Caiarelli et al v. Taylor II

Filing 75

MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang. For the reason stated in the Order, the contempt order, damages order, and judgment of the bankruptcy court are reversed. Status hearing of 09/23/2014 is vacated. Civil case terminated. Emailed notice(slb, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
In re Charles Edward Taylor, II,

)
)
Debtor.
)
_________________________________________ )
)
Patricia Caiarelli, Madeline Gauthier, and )
Charles A. Kimbrough,
)
)
Appellants,
)
)
v.
)
)
Charles Edward Taylor, II,
)
)
Appellee.
)

No. 13 C 07743
Judge Edmond E. Chang

MEMORANDUM OPINION AND ORDER
Appellants Patricia Caiarelli and her attorneys, Madeline Gauthier and
Charles A. Kimbrough, appeal from a Contempt Order, Damages Order, and
Judgment that the bankruptcy court entered against them in Caiarelli’s adversary
proceedings against Debtor Charles Edward Taylor, II.1 R. 1, Notice of Appeal. For
the reasons discussed below, the bankruptcy court’s orders and judgment are
reversed.

1The

Court has jurisdiction over this bankruptcy appeal under 28 U.S.C. § 158(a)(1).
Citation to this Court’s docket is noted as “R. [docket entry number],” followed by a
description of the document in that entry. Citations to the Record on Appeal are to the
consecutively paginated version of the Record that Taylor filed as an appendix [R. 70] to his
brief. These Record citations are noted with a description of the document cited, followed by
the appendix page number (“[Description] at App. [number]”).

I. Background
The events leading up to this bankruptcy appeal date back to 2005, long
before Debtor Charles Taylor filed his Chapter 11 petition in the bankruptcy court.
It all began in September 2005 when William Taylor (Charles Taylor’s brother and
Caiarelli’s ex-husband) drowned in a boating accident. In re Taylor, Nos. 63761-4-I,
63462-3-1-I (Wash. Ct. App. Dec. 20, 2010), at App. 2215, 2218. Although Charles
Taylor was initially named as personal representative of the Estate, the probate
court ended up removing him from that role and replacing him with Michael
Longyear. Id. at App. 2219.
William’s young son, Alexander Taylor,2 was the primary beneficiary of
William’s will. See id. at App. 2216. At the time of his death, however, William had
several non-probate assets, including a retirement account and several AIG policies.
See id. at App. 2217-18. Taylor had been named as beneficiary of many of these nonprobate assets, and, after William died, Taylor quickly disposed of them. See id. at
App. 2217-19; see also Am. Resp. Debtor’s Statement of Facts, Caiarelli v. Taylor,
Adv. No. 12-01188 (Bankr. N.D. Ill. Mar. 12, 2013), at App. 2441-42 ¶¶ 23, 25, 27.
In March 2006, Caiarelli (Alexander’s mother and legal guardian) filed a
lawsuit against Taylor in Washington state court under the Washington Trust and
Estate Dispute Resolution Act (TEDRA). See Verified Pet., In re Taylor, No. 06-402116-6 (Wash. Superior Ct., King Cnty. Mar. 20, 2006), at App. 275. In the TEDRA

2Alexander

Taylor’s mother has used his full name in publicly available court filings,
so this Opinion does the same. Fed. R. Civ. P. 5.2(h). The Court uses William Taylor and
Alexander Taylor’s first names for clarity to distinguish from Charles Taylor, who is
referred to by this Opinion as “Taylor” for convenience’s sake.

