                                                                                         09/24/2018
               IN THE COURT OF APPEALS OF TENNESSEE
                          AT KNOXVILLE
                                 May 30, 2018 Session

                  RAFIA NAFEES KHAN v. REGIONS BANK

                 Appeal from the Chancery Court for Knox County
             No. 194115-2      Clarence E. Pridemore, Jr., Chancellor
                     ___________________________________

                           No. E2017-02454-COA-R3-CV
                       ___________________________________

This is the third appeal arising from a disputed arbitration award. After the first appeal,
this Court remanded the case to the trial court for the purpose of entering an order
confirming the award in favor of Regions Bank (the Bank) “as to the Rafia N. Khan
Irrevocable Trust.” The trial court subsequently entered an order confirming the award
against “the Rafia N. Khan Irrevocable Trust” and “Rafia N. Khan as Trustee of the Rafia
N. Khan Irrevocable Trust.” Over twenty months later, Rafia Khan filed an independent
action in equity asking the trial court to set aside its judgment confirming the award.
Pursuant to Tenn. R. Civ. P. 12.02(6), the Bank filed a motion to dismiss and raised the
affirmative defense of res judicata. The trial court granted the Bank’s motion to dismiss
on the basis of res judicata. We vacate the trial court’s findings with respect to res
judicata. Nevertheless, we affirm the court’s dismissal of the case because Ms. Khan’s
complaint failed to state a claim upon which relief can be granted.

      Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
                      Affirmed as Modified; Case Remanded

CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J., and JOHN W. MCCLARTY, J., joined.

Dan D. Rhea, Knoxville, Tennessee, for the appellant, Rafia N. Khan.

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

                                                    I.

      We explained the facts1 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
        1
         We emphasize, however, that the following statement of facts “is provided to give context to the
discussion of the issues and has no bearing on the resolution of the issues.” See Durrett Inv. Co., v. City
of Clarksville, No. M2012–00807–COA–R3–CV, 2013 WL 614411, at *1 n.1 (Tenn. Ct. App., filed Feb.
15, 2013). Our subsequent analysis of the Bank’s Rule 12.02(6) motion relies solely on the facts alleged
by Ms. Khan in her most recent complaint.


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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,2
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. On
appeal, this Court reversed the judgment of the trial court, holding that the arbitration
award should be confirmed. Id. at 512. However, because Ms. Khan was granted a
discharge of her debts in bankruptcy during the pendency of the appeal, we remanded the
case to 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 U.S.
Supreme Court; both courts declined to hear the case. Khan v. Regions, 136 S. Ct. 129
(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).3

       On September 15, 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

        2
         As we noted in Khan I, “[t]he Bank attempted to add Mr. Khan as a party to the arbitration, a
move Mrs. Khan successfully opposed.” Id. at 507. This proved fatal to Ms. Khan’s case: “Having
successfully kept Mr. Khan from being a party to the arbitration, she cannot now argue that the Arbitrator
exceeded his powers in failing to make determinations regarding Mr. Khan . . . .” Id. at 511.
        3
         Rule 10 of the Rules of the Court of Appeals provides that a memorandum opinion “shall not be
published, and shall not be cited or relied on for any reason in any unrelated case.” Tenn. Ct. App. R. 10
(emphasis added). “Because the case at bar is a related case, we cite to our previous memorandum
opinion only for procedural context.” See Simmons v. Cheadle, No. M2017–00494–COA–R3–CV, 2017
WL 4742971, at *1 n.1 (Tenn. Ct. App., filed Oct. 19, 2017) (emphasis added).
                                                  -3-
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.

       On June 14, 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. On August 4,
2017, Ms. Khan filed an amended complaint, which is now the operative complaint in
this appeal. The amended complaint recited most of the aforementioned facts and alleged
that the trial court’s October 16, 2015 order is void for two reasons. First, Ms. Khan
alleged that the court lacked personal jurisdiction to confirm the arbitration award against
the Rafia N. Khan Irrevocable Trust, which she claimed was never a party in the case.
Second, Ms. Khan alleged that the court’s order is void under federal bankruptcy law to
the extent that it imposes 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 on the matter, the trial court granted
the Bank’s motion and dismissed the case on the basis of res judicata. Ms. Khan
appealed.

