The District Court Has Sanctioned Maurice J. Salem  


Maurice J. Salem is a New York attorney who has never become licensed in Illinois. He has had numerous battles with Illinois judges, the ARDC, and others over the status of his license (or his lack of a license).

The latest chapter in this sad tale is an order from the District Court affirming a Bankruptcy order sanctioning Salem $20,000.  Salem became involved in a long-running bankruptcy case and appears to have filed claims that were previously rejected by other courts (or the bankruptcy court). Sanctions were awarded pursuant to Rule 9011 of the Bankruptcy Rules, which is essentially identical to Rule 11 of the Federal Rules of Civil Procedure.

How it all went bad

Salem became involved after many issues had been resolved against his clients. They had even appealed (unsuccessfully) to the United States Supreme Court. Despite the fact that they had lost in every court for many years, Salem filed more motions as noted by the District Court:

After protracted appeals that went all the way to the Supreme Court, the Bankruptcy Court’s finding that the Trust was Debtor’s alter ego ultimately was upheld. See Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015). While the case was on remand to the Seventh Circuit, Debtor wrote the Seventh Circuit a letter asserting that “[o]ne piece of evidence [that his attorney] failed to provide or disclose was that I was no longer the trustee [of the Trust] after 2007, revoked by my mother, Soad Wattar and her attorney.” Case No. 15-cv-10694, Docket Entry 15-25 at 1. Debtor attached a copy of a document titled “Revocation of Trustee to Soad Wattar Revocable Living Trust of 1992” (the “Revocation of Trustee”). The Revocation of Trustee purported to show that on November 1, 2007, Debtor resigned as trustee and Ragda took over as successor trustee. Debtor’s allegations directly contradicted his earlier representations that he was the trustee of the Trust at the time he filed for bankruptcy and that he resigned as trustee in 2010. The Seventh Circuit, apparently unpersuaded by Debtor’s letter, affirmed the Bankruptcy Court’s July 6, 2010 decision that the Soad Wattar Trust was the alter ego of Debtor. See Wellness Int’l Network, Ltd. v. Sharif, 617 F. App’x 589, 591 (7th Cir. 2015).

Soon after Debtor’s appeal of the alter ego ruling was concluded, Salem entered an appearance in the bankruptcy case as counsel for Haifa. Haifa, purportedly acting as executrix of Wattar’s Estate, filed a motion to vacate the Bankruptcy Court’s August 5, 2010 turnover order pursuant to Rule 60(b)(4) of the Federal Rules of Civil Procedure. 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. In her reply brief, Haifa attached a document that she claimed was the most recent version of Wattar’s will, dated April 28, 2007 (the “April 28, 2007 Will”). The April 28, 2007 Will named Haifa executor of her mother’s estate. Haifa also alleged that Ragda had been the trustee of the Trust since 2007, pursuant to the Trust Revocation. The Bankruptcy Court denied Haifa’s motion, and Haifa appealed to this Court. See generally Case No. 15-cv-10694. On reconsideration, this Court determined that the appeal of the denial of the Rule 60(b)(4) motion should be remanded to the Bankruptcy Court for further proceedings. See Case No. 15-cv-10694, Docket Entry 58.

While the appeal in Case No. 15-cv-10694 was pending, Salem entered an appearance on behalf of Ragda in the Bankruptcy Court. Haifa and Ragda filed a motion for leave to sue the Trustee, Hartford, and Wells Fargo. Their motion did not explain why they should be granted leave to sue; instead it “trail[ed] off midsentence” and did not address why Intervenors had a prima facie case to sue the Trustee individually. See Case No. 16-cv-4699, docket entry 26-7 at 16. The attached proposed complaint shows that Haifa and Ragda sought to sue Hartford and Wells Fargo for breach of contract, breach of fiduciary duty, and negligence for turning over Trust assets to the Trustee. The proposed complaint also alleged a Bivens claim against the Trustee for using his alleged authority as a federal agent to take property that belonged to Wattar’s Estate—namely, the proceeds of a Hartford insurance policy and the assets of the Estate held by Wells Fargo—without notice or hearing. The proposed complaint alleged that this violated the Estate’s procedural and substantive due process rights. The proposed complaint further asserted that the proceeds from the Hartford insurance policy were exempt from the bankruptcy proceeding pursuant to Illinois law.

In addition, Ragda filed a motion in the Bankruptcy Court seeking 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 Ragda and Haifa’s motion for leave to sue the Trustee and Ragda’s motion for reimbursement (these two motions are referred to collectively as the “Motions”). Ragda and Haifa appealed to this Court. See Case No. 16-cv-4699.

While that appeal was pending, the Bankruptcy Court ordered Salem, Ragda, and Haifa to show cause why they should not be sanctioned for violating Federal Rule of Bankruptcy Procedure 9011(b)(1-3) by filing the Motions. All three appeared at a show-cause hearing on June 21, 2016 and filed written responses.

Why Sanctions?

In his second issue on appeal, Salem argues that the Bankruptcy Court failed to “state any facts . . . showing any `unnecessary delay’ or any litigation costs . . . as a result of the two [M]otions.” [6] at 17. Salem asserts that it was unfair for the Bankruptcy Court to fault Ragda and Haifa for making “repeated filings . . . aimed at undoing settled issues,” because “the Motion to commence an action against the Trustee . . . by the Estate of Soad Wattar was never previously filed and the Estate was never a party in the bankruptcy court proceeding until Salem appeared,” and “the Motion for Funds by Ragda Sharifeh for paying the mortgage on a house in the bankruptcy estate . . . was never previously litigated.” Id. Further, Salem argues perfunctorily that “Ragda’s life insurance proceeds of $540,000.00 that the trustee seized was not a frivolous claim” because Ragda “was the beneficiary with standing to sue,” id., and that Ragda was entitled to reimbursement for paying the mortgage on the Barrington House, because she was forced to pay it to avoid foreclosure, id. at 15.

