In re Rafia Nafees Khan Pka Rafia N. Khan Irrevocable Trust, Case No. 3:10-bk-36155-SHB

• Decision Date: 26 January 2016
• Docket Number: Case No. 3:10-bk-36155-SHB
• Parties: In re RAFIA NAFEES KHAN pka RAFIA N. KHAN IRREVOCABLE TRUST Debtor
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

In re RAFIA NAFEES KHAN

pka RAFIA N. KHAN IRREVOCABLE TRUST Debtor

Case No. 3:10-bk-36155-SHB

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TENNESSEE

January 26, 2016

MEMORANDUM ON MOTION TO REOPEN CASE

APPEARANCES:

ARNETT, DRAPER & HAGOOD, LLP

Dan D. Rhea, Esq.

Post Office Box 300

Knoxville, Tennessee 37901-0300

Attorneys for Debtor

KENNERLY, MONTGOMERY & FINLEY, P.C.

Michael S. Kelley, Esq.

4th Floor, Nations Bank Center

550 Main Street

Knoxville, Tennessee 37902

Attorneys for Regions Bank

SUZANNE H. BAUKNIGHT UNITED STATES BANKRUPTCY JUDGE

Through the Motion of Debtor, Rafia Nafees Khan, to Reopen Case ("Motion to Reopen") filed on October 26, 2015, Debtor asks the Court to reopen this discharged Chapter 7 case to adjudicate the meaning of an arbitration award confirmed by the Knox County Chancery Court against Debtor "as Trustee." If the Court grants the Motion to Reopen, Debtor intends to argue that Tennessee law imposes "legal responsibility . . . solely upon [Debtor], as her own 'personal liability'" [Doc. 61 at p.11 (emphasis added)]; thus, if Debtor is solely liable for the arbitration award in her personal capacity, the arbitration victor is precluded from reaching assets owned by the Rafia N. Kahn Irrevocable Trust ("the Trust") (i.e., primarily Debtor's and her children's residence) to enforce the award. This Court, however, has no jurisdiction to interpret the confirmed arbitration award to determine whether the Trust is liable. Such is for the state court to decide, presumably in a proceeding related to enforcement activity on the judgment. Because this Court need not reiterate the obvious and undisputed fact that Debtor received a discharge from any personal liability relating to the arbitration award, it would be futile to reopen this case. Accordingly, the Motion to Reopen will be denied. In so deciding, the Court has relied on the exhibits and documents attached to the Motion to Reopen and to both parties' respective briefs; the decision of the Tennessee Court of Appeals in Kahn v. Regions Bank, 461 S.W.3d 505 (Tenn. Ct. App. 2014), appeal denied Mar. 16, 2015, cert. denied, 136 S. Ct. 129 (2015); and, pursuant to Rule 201 of the Federal Rules of Evidence, all documents of record in Debtor's bankruptcy case and in Kahn v. Regions Bank, et al., Adv. Proc. No. 3:11-ap-03186-rs ("the Adversary Proceeding").¹

I. STANDARD FOR REOPENING UNDER § 350(b)

The authority to reopen a closed bankruptcy case in order to "administer assets, to accord relief to the debtor, or for other cause" is derived from 11 U.S.C. § 350(b). Whether to reopen a case is within the bankruptcy judge's sound discretion, Rosinski v. Boyd (In re Rosinski), 759 F.2d 539, 540-41 (6th Cir. 1985), and the party seeking to reopen bears the burden of proof. In re Siegal, 535 B.R. 5, 10 (Bankr. D. Mass. 2015). "In exercising [its] discretion, 'the bankruptcy court should exercise its equitable powers with respect to substance and not to technical considerations that will prevent substantial justice.' For that reason, the bankruptcy judge has broad discretion to weigh the equitable factors in each case." In re Security Servs., Inc., 203 B.R. 708, 710 (Bankr. W.D. Mo. 1996) (quoting Matter of Shondel, 950 F.2d 1301, 1304 (7th Cir. 1991)); see also In re Jenkins, 330 B.R. 625, 628 (Bankr. E.D. Tenn. 2005) (holding that because the Bankruptcy Code does not define what sort of "cause" is required, the court weighs the underlying equities on a case-by-case basis). Courts should also "consider whether similar proceedings are already pending in state court as well as make a determination as to which forum - state court or bankruptcy court - is most appropriate to adjudicate the issues raised by a motion to reopen." In re Lazy Days' RV Ctr. Inc., 724 F.3d 418, 423 (3d Cir. 2013) (citation omitted); see also Apex Oil Co., Inc. v. Sparks (In re Apex Oil Co., Inc.), 406 F.3d 538, 542 (8th Cir. 2005) (holding that "availability of relief in an alternative forum is a permissible factor on which to base a decision not to reopen a closed bankruptcy case").

