Taggart v. Lorenzen

Bradley Taggart (defendant) was a co-owner of Sherwood Park Business Center (Sherwood) with two others (plaintiffs). Sherwood and the two other co-owners sued Taggart in Oregon state court, alleging that Taggart breached Sherwood’s operating agreement. Taggart filed for Chapter 7 bankruptcy before trial. The federal bankruptcy court issued Taggart a discharge order, which relieved Taggart from all debts that arose before the date of the order. After the bankruptcy court issues a discharge order, creditors are enjoined from collecting any debt that has been discharged. After the bankruptcy court issued the order, the Oregon state court entered judgment against Taggart in the Sherwood suit. Sherwood sought attorney’s fees incurred after Taggart petitioned for bankruptcy. The parties agreed that a discharge order covers attorney’s fees arising postpetition if the fees stem from prepetition litigation unless the debtor returned to the fray (i.e., voluntarily resumed prepetition litigation despite a discharge order). The Oregon state court found that Taggart was liable for postpetition attorney’s fees because he had returned to the fray. Taggart returned to the bankruptcy court, arguing that Sherwood had violated the discharge order by collecting postpetition attorney’s fees and ought to be held in civil contempt. The bankruptcy court found no violation of the discharge order. Taggart appealed to the federal district court, which held that Taggart had not returned to the fray and that Sherwood had violated the discharge order. The case returned to the bankruptcy court on remand. The bankruptcy court applied a standard like strict liability and held Sherwood in contempt because it was aware of the discharge order yet intended the actions that violated the order. The bankruptcy court awarded attorney’s fees and damages to Taggart. Sherwood appealed to the bankruptcy appellate panel, which vacated the bankruptcy court’s sanctions. The court of appeals affirmed the panel’s decision, applying a subjective standard that considered whether Sherwood had a good-faith belief that the discharge order did not apply to its claim. Taggart petitioned for a writ of certiorari.