Lorenzen v. Taggart (In re Taggart)
| Citation | 888 F.3d 438 |
| Decision Date | 23 April 2018 |
| Docket Number | No. 16-60032,No. 16-35402, No. 16-60042, No. 16-60043, No. 16-60033, No. 16-60040, No. 16-60039,16-35402 |
| Parties | IN RE Bradley Weston TAGGART, Debtor, Shelley A. Lorenzen, Executor of Estate of Stuart Brown ; Terry W. Emmert; Keith Jehnke; Sherwood Park Business Center, LLC, Appellants, v. Bradley Weston Taggart, Appellee. In re Bradley Weston Taggart, Debtor, Bradley Weston Taggart, Appellant, v. Shelley A. Lorenzen, Executor of Estate of Stuart Brown ; Terry W. Emmert; Keith Jehnke; Sherwood Park Business Center, LLC, Appellees. In re Bradley Weston Taggart, Debtor, Bradley Weston Taggart, Appellant, v. Terry W. Emmert; Keith Jehnke; Sherwood Park Business Center, LLC; Shelley A. Lorenzen, Executor of Estate of Stuart Brown, Appellees. In re Bradley Weston Taggart, Debtor, Shelley A. Lorenzen, Executor of the Estate of Stuart Brown, Appellant, v. Bradley Weston Taggart, Appellee. In re Bradley Weston Taggart, Debtor, Terry W. Emmert; Keith Jehnke; Sherwood Park Business Center, LLC, Appellants, v. Bradley Weston Taggart, Appellee. In re Bradley Weston Taggart, Debtor, Shelley A. Lorenzen, Executor of Estate of Stuart Brown, Appellant, v. Bradley Weston Taggart, Appellee. In re Bradley Weston Taggart, Debtor, Terry W. Emmert; Keith Jehnke; Sherwood Park Business Center, LLC, Appellants, v. Bradley Weston Taggart, Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
John Martin Berman (argued) and Damon J. Petticord, Tigard, Oregon, for Bradley Weston Taggart.
Janet M. Schroer (argued), Hart Wagner LLP, Portland, Oregon; James Ray Streinz, Streinz Law Office, Portland, Oregon, for Shelley Lorenzen.
Hollis Keith McMilan (argued), Hollis K. McMilan P.C., Portland, Oregon, for Terry W. Emmert, Keith Jehnke, and Sherwood Park Business Center LLC.
Before: Edward Leavy, Richard A. Paez, and Carlos T. Bea, Circuit Judges.
This case arises out of a complex set of bankruptcy proceedings. Appellant Bradley Taggart was a real estate developer who owned a 25% interest in Sherwood Park Business Center, LLC ("SPBC"). Appellees and Cross-Appellants Terry Emmert and Keith Jehnke also each owned a 25% interest in SPBC. In 2007, Taggart allegedly transferred his share of SBPC to his attorney in this action, John Berman.
When Emmert and Jehnke learned that Taggart had transferred his interest in SPBC to Berman, they sued Taggart and Berman in Oregon state court, asserting that the transfer breached SPBC's operating agreement because Taggart did not provide the notice required to allow Emmert and Jehnke to exercise their right of first refusal to buy Taggart's interest at the agreed upon price. The state court action also sought attorneys' fees pursuant to the operating agreement. Taggart filed an answer to the state court action, sought to dismiss the action, and filed a counterclaim for attorneys' fees pursuant to the operating agreement.
On November 4, 2009, shortly before trial in the state court action, Taggart filed a voluntary Chapter 7 Bankruptcy petition (the "Petition"). The state court action was stayed pending the resolution of Taggart's bankruptcy Petition. On February 23, 2010, Taggart received his discharge in the bankruptcy proceedings.
After the discharge, Emmert and Jehnke, represented by attorney Stuart Brown, continued the state court action against Berman and Taggart. As part of the litigation, Brown served Taggart with a subpoena for a deposition. Taggart, represented by Berman, moved for a protective order that would allow him not to appear at the deposition, but the state trial court never ruled on the motion. Nonetheless, Taggart appeared for his deposition.
Prior to trial, Berman moved on Taggart's behalf to dismiss the claims against Taggart in light of the bankruptcy discharge. The state court denied the motion, finding that Taggart was a necessary party to Emmert and Jehnke's claims seeking to expel Taggart from SPBC, but the parties agreed that no monetary judgment would be awarded against Taggart. Taggart did not appear at or participate in the trial, but Berman orally renewed his motion to dismiss on Taggart's behalf at the close of evidence. The state court once again denied the motion.
