Richard Sharif v. Wellness International Networ, 727 F.3d 751

Sharif was sanctioned in Texas and owed WIN >$650,000; he then filed Chapter 7 in N.D. Ill.; WIN filed a five‑count adversary complaint (four §727 nondischargeability counts; one state‑law alter‑ego claim).
Sharif repeatedly failed to comply with discovery (dating back to Texas litigation); bankruptcy court ordered production and warned that noncompliance would result in default.
Sharif produced incomplete discovery after the deadline, admitted many deficiencies at deposition, and the bankruptcy court entered default judgment on all five counts and awarded fees.
Sharif appealed to the district court; after Stern v. Marshall was decided, a sister (Ragda) moved to withdraw the reference under Stern and Sharif sought supplemental Stern briefing; the district court denied both as untimely and affirmed the bankruptcy rulings.
Seventh Circuit held that (1) an Article III/Stern objection to a bankruptcy court’s power to enter final judgment in a core proceeding is not waivable, (2) the bankruptcy court had constitutional authority to enter final judgment on the four §727 discharge‑objection counts but lacked Article III authority over the state‑law alter‑ego claim, and (3) default sanctions and fee awards were proper but fees must be recalculated to account for the vacated alter‑ego judgment.

Issue	Sharif’s Argument	WIN’s Argument	Held
Waivability of Article III (Stern) objection	Stern objection is not time‑barred; can be raised anytime	Waivable by parties’ conduct or failure to raise earlier	Stern objection to bankruptcy judge adjudicating core matters is not waivable (protects structural Article III interests)
Constitutional authority to enter final judgment on §727 claims	Bankruptcy court lacked Article III power over adversary as a whole	Bankruptcy court had authority over objections to discharge	Bankruptcy court constitutionally could enter final judgment on the four §727 counts (federal law; core)
Constitutional authority to enter final judgment on state‑law alter‑ego claim	Lacked Article III authority; Stern requires Article III judge	WIN: alter‑ego was integral to discharge objections and within bankruptcy power	Bankruptcy court lacked constitutional authority to enter final judgment on the alter‑ego claim; that judgment vacated; remand for further proceedings
Discovery sanctions & attorney’s fees	Default judgment and fees were excessive and violated due process	Sanctions appropriate given long history of noncompliance and court warnings	Default judgment and fee awards affirmed as to §727 counts (sanctions not an abuse); fee awards remanded for recalculation to exclude vacated alter‑ego judgment

Stern v. Marshall, 131 S. Ct. 2594 (2011) (Supreme Court holding bankruptcy court lacked Article III power to enter final judgment on certain state‑law counterclaims)
In re Ortiz, 665 F.3d 906 (7th Cir. 2011) (Seventh Circuit applying Stern to hold bankruptcy court lacked Article III authority for certain state‑law claims)
Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (plurality decision addressing Article III limits on non‑Article III adjudicators in bankruptcy)
Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (fraudulent‑transfer actions by trustee require Article III adjudication and jury when demanded)
Commodity Futures Trading Comm’n v. Schor, 478 U.S. 833 (1986) (consent/waiver may affect Article III analysis where structural concerns are minimal)
Peretz v. United States, 501 U.S. 923 (1991) (parties may consent to magistrate‑judge jurisdiction in criminal proceedings under certain conditions)
Katchen v. Landy, 382 U.S. 323 (1966) (preference actions integral to claims allowance may be adjudicated in bankruptcy)
Langenkamp v. Culp, 498 U.S. 42 (1990) (preference claims against creditors who filed proofs of claim can be adjudicated in bankruptcy)
In re Bellingham Ins. Agency, Inc., 702 F.3d 553 (9th Cir. 2012) (held Stern objection waivable)
Waldman v. Stone, 698 F.3d 910 (6th Cir. 2012) (held Stern objection not waivable)