Amicus Curiae Brief — Bradley Weston Taggart, Petitioner v. Shelley A. Lorenzen, Executor of the Estate of Stuart Brown, et al.
Supreme Court briefFeb 26, 2019
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No. 18-489
In the Supreme Court of the United States
BRADLEY WESTON TAGGART, PETITIONER
v.
SHELLEY A. LORENZEN, ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT
BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE SUPPORTING NEITHER PARTY
NOEL J. FRANCISCO
Solicitor General
Counsel of Record
JOSEPH H. HUNT
Assistant Attorney General
MALCOLM L. STEWART
Deputy Solicitor General
SOPAN JOSHI
Assistant to the Solicitor
General
MARK B. STERN
SARAH CARROLL
THOMAS J. CLARK
PAUL A. ALLULIS
Attorneys
Department of Justice
Washington, D.C. 20530-0001
SupremeCtBriefs@usdoj.gov
(202) 514-2217
QUESTION PRESENTED
Whether, under the Bankruptcy Code, a creditor’s
subjective good-faith belief that the discharge injunction does not apply precludes a finding of civil contempt.
(I)
TABLE OF CONTENTS
Page
Interest of the United States....................................................... 1
Statement ...................................................................................... 2
Summary of argument ................................................................. 9
Argument:
A creditor’s subjective good faith does not preclude a
finding of civil contempt, but civil-contempt remedies
are not available if there is an objectively fair ground of
doubt about whether the creditor’s conduct violates a
discharge order ...................................................................... 13
A. Traditional principles governing injunctive relief
apply to the enforcement of discharge orders
entered in bankruptcy cases .......................................... 13
B. The court of appeals erred in holding that a
creditor’s unreasonable good-faith belief that its
collection efforts are lawful precludes the
imposition of contempt sanctions................................... 21
C. This Court should not adopt petitioner’s proposed
rule .................................................................................... 24
D. The Court should vacate the judgment below and
remand the case to allow the court of appeals to
apply the correct standard in the first instance ........... 29
Conclusion ................................................................................... 32
TABLE OF AUTHORITIES
Cases:
Abbott Labs. v. Unlimited Beverages, Inc.,
218 F.3d 1238 (11th Cir. 2000) ........................................... 20
Alyeska Pipeline Serv. Co. v. Wilderness Soc’y,
421 U.S. 240 (1975).............................................................. 28
Axia NetMedia Corp. v. Massachusetts Tech. Park
Corp., 889 F.3d 1 (1st Cir. 2018) ........................................ 17
Ben Franklin Hotel Assocs., In re, 186 F.3d 301
(3d Cir. 1999) ....................................................................... 20
(III)
IV
Cases—Continued:
Page
CFE Racing Prods., Inc. v. BMF Wheels, Inc.,
793 F.3d 571 (6th Cir. 2015) ......................................... 17, 22
California Artificial Stone Paving Co. v. Molitor,
113 U.S. 609 (1885)..................................................... passim
Canning, In re, 706 F.3d 64 (1st Cir. 2013) .......................... 4
Chambers v. Nasco, Inc., 501 U.S. 32 (1991) .................. 4, 26
Chao v. Gotham Registry, Inc., 514 F.3d 280
(2d Cir. 2008) ....................................................................... 20
City of New York v. Mickalis Pawn Shop, LLC,
645 F.3d 114 (2d Cir. 2011) ................................................ 17
Cox v. Zale Del., Inc., 239 F.3d 910 (7th Cir. 2001) ............ 14
Cutter v. Wilkinson, 544 U.S. 709 (2005) ...................... 12, 31
First State Bank of Roscoe v. Stabler, 914 F.3d 1129
(8th Cir. 2019) ...................................................................... 22
Food Lion, Inc. v. United Food & Commercial
Workers Int’l Union, AFL-CIO-CLC,
103 F.3d 1007 (D.C. Cir. 1997) ........................................... 22
Gascho v. Global Fitness Holdings, LLC, 875 F.3d
795 (6th Cir. 2017), cert. denied, 138 S. Ct. 2576
(2018) .................................................................................... 17
Gervin, In re, 300 Fed. Appx. 293 (5th Cir. 2008) .............. 20
Gompers v. Bucks Stove & Range Co., 221 U.S. 418
(1911) .............................................................................. 22, 31
Hardy, In re, 97 F.3d 1384 (11th Cir. 1996)............ 4, 5, 8, 24
Hutto v. Finney, 437 U.S. 678 (1978) .................................. 28
International Longshoremen’s Ass’n v. Philadelphia
Marine Trade Ass’n, 389 U.S. 64 (1967) .......................... 15
Jove Eng’g, Inc. v. IRS, 92 F.3d 1539
(11th Cir. 1996) .............................................................. 17, 18
Katchen v. Landy, 382 U.S. 323 (1966) ........................... 4, 27
Latino Officers Ass’n City of N.Y., Inc. v. City of
New York, 558 F.3d 159 (2d Cir. 2009) ............................. 16
V
Cases—Continued:
Page
McComb v. Jacksonville Paper Co., 336 U.S. 187
(1949) .................................................................. 11, 22, 25, 26
Michaelson v. United States ex rel. Chicago, St.
Paul, Minneapolis & Omaha Ry. Co., 266 U.S. 42
(1924) .................................................................................... 14
Morissette v. United States, 342 U.S. 246 (1952) ............... 14
Northeast Women’s Ctr., Inc. v. McMonagle,
939 F.2d 57 (3d Cir. 1991) .................................................. 20
Pertuso v. Ford Motor Credit Co., 233 F.3d 417
(6th Cir. 2000) ...................................................................... 14
Robin Woods Inc. v. Woods, 28 F.3d 396
(3d Cir. 1994) ................................................................. 22, 23
Schmidt v. Lessard, 414 U.S. 473 (1974) ............................. 10
Sekhar v. United States, 570 U.S. 729 (2013) ..................... 14
Sherwood Park Bus. Ctr., LLC v. Taggart,
341 P.3d 96 (Or. App. 2014).................................................. 7
Shillitani v. United States, 384 U.S. 364 (1966) ........... 22, 31
Spencer, In re, 868 F.3d 748 (8th Cir. 2017) ....................... 20
Swift & Co. v. United States, 196 U.S. 375 (1905) .............. 16
Tennessee Student Assistance Corp. v. Hood,
541 U.S. 440 (2004).............................................................. 27
TiVo Inc. v. EchoStar Corp., 646 F.3d 869
(Fed. Cir. 2011) ................................................................... 16
United States v. Saccoccia, 433 F.3d 19
(1st Cir. 2005) ................................................................ 16, 17
United States v. Stitt, 139 S. Ct. 399 (2018) ........................ 31
United Student Aid Funds, Inc. v. Espinosa,
559 U.S. 260 (2010)................................................................ 3
Williams, In re, 438 B.R. 679 (B.A.P. 10th Cir. 2010) ....... 27
Ybarra, In re, 424 F.3d 1018 (2005), cert. denied,
547 U.S. 1163 (2006).................................................. 6, 12, 30
VI
Cases—Continued:
Page
Young v. United States ex rel. Vuitton et Fils S. A.,
481 U.S. 787 (1987).............................................................. 13
Zilog, Inc., In re, 450 F.3d 996 (9th Cir. 2006) ............... 4, 14
Statutes and rules:
Bankruptcy Code:
Ch. 1, 11 U.S.C. 101 et seq :
11 U.S.C. 101(5)(A) .................................................... 30
11 U.S.C. 105 ............................................................ 4, 5
11 U.S.C. 105(a) ......................................... 4, 13, 14, 23
11 U.S.C. 106(a)(1) ....................................................... 4
Ch. 3, 11 U.S.C. 301 et seq:
11 U.S.C. 307 ................................................................ 1
11 U.S.C. 362 ................................................................ 5
11 U.S.C. 362(a) ........................................................... 5
11 U.S.C. 362(k) ................................................... 10, 23
11 U.S.C. 362(k)(1) ....................................................... 5
Ch. 5, 11 U.S.C. 501 et seq:
