Bradley Taggart v. Shelley Lorenzen

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE BRADLEY WESTON TAGGART, No. 16-35402
Debtor,
D.C. No.
3:12-cv-00236-
SHELLEY A. LORENZEN, Executor of MO
Estate of Stuart Brown; TERRY W.
EMMERT; KEITH JEHNKE; SHERWOOD
PARK BUSINESS CENTER, LLC,
Appellants,
v.
BRADLEY WESTON TAGGART,
Appellee.
2 IN RE TAGGART
IN RE BRADLEY WESTON TAGGART, No. 16-60032
Debtor,
BAP No.
15-1158
BRADLEY WESTON TAGGART,
Appellant,
v.
SHELLEY A. LORENZEN, Executor of
Estate of Stuart Brown; TERRY W.
EMMERT; KEITH JEHNKE; SHERWOOD
PARK BUSINESS CENTER, LLC,
Appellees.
IN RE BRADLEY WESTON TAGGART, No. 16-60033
Debtor,
BAP No.
15-1119
BRADLEY WESTON TAGGART,
Appellant,
v.
TERRY W. EMMERT; KEITH JEHNKE;
SHERWOOD PARK BUSINESS CENTER,
LLC; SHELLEY A. LORENZEN,
Executor of Estate of Stuart Brown,
Appellees.
IN RE TAGGART 3
IN RE BRADLEY WESTON TAGGART, No. 16-60039
Debtor,
BAP No.
15-1119
SHELLEY A. LORENZEN, Executor of
the Estate of Stuart Brown,
Appellant,
v.
BRADLEY WESTON TAGGART,
Appellee.
IN RE BRADLEY WESTON TAGGART, No. 16-60040
Debtor,
BAP No.
15-1119
TERRY W. EMMERT; KEITH JEHNKE;
SHERWOOD PARK BUSINESS CENTER,
LLC;
Appellants,
v.
BRADLEY WESTON TAGGART,
Appellee.
4 IN RE TAGGART
IN RE BRADLEY WESTON TAGGART, No. 16-60042
Debtor,
BAP No.
15-1158
SHELLEY A. LORENZEN, Executor of
the Estate of Stuart Brown,
Appellant,
v.
BRADLEY WESTON TAGGART,
Appellee.
IN RE BRADLEY WESTON TAGGART, No. 16-60043
Debtor,
BAP No.
15-1158
TERRY W. EMMERT; KEITH JEHNKE;
SHERWOOD PARK BUSINESS CENTER,
LLC; OPINION
Appellants,
v.
BRADLEY WESTON TAGGART,
Appellee.
IN RE TAGGART 5
On Remand from the United States Supreme Court
Argued and Submitted June 16, 2020
San Francisco, California
Filed November 24, 2020
Before: Edward Leavy, Richard A. Paez, and
Carlos T. Bea, Circuit Judges.
Opinion by Judge Bea
SUMMARY *
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.
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
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
COUNSEL
Daniel L. Geyser (argued), Geyser P.C., Dallas, Texas; John
M. Berman, Tigard, Oregon; for Bradley Weston Taggart.
Janet M. Schroer (argued), Hart Wagner LLP, Portland,
Oregon; James Ray Streinz, Streinz Law Office, Portland,
Oregon, for Shelley Lorenzen.
Hollis Keith McMilan, Hollis K. McMilan P.C., Portland,
Oregon; for Terry W. Emmert, Keith Jehnke, and Sherwood
Park Business Center LLC.
Michele Miriam Matesi, Emmert International, Clackamas,
Oregon, for Terry W. Emmert.
David R. Kuney, Potomac, Maryland, for Amici Curiae The
Honorable Eugene Wedoff (Ret.), The Honorable Leif Clark
(Ret.), and a Group of Law Professors.
