The bankruptcy court’s contempt order against a student loan servicer requiring it to pay off the entire amount of the debtor’s student loan was punitive rather than compensatory or coercive and, therefore, the award exceeded the court’s civil contempt power. Great Lakes Educ. Loan Serv. Inc. v. Leary, No. 20-8050 (S.D.N.Y. June 22, 2021). Read More
Tag Archive: Sanctions
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Sanction Against Student Loan Servicer Exceeded Court’s Civil Contempt Power
Posted by NCBRC - June 23rd, 2021
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Sanctions Against Student Loan Servicer
Posted by NCBRC - October 28th, 2020
A student loan servicing company’s failure, over the course of five years, to respond to an adversary complaint and multiple court orders, justified a finding of contempt and sanctions against the servicer requiring it to pay off the debtor’s student loans to the DOE in the amount of $354,629.62, and pay damages to the debtor in the amount of $24,000. Leary v. Great Lakes Educational Loan Services, No. 15-11583, Adv. Proc. No. 15-1295 (Bankr. S.D.N.Y. Sept. 8, 2020).
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Dischargeability of Sanctions Against Attorney
Posted by NCBRC - October 2nd, 2020
State law discovery sanctions owed to a non-governmental entity for compensatory purposes do not fall under section 523(a)(7)’s exception to discharge for fines or penalties, and are therefore dischargeable. Costs related to the State Bar’s disciplinary actions are owed to a governmental agency, are punitive rather than compensatory in nature, and are therefore excepted from discharge. Where the debtor’s law license suspension was contingent upon her paying nondischargeable costs, the suspension was not discriminatory in violation of section 525(b). Albert-Sheridan v. State Bar of Calif., No. 19-60023 (9th Cir. June 10, 2020). Read More
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UpRight Law Not Entirely Upright
Posted by NCBRC - September 24th, 2020
The bankruptcy court did not abuse its discretion in imposing sanctions for violation of section 526(a) against UpRight law firm for statements in its Attorney Disclosures which were prohibited by an earlier settlement agreement and were therefore misleading. Law Solutions of Chicago, LLC v. Corbett, No. 19-11405 (11th Cir. Aug. 31, 2020). Read More
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SCOTUS Adopts No Fair Ground of Doubt Standard for Discharge Order Violation
Posted by NCBRC - June 5th, 2019
In a unanimous decision, the Supreme Court held that “a court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct.” Taggart v. Lorenzen, No. 18-489, 587 U. S. ___ (June 3, 2019).
Chapter 7 debtor, Bradley Taggart, was involved in pre-petition litigation in state court at the time he filed for bankruptcy. After he obtained his discharge, Sherwood, an opposing party in the state court litigation, obtained a judgment against him. Sherwood then sought attorney’s fees, and the state court awarded those fees notwithstanding Ninth Circuit precedent making clear that the post-petition attorney’s fees were discharged along with Taggart’s other debts. The bankruptcy court found that Sherwood was aware of the discharge and intended the act that violated it and, under that standard, it held Sherwood in contempt of the discharge order. The bankruptcy appellate panel reversed the sanction award and the Ninth Circuit affirmed, holding that Sherwood could not be held in contempt in light of its good faith belief that its conduct did not violate the discharge injunction regardless of whether that belief was reasonable. Read More
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Ambush at State Trial Costs Creditor and Her Counsel over $200,000 for Discharge Injunction Violation
Posted by NCBRC - April 30th, 2019
Creditor and her counsel were found liable for violation of the discharge injunction to the tune of over $200,000, after the creditor and her counsel blindsided the debtor during closing arguments in their state court litigation by grossly expanding the scope of the creditor’s claimed damages to encompass discharged debts. In re Renfrow, No. 17-1027 (Bankr. N.D. Okla. April 23, 2019). Read More
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SCOTUS Hears Arguments on Discharge Violation Sanctions
Posted by NCBRC - April 27th, 2019
Addressing the reach of a bankruptcy court’s contempt powers in the context of a violation of the discharge injunction, the Supreme Court heard arguments on April 24, in the case of Taggart v. Lorenzen, No. 18-489.