After trial, the state court issued findings of fact and conclusions of law that unwound the transfer of Taggart's interest in SPBC to Berman and expelled Taggart from SPBC. Brown submitted a proposed judgment, to which Berman objected. Taggart appeared at the hearing for entry of the judgment and provided testimony and argument.
Following the hearing, the state court entered a judgment that allowed any party to petition for attorneys' fees. The litigation regarding attorneys' fees spawned a complex, interrelated web of litigation in both state and federal court.
First, Brown filed a petition for attorneys' fees in state court on behalf of SPBC, Emmert, and Jehnke. Brown's fee petition sought to recover fees against both Berman and Taggart, but limited the request for fees against Taggart to those fees that had been incurred after the date of Taggart's bankruptcy discharge. In the fee petition, Brown alerted the state court to the existence of Taggart's bankruptcy discharge and argued that Taggart could still be held liable for attorneys' fees incurred after Taggart's discharge because Taggart had "returned to the fray." That is, SPBC, Emmert, and Jehnke claimed Taggart had willingly engaged in opposing them in the state court action after Taggart obtained his bankruptcy discharge. Taggart opposed Brown's petition for attorneys' fees, arguing his bankruptcy discharge barred any claim for attorneys' fees, whether they were incurred before or after his discharge in bankruptcy.
While the attorneys' fee petition was pending in state court, Taggart moved the bankruptcy court to reopen his bankruptcy proceeding. The day the bankruptcy court reopened Taggart's bankruptcy proceeding, Taggart filed a motion seeking to hold Brown, Jehnke, Emmert, and SPBC (collectively, the "Creditors") in contempt for violating the discharge by seeking an award of attorneys' fees against him in the state court action.
Meanwhile, the state trial court issued a ruling awarding attorneys' fees to SPBC, but not Jehnke and Emmert. The state court ruled that Taggart could be held liable for attorneys' fees that were incurred after his bankruptcy discharge because he had "returned to the fray."1 Taggart appealed the state court's determination to the Oregon Court of Appeals. See Sherwood Park Bus. Ctr., LLC v. Taggart , 267 Or.App. 217, 341 P.3d 96 (2014).
Subsequently, the bankruptcy court denied Taggart's motion for contempt, finding that the state court had correctly decided the issue: whether Taggart had indeed "returned to the fray." Taggart appealed the bankruptcy court's ruling to the district court. The district court reversed, finding that Taggart's actions were insufficient to constitute a "return to the fray" and, as a result, the discharge injunction barred the attorneys' fee claim. The district court remanded to the bankruptcy court for a determination of whether the Creditors "knowingly violated the discharge injunction in seeking attorney fees."2
On remand, the bankruptcy court found the Creditors had knowingly violated the discharge injunction by seeking attorneys' fees in the state action and entered an order holding them in contempt. Following further proceedings, the bankruptcy court awarded sanctions against SPBC, Emmert, Jehnke, and Brown's estate,3 pursuant to the court's contempt ruling.
The Creditors appealed the bankruptcy court's contempt ruling to the Bankruptcy Appellate Panel ("BAP"). On appeal, the BAP reversed the bankruptcy court's finding of contempt. The BAP reasoned that the Creditors could not be held in contempt unless they "knowingly" violated the discharge injunction. Because the BAP found that the Creditors had a good faith belief that the discharge injunction did not apply to their attorneys' fee claim, it concluded that they had not "knowingly" violated the discharge injunction.
In the meantime, the Oregon Court of Appeals reversed the state trial court's ruling regarding attorneys' fees. See Taggart , 341 P.3d at 102–04. In line with the district court, the Oregon Court of Appeals held that Taggart's actions were not sufficiently affirmative or voluntary to constitute a "return to the fray." Id . As a result, the court concluded that the discharge injunction barred the recovery of attorneys' fees. Id .
Ultimately, the Creditors were barred from pursuing attorneys' fees against Taggart by the rulings of both the district court and the Oregon Court of Appeals. Additionally, due to the BAP's ruling, the Creditors were not liable for sanctions for knowingly violating the discharge injunction by seeking attorneys' fees against Taggart in the state court litigation.
