In re Taggart
522 B.R. 627
Bankr. D. Or.2014Background
- Taggart filed a Chapter 7 petition on the eve of trial in Oregon state court litigation against SPBC alleging breach of fiduciary duty, expulsion, contract breaches, and related relief, which stayed the litigation.
- Taggart’s discharge was entered February 23, 2010; thereafter Emmert and Jehnke, represented by Brown, resumed the SPBC expulsion litigation.
- The state court determined Taggart was an essential party and entered a General Judgment expelling him from SPBC as of January 1, 2008, and ordered SPBC members Emmert and Jehnke to buy Taggart’s 25% interest at fair market value net of postpetition fees.
- Respondents pursued postpetition attorney fees against Taggart to offset the purchase price; SPBC sought fees personally while Emmert and Jehnke sought against the purchaser.
- Taggart argued the discharge precluded such postpetition fee awards; the state court awarded SPBC $45,404.30 and denied fees against the purchaser, leading to a contempt dispute.
- After initial denial, the district court reversed on de novo review, finding Taggart had not voluntarily returned to the fray; remand led to further contempt briefing and this memorandum opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Respondents willfully violate the discharge injunction? | Taggart argues Respondents knowingly violated §524(a)(2) by pursuing postpetition fees after discharge. | Respondents contend their belief about scope of discharge negates willfulness and that Ybarra controls. | Yes; willful violation established |
| Did Respondents know the discharge injunction applied to the Supplemental Judgment proceedings? | Taggart asserts knowledge of discharge at time of seeking Supplemental Judgment. | Respondents claim they did not recognize applicability in this context due to Ybarra considerations. | Yes; actual knowledge proven by clear and convincing evidence |
| Did Respondents intend the actions that violated the discharge injunction? | Respondents prepared and submitted the Supplemental Judgment seeking fees against Taggart. | Respondents relied on counsel and asserted they acted at clients’ direction. | Yes; intent established by preparation and submission of the judgment |
| What are the consequences of the discharge injunction violation? | Discharge violation warrants voiding the Supplemental Judgment and sanctions, including damages. | Respondents challenge the scope and amount of sanctions and potential defenses. | Supplemental Judgment void; contempt order proper; sanctions to be determined at an evidentiary hearing |
Key Cases Cited
- Zilog, Inc. v. Corning, 450 F.3d 996 (9th Cir. 2006) (two-prong willfulness test for discharge injunction violations)
- In re Bennett, 298 F.3d 1059 (9th Cir. 2002) (move burden to prove discharge injunction violation by clear and convincing evidence)
- In re Hardy, 97 F.3d 1384 (9th Cir. 1996) (two-pronged willfulness test adopted from Eleventh Circuit)
- In re Dyer, 322 F.3d 1178 (9th Cir. 2003) (stay violations focus on actual conduct; not subjective beliefs)
- Boeing North American, Inc. v. Ybarra, 424 F.3d 1018 (9th Cir. 2005) (discharge injunction applies to all, with willfulness proven by knowledge and intent)
- Lone Star Security & Video, Inc. v. Gurrola (In re Gurrola), 328 B.R. 158 (9th Cir. BAP 2005) (discharge injunction sanctity; good faith belief not a defense to knowledge)
- Pavelich v. McCormick, Barstow, Sheppard, Wayte & Carruth, LLP (In re Pavelich), 229 B.R. 777 (9th Cir. BAP 1999) (state court can construe discharge scope; but appellate review governs)
- In re Birting Fisheries, Inc., 300 B.R. 489 (9th Cir. BAP 2003) (state court’s interpretation of discharge scope subject to review)