                                            II.

       Ms. Khan raises the issue of whether the trial court erred in granting the Bank’s
motion to dismiss. Resolution of that ultimate issue requires us to address two subsidiary
questions, as framed by us:

              Whether the trial court erred in dismissing the case on the
              basis of res judicata; and, if the court did so err,

              Whether the court’s order of dismissal can be affirmed on an
              alternate basis.

       The Bank further raises the issue of whether this appeal is frivolous and deserving
of sanctions under Tenn. Code Ann. § 27-1-122 (2017).

                                            III.

       As a preliminary matter, we must decide whether to review the trial court’s
dismissal as a grant of a motion to dismiss or a grant of summary judgment. See Tenn. R.
Civ. P. 12.02 (providing that a Rule 12.02(6) motion to dismiss shall be treated as a
motion for summary judgment when “matters outside the pleading are presented to and
not excluded by the court . . . .”).

                                           -4-
        In this case, the trial court stated that it considered “the motions, the memoranda
filed in support thereof and in opposition thereto, the argument of counsel, the mandate
from the Tennessee Court of Appeals in [Khan I], the Final Judgment in [Khan I], and
the entire record . . . .” The record included several exhibits of documents associated
with Khan I. Both parties agreed that the court could take judicial notice of most of
those documents.4

       Ultimately, the trial court granted the Bank’s “motion to dismiss” without
converting that motion into a motion for summary judgment. We do not reach the issue
of whether the trial court erred by failing to do so. As we explain later in this opinion, we
have determined that dismissal is appropriate based solely on the allegations in Ms.
Khan’s complaint now before us on this appeal. We therefore find it unnecessary to
decide whether all the documents presented to the trial court were the proper subject of
judicial notice and, thus, whether the motion to dismiss should have been converted into a
motion for summary judgment.

                                                  IV.

       We first consider whether the trial court erred by granting the Bank’s motion to
dismiss on the basis of res judicata. “A trial court’s decision that a claim is barred by the
doctrine of res judicata or claim preclusion involves a question of law which will be
reviewed de novo on appeal without a presumption of correctness.” Jackson v. Smith,
387 S.W.3d 486, 491 (Tenn. 2012).

       “The doctrine of res judicata or claim preclusion bars a second suit between the
same parties or their privies on the same claim with respect to all issues which were, or
could have been, litigated in the former suit.” Id. Res judicata is an affirmative defense
that a defendant must ordinarily raise in his answer. Id. (citing Tenn. R. Civ. P. 8.03).
However, a Rule 12.02(6) motion may “be used as a vehicle to assert an affirmative
defense, [if] the applicability of the defense . . . ‘clearly and unequivocally appear[s] on
the face of the complaint.’ ” Id. at 491-92 (quoting Givens v. Mullikin ex rel. Estate of
McElwaney, 75 S.W.3d 383, 404 (Tenn. 2002)). Thus, to successfully assert the defense
of res judicata in a Rule 12.02(6) motion, the defendant must show that the plaintiff’s
own allegations “clearly and unequivocally” establish the following elements:

                (1) that the underlying judgment was rendered by a court of
                competent jurisdiction;

                (2) that the same parties or their privies were involved in both
                suits;

        4
           There was a dispute about whether the court could properly take judicial notice of the parties’
briefs filed in Khan I; however, neither party presses the issue on appeal.
                                                  -5-
              (3) that the same claim or cause of action was asserted in both
              suits; and

              (4) that the underlying judgment was final and on the merits.

Id. (citing Lien v. Couch, 993 S.W.2d 53, 56 (Tenn. Ct. App. 1998)).

