Sharif v. Wellness Int'l Network, No. 12-1349 (7th Cir. 2013)Annotate this Case
After entry of a judgment of $650,000 in the Northern District of Texas as a sanction for failure to engage in discovery, Sharif filed for Chapter 7 bankruptcy in the Northern District of Illinois. WIN, a judgment creditor, filed an adversary complaint, seeking to prevent discharge of Sharif’s debts under 11 U.S.C. 727, and a declaratory judgment that a trust of which Sharif was trustee was actually Sharif’s alter ego. Sharif failed to respond to WIN’s and the bankruptcy trustee’s discovery requests. Sharif eventually tendered some discovery, far short of full compliance. The bankruptcy judge entered default judgment in WIN’s favor and awarded attorney’s fees. After entry of judgment but before briefing on an appeal, the Supreme Court held that a bankruptcy court lacked constitutional authority to enter final judgment on a state‐law counterclaim against a creditor, even though Congress had granted it statutory authority to do so. When Sharif finally raised the issue, the district judge held that Sharif’s failure to raise it earlier constituted waiver. The Seventh Circuit reversed, holding that the constitutional objection is not waivable because it implicates separation‐of‐powers principles. The bankruptcy judge lacked constitutional authority to enter a final judgment on the alter‐ego claim but had constitutional authority to enter final judgment on objections to discharge of Sharif’s debts.