Because reopening a Chapter 7 case allows the court an opportunity to act on a debtor's substantive request for relief but affords no independent relief, "[when] determining whether to grant the motion, it is appropriate for the Court to review the legal merits of the relief sought upon reopening." Boyce v. Citibank, N.A. (In re Boyce), No. 10-8307-AST, 2015 WL 9126085,at *4, 2015 Bankr. LEXIS 4231, at *10 (Bankr. E.D.N.Y. Dec. 15, 2015). A motion to reopen "should be granted only when the moving party demonstrates a compelling reason to do so, and '[t]he longer the time between the closing of the estate and the motion to reopen[,] the more compelling the reason for reopening the estate should be.'" In re Owsley, 494 B.R. 321, 325 (Bankr. E.D. Tenn. 2013) (quoting In re Skyline Woods Country Club, LLC, 431 B.R. 830, 835 (B.A.P. 8th Cir. 2010) (citation omitted)). A case should not be reopened, however, if doing so "would be futile and a waste of judicial resources" because the moving party can be afforded no relief. Redmond v. Fifth Third Bank, 624 F.3d 793, 803 (7th Cir. 2010) (citation omitted).

II. FACTUAL AND PROCEDURAL BACKGROUND

As Debtor explains in the Motion to Reopen, she wants to file an adversary proceeding in the reopened case for a declaratory judgment that 11 U.S.C. § 524(a)(1) voids as violative of the discharge injunction a Final Judgment entered by the Knox County Chancery Court on October 16, 2015 [Doc. 55-2], affirming an arbitration award granted on February 11, 2010, in favor of Regions Bank ("Regions Bank" or "the Bank") and against Debtor in her capacity as Trustee of the Trust for attorneys' fees and expenses in the amount of $25,995.54. The Bank filed a Memorandum in Opposition to Debtor's Motion to Reopen, arguing that it would be futile to reopen the case because Debtor was seeking impermissibly to collaterally attack a state-court judgment. A hearing was held on November 19, 2015, after which the Court afforded Debtor and the Bank the opportunity to file briefs in support of their respective positions. Through its briefs, the Bank raises collateral estoppel and the Rooker-Feldman Doctrine as the bases for futility, against which application Debtor vehemently argues.

In its 2014 memorandum opinion in Kahn, the Tennessee Court of Appeals succinctly summarized the extensive conflict between Debtor and Regions Bank, which dates to 2008:

Mr. and Mrs. Khan obtained a joint line of credit from the Bank's predecessor secured by a deed of trust on residential property. Mrs. Khan had bought the property in 2004, and, later in 2004, she quitclaimed it to the Rafia N. Khan Irrevocable Trust. This property is where Mrs. Khan and her two children live. The joint line of credit dates from 2006, and it provided for credit up to $80,000. Mrs. Khan signed the credit agreement and disclosure in her individual capacity and signed the deed of trust both in her individual capacity and on behalf of the Trust.

In 2008, Mrs. Khan wanted to close the line of credit. There was some issue about whether or when the paperwork necessary to close the line of credit was processed finally. Before the final processing, Mr. Khan transferred $40,000 from the joint line of credit to his checking account. Mrs. Khan apparently was not consulted and did not approve of this move. The Khans have since divorced.

Mrs. Khan brought this lawsuit in both her individual capacity and as Trustee of the Rafia N. Khan Irrevocable Trust. Mrs. Khan sought to have the Bank's refusal to release the lien on the residential property declared as an "unfair act" under the Tennessee Consumer Protection Act. Per the loan documents, the parties by an agreed order entered into arbitration. The Bank attempted to add Mr. Khan as a party to the arbitration, a move Mrs. Khan successfully opposed.

In November 2009, arbitration took place before the Arbitrator. The Arbitrator's findings as contained in the "Summary" section of the Interim Award and adopted in the Final Award, consisted of the following:

1. Ms. Khan has not proved that Regions Bank has breached the joint line of credit with respect to her;

2. Ms. Khan cancelled her obligations under the joint line of credit by providing Regions Bank with a written notice of cancellation, Exhibit 3;

3. Ms. Khan is not personally liable for the $40,000.00 loan made to Mr. Khan on or about March 12, 2008;

4. It is beyond the power of the Arbitrator to decide whether or not Mr. Khan remains liable to Regions Bank on the line of credit or on some other basis;

5. It is beyond the power of the Arbitrator to decide whether the Deed of Trust secures any such indebtedness Mr. Khan may have to Regions Bank;

6. Ms. Khan is not entitled to an order in this arbitration requiring Regions Bank to release the lien on the property at 3901 South Lake Boulevard;

7. Regions Bank is not liable for any "unfair acts" in violation of the TCPA;8. Ms. Khan can be held liable for Regions Bank's reasonable attorneys [sic] fees and litigation costs (except as to more than $375.00 in arbitrator's fees) in defending against Ms. Khan's unsuccessful claims;

9. Ms. Khan is not entitled to any recommendations from the Arbitrator to be made to the Knox County, Tennessee Chancery Court;

10. Ms. Khan is not entitled to recover her attorney's fees and costs in this arbitration; and,

11. Regions Bank may serve its petition for attorney's fees as outlined above within ten (10) business days of service on it of this Interim Award. The Claimant shall have ten (10) business days after service of the Petition on it to [sic] which to serve her response. Unless otherwise ordered by the Arbitrator, the hearing will be deemed closed once Claimant responds or the deadline to do so passes, whichever occurs first, and the undersigned shall have fourteen (14) days thereafter in which to serve a Final Award.

Regarding attorney's fees, the Arbitrator stated,...