Another Circuit Rules That Taggart Standard For Contempt Applies Beyond Violations Of Bankruptcy Discharge Injunction

• Published date: 29 July 2022
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Trials & Appeals & Compensation
• Law Firm: Jones Day
• Author: Mr Dan Prieto and Mark Douglas

In a decision that could have significant ramifications in bankruptcy cases, a divided panel of the U.S. Court of Appeals for the Second Circuit ruled in 2021 that the standard articulated by the U.S. Supreme Court in Taggart v. Lorenzen, 139 S. Ct. 1795 (2019), for the imposition of contempt sanctions due to a violation of the bankruptcy discharge injunction in a chapter 7 case, also applied to contempt sanctions imposed for repeated violations of bankruptcy court orders declaring a home mortgage current. SeePHH Mortgage Corp. v. Sensenich (In re Gravel), 6 F.4th 503 (2d Cir. 2021), reh'g en banc denied, No. 20-1 (2d Cir. Nov. 1, 2021), petition for cert. denied, No. 21-1322 (U.S. June 13, 2022).

In 2022, the Fourth Circuit expanded the reach of Taggart even further. In Beckhart v. Newrez LLC, 31 F.4th 274 (4th Cir. 2022), a three-judge panel of the Fourth Circuit ruled that "Taggart also applies when a court is considering whether to hold a creditor in civil contempt for violating a plan of reorganization of debts entered under Chapter 11." More broadly, the court wrote, "Nothing about the Supreme Court's analysis in Taggart suggests it is limited to violations of Chapter 7 discharge orders ' or that the Court's decision turned on considerations unique to the Chapter 7 context."

Given these holdings, two circuit courts of appeals have now concluded that Taggart casts a wider net in bankruptcy than the language of that opinion might have suggested.

Taggart

In Taggart, the Supreme Court ruled that a bankruptcy court may hold a creditor in civil contempt for attempting to collect on a debt that has been discharged in bankruptcy "if there is no fair ground of doubt as to whether the [discharge] order barred the creditor's conduct." Taggart, 139 S. Ct. at 1801.

Taggart left open the question of whether the "fair ground of doubt" standard should apply to violations of other bankruptcy court orders or provisions of the Bankruptcy Code, such as a chapter 11 plan confirmation order, a discovery order, or the automatic stay. Many courts have weighed in on the issue, with mixed outcomes. See, e.g., Deutsche Bank Trust Co. Americas v. Gymboree Group, Inc., 2021 WL 3618229, *11 (E.D. Va. Aug. 16, 2021) ("Because there is fair ground for doubt concerning the requirements of the 2017 Plan and related disbursements, the record does not warrant a finding of contempt"); In re Jeong, 2020 WL 1277575 (B.A.P. 9th Cir. Mar. 16, 2020) (applying the Taggart standard in upholding a bankruptcy court order granting a chapter 7 trustee's request for contempt sanctions for a willful violation of the stay); In re GL Master Inc., 2022 WL 34686, *2 (Bankr. C.D. Cal. Jan. 3, 2022) (applying the Taggart standard in ordering contempt sanction for willful and repeated violations of discovery orders); In re GYPC, INC., 634 B.R. 983, 991 (Bankr. S.D. Ohio 2021) ("The court will apply the Taggart standard in determining whether any stay violations committed by Eastport entitle GYPC to damages under a civil contempt theory"); Tate v. Fairfax Village I Condominium, 2020 WL 634293 (Bankr. D.D.C. Feb. 10, 2020) (citing Taggart in finding a willful violation of the stay in a chapter 13 case and imposing sanctions under section 362(k)(1) of the Bankruptcy Code). But seeIn re Franklin, 614 B.R. 534, 546 n.19 (Bankr. M.D.N.C. 2020) (in a chapter 13 case involving a request for automatic stay violation sanctions under section 362(k), noting the distinction between a...