Taggart v. Lorenzen

Taggart owned an interest in an Oregon company. That company and its other owners (respondents) sued, claiming that Taggart had breached the company’s operating agreement. Before trial, Taggart filed for Chapter 7 bankruptcy. The Bankruptcy Court issued a discharge order that released Taggart from liability for most pre-bankruptcy debts. The Oregon state court subsequently entered judgment against Taggart in the pre-bankruptcy suit and awarded attorney’s fees to respondents. The Bankruptcy Court found respondents in civil contempt for collecting attorney’s fees in violation of the discharge order. The Bankruptcy Appellate Panel and the Ninth Circuit applied a subjective standard to hold that a “creditor’s good faith belief” that the discharge order does not apply to the claim precludes a finding of contempt, even if that belief was unreasonable. The Supreme Court vacated. Neither a standard akin to strict liability nor a purely subjective standard is appropriate. 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. Civil contempt principles apply to the bankruptcy statutes, which specify that a discharge order “operates as an injunction,” 11 U.S.C. 524(a)(2), and that a court may issue any “order” or “judgment” that is “necessary or appropriate” to “carry out” other bankruptcy provisions. A party’s subjective belief that she was complying with an order ordinarily will not insulate her from civil contempt if that belief was objectively unreasonable. The Court remanded, noting that subjective intent is not always irrelevant. Civil contempt sanctions may be warranted when a party acts in bad faith, and a party’s good faith may help to determine an appropriate sanction. View "Taggart v. Lorenzen" on Justia Law