SUZANNE H. BAUKNIGHT, 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").
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).
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:
Regarding attorney's fees, the Arbitrator stated, in part:
Khan, 461 S.W.3d at 506-08.
The Bank's appeal before the Tennessee Court of Appeals in 2010 was stayed when Debtor filed her Chapter 7 bankruptcy case on December 31, 2010. She listed within her statements and schedules a $68,000.00 obligation to Regions Bank secured by a March 11, 2008 home equity line of credit lien on a residence and three unsecured debts to Regions Bank in the amounts of $150,000.00, $61,000.00, and $34,000.00, each incurred in 2006, with the consideration for each described as "purchase of commercial real estate." [Doc. 1.] Additionally, in response to the requirement within her Voluntary Petition to list all other names she had used within the last eight years, Debtor included "Rafia N. Khan Irrevocable Trust"; accordingly, the Court's docket and court-generated documents listed Debtor's name as "Rafia Nafees Khan, pka Rafia N. Khan Irrevocable Trust." [Doc. 1.] Debtor received an unchallenged general discharge on May 6, 2011, and subsequently filed the Adversary Proceeding against the Bank on June 26, 2011, seeking disallowance of the Bank's proof of claim, a judgment voiding the Bank's lien, and compensatory and punitive damages against the Bank. [Adv. Proc. Doc. 1.] Those issues were never addressed; however, because the Adversary Proceeding was dismissed by the Court on September 29, 2011, for lack of Debtor's standing to seek disallowance of a claim in her no-asset case. [Adv. Proc. Doc. 11.] After all appeals of that dismissal were exhausted by Debtor,
At some point after entry of Debtor's discharge and termination of the automatic stay, Regions Bank continued with its appeal of the order by the Knox County Chancery Court that vacated the arbitration award. On November 12, 2014, the Tennessee Court of Appeals ruled, inter alia, that "[t]he judgment of the Trial Court vacating the Arbitrator's award is reversed, this cause is remanded to the Trial Court to enter an order confirming the Arbitrator's award but only as to the Rafia N. Khan Irrevocable Trust, and for collection of the costs below." Khan, 461 S.W.3d at 512. Notably, the appellate court made clear that the decision "concern[ed] only the Trust and not Mrs. Khan personally as she has been discharged in bankruptcy." Id. at 509.
On remand from the Tennessee Court of Appeals, the Knox County Chancery Court entered the Final Judgment on October 16, 2015, stating, in material part, that "[t]he Final Award of arbitrator, Honorable Robert P. Murrian, issued on February 11, 2010, which is of record in this civil action, shall be and the same is hereby confirmed as to the Rafia N. Khan Irrevocable Trust and to Rafia N. Khan as Trustee
As previously stated, Debtor makes clear her intentions:
[Doc. 55.] Debtor argues that she should be allowed to proceed with her intended adversary proceeding because the arbitration award was "based upon an attorney-fee-shifting provision in a contract the Debtor had with Regions Bank, and that Debtor had signed in both her individual capacity[] and in her capacity as the trustee of the `Rafia N. Khan Irrevocable Trust[,]" and [the award] was issued against her "in her dual capacities as an individual[] and as the trustee of the `Rafia Nafees Khan Irrevocable Trust[.]'" [Doc. 55 at ¶¶ 3, 4.] Thus, Debtor argues, the confirmed arbitration award was within the discharge that she, as "pka Rafia N. Khan Irrevocable Trust," received on May 6, 2011. [Doc. 55 at ¶ 6.]
Debtor seeks for this Court to apply state law to re-interpret and/or reconsider the underlying arbitration award confirmed by the Final Judgment to find that the award "against the Debtor, even as a `trustee,' provided for her own, and only her own `personal liability' to Creditor Regions Bank." [Doc. 61 at pp. 5-7.] Such review by this Court, however, is impermissible and violates the Rooker-Feldman doctrine, which "prevents the lower federal courts from exercising jurisdiction over cases brought by `state-court losers' challenging "state-court judgments rendered before the district court proceedings commenced." Lance v. Dennis, 546 U.S. 459, 460 (2006) (quoting Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 292 (2005)).
