Taggart v. Lorenzen ( 2019 )

(Slip Opinion) OCTOBER TERM, 2018 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
TAGGART v. LORENZEN, EXECUTOR OF THE ESTATE OF
BROWN, ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
No. 18–489. Argued April 24, 2019—Decided June 3, 2019
Petitioner Bradley Taggart formerly owned an interest in an Oregon
company. That company and two of its other owners, who are among
the respondents here, filed suit in Oregon state court, claiming that
Taggart had breached the company’s operating agreement. Before
trial, Taggart filed for bankruptcy under Chapter 7 of the Bankrupt-
cy Code. At the conclusion of that proceeding, the Federal Bankrupt-
cy Court issued a discharge order that released Taggart from liability
for most prebankruptcy debts. After the discharge order issued, the
Oregon state court entered judgment against Taggart in the pre-
bankruptcy suit and awarded attorney’s fees to respondents. Taggart
returned to the Federal Bankruptcy Court, seeking civil contempt
sanctions against respondents for collecting attorney’s fees in viola-
tion of the discharge order. The Bankruptcy Court ultimately held
respondents in civil contempt. The Bankruptcy Appellate Panel va-
cated the sanctions, and the Ninth Circuit affirmed the panel’s deci-
sion. Applying a subjective standard, 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 if unreasonable.” 888 F.3d 438, 444.
Held: A court may hold a creditor in civil contempt for violating a dis-
charge order if there is no fair ground of doubt as to whether the
order barred the creditor’s conduct. Pp. 4–11.
(a) This conclusion rests on a longstanding interpretive principle:
When a statutory term is “ ‘obviously transplanted from another legal
source,’ ” it “ ‘brings the old soil with it.’ ” Hall v. Hall, 584 U. S. ___,
___. Here, the bankruptcy statutes specifying that a discharge order
“operates as an injunction,” 11 U.S. C. §524(a)(2), and that a court
2 TAGGART v. LORENZEN
Syllabus
may issue any “order” or “judgment” that is “necessary or appropri-
ate” to “carry out” other bankruptcy provisions, §105(a), bring with
them the “old soil” that has long governed how courts enforce injunc-
tions. In cases outside the bankruptcy context, this Court has said
that civil contempt “should not be resorted to where there is [a] fair
ground of doubt as to the wrongfulness of the defendant’s conduct.”
California Artificial Stone Paving Co. v. Molitor, 113 U.S. 609, 618.
This standard is generally an objective one. A party’s subjective be-
lief that she was complying with an order ordinarily will not insulate
her from civil contempt if that belief was objectively unreasonable.
Subjective intent, however, is not always irrelevant. Civil contempt
sanctions may be warranted when a party acts in bad faith, and a
party’s good faith may help to determine an appropriate sanction.
These traditional civil contempt principles apply straightforwardly to
the bankruptcy discharge context. Under the fair ground of doubt
standard, civil contempt may be appropriate when the creditor vio-
lates a discharge order based on an objectively unreasonable under-
standing of the discharge order or the statutes that govern its scope.
Pp. 5–7.
(b) The standard applied by the Ninth Circuit is inconsistent with
traditional civil contempt principles, under which parties cannot be
insulated from a finding of civil contempt based on their subjective
good faith. Taggart, meanwhile, argues for a standard that would
operate much like a strict-liability standard. But his proposal often
may lead creditors to seek advance determinations as to whether
debts have been discharged, creating the risk of additional federal lit-
igation, additional costs, and additional delays. His proposal, which
follows the standard some courts have used to remedy violations of
automatic stays, also ignores key differences in text and purpose be-
tween the statutes governing automatic stays and discharge orders.
Pp. 7–11.
888 F.3d 438, vacated and remanded.
BREYER, J., delivered the opinion for a unanimous Court.
Cite as: 587 U. S. ____ (2019) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
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SUPREME COURT OF THE UNITED STATES
_________________
No. 18–489
_________________
BRADLEY WESTON TAGGART, PETITIONER v.
SHELLEY A. LORENZEN, EXECUTOR OF THE
ESTATE OF STUART BROWN, ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[June 3, 2019]
JUSTICE BREYER delivered the opinion of the Court.
