Khan v. Regions Bank

• Decision Date: 06 February 2019
• Docket Number: No. E2018-01173-COA-R3-CV,E2018-01173-COA-R3-CV
• Parties: Rafia N. KHAN, Individually, and in Her Capacity as Trustee of the Rafia N. Khan Irrevocable Trust v. REGIONS BANK
• Court: Tennessee Court of Appeals

584 S.W.3d 418

Rafia N. KHAN, Individually, and in Her Capacity as Trustee of the Rafia N. Khan Irrevocable Trust

v.REGIONS BANK

No. E2018-01173-COA-R3-CV

Court of Appeals of Tennessee, Eastern Section, AT KNOXVILLE.

December 5, 2018 Session

FILED February 6, 2019

Dan D. Rhea, Knoxville, Tennessee, for the appellant, Rafia N. Khan, individually, and in her capacity as Trustee of The Rafia N. Khan Irrevocable Trust.

Michael Kelley, Knoxville, Tennessee, for the appellee, Regions Bank.

Charles D. Susano, Jr., J., delivered the opinion of the court, in which John W. McClarty and Thomas R. Frierson, II, JJ., joined.

Charles D. Susano, Jr., J.

This is the fourth appeal arising from a disputed arbitration award in favor of Regions Bank (the Bank) "against Rafia N. Khan, individually, and as trustee" of the Rafia N. Khan Irrevocable Trust (the Trust). Pursuant to this Court's mandate in the first appeal, the trial court entered an order confirming the arbitration award "as to the Rafia N. Khan Irrevocable Trust and to Rafia N. Khan as Trustee of the Rafia N. Khan Irrevocable Trust." Later, the trial court entered an order granting the Bank $72,156 in attorney's fees and $2,094.05 in costs. Of that amount, the court assessed $45,928.92 against the Trust and assessed $28,321.13 against Ms. Khan individually. Ms. Khan's notice of appeal states that she is appealing (1) the trial court's order confirming the arbitration award; (2) the court's order granting the Bank attorney's fees and costs; and (3) the court's order denying Ms. Khan's motion to alter or amend. We affirm the trial court's order confirming the arbitration award pursuant to the law of the case doctrine. We modify the court's order awarding attorney's fees. The award shall include attorney's fees incurred by the Bank in the trial court and on direct appeal but not attorney's fees incurred by the Bank in federal bankruptcy court proceedings.

I.

We explained the facts underlying the parties' arbitration dispute in Khan v. Regions Bank , 461 S.W.3d 505 (Tenn. Ct. App. 2014) [hereinafter Khan I ]:

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.

Id. at 506-07.

When the Bank refused to release the lien on the residential property, Ms. Khan, acting in her individual capacity and as trustee of the Rafia N. Khan Irrevocable Trust, filed suit against the Bank. Id. at 507. She alleged that the Bank's refusal to release the lien was an "unfair act" under the Tennessee Consumer Protection Act (TCPA). Id. The parties subsequently agreed to resolve the dispute through arbitration, as required by the loan documents. Id.

The arbitrator found that Ms. Khan was not personally liable for the $40,000 loan made to her husband and that the Bank did not violate the TCPA. Id. To Ms. Khan's displeasure, however, the arbitrator declined to order the Bank to release the lien on the residential property. Id. Because Mr. Khan was never made a party to the arbitration,¹ the arbitrator concluded that he lacked the authority "to decide whether or not Mr. Khan remains liable to Regions Bank on the line of credit or on some other basis" and "to decide whether the Deed of Trust secures any such indebtedness Mr. Khan may have to Regions Bank." Id. Finally, pursuant to a contractual provision in loan documents, the arbitrator awarded the Bank $25,995.54 in attorney's fees and costs "against Mrs. Khan, individually and as Trustee." Id. at 508. Shortly thereafter, the Bank filed a petition in the trial court to confirm the arbitration award. Ms. Khan filed a competing motion to vacate the award. The trial court denied the Bank's petition and granted Ms. Khan's motion to vacate the award. The Bank appealed.

