Gordon Beckhart, Jr. v. Newrez, LLC

31 F.4th 274

• Court: Court of Appeals for the Fourth Circuit
• Decided: April 15, 2022
• Docket: 21-1838
• Status: Published

Opinion

PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 21-1838

GORDON HAGGOTT BECKHART, JR.; STELLA MARIE BECKHART,

Debtors - Appellants,

v.

NEWREZ LLC, d/b/a Shellpoint Mortgage Servicing; THE BANK OF NEW YORK MELLON, f/k/a The Bank of New York as Trustee for Certificate Holders of CWMBS, Inc. CHL Pass-Through Trust 2004-29, Mortgage Pass-Through Certificates, Series 2004-9,

Creditors - Appellees.

Appeal from the United States District Court for the Eastern District of North Carolina, at Wilmington. Terrence W. Boyle, District Judge. (7:20-cv-00192-BO)

Argued: March 10, 2022 Decided: April 15, 2022

Before AGEE, RUSHING, and HEYTENS, Circuit Judges.

Vacated and remanded with instructions by published opinion. Judge Heytens wrote the opinion, in which Judge Agee and Judge Rushing joined.

ARGUED: Ciara Louise Rogers, LAW OFFICES OF OLIVER & CHEEK, PLLC, New Bern, North Carolina, for Appellants. Richard Aaron Chastain, BRADLEY ARANT BOULT CUMMINGS LLP, Birmingham, Alabama, for Appellees. ON BRIEF: Brian M. Rowlson, BRADLEY ARANT BOULT CUMMINGS LLP, Charlotte, North Carolina, for Appellees. TOBY HEYTENS, Circuit Judge:

In Taggart v. Lorenzen, the Supreme Court addressed the proper standard for

“hold[ing] a creditor in civil contempt for attempting to collect a debt that a discharge

order” entered under Chapter 7 of the Bankruptcy Code “has immunized from collection.”

139 S. Ct. 1795, 1799 (2019). The threshold question here is whether the standard adopted

in Taggart also applies when a court is considering whether to hold a creditor in civil

contempt for violating a plan of reorganization of debts entered under Chapter 11. We hold

that it does. And because neither the bankruptcy court nor the district court properly applied

the Taggart standard here, we vacate and remand for further proceedings.

I.

In 2009, Gordon and Stella Beckhart filed a voluntary petition for relief under

Chapter 11 of the Bankruptcy Code, a form of bankruptcy that “allows debtors and their

creditors to negotiate a plan for dividing an estate’s value.” Czyzewski v. Jevic Holding

Corp., 137 S. Ct. 973, 978 (2017). At the time, the Beckharts owned several properties that

had mortgages with significant balances, including a house in Kure Beach, North Carolina,

for which they had missed ten months of payments.

After a hearing, the bankruptcy court confirmed a reorganization plan for the

Beckharts’ debts. Under the confirmation order, the Beckharts maintained possession of

the Kure Beach house, with the creditor retaining a secured claim for the total outstanding

mortgage balance. The order set a date on which “[t]he first payment shall be due” but did

not specify an amount for the payment or state how it would be calculated. JA 68–69. The

order also provided that, “[i]n the event of default,” the Beckharts would be entitled to “ten

2 days written notice” before the creditor could “exercise its state court remedies with respect

to the collateral,” including foreclosure. JA 68–69. The relevant section of the confirmation

order concluded: “Except as modified herein, the Debtor shall continue to pay the creditor’s

claim according to the original loan terms.” JA 69.

Several years later, appellees (collectively, Shellpoint) took over as loan servicer on

the Beckharts’ account. Although the Beckharts had been making regular monthly

payments under the confirmation order, Shellpoint initially believed the account was past

due because of the payments missed before the bankruptcy proceedings. From 2014

through 2019, Shellpoint sent the Beckharts letters and notices of default showing

increasing amounts owed and past due. Gordon tried without success to correct the account,

repeatedly explaining that he and Stella had been through bankruptcy and had been paying

the mortgage on time ever since.