At the conclusion of a bankruptcy proceeding, a bank-
ruptcy court typically enters an order releasing the debtor
from liability for most prebankruptcy debts. This order,
known as a discharge order, bars creditors from attempt-
ing 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 permis-
sible, irrespective of the creditor’s beliefs, so long as the
creditor was “ ‘aware of the discharge’ ” order and “ ‘in-
tended 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
2 TAGGART v. LORENZEN
Opinion of the Court
that standard. Applying a subjective standard instead, it
concluded that a court cannot hold a creditor in civil con-
tempt 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 liabil-
ity nor a purely subjective standard is appropriate. Rather,
in our view, a court may hold a creditor in civil con-
tempt for violating a discharge order if there is no fair
ground of doubt as to whether the order barred the credi-
tor’s conduct. In other words, civil contempt may be ap-
propriate if there is no objectively reasonable basis for
concluding that the creditor’s conduct might be lawful.
I
Bradley Taggart, the petitioner, formerly owned an
interest in an Oregon company, Sherwood Park Business
Center. That company, along with two of its other owners,
brought a lawsuit in Oregon state court, claiming that
Taggart had breached the Business Center’s operating
agreement. (We use the name “Sherwood” to refer to the
company, its two owners, and—in some instances—their
former attorney, who is now represented by the executor of
his estate. The company, the two owners, and the execu-
tor are the respondents in this case.)
Before trial, Taggart filed for bankruptcy under Chapter
7 of the Bankruptcy Code, which permits insolvent debtors
to discharge their debts by liquidating assets to pay credi-
tors. See 11 U.S. C. §§704(a)(1), 726. Ultimately, the
Federal Bankruptcy Court wound up the proceeding and
issued an order granting him a discharge. Taggart’s
discharge order, like many such orders, goes no further
than the statute: It simply says that the debtor “shall be
granted a discharge under §727.” App. 60; see United
Cite as: 587 U. S. ____ (2019) 3
Opinion of the Court
States Courts, Order of Discharge: Official Form 318 (Dec.
2015), http:/ /www.uscourts.gov / sites / default / files /form _
b318_0.pdf (as last visited May 31, 2019). Section 727, the
statute cited in the discharge order, states that a dis-
charge relieves the debtor “from all debts that arose before
the date of the order for relief,” “[e]xcept as provided in
section 523.” §727(b). Section 523 then lists in detail the
debts that are exempt from discharge. §§523(a)(1)–(19).
The words of the discharge order, though simple, have an
important effect: A discharge order “operates as an injunc-
tion” that bars creditors from collecting any debt that has
been discharged. §524(a)(2).
After the issuance of Taggart’s federal bankruptcy
discharge order, the Oregon state court proceeded to enter
judgment against Taggart in the prebankruptcy suit
involving Sherwood. Sherwood then filed a petition in
state court seeking attorney’s fees that were incurred after
Taggart filed his bankruptcy petition. All parties agreed
that, under the Ninth Circuit’s decision in In re Ybarra,
424 F.3d 1018 (2005), a discharge order would normally
cover and thereby discharge postpetition attorney’s fees
stemming from prepetition litigation (such as the Oregon
litigation) unless the discharged debtor “ ‘returned to the
fray’ ” after filing for bankruptcy. Id., at 1027. Sherwood
argued that Taggart had “returned to the fray” postpeti-
tion and therefore was liable for the postpetition attor-
ney’s fees that Sherwood sought to collect. The state trial
court agreed and held Taggart liable for roughly $45,000
of Sherwood’s postpetition attorney’s fees.
At this point, Taggart returned to the Federal Bank-
ruptcy Court. He argued that he had not returned to the
state-court “fray” under Ybarra, and that the discharge
order therefore barred Sherwood from collecting postpeti-
tion attorney’s fees. Taggart added that the court should
hold Sherwood in civil contempt because Sherwood had
violated the discharge order. The Bankruptcy Court did
4 TAGGART v. LORENZEN
Opinion of the Court
not agree. It concluded that Taggart had returned to the
fray. Finding no violation of the discharge order, it re-
fused to hold Sherwood in civil contempt.
Taggart appealed, and the Federal District Court held
that Taggart had not returned to the fray. Hence, it con-
cluded that Sherwood violated the discharge order by
trying to collect attorney’s fees. The District Court re-
manded the case to the Bankruptcy Court.
