Reprinted with permission from Law360

The recent decision from the United States District Court for the Middle District of Alabama in Moore v. Automotive Finance Corp.[1] demonstrates how the U.S. Supreme Court’s decision this term in Taggart v. Lorenzen[2] means that a complaint can be dismissed for failure to state a claim even if it plausibly alleges a violation of the discharge injunction.

Before turning to the case in question, a brief recap of the Supreme Court’s decision in Taggart is warranted.

The Taggart Decision

In Taggart, the Supreme Court rejected a strict-liability standard for the imposition of contempt for violating the discharge injunction. Instead, the justices unanimously held that the bankruptcy court may “impose civil contempt sanctions when there is no objectively reasonable basis for concluding that the creditor’s conduct might be lawful under the discharge order.”[3]

The decision also rejected the U.S. Court of Appeals for the Ninth Circuit’s idea that a subjective, good faith belief about the inapplicability of the discharge injunction is a defense to contempt. [4]

In so holding, the court said the outcome was informed by Section 524(a)(2), the statutory discharge injunction, and by Section 105(a), the bankruptcy version of the All Writs Act. The court reasoned that its conclusion rested upon a long-standing interpretive principle: When a statutory term is “obviously transplanted from another legal source,” it “brings the old soil with it.”[5]