11 U.S.C. 523(a) ..................................................... 2, 19
11 U.S.C. 523(a)(1)-(19) ............................................... 2
11 U.S.C. 523(a)(1) ....................................................... 2
11 U.S.C. 523(a)(1)(C) ................................................. 2
11 U.S.C. 523(a)(2) ........................................... 3, 19, 26
11 U.S.C. 523(a)(4) ........................................... 3, 19, 26
11 U.S.C. 523(a)(6) ........................................... 3, 19, 26
11 U.S.C. 523(a)(7) ....................................................... 2
11 U.S.C. 523(a)(8) ................................................. 2, 27
11 U.S.C. 523(a)(11) ..................................................... 2
11 U.S.C. 523(a)(12) ..................................................... 2
11 U.S.C. 523(a)(13) ..................................................... 2
11 U.S.C. 523(a)(14B) .................................................. 2
VII
Statutes and rules—Continued:
Page
11 U.S.C. 523(a)(18) ..................................................... 2
11 U.S.C. 523(c)(1) ................................................. 2, 19
11 U.S.C. 523(d) ......................................................... 28
11 U.S.C. 524 ................................................ 4, 5, 13, 14
11 U.S.C. 524(a)(2) ............................................ passim
Ch. 7, 11 U.S.C. 701 et seq .................................. 2, 3, 6, 30
11 U.S.C. 727 .......................................................... 2, 30
11 U.S.C. 727(b) ......................................................... 30
Ch. 11, 11 U.S.C. 1101 et seq ............................................ 2
11 U.S.C. 1141 .............................................................. 2
Ch. 12, 11 U.S.C. 1201 et seq ............................................ 2
11 U.S.C. 1228 .............................................................. 2
Ch. 13, 11 U.S.C. 1301 et seq ...................................... 2, 20
11 U.S.C. 1328 .............................................................. 2
Fair Labor Standards Act of 1938, 29 U.S.C. 201
et seq. .................................................................................... 25
Internal Revenue Code (26 U.S.C.):
§ 7433(e)...................................................................... 10, 23
§ 7433(e)(2)(A) ................................................................... 5
Internal Revenue Service Restructuring and Reform
Act of 1998, Pub. L. No. 105-206, § 3102(c)(1),
112 Stat. 730-731 (26 U.S.C. 7433(e)(1)) ............................. 5
28 U.S.C. 581-589a ................................................................... 1
28 U.S.C. 1334(b) ............................................................... 3, 27
Fed. R. Bankr. P.:
Rule 4007 ............................................................................ 3
Rule 9009(a) ....................................................................... 3
Rule 9014(c)...................................................................... 17
Rule 9020 ...................................................................... 4, 17
VIII
Rules—Continued:
Page
Fed. R. Civ. P.:
Rule 8(c)(1) advisory committee’s note
(2010 Amendment) .................................................... 27
Rule 65(d) ............................................................. 16, 17, 18
Rule 65(d)(1)(B) ............................................................... 16
Rule 65(d)(1)(C) ............................................................... 16
Miscellaneous:
5 Collier on Bankruptcy (16th ed. 2013) ............................. 30
2 James L. High, A Treatise on the Law of
Injunctions (4th ed. 1905) ................................................. 22
Official Bankruptcy Form No. 18: Discharge of
Debtor (Dec. 1, 2007), www.uscourts.gov/sites/
default/files/b_018_1207.pdf .......................................... 3, 30
Official Bankruptcy Form No. 318: Order of Discharge (Dec. 1, 2015), www.uscourts.gov/sites/
default/files/form_b318_0.pdf .......................................... 3, 4
In the Supreme Court of the United States
No. 18-489
BRADLEY WESTON TAGGART, PETITIONER
v.
SHELLEY A. LORENZEN, ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT
BRIEF FOR THE UNITED STATES
AS AMICUS CURIAE SUPPORTING NEITHER PARTY
INTEREST OF THE UNITED STATES
The question presented in this case concerns the circumstances under which a creditor may be subject to
civil-contempt sanctions for attempting to collect a debt
after the entry of a discharge order under the Bankruptcy Code. The Attorney General appoints United
States Trustees to supervise the administration of
bankruptcy cases and trustees throughout the country.
28 U.S.C. 581-589a. United States Trustees “may raise
and may appear and be heard on any issue in any case
or proceeding under” the Bankruptcy Code. 11 U.S.C.
307. The United States also is the Nation’s largest creditor. Federal agencies often seek to recover debts from
persons who have filed for bankruptcy, and the application of the discharge order to debts owed to the govern-
(1)
2
ment is not always readily apparent. The question presented therefore is of substantial importance to the
United States.
STATEMENT
1. a. When a debtor successfully completes its
bankruptcy case, the bankruptcy court typically enters
a discharge order releasing the debtor from liability for
most pre-bankruptcy debts. See 11 U.S.C. 727 (Chapter
7), 1141 (Chapter 11), 1228 (Chapter 12), and 1328
(Chapter 13). A discharge order “operates as an injunction against the commencement or continuation of an
action, the employment of process, or an act, to collect,
recover or offset any such [discharged] debt as a personal liability of the debtor.” 11 U.S.C. 524(a)(2).
Although most pre-bankruptcy debts are discharged
by such an order, certain debts are not, see 11 U.S.C.
523(a)(1)-(19), including various categories of debts
commonly held by the government, e.g., 11 U.S.C.
523(a)(1), (7), (8), (11), (12), (13), (14B), and (18). Often
it is clear whether a particular debt falls into one of
these exceptions to discharge. There rarely is any
doubt, for example, whether a debt is one for “payment
of an order of [criminal] restitution.” 11 U.S.C.
523(a)(13). Other times it is not so clear, as with tax
debts “with respect to which the debtor made a fraudulent return or willfully attempted in any manner to
evade or defeat such tax.” 11 U.S.C. 523(a)(1)(C).
Whether a debtor “willfully attempted” to “evade or defeat” a tax can be a hotly contested question.
With respect to some of the potentially nondischargeable debts listed in Section 523(a), the Code
states that a particular debt will be discharged unless a
party obtains an advance determination to the contrary
from the bankruptcy court. 11 U.S.C. 523(c)(1); see
3
11 U.S.C. 523(a)(2), (4), and (6). And for student-loan
debts, a debtor must file an adversary complaint in the
bankruptcy case, and obtain a determination that the
debt is dischargeable, or the debt will not be discharged. See United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 268-269 (2010). With respect to most
types of debts, however, no advance determination as to
dischargeability is necessary, and the question whether
a particular debt has been discharged is left for future
resolution. Cf. Fed. R. Bankr. P. 4007. That resolution
need not occur in the bankruptcy court. Rather, other
courts, including state courts, have concurrent jurisdiction to resolve dischargeability disputes—as, for instance, when discharge is raised as a defense in a statecourt collection action. See 28 U.S.C. 1334(b) (vesting
district courts with “original but not exclusive jurisdiction of all civil proceedings arising under title 11”).
Dischargeability disputes arise most frequently in
Chapter 7 cases. Most Chapter 7 cases are resolved relatively quickly, and the typical discharge order simply
identifies the debtor and states that a “discharge under
11 U.S.C. § 727 is granted.” Official Bankruptcy Form
No. 318, at 1, www.uscourts.gov/sites/default/files/
form_b318_0.pdf; see Official Bankruptcy Form No.
