Supreme Court Update: Two Bankruptcy Cases in the Running for ‘Cert’

Two important bankruptcy cases, both entailing significant circuit splits, are in the running for review by the Supreme Court either late this term or in the term to begin in October 2019.

In Mission Product Holdings Inc. v. Tempnology LLC (In re Tempnology LLC), 879 F.3d 389 (1st Cir. Jan. 12, 2018), the First Circuit held that rejection of an executory license for a trademark terminates the licensee’s right to use the mark. In the second case lobbying for high court review, the Ninth Circuit held in Lorenzen v. Taggart (In re Taggart), 888 F.3d 438 (9th Cir. April 23, 2018, rehearing denied Sept. 7, 2018), that a good faith belief that an action does not violate the discharge injunction absolves the creditor of contempt, even if the belief is “unreasonable.”

Mission Product and Trademarks

The petition for certiorari in Mission Product was originally scheduled for review by the justices of the Supreme Court at their conference on October 12. No decision having been made at the first conference, the petition was relisted for consideration by the justices at their next conference on October 26.

For certiorari petitions generally, the odds of Supreme Court review are in the neighborhood of 3%. Relisting a petition like Mission Product’s indicates that the justices are seriously considering the issue and raises the likelihood of a grant of certiorari to around 50%, judging by the results in recent terms. Granting certiorari in Mission Product would allow the justices to expound on the effects of contract rejection.

In Mission Product, the First Circuit rejected the conclusion of the Seventh Circuit in Sunbeam Products Inc. v. Chicago American Manufacturing LLC, 686 F.3d 372 (7th Cir. 2012), where Circuit Judge Frank Easterbrook held in 2012 that rejection does not preclude the continued use of a trademark license. Saying that rejection is merely a court-authorized breach, Judge Easterbrook observed that a licensor’s breach of a license outside of bankruptcy would not bar the licensee from continuing to use the trademark.

Splitting with the Seventh Circuit, the First Circuit in Mission Product instead followed the Fourth Circuit’s opinion in Lubrizol Enterprises Inc. v. Richmond Metal Finishers Inc., 756 F.2d 1043 (4th Cir. 1985). As Judge Easterbrook said, Lubrizol has been “uniformly criticized” by scholars and commentators.

Taggart and Contempt

The debtor who lost in Taggart filed a certiorari petition on October 15. A response is not due until November 15, barring a request for an extension.

The petitioner in Taggart argues that the holding in the Ninth Circuit “directly conflicts with the decisions of three courts of appeals, two bankruptcy appellate panels, and dozens of lower courts.” In those courts, the petitioner says that the “creditor’s ‘subjective beliefs or intent’ are irrelevant to the [contempt] analysis.”

On four occasions, the Taggart petition cites and quotes an ABI publication, Rochelle’s Daily Wire, about the importance of resolving the split because the Ninth Circuit gives license for disregarding the discharge and may leave debtors unable to afford counsel for enforcing the discharge.

The Ninth Circuit’s Taggart decision threatens to make the automatic stay and the discharge injunction almost impossible to enforce in that circuit by contempt. Without the threat of contempt, creditors will be emboldened to violate the core relief afforded by bankruptcy, and lawyers may be unwilling to take up the cudgels for debtors knowing that the creditors may not be obliged to pay the debtors’ attorneys’ fees as a sanction.

A decision in the Supreme Court upholding Taggart would alter the landscape dramatically in bankruptcy. As the petitioner says, it would “not [be] difficult for sophisticated, aggressive, well-funded creditors to conjure up pretextual reasons for pushing the discharge’s limits.”

When Will ‘Cert’ Be Denied or Granted?

If the Supreme Court grants review in Mission Product, the announcement could come as soon as Friday, October 26. If the justices deny the petition, an order to that effect would likely appear on October 29. Alternatively, the justices could “relist” the petition for a third conference or ask for the opinion of the U.S. Solicitor General. If the Solicitor General weighs in, a decision on certiorari will not come until late in the current term ending in June 2019.

A decision to grant or deny review in Taggart may not come down until early 2019, making oral argument this term a slim possibility.

The high court has already granted review in Obduskey v. McCarthy & Holthus LLP, 17-1307 (Sup. Ct.). The case will decide whether the federal Fair Debt Collection Practices Act applies to nonjudicial foreclosures. Although the Court is yet to set the date or oral argument, it’s a good bet the case will be heard in January.

To read some of ABI’s coverage of Taggart and Mission Product, click here, here, here, here, and here.

The petitions for certiorari are Mission Product Holdings Inc. v. Tempnology LLC, 17-1657 (Sup. Ct.), and Taggart v. Lorenzen, 18-489 (Sup. Ct.).