Daniel Geyser appeared for the debtor, Bradley Taggart. Nicole Saharsky represented the creditor, Shelley Lorenzen, executor. Sopan Joshi, from the office of the Solicitor General, argued as amicus not in support of either party. NACBA submitted an amicus brief in support of reversal.
The controversy hinged on a state court finding that Mr. Taggart’s creditor could seek contractual attorney fees in the litigation before it, even though those fees would have been subject to the discharge order injunction had Mr. Taggart not “returned to the fray.” The bankruptcy court found that the “returned to the fray” doctrine did not apply and that the litigation violated the discharge injunction. It awarded sanctions, at least in part representing the debtor’s attorney’s fees. The Ninth Circuit ultimately reversed the sanctions stating broadly that a creditor acting in good faith cannot be held liable for discharge injunction violation even if that belief is unreasonable. Lorenzen v. Taggart (In re Taggart), 888 F.3d 438 (9th Cir. 2018). Read More
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Attorney Fee Award Upheld Against Student Loan Servicer
Posted by NCBRC - March 21st, 2019
The district court found that the bankruptcy court did not abuse its discretion in holding the student loan servicer in contempt for failing to apply the student debtor’s payments outside the plan in accordance with pre-petition payments as required by the debtor’s confirmed chapter 13 plan. Penn. Higher Educ. Assistance Agency v. Berry, No. 18-444 (D. S.C. March 5, 2019).
Berry had student loans issued by the Department of Education (DOE) and administered by the Pennsylvania Higher Education Assistance Agency (PHEAA). She was paying off her loans under an Income-Driven Repayment plan (IDR) and a Public Service Loan Forgiveness (PSLF) program. In her chapter 13 bankruptcy, her confirmed amended plan provided for continued payments on her student loan debts outside the plan with those payments being applied exactly as before thereby allowing her to continue to benefit from the IDR and PSLF. The PHEAA, however, put the loans into administrative forbearance under which it applied the payments to principal and interest. Ms. Berry filed a Motion to Enforce seeking sanctions in the amount of $22,317.30, representing the attorney fees she incurred pursuing proper application of the payments. The DOE eventually settled its portion of the action for $6,000 and Ms. Berry sought the remaining amount from PHEAA. The bankruptcy court granted Ms. Berry’s entire attorney fee request consisting of $22,317.30 of which, after the DOE’s $6,000 settlement, the PHEAA owed $16,317.30. Read More
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Bankruptcy Court Says Call First Before Seeking Attorney’s Fees
Posted by NCBRC - January 23rd, 2019
The Bankruptcy Court for the Eastern District of Michigan recently ruled whether a creditor must pay attorney’s fees to the objecting party when the creditor filed a claim with deficient information. In re Ball, No. 17-22574 (Bankr. E.D.MI. Jan. 22, 2019).
The issue was brought before the court by the chapter 13 trustee. A creditor, Financial Edge Credit Union (FECU), was owed a debt for overdraft charges which was an open-end consumer debt. FECU filed a deficient proof of claim that only attached a copy of the deposit account contract and did not include the last payment date or the date of the debtor’s last transaction.
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Subjective Belief that Conduct Not Subject to Discharge Order Precludes Sanctions
Posted by NCBRC - October 30th, 2018
A creditor’s good faith belief that its conduct did not violate the discharge order precludes a finding of contempt for violation of the discharge injunction even if that belief is unreasonable. Taggart v. Lorenzo (In re Taggart), No. 16-35402 (9th Cir. April 23, 2018).
Bradley Taggart, a 25% owner of a real estate business, became embroiled in state litigation involving two other 25% owners of the business after he transferred his share to his lawyer without giving the co-owners their contractual right of first refusal. Mr. Taggart filed for chapter 7 bankruptcy and the state court stayed the business litigation until after he obtained his discharge. At that time, the business litigation resumed for the purpose of unwinding the business interest, but with the condition that, due to his bankruptcy discharge, Mr. Taggart would not be liable for any monetary judgment. At the conclusion of the business litigation, however, the state court permitted both parties to seek attorney’s fees. The attorneys for Mr. Taggart’s opponents sought attorney fees for their post-discharge work on the basis that Mr. Taggart had “returned to the fray” and the fees were thus the result of post-discharge conduct not related to the bankruptcy discharge. Read More
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