        In the present case, the fourth element of res judicata, the existence of a final
judgment, did not appear on the face of Ms. Khan’s complaint. In fact, Ms. Khan’s
complaint clearly establishes that the October 16, 2015 order confirming the arbitration
award was not a final judgment. According to paragraph 23 of the complaint, the trial
court entered its October 16, 2015 order before ruling on the Bank’s motion for
additional attorney’s fees. Our Supreme Court has held that a judgment is not “final”
within the meaning of Tenn. R. Civ. P. 54.02 if it is entered while a motion for attorney’s
fees is still pending. Deas v. Deas, 774 S.W.2d 167, 169 (Tenn. 1989); see also City of
Jackson v. Hersh, No. W2008-02360-COA-R3-CV, 2009 WL 2601380, at *4 (Tenn. Ct.
App., filed Aug. 25, 2009); Memphis Light, Gas & Water Div. v. Starkey, 244 S.W.3d
344, 352 n.8 (Tenn. Ct. App. 2007). 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.
Therefore, we hold as a matter of law that Ms. Khan’s complaint in the instant action was
not barred by the doctrine of res judicata. The trial court erred by concluding otherwise.

                                              V.

       In light of our holding that the Bank’s affirmative defense of res judicata is
without merit, we now consider whether dismissal is otherwise appropriate under Tenn.
R. Civ. P. 12.02(6). See Arnold v. City of Chattanooga, 19 S.W.3d 779, 789 (Tenn. Ct.
App. 1999) (“Where the [t]rial [j]udge reaches the correct result for the wrong reason we
will affirm.”). A trial court’s decision to grant a Rule 12.02(6) motion to dismiss is a
question of law that we review de novo with no presumption of correctness. Webb v.
Nashville Area Habitat for Humanity, Inc., 346 S.W.3d 422, 426 (Tenn. 2011) (citations
omitted).

        Under Tenn. R. Civ. P. 12.02(6), a defendant may file a motion to dismiss when
the plaintiff’s complaint “fail[s] to state a claim upon which relief can be granted.” Thus,
a Rule 12.02(6) motion to dismiss “challenges the legal sufficiency of the complaint, not
the strength of the plaintiff’s proof or evidence.” Id. (citations omitted). “A defendant
who files a motion to dismiss ‘admits the truth of all of the relevant and material
allegations contained in the complaint, but . . . asserts that the allegations fail to establish
a cause of action.’ ” Id. (quoting Brown v. Tenn. Title Loans, Inc., 328 S.W.3d 850, 854
(Tenn. 2010)). Therefore, “[i]n considering a motion to dismiss, courts must construe the
complaint liberally, presuming all factual allegations to be true and giving the plaintiff
                                               -6-
the benefit of all reasonable inferences.” Id. (citations omitted). “[C]ourts are not
required,” however, “to accept as true assertions that are merely legal arguments or ‘legal
conclusions’ couched as facts.” Id. (quoting Riggs v. Burson, 941 S.W.2d 44, 47-48
(Tenn. 1997)).

       Ms. Khan’s complaint alleged that the trial court’s order confirming the arbitration
award is void for two reasons. First, Ms. Khan alleged that the court lacked personal
jurisdiction to confirm the arbitration award against the “Rafia N. Khan Irrevocable
Trust.” Second, Ms. Khan alleged that the court’s order is void under federal bankruptcy
law to the extent that it imposes personal liability on Ms. Khan. Both of those assertions
are legal conclusions that are not entitled to a presumption of correctness under Tenn. R.
Civ. P. 12.02(6). Nevertheless, we will probe the complaint for facts purporting to
support those legal conclusions and then we will make an independent judgment as to
whether those conclusions are correct.

       Ms. Khan attempts to prove that the trial court lacked of personal jurisdiction over
the trust by alleging that none of the pleadings in Khan I identified the “Rafia N. Khan
Irrevocable Trust” as a party. We accept as a matter of fact that none of the previous
pleadings identify “the Rafia N. Khan Irrevocable Trust” as a party. That fact, however,
is insufficient as a matter of law to prove that the trial court lacked personal jurisdiction
over the trust. “In most jurisdictions, a trust . . . cannot sue or be sued in its own name,
and therefore, the trustee, rather than the trust, is the real party in interest in litigation
involving trust property.” 76 Am. Jur. 2d Trusts § 601 (West 2018). In Tennessee, for
example,

              [a] claim based on a contract entered into by a trustee in the
              trustee’s fiduciary capacity, on an obligation arising from
              ownership or control of trust property, or on a tort committed
              in the course of administering a trust, may be asserted in a
              judicial proceeding against the trustee in the trustee’s
              fiduciary capacity, whether or not the trustee is personally
              liable for the claim.

