Taggart v. Lorenzen

Facts of the Case

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.”

Question

Does the bankruptcy code preclude a finding of civil contempt where a creditor’s believes in good faith that the discharge injunction does not apply?

CONCLUSION

The bankruptcy code allows a court to 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. Justice Stephen Breyer authored the unanimous opinion of the Court.The bankruptcy code states that a discharge order “operates as an injunction” and that a court may issue any “order” or “judgment” that is “necessary or appropriate” to “carry out” other bankruptcy provisions. In other, non-bankruptcy contexts, the Court has held that civil contempt is inappropriate where there is “a fair ground of doubt as to the wrongfulness of the defendant’s conduct.” The Court found no reason that this principle should not apply equally in a bankruptcy context. Thus, civil contempt is appropriate only if the creditor violates a discharge order based on an objectively unreasonable understanding of the discharge order. Because the Ninth Circuit below applied a different standard in determining whether civil contempt was appropriate, the Court vacated the Ninth Circuit’s decision and remanded for further proceedings.

Case Information

  • Citation: 587 US _ (2019)
  • Granted: Jan 4, 2019
  • Argued: Apr 24, 2019
  • Decided Jun 3, 2019