Taggart v. Lorenzen - 139 S. Ct. 1795 (2019)

Rule:

A court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct. In other words, civil contempt may be appropriate if there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful.

Facts:

Petitioner Bradley Taggart formerly owned an interest in an Oregon company. That company and two of its other owners, who are among the respondents here, filed suit in Oregon state court, claiming that Taggart had breached the company's operating agreement. Before trial, Taggart filed for bankruptcy under Chapter 7 of the Bankruptcy Code. At the conclusion of that proceeding, the Federal Bankruptcy Court issued a discharge order that released Taggart from liability for most prebankruptcy debts. After the discharge order issued, the Oregon state court entered judgment against Taggart in the prebankruptcy suit and awarded attorney's fees to respondents. Taggart returned to the Federal Bankruptcy Court, seeking civil contempt sanctions against respondents for collecting attorney's fees in violation of the discharge order. The Bankruptcy Court ultimately held respondents in civil contempt. The Bankruptcy Appellate Panel vacated the sanctions, and the Ninth Circuit affirmed the panel's decision. Applying a subjective standard, the Ninth Circuit concluded that a “creditor's good faith belief” that the discharge order “does not apply to the creditor's claim precludes a finding of contempt, even if the creditor's belief is unreasonable.”

Issue:

May a court hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor's conduct?

Answer:

Yes.

Conclusion:

The Supreme Court held that a court may hold a creditor in civil contempt for violating a discharge order if there was no fair ground of doubt as to whether the order barred the creditor's conduct. Under the fair ground of doubt standard, civil contempt may be appropriate when the creditor violates a discharge order based on an objectively unreasonable understanding of the discharge order or the statutes that govern its scope. This standard strikes the careful balance between the interests of creditors and debtors that the Bankruptcy Code often seeks to achieve. The United States Court of Appeals for the Ninth Circuit erred in applying a subjective standard for civil contempt.