The Bankruptcy Court, noting the District Court’s deci-
sion, then held Sherwood in civil contempt. In doing so, it
applied a standard it likened to “strict liability.” 522
B.R., at 632. The Bankruptcy Court held that civil con-
tempt sanctions were appropriate because Sherwood had
been “ ‘aware of the discharge’ ” order and “ ‘intended the
actions which violate[d]’ ” it. Ibid. (quoting In re Hardy, 97
F.3d, at 1390). The court awarded Taggart approximately
$105,000 in attorney’s fees and costs, $5,000 in damages
for emotional distress, and $2,000 in punitive damages.
Sherwood appealed. The Bankruptcy Appellate Panel
vacated these sanctions, and the Ninth Circuit affirmed
the panel’s decision. The Ninth Circuit applied a very
different standard than the Bankruptcy Court. It con-
cluded that a “creditor’s good faith belief ” that the dis-
charge order “does not apply to the creditor’s claim pre-
cludes a finding of contempt, even if the creditor’s belief is
unreasonable.” 888 F.3d, at 444. Because Sherwood had
a “good faith belief ” that the discharge order “did not
apply” to Sherwood’s claims, the Court of Appeals held
that civil contempt sanctions were improper. Id., at 445.
Taggart filed a petition for certiorari, asking us to decide
whether “a creditor’s good-faith belief that the discharge
injunction does not apply precludes a finding of civil con-
tempt.” Pet. for Cert. I. We granted certiorari.
II
The question before us concerns the legal standard for
Cite as: 587 U. S. ____ (2019) 5
Opinion of the Court
holding a creditor in civil contempt when the creditor
attempts to collect a debt in violation of a bankruptcy
discharge order. Two Bankruptcy Code provisions aid our
efforts to find an answer. The first, section 524, says that
a discharge order “operates as an injunction against the
commencement or continuation of an action, the employ-
ment of process, or an act, to collect, recover or offset” a
discharged debt. 11 U.S. C. §524(a)(2). The second,
section 105, authorizes a court to “issue any order, process,
or judgment that is necessary or appropriate to carry out
the provisions of this title.” §105(a).
In what circumstances do these provisions permit a
court to hold a creditor in civil contempt for violating a
discharge order? In our view, these provisions authorize a
court to impose civil contempt sanctions when there is no
objectively reasonable basis for concluding that the credi-
tor’s conduct might be lawful under the discharge order.
A
Our conclusion rests on a longstanding interpretive
principle: When a statutory term is “ ‘obviously trans-
planted from another legal source,’ ” it “ ‘brings the old soil
with it.’ ” Hall v. Hall, 584 U. S. ___, ___ (2018) (slip op.,
at 13) (quoting Frankfurter, Some Reflections on the
Reading of Statutes, 47 Colum. L. Rev. 527, 537 (1947));
see Field v. Mans, 516 U.S. 59, 69–70 (1995) (applying
that principle to the Bankruptcy Code). Here, the statutes
specifying that a discharge order “operates as an injunc-
tion,” §524(a)(2), and that a court may issue any “order” or
“judgment” that is “necessary or appropriate” to “carry
out” other bankruptcy provisions, §105(a), bring with them
the “old soil” that has long governed how courts enforce
injunctions.
That “old soil” includes the “potent weapon” of civil
contempt. Longshoremen v. Philadelphia Marine Trade
Assn., 389 U.S. 64, 76 (1967). Under traditional princi-
6 TAGGART v. LORENZEN
Opinion of the Court
ples of equity practice, courts have long imposed civil
contempt sanctions to “coerce the defendant into compli-
ance” with an injunction or “compensate the complainant
for losses” stemming from the defendant’s noncompliance
with an injunction. United States v. Mine Workers, 330
U.S. 258, 303–304 (1947); see D. Dobbs & C. Roberts, Law
of Remedies §2.8, p. 132 (3d ed. 2018); J. High, Law of
Injunctions §1449, p. 940 (2d ed. 1880).
The bankruptcy statutes, however, do not grant courts
unlimited authority to hold creditors in civil contempt.
Instead, as part of the “old soil” they bring with them, the
bankruptcy statutes incorporate the traditional standards
in equity practice for determining when a party may be
held in civil contempt for violating an injunction.