18 (superseded Dec. 1, 2015), www.uscourts.gov/sites/
default/files/b_018_1207.pdf; see also Fed. R. Bankr. P.
9009(a). Rather than identify the particular debts of the
debtor that are (or are not) discharged, the standard
Chapter 7 discharge order typically includes an
“[e]xplanation” stating that “[m]ost debts are covered
by the discharge, but not all,” and that “[b]ecause the
law is complicated, you should consult an attorney to determine the exact effect of the discharge in this case.”
Official Bankruptcy Form No. 318, at 1-2 (emphasis
4
omitted); see id. at 2 (listing “[e]xamples of debts that
are not discharged”). A summary discharge of this type
is consistent with the need “ ‘to secure a prompt and effectual administration and settlement of the estate of all
bankrupts within a limited period,’ ” which is “a chief
purpose of the bankruptcy laws.” Katchen v. Landy,
382 U.S. 323, 328 (1966) (citation omitted).
b. Although Section 524 states that a discharge order “operates as an injunction” against any attempt to
collect a discharged debt, 11 U.S.C. 524(a)(2), it does not
prescribe a remedy for violations of the discharge injunction. Section 105, however, authorizes a bankruptcy court to “issue any order, process, or judgment
that is necessary or appropriate to carry out the provisions of ” the Bankruptcy Code. 11 U.S.C. 105(a).
Courts have read Sections 105(a) and 524(a)(2),
taken together, as authorizing civil-contempt actions
against creditors who attempt to collect discharged
debts. E.g., In re Canning, 706 F.3d 64, 69 (1st Cir.
2013); In re Zilog, Inc., 450 F.3d 996, 1007 (9th Cir.
2006); see Fed. R. Bankr. P. 9020 (recognizing that
bankruptcy courts may conduct contempt proceedings).
Since the United States has waived its sovereign immunity for purposes of Section 105, the power to impose
civil-contempt remedies generally extends to governmental creditors. See 11 U.S.C. 106(a)(1). Some courts
have stated that a bankruptcy court also has inherent
power to enforce a discharge injunction through civilcontempt sanctions, but that such power should be exercised with “restraint” and only when the creditor engages in “bad-faith conduct.” In re Hardy, 97 F.3d
1384, 1389 (11th Cir. 1996) (quoting Chambers v. Nasco,
Inc., 501 U.S. 32, 44, 50 (1991)).
5
Two related provisions bear mention. First, under
Section 362, the filing of a petition for bankruptcy “operates as a stay” of most collection or enforcement efforts against the debtor during the pendency of the
bankruptcy case. 11 U.S.C. 362(a). Unlike with the discharge injunction, the Bankruptcy Code prescribes a
specific remedy for certain violations of the automatic
stay: “an individual injured by any willful violation of
[the automatic] stay” generally “shall recover actual
damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” 11 U.S.C. 362(k)(1).
Second, Congress amended the Internal Revenue
Code in 1998 to provide that, if an IRS officer or employee “willfully violates” either the automatic stay or
the discharge injunction, the affected taxpayer “may
petition the bankruptcy court to recover damages
against the United States.” Internal Revenue Service
Restructuring and Reform Act of 1998, Pub. L. No. 105206, § 3102(c)(1), 112 Stat. 730-731 (26 U.S.C. 7433(e)(1)).
With respect to discharge violations, “such petition
shall be the exclusive remedy for recovering damages”
against the IRS. 26 U.S.C. 7433(e)(2)(A).
Both of these provisions require a “willful” violation
of the automatic stay or discharge injunction before a
court may award damages to the debtor. 11 U.S.C.
362(k)(1); see 26 U.S.C. 7433(e)(1). Although neither
Section 105 nor Section 524 uses that term, some courts
have said that the imposition of civil-contempt sanctions
under Section 105 likewise requires a “willful” violation
of the discharge injunction. E.g., Hardy, 97 F.3d at
1390; Pet. App. 58a (bankruptcy-court decision below).
2. a. This case arises out of a business dispute. Petitioner once held an interest in an Oregon company.
6
Pet. App. 4a. Respondents are the company’s other
owners, their former attorney (now replaced by the executor of his estate), and the company itself. Id. at 4a5a. (For simplicity, this brief will use the term “respondents” even when referring only to some of them,
unless the distinction is material.)
Believing that petitioner had improperly attempted
to transfer his interest in the company without offering
the other owners a right of first refusal, respondents
sued petitioner in state court. Pet. App. 5a. Shortly before trial, petitioner filed a voluntary petition for bankruptcy under Chapter 7. Ibid. The state-court action
was stayed pending completion of the bankruptcy case.
Ibid.
After petitioner received a bankruptcy discharge, respondents resumed the state-court litigation. Pet. App.
5a. In light of the discharge order, respondents abandoned their monetary claims and instead sought only injunctive relief to unwind the transfer of petitioner’s interest in, and to expel petitioner from, the company. Id.
at 5a-6a. After the court granted that relief, respondents filed a petition for attorney’s fees, limited to “those
fees that had been incurred after the date of [petitioner’s] bankruptcy discharge.” Id. at 6a.
Respondents’ fee petition “alerted the state court to
the existence of [petitioner’s] bankruptcy discharge.”
Pet. App. 6a. Relying on in In re Ybarra, 424 F.3d 1018
(9th Cir. 2005), cert. denied, 547 U.S. 1163 (2006), however, respondents contended that a claim for attorney’s
fees incurred after the bankruptcy case commenced,
even if arising from litigation that was initiated before
the bankruptcy, is not discharged if the debtor has “ ‘returned to the fray’ ” by “willingly engag[ing]” in further
post-discharge litigation. Pet. App. 6a-7a. The state
7
court concluded that petitioner had returned to the
fray, and it therefore granted the fee petition. Id. at 7a.
Meanwhile, petitioner moved the bankruptcy court
to hold respondents “in contempt for violating the discharge by seeking an award of attorneys’ fees against
him in the state court action.” Pet. App. 7a. The bankruptcy court at first denied the motion, Br. in Opp. App.
12a-35a, but the district court reversed that denial, finding that petitioner’s actions “were not sufficiently affirmative and voluntary to be considered returning to
the fray” under Ybarra, id. at 11a. Relying on the district court’s reversal, the state appellate court then reversed the trial court’s grant of fees. Sherwood Park
Bus. Ctr., LLC v. Taggart, 341 P.3d 96, 104 (Or. App.
2014).
b. On remand from the district court, the bankruptcy court held respondents in contempt for violating
the discharge injunction. Pet. App. 52a-64a.
The bankruptcy court stated that “[a]n alleged contemnor’s violation of the discharge injunction must be
‘willful’ in order to be subject to sanctions for violating
the discharge injunction.” Pet. App. 58a. To establish
willfulness, the court explained, petitioner was required
to prove “first, that the alleged contemnor knew that
the discharge injunction applied, and second, that the
alleged contemnor intended the actions that violated
the discharge injunction.” Ibid. The court observed
that there was “no dispute” that the second element was
satisfied. Id. at 63a.
As to the first inquiry, and relying on the Eleventh
Circuit’s decision in Hardy, the bankruptcy court interpreted the phrase “knew that the discharge injunction
applied,” Pet. App. 58a (emphasis added), to mean
8
“knew the discharge was ‘invoked,’ ” id. at 59a (emphasis added). In the bankruptcy court’s view, that test “in
effect imposes a strict liability standard”: a creditor
need only be “ ‘aware of the discharge injunction,’ ” and
need not know that the injunction applies to the particular debt at issue. Id. at 60a (quoting Hardy, 97 F.3d at
1390); see ibid. (“Only lack of notice of the discharge
may serve as a defense to contempt sanctions.”). The
court observed that “it is not disputed that Respondents
had actual knowledge” of the existence of petitioner’s
discharge, id. at 61a, and were thus “on notice that seeking fees from [petitioner] might implicate the discharge
injunction,” id. at 63a.
