Taggart v. Lorenzen

139 S.Ct. 1795 (2019)

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Nature of the Case

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Facts

At the conclusion of bankruptcy the court enters an order releasing the debtor from liability and barring creditors from attempting to collect any debt covered by the order. Taggart (D) owned an interest in Sherwood Park Business Center. Sherwood and two of its other owners, brought a lawsuit in Oregon state court, claiming that D had breached the Business Center’s operating agreement. Ps sued D. D filed for bankruptcy under Chapter 7. The Bankruptcy Court issued an order granting him a discharge. It simply says that the debtor “shall be granted a discharge under §727.” After the discharge order, the Oregon state court proceeded to enter judgment against D in the prebankruptcy suit involving Sherwood. Sherwood then filed a petition in state court seeking attorney’s fees that were incurred after D filed his bankruptcy petition. Sherwood argued that D had “returned to the fray” post-petition and therefore was liable for the post-petition attorney’s fees. D returned to the Bankruptcy Court and argued that he had not returned to the state-court “fray” and Sherwood was barred from collecting post-petition attorney’s fees. D asked that Sherwood be held in civil contempt for violating the discharge order. The court concluded that D had returned to the fray. D appealed, and the Federal District Court held that he had not returned to the fray. It concluded that Sherwood violated the discharge order by trying to collect attorney’s fees. On remand, the Bankruptcy Court held that civil contempt sanctions were appropriate because Sherwood had been “‘aware of the discharge’” order and “‘intended the actions which violated’” it. D was awarded $105,000 in attorney’s fees and costs, $5,000 in damages for emotional distress, and $2,000 in punitive damages. Sherwood appealed. The Appellate Panel vacated these sanctions, and the Ninth Circuit affirmed the panel’s decision. The Ninth Circuit concluded that a “creditor’s good faith belief” that the discharge order “does not apply to the creditor’s claim precludes a finding of contempt, even if the creditor’s belief is unreasonable.” The Supreme Court granted certiorari.