2

lawsuit, Caiarelli sought a declaration that Alexander, not Taylor, was entitled to
William’s non-probate and non-testamentary assets. See id. Attorneys Gauthier and
Kimbrough represented Caiarelli in the TEDRA action. Joint Pretrial Statement, In
re Taylor, No. 12-16471 (Bankr. N.D. Ill. June 10, 2013), at App. 538. A jury
ultimately returned a verdict against Taylor, and a judgment was entered awarding
the Estate $1,422,077 (the TEDRA Judgment). Id.; see also J. Summ., In re Taylor,
No. 06-4-02116-6 (Dec. 20, 2011), at App. 312.
After the trial, the probate court initially appointed Michael Longyear (the
person who replaced Taylor as the personal representative of William’s probate
estate) as the sole person authorized to enforce the TEDRA Judgment. 3/19/13 Tr.
at App. 735. But on April 3, 2012, Longyear assigned the TEDRA Judgment to
Caiarelli. See Assignment of Judgment, In re Taylor, No. 06-4-02116-6 (Apr. 3,
2012), at App. 354-55. Unhappy with this turn of events, Taylor filed a motion in
the probate court to void the assignment. Mot. Void Assignment, In re Taylor, No.
06-4-02116-6 (Apr. 13, 2012), at App. 363. But on April 23, 2012, before the probate
court could resolve Taylor’s motion, Taylor filed a Chapter 11 petition in the
bankruptcy court. See Docket, In re Taylor, No. 12-16471, at App. 14-15.
Three days after Taylor’s bankruptcy filing, the Washington state probate
judge, Judge James Rogers, sent a letter to Caiarelli and Taylor (and their lawyers)
acknowledging the bankruptcy filing and the resulting automatic stay. See Judge
Rogers Letter (Apr. 26, 2012), at App. 555-56. Noting that the letter was not a court
order, Judge Rogers listed several matters that he believed would be addressed by

3

court order if the case were to resume after the bankruptcy case’s completion. Id. at
App. 555. On the assignment issue, he wrote:
I had anticipated requiring all parties . . . to appear before Commissioner
Velategui before proceeding further on the assignment. . . . It appears to me
that several steps were skipped at the time of the assignment. A contract
assignment is not the same as an assignment between [the] Estate and a
guardian, and where a trust has an interest. As you know, there are multiple
statutory overlays. An assignment may be properly done but certain issues
must be addressed. If the stay is lifted, that matter would be addressed to the
Commissioner, who is aware of the case.
Id. at App. 556 (emphasis in original).
In the bankruptcy court, Caiarelli was actively involved in Taylor’s case. She
attended Taylor’s meeting of creditors in Chicago; filed proofs of claim as the
assignee of the TEDRA Judgment; and objected to the approval of Taylor’s
disclosure statement and First Amended Plan of Reorganization. See Joint Pretrial
Statement at App. 538-39; R. 69-1, Appellee’s Exh. 1, Claim 1-4; Objection to Plan,
In re Taylor, No. 12-16471, at App. 2625. Caiarelli was also represented by counsel
at the hearing on December 20, 2012, when the bankruptcy court ruled that it
would confirm Taylor’s plan. Joint Pretrial Statement at App. 539; Confirmation
Order, In re Taylor, No. 12-16471 (Dec. 20, 2012), at App. 558-59. Taylor served a
copy of the confirmation order on Caiarelli, but Caiarelli did not appeal the
confirmation order. Joint Pretrial Statement at App. 540; Notice of Confirmation
Order, In re Taylor, No. 12-16471 (Jan. 3, 2013), at App. 599, 602.
Meanwhile, back on July 31, 2012 (before the bankruptcy court had
confirmed Taylor’s plan), Caiarelli had initiated adversary proceedings against
Taylor under 11 U.S.C. § 523(c)(1), arguing that the TEDRA Judgment was not
4

