933 F.3d 828
7th Cir.2019Background
- Jacqueline Sterling owed ~$520 to Southlake; Southlake retained Austgen to collect and obtained a 2002 default judgment in Indiana state court.
- Sterling filed bankruptcy in 2009 and received a discharge as to Southlake in January 2010; Southlake received notice of the discharge but did not notify its collection counsel Austgen.
- Sterling did not notify Austgen or the state court of the discharge as required by a local bankruptcy rule; Austgen continued collection proceedings, leading to a 2011 body attachment and a short jail stay for Sterling.
- Sterling sued in bankruptcy court under 11 U.S.C. § 524 seeking civil contempt against Southlake, Austgen, and an individual attorney; the bankruptcy court found Austgen lacked knowledge and dismissed it, and found Southlake had notice but did not willfully violate the discharge.
- The district court affirmed; the Seventh Circuit panel affirmed in part and reversed in part, holding Southlake liable based on agency principles while affirming that Austgen lacked the requisite knowledge for contempt.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a creditor can be held in contempt for counsel's post-discharge collection | Sterling: Southlake is liable because Austgen (its agent) violated the discharge while Southlake had notice | Southlake: Only direct actions by Southlake can support contempt; it did not direct Austgen to continue or know of Austgen's actions | Held: Yes — principal is bound by agent; Austgen's violative acts are imputed to Southlake, which had notice, so contempt available against Southlake |
| Whether Austgen can be held in contempt for pursuing a discharged debt | Sterling: Austgen had or should have had knowledge and thus willfully violated the discharge | Austgen: It had no notice or knowledge of the bankruptcy/discharge and so lacked the requisite willfulness | Held: No — bankruptcy court’s finding that Austgen lacked actual knowledge was not clearly erroneous; without knowledge there is no willful violation |
| Whether knowledge of a principal is imputed to its agent for contempt purposes | Sterling: Southlake’s knowledge should be imputed to Austgen, making Austgen liable | Southlake/Austgen: Agent cannot be charged with principal’s knowledge; imputation should be one-way | Held: Knowledge is imputed from agent to principal but not from principal to agent; cannot impute Southlake’s knowledge to Austgen |
| Burden and standard for contempt under § 524 | Sterling: Must be shown by clear and convincing evidence that defendants willfully violated discharge with knowledge | Defendants: Contest sufficiency of evidence and willfulness requirement | Held: Debtor bears clear-and-convincing burden; willfulness requires actual knowledge; bankruptcy court’s credibility findings upheld for Austgen |
Key Cases Cited
- Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir. 2004) (willful violation requires actual knowledge of bankruptcy or discharge)
- In re Radcliffe, 563 F.3d 627 (7th Cir. 2009) (willful violation standard explained for bankruptcy orders)
- Smego v. Payne, 854 F.3d 387 (7th Cir. 2017) (client bound by counsel’s conduct under agency principles)
- Bakery Mach. & Fabrication, Inc. v. Traditional Baking, Inc., 570 F.3d 845 (7th Cir. 2009) (attorney acts imputed to client absent exception)
- Meyer v. Holley, 537 U.S. 280 (U.S. 2003) (vicarious liability principles for principals and agents)
- Schmitt v. FMA All., 398 F.3d 995 (8th Cir. 2005) (agent’s knowledge is imputed to principal, but principal’s knowledge is not imputed to agent)
- Irwin v. Department of Veterans Affairs, 498 U.S. 89 (U.S. 1990) (parties bound by acts of their lawyer-agent)
- Link v. Wabash R. Co., 370 U.S. 626 (U.S. 1962) (representative litigation principle that parties are bound by their attorneys' conduct)