Lorenzen v. Taggart, No. 16-35402 (9th Cir. 2020)
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On remand from the Supreme Court, the Ninth Circuit affirmed the Bankruptcy Appellate Panel's decision reversing the bankruptcy court's finding of civil contempt and vacating its award of civil contempt sanctions against a debtor's former business partners for violation of the discharge injunction.
The Supreme Court explained that an objective, rather than subjective, standard is more appropriate in determining whether the Creditors could be held in civil contempt for violating the bankruptcy discharge injunction. Furthermore, "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." Applying this standard, the panel held that the Creditors had an objectively reasonable basis to conclude that debtor might have "returned to the fray" in the Oregon state court to obtain some economic benefit from a higher evaluation of the sale of his ownership stake in SPBC and in the amount of interest that had accrued after the date payment was due for the forced sale.
Court Description: Bankruptcy. On remand from the Supreme Court, the panel affirmed the Bankruptcy Appellate Panel’s decision reversing the bankruptcy court’s finding of civil contempt and vacating its award of civil contempt sanctions against a debtor’s former business partners for violation of the discharge injunction. The debtor filed his bankruptcy petition during state court litigation brought against him by his former partners. After the debtor lost non-monetary claims in the state court, the partners moved for attorney’s fees incurred after the filing of the bankruptcy petition, arguing that an exception to the discharge injunction applied because the debtor “returned to the fray” by participating in a post-trial hearing to litigate the terms of his expulsion from the partnership. 6 IN RE TAGGART The bankruptcy court held the partners in civil contempt for seeking attorney’s fees in the state court. In a prior decision, the panel affirmed the BAP’s decision because the partners had a good faith belief that the debtor had returned to the fray. The Supreme Court vacated and remanded for further proceedings, holding that an objective, rather than subjective, standard applies, and 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. Applying this standard, the panel held that the debtor’s former partners had an objectively reasonable basis to conclude that the debtor might have returned to the fray in the Oregon state court to obtain some economic benefit. The panel therefore affirmed the BAP’s decision to reverse the bankruptcy court’s finding of civil contempt and to vacate the award of civil contempt sanctions. IN RE TAGGART 7
This opinion or order relates to an opinion or order originally issued on April 23, 2018.
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