 26, 2007 Will”), Wattar left all of her estate (“Estate”) to the Trustee of the Trust
1

The extensive background of Bankruptcy Case No. 09-BK-05868 is set forth in greater detail in the
Court’s September 26, 2016 order in Case No. 15-cv-10694, which was an appeal from the same
bankruptcy docket.

2

acting at the time of her death (i.e., Debtor). The Will named Debtor as executor and Ragda as
successor executor of Wattar’s Estate.
On July 6, 2010, the Bankruptcy Court entered default judgment against Debtor and in
favor of WIN in the adversary proceeding. The Bankruptcy Court determined that the Trust was
the alter ego of Debtor, because Debtor treated the Trust’s assets as his own property and,
therefore, it would be unjust to allow him to maintain that the Trust was a separate entity. Based
on its finding that Debtor failed to meet his discovery obligations and violated 11 U.S.C. § 727,
the Bankruptcy Court denied Debtor a discharge pursuant to 11 U.S.C. § 727(a)(2)-(a)(6).
Intervenors were served notice that Debtor had been denied a discharge in bankruptcy. See
Bankruptcy Case No. 09-05868, Docket Entry 55.
Debtor appealed the Bankruptcy Court’s July 6, 2010 order to the District Court. See
Case Nos. 10-cv-5303, 10-cv-5333 (Leinenweber, J.). A few weeks later, while the federal
appeal was pending, Intervenors filed a lawsuit in the Circuit Court for Cook County, Illinois
(No. 2010-CH-30432) seeking a preliminary injunction and an order compelling Wells Fargo to
transfer approximately $700,000 in Trust assets to Ragda.

In their amended complaint,

Intervenors alleged that, pursuant to an amendment made to the Trust on October 8, 2007 (the
“2007 Trust Amendment”), Ragda became the successor beneficiary of the Trust at the time of
Wattar’s death on March 17, 2010. They further alleged that, on July 21, 2010, Debtor resigned
as the trustee of the Trust. They acknowledged, however, that the Bankruptcy Court had already
found in its July 6, 2010 order that the Trust was Richard Sharif’s alter ego. [15-4] at 3, ¶ 7.
The Cook County Circuit Court denied Ragda’s and Intervenor’s motion on the basis that the
case was subject to the jurisdiction of the Bankruptcy Court.

3

On August 5, 2010, the Bankruptcy Court granted the Trustee’s July 30, 2010 motion to
turn certain assets of the Trust over to the Trustee. Specifically, the Bankruptcy Court ordered
the Hartford Financial Services Group, Inc. (“Hartford”) to convey to the Trustee all interest in
any life insurance policies issued by any Hartford insurance entity related to the Debtor, Wattar,
or the Trust. The Bankruptcy Court also ordered Wells Fargo Financial Advisors (“Wells
Fargo”) to convert the owners in two specified accounts from the Trust to the Trustee. In
addition, because Wattar transferred all of her assets to the Trust, the Bankruptcy Court ordered
Debtor to turn over all interest in any assets related to Debtor, Wattar, or the Trust. The
Bankruptcy Court further ordered Debtor, Ragda, and Haifa to cease any act to exercise any
control over property of the bankruptcy estate.
On February 10, 2012, Judge Leinenweber, considering consolidated appeals filed by
Debtor and Ragda, affirmed the Bankruptcy Court orders declaring Debtor in default, denying
Debtor a discharge, and finding that the Trust was the property of the bankruptcy estate. See
Case No. 11-cv-8811, Docket Entry 16. Judge Leinenweiber’s decision was ultimately upheld
by the Supreme Court. Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (U.S. 2015).
Following the Supreme Court’s ruling, Haifa, purportedly as Executrix of Wattar’s
Estate, filed a motion seeking an order vacating the Bankruptcy Court’s August 5, 2010 turnover
order pursuant to Rule 60(b)(4) of the Federal Rules of Civil Procedure. Haifa asserted that
Ragda became the Trustee of the Trust on November 1, 2007 and attached a copy of the 2007
Trust Amendment. Haifa argued that the Estate was never served with process and therefore (1)
the Bankruptcy Court did not have personal jurisdiction over the Estate and (2) the Bankruptcy
Court’s August 5, 2010 order requiring the turnover of property held in the Trust was void.