OPINION
BEA, Circuit Judge:
Attempting to pick up, for themselves, the scattered
remnants of a soured business relationship, two partners
filed an Oregon state court action against the third partner,
Bradley Taggart. They sought to expel him from the
partnership for misconduct. On the eve of trial, however,
Taggart filed a bankruptcy petition, which eventually
provided him with a discharge injunction that barred
creditors (including his two litigious partners) from
collecting any discharged debts and that voided monetary
judgments related to any discharged debts. The Oregon state
8 IN RE TAGGART
court correctly dismissed the monetary claims against
Taggart, but determined he was a “necessary party” to the
non-monetary claims against him and thus denied his motion
to be dismissed from the action. Taggart ultimately lost at
trial, and the Oregon state court ordered him expelled from
the partnership.
The prevailing partners then filed a motion for attorney’s
fees incurred after the date that Taggart had filed his
bankruptcy petition. While they acknowledged that a
bankruptcy discharge injunction generally covers, and
thereby precludes, claims for post-bankruptcy petition
attorney’s fees, they argued that an exception to the general
rule applied: Pursuant to In re Ybarra, 424 F.3d 1018 (9th
Cir. 2005), the partners claimed that Taggart had “returned
to the fray” in the Oregon state court litigation, after filing
his bankruptcy petition, by actively participating in a post-
trial hearing to litigate the terms of his impending expulsion.
This “return to the fray,” the prevailing partners argued,
created an exception to the discharge injunction and made
Taggart amenable to a monetary claim for post-petition
attorney’s fees. We are tasked with applying a new standard
from the Supreme Court to determine whether the prevailing
partners had an “objectively reasonable basis” for their
conclusion that Taggart had “returned to the fray,” so as to
avoid the civil contempt sanctions Taggart seeks on his
claim that the partners violated his bankruptcy discharge
injunction.
I. BACKGROUND
A. Taggart’s Co-Ownership in SPBC
Taggart, along with partners Terry Emmert and Keith
Jehnke, co-owned Sherwood Park Business Center, LLC
(“SPBC”), a limited liability company formed by the three
IN RE TAGGART 9
partners to develop a small office complex in Oregon.
Sherwood Park Bus. Ctr., Ltd. Liab. Co. v. Taggart, 323 P.3d
551, 555 (Or. Ct. App. 2014). Taggart initially served as
manager of SPBC and was tasked with securing loans to
fund the development project. Id. Ultimately, however,
SPBC could not obtain the loans necessary to fund its
operation. Saddled with personal financial troubles, Taggart
had diverted funds from SPBC for his own personal use. Id.After Emmert and Jehnke discovered Taggart’s
misappropriations, they removed him as manager; Taggart
then “disappeared for a period of time.” 1 Id.In need of funds, Taggart sought to liquidate his interest
in SPBC, but SPBC’s operating agreement (the “Operating
Agreement”) imposed certain selling restrictions such as the
right of first refusal for the other partners. Taggart’s attorney
John Berman conceived a plan to circumvent these
restrictions. Berman advised Taggart to form a new limited
liability company and then transfer his interest in SPBC to
that new company. Id. at 555–56. Taggart then could sell
his interest in the newly formed company—its only asset
being Taggart’s interest in SPBC—without complying with
the selling restrictions imposed by the Operating Agreement.
Taggart agreed and, consistent with this advice, transferred
his entire interest in SPBC to newly formed BT of
Sherwood, LLC (“BT”). Id. at 556.
There was one problem with the plan: BT’s newly
acquired interest in SPBC was encumbered with the same
selling restrictions that had earlier vexed Taggart.
Unsurprisingly, Taggart was unable to secure a buyer for
1
Ultimately, an arbitrator concluded that Taggart, indeed, had
converted funds from SPBC and entered a judgment in favor of SPBC.
Sherwood Park Bus. Ctr., 323 P.3d at 555.
