980 F.3d 1340
9th Cir.2020Background
- Bradley Taggart co‑owned Sherwood Park Business Center, LLC (SPBC). After alleged misappropriation and removal as manager, Taggart transferred his interest via a series of transactions that SPBC challenged in Oregon state court.
- On the eve of the state trial Taggart filed bankruptcy; the state court dismissed monetary claims against him but retained non‑monetary claims (including expulsion) and ultimately voided the sale and expelled Taggart, ordering a forced sale of his interest.
- At the post‑trial hearing on judgment and valuation, Taggart (and his counsel) appeared and advocated valuation and interest positions that would direct proceeds to him (to pay taxes), even though the bankruptcy trustee had disclaimed any interest.
- The prevailing partners (Creditors) sought attorney’s fees incurred after Taggart’s petition date, relying on In re Ybarra’s “returned to the fray” principle to argue the discharge did not bar those fees. The Oregon court awarded the fees.
- Taggart obtained a bankruptcy court civil‑contempt order against the Creditors; the BAP reversed; the Ninth Circuit initially affirmed the BAP under a subjective good‑faith test; the U.S. Supreme Court vacated and remanded, directing an objective standard: contempt only if there is no fair ground of doubt the discharge barred the conduct.
- On remand the Ninth Circuit applied the Supreme Court’s objective test and held the Creditors had an objectively reasonable basis to believe Taggart might have returned to the fray, so civil contempt and sanctions were inappropriate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Proper standard for contempt for violating a discharge injunction | Taggart: creditors plainly violated discharge; contempt warranted | Creditors: courts should excuse conduct if creditor reasonably believed conduct lawful (Ybarra/good faith) | Supreme Court requires objective test: contempt only if no fair ground of doubt the order barred the conduct; applied here by Ninth Circuit |
| Whether Taggart “returned to the fray” post‑petition | Taggart: his participation was passive or necessary; did not voluntarily resume litigation | Creditors: Taggart’s post‑trial hearing participation and arguments sought economic benefit and could be seen as returning to the fray | Court: Taggart’s active post‑trial participation created an objectively reasonable basis to think he might have returned to the fray |
| Whether seeking post‑petition attorney’s fees violated the discharge injunction | Taggart: post‑petition fees are barred; seeking them violated §524 and merits contempt | Creditors: Ybarra exception could make post‑petition fees allowable if debtor returned to the fray; objectively reasonable to think so here | Court: because an objectively reasonable basis existed, the Creditors’ motion for fees might be lawful and contempt was inappropriate |
| Whether civil contempt sanctions should be sustained | Taggart: sanctions appropriate despite creditors’ beliefs | Creditors: BAP reversal was correct; sanctions should be vacated | Ninth Circuit affirmed BAP and vacated civil contempt sanctions |
Key Cases Cited
- In re Ybarra, 424 F.3d 1018 (9th Cir. 2005) (debtor who voluntarily "returned to the fray" may be liable for post‑petition litigation costs)
- Siegel v. Federal Home Loan Mortg. Corp., 143 F.3d 525 (9th Cir. 1998) (discusses return‑to‑the‑fray concept)
- Taggart v. Lorenzen, 139 S. Ct. 1795 (2019) (Supreme Court: objective "no fair ground of doubt" standard for contempt under a discharge order)
- In re Castellino Villas, A.K.F., LLC, 836 F.3d 1028 (9th Cir. 2016) (explains fair‑contemplation test for determining whether a claim falls within the discharge)
- In re SNTL Corp., 571 F.3d 826 (9th Cir. 2009) (describes when a claim is fairly contemplated for discharge purposes)