Hall v. Callahan, 727 F.3d 450, 453 (6th Cir. 2013). Courts may apply the doctrine only if "(1) the federal plaintiff lost in state court, (2) the plaintiff complains of injuries caused by the state-court judgments, (3) those judgments were rendered before the federal suit was filed, and (4) the plaintiff is inviting the district court to review and reject the state-court judgments." In re Burchill, 591 F. App'x 176, 179 (3d Cir. 2015) (citation omitted). The relevant inquiry is whether the state-court judgment being challenged is "the source" of the injury upon which the federal claim is based and not simply whether it is "inextricably intertwined" with the judgment; i.e., "[i]f the source of the injury is the state court decision, then the Rooker-Feldman doctrine would prevent the district court from asserting jurisdiction. If there is some other source of injury, . . . then the plaintiff asserts an independent claim." Kovacic v. Cuyahoga Cty. Dep't of Children & Family Servs., 606 F.3d 301, 309-10 (6th Cir. 2010).
In this instance, Debtor's intended relief if her case is reopened meets all of the requirements for application of the Rooker-Feldman doctrine. Entry of the Final Judgment confirming the arbitration award is a state-court loss by Debtor; the injury she complains of — that the Final Judgment could only apply to her personal liability — is traced to the Final Judgment confirming the arbitration award; the arbitration award was entered prior to the filing of her bankruptcy case;
A Chapter 7 discharge does not extinguish a debtor's debts; however, it releases the debtor from any personal liability for the debts. In re Williams, 291 B.R. 445, 446 (Bankr. E.D. Tenn. 2003). Once discharge is granted, by virtue of the discharge order, in addition to being released from personal liability for pre-petition debts, the discharged debtor falls under the protection of the discharge injunction of 11 U.S.C. § 524(a), which imposes an injunction against commencing or continuing an action against the debtor or his or her property based on a discharged debt. In summary, "Section 524(a) was designed to `ensure that once a debt is discharged, the debtor will not be pressured in any way to repay it.'" In re Leonard, 307 B.R. 611, 613 (Bankr. E.D. Tenn. 2004) (citations omitted). "The discharge injunction is self-executing and is not affected by any conduct of a debtor, including waiver." In re Stewart, No. 09-71845, 2013 WL 2109317, at *5, 2013 Bankr. LEXIS 1983, at *14-15 (Bankr. C.D. Ill. May 15, 2013). Accordingly, an adversary proceeding is not necessary to reiterate the fact that Debtor's personal assets may not be used to collect any pre-petition debt, and Debtor's bankruptcy discharge may be raised as an affirmative defense in state-court proceedings. Tenn. R. Civ. P. 8.03.
Moreover, the Final Judgment, on its face, is not contrary. It does not purport to charge Debtor with any obligation in her individual capacity. Such could only result if the state court were to construe the arbitration award as imposing personal liability on Debtor under her theory of Tennessee law. Indeed, Debtor acknowledges that "the Court of Appeals apparently assumed that the arbitration award against Rafia Khan `as trustee' amounted to an award against `the Trust' as a separate entity. Based upon that apparent assumption, the Court of Appeals ordered the Knox County, Tennessee Chancery Court to confirm the arbitration award `as it regards the Rafia N. Khan Irrevocable Trust' and `only as to the Rafia N. Khan Irrevocable Trust.'" [Doc. 67 at pp. 2-3 (citing Khan, 461 S.W.3d at 509, 511-12).] If the court of appeals "assumed" without deciding the effect of the arbitration award on the Trust, then the Trust, acting by and through its Trustee, may challenge that "assumption" in state court.
Simply, it would be futile and a waste of judicial resources, as well as the resources of Debtor and Regions Bank, to reopen this case for Debtor to pursue an adversary proceeding that would do nothing more than reiterate that Debtor received a discharge as to any personal liability relating to the arbitration award.
For the foregoing reasons, the Motion to Reopen will be denied, and the Court will enter an Order consistent with this Memorandum.
Gray v. Vinsant (In re Vinsant), 539 B.R. 351, 357 (Bankr. E.D. Tenn. 2015) (citing Mullins v. State, 294 S.W.3d 529, 535 (Tenn. 2009)). In its initial brief filed on November 18, 2015, Regions Bank argues that "the Trust was a separate legal entity from the Debtor and that the arbitration award could be imposed upon the Trust without violating the discharge injunction imposed by § 524(a)(2)." [Doc. 57 at pp. 6-7.] Debtor's requested relief before this Court, however, did not seek to undo that particular (or any other) finding made by the Tennessee Court of Appeals. Accordingly, if this Court were to reach the Bank's collateral estoppel argument, the requirements of the doctrine not having been met, the Court would find the doctrine inapplicable.
