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. Read more…