10 IN RE TAGGART
BT. Seemingly out of options and owing Berman attorney’s
fees, Taggart decided to give Berman a security interest in
his ownership in BT. Id. at 556. Eventually, Taggart sold to
Berman his entire ownership in BT—and, with it, his
ownership interest in SPBC, which was still subject to the
aforementioned restrictions on alienation.
B. Oregon State Court Litigation
As a result of Taggart’s transactions, SPBC, Emmert,
Jehnke, and their attorney Stuart Brown (collectively, the
“Creditors”) filed suit against Taggart and Berman in
Oregon state court. The Creditors alleged that Taggart had
failed to comply with the Operating Agreement’s process for
transferring an ownership interest in SPBC. The Creditors
also alleged that Taggart had breached his fiduciary duty by
misappropriating funds and refusing to cooperate with
potential lenders that had caused SPBC to lose out on more
favorable borrowing terms. The Creditors requested that the
Oregon state court (1) void the putative sale between Taggart
and Berman; (2) void the transfer between Taggart and BT;
(3) declare that Taggart had breached the Operating
Agreement; (4) expel Taggart from SPBC; and (5) pursuant
to the buyout provision in the Operating Agreement, force
Taggart to sell to the Creditors his ownership interest in
SPBC at the price stipulated by the Operating Agreement.
In response to the lawsuit, Taggart filed an answer,
which asserted the validity of the putative sale and thus
denied any liability flowing therefrom, and a counterclaim
against the Creditors. The counterclaim asserted a single
count for attorney’s fees pursuant to the Operating
Agreement and Or. Rev. Stat. § 20.105, both of which
allowed attorney’s fees for the “prevailing party.” Berman,
as Taggart’s attorney, signed both the answer and the
counterclaim.
IN RE TAGGART 11
On the eve of trial, Taggart filed a petition in bankruptcy
and eventually obtained a discharge of his debts. 2 Berman,
on behalf of Taggart, then filed a motion to dismiss the
Oregon state court claims because Taggart had “been
discharged in bankruptcy and the claims against him relate
solely to his pre-bankruptcy petition conduct.” The
Creditors agreed that they could not seek a monetary
judgment against the discharged Taggart. But they argued
that Taggart was a “necessary party” in regard to their non-
monetary claim to expel Taggart from SPBC and thus force
Taggart to sell his interest in SPBC to them, in accordance
with the Operating Agreement. The Oregon state court
agreed with the Creditors: it dismissed the monetary claims
against Taggart but proceeded to trial on the non-monetary
claims against him. 3 Notably, neither Taggart nor the
Creditors moved to dismiss Taggart’s sole counterclaim for
attorney’s fees.
1. Oregon State Court Decision
Taggart lost on the merits. Following the bench trial, the
Oregon state court issued findings of fact and conclusions of
law. The court first voided the putative sale between Taggart
and Berman because the attempted transfer of Taggart’s
interest in SPBC violated both the Operating Agreement and
Oregon state law. Next, the court expelled Taggart from
SPBC for his misconduct pre-dating the sale with Berman.
2
Taggart did not list his interest in SPBC or BT as an asset on his
bankruptcy schedules, but he did list his counterclaim for attorney’s fees.
The bankruptcy trustee eventually disclaimed any interest in the
counterclaim.
3
At the close of trial, Berman (on behalf of Taggart) renewed the
motion to dismiss, in which he argued for dismissal of all claims against
Taggart. The Oregon state court denied that motion as well.
12 IN RE TAGGART
More specifically, the court found that Taggart was subject
to expulsion under Or. Rev. Stat. § 63.209 because
(1) Taggart misappropriated funds; and, independently,
(2) Taggart willfully or persistently breached the Operating
Agreement by “not cooperating with the banks to give them
financial statements, disappearing for a long period of time,
probably disappearing on purpose, not wanting to be talked
to and just basically making himself unavailable to do
business except on his terms.” As a result of the voided sale
and expulsion, Taggart was forced to sell to the Creditors his
ownership interest in SPBC. 4
2. Oregon State Court’s Hearing on the Proposed
General Judgment
The Oregon state trial court held a hearing to determine
the terms of the impending forced sale and the proposed
general judgment, to which Berman filed objections on
behalf of himself and Taggart. The Parties first argued about
whether the sales price should reflect the valuation of
Taggart’s ownership stake on (a) the earlier date of his
misconduct or (b) the later date of the court’s general
judgment. The Parties also presented argument on whether
the Creditors should pay any interest accruing from the
determined date of valuation.