Before addressing these arguments, the Court notes that Salem does not address the Bankruptcy Court’s detailed analysis concerning why Salem failed to establish any legal or factual basis for Ragda and Haifa to sue the Trustee, Hartford and Wells Fargo. Salem did not address the Bankruptcy Court’s analysis in his notice of appeal or in either brief, and therefore waived any challenge to that part of the Bankruptcy Court’s sanctions order. See [6-1] at 54-62.

The Court now turns to the arguments that Salem did raise on appeal. First, the Court concludes that the Bankruptcy Court did not abuse its discretion in determining that the filing of the Motions caused unnecessary delay. Debtor filed the bankruptcy case in 2009, and the Bankruptcy Court decided in 2010 that the Trust was Debtor’s alter ego and its assets could be included in the Bankruptcy estate. Debtor’s appeal of the Bankruptcy Court’s alter ego ruling was finally resolved in 2015. Yet the bankruptcy case is still going on. Since 2010, Ragda has made repeated, unsuccessful attempts to undo the turnover order and obtain Trust assets, as detailed in Section I of this opinion. Her motion for reimbursement for mortgage payments was another attempt by “the Sharifeh family [to] get back . . . lost assets.” [6] at 20. Haifa became involved in the bankruptcy case in 2015, when she filed her Rule 60(b)(4) motion to vacate the turnover order. When she lost that motion, she appealed. But instead of allowing the appeal to be resolved, she and Ragda moved for permission to sue the Trustee individually for a Bivensviolation, and to sue the Hartford and Wells Fargo for, essentially, complying with the turnover order. The Bankruptcy Court found that motion to be legally and factually baseless, and Salem does not challenge that aspect of the Bankruptcy Court’s sanctions order. Ragda and Haifa’s filings, which were prepared by Salem, undoubtedly have delayed the final resolution of the bankruptcy case.

Further, the Bankruptcy Court did not abuse its discretion in rejecting Ragda and Haifa’s excuse that “they were not involved in th[e] case throughout the eight years it has been pending.” [6-1] at 70. As the Bankruptcy Court explained, Salem “and his clients [had a duty] to review the court records to familiarize themselves with the posture of the case and the courts’ prior rulings” and “cannot ignore binding rulings just because they were not actively involved in this matter when the earlier [o]rders were entered.” Id.

Second, the Bankruptcy Court did not abuse its discretion in finding that Salem’s (and his clients’) actions needlessly increased the cost of litigation. The Bankruptcy Court identified specific costs that the bankruptcy Estate will incur as a result of Salem filing the motions— namely, the Trustee’s costs defending the appeal from the Bankruptcy Court order denying the Motions, which at the time of the order totaled $12,587.50. Salem claims that the Bankruptcy Court should not have considered those costs, because the appeal was pending before this court. But it is the Bankruptcy Court that considers and rules on the Trustee’s claims for reimbursement. It was therefore proper for the Bankruptcy Court to take those claims into consideration in its sanctions motion. Salem does not cite any statute or precedent that calls this conclusion into question. See Silk v. Bd. of Trustees, Moraine Valley Cmty. Coll., Dist. No. 524, 795 F.3d 698, 709 (7th Cir. 2015) (`”[t]he absence of any supporting authority or development of an argument constitutes a waiver on appeal'” (quoting Kramer v. Banc of Am. Sec., LLC, 355 F.3d 961, 964 n.1 (7th Cir. 2004)).

Third, Salem fails demonstrate that the Bankruptcy Court abused its discretion in finding that Ragda’s claim for $540,000 in life insurance proceeds from Hartford was frivolous. He does not support his argument with any discussion of the relevant facts or law, and therefore has waived it. See Crespo v. Colvin, 824 F.3d 667, 674 (7th Cir. 2016) (“`perfunctory and undeveloped arguments, and arguments that are unsupported by pertinent authority, are waived'” (quoting United States v. Berkowitz, 927 F.2d 1376, 1384 (7th Cir. 1991)). Even if Salem had bothered to discuss its merits, his argument is baseless. As this Court determined in Case No. 16-cv-4699, Ragda’s motion was properly denied because: 1) Ragda failed to adequately plead that she had any interest in the insurance proceeds; and 2) the insurance policy was not exempted from Debtor’s bankruptcy estate under Illinois law, 735 ILCS 5/12-1001(f), because only Debtor would be eligible to claim the exemption in the bankruptcy case, and the exemption applies only where the deceased insured’s child was “dependent upon” the insured. See Case No. 16-cv-4699, Docket Entry [53] at 10-11.

Conclusion:

Suing the Bankruptcy Trustee was an idea that was frivolous and bizarre. The Trustee is retained by the Court to administer the bankruptcy and make tough decisions. Suing the trustee was a guarantee of court hostility. Bringing up old claims (that had been rejected previously) and that lacked evidentiary support was also a terrible idea. In sum, the actions of Salem (in my opinion) were of extremely poor judgment.

Edward X. Clinton, Jr.

Source: IN RE SALEM, Dist. Court, ND Illinois 2017 – Google Scholar

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