After an evidentiary hearing, the bankruptcy court
awarded petitioner slightly more than $105,000 in attorney’s fees and costs; $5000 in damages for emotional distress; and $2000 in punitive damages. Pet. App. 69a, 75a.
c. The bankruptcy appellate panel (BAP) reversed.
Pet. App. 21a-51a. In the BAP’s view, and contrary to
Hardy, civil contempt is an appropriate remedy for a
violation of a discharge order only if “the alleged contemnor was aware of the discharge injunction and
aware that it applied to his or her claim.” Id. at 44a; see
id. at 36a (criticizing the bankruptcy court for following
Hardy). The BAP found that “the scope of the discharge order here was ambiguous with respect to the
post-discharge attorneys’ fees and costs,” id. at 46a, as
evidenced in part by the state trial court’s initial holding
“that the discharge did not bar [respondents’] claim for
attorneys’ fees,” id. at 47a. The BAP concluded that respondents “could not possibly have been aware that the
discharge injunction was applicable to their fee request
until the Ybarra question was adjudicated.” Id. at 50a.
9
The BAP explained that “[a]lthough the discharge order was in place at the time [respondents] made their
fee request in the state court, the order itself did not
advise [respondents] of the scope of the injunction under the Ybarra rule.” Id. at 51a.
3. The court of appeals affirmed. Pet. App. 1a-15a.
The court agreed with the bankruptcy court that civil
contempt requires a showing “that the creditor (1) knew
the discharge injunction was applicable and (2) intended
the actions which violated the injunction.” Id. at 11a (citation omitted). Like the BAP, however, the court of
appeals rejected the bankruptcy court’s near-strict-liability gloss on that test, explaining that “knowledge of
the applicability of the injunction * * * may not be inferred simply because the creditor knew of the bankruptcy proceeding.” Ibid. Rather, the court of appeals
stated, 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.” Id. at 12a.
The court of appeals agreed with the BAP’s finding
that, when respondents sought attorney’s fees in the
state-court proceeding, they “possessed a good faith belief that the discharge injunction did not apply to their
claims based on their contention that [petitioner] had
‘returned to the fray.’ ” Pet. App. 13a. The court stated
that respondents had “relied on the state court’s judgment that the discharge injunction did not apply to their
claim for post-petition attorneys’ fees,” and that “their
good faith belief, even if unreasonable, insulated them
from a finding of contempt.” Ibid.
SUMMARY OF ARGUMENT
A. By specifying that a discharge order “operates as
an injunction,” 11 U.S.C. 524(a)(2), Congress indicated
10
that bankruptcy courts have the same powers to enforce
their discharge orders as courts have to enforce any
other injunction in the ordinary civil context. One of the
fundamental principles governing the enforcement of
ordinary civil injunctions is that civil-contempt sanctions may not be imposed if there is a fair ground
of doubt that the conduct at issue violated the injunction. California Artificial Stone Paving Co. v. Molitor,
113 U.S. 609, 618 (1885). Indeed, “basic fairness requires that those enjoined receive explicit notice of precisely what conduct is outlawed.” Schmidt v. Lessard,
414 U.S. 473, 476 (1974) (per curiam).
These principles should apply with equal force in the
bankruptcy-discharge context. Nothing in the Bankruptcy Code indicates that enforcement of a discharge
order should be governed by standards different from
those that apply to enforcement of ordinary civil injunctions. The fact that Congress has expressly modified
the remedies for violations of other bankruptcy provisions, but has not done so for violations of the discharge
injunction (except for violations committed by the IRS),
reinforces the inference that the traditional standard
for civil contempt should continue to govern here. Cf.
11 U.S.C. 362(k); 26 U.S.C. 7433(e).
Unlike an ordinary civil injunction, which typically
specifies the precise conduct that is prohibited, a bankruptcy discharge order usually does not state which
debts are and are not discharged. With respect to the
large majority of debts, however, the Bankruptcy Code
provides a clear answer to that question. But with respect to the subset of debts whose dischargeability is
reasonably in doubt, it is both consistent with traditional equitable principles, and important to the proper
balancing of debtor and creditor interests, that the
11
availability of civil-contempt sanctions be governed by
the traditional “fair ground of doubt” standard.
B. The court of appeals erred in suggesting that an
unreasonable subjective good-faith belief that particular conduct is consistent with a discharge order precludes a finding of civil contempt. “Since the purpose
[of civil contempt] is remedial, it matters not with what
intent the defendant did the prohibited act.” McComb
v. Jacksonville Paper Co., 336 U.S. 187, 191 (1949). A
putative contemnor’s good faith might be relevant to the
determination whether there exists, as an objective
matter, a fair ground of doubt about whether the debt
has been discharged. The court of appeals in this case,
however, did not treat respondents’ subjective good
faith as evidence of objective reasonableness. Rather,
the court erroneously held that respondents’ subjective
good faith standing alone precluded the imposition of contempt sanctions, even if respondents’ belief in the legality of their conduct was objectively unreasonable.
C. Petitioner’s proposed standard also is incorrect.
Petitioner supports the near-strict-liability standard
for contempt adopted by the bankruptcy court below
and by the Eleventh Circuit in Hardy. Under that standard, a creditor is subject to contempt as long as it was
aware of the existence of the discharge and then intentionally committed an act that a court later determines
violated the discharge injunction. That standard is incompatible with the traditional standards governing enforcement of injunctions, since it authorizes imposition
of civil-contempt remedies even in circumstances where
the applicability of the discharge order to a particular
debt was in reasonable doubt at the time the collection
efforts occurred.
12
Petitioner argues that, in order to insulate themselves from potential contempt sanctions, creditors
should be required to seek an advance determination of
dischargeability from the bankruptcy court rather than
litigating the question during collection proceedings
brought in other forums. That approach would often be
impractical, especially in cases involving governmental
creditors, and would unduly hamper creditors’ rights to
recover non-discharged debts owed to them. It also
would create artificial incentives for creditors to seek
advance bankruptcy-court determinations whenever
they believe particular debts to be nondischargeable,
despite Congress’s express judgment that only three
statutory exceptions to discharge require such advance
determinations.
D. Respondents may ultimately prevail under the
traditional standards governing injunctive relief and
civil contempt, by establishing a fair ground of doubt
about whether respondents’ conduct violated the discharge order. See In re Ybarra, 424 F.3d 1018, 10261027 (9th Cir. 2005), cert. denied, 547 U.S. 1163 (2006).
That the courts below disagreed on the question supports that conclusion. Cf. California Artificial Stone
Paving, 113 U.S. at 618 (“If the judges disagree there
can be no judgment of contempt.”). This Court, however, is one “of review, not of first view.” Cutter v. Wilkinson, 544 U.S. 709, 718 n.7 (2005). The Court accordingly should vacate the judgment below and remand the
case to allow the lower courts to make that determination in the first instance.