Taggart filed a notice of appeal challenging the BAP's decision to reverse the bankruptcy court's contempt findings against the Creditors. The Creditors filed a notice of cross-appeal challenging the district court's ruling that Taggart had not returned to the fray in the state court litigation.
We begin with Taggart's appeal, in which he argues that the BAP committed reversible error when it held that the Creditors could not be held in contempt because they did not knowingly violate the discharge injunction. A discharge under Chapter 7 of the bankruptcy code "discharges the debtor from all debts that arose before the date of the" bankruptcy petition. 11 U.S.C. § 727(b). Once issued, the discharge "operates as an injunction against the commencement or continuation of an action ... to collect, recover or offset any such debt as a personal liability of the debtor." 11 U.S.C. § 524(a)(2). A bankruptcy court may enforce the discharge injunction by holding a party in contempt for knowingly violating the discharge. In re Zilog, Inc. , 450 F.3d 996, 1007 (9th Cir. 2006).
In this case, after the district...
To continue reading
Request your trial
-
In re Ministries
...Milner further asserts that CCM ignored the Ninth Circuit's decisions in In re Ybarra, 424 F.3d 1018 (9th Cir. 2005) and In re Taggart, 888 F.3d 438 (9th Cir. 2018)2, and wrongfully contended that she violated the discharge injunction by filing an answer in a state court action commenced by......
-
Internal Revenue Serv. v. Murphy
...is sufficient to show that there was no "willful violation" of the discharge injunction. See Lorenzen v. Taggert (In re Taggert ), 888 F.3d 438, 444 (9th Cir. 2018). Indeed, the Ninth Circuit does not even impose a reasonableness requirement. Id. ("the creditor's good faith belief that the ......
-
In re Parker
...of the discharge injunction, applying the "good faith belief" standard stated by the Ninth Circuit in Lorenzen v. Taggart (In re Taggart), 888 F.3d 438, 444 (9th Cir. 2018). (Id . at 25.)Upon application for attorneys’ fees and costs, the bankruptcy court further ordered attorneys’ fees of ......
-
Kellogg v. First Land Dev., LLC (In re Kellogg)
...does not apply precludes a finding of contempt, even if the creditor's belief is unreasonable. See Lorenzen v. Taggart (In re Taggart) , 888 F.3d 438, 444 (9th Cir. 2018), cert. granted , ––– U.S. ––––, 139 S. Ct. 782, 202 L.Ed.2d 511 (2019). Other circuits have held that a creditor's good ......
-
CHAPTER 1 EXCEPTIONS TO DISCHARGE
...binding pre-BAPCPA precedent in that circuit was not abrogated by 2005 amendments).[37] See, e.g., Lorenzen v. Taggart (In re Taggart), 888 F.3d 438, 444 (9th Cir. 2018) ("Although the Creditors ... were ultimately incorrect, their good-faith belief, even if unreasonable, insulated them fro......
-
Chapter I. Effectuating the Fresh Start
...injunction does not apply precludes a finding of civil contempt for a violation of section 524. See Lorenzen v. Taggart (In re Taggart), 888 F.3d 438 (9th Cir. 2018), cert. granted, 2019 WL 98543 (2019). The Commission’s recommendations do not depend on the Supreme Court’s resolution of thi......
-
Mcle Article: Test Your Knowledge: Recent Developments in Insolvency Law
...Good luck!1. Ninth Circuit Details Standard for Contempt for Violation of the Bankruptcy Discharge Injunction: Taggart v. Lorenzen, 888 F.3d 438 (9th Cir. 2018), cert. granted, 202 L. Ed. 2d 511 (Jan. 4, 2019). This case clarifies and details the standard for a finding of contempt for viola......
-
CHAPTER 3, C. Examining Subjective, Unreasonable Good Faith and the Discharge Injunction
...as reprinted in 1978 U.S.C.C.A.N. 5963, 6321)).[4] Id. at 1319; see also 11 U.S.C. § 105(a).[5] Lorenzen v. Taggart (In re Taggart), 888 F.3d 438, 444 (9th Cir. 2018).[6] In re Pratt, 462 F.3d at 21.[7] In re Fina, 550 Fed. App'x 150, 155 (4th Cir. 2014).[8] In re Hardy, 97 F.3d 1384, 1390 ......