4

In her reply brief, Haifa attached for the first time documents purporting to be copies of
the most recent version of Wattar’s will, dated April 28, 2007 (the “April 28, 2007 Will”).
Based on the April 28, 2007 Will, Haifa claimed that (1) she became the executrix of Wattar’s
estate when Wattar died in March 2010; (2) she was therefore entitled to notice before the
Bankruptcy Court ordered the turnover of property of Soad Wattar to the bankruptcy estate on
August 5, 2010; and (3) because she did not receive notice, the Bankruptcy Court’s order
violated Due Process and was void. Haifa also alleged that Ragda had been the trustee of the
Trust since 2007. The Bankruptcy Court denied Haifa’s Rule 60(b)(4) motion.
This Court affirmed the Bankruptcy Court’s ruling on appeal on September 26, 2016
(Case No. 15-cv-10694).

This Court determined that: (1) Haifa waived her due process

arguments on appeal by failing to support them with any pertinent authority; (2) Haifa could not
demonstrate that pursuant to the 2007 Trust Amendment Ragda, rather than Debtor, was the
Trustee of the Estate when Debtor filed for bankruptcy, because the Seventh Circuit already
rejected that argument; (3) the 2007 Trust Amendment was not properly authenticated; (4) Haifa
waived her right to rely on the April 28, 2007 Will by waiting until her reply brief to raise it in
the Bankruptcy Court; (5) Haifa failed to properly authenticate the April 28, 2007 Will; and (6)
Haifa’s due process rights were not violated because she received actual, timely notice of
Debtor’s bankruptcy and the Bankruptcy Court’s decision that the Trust was Debtor’s alter ego
and therefore all of the assets in the Trust would be included in the bankruptcy estate. See In re
Sharif, 2016 WL 5373199, at *11 (N.D. Ill. Sept. 26, 2016).
While the appeal in this Court was pending, Haifa and Ragda filed a motion in the
Bankruptcy Court for leave to sue the Trustee and his counsel individually. They also sought to
sue Hartford and Wells Fargo individually. Their motion did not explain why they should be

5

granted leave to sue. Their attached proposed complaint asserted a single claim against the
Trustee and his counsel, a Bivens violation for using their alleged authority as federal agents to
take property that belonged to Wattar’s Estate—namely, the proceeds of the Hartford policy and
the assets of the Estate held by Wells Fargo—without notice or hearing (Count VII). See
Bankruptcy Docket 09-05868 [253-1] at 11. Intervenors alleged that this violated the Estate’s
procedural and substantive due process rights. Id. at 12. Intervenors also alleged that the
proceeds from the Hartford insurance policy were exempt from the bankruptcy proceeding
pursuant to Illinois law.
Ragda also filed a motion in the Bankruptcy Court for reimbursement of more than
$900,000 for (1) funds she allegedly spent paying the mortgage and taxes on one of Trust’s
assets, a house located at 36 Revere Drive, South Barrington, Illinois (the “Barrington house”)
while the appeal to the Supreme Court was pending; and (2) the proceeds of the Hartford
insurance policy, of which Ragda claimed to be the beneficiary.
The Bankruptcy Court entered orders denying both of Intervenors’ motions and an
extensive separate memorandum opinion explaining its reasoning.

On April 27, 2016,

Intervenors filed a notice of appeal. Intervenors argue on appeal that:
1.

The Bankruptcy Court had no factual or legal basis to deny Ragda’s motion for

reimbursement funds from the Trust; and
2.

The Bankruptcy Court erred by denying Intervenors’ motion for leave to

commence a claim against the Trustee and his legal counsel.
II.