In cases outside the bankruptcy context, we have said
that civil contempt “should not be resorted to where there
is [a] fair ground of doubt as to the wrongfulness of the
defendant’s conduct.” California Artificial Stone Paving
Co. v. Molitor, 113 U.S. 609, 618 (1885) (emphasis added).
This standard reflects the fact that civil contempt is a
“severe remedy,” ibid., and that principles of “basic fair-
ness requir[e] that those enjoined receive explicit notice” of
“what conduct is outlawed” before being held in civil con-
tempt, Schmidt v. Lessard, 414 U.S. 473, 476 (1974) (per
curiam). See Longshoremen, supra, at 76 (noting that civil
contempt usually is not appropriate unless “those who
must obey” an order “will know what the court intends to
require and what it means to forbid”); 11A C. Wright,
A. Miller, & M. Kane, Federal Practice and Procedure
§2960, pp. 430–431 (2013) (suggesting that civil contempt
may be improper if a party’s attempt at compliance was
“reasonable”).
This standard is generally an objective one. We have
explained before that a party’s subjective belief that she
was complying with an order ordinarily will not insulate
her from civil contempt if that belief was objectively un-
Cite as: 587 U. S. ____ (2019) 7
Opinion of the Court
reasonable. As we said in McComb v. Jacksonville Paper
Co., 336 U.S. 187 (1949), “[t]he absence of wilfulness does
not relieve from civil contempt.” Id., at 191.
We have not held, however, that subjective intent is
always irrelevant. Our cases suggest, for example, that
civil contempt sanctions may be warranted when a party
acts in bad faith. See Chambers v. NASCO, Inc., 501 U.S.
32, 50 (1991). Thus, in McComb, we explained that a
party’s “record of continuing and persistent violations” and
“persistent contumacy” justified placing “the burden of any
uncertainty in the decree . . . on [the] shoulders” of the
party who violated the court order. 336 U.S., at 192–193.
On the flip side of the coin, a party’s good faith, even
where it does not bar civil contempt, may help to deter-
mine an appropriate sanction. Cf. Young v. United States
ex rel. Vuitton et Fils S. A., 481 U.S. 787, 801 (1987)
(“[O]nly the least possible power adequate to the end
proposed should be used in contempt cases” (quotation
altered)).
These traditional civil contempt principles apply
straightforwardly to the bankruptcy discharge context.
The typical discharge order entered by a bankruptcy court
is not detailed. See supra, at 2–3. Congress, however, has
carefully delineated which debts are exempt from dis-
charge. See §§523(a)(1)–(19). Under the fair ground of
doubt standard, civil contempt therefore may be appropri-
ate when the creditor violates a discharge order based on
an objectively unreasonable understanding of the dis-
charge order or the statutes that govern its scope.
B
The Solicitor General, amicus here, agrees with the fair
ground of doubt standard we adopt. Brief for United
States as Amicus Curiae 13–15. And the respondents
stated at oral argument that it would be appropriate for
courts to apply that standard in this context. Tr. of Oral
8 TAGGART v. LORENZEN
Opinion of the Court
Arg. 43. The Ninth Circuit and petitioner Taggart, how-
ever, each believe that a different standard should apply.
As for the Ninth Circuit, the parties and the Solicitor
General agree that it adopted the wrong standard. So do
we. 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.” 888 F.3d, at 444.
But this standard is inconsistent with traditional civil
contempt principles, under which parties cannot be insu-
lated from a finding of civil contempt based on their sub-
jective good faith. It also relies too heavily on difficult-to-
prove states of mind. And it may too often lead creditors
who stand on shaky legal ground to collect discharged
debts, forcing debtors back into litigation (with its accom-
panying costs) to protect the discharge that it was the very
purpose of the bankruptcy proceeding to provide.
Taggart, meanwhile, argues for a standard like the one
applied by the Bankruptcy Court. This standard would
permit a finding of civil contempt if the creditor was aware
of the discharge order and intended the actions that vio-
lated the order. Brief for Petitioner 19; cf. 522 B.R., at
632 (applying a similar standard). Because most creditors
are aware of discharge orders and intend the actions they
take to collect a debt, this standard would operate much
like a strict-liability standard. It would authorize civil
contempt sanctions for a violation of a discharge order
regardless of the creditor’s subjective beliefs about the
scope of the discharge order, and regardless of whether
there was a reasonable basis for concluding that the credi-
tor’s conduct did not violate the order. Taggart argues
that such a standard would help the debtor obtain the
“fresh start” that bankruptcy promises. He adds that a
standard resembling strict liability would be fair to credi-
tors because creditors who are unsure whether a debt has
been discharged can head to federal bankruptcy court and
Cite as: 587 U. S. ____ (2019) 9
Opinion of the Court
obtain an advance determination on that question before
trying to collect the debt. See Fed. Rule Bkrtcy. Proc.
