Khan v. Regions Bank (In re Khan)
| Decision Date | 13 December 2011 |
| Docket Number | Adv. Proc. No. 11-3186,Case No. 10-36155 |
| Parties | In re RAFIA NAFEES KHAN pka RAFIA N. KHAN IRREVOCABLE TRUST Debtor RAFIA NAFEES KHAN Plaintiff v. REGIONS BANK and WILMINGTON TRUST COMPANY, TRUSTEE Defendants |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
MEMORANDUM ON PLAINTIFF'S MOTION
TO ALTER OR AMEND JUDGMENT
APPEARANCES:
ARNETT, DRAPER & HAGOOD
Dan D. Rhea, Esq.
Attorneys for Plaintiff
KENNERLY, MONTGOMERY & FINLEY, P.C.
Michael S. Kelley, Esq.
Tara Kraemer, Esq.
Attorneys for Defendant Regions Bank
RICHARD STAIR, JR.
Before the court is the Debtor's Motion to Alter or Amend Judgment (Motion to Alter or Amend) filed by the Plaintiff on September 30, 2011, asking the court to alter or amend its Order entered on September 29, 2011, granting the Motion to Dismiss filed by the Defendant Regions Bank on August 31, 2011, and dismissing this adversary proceeding pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. As required by the court's Order entered on October 3, 2011, the Plaintiff filed the Memorandum of Law in Support of Debtor's Motion to Alter or Amend Judgment on October 5, 2011, and the Defendant filed the Defendant's Memorandum in Response to Debtor's Motion to Alter or Amend Judgment on October 19, 2011. At the Plaintiff's request, oral argument was held on December 8, 2011.
Through the Complaint filed on June 26, 2011, and the First Amended Complaint filed on August 15, 2011, grounded on facts which will not be restated here, the Plaintiff sought the following relief: (1) pursuant to 11 U.S.C. § 502(b)(1) (2006), disallowance of the proof of claim filed by the Defendant; (2) a declaration, pursuant to 11 U.S.C. § 506(d) (2006), that the Defendant's lien securing the proof of claim was void; and (3) compensatory and punitive damages pursuant to 11 U.S.C. § 105(a) (2006). Subsequent to the filing of a Motion to Dismiss by the Defendant, the court, on September 29, 2011, filed a Memorandum on Motion to Dismiss (Memorandum Opinion). A corresponding Order dismissing the Complaint was entered. As discussed in detail in the Memorandum Opinion, because the Plaintiff was not a party in interest with standing to object to the Defendant's proof of claim or avoid its lien, she lacked the standing to prosecute the adversary proceeding, and thus, the court does not possess subject matter jurisdiction.
As the basis for her Motion to Alter or Amend, the Plaintiff cites to Rule 9023 of the Federal Rules of Bankruptcy Procedure which provides, in material part, that Rule 59 of the Federal Rulesof Civil Procedure applies in adversary proceedings and that "[a] motion . . . to alter or amend a judgment shall be filed . . . no later than 14 days after entry of judgment." FED. R. BANKR. P. 9023. "There are no standards for filing of such a motion set forth in Bankruptcy Rule 9023 or Civil Rule 59; however, the courts have established four grounds for a motion to alter or amend a judgment: (1) an intervening change in the controlling law; (2) newly discovered evidence; (3) to correct clear legal error; and (4) to prevent manifest injustice." In re Gress, 435 B.R. 520, 522-23 (Bankr. S.D. Ohio 2010) (). Accordingly, Rule 59 "can only be used in limited circumstances, and should be used sparingly." In re Barber, 318 B.R. 921, 923 (Bankr. M.D. Ga. 2004).
A motion under Rule 59 is not, however, "intended to provide the parties an opportunity to relitigate previously-decided matters or present the case under new theories[,]" and "[t]he burden of demonstrating the existence of a manifest error of fact or law rests with the party seeking reconsideration." In re Nosker, 267 B.R. 555, 564-65 (Bankr. S.D. Ohio 2001); see also Condor One, Inc. v. Homestead Partners, Ltd. (In re Homestead Partners, Ltd.), 201 B.R. 1014, 1018 (Bankr. N.D. Ga. 1996) (). "Arguments and evidence which could have been presented earlier in the proceedings cannot be presented in a Rule 59(e) motion[,]" In re See, 301 B.R. 554, 555 (Bankr. N.D. Iowa 2003), and "[t]ypically a motion for reconsideration that simply restates the same arguments will be denied." Hamerly v. Fifth Third Mortg. Co. (In re J & M Salupo Dev. Co.), 388 B.R. 795, 805 (B.A.P. 6th Cir. 2008) (citing Sault Ste. Marie Tribe of Chippewa Indians v. Engler, 146 F.3d 367, 374 (6th Cir. 1998)). Additionally, manifest injustice isdefined as "[a]n error in the trial court that is direct, obvious, and observable, such as a defendant's guilty plea that is involuntary or that is based on a plea agreement that the prosecution rescinds." BLACK'S LAW DICTIONARY 974 (7th ed. 1999).