Advocating that the court should choose the date of
Taggart’s misconduct for the valuation, Berman first
confirmed that Taggart, not Berman, would be receiving the
proceeds from the forced sale. Berman explained that
Taggart still owed money to the IRS and Oregon Department
4
The Court of Appeals of Oregon ultimately affirmed the Oregon
state court’s judgment. See Sherwood Park Bus. Ctr., 323 P.3d at 563.
No further appeal to the Oregon Supreme Court followed.
IN RE TAGGART 13
of Revenue and suggested that Taggart intended to use the
proceeds to “get his life cleaned up” and “get the taxing
authorities settled” rather than settle anything owed to
Berman. Berman then clarified that the bankruptcy trustee
had eschewed any interest in the proceeds from the forced
sale.
Taggart consented to Berman’s argument, but Taggart
himself also participated in the hearing. Taggart confirmed
that he owed money to the taxing authorities and that he
intended to use the proceeds from the forced sale to pay off
those obligations. He also argued that the proceeds from the
forced sale should reflect the valuation of his ownership
stake on the date of his misconduct and that the Creditors
should pay him any interest that had accrued between the
date of his misconduct and the date of general judgment.
Taggart protested that the Creditors “can’t have their cake
and eat it too” because “[f]air is fair.”
3. The Creditors’ Motion for Attorney’s Fees
Shortly after the hearing, the Oregon state court entered
its general judgment and included a directive about
attorney’s fees: “Any party seeking costs or attorney fees
shall do so in accordance with ORCP 68.” The Creditors
then filed their motion for attorney’s fees. Acknowledging
that Taggart’s bankruptcy discharge precluded any
attorney’s fees that were incurred before the date Taggart
had filed his bankruptcy petition, the Creditors limited their
request to attorney’s fees that were incurred post-petition
because Taggart had taken affirmative post-petition actions
in the Oregon state court litigation and thus “returned to the
fray” pursuant to In re Ybarra, 424 F.3d 1018 (9th Cir.
14 IN RE TAGGART
2005). 5 The Oregon state court agreed that Taggart had
returned to the fray and awarded attorney’s fees to the
Creditors.
C. Procedural History of this Appeal
Taggart promptly moved the Bankruptcy Court to hold
the Creditors in civil contempt for seeking attorney’s fees in
the Oregon state court litigation and thus violating his
discharge injunction. The Bankruptcy Court granted
Taggart’s request. See In re Taggart, 522 B.R. 627 (Bankr.
D. Or. 2014). 6 In holding the Creditors in civil contempt,
the Bankruptcy Court applied a standard that it described as
akin to “strict liability.” Id. at 632. The Bankruptcy Court
explained that civil contempt sanctions were warranted,
irrespective of the Creditors’ beliefs, so long as the Creditors
were “aware of the discharge” injunction and “intended the
5
A bankruptcy discharge order “operates as an injunction” that bars
creditors from collecting any debts that have been discharged and that
voids judgments relating to any debts that have been discharged.
11 U.S.C. § 524(a). We have recognized an exception to this injunction,
however: when the debtor has “returned to the fray” by engaging in post-
bankruptcy petition litigation. See Ybarra, 424 F.3d at 1022–24, 1026
(explaining that the inquiry is focused on “whether the debtor has taken
affirmative post-petition action to litigate a pre[-]petition claim and has
thereby risked the liability of these litigation expenses”).