dischargeable under the Bankruptcy Code. Adversary Compl., Caiarelli, Adv. No.
12-01188 (July 31, 2012), at App. 1980. In response, Taylor moved to dismiss the
adversary proceedings, arguing that Caiarelli lacked standing to enforce the
TEDRA Judgment. Mot. Dismiss, Caiarelli, Adv. No. 12-01188 (Sept. 11, 2012), at
App. 2013, 2019. To address this standing issue, Caiarelli filed a “motion to ratify”
the assignment in the probate court on March 13, 2013. Ratification Mot., In re
Taylor, No. 06-4-02116-6 (Mar. 13, 2013), at App. 147. Gauthier filed a declaration
in support of that motion, explaining that she filed the motion “on advice of
bankruptcy counsel in Chicago, so that she would have standing to maintain the
bankruptcy adversary proceeding.” Gauthier Decl., In re Taylor, No. 06-4-02116-6
(Mar. 28, 2013), at App. 765 ¶ 9.
Caiarelli’s plan backfired. In further support of his dismissal motion, Taylor
submitted Caiarelli’s motion to ratify and Judge Rogers’s letter to the bankruptcy
court as proof that Caiarelli did not have standing as a creditor. See Reply Supp.
Mot. Strike, Exhs. 1, 2, Caiarelli, Adv. No. 12-01188 (Mar. 18, 2013), at App. 251819, 2527, 2537. Taylor also argued that Caiarelli’s motion to ratify violated the
discharge and plan injunctions. See id. at 2518-19. The bankruptcy court agreed.
At the hearing on the motion to dismiss, the bankruptcy court ultimately
held that Caiarelli did not have standing to enforce the TEDRA Judgment against
Taylor, so the court dismissed Caiarelli’s adversary complaint. Dismissal Order,
Caiarelli, Adv. No. 12-01188 (Mar. 20, 2013), at App. 750. The court acknowledged
that Judge Rogers’s letter was not an order and had no legal effect. But the

5

bankruptcy court nevertheless found that the letter was relevant because it
suggested that Caiarelli had skipped steps that were necessary to effectuate the
assignment. 3/19/13 Tr. at App. 2607-08.
The bankruptcy court also addressed Taylor’s claim that Caiarelli’s motion to
ratify the assignment violated the discharge and plan injunctions. In its oral ruling,
the bankruptcy court explained:
I agree for the reasons stated in the debtor’s motion to dismiss and the other
briefs that the debtor has filed that the injunction—or the discharge
injunction doesn’t permit the plaintiff in a 523 objection to discharge action to
go back nunc pro tunc and cure whatever defects there may have been in
standing—in her standing when she originally brought the motion. And in
this case, the time for filing discharge objections is now expired, and since it’s
a 523 action rather than a 727 action, I don’t think anybody can—if her
standing is invalid, I think that’s the end of the case. I don’t think she can go
forward.
Id. at App. 2611-12. The bankruptcy court then dismissed Caiarelli’s adversary
proceeding for lack of standing on March 21, 2013. See Dismissal Order at App. 750.
Again, Caiarelli did not appeal the Dismissal Order.
Instead, Caiarelli returned again to the Washington probate court to move
forward with her motion to ratify, seeking clarification that the assignment was
valid from the outset and that no further steps were necessary to validate it. See
4/2/13 Tr. at App. 771; see also Joint Pretrial Statement at App. 541-42. After a
hearing, Commissioner Carlos Velategui of the probate court granted Caiarelli’s
ratification motion, concluding that the assignment of the TEDRA Judgment from
the Estate to Caiarelli “met all the requirements of both law and local probate court
custom” and that “[a]ll concerns regarding the Assignment raised by [Judge