During the pendency of the appeal in Khan I , Ms. Khan filed for bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Tennessee. In May 2011, Ms. Khan received a discharge of her debts in bankruptcy. The Bank filed a proof of claim in the bankruptcy case, which included the arbitration award. In response, Ms. Khan initiated an adversary proceeding in the bankruptcy court, challenging the Bank's proof of claim. Ms. Khan's First Amended Complaint asked the bankruptcy court to disallow the arbitration award, in part, because the trial court had already vacated the award. The bankruptcy court dismissed Ms. Khan's adversary proceeding on jurisdictional grounds. In re Khan , No. 11-3186, 2011 WL 4543962 (Bankr. E.D. Tenn., Filed Sept. 29, 2011). Ms. Khan appealed to the U.S. District Court for the Eastern District of Tennessee, which affirmed the decision of the bankruptcy court. In re Khan , No. 3:12-cv-00025, 2012 WL 5381444 (E.D. Tenn., Filed Oct. 31, 2012). Ms. Khan subsequently appealed to the U.S. Court of Appeals for the Sixth Circuit, which also affirmed. In re Khan , 544 Fed. App'x 617 (6th Cir. 2013). Finally, Ms. Khan filed a petition for certiorari with the U.S. Supreme Court. Her petition was denied. Khan v. Regions Bank , 572 U.S. 1016, 134 S.Ct. 1545, 188 L.Ed.2d 558 (2014).

In November 2014, this Court announced its decision in Khan I . We reversed the judgment of the trial court and remanded the case with instructions to confirm the arbitration award. Khan , 461 S.W.3d at 512. Because Ms. Khan was granted a discharge of her debts in bankruptcy during the pendency of the appeal, we directed the trial court "to enter an order confirming the Arbitrator's award but only as to the Rafia N. Khan Irrevocable Trust[.]" Id. at 508-09, 512. Ms. Khan sought discretionary review of our decision with the Tennessee Supreme Court and the United States Supreme Court; both courts declined to hear the case. Khan v. Regions , ––– U.S. ––––, 136 S. Ct. 129, 193 L.Ed.2d 40 (2015) (denying petition for certiorari); Khan , 461 S.W.3d 505 (Tenn. Ct. App. 2014), perm. app. den. (Tenn. 2015).

After our decision in Khan I , but before the trial court had entered an order confirming the arbitration award, Ms. Khan filed another complaint against the Bank (Khan II ). The trial court dismissed that complaint on the basis of the prior suit pending doctrine. In a memorandum opinion, this Court affirmed the trial court's dismissal of Khan II . Khan v. Regions Bank , No. E2015-01891-COA-R3-CV, 2016 WL 3094917 (Tenn. Ct. App., Filed May 25, 2016).²

In September 2015, the Bank filed a motion with the trial court for an award of post-arbitration attorney's fees. On October 16, 2015, before ruling on the Bank's motion, the trial court entered a self-styled "Final Judgment" confirming the arbitration award "as to the Rafia N. Khan Irrevocable Trust and to Rafia N. Khan as Trustee of the Rafia N. Khan Irrevocable Trust." A few days later, the Bank filed certified copies of that order with the Knox County Register of Deeds in order to establish and maintain a judgment lien against the residential property. The Bank has never sought to levy the property and has never filed a motion with the court to foreclose on its lien.

In June 2017, Ms. Khan filed a third complaint (Khan III ) asking the trial court to set aside its judgment confirming the arbitration award in Khan I . First, Ms. Khan alleged that the court lacked personal jurisdiction to confirm the arbitration award against the Trust, which she claimed was never a party in the case. Second, Ms. Khan alleged that the court's order was void under federal bankruptcy law to the extent that it imposed personal liability on Ms. Khan "as Trustee of the Rafia N. Khan Irrevocable Trust." The Bank filed a Rule 12.02(6) motion to dismiss and raised the affirmative defense of res judicata. After a hearing, the trial court granted the Bank's motion and dismissed the case on the basis of res judicata. Ms. Khan appealed.

In May 2018, this Court announced its decision in Khan III . Khan v. Regions Bank , 572 S.W.3d 189 (Tenn. Ct. App. 2018), perm. app. denied (Tenn. 2019). We reversed the trial court's ruling on the issue of res judicata because the order appealed from was not a final judgment. Id. at 194 ("Because the trial court's October 16, 2015 order did not resolve the issue of post-arbitration attorney's fees, it was not a final judgment."). Nevertheless, we affirmed the trial court's dismissal of the case because Ms. Khan's complaint failed to state a claim upon which relief could be granted. Id. at 195–96. It was apparent from Ms. Khan's complaint that the trial court properly exercised its jurisdiction over the Trust. It was equally apparent that the arbitration award did not impose personal liability on Ms. Khan in violation of federal bankruptcy law. Id. at 195–96. Ms. Khan challenged these legal conclusions in a petition for rehearing, which this Court denied. Ms. Khan subsequently filed an application for permission to appeal with the Tennessee Supreme Court. On January 18, 2019, the Supreme Court denied permission to appeal.

During the pendency of the appeal in Khan III , the trial court revisited the issue of post-arbitration attorney's fees. Ultimately, the court entered an order granting the Bank $72,156 in attorney's fees and $2,094.05 in costs. The court assessed $45,928.92...