13
ARGUMENT
A CREDITOR’S SUBJECTIVE GOOD FAITH DOES NOT
PRECLUDE A FINDING OF CIVIL CONTEMPT, BUT
CIVIL-CONTEMPT REMEDIES ARE NOT AVAILABLE IF
THERE IS AN OBJECTIVELY FAIR GROUND OF DOUBT
ABOUT WHETHER THE CREDITOR’S CONDUCT VIOLATES A DISCHARGE ORDER
A. Traditional Principles Governing Injunctive Relief
Apply To The Enforcement Of Discharge Orders Entered In Bankruptcy Cases
Under traditional equitable principles, a litigant may
not be held in civil contempt for violating an injunction
if there exists a fair ground of doubt about whether the
injunction prohibited the challenged acts. That traditional principle applies to the enforcement of bankruptcy discharge orders as well.
1. Under the Bankruptcy Code, a discharge order
“operates as an injunction against the commencement
or continuation of an action, the employment of process,
or an act, to collect, recover or offset any [discharged]
debt as a personal liability of the debtor, whether or not
discharge of such debt is waived.” 11 U.S.C. 524(a)(2).
Although Section 524 does not specify a remedy for violations of the discharge injunction, Section 105(a) authorizes a court to “issue any order, process, or judgment that is necessary or appropriate to carry out the
provisions of” Title 11. 11 U.S.C. 105(a).
Taken together, these provisions incorporate general principles of injunctive relief, including the principles that govern the imposition of sanctions for contempt. Contempt is the traditional means by which
courts enforce their injunctions. See, e.g., Young v.
United States ex rel. Vuitton et Fils S. A., 481 U.S. 787,
796 (1987). Indeed, a court’s power to impose contempt
14
“is essential to the administration of justice.” Michaelson v. United States ex rel. Chicago, St. Paul, Minneapolis & Omaha Ry. Co., 266 U.S. 42, 65 (1924).
“[W]here Congress borrows terms of art in which are
accumulated the legal tradition and meaning of centuries of practice, it presumably knows and adopts the
cluster of ideas that were attached to each borrowed
word in the body of learning from which it was taken
and the meaning its use will convey to the judicial mind
unless otherwise instructed.” Morissette v. United
States, 342 U.S. 246, 263 (1952); see Sekhar v. United
States, 570 U.S. 729, 733 (2013). Particularly when read
in light of that interpretive principle, the statutory directive that a discharge order “operates as an injunction,” 11 U.S.C. 524(a)(2), is best understood to authorize bankruptcy courts to enforce their discharge orders
under Section 105(a) in accordance with the same principles that govern courts’ traditional powers to enforce
their injunctions. Consistent with that natural understanding of the statutory text, courts of appeals largely
have recognized that the imposition of civil contempt for
violations of a discharge injunction “is governed by the
same standards * * * applicable to all civil contempt
proceedings.” In re Zilog, Inc., 450 F.3d 996, 1008 n.12
(9th Cir. 2006); cf. Cox v. Zale Del., Inc., 239 F.3d 910,
916 (7th Cir. 2001) (Posner, J.) (looking to “standard
remedies in cases of civil contempt”); Pertuso v. Ford
Motor Credit Co., 233 F.3d 417, 421 (6th Cir. 2000) (explaining that “[t]he obvious purpose” of Section 524 “is
to enjoin the proscribed conduct,” and that “the traditional remedy for violation of an injunction lies in contempt proceedings”).
2. One fundamental principle governing enforcement of injunctions is that civil-contempt sanctions may
15
not be imposed if there is an objectively fair ground of
doubt that the conduct at issue violated the injunction.
In California Artificial Stone Paving Co. v. Molitor,
113 U.S. 609 (1885), for example, this Court agreed with
the lower court’s refusal to impose contempt, and it ordered that the case be dismissed. Id. at 618. The defendant in California Artificial Stone Paving previously had been enjoined from infringing a patent that
protected “an improvement in concrete pavement.” Id.
at 610. The improvement consisted of “laying the pavement in detached blocks” instead of in a “continuous
sheet,” which was “liable to crack in irregular directions.”
Id. at 610-611. After the injunction was issued, the defendant “varied his mode of making” pavement by no
longer making “separate and detached blocks,” but “only
making a mark or indentation on the surface” of a large
sheet, which apparently was “sufficient to produce the results obtained by [the patented] process.” Id. at 613.
The lower-court judges disagreed about whether the
defendant’s new production method infringed the patent,
and the circuit judge decreed that the defendant could not
be held in contempt for violating the injunction. California Artificial Stone Paving, 113 U.S. at 613. On appeal,
this Court stated that “[i]f the [lower court] judges disagree” about whether the defendant had violated the injunction, “there can be no judgment of contempt.” Id. at
618. The Court explained that “[p]rocess of contempt is a
severe remedy, and should not be resorted to where there
is fair ground of doubt as to the wrongfulness of the defendant’s conduct.” Ibid.
An objectively fair ground of doubt about the applicability of an injunction can arise from a lack of clarity in the terms of the injunction itself. In International
Longshoremen’s Association v. Philadelphia Marine
16
Trade Association, 389 U.S. 64 (1967), this Court reversed a finding of contempt that had been entered
against a union for violating an order requiring compliance with an arbitral award. Id. at 74. The Court observed that the order “contain[ed] only an abstract conclusion of law, not an operative command capable of ‘enforcement.’ ” Ibid. Echoing California Artificial Stone
Paving, the Court warned that “[t]he judicial contempt
power is a potent weapon” and that “[w]hen it is founded
upon a decree too vague to be understood, it can be a
deadly one.” Id. at 76. To that end, this Court has long
cautioned that “defendants ought to be informed as accurately as the case permits what they are forbidden to
do.” Swift & Co. v. United States, 196 U.S. 375, 401
(1905). An “injunction to obey the law” is thus unenforceable, ibid., in part because “a general injunction
against all possible breaches of the law” would be too
“vague” to justify putting a defendant “at the peril of a
summons for contempt,” id. at 396. Federal Rule of
Civil Procedure 65(d) incorporates these traditional
principles, requiring “[e]very order granting an injunction” to “state its terms specifically” and to “describe in
reasonable detail * * * the act or acts restrained or required.” Fed. R. Civ. P. 65(d)(1)(B) and (C).
Lower courts routinely apply the “fair ground of
doubt” standard in deciding whether the defendant
should be sanctioned for violating an injunction in the
ordinary civil context. See, e.g., TiVo Inc. v. EchoStar
Corp., 646 F.3d 869, 882 (Fed. Cir. 2011) (en banc); Latino Officers Ass’n City of N.Y., Inc. v. City of New
York, 558 F.3d 159, 164-165 (2d Cir. 2009); United
States v. Saccoccia, 433 F.3d 19, 28 (1st Cir. 2005). Consistent with that test, courts recognize that injunctions
must “have clearly and unambiguously forbidden the
17
precise conduct on which the contempt allegation is
based” before the court may impose contempt sanctions. Saccoccia, 433 F.3d at 28 (emphasis omitted);
see, e.g., CFE Racing Prods., Inc. v. BMF Wheels, Inc.,
793 F.3d 571, 598 (6th Cir. 2015) (contempt available
only for violation of “a definite and specific order of the
court” listing “particular act or acts” that are forbidden)
(citations omitted); City of New York v. Mickalis Pawn
Shop, LLC, 645 F.3d 114, 144 (2d Cir. 2011) (“an injunction must be more specific than a simple command that
the defendant obey the law”) (citation omitted); cf. Jove
Eng’g, Inc. v. IRS, 92 F.3d 1539, 1546 (11th Cir. 1996)
(statutory injunctions must be “clear, definite and unambiguous” to support contempt). And in applying that
test, courts generally resolve ambiguities in favor of the
putative contemnor. See, e.g., Axia NetMedia Corp. v.
Massachusetts Tech. Park Corp., 889 F.3d 1, 13 (1st Cir.