Shellpoint acknowledged in December 2019 that “the previous servicer did not

adjust the loan in accordance with the Confirmed Chapter 11 Plan.” JA 300. Nevertheless,

two weeks later, Shellpoint commenced foreclosure proceedings on the Beckharts’ Kure

Beach house. Soon after, Shellpoint sent another letter acknowledging that the loan had not

been adjusted following the bankruptcy proceedings and detailing the “major adjustments

to the loan structure and to the payment applications” it had made to correct the account.

JA 314. The letter did not, however, mention the pending foreclosure proceeding or the

upcoming court hearing.

Seeking to halt the foreclosure proceeding—which they learned about only when

Gordon found a notice on the door of the Kure Beach house—the Beckharts filed an

3 emergency motion for contempt in the bankruptcy court. According to the Beckharts,

Shellpoint had violated the confirmation order by placing their account in default and

seeking to foreclose on the property when the Beckharts had been paying on time since the

bankruptcy. Shellpoint claimed that its actions were justified under the confirmation order

and, alternatively, that the terms of the order were confusing and ambiguous, meaning it

could not be held in civil contempt under the Supreme Court’s decision in Taggart.

After hearing argument and testimony, the bankruptcy court found Shellpoint in

contempt and awarded sanctions to the Beckharts. Without referencing Taggart, the

bankruptcy court stated that “[a] finding of civil contempt is warranted when there is

demonstration, by clear and convincing evidence, of ” four factors set out in this Court’s

pre-Taggart decision in Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000). JA 17–

18. The bankruptcy court ordered Shellpoint to pay the Beckharts a total of $114,569.86,

consisting of: (1) $60,000 in damages for 200 hours Gordon spent trying to correct the

account; (2) $20,000 for “the loss of the debtors’ fresh start”; (3) $1,569.86 in travel

expenses; and (4) $33,000 in attorneys’ fees. JA 18–20.

Shellpoint appealed the contempt order to the district court, which reversed. See

28 U.S.C. § 158(a)(1) (granting district courts appellate jurisdiction over “final judgments,

orders, and decrees” of bankruptcy courts). Concluding that “the Taggart standard”

applied, the district court determined that “the bankruptcy court’s contempt order f[ell] far

short of meeting” it because Shellpoint “ha[d] established a fair ground of doubt with

regard to the unclear terms of the confirmation order.” JA 358. In so ruling, the district

4 court pointed to what it viewed as “undisputed evidence” that Shellpoint “acted in good

faith,” including Shellpoint’s reliance “on the advice of outside counsel.” JA 358–59.

II.

Seeking to reinstate the bankruptcy court’s contempt order, the Beckharts argue

both that Taggart does not apply to violations of Chapter 11 confirmation orders and that

the bankruptcy court correctly applied the Taggart standard in any event. We find both

arguments unpersuasive.

Nothing about the Supreme Court’s analysis in Taggart suggests it is limited to

violations of Chapter 7 discharge orders—which liquidate a debtor’s assets and then

discharge the debt—or that the Court’s decision turned on considerations unique to the

Chapter 7 context. The Court began its discussion with general provisions of the

Bankruptcy Code providing that a discharge order “operates as an injunction,” 11 U.S.C.

§ 524(a)(2), and that a court may “issue any order, process, or judgment that is necessary

or appropriate to carry out the provisions of this title,” § 105(a). See Taggart, 139 S. Ct. at

1801. These general statutory terms, the Court concluded, incorporate “traditional

principles of equity practice” that have “long governed how courts enforce injunctions,”

including “the potent weapon of civil contempt.” Id. (quotation marks omitted). For that

reason, the Court emphasized that “[t]he bankruptcy statutes . . . do not grant courts

unlimited authority to hold creditors in civil contempt.” Id. Drawing on “cases outside the

bankruptcy context,” the Court explained that the standard for civil contempt “is generally

an objective one” and that such orders are inappropriate “where there is a fair ground of

doubt as to the wrongfulness of the defendant’s conduct.” Id. at 1801–02 (quotation marks

5 and brackets omitted). Concluding that “[t]hese traditional civil contempt principles apply

straightforwardly to the bankruptcy discharge context,” the Court held that the same

standard applied to the case before it. Id. at 1802, 1804.

