Bankruptcy – Civil Contempt – Discharge Order

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United States Supreme Court

Case Name: Bradley Weston Taggart v. Shelley A. Lorenzen, et al.

Case No.: 18-489

Focus: Bankruptcy – Civil Contempt – Discharge Order

At the conclusion of a bankruptcy proceeding, a bankruptcy court typically enters an order releasing the debtor from liability for most prebankruptcy debts. This order, known as a discharge order, bars creditors from attempting to collect any debt covered by the order. See 11 U. S. C. §524(a)(2). The question presented here concerns the criteria for determining when a court may hold a creditor in civil contempt for attempting to collect a debt that a discharge order has immunized from collection.

The Bankruptcy Court, in holding the creditors here in civil contempt, applied a standard that it described as akin to “strict liability” based on the standard’s expansive scope. In re Taggart, 522 B. R. 627, 632 (Bkrtcy. Ct. Ore. 2014). It held that civil contempt sanctions are permissible, irrespective of the creditor’s beliefs, so long as the creditor was “‘aware of the discharge’” order and “‘intended the actions which violate[d]’” it. Ibid. (quoting In re Hardy, 97 F. 3d 1384, 1390 (CA11 1996)). The Court of Appeals for the Ninth Circuit, however, disagreed with that standard. Applying a subjective standard instead, it concluded that a court cannot hold a creditor in civil contempt if the creditor has a “good faith belief ” that the discharge order “does not apply to the creditor’s claim.” In re Taggart, 888 F. 3d 438, 444 (2018). That is so, the Court of Appeals held, “even if the creditor’s belief is unreasonable.” Ibid.

We conclude that neither a standard akin to strict liability nor a purely subjective standard is appropriate. Rather, in our view, a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct. In other words, civil contempt may be appropriate if there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful.

Vacated and remanded

Dissenting:

Concurring:

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Derek A Hawkins is trademark corporate counsel for Harley-Davidson. Hawkins oversees the prosecution and maintenance of the Harley-Davidson’s international trademark portfolio in emerging markets.