Taggart v. Lorenzen, Executor of the Estate Of Brown

A court may hold a creditor in civil contempt for violating a discharge order where there is not a ‘fair ground of doubt’ as to whether the creditor’s conduct might be lawful under the discharge order.

Petitioner was sued in Oregon state court for breach of an operating agreement. Prior to trial, Petitioner filed for bankruptcy and was granted a discharge order freeing him from all debts that arose before the order was granted. The state court ruled against Petitioner and awarded attorney’s fees to Respondents. Petitioner sought civil contempt sanctions for violation of the discharge order. The Bankruptcy Court found for Petitioner. The appellate court and the Ninth Circuit disagreed, reversing the sanctions. Upon review, the Supreme Court held that both the strict liability standard used by the Bankruptcy Court and the subjective standard used by the Ninth Circuit were improper tests for civil sanctions after violation of a discharge order. Drawing from its previous holdings outside the bankruptcy context, the Court notes that civil contempt is a severe remedy that should not be used when there is a “fair ground of doubt as to the wrongfulness of the defendant’s actions.” (emphasis omitted). The Court finds that these principles apply directly to a bankruptcy discharge context. The appropriate standard to be a generally “objective” one, rooted in “basic fairness,” with the goal of balancing the interests of both the creditors and the debtors. VACATED and REMANDED.