Standard of Review
“District courts sit as appellate courts when hearing appeals from bankruptcy courts.”

Hijjawi v. Five N. Wabash Condo. Ass’n, 491 B.R. 876, 880 (N.D. Ill. 2013). The Bankruptcy
Court’s factual findings are scrutinized for clear error, while its legal conclusions are reviewed
6

de novo. Kovacs v. United States, 739 F.3d 1020, 1023 (7th Cir. 2014). To the extent that the
Bankruptcy Code commits a decision to the discretion of the Bankruptcy Court, that decision is
reviewed for an abuse of discretion. Belson v. Olson Rug Co., 483 B.R. 660, 664 (N.D. Ill. 2012)
(citing Wiese v. Cmty. Bank of Cent. Wis., 552 F.3d 584, 588 (7th Cir. 2009)). The abuse of
discretion standard applies to the Bankruptcy Court’s denial of a motion for leave to sue a trustee
or the trustee’s counsel, In re USA Baby, Inc., 520 Fed. Appx. 446, 448 (7th Cir. 2013), as “the
bankruptcy court, . . . given its familiarity with the underlying facts and the parties, is uniquely
situated to determine whether a claim against the trustee has merit,” In re VistaCare Grp., LLC,
678 F.3d 218, 233 (3d Cir. 2012). “In general terms, a court abuses its discretion when its
decision is premised on an incorrect legal principle or a clearly erroneous factual finding, or
when the record contains no evidence on which the court rationally could have relied.” In re
KMart Corp., 381 F.3d 709, 713 (7th Cir. 2004).
III.

Analysis
As a preliminary matter, it is not clear whether Intervenors intended to appeal the

portions of the Bankruptcy Court’s orders that pertain to the Trustee’s counsel. The civil cover
sheet filed with the appeal names only the Trustee as a defendant, see [1-1], and the captions on
Intervenors’ briefs and other filings do not name any particular defendants. The Court finds it
unnecessary to resolve this issue, however, because Intervenors do not make any arguments that
are unique to the Trustee’s counsel, and the Court does not find any of the arguments pertaining
to either the Trustee or his counsel persuasive. Further, to the extent that Intervenors did not
properly perfect an appeal against the Trustee’s counsel, any attempt to do so know would be
untimely. See generally Fed. R. Bankr. P. 8002.
The Court now turns to the substance of the issues raised on appeal.

7

A.

Ragda’s Motion for Reimbursement Funds from The Trust

The Bankruptcy Court denied Ragda’s motion for reimbursement funds on multiple
grounds.

The Bankruptcy Court determined, among other things, that (1) there was no

contractual or statutory basis for Ragda’s request for compensation for mortgage payments that
she allegedly made on the Barrington house; and (2) Ragda was not entitled to the proceeds of
the Hartford insurance policy under Illinois law, 735 ILCS 5/12-1001(f), because (a) that statute
allows only a debtor to claim an exemption in the property of a bankruptcy estate for certain life
insurance proceeds, and Ragda is not the debtor or a dependent of the debtor; and (b) that statute
has been interpreted to apply only when the deceased insured’s child was dependent on the
insured at the time of death.
The Court affirms the Bankruptcy Court’s denial of Ragda’s motion for reimbursement
funds on both of these grounds. As to the Barrington house, Ragda does not contest the
Bankruptcy Court’s conclusion that she has no contractual right to reimbursement for any
mortgage payments that she may have made on the Barrington house. Ragda also concedes that
the house belonged to the bankruptcy estate and that any mortgage or tax payments she made
were made voluntarily. Nonetheless, Ragda argues—based on Young v. United States, 535 U.S.
43 (2002), and Section 105(a) of the Bankruptcy Code—that the Bankruptcy Court is a court of
equity, and that equity requires her to be reimbursed for the monthly mortgage payments because
the Trustee should have been making those payments. [26] at 9.
The Court is not persuaded that either Young or Section 105(a) entitle Ragda to
reimbursement or that the Bankrutpcy Court abused its discretion by declining to exercise its
equitable powers so broadly. Young is inapplicable to the situation at hand; it simply holds that

