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Church Joint Venture, L.P. v. Earl Blasingame

Summarizing by Amir Shachmurove

In re Bradley Weston Taggart

The Ninth Circuit rules that Taggart raised a ‘significantly high hurdle’ before holding a creditor in contempt of the discharge injunction.

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Case Type:
Consumer
Case Status:
Affirmed
Citation:
16-35402 (9th Circuit, Nov 24,2020) Published
Tag(s):
Ruling:
Civil contempt is a severe remedy with a significant burden of proof. Under new objective standard, business partners had some reason to believe that (i) Debtor might have “returned to the fray” and participated in the post-petition litigation such that (ii) business partners’ request for post-petition attorney’s fees might have been lawful. Debtor’s arguments regarding the forced sale, valuation of his business interest and demand for pre-judgment interest were for Debtor's benefit only, and the business partners had some reason to believe that the Ybarra exception applied.
Procedural context:
Following a tortured procedural history, the United States Supreme Court remanded this case to the 9th Circuit for further consideration in light of a new objective standard for the Ybarra “return to the fray” exception to an 11 U.S.C. 524(a) discharge injunction. After further hearing, 9th Circuit panel affirmed the 9th Cir. BAP’s prior decision to reverse the Bankruptcy Court’s order holding creditors in civil contempt for violation of a discharge injunction.
Facts:
Debtor Taggart became embroiled in a litigious business divorce prior to filing his petition for relief in the Bankruptcy Court from which he later obtained a discharge injunction under 11 U.S.C. 524(a). After entry of the discharge injunction, Debtor’s business partners acknowledged the injunction and asked the state court to dismiss all claims for monetary relief; however, the business partners argued, and the state court agreed, that Debtor remained a necessary party with regard to the non-monetary claims for relief, which pertained to separation of the Debtor from the business for cause. Debtor, who had asserted a counterclaim for attorney’s fees and expenses prior to filing his bankruptcy petition, did not dismiss his claim for monetary relief. Debtor further litigated issues regarding the forced sale of his interest in the business, date of valuation of the business for the purpose of the forced sale and whether the business partners had to pay interest on the monetary value of Debtor’s interest calculated from the date of Debtor’s misconduct that led to the business divorce in the first instance. Finally, Debtor admitted that the proceeds of the forced sale would be paid directly to him for his own personal use. After the state court entered judgment in favor of the business partners, the business partners pursued reimbursement from the Debtor of attorney’s fees and expenses incurred after the petition date. The Debtor immediately sought relief in the Bankruptcy Court in the form of civil contempt and resulting sanctions (i.e., attorney’s fees and expenses). The Bankruptcy Court initially denied the civil contempt motion. The District Court found that Debtor did not “return to the fray” within the Ybarra meaning and reversed and remanded to the Bankruptcy Court to determine whether the business partners “knowingly violated the discharge injunction.” Upon further consideration, the Bankruptcy Court applied a strict liability standard and determined that the business partners were in civil contempt. The 9th Cir. BAP held that there is no civil contempt flowing from violation of a discharge injunction unless evidence showed (i) knowledge of the discharge injunction and (ii) knowledge that it applied to the creditor’s claim. The 9th Cir. BAP reversed and vacated the Bankruptcy Court’s order. The 9th Cir. affirmed the BAP’s decision holding that a “creditor’s good faith belief that a discharge injunction does not apply to the creditor’s claim precludes a finding of contempt, even if the creditor’s belief is unreasonable.” In Taggart v. Lorenzen, 139 S. Ct. 1795, 1799 (2019), the Supreme Court rejected the 9th Circuit’s subjective standard and held that civil contempt is appropriate “if there is no fair ground of doubt as to whether the [discharge] order barred the creditor’s conduct.”
Judge(s):
Leavy, Paez, Bea

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