4007(a).
We doubt, however, that advance determinations would
provide a workable solution to a creditor’s potential di-
lemma. A standard resembling strict liability may lead
risk-averse creditors to seek an advance determination in
bankruptcy court even where there is only slight doubt as
to whether a debt has been discharged. And because
discharge orders are written in general terms and operate
against a complex statutory backdrop, there will often be
at least some doubt as to the scope of such orders. Tag-
gart’s proposal thus may lead to frequent use of the ad-
vance determination procedure. Congress, however, ex-
pected that this procedure would be needed in only a small
class of cases. See 11 U.S. C. §523(c)(1) (noting only three
categories of debts for which creditors must obtain ad-
vance determinations). The widespread use of this proce-
dure also would alter who decides whether a debt has been
discharged, moving litigation out of state courts, which
have concurrent jurisdiction over such questions, and into
federal courts. See 28 U.S. C. §1334(b); Advisory Com-
mittee’s 2010 Note on subd. (c)(1) of Fed. Rule Civ. Proc. 8,
28 U.S. C. App., p. 776 (noting that “whether a claim was
excepted from discharge” is “in most instances” not deter-
mined in bankruptcy court).
Taggart’s proposal would thereby risk additional federal
litigation, additional costs, and additional delays. That
result would interfere with “a chief purpose of the bank-
ruptcy laws”: “ ‘to secure a prompt and effectual’ ” resolu-
tion of bankruptcy cases “ ‘within a limited period.’ ”
Katchen v. Landy, 382 U.S. 323, 328 (1966) (quoting Ex
parte Christy, 3 How. 292, 312 (1844)). These negative
consequences, especially the costs associated with the
added need to appear in federal proceedings, could work to
the disadvantage of debtors as well as creditors.
10 TAGGART v. LORENZEN
Opinion of the Court
Taggart also notes that lower courts often have used a
standard akin to strict liability to remedy violations of auto-
matic stays. See Brief for Petitioner 21. An automatic
stay is entered at the outset of a bankruptcy proceeding.
The statutory provision that addresses the remedies for
violations of automatic stays says that “an individual
injured by any willful violation” of an automatic stay
“shall recover actual damages, including costs and attor-
neys’ fees, and, in appropriate circumstances, may recover
punitive damages.” 11 U.S. C. §362(k)(1). This language,
however, differs from the more general language in section
105(a). Supra, at 5. The purposes of automatic stays and
discharge orders also differ: A stay aims to prevent dam-
aging disruptions to the administration of a bankruptcy
case in the short run, whereas a discharge is entered at
the end of the case and seeks to bind creditors over a much
longer period. These differences in language and purpose
sufficiently undermine Taggart’s proposal to warrant its
rejection. (We note that the automatic stay provision uses
the word “willful,” a word the law typically does not asso-
ciate with strict liability but “ ‘whose construction is often
dependent on the context in which it appears.’ ” Safeco
Ins. Co. of America v. Burr, 551 U.S. 47, 57 (2007) (quot-
ing Bryan v. United States, 524 U.S. 184, 191 (1998)). We
need not, and do not, decide whether the word “willful”
supports a standard akin to strict liability.)
III
We conclude that the Court of Appeals erred in applying
a subjective standard for civil contempt. Based on the
traditional principles that govern civil contempt, the
proper standard is an objective one. 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. In our view, that standard strikes the “careful
Cite as: 587 U. S. ____ (2019) 11
Opinion of the Court
balance between the interests of creditors and debtors”
that the Bankruptcy Code often seeks to achieve. Clark v.
Rameker, 573 U.S. 122, 129 (2014).
Because the Court of Appeals did not apply the proper
standard, we vacate the judgment below and remand the
case for further proceedings consistent with this opinion.
It is so ordered.