8

equitable tolling applies to limitations periods to be applied by Bankruptcy Courts. Young, 535
U.S. at 50.
Section 105(a) of the Bankruptcy Code authorizes the Bankruptcy Court to “issue any
order, process, or judgment that is necessary or appropriate to carry out the provisions of this
title.” 11 U.S.C. § 105(a). Section 105(a) has been construed to authorize “the extensive
equitable powers that bankruptcy courts need in order to be able to perform their statutory
duties” but not to “give the bankruptcy court carte blanche” to redistribute rights as they see fit.
In re Caesars Entm’t Operating Co., Inc., 808 F.3d 1186, 1188 (7th Cir. 2015); see also Vill. of
Rosemont v. Jaffe, 482 F.3d 926, 935 (7th Cir. 2007) (“Although expansively phrased, section
105(a) affords bankruptcy courts considerably less discretion than first meets the eye, and in no
sense constitutes a roving commission to do equity.” (internal quotation marks and citation
omitted)). The Bankruptcy Court does not “‘have free-floating discretion[]’ to create rights
outside the Code.” In re Starling, 359 B.R. 901, 912 (Bankr. N.D. Ill. 2007) (quoting In re
Lloyd, 37 F.3d 271, 275 (7th Cir. 1994)).
Ragda concedes that any payments she made toward the Barrington house were entirely
voluntary and that she knew all along that the house belonged to the Estate, not to her. Her
counsel explained to the Bankruptcy Court that Ragda made the payments on the mistaken belief
that by maintaining the property she would be able to retain it [26-7] at 27—not, as she claims on
appeal, because the Trustee wasn’t performing his duties to preserve the bankruptcy estate’s
property. Further, Ragda never claims to have alerted the Trustee to his alleged dereliction of
duty at any time over the five years that she was allegedly paying the mortgage, and offers no
excuse for failing to bring this issue to the Bankruptcy Court’s attention earlier. Under these

9

circumstances, the Court cannot say that it is either necessary or appropriate as a matter of equity
for Ragda to be reimbursed for these alleged payments.2
For these reasons, the Court concludes that the Bankruptcy Court did not abuse its
discretion by declining to use its equitable powers to reimburse Ragda for her alleged expenses
relating to the Barrington house. The Court finds it unnecessary to consider whether Ragda
actually made these payments—an issue that is hotly disputed—and therefore denies as moot the
Trustee’s motion for additional discovery on that issue [39].
The Court now turns to Ragda’s argument that she is entitled to the proceeds of the
Hartford life insurance policy. The Court concludes sua sponte that Ragda has no standing to
appeal this issue because she fails to adequately plead that she has any interest in the assets that
were turned over. The Court refers the reader to Judge Shah’s analysis of this issue in Case No.
16-cv-4397, Docket Entry [46] at 4-6, which was Intervenors’ appeal from the Bankruptcy
Court’s order denying Intervenors leave to file suit against Hartford and Wells Fargo
individually for breach of contract, breach of fiduciary duty, and negligence arising out of their
turnover of assets to Debtor for inclusion in the bankruptcy estate. As Judge Shah explained,
Ragda’s interest in the Hartford insurance proceeds is founded on the allegation that she is the
beneficiary of that policy. But documents submitted by Hartford—the authenticity of which
Intervenors never disputed—showed that the Trust was the beneficiary of the life insurance
policy, not Ragda. Therefore Judge Shah concluded, and this Court agrees, that the “allegation
that Ragda Sharifeh is named as the beneficiary to the life insurance policy is not plausible.” Id.
at 6.
2

Section 503(b)(3)(D) of the Bankruptcy Code authorizes the payment of “actual, necessary expenses”
incurred by a creditor “in making a substantial contribution in a case under chapter 9 or 11.” 11 U.S.C.§
503(b)(3)(D). But this is a Chapter 7 case. Even if Section 503(b)(3)(D) were applicable, Ragda does not
allege any facts suggesting that it was necessary for her to pay the expenses associated with the
Barrington house.