2018); Gascho v. Global Fitness Holdings, LLC,
875 F.3d 795, 800 (6th Cir. 2017), cert. denied, 138 S. Ct.
2576 (2018).
3. There is no reason these traditional principles
cannot apply to the bankruptcy context here. To be
sure, Rule 65(d) does not directly apply to a bankruptcy
discharge order or to bankruptcy contempt proceedings. See Fed. R. Bankr. P. 9014(c), 9020. And neither
Rule 65(d) nor Section 524(a)(2) requires a discharge
order to identify which debts are discharged with the
kind of specificity that Rule 65(d) requires for an ordinary civil injunction. Application of Rule 65(d)’s specificity requirements to bankruptcy discharge orders
would be both undesirable and inconsistent with longstanding bankruptcy practice. See pp. 3-4, supra. But
Congress’s directive that a discharge order “operates as
an injunction,” 11 U.S.C. 524(a)(2) (emphasis added),
18
nevertheless has important implications for enforcement of a discharge order once it has been entered. In
particular, that directive indicates that contempt-like
remedies should be unavailable when a creditor had reasonable grounds for doubting that particular conduct
would violate the discharge order, even if the court ultimately determines that a violation occurred.
In one important respect, application of that principle in the bankruptcy-discharge setting differs from enforcement of a usual civil injunction. If an ordinary injunction complies with the specificity requirements of
Rule 65(d), the requisite clear notice that particular
conduct is prohibited usually will appear within the four
corners of the injunction itself. Bankruptcy discharge
orders, by contrast, typically decree that all dischargeable debts are discharged, without specifying which
debts are dischargeable. Cf. Jove Eng’g, 92 F.3d at
1546. To determine whether a discharge order prohibits continued efforts to collect a particular debt, a creditor therefore must look beyond the four corners of the
order itself and consult the applicable provisions of the
Bankruptcy Code.
Despite that difference, the “no fair ground of doubt”
standard can cogently be applied to circumstances
where a creditor continues to undertake collection efforts after a discharge order has been entered. But in
determining whether a fair ground of doubt exists, the
court in deciding whether contempt sanctions are warranted should not limit its inquiry to the express terms
of the discharge order. A bankruptcy discharge could
not serve its intended purpose if a creditor could continue efforts to collect discharged debts and then avoid
contempt sanctions simply by pointing out that the or-
19
der itself did not specify which debts had been discharged. Rather, the court should ask whether the discharge order, read in light of and in conjunction with
the applicable Code provisions, left legitimate doubt as
to the discharge of a particular debt.
With respect to the large majority of debts owed by
persons who obtain bankruptcy discharges, the applicable law will leave no fair ground of doubt that the debt
has been discharged, even if the discharge order standing alone does not speak to the point. Absent an allegation of fraud, for example, prepetition consumer debts
(including credit-card debts) are unlikely to fall within
any of the statutory exceptions to discharge listed in
11 U.S.C. 523(a). A creditor who attempts to collect
such debts thus likely could not show a “fair ground of
doubt” that the debt survived the discharge. California
Artificial Stone Paving, 113 U.S. at 618. And for certain categories of debt, the Code provides that the debt
will be discharged unless the bankruptcy court makes
an advance determination to the contrary. 11 U.S.C.
523(c)(1); see 11 U.S.C. 523(a)(2), (4), and (6). A creditor
who fails to obtain an advance determination before attempting to collect these types of debts also would have
no valid defense to contempt.
Moreover, under established equitable principles,
the “fair ground of doubt” inquiry should be conducted
on a debt-by-debt basis. Even when real doubt exists
as to whether one debt has been discharged, there may
be no similar uncertainty as to the dischargeability of
the debtor’s other debts. A creditor who attempts to collect a clearly- discharged debt in that circumstance can
be subjected to contempt sanctions, notwithstanding
the existence of real uncertainty about a different aspect of the discharge order’s scope. That result follows
20
from the established rule that, even if an injunction is
unclear in some respects, the court may impose civilcontempt sanctions if there is no fair ground of doubt
that the injunction prohibited the specific conduct in
which the alleged contemnor engaged. See, e.g., Chao
v. Gotham Registry, Inc., 514 F.3d 280, 292 (2d Cir.
2008) (evaluating “not whether the decree is clear in
some general sense, but whether it unambiguously proscribes the challenged conduct”); Abbott Labs. v. Unlimited Beverages, Inc., 218 F.3d 1238, 1241 (11th Cir.
2000); Northeast Women’s Ctr., Inc. v. McMonagle, 939
F.2d 57, 64 n.11 (3d Cir. 1991).
But where there is an objectively reasonable dispute
about whether a particular debt has been discharged, it
is both consistent with traditional equitable principles,
and important to the achievement of an appropriate balance between debtor and creditor interests, to hold that
a creditor’s attempt to collect that debt cannot subject
it to civil contempt. In an analogous Chapter 13 context
involving a claimed violation of a plan confirmation, the
Eighth Circuit recently declined to hold a state agency
in civil contempt for seeking to collect domestic-support
obligations from the debtors because the agency “had a
reasonable basis for believing that the * * * debt would
survive the Chapter 13 bankruptcy case.” In re Spencer, 868 F.3d 748, 752 (2017). “Even if [the agency] was
wrong on the merits,” the court held, “its action did not
warrant a contempt order and sanctions.” Ibid.; see,
e.g., In re Gervin, 300 Fed. Appx. 293, 301 (5th Cir.
2008) (per curiam) (no contempt where applicability of
the discharge injunction to the claim was unsettled and
“caused extensive litigation”); In re Ben Franklin Hotel
Assocs., 186 F.3d 301, 309 (3d Cir. 1999) (no contempt
where creditor had “at least a colorable argument”).
21
The fact that contempt remedies are unavailable in
those circumstances does not mean that no relief can be
awarded. If a creditor successfully collects a discharged debt after the discharge order has been entered, the bankruptcy court can direct the creditor to
return the property it has collected in violation of the
order, even if the existence of reasonable doubt about
dischargeability at the time of collection precludes the
imposition of contempt sanctions. And going forward,
an order directing the creditor to return the property in
those circumstances would remove any fair ground of
doubt about whether the debt had been discharged,
thus exposing the creditor to contempt sanctions if it renewed its collection efforts.
B. The Court Of Appeals Erred In Holding That A Creditor’s Unreasonable Good-Faith Belief That Its Collection Efforts Are Lawful Precludes The Imposition Of
Contempt Sanctions
Consistent with the principles described above, the
court of appeals observed that civil contempt is available only where the movant can establish that the alleged
contemnor “violated a specific and definite order of the
court.” Pet. App. 11a. Relying on Ninth Circuit precedent, however, the court also stated that “the 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.” Id.
at 12a. The court found it to be undisputed that respondents “possessed a good faith belief that the discharge injunction did not apply to their claims because
[petitioner] had ‘returned to the fray,’” id. at 13a, and it
held that respondents’ “good faith belief, even if unreasonable, insulated them from a finding of contempt,”
22
ibid. The court of appeals erred in treating subjective
bad faith as a prerequisite to contempt remedies.
Under traditional principles governing the enforcement of ordinary civil injunctions, subjective bad intent
is not required to support a finding of civil contempt.
Unlike criminal contempt, civil contempt is “remedial,”
not “punitive.” Gompers v. Bucks Stove & Range Co.,
221 U.S. 418, 441 (1911); Shillitani v. United States,
384 U.S. 364, 369 (1966). “Since the purpose is remedial,
it matters not with what intent the defendant did the
prohibited act.” McComb v. Jacksonville Paper Co.,
336 U.S. 187, 191 (1949); see 2 James L. High, A Treatise on the Law of Injunctions § 1418, at 1427 (4th ed.
1905) (“Nor does the question of the motive or intent
with which the writ was disobeyed alter or vary the responsibility for the violation.”).
