In Taggart, the Supreme Court raised the bar on holding a creditor in contempt for violating the automatic stay. Some might say that the high court defanged the discharge. See Taggart v. Lorenzen, 139 S. Ct. 1795 (June 3, 2019).
Recently, the Ninth Circuit Bankruptcy Appellate Panel applied the Taggart standard to violations of the automatic stay. See Suh v. Anderson (In re Jeong), 19-1244, 2020 BL 102971 (B.A.P. 9th Cir. March 16, 2020). For ABI’s report on Suh, click here.
In an opinion on March 31, Bankruptcy Judge Diane Finkle of Providence, R.I., rejected the idea that Taggart raised the contempt threshold more generally by requiring a higher standard of proof with regard to individuals who violate the automatic stay or discharge injunction on behalf of their corporate employers.
Working within the scope of their employment, corporate officers and employees may be individually liable for violating the automatic stay and discharge injunction, without piercing the corporate veil or showing tortious conduct, according to Judge Finkle.
Injunctions Are Violated by the Acts of People
A couple filed chapter 7 and received their discharges. They reopened their case and filed a complaint alleging that a corporation and two of its officers or employees had violated the automatic stay and the discharge injunction.
The individual defendants filed a motion to dismiss under Rule 12(b)(6), faulting the complaint for failing to allege that they had engaged in tortious or fraudulent conduct. The individual defendants also contended that the complaint was deficient because there were no allegations sufficient to pierce the corporate veil and hold them liable for the corporation’s misdeeds.
In her March 31 opinion, Judge Finkle framed the purely legal issue as whether the individual defendants, “acting within the scope of their capacities as representatives of [the corporate defendant], cannot be personally liable because such violations do not constitute the tortious or fraudulent conduct necessary to pierce the corporate veil.”
Judge Finkle wrapped herself in the flag woven in 2019 by Bankruptcy Judge Charles Novack of Oakland, Calif., who held a corporation and its agents liable for violating the automatic stay. See In re Parker, 2019 WL 386842, *12-14 (Bankr. N.D. Cal. Jan. 29, 2019).
Judge Finkle went on to quote Judge Novack, who said that “the agent’s individual liability rests on evidence demonstrating that he or she directly committed the act which violated the automatic stay.” Id.
On a motion to dismiss, the individual defendants found no support in Taggart, where the Supreme Court ruled 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.”
Judge Finkle said that Taggart had “no legal analysis or conclusions regarding whether claims under § 362(k)(1) and/or § 524(a)(2) may result in individual accountability in addition to corporate liability.”
Viewing the allegations in the complaint favorably toward the plaintiffs, Judge Finkle denied the motion to dismiss, saying that the complaint stated a claim against the individual defendants.
In Taggart, the Supreme Court raised the bar on holding a creditor in contempt for violating the automatic stay. Some might say that the high court defanged the discharge. See Taggart v. Lorenzen, 139 S. Ct. 1795 (June 3, 2019).
Recently, the Ninth Circuit Bankruptcy Appellate Panel applied the Taggart standard to violations of the automatic stay. See Suh v. Anderson (In re Jeong), 19-1244, 2020 BL 102971 (B.A.P. 9th Cir. March 16, 2020). For ABI’s report on Suh, click here.
In an opinion on March 31, Bankruptcy Judge Diane Finkle of Providence, R.I., rejected the idea that Taggart raised the contempt threshold more generally by requiring a higher standard of proof with regard to individuals who violate the automatic stay or discharge injunction on behalf of their corporate employers.
Working within the scope of their employment, corporate officers and employees may be individually liable for violating the automatic stay and discharge injunction, without piercing the corporate veil or showing tortious conduct, according to Judge Finkle.
Injunctions Are Violated by the Acts of People
A couple filed chapter 7 and received their discharges. They reopened their case and filed a complaint alleging that a corporation and two of its officers or employees had violated the automatic stay and the discharge injunction.
The individual defendants filed a motion to dismiss under Rule 12(b)(6), faulting the complaint for failing to allege that they had engaged in tortious or fraudulent conduct. The individual defendants also contended that the complaint was deficient because there were no allegations sufficient to pierce the corporate veil and hold them liable for the corporation’s misdeeds.