Following up on Taggart

In Taggart, you may recall, the 9th Circuit said that a good faith belief that the discharge injunction doesn’t apply preempts contempt even when the “good faith belief” is “unreasonable.”  Huh?  One of the more surprising aspects of the proceeding at the Supreme Court was that both sides agreed – before oral argument – that the 9th Circuit got it wrong.  Well, thankfully the Supreme Court agreed and reversed saying that contempt is appropriate unless there is “a fair ground of doubt,” as to whether the discharge applies to the creditor or not.   The 9th Circuit test of “good faith works even if it’s not good faith,” was pitched out.  The Supremes sent it back to the 9th Circuit for further review.

Where does it stand now?

A brief history is necessary.  The creditor sought attorneys fees in state court based on post-discharge litigation involving a prepetition debt.  The creditor told the state court postpetition that the debtor was an “indispensable party” and that it needed a particular order against the debtor but otherwise was not trying to collect the debt as it knew the debt had been discharged.  This is not terribly unusual.  When the creditor later “won” and got the state court order it requested, it then asked for attorneys fees against the debtor for the postpetition litigation using the contract (which was discharged).  This is also not terribly unusual.  The creditor argues that the debtor “returned to the fray,” that is, participated in the postpetition litigation and therefore should be liable for the fees under the contract for the postpetition litigation.

The debtor argued that he did not “return to the fray” and therefore no fees.  He also argued that the act of requesting fees violated the discharge injunction.  After interminable proceedings in state and federal court, including appellate review of both, the bankruptcy court agreed that the debtor should get a hundred and something thousand in fees from the creditor for violation of the discharge injunction, that is, for requesting the fees from the state court.

The BAP reversed.  The 9th Circuit was therefore reviewing the BAP decision which it affirmed.  So no fees to the debtor for violation of the discharge injunction here.  The Supremes reversed the 9th Circuit but only gave  us a more clear test of when contempt is appropriate.  They sent it back to the 9th Circuit.

So where are we now?  That’s what the 9th Circuit also wanted to know.  Suffice it to say that the 9th Circuit eventually told the parties to start over – at the 9th Circuit – and brief again the issue of whether the BAP was right in reversing the finding by the bankruptcy court that the request for fees violated the discharge injunction.  I guess it is “did the bankruptcy court find that there was no fair ground of doubt” and if so, was that finding legally right or wrong somehow.

Appellant, i.e., the debtor (who lost at the BAP level), has filed his “opening brief.”  Creditors briefs are due today, November 18, 2019.

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