10

Further, even if Ragda had standing to appeal this issue, her argument that she is entitled
to the insurance proceeds fails for other reasons identified by the Bankruptcy Court and not
addressed by Ragda in her appellate briefs. Ragda claims that the proceeds of the Hartford life
insurance policy were exempted from the bankruptcy estate pursuant to 735 ILCS 5/12-1001(f).
But this provision is inapplicable for two reasons. First, Section 522(b) of the Bankruptcy Code
allows a debtor to exempt from the bankruptcy estate property that is exempt under applicable
state law. See 11 U.S.C. § 522(b). As the Bankruptcy Court explained, Ragda is not the debtor
in the underlying bankruptcy case and therefore not entitled to take advantage of the state-law
exemption on Debtor’s behalf.
Second, the state-law exemption for life insurance proceeds would not be applicable in
any event. That statute has been interpreted for decades to apply only where the deceased
insured’s child was “dependent upon” the insured, which Ragda does not allege to be the case
here. See, e.g., In re Hardesty, 2015 WL 4719340, at *7 (Bankr. N.D. Ill. Aug. 7, 2015)
(rejecting a debtor’s reliance on 735 ILCS 5/12-1001(f), where the debtor “overlook[ed] the long
standing interpretation” that the statute applied only where the life insurance policy’s beneficiary
was “‘dependent upon the insured’” (quoting 735 ILCS 5/12-1001(f); citing In re Schriar, 284
F.2d 471, 474 (7th Cir. 1960))).
For these reasons, the Court affirms the Bankruptcy Court’s denial of Ragda’s motion for
reimbursement for expenses allegedly incurred paying the mortgage, insurance, and taxes on the
Barrington house and for the proceeds of the Hartford life insurance policy.
B.

Intervenors’ Motion for Leave to Bring Suit Against the Trustee and His
Counsel Individually

The Court now turns to Intervenors’ motion for leave to file a Bivens claim against the
Trustee and his counsel as individuals for their alleged violation of Intervenors’ due process
11

rights. In Bivens v. Six Unknown Named Agents, 403 U.S. 388 (1971), the Supreme Court
recognized for the first time “an implied private action for damages against federal officers
alleged to have violated a citizen’s constitutional rights.” Ashcroft v. Iqbal, 556 U.S. 662, 675
(2009) (internal quotation marks and citation omitted). Before a Bivens claim (or any other
claim) may be brought against a bankruptcy trustee for his conduct as trustee, the proposed
plaintiff must obtain leave from the Bankruptcy Court.

Although this is not an express

requirement of the Bankruptcy Court, “28 U.S.C. § 959(a) assumes this is required” and “‘[a]n
unbroken line of cases ... has imposed the requirement as a matter of federal common law.’” In
re Morris Senior Living, LLC, 526 B.R. 750, 757 (N.D. Ill. 2014) (quoting In re Linton, 136 F.3d
544, 545 (7th Cir. 1998)). The leave requirement also applies to “proposed suits against a
trustee’s counsel.” Id.; see also In re Berry Pub. Servs., Inc., 231 B.R. 676, 679 (Bankr. N.D. Ill.
1999).
To obtain leave to sue a bankruptcy trustee or the trustee’s counsel, the proposed plaintiff
must make out a prima facie case, showing that the proposed claim is not without foundation. In
re Morris Senior Living, 526 B.R. at 757-58; see also In re Weitzman, 381 B.R. 874, 880 (Bankr.
N.D. Ill. 2008); In re Kids Creek Partners, L.P., 248 B.R. 554, 558 (Bankr. N.D. Ill. 2000). “In
evaluating whether the prima facie standard has been satisfied the plaintiff is entitled to the
resolution in its favor of all disputes concerning relevant facts presented in the record.” Tamburo
v. Dworkin, 601 F.3d 693, 700 (7th Cir. 2010).
In this case, the Bankruptcy Court determined that Intervenors failed to make out a prima
facie Bivens claim against Debtors for multiple reasons. Before turning to the Bankruptcy
Court’s analysis, the Court concludes sua sponte that Intervenors have failed to establish that
they have standing to sue the Trustee or his counsel for their handling of the Hartford life

