A nonprecedential opinion from the Eleventh Circuit shows how Taggart v. Lorenzen allows courts to rule on contempt motions without actually deciding whether there was a violation of the discharge injunction.
In Taggart, the Supreme Court rejected a strict-liability standard for the imposition of contempt for violating the discharge injunction. Instead, the high court held unanimously that the bankruptcy court “may impose civil contempt sanctions when there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.” Taggart v. Lorenzen, 139 S. Ct. 1795, 1801 (June 3, 2019).
In the case on appeal, the debtor had consented to the entry of a $5,700 judgment before bankruptcy. The judgment included an additional $300 in costs and 12% interest from the date of default if the debtor failed to make required installment payments.
The judgment debtor quickly defaulted and filed a chapter 7 petition. In bankruptcy court, the debtor consented to judgment declaring the debt nondischargeable under Section 523(a)(6).
More precisely, the bankruptcy court’s judgment purported to enter “judgment” against the debtor for the $5,700, alongside a declaration that the judgment was nondischargeable.
Years later, the judgment creditor attempted to collect the $5,700 judgment along with the $300 in costs and 12% interest. The debtor responded with a motion alleging that the collection attempts violated the discharge injunction under Section 524(a).
The bankruptcy court found no violation of the discharge injunction and denied the contempt motion. The district court affirmed.
On a second appeal to the circuit, the debtor made a clever argument: The $5,700 debt was not discharged, but the $300 in costs and 12% interest were discharged. In other words, the creditor allegedly violated the discharge injunction by attempting to collect interest and $300 in costs.
In a per curiam opinion on February 25, the Eleventh Circuit relied on Taggart to uphold denial of the contempt motion, without deciding whether the creditor had indeed violated the discharge injunction. The appeals court held that it “was objectively reasonable for [the creditor] to believe that it could legally collect the interest, costs, and fees imposed by the state court.”
The circuit court offered two reasons for the conclusion. First, the appeals court relied on a Fourth Circuit opinion holding that a bankruptcy court only decides whether a debt is discharged but does not issue its own judgment on the debt to replace a prior state court judgment. In re Heckert, 272 F.3d 253, 257 (4th Cir. 2001).
Along the same vein, the Eleventh Circuit had previously ruled that collateral estoppel principles applied to dischargeability proceedings preclude the relitigation of issues decided beforehand in state court.
Since the state court judgment included interest and costs, the Eleventh Circuit decided that the creditor “had at least an objectively reasonable basis for concluding that that issue was not subject to relitigation in the bankruptcy court.”
The Eleventh Circuit had a second and evidently independent ground for finding no contempt.
The Supreme Court has ruled that the word “debt” in Section 523(a)(6) means “any liability arising from” a willful and malicious injury. Cohen v. de la Cruz, 523 U.S. 213, 220 (1998). Similarly, the Eleventh Circuit had held that a nondischarged “debt” includes an obligation to pay attorneys’ fees. TranSouth Fin. Corp. of Fla. v. Johnson, 931 F.2d 1505, 1507 (11th Cir. 1991).
Based on those authorities, the Eleventh Circuit said that a nondischargeable debt under Section 523(a)(6) “could include the debtor’s agreed-upon obligation to pay postjudgment interest at a specified rate.” [Emphasis added.]
The bankruptcy court did not abuse its discretion in finding no contempt because the judgment creditor had an objectively reasonable basis for believing that its actions were lawful.
A nonprecedential opinion from the Eleventh Circuit shows how Taggart v. Lorenzen allows courts to rule on contempt motions without actually deciding whether there was a violation of the discharge injunction.
In Taggart, the Supreme Court rejected a strict-liability standard for the imposition of contempt for violating the discharge injunction. Instead, the high court held unanimously that the bankruptcy court “may impose civil contempt sanctions when there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.” Taggart v. Lorenzen, 139 S. Ct. 1795, 1801 (June 3, 2019).
In the case on appeal, the debtor had consented to the entry of a $5,700 judgment before bankruptcy. The judgment included an additional $300 in costs and 12% interest from the date of default if the debtor failed to make required installment payments.
The judgment debtor quickly defaulted and filed a chapter 7 petition. In bankruptcy court, the debtor consented to judgment declaring the debt nondischargeable under Section 523(a)(6).
More precisely, the bankruptcy court’s judgment purported to enter “judgment” against the debtor for the $5,700, alongside a declaration that the judgment was nondischargeable.