6

Rogers’s letter] have been addressed.” See Ratification Order, In re Taylor, No. 06-402116-6 (Apr. 2, 2013), at App. 784-85. The probate court therefore concluded that
“[t]he Assignment from Mr. Longyear to Ms. Caiarelli, as Guardian of the Estate, is
valid, and has been valid since its original signing.” Id. at App. 785 (emphasis
added). Finally, the Ratification Order also clarified that the assignment “does not
change the duties and obligations of the [TEDRA Judgment] nor this Court’s
subsequent orders, as they pertain to Charles E. Taylor, II.” Id. at App. 784.
What happened next prompted this appeal. Because Caiarelli, with the help
of her Washington attorneys, Gauthier and Kimbrough, had returned to the probate
court to ratify the assignment, Taylor filed a motion to enforce the discharge
injunction and to hold Appellants in civil contempt. Contempt Mot., In re Taylor,
No. 12-16471 (Apr. 4, 2013), at App. 82. The bankruptcy court ultimately agreed.
See Contempt Order, In re Taylor, No. 12-16471 (Aug. 6, 2013), at App. 1443-44. In
its oral ruling, the bankruptcy court held that Gauthier, Kimbrough, and Caiarelli
“are in violation of the Section 524(a)(2) discharge injunction, as well as a violation
of the injunction contained in the confirmed plan.” 7/23/14 Tr. at App. 1911. The
court explained that “by filing and prosecuting the ratification motion in the state
court, [Appellants] violated both the discharge injunction and the plan injunction.”
Id. The court also held that its Dismissal Order clearly and unambiguously stated
that the discharge injunction did not permit Caiarelli to retroactively cure a defect
in her standing after the time to file the adversary action had expired. See id. at
App. 1905-08. So, in addition to finding that Appellants violated the discharge and

7

plan injunctions, the bankruptcy court also found that Appellants’ prosecution of
the ratification motion in state court was an impermissible collateral attack on the
bankruptcy court’s Dismissal Order. See id. at App. 1913-15. Finally, because of its
collateral-attack finding, the bankruptcy court’s Contempt Order also declared that
the Washington Ratification Order was void ab initio (meaning that the order was
not just incorrect, but that it should never have been entered in the first place). See
id. at App. 1913; see also Contempt Order at App. 1443. In addition to the Contempt
Order, the bankruptcy court also entered a Damages Order and Judgment in the
amount of $165,662.36 against Caiarelli, Gauthier, and Kimbrough, jointly and
severally, as compensatory damages to Taylor. See Damages Order, In re Taylor,
No. 12-16471, at App. 1976; Judgment, In re Taylor, No. 12-16471 (Sept. 26, 2013),
at App. 1977. This appeal followed. Notice of Appeal.
II. Standard of Review
A federal district court has jurisdiction, under 28 U.S.C. § 158(a), to hear
appeals from the rulings of a bankruptcy court. On appeal, the district court reviews
the bankruptcy court’s legal findings de novo and its factual findings for clear error.
In re Miss. Valley Livestock, Inc., 745 F.3d 299, 302 (7th Cir. 2014). Decisions left to
the discretion of the bankruptcy court are reviewed “only for an abuse of discretion.”
Wiese v. Cmty. Bank of Cent. Wis., 552 F.3d 584, 588 (7th Cir. 2009). “[A] court
abuses its discretion when its decision is premised on an incorrect legal principle or
a clearly erroneous factual finding, or when the record contains no evidence on

8

which the court rationally could have relied.” Corporate Assets, Inc. v. Paloian, 368
F.3d 761, 767 (7th Cir. 2004).
III. Analysis
On appeal, Caiarelli, Gauthier, and Kimbrough seek reversal of three of the
bankruptcy court’s orders: the Contempt Order, the Damages Order, and the
Judgment. They raise three issues. First, they ask the Court to review whether
Appellants violated the discharge or plan injunctions by proceeding in the probate
court on Caiarelli’s motion to ratify the assignment from Longyear. Second, if they
did violate the injunctions, they ask whether the bankruptcy court abused its
discretion by holding them in civil contempt. And finally, they ask whether the
compensatory damages award was appropriate. As discussed below, because the
Court holds that Appellants did not violate either injunction, the bankruptcy court
necessarily abused its discretion by holding Appellants in contempt and by
awarding compensatory damages to Taylor.
A. Violation of the Discharge and Plan Injunctions
The parties do not dispute the facts of this case. Instead, the issue facing the
Court is a pure legal question: as a matter of law, did Appellants’ conduct violate
the discharge and plan injunctions entered in Taylor’s bankruptcy case? The Court
reviews this legal question de novo. See In re Grede Foundries, Inc., 651 F.3d 786,
790 (7th Cir. 2011) (applying de novo review to determine whether a creditor’s
conduct violated the automatic stay); In re Paeplow, 972 F.2d 730, 733 (7th Cir.
1992) (applying same to determine whether discharge injunction barred creditors

