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Summarizing by Amir Shachmurove

In re Charles Edward Taylor, II

In re Taylor, No. 14–3017, 2015 WL 4393732, --- F.3d --- (7th Cir. July 20, 2015)
Affirming the district court, the Seventh Circuit first held that the appeal was not moot even though the debtor had entered into a settlement agreement with one of the appellees because the other appellees would not consent to the settlement agreement, and therefore, the discharge injunction would remain in place, the purported settlement would only provide partial relief, and the underlying dispute that gave rise to the disputed orders would remain unresolved. Next, turning the merits of the appeal, the Seventh Circuit held that the bankruptcy court abused its discretion by issuing the contempt order, damages order, and judgment, finding that (i) the appellees did not violate the statutory discharge or plan injunctions by filing a motion in a state probate court seeking to ratify an assignment of a judgment against the debtor to one of the appellees because the ratification motion did not seek to collect, recover, prosecute or satisfy the judgment against the debtor, and (ii) the ratification order was not an impermissible collateral attack on the bankruptcy court’s dismissal order because the bankruptcy court’s dismissal order was not in conflict with the state probate court’s ratification order.
Procedural context:
Appeal from the United States Bankruptcy Court for the Northern District of Illinois. Holding that the appellees had violated the statutory discharge and plan injunctions by obtaining the ratification order and that the ratification order was an impermissible collateral attack of the bankruptcy court’s prior dismissal order, the bankruptcy court issued a contempt order against the appellees. The bankruptcy court then a damages order and judgment for $165,662.36 in attorneys’ fees to be paid jointly and severally by the appellees. The district court reversed after finding that the appeal was not moot. The Seventh Circuit reviewed the bankruptcy court’s finding of civil contempt for abuse of discretion and the bankruptcy and district courts’ legal conclusions de novo.
The debtor’s brother died in a boating accident. The decedent’s ex-spouse sought a declaration in state court that their child was entitled to the assets of the decedent’s estate that were distributed to the debtor. The state court entered judgment against the debtor in favor of the estate. The estate then assigned the judgment to the ex-spouse. The debtor responded by seeking a declaration that the assignment was void. Before the probate court decided the issue, the debtor filed for bankruptcy. Three days later, the probate court sent a letter to the ex-spouse and the debtor (and their attorneys), which acknowledged the bankruptcy filing and automatic stay and listed several matters the court planned to address once the proceeding resumed. The letter further indicated that while it was not an order and that assignment may have been properly effectuated, it appeared that several steps were skipped at the time of the assignment. Notwithstanding the letter, the ex-spouse brought an adversary proceeding against the debtor objecting to discharge under section 523(a) of the Bankruptcy Code. After the debtor moved to dismiss for a lack of standing, the ex-spouse returned to the probate court and moved to ratify the assignment. The debtor responded that the letter and ratification motion demonstrated that the ex-spouse lacked standing. Without passing on the validity of the assignment, the bankruptcy court dismissed the adversary proceeding, finding that, as an evidentiary matter, the ex-spouse failed to demonstrate that she had standing. Upon dismissal, the judgment was discharged and the debtor’s plan’s injunction provisions enjoined his creditors from collecting on the judgment. Notwithstanding the dismissal order, the ex-spouse continued to prosecute her ratification motion and ultimately obtained an order ratifying the assignment. Upon the debtor’s motion, the bankruptcy court issued a contempt order, damages order, and judgment against the ex-spouse and her attorney, finding that they violated the discharge and plan injunctions by returning to probate court. The ex-spouse and her attorneys appeal. While the appeal was pending before the district court, the debtor entered into an appeal with one the attorneys and the attorneys’ malpractice insurance carrier. The debtor then moved to dismiss the appeal as moot. The ex-spouse and her other attorney, however, opposed the motion, denying that a full settlement had been reached.
Wood, Chief Judge; Rovner, Circuit Judge; and Springmann, District Judge (sitting by designation)

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