On remand from the Supreme Court, the debtor Bradley Taggart made more law, again in a losing effort. The Ninth Circuit interpreted Taggart v. Lorenzen, 139 S. Ct. 1795 (June 3, 2019), as having established a “significantly high hurdle” to surmount before imposing civil contempt sanctions for violating the discharge injunction.
The procedural history and the facts were exceptionally complex. Suffice it to say that the bankruptcy court found creditors in contempt of the discharge injunction, but the Ninth Circuit Bankruptcy Appellate Panel reversed. The Ninth Circuit upheld the BAP but went further by ruling that a “creditor’s good faith belief that the discharge injunction does not apply to the creditor’s claim precludes a finding of contempt, even if the creditor’s belief is unreasonable.”
Rejecting the Ninth Circuit’s subjective standard along with the strict-liability notion of contempt, the Supreme Court reversed and remanded, holding that someone cannot be held in contempt of the discharge injunction if there was “an objectively reasonable basis for concluding that the creditor’s conduct might be lawful.” Taggart v. Lorenzen, 139 S. Ct. 1795, 1801 (June 3, 2019). To read ABI’s discussion of Taggart, click here.
Writing again on November 24 for the appeals court after remand, Circuit Judge Carlos T. Bea examined the facts in view of the Supreme Court’s Taggart standard and the Ninth Circuit’s precedent in Boeing North America Inc. v. Ybarra (In re Ybarra), 424 F.3d 1018 (9th Cir. 2005).
Under Ybarra, a claim for attorneys’ fees was deemed to arise after discharge if the debtor had returned to the fray. The rule was designed to prevent debtors from engaging in risk-free litigation after bankruptcy. The same issue was front and center with Taggart on remand. The creditors argued that Mr. Taggart had returned to the fray after receiving his discharge and was thus liable for attorneys’ fees when he lost.
On remand, Judge Bea said the question was
not whether Taggart actually “returned to the fray” in the Oregon state court litigation. Nor is it whether the Creditors had an objectively reasonable basis for concluding that Taggart had “returned to the fray.” Rather, the question is whether the Creditors had some — indeed, any — objectively reasonable basis for concluding that Taggart might have “returned to the fray” and that their motion for post-petition attorney’s fees might have been lawful. [Emphasis in original.]
Reviewing the facts in state court after discharge, Judge Bea decided that the creditors had “an objectively reasonable basis . . . to conclude that Taggart might have ‘returned to the fray.’” [Emphasis in original.] He buttressed the conclusion by identifying the manner in which the debtor could have benefitted personally by returning to the fray.
In view of the “significantly high standard given to us by the Supreme Court,” Judge Bea ruled that the creditors could not be liable for contempt sanctions. He said that the creditors “had an objectively reasonable basis to conclude that Taggart might have ‘returned to the fray’ in the Oregon state court to obtain some economic benefit.”
On remand from the Supreme Court, the debtor Bradley Taggart made more law, again in a losing effort. The Ninth Circuit interpreted Taggart v. Lorenzen, 139 S. Ct. 1795 (June 3, 2019), as having established a “significantly high hurdle” to surmount before imposing civil contempt sanctions for violating the discharge injunction.
The procedural history and the facts were exceptionally complex. Suffice it to say that the bankruptcy court found creditors in contempt of the discharge injunction, but the Ninth Circuit Bankruptcy Appellate Panel reversed. The Ninth Circuit upheld the BAP but went further by ruling that a “creditor’s good faith belief that the discharge injunction does not apply to the creditor’s claim precludes a finding of contempt, even if the creditor’s belief is unreasonable.”
Rejecting the Ninth Circuit’s subjective standard along with the strict-liability notion of contempt, the Supreme Court reversed and remanded, holding that someone cannot be held in contempt of the discharge injunction if there was “an objectively reasonable basis for concluding that the creditor’s conduct might be lawful.” Taggart v. Lorenzen, 139 S. Ct. 1795, 1801 (June 3, 2019).