12

insurance proceeds. The Court already addressed above why Ragda failed to plausibly allege
that she is entitled to the proceeds. The Court also agrees with Judge Shah that Haifa, as alleged
executrix of Wattar’s Estate, does not plausibly allege standing either, because following
Wattar’s death, the policy’s beneficiaries—and not the Estate—held a legal interest in the
policy’s proceeds. See 755 ILCS 30/1; Prignano v. Prignano, 934 N.E. 2d 89, 103 (Ill. App.
2010) (“[I]nsurance proceeds are paid directly to the designated beneficiary and therefore
generally do not pass through probate.”).
Intervenors’ motion for leave was deficient for several other reasons identified by the
Bankruptcy Court. Most obviously, Intervenors’ motion for leave to file a complaint against the
Trustee “trails off midsentence” and does not even attempt to explain why Intervenors have a
prima facie case for a Bivens violation. [26-7] at 16.
Further, assuming Intervenors could bring a Bivens claim against the Trustee and his
counsel (an issue which this Court finds unnecessary to resolve3), the Court agrees with the
Bankruptcy Court that the Trustee and his counsel would be immune from suit for personal
liability. “Because bankruptcy trustees serve an important function as officers of the court in the
administration of bankruptcy cases, they are afforded limited personal immunity when operating
pursuant to their authority and absolute personal immunity if operating directly in obedience to a
court order.” In re Kids Creek, 248 B.R. at 559; see also In re Weisser Eyecare, Inc., 245 B.R.
844, 848 (Bankr. N.D. Ill. 2000) (same); Schultz v. Dubois, 47 F.3d 1173, 1995 WL 66780, at *1
(7th Cir. 1995) (bankruptcy trustee is immune from personal liability where he or she acts
“‘under the direct orders of the court’” (quoting Yardkin Valley Bank & Trust Co. v. McGee, 819
3

The Court did not find any Seventh Circuit precedent addressing this issue. Cf. Wade v. Hopper, 993
F.2d 1246, 1251–52 (7th Cir. 1993) (affirming district court’s grant of motion to dismiss two Bivens
claims and grant of summary judgment on a third Bivens claim brought against a former bankruptcy
trustee for actions undertaken in bankruptcy proceeding, but not addressing whether a bankruptcy trustee
should be considered a federal officer).

13

F.2d 74, 76 (4th Cir. 1987)); Henry v. Farmer City State Bank, 808 F.2d 1228, 1238 (7th Cir.
1986) (“Non-judicial officials whose official duties have an integral relationship with the judicial
process are entitled to absolute immunity for their quasi-judicial conduct.”). When operating
pursuant to their authority, bankruptcy trustees “may be held personally liable only for a willful
and deliberate violation of [their] fiduciary duties.” In re Chicago Pac. Corp., 773 F.2d 909, 915
(7th Cir. 1985).
In this case, the Bankruptcy Court ordered the turnover of the assets at issue on appeal.
Specifically, the August 5, 2010 turnover order required (1) Hartford to convey to Debtor all
interest in any life insurance policies issued by any Hartford Insurance entity related to the
Debtor, Wattar or the Trust; (2) Wells Fargo to convert the owners in two specified accounts
from the Trust to Debtor; and (3) Debtor to turn over all interest in any assets related to Debtor,
Wattar, or the Trust. Therefore, the Trustee and his counsel have absolute immunity from
Intervenors’ Bivens claim, which arises out of the inclusion of the Hartford and Wells Fargo
assets in the bankruptcy estate.
Even if they did not enjoy absolute immunity, the Trustee and his counsel would at least
be protected by limited immunity because there are no allegations that plausibly suggest that the
Trustee or his counsel willfully or deliberately violated their fiduciary duties. Specifically, there
are no allegations that the Trustee or his counsel knew of the April 28, 2007 Will—which
purportedly made Haifa executrix of Wattar’s Estate and allegedly entitled Haifa to notice and an
opportunity to be heard—when assets were transferred from Wattar’s Estate to the bankruptcy
estate. As the Bankruptcy Court noted, the April 28, 2007 Will was not produced in the
bankruptcy proceeding until November 16, 2015, when Haifa attached it to a reply brief.
Therefore, it is not plausible that the Trustee and his counsel knew they were doing something