6
The Bankruptcy Court initially denied Taggart’s contempt motion
and, on appeal, the District Court reversed, determining that Taggart did
not “return to the fray” and remanding to the Bankruptcy Court to decide
whether the Creditors “knowingly violated the discharge injunction.”
Taggart v. Brown, No. 3:12-cv-00236, 2012 U.S. Dist. LEXIS 111780,
at *13–17 (D. Or. Aug. 6, 2012). Because the District Court did not have
the benefit of the subsequent Supreme Court decision in this case, its
reasoning is of no persuasive value.
IN RE TAGGART 15
actions which violate[d]” it by seeking attorney’s fees in the
Oregon state court action. Id. (citation omitted).
The Bankruptcy Appellate Panel (the “BAP”) reversed
the Bankruptcy Court’s civil contempt order and vacated its
award of civil contempt sanctions. In re Taggart, 548 B.R.
275, 279 (B.A.P. 9th Cir. 2016). The BAP held that a
creditor who violates a discharge injunction cannot be held
in contempt unless “evidence show[ed] the alleged
contemnor was aware of the discharge injunction and aware
that it applied to his or her claim.” Id. at 288. Applying this
standard, the BAP concluded that the Bankruptcy Court
should have denied Taggart’s motion for civil contempt
because the Creditors did not know that the discharge
injunction barred their claims for post-petition attorney’s
fees. Id. at 291.
In our prior decision, we affirmed the BAP’s decision
and held that a creditor’s “good faith belief that the discharge
injunction does not apply to the creditor’s claim precludes a
finding of contempt, even if the creditor’s belief is
unreasonable.” In re Taggart, 888 F.3d 438, 444–45 (9th
Cir. 2018), vacated and remanded, 139 S. Ct. 1795 (2019).
We concluded that the Creditors held a “good faith belief”
that Taggart had “returned to the fray” in the Oregon state
court litigation after he had filed his bankruptcy petition and,
as a result, the Bankruptcy Court had erred when it held the
Creditors in civil contempt for seeking post-petition
attorney’s fees. Id.The U.S. Supreme Court vacated our prior decision and
remanded for further proceedings. See Taggart v. Lorenzen,
139 S. Ct. 1795 (2019). 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
16 IN RE TAGGART
injunction. Id. at 1799. The Supreme Court held that “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.” Id.(emphasis in original). “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.” Id.We are now tasked with revisiting this case and applying this
new standard.
II. JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction to review decisions of the BAP
pursuant to 28 U.S.C. § 158(d). We review de novo the
BAP’s decision, In re Filtercorp, Inc., 163 F.3d 570, 576
(9th Cir. 1998), and we review the Bankruptcy Court’s civil
contempt ruling for abuse of discretion, In re Dyer, 322 F.3d
1178, 1191 (9th Cir. 2003).
III. DISCUSSION
Civil contempt is a “severe remedy” and,
correspondingly, the Supreme Court has set a significantly
high hurdle for when it is imposed. Taggart, 139 S. Ct.
at 1802. The standard is rooted in the concept that “basic
fairness requir[es] that those enjoined receive explicit notice
of what conduct is outlawed before being held in civil
contempt.” Id. (internal quotation marks and citation
omitted). Thus, “civil contempt may be appropriate if there
is no objectively reasonable basis for concluding that the
creditor’s conduct might be lawful.” Id. at 1799.
The Creditors agree that a discharge injunction normally
covers, and thereby precludes, claims for post-petition
attorney’s fees stemming from litigation that commenced
pre-petition but that continued post-petition, as did the
IN RE TAGGART 17
Oregon state court litigation here. But they argue that they
had an objectively reasonable basis to conclude that the
discharge injunction did not bar their claim for attorney’s
fees because Taggart had “returned to the fray” in the
Oregon state court litigation after filing his bankruptcy
petition.