We hold that the standard articulated by the Supreme Court in Taggart governs civil

contempt under Chapter 11 of the Bankruptcy Code as well. The Beckharts may be right

that Chapter 11 reorganization proceedings differ in many ways from Chapter 7

liquidations. But a bankruptcy court’s authority to enforce its own orders—regardless of

which chapter of the Bankruptcy Code those orders were issued under—derives from the

same statutes and the same general principles the Supreme Court relied on in Taggart. And

those principles make clear that the logic of Taggart applies broadly and cannot be

confined to Chapter 7 bankruptcy in the way the Beckharts seek.

We likewise disagree with the Beckharts’ assertion that the bankruptcy court

actually applied the Taggart standard in finding Shellpoint in contempt. Although Taggart

was discussed at the contempt hearing, the court’s written order does not mention Taggart

or its no-fair-ground-of-doubt standard. Rather, the bankruptcy court’s order states that “[a]

finding of civil contempt is warranted when there is a demonstration . . . of” four factors

discussed by this Court in a decision that long predated Taggart and did not even involve

bankruptcy. JA 17–18 (citing Ashcraft v. Conoco, Inc., 218 F.3d 288, 301 (4th Cir. 2000)).

For that reason, we cannot conclude the bankruptcy court applied the correct legal standard

in deciding to hold Shellpoint in contempt.

At the same time, we disagree with Shellpoint’s assertion that the district court

committed no error in overturning the bankruptcy court’s contempt order. For one thing,

6 the district court erred in appearing to grant controlling weight to the fact that Shellpoint

had requested and received legal advice from outside counsel. JA 359 (asserting that “[t]he

Fourth Circuit has stated that relying on the advice of outside counsel is a sufficient defense

to the imposition of civil sanctions” while citing only a single district court decision

involving a request for Rule 11 sanctions against a then-unrepresented party). But this

Court had squarely held—long before Taggart—that advice of counsel “is not a defense”

to “civil contempt.” In re Walters, 868 F.2d 665, 668 (4th Cir. 1989) (emphasis added).

And Taggart reaffirmed this approach when explaining that “[t]he absence of wilfulness

does not relieve from civil contempt.” 139 S. Ct. at 1802 (quotation marks omitted). As a

result, the district court erred when concluding that Shellpoint’s reliance on the advice of

outside counsel was seemingly dispositive as a defense to civil contempt. ∗

Having concluded that both the bankruptcy court and the district court erred in

analyzing the threshold question of whether Shellpoint may be held in civil contempt at all,

we decline to address Shellpoint’s more targeted objections to certain aspects of the

bankruptcy court’s sanctions order. Instead, we think it is most appropriate for the

bankruptcy court—as the court of first instance and the tribunal closest to the facts—to

∗ We briefly note that while relying on the advice of outside counsel is not a complete defense in and of itself, it may still be considered in appropriate circumstances as a relevant factor under the Taggart standard. Although Taggart established that “a party’s subjective belief that she was complying with an order ordinarily will not insulate her from civil contempt if that belief was objectively unreasonable,” a party’s reliance on guidance from outside counsel may be instructive, at least in part, when determining whether that party’s belief that she was complying with the order was objectively unreasonable. 139 S. Ct. at 1802. We leave any such analysis to be completed by the bankruptcy court in the first instance on remand.

7 reconsider the contempt motion under the correct legal standard, including any additional

factfinding that may be necessary. In doing so, we emphasize that even though the

appropriate remedy for civil contempt lies within the bankruptcy court’s “broad

discretion,” In re Gen. Motors Corp., 61 F.3d 256, 259 (4th Cir. 1995), any sanction that

may ultimately be imposed must be supported—both in type and in amount—by a

sufficient evidentiary record.

* * *

The order of the district court is vacated, and the case is remanded to the district

court with instructions to vacate the bankruptcy court’s order and remand for further

proceedings consistent with this opinion.

SO ORDERED