Taggart v. Lorenzen

(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

notify the Reporter of Decisions, Supreme Court of the United States, Wash-

ington, D. C. 20543, of any typographical or other formal errors, in order

that corrections may be made before the preliminary print goes to press.

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.