In Ybarra, like here, a prevailing party sought attorney’s
fees for work done, post-petition, in litigation that the debtor
had initiated before filing her bankruptcy petition. 424 F.3d
at 1020–21. We explained that these claims are not
discharged where, post-petition, the debtor “voluntarily
‘return[s] to the fray.’” Id. at 1026 (quoting Siegel v. Fed.
Home Loan Mortg. Corp., 143 F.3d 525, 533–34 (9th Cir.
1998)). The inquiry focuses on “whether the debtor has
taken affirmative post-petition action to litigate a pre[-
]petition claim and has thereby risked the liability of these
litigation expenses.” 7 Id. There, we ultimately held that the
debtor had “returned to the fray” by taking post-petition
steps to “revive” her pre-petition cause of action, which had
already been settled and dismissed. Id. at 1020–21, 1027.
The question for us, however, is not whether Taggart
actually “returned to the fray” in the Oregon state court
7
In In re Castellino Villas, A.K.F. LLC, we clarified that the rule
from Ybarra is a manifestation of, not an exception to, the “fair
contemplation” test, which is the test we use to determine whether a
creditor’s claim is subject to the discharge injunction. 836 F.3d 1028,
1035 (9th Cir. 2016). Under the fair contemplation test, “a claim arises
when a claimant can fairly or reasonably contemplate the claim’s
existence even if a cause of action has not yet accrued under non-
bankruptcy law.” In re SNTL Corp., 571 F.3d 826, 839 (9th Cir. 2009).
Because Castellino Villas was decided after the Creditors filed their
motion for attorney’s fees, it is not relevant to the primary issue on
appeal.
18 IN RE TAGGART
litigation. Nor is it whether the Creditors had an objectively
reasonable basis for concluding that Taggart had “returned
to the fray.” Rather, the question is whether the Creditors
had some—indeed, any—objectively reasonable basis for
concluding that Taggart might have “returned to the fray”
and that their motion for post-petition attorney’s fees might
have been lawful. See Taggart, 139 S. Ct. at 1799 (“[C]ivil
contempt may be appropriate if there is no objectively
reasonable basis for concluding that the creditor’s conduct
might be lawful.” (emphasis added)).
The Creditors argue that Taggart’s motion to dismiss at
the outset of trial, coupled with his failure to file a voluntary
dismissal of his counterclaim for attorney’s fees, voluntarily
returned him to the fray. Ignoring the Creditors’ suggestion
that the inherently passive nature of Taggart’s “failure” to
file a voluntary dismissal constituted an “affirmative” action,
Taggart’s motion to dismiss suggests that he was trying to
avoid the fray—not return to it. 8 But more importantly,
Taggart was permitted to litigate his pre-petition
counterclaim. Concluding otherwise would misconstrue
Ybarra as holding that a debtor is always held liable for post-
petition attorney’s fees if he merely continued to litigate pre-
petition claims; on the contrary, Ybarra makes clear that a
debtor may be held liable only if, post-petition, he
“voluntarily ‘pursued a whole new course of litigation,’
commenced litigation, or ‘returned to the fray’ voluntarily.”
8
Relatedly, we also reject the notion that the Creditors forced
Taggart to “return to the fray” by opposing Taggart’s motion to dismiss.
Assuming the Oregon state court had dismissed all claims against
Taggart and the Creditors had prevailed against Berman to unwind the
Taggart-Berman sale, the Oregon state court then would have lacked the
authority to exercise the equitable remedy of expulsion against non-party
Taggart. The Creditors had no choice but to oppose outright dismissal if
they were to procure the relief that they sought.
IN RE TAGGART 19
Ybarra, 424 F.3d at 1024 (citing Siegel, 143 F.3d at 533–
34). 9
That said, Taggart’s voluntary actions, arguments, and
positions taken at the hearing on the proposed state court
judgment constituted an objectively reasonable basis for the
Creditors to conclude that Taggart might have “returned to
the fray.” During the hearing, the parties discussed the
particulars surrounding Taggart’s forced sale of his share in
SPBC, a consequence of his expulsion. Taggart argued—
both pro se and via Berman—that the proper date for
valuation purposes should be the earlier date of his alleged
misconduct that resulted in his expulsion, rather than the
later date of the Oregon state court’s entry of judgment.