Courts of appeals thus generally recognize that
“[t]he ‘intent of the recalcitrant party is irrelevant’ in a
civil contempt proceeding,” Food Lion, Inc. v. United
Food & Commercial Workers Int’l Union, AFL-CIOCLC, 103 F.3d 1007, 1016 (D.C. Cir. 1997) (citation omitted), and that “good faith is not a defense to civil contempt,” Robin Woods Inc. v. Woods, 28 F.3d 396, 399
(3d Cir. 1994). See CFE Racing Prods., 793 F.3d at 598
(“no requirement to show intent” to impose contempt);
but see First State Bank of Roscoe v. Stabler, 914 F.3d
1129, 1140 (8th Cir. 2019) (“Sanctions generally should
be unavailable where a creditor acts * * * in good faith
reliance on the belief that their actions are permissible.”). Respondents have identified no reason why a different rule should apply in the bankruptcy context. Cf.
Br. in Opp. 26 n.9 (discussing McComb).
23
With respect to certain bankruptcy-law violations—
e.g., violations of the automatic stay and certain violations by the IRS—Congress has specified a particular
mental-state requirement and the penalties that may be
imposed. See 11 U.S.C. 362(k); 26 U.S.C. 7433(e). By
contrast, the Bankruptcy Code does not specify any
mental-state requirement to discipline violations of a
discharge order under Section 105(a). The Code’s directive that a discharge order should “operate[] as an
injunction,” 11 U.S.C. 524(a)(2), therefore, is best understood to incorporate the traditional principles governing ordinary civil injunctions, under which a subjective good-faith belief, standing alone, does not preclude
a finding of civil contempt.
To be sure, a defendant’s subjective good-faith belief
that it is complying with an injunction might sometimes
be relevant to the determination whether the belief was
objectively reasonable, i.e., whether there was “fair
ground of doubt” that the injunction proscribed the defendant’s conduct. But the court of appeals in this case
did not treat respondents’ subjective good faith as evidence of objective reasonableness. Rather, the court
stated that respondents’ “good faith belief, even if unreasonable, insulated them from a finding of contempt.”
Pet. App. 13a (emphasis added); see id. at 12a. That
holding has no basis in the general principles that govern enforcement of civil injunctions. If there is no objectively reasonable ground for disputing that an injunction proscribes particular conduct, a party who engages in that conduct cannot avoid civil contempt by
claiming confusion about the order’s scope. See, e.g.,
Robin Woods, 28 F.3d at 399 (imposing sanctions where
the injunction left “no ground to doubt the wrongfulness
24
of the conduct” at issue). And given Congress’s directive that a bankruptcy discharge order “operates as
an injunction,” 11 U.S.C. 524(a)(2), there is no sound basis for treating subjective good faith as determinative in
the discharge-violation context.
C. This Court Should Not Adopt Petitioner’s Proposed
Rule
Although the court of appeals erred in treating respondents’ subjective good faith as precluding imposition of contempt sanctions, petitioner’s proposed rule
also is flawed. Petitioner endorses (Br. 18-19; Pet. 2731) the standard applied by the bankruptcy court below
and by the Eleventh Circuit in In re Hardy, 97 F.3d
1384 (1996). Under that approach, a creditor who violates a discharge order can be held in contempt, even if
it reasonably believed that its conduct was consistent
with the order, so long as the creditor was “aware of the
discharge injunction” and “intended the actions” that
violated it. Id. at 1390. That standard is incorrect and
leads to impractical results.
1. The standard that petitioner advocates is inconsistent with the principles that govern imposition of
civil-contempt sanctions for violations of ordinary civil
injunctions. Under petitioner’s proposed rule, civil contempt is justified as long as the creditor (1) knows of the
existence of the discharge injunction and (2) intentionally takes an act that a court later determines was prohibited by that injunction. Pet. Br. 19; Hardy, 97 F.3d
at 1390. If a court determines that the debt at issue was
discharged, the second element almost always will be
satisfied, since the sorts of collection efforts (such as filing a collection lawsuit) that would violate a discharge
order rarely will be undertaken accidentally (i.e., unin-
25
tentionally). As a practical matter, adoption of petitioner’s approach thus would mean that, whenever the
bankruptcy court determines that a violation of its discharge order has occurred, the violator can be subjected
to contempt sanctions so long as it knew of the discharge order itself, no matter how reasonable the creditor’s position that its own collection activities involved
a nondischargeable debt.
That expansive conception of civil contempt is inconsistent with the traditional equitable principles described above. Under those principles, a person who is
found to have violated an injunction cannot be held in
contempt based solely on proof that he knew the injunction existed. Rather, it must be shown that the injunction left no fair ground of doubt that it prohibited
the specific actions in which the putative contemnor
engaged. See California Artificial Stone Paving,
113 U.S. at 618. Similarly in the bankruptcy-discharge
context, a creditor who violates the discharge order cannot be held in contempt if there was fair ground of doubt
that the discharge covered the specific debt that the
creditor sought to collect.
This Court’s decision in McComb is not to the contrary. The injunction in that case “enjoined any practices which were violations of [certain] statutory provisions” of the Fair Labor Standards Act of 1938,
29 U.S.C. 201 et seq., while specifying that its scope was
limited to provisions dealing with “minimum wages,
overtime, and the keeping of records.” 336 U.S. at 191192. The Court observed that the decree violated in that
case “provides the formula by which the amounts” that
the defendants were required to pay “can be simply
computed.” Id. at 194. That characterization of the injunction suggests that the Court did not view the fact of
26
the defendants’ non-compliance as subject to reasonable dispute. The Court also stated that the defendants
had demonstrated a “proclivity for unlawful conduct”
and “persistent contumacy” in committing “continuing
and persistent violations of the Act,” id. at 192, thereby
finding not only a lack of objectively reasonable doubt
about the injunction’s scope but something akin to
bad faith, which also has traditionally supported civilcontempt sanctions. See Chambers v. Nasco, Inc.,
501 U.S. 32, 50 (1991). The McComb Court’s conclusion that
the defendants there were in contempt thus does not suggest approval of petitioner’s approach here, under which
contempt sanctions can be based solely on a creditor’s
awareness that a discharge injunction existed and a court’s
ex post determination that the injunction was violated.
2. Petitioner’s proposed rule also would produce impractical results. Petitioner argues (Br. 22 & n.11, 23
n.12; Pet. 28-29) that, in order to avoid the risk of being
found in contempt, a creditor who is unsure about
whether its claim is barred can seek a determination
from the bankruptcy court before undertaking any collection action. Cf. McComb, 336 U.S. at 189. The existence of that alternative, however, provides no sound basis for the near-strict-liability approach that petitioner
advocates for cases where the creditor elects to proceed
in another forum instead.
The Bankruptcy Code identifies only three types of
debts for which creditors are required to obtain an advance determination from the bankruptcy court that an
exception to discharge applies before continuing collection efforts. See 11 U.S.C. 523(a)(2), (4), and (6). The
other discharge exceptions are “self-executing,” so that
a creditor need not “obtain a judgment declaring the
debt excepted from discharge” before seeking to collect.
27
In re Williams, 438 B.R. 679, 687 (B.A.P. 10th Cir.
2010); see Tennessee Student Assistance Corp. v. Hood,
541 U.S. 440, 450 (2004) (describing the discharge exception in Section 523(a)(8) as “self-executing”) (citation omitted). The Code contemplates that any disputes
about the applicability to particular debts of these selfexecuting exceptions typically will be litigated in the
collection action itself. See 28 U.S.C. 1334(b); Fed. R.