In support of the Motion to Alter or Amend, through which she asserts clear legal error as its basis, the Plaintiff argues that she has both constitutional standing and a statutory interest under the Bankruptcy Code to object to the Defendant's claim secured by her real property. Although agreeing with the basic concept that Chapter 7 debtors do not possess standing to object to claims unless there is to be a surplus, the Plaintiff argues that "that line of authority cannot possibly carry over to an individual Chapter 7 debtor's 'interest' in her own property, exempted from the bankruptcy estate under 11 U.S.C. §522," PL.'s BR. at 2-3, and that she has a personal and pecuniary interest in her homestead exemption in her real property in the amount of $25,000.00 pursuant to Tennessee Code Annotated § 26-2-301(f) (Supp. 2011). She also argues that the legislative history of the Bankruptcy Code evidences Congress's intent to recognize debtors as parties in interest entitled to avoid liens under 11 U.S.C. § 506(d), but that intent was "frustrated to some extent by the Supreme Court" through its holding in Dewsnup v. Timm, 502 U.S. 410, 112 S. Ct. 773, 116 L. Ed. 2d 903 (1992), and that the facts of her case are distinguished because of the Defendant's "illegal and inequitable actions" committed before she filed her case. Finally, during oral argument, the Plaintiff argued that, as stated in In re Rice, ____ B.R. ___, 2010 WL 6016229 (B.A.P. 6th Cir. Dec. 5, 2011), a case recently decided by the Bankruptcy Appellate Panel for the Sixth Circuit, the term "party in interest" includes Chapter 7 debtors.
Specifically, the Plaintiff argues that the Defendant filed its proof of claim notwithstanding that it had been notified that the case was a "no asset" case and then omitted information indicatingthat the claim is entirely contingent upon a favorable outcome in collateral state court and/or arbitration proceedings. On the other side, the Defendant argues that the Motion to Alter or Amend should be denied because there is no equity in the Plaintiff's real property and she, therefore, cannot claim a homestead exemption. Additionally, the Defendant argues that even if the Plaintiff had a valid interest due to the homestead exemption, she would still not be authorized to proceed with the adversary proceeding seeking to disallow its proof of claim and void its lien based upon the Supreme Court's controlling precedent in Dewsnup and the Sixth Circuit's recognition thereof in Talbert v. City Mortg. Servs. (In re Talbert), 344 F.3d 555 (6th Cir. 2003).
As an initial matter, the Plaintiff's argument that the Defendant's "active bid for immunity from objections and basic 'due process of law'" by filing of its proof of claim in her no-asset case despite being instructed that doing so was unnecessary "is unprecedented," see PL.'s BR. at 4-5, and that she should be entitled to object to its allowance is without merit. In her brief, the Plaintiff makes the following argument:
One of the policies of the Bankruptcy Code is to allow pre-petition liens on debtors' property to "pass through bankruptcy unaffected." See Court Doc. 20, Memorandum Opinion, p. 6. But that policy finds its expression in the Bankruptcy Code under 11 U.S.C. §506(d)(2), which protects only those lien claims that are not filed in a Proof of Claim under 11 U.S.C. §501. The Defendant here has filed a Proof of Claim under Section 501, disregarding the notification from this Court that such filing was unnecessary in light of the "no asset" status of the Debtor's case.
PL.'s BR. at 4. This argument was supplemented during oral argument in which the Plaintiff relied upon case law in the Ninth Circuit Court of Appeals, arising out of Seigel v. Fed. Home Loan Mortg. Corp., 143 F.3d 525, 529-32 (9th Cir. 1998), in which that court held that the deemed allowance of a proof of claim under § 502(a) is a final judgment giving rise to res judicata even though no actual order regarding the claim has been entered. The Plaintiff argues that because the Defendant's claimwould be "deemed allowed" pursuant to § 502(a) if not objected to, the Defendant would be entitled to raise the doctrine of res judicata against the Plaintiff in the subsequent state court action.
The Bankruptcy Code defines "creditor" as "[an] entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor[,]" 11 U.S.C. § 101(10)(A) (2006), and defines "claim" as:
11 U.S.C. § 101(5) (2006). Although a creditor's status as such depends on whether it holds a...
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