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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
bankruptcy court typically enters an order releasing the debtor
from liability for most prebankruptcy debts. This order, known as a
discharge order, bars creditors from attempting 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 that standard. Applying a
subjective standard instead, it concluded that a court cannot hold
a creditor in civil contempt 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 liability 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 creditor’s conduct.
In other words, civil contempt may be appropriate if there is no
objectively reasonable basis for concluding that the creditor’s
conduct might be lawful.
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
executor 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 creditors.
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 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 discharge 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
injunction” 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”
postpetition and therefore was liable for the postpetition
attorney’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
Bankruptcy 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 postpetition
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 not agree. It concluded that
Taggart had returned to the fray. Finding no violation of the
discharge order, it refused to hold Sherwood in civil contempt.
Taggart appealed, and the Federal District Court
held that Taggart had not returned to the fray. Hence, it concluded
that Sherwood violated the discharge order by trying to collect
attorney’s fees. The District Court remanded the case to the
Bankruptcy Court.
The Bankruptcy Court, noting the District
Court’s decision, 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 contempt
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 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. 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
contempt.” Pet. for Cert. I. We granted certiorari.
II
The question before us concerns the legal
standard for 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 employment 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 creditor’s conduct might
be lawful under the discharge order.
A
Our 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. ___, ___ (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 injunction,” §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 principles of equity practice,
courts have long imposed civil contempt sanctions to “coerce the
defendant into compliance” 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 fairness requir[e] that those enjoined receive explicit
notice” of “what conduct is outlawed” before being held in civil
contempt,
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 unreasonable. 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 determine 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 discharge. See
§§523(a)(1)–(19). Under the fair ground of doubt standard, civil
contempt therefore may be appropriate when the creditor violates a
discharge order based on an objectively unreasonable understanding
of the discharge 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 Arg. 43. The Ninth
Circuit and petitioner Taggart, however, 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 insulated from a finding of civil contempt
based on their subjective 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 accompanying
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 violated 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 creditor’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
creditors because creditors who are unsure whether a debt has been
discharged can head to federal bankruptcy court and 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
dilemma. 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. Taggart’s proposal thus may lead to
frequent use of the advance determination procedure. Congress,
however, expected 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
advance determinations). The widespread use of this procedure 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 Committee’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 determined 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 bankruptcy
laws”: “ ‘to secure a prompt and effectual’ ” resolution
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.
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 attorneys’ 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 damaging 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 associate 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) (quoting
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 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.