A chapter 7 petition filed by the contemnor did not bar the district court from moving ahead with contempt proceeds against the debtor for disobeying the district court’s prior orders compelling the debtor to pay some $800,000 in previously imposed contempt sanctions.
In other words, a contemnor’s bankruptcy does not stop a district court from upholding the dignity of the court, according to District Judge Tena Campbell of Salt Lake City.
In 2016, the debtor was held in contempt for violating a permanent injunction made in 2007 that barred the debtor from using child labor. The contempt order in 2016 directed the debtor to pay $1 million in compensatory sanctions to child laborers for back wages.
When the debtor had paid less than $200,000, the district court appointed a receiver in 2021. Later in 2021, the receiver filed a motion in district court to hold the debtor in contempt for failure to comply with the prior orders and the failure to pay the sanctions. The receiver was aiming to have the debtor incarcerated until he paid the remaining $800,000.
The day before the contempt hearing in March 2022, the debtor filed a chapter 7 petition. Citing the Section 362 automatic stay, the debtor argued (unsuccessfully) that the district judge was barred from proceeding with contempt proceedings.
District Judge Campbell ruled at the contempt hearing that the automatic stay did not apply. She filed her opinion on April 26 giving reasons for the decision.
Judge Campbell relied largely on the Tenth Circuit’s decision in ClearOne Communications, Inc. v. Bowers, 509 F. App’x 798 (10th Cir. 2013). According to Judge Campbell, “ClearOne cited to numerous decisions in other jurisdictions that stand for the proposition that a contemnor may not avoid contempt obligations by filing for bankruptcy.”
Judge Campbell quoted ClearOne, where the Tenth Circuit said, “Congress could not have meant for [the] bankruptcy stay to strip the federal courts of their inherent power to enforce their orders in civil contempt proceedings.” Id. at 803.
Judge Campbell went on to hold that the “fact that the contempt judgment imposes a financial obligation on [the debtor] does not immunize [the debtor] from the Receiver’s efforts to carry out the court’s mandate in the Receivership Order.” Ruling that the bankruptcy filing did not prevent the court from upholding the dignity of the court, she directed the debtor to comply with the receivership order.
Three weeks after Judge Campbell made her ruling from the bench, the debtor filed a motion in bankruptcy court in Utah to hold the receiver in contempt for pressing the contempt citation in district court. The bankruptcy judge saw the motion in bankruptcy court as a collateral attack on the decision by Judge Campbell. Denying the contempt motion, the bankruptcy judge said that reviewing decisions of the district court was not the role of the bankruptcy court. See In re Jessop, 22-20668 (D. Utah April 20, 2022).
Note: The debtor is appealing to the Tenth Circuit. The appeals court directed the parties in their merits briefs to address the finality of the contempt order and the circuit’s appellate jurisdiction.
A chapter 7 petition filed by the contemnor did not bar the district court from moving ahead with contempt proceeds against the debtor for disobeying the district court’s prior orders compelling the debtor to pay some $800,000 in previously imposed contempt sanctions.
In other words, a contemnor’s bankruptcy does not stop a district court from upholding the dignity of the court, according to District Judge Tena Campbell of Salt Lake City.
In 2016, the debtor was held in contempt for violating a permanent injunction made in 2007 that barred the debtor from using child labor. The contempt order in 2016 directed the debtor to pay $1 million in compensatory sanctions to child laborers for back wages.
When the debtor had paid less than $200,000, the district court appointed a receiver in 2021. Later in 2021, the receiver filed a motion in district court to hold the debtor in contempt for failure to comply with the prior orders and the failure to pay the sanctions. The receiver was aiming to have the debtor incarcerated until he paid the remaining $800,000.
The day before the contempt hearing in March 2022, the debtor filed a chapter 7 petition. Citing the Section 362 automatic stay, the debtor argued (unsuccessfully) that the district judge was barred from proceeding with contempt proceedings.