Because Taggart would receive the proceeds from the forced
sale, he had an incentive to advocate for the date that would
produce the highest valuation. Taggart also argued for the
earlier date of valuation so he could claim prejudgment
interest between that date and the date of entry of the
judgment.
These arguments were not for the benefit of Berman, the
putative vendee of Taggart’s ownership stake in SPBC.
Berman acknowledged during the hearing that he would not
receive any of the proceeds from the forced sale. Berman
also revealed that these proceeds would not offset any claims
that Berman may potentially have had against Taggart for
the botched sale.
9
It is worth noting that had Taggart prevailed on the Creditors’
claim for expulsion, Taggart would have been entitled to attorney’s fees
under the Operating Agreement—regardless of his counterclaim. See
Or. Rev. Stat. § 20.083 (allowing attorney’s fees for a “prevailing party
in a civil action relating to an express or implied contract” if it is
“authorized by the terms of the contract”).
20 IN RE TAGGART
These arguments were not for the benefit of the
bankruptcy trustee either. Berman acknowledged during the
hearing that “[t]here is no bankruptcy trustee” because
“Taggart’s bankruptcy has been complete. . . . [T]he
bankruptcy trustee looked at this matter at the time and said
that . . . he had no interest in it.”
Instead, Taggart advanced these arguments for his own
benefit. Although Berman had already paid Taggart for his
ownership stake in SPBC, the Oregon state court voided the
Taggart-Berman sale, which had the effect of directing the
proceeds of the forced sale to Taggart. Presumably mindful
of this windfall, Taggart indicated that he intended to use the
proceeds to pay off tax liabilities to the IRS and Oregon
Department of Revenue—obligations that were not
discharged in his bankruptcy. Berman acknowledged that
was where the proceeds would go in order “to get his life
cleaned up” and “get the taxing authorities settled.”
Taggart’s personal appearance and testimony at the
hearing must be viewed in light of his prior avoidance of the
litigation. After the Oregon state court partially denied
Taggart’s motion to dismiss and deemed him a necessary
party to litigate the non-monetary claims against him,
Taggart was completely absent from the trial. Although
Berman presented evidence, advanced argument, and filed
papers on behalf of Taggart, Taggart did not testify at the
trial. At the post-trial hearing, however, Taggart not only
appeared but he actively advocated for himself. His renewed
participation, however, was unnecessary as Berman was still
representing Taggart’s interests. In fact, Berman had
presented the same arguments that Taggart voiced during the
hearing—regarding the proper date for valuation purposes
and prejudgment interest—before Taggart had addressed the
court: (1) through Berman’s formal written objections before
IN RE TAGGART 21
the hearing, and (2) in person at the hearing. The Creditors
were compelled to utilize their attorneys to resist Taggert’s
arguments, thereby incurring additional attorney’s fees.
Accordingly, the Creditors had an objectively reasonable
basis to conclude that Taggart 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. See
Ybarra, 424 F.3d at 1024 (“If the debtor chooses to enjoy his
fresh start [after bankruptcy discharge] by pursuing pre-
petition claims which have been exempted, he must do so at
the risk of incurring the post-petition costs involved in his
acts.” (internal citation omitted)). In response to Taggart’s
arguments at the post-trial hearing, the Creditors reasonably
defended their positions. In light of the significantly high
standard given to us by the Supreme Court, the Creditors
should not be liable for civil contempt sanctions. We,
therefore, AFFIRM the BAP’s decision to reverse the
Bankruptcy Court’s finding of civil contempt and to vacate
the award of civil contempt sanctions.
AFFIRMED.