Taggart v. Lorenzen
139 S. Ct. 1795
SCOTUS2019Background
- Taggart owned part of an Oregon company; that company and co-owners sued him in state court for breach of the operating agreement.
- Taggart filed Chapter 7 bankruptcy before trial and the bankruptcy court issued a discharge under 11 U.S.C. §727, which "operates as an injunction" under §524(a)(2).
- After the discharge, the Oregon court entered judgment against Taggart and awarded the company postpetition attorney’s fees; the company argued Taggart had "returned to the fray" (In re Ybarra) so fees were not discharged.
- Federal courts disagreed repeatedly: bankruptcy court initially denied contempt, district court found violation and remanded, bankruptcy court then held respondents in civil contempt and imposed sanctions.
- The Bankruptcy Appellate Panel vacated those sanctions; the Ninth Circuit affirmed, adopting a subjective standard that a creditor’s good-faith belief that the discharge did not apply precludes contempt even if unreasonable.
- Supreme Court granted certiorari to decide the proper standard for civil contempt for violations of a bankruptcy discharge order.
Issues
| Issue | Plaintiff's Argument (Taggart) | Defendant's Argument (Respondents/Sherwood) | Held |
|---|---|---|---|
| Standard for civil contempt for violating a discharge order | Apply a near-strict-liability standard: contempt if creditor knew of the discharge and intended the collection conduct | A creditor's good-faith belief that the discharge does not apply precludes contempt, even if belief is unreasonable | A creditor may be held in civil contempt only when there is no fair ground of doubt — i.e., no objectively reasonable basis to conclude the conduct might be lawful (objective standard) |
| Role of subjective belief in contempt analysis | Subjective belief irrelevant; awareness + intentional act suffice | Subjective good-faith belief is dispositive and shields creditor | Subjective good faith can mitigate sanction but does not bar contempt where belief is objectively unreasonable |
| Need for advance determinations in bankruptcy court | Strict standard helps ensure debtor's fresh start; creditors can seek advance rulings | Allowing subjective shield prevents chilling reasonable collection | Requiring advance determinations would create excessive federal litigation and delay; objective "fair ground of doubt" balances interests |
| Applicability of automatic-stay remedy standards to discharge violations | Use similar strict standards as sometimes applied to stay violations | Stay analogies support creditor protections | Automatic-stay provisions differ in text and purpose; those remedies do not control discharge contempt standard |
Key Cases Cited
- Hall v. Hall, 584 U.S. _ (recognizing that transplanted statutory terms bring established equitable principles)
- California Artificial Stone Paving Co. v. Molitor, 113 U.S. 609 (civil contempt should not be used where there is a fair ground of doubt)
- McComb v. Jacksonville Paper Co., 336 U.S. 187 (absence of willfulness does not relieve from civil contempt)
- Chambers v. NASCO, Inc., 501 U.S. 32 (courts may sanction bad-faith conduct; contempt can be used to remedy violations)
- Field v. Mans, 516 U.S. 59 (statutory interpretation principle applied to Bankruptcy Code)
- Longshoremen v. Philadelphia Marine Trade Assn., 389 U.S. 64 (civil contempt as a "potent weapon" enforcing injunctive orders)
- In re Ybarra, 424 F.3d 1018 (9th Cir. 2005) (postpetition attorney’s fees in prepetition litigation discharged unless debtor "returned to the fray")