14

wrong in 2010 by operating as if the April 26, 2007 Will—which named Debtor as executor and
gave all of Wattar’s assets to the Trust—was valid.

As the Bankruptcy Court reasoned,

Intervenors “cannot now complaint that [the Trustee and his attorney] did something wrong
when [they] were working off of what was provided to them in 2010.” [26-7] at 18-19.
Finally, the Court agrees with the Bankruptcy Court that Intervenors failed to make out a
prima facie case that they lacked notice or an opportunity to be heard before the Bankruptcy
Court ordered the turnover of the Wells Fargo assets or the proceeds of the Hartford life
insurance policy. Haifa and Ragda both had notice of the bankruptcy because of their status as
creditors to the Debtor. See [26-7] at 19. As the Bankruptcy Court put it, “any notion that
[Intervenors] did not receive notice has been debunked many times,” as they received notice
either “as creditors of the Debtor, through Ragda’s participation in Adversary Proceeding 0900770, or through the Debtor as their agent.” [26-7] at 24. Further, as the Court concluded in
Case No. 15-cv-10694 (Haifa’s appeal from the denial of her Rule 60(b)(4) motion), Haifa
received actual, timely notice of Debtor’s bankruptcy and the Bankruptcy Court’s decision that
the Trust was Debtor’s alter ego and therefore all of the assets in the Trust would be included in
the bankruptcy estate. Cf., e.g., In re Pence, 905 F.2d 1107, 1109 (7th Cir. 1990) (mortgagee
was not entitled to avoid binding effects of Chapter 13 reorganization plan, even if mortgagee
failed to receive written notice of confirmation hearing, where mortgagee had knowledge of
debtor’s bankruptcy petition and should have known that reorganization plan would have to be
filed within 15 days of petition); In re S.N.A. Nut Co., 198 B.R. 541, 544 (Bankr. N.D. Ill. 1996)
(“In cases under Chapter 7 or Chapter 13 of the Code, actual knowledge without notice of the
bankruptcy by a creditor whose existence is known to the debtor will satisfy due process
concerns with respect to treatment of its claim.”). Under these circumstances, Intervenors’

15

unsupported allegation that the Trustee and Debtor violated their right to due process is not
plausible and is therefore insufficient to establish a prima facie case for the Bivens violation.
For these reasons, the Court affirms the Bankruptcy Court’s order denying Intervenors
leave to file suit against the Trustee and his counsel individually.
IV.

Conclusion
For the foregoing reasons, the Court affirms the Bankruptcy Court’s orders: (1) denying

Intervenors’ motion for leave to commence an action against the Trustee and his counsel [26-4];
(2) denying Ragda’s motion for funds from the bankruptcy trust [26-5]; and (3) laying out the
Bankruptcy Court’s analysis supporting the first two orders [26-7] at 15-36. The Court denies as
moot the Trustee’s motion for leave to supplement the record on appeal [39]. Finally, the Court
grants Intervenors’ motion to transfer Case No. 16-cv-11076 to this Court as a related case [43],
for the reasons explained at the hearing on the motion, see [45]. That appeal is still being briefed
and will proceed as Case No. 16-cv-11076. The instant appeal, No. 16-cv-4699, is closed.

Dated: March 10, 2017
___________________________
Robert M. Dow, Jr.
United States District Judge

16