Civ. P. 8(c)(1) advisory committee’s note (2010 Amendment) (“The issue whether a claim was excepted from
discharge may be determined either in the court that
entered the discharge or—in most instances—in another court with jurisdiction over the creditor’s claim.”).
The rule that petitioner advocates would create a
strong incentive for creditors to seek advance judicial
determinations from the bankruptcy court as to all
claims they believe to be excepted from discharge, even
when the exception at issue is self-executing under the
terms of the Code. That approach would effectively
override Congress’s decision to require advance determination only under specified exceptions. It also would
create undue delay and expense for all parties to the
bankruptcy proceedings, and thereby thwart “a chief
purpose of the bankruptcy laws”: “ ‘to secure a prompt
and effectual administration and settlement of the estate of all bankrupts within a limited period.’ ” Katchen
v. Landy, 382 U.S. 323, 328 (1966) (citation omitted).
That is particularly true for government creditors, for
whom it would be infeasible to institute adversary proceedings for each debt they attempt to collect from individual debtors, especially as the individual debts often
are quite small.
Such delay also would unduly hinder a creditor’s legitimate efforts to collect non-discharged debts. Under
28
petitioner’s rule, a creditor could not safely pursue a
collection action until all appeals over dischargeability
have been exhausted. As this case illustrates, that process could take years. Indeed, the limitations period for
a suit to collect the debt could expire before a final judicial determination of dischargeability, thereby extinguishing the creditor’s rights altogether. Petitioner’s
proposed rule thus would be unfair to creditors and
would upset the Bankruptcy Code’s careful balancing of
debtor and creditor rights.
Petitioner’s proposed rule would create a further
anomaly as well. As the damages award in this case illustrates, the principal economic harm a debtor is likely
to suffer from a violation of the discharge injunction is
the attorney’s fees he will incur in contesting the creditor’s efforts to collect the relevant debt. Cf. Hutto v.
Finney, 437 U.S. 678, 691 (1978). Because respondents
sought to litigate the dischargeability question in the
state-court collection action, petitioner argues that he
can recover his fees as a contempt sanction for respondents’ purported violation of the discharge order. But if
(as petitioner recommends) a creditor instead asks a
bankruptcy court to render an advance determination
that a particular debt is nondischargeable, and the
debtor wishes to contest the point, the debtor is likely
to incur substantially the same attorney’s fees. And if
the bankruptcy court finds that the debt has been discharged, the debtor generally will not be entitled to attorney’s fees under the traditional “American Rule.”
See Alyeska Pipeline Serv. Co. v. Wilderness Soc’y,
421 U.S. 240, 247 (1975); cf. 11 U.S.C. 523(d) (requiring
the creditor to pay the debtor’s attorney’s fees only if it
unsuccessfully attempts to collect a debt under the
29
fraud exception to dischargeability in Section 523(a)(2),
and only if its position is “not substantially justified”).
Thus, if the Court adopted petitioner’s proposed rule
and future creditors responded by asking bankruptcy
courts to render advance determinations as to the dischargeability of particular debts, debtors in petitioner’s
position still would suffer the same economic harm (attorney’s fees incurred to litigate dischargeability) for
which the contempt sanction in this case was intended to
compensate. That regime would simply create an artificial incentive for creditors to litigate such issues in bankruptcy court rather than in other forums. Given Congress’s decision to require advance determinations of
dischargeability only with respect to three specified categories of debts (see pp. 26-27, supra), there is no reason
to suppose that creation of such an incentive would further the purposes of the Bankruptcy Code.
D. The Court Should Vacate The Judgment Below And
Remand The Case To Allow The Court Of Appeals To
Apply The Correct Standard In The First Instance
The court of appeals held that respondents’ “good
faith belief ” that their collection efforts were consistent
with the discharge order, “even if unreasonable, insulated them from a finding of contempt.” Pet. App. 13a.
For the reasons set forth above, that holding was erroneous. In this as in other contexts where litigants request contempt sanctions for violations of injunctive orders, the propriety of such sanctions turns on whether
there was an objective “fair ground of doubt” that the
alleged contemnor’s conduct was prohibited. The Court
therefore should vacate the judgment below and remand the case so that the court of appeals can apply the
correct standard.
30
Under that standard, and in light of the Ninth Circuit’s prior decision in In re Ybarra, 424 F.3d 1018
(2005), cert. denied, 547 U.S. 1163 (2006), respondents
may ultimately prevail by demonstrating an objectively
fair ground of doubt about whether the discharge injunction prohibited their state-court collection efforts.
In accordance with typical practice in Chapter 7 cases,
the discharge order in petitioner’s bankruptcy case
stated that petitioner “shall be granted a discharge under § 727 of Title 11, United States Code,” and it provided an “explanation of bankruptcy discharge in a
Chapter 7 case” from Official Bankruptcy Form No. 18.
09-39216 Bankr. Ct. Doc. 15, at 1 (Feb. 23, 2010) (capitalization and emphasis omitted). The discharge order
itself did not specify which of petitioner’s debts was discharged.
The applicable statutory provisions likewise do not
specifically address whether a discharge order like this
one precludes efforts to collect the attorney’s fees at issue here. Section 727 states that a discharge “discharges the debtor from all debts that arose before the
date of the order for relief.” 11 U.S.C. 727(b). Under
Ybarra, attorney’s fees incurred after the discharge order are not discharged if the debtor “return[s] to the
fray” of litigation. 424 F.3d at 1026-1027; but see
11 U.S.C. 101(5)(A) (prepetition “claim” includes a “contingent” or “disputed” claim); 5 Collier on Bankruptcy
¶ 553.03[1][h][i], at 553-20 (16th ed. 2013) (attorney’s
fees incurred post-bankruptcy “in connection with * * *
a prepetition claim” are themselves “prepetition in nature”). The first two courts to address the issue in this
case (the state trial court and the bankruptcy court)
held that petitioner had “returned to the fray,” and that
31
the discharge injunction therefore did not prohibit respondents’ attempts to collect post-discharge attorney’s
fees. Cf. California Artificial Stone Paving, 113 U.S.
at 618 (“If the judges disagree there can be no judgment
of contempt.”). Objectively viewed, these circumstances
may well lead the courts below to conclude that, at the
time respondents initiated their collection efforts, there
was at least a fair ground of doubt about whether the
discharge injunction prohibited their actions. At a minimum, the bankruptcy court’s imposition of punitive
damages would seem to be in significant tension with
the non-punitive purposes of civil contempt. See Shillitani, 384 U.S. at 369; Gompers, 221 U.S. at 441.
This Court has repeatedly emphasized, however,
that it is a “court of review, not of first view.” Cutter v.
Wilkinson, 544 U.S. 709, 718 n.7 (2005); United States
v. Stitt, 139 S. Ct. 399, 407 (2018) (citation omitted). Because none of the courts below applied the correct legal
standard in determining whether respondents could be
subjected to contempt sanctions for violating the discharge order, they should be given the first opportunity
to apply that standard to the circumstances of this case.
32
CONCLUSION
The judgment of the court of appeals should be
vacated and the case remanded for further proceedings.
Respectfully submitted.
NOEL J. FRANCISCO
Solicitor General
JOSEPH H. HUNT
Assistant Attorney General
MALCOLM L. STEWART
Deputy Solicitor General
SOPAN JOSHI
Assistant to the Solicitor
General
MARK B. STERN
SARAH CARROLL
T HOMAS J. CLARK
PAUL A. ALLULIS
Attorneys
FEBRUARY 2019
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.