Tenn. Code Ann. § 35-15-1010(d) (2015); see also Rest. (Third) of Trusts § 105 (West
2012) (listing Tennessee as one of the many states which have adopted this “now-
prevalent doctrine”). Here, Ms. Khan’s complaint specifically alleges that all prior
pleadings were filed in the name of Rafia N. Khan, individually, and “as trustee of the
Rafia N. Khan Irrevocable Trust.” Thus, the complaint alleges the very fact needed to
assert jurisdiction over the trust.

        Furthermore, a judgment against an individual “as trustee” only imposes personal
liability when “the trustee is personally at fault on account of the trustee’s own willful
misconduct proven by clear and convincing evidence.” Tenn. Code Ann. § 35-15-
                                           -7-
1010(c) (2015). That statute further provides:

              (a) Except as otherwise provided in the contract, a trustee is
              not personally liable on a contract properly entered into in
              the trustee’s fiduciary capacity in the course of administering
              the trust if the trustee in the contract disclosed the fiduciary
              capacity.

              (b) Except as otherwise provided in subsection (a) or (c), the
              debts, obligations and liabilities incurred by a trustee by
              reason of the ownership, management or control of trust
              property in the trustee’s fiduciary capacity, shall be
              enforceable solely against the trust and its property, without
              any obligation or liability personally being borne by any
              trustee of such trust.

Tenn. Code Ann. §§ 35-15-1010(a)-(b) (2015) (emphasis added).

        Here, Ms. Khan argues that the trial court’s order confirming the arbitration
award against her “as trustee” imposes personal liability in violation of federal
bankruptcy law. However, the complaint contains no factual allegations that would
support that legal conclusion. This is not a case where the trustee was sued for a breach
of trust; nor does the complaint allege that the trustee lacked the contractual capacity to
bind the trust in her dealings with the Bank. The statute cited above clearly precludes
personal liability under the circumstances alleged in Ms. Khan’s complaint. Accordingly,
Ms. Khan failed to state a claim upon which relief can be granted.

       Because we conclude that Ms. Khan’s complaint failed to state a claim upon
which relief can be granted, we affirm the trial court’s order dismissing the case under
Tenn. R. Civ. P. 12.02(6). It is now unnecessary for us to consider the applicability of
the prior suit pending doctrine, and we decline to do so.

                                            VI.

        The Bank urges this Court to deem Ms. Khan’s appeal as frivolous and worthy of
sanctions under Tenn. Code Ann. § 27-1-122 (2017). However, “[w]e must apply this
statute strictly so that we do not discourage legitimate appeals.” GSB Contractors, Inc.
v. Hess, 179 S.W.3d 535, 547 (Tenn. Ct. App. 2005). “An appeal is deemed frivolous if
it is devoid of merit or if it has no reasonable chance of success.” Id. (citations omitted).
Ultimately, the decision to award “just damages” for such an appeal “lies within the
sound discretion of this Court.” Id. at 547-48.

       In this appeal, we ruled in favor of Ms. Khan on the issue of res judicata. Given
                                           -8-
that partial victory, we cannot say that her appeal was entirely “devoid of merit.” See
Miltier v. Miltier, 31 S.W.3d 583, 587 (Tenn. Ct. App. 2000) (declining to find an appeal
frivolous when the appellant was successful on one issue). Accordingly, in the exercise
of our discretion, we decline to deem this appeal frivolous and deny the Bank’s request
for damages under Tenn. Code Ann. § 27-1-122.

                                          VII.

       The judgment of the trial court is affirmed as modified. The costs on appeal are
assessed to the appellant, Rafia N. Khan. The case is remanded, pursuant to applicable
law, for collection of costs assessed below.



                                                 ________________________________
                                                  CHARLES D. SUSANO, JR., JUDGE




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