June 2019 Archives

Supreme Court Adopts Objective Standard for Contempt for Discharge Violations, Overturning Ninth Circuit Precedent

In Taggart v. Lorenzen, 587 U.S. ___ (2019), the Supreme Court has clarified the standard under which a creditor may be held in civil contempt for violating a bankruptcy discharge order. Taggart was a former co-owner of a company with two other owners. The company and other owners sued Taggart for breach of their operating agreement. Before trial, Taggart filed for Chapter 7 bankruptcy and ultimately received a discharge of his pre-petition debts. Notwithstanding their knowledge of the discharge, the attorney for the company and other co-owners sought and obtained an award from the state court of post-petition attorney fees against Taggart. Pursuant to In re Ybarra, 424 F.3d 1018 (9th Cir. 2005), a creditor is not entitled to post-petition attorney fees stemming from prepetition litigation unless the bankruptcy debtor returns to the fray. In this case, it was ultimately decided that Taggart had not returned to the fray, leaving the remaining question of whether the company and co-owners should be held in civil contempt for violating the discharge order.

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