9

from taking certain steps to collect on a note). De novo review requires an
independent determination of the issues, giving no special weight to the bankruptcy
court’s decision. See Salve Regina Coll. v. Russell, 499 U.S. 225, 238 (1991).
On appeal, Appellants raise two arguments supporting their contention that
they did not violate either injunction. First, Appellants claim that, under the law of
the case, Taylor cannot now argue that Appellants are “creditors” that are enjoined
by the plan injunction. Second, Appellants argue that neither injunction barred
them from pursuing the ratification motion in the probate court because that
motion did not seek to collect, recover, prosecute, or satisfy the TEDRA Judgment
against Taylor. As discussed below, although the Court rejects Appellants’ first
argument, the second argument is a winner.
Turning to Appellants’ first argument, they point out that the plan injunction
(as distinct from the discharge injunction) only enjoins “creditors.” See R. 73,
Appellants’ Br. at 10. Indeed, Taylor’s plan injunction states that “all creditors shall
be permanently enjoined from taking any action . . . to prosecute, collect or in any
way to satisfy any claim such creditor may have against the Debtor or the Debtor’s
property that arose prior to confirmation of the Plan.” See Debtor’s First Am. Plan,
In re Taylor, No. 12-16471 (Oct. 10, 2012), at App. 128 § 11.1 (emphasis added).
Appellants next note that Taylor won his motion to dismiss Caiarelli’s adversary
complaint by arguing that the assignment to Caiarelli was void and that she
therefore did not have a claim against Taylor that arose before the bankruptcy
discharge. Appellants’ Br. at 10. So according to Appellants, because Taylor

10

prevailed on the argument that Caiarelli failed to demonstrate she is a creditor,
that is now the law of the case and Taylor cannot now argue that she is a creditor
who was subject to the plan injunction. See id.
This argument is neither here nor there. First, to clarify, Appellants are not
arguing that the plan injunction did not apply to her because she was not a creditor
(that is how Taylor characterizes the Appellants’ argument). See R. 69, Appellee’s
Br. at 12. Instead, Appellants are really arguing, based on the law-of-the-case
doctrine, that Taylor cannot argue that Caiarelli is a creditor subject to the plan
injunction. Of course, this is an odd argument to make because Caiarelli should
certainly welcome Taylor making that concession. What’s more, it is clear from the
record that Caiarelli is a creditor. She asserted that she had a claim in the
bankruptcy proceedings, see Claim 1-4, and, as discussed below, the Estate assigned
the TEDRA Judgment to her. She will likely continue to argue (through a Rule
60(b) motion) that she is a creditor with standing to pursue an adversary complaint
against Taylor. Finally, as discussed next, the statutory discharge injunction is not
limited to actions by “creditors.” Instead, it enjoins any “action” or “act” to collect,
recover, or offset a discharged debt, regardless of the actor. See 11 U.S.C.
§ 524(a)(2). So even if she were not a creditor (and in this case she is), Caiarelli still
would be subject to the statutory discharge injunction.
That leads to Appellants’ second argument, namely, that their conduct—
regardless of their status as creditors—did not violate either the discharge
injunction or the plan injunction. See Appellants’ Br. at 11-16. Under § 524 of the

11

Bankruptcy Code, the discharge in a bankruptcy case “operates as an injunction
against the commencement or continuation of an action, the employment of process,
or an act, to collect, recover, or offset any [discharged] debt as a personal liability of
the debtor, whether or not discharge of such debt is waived.” 11 U.S.C. § 524(a)(2).
Likewise, the plan injunction only enjoins creditors “from taking any action . . . to
prosecute, collect or in any way to satisfy any claim such creditor may have against
the Debtor or the Debtor’s property that arose prior to confirmation of the Plan.” See
Debtor’s First Am. Plan at App. 128 § 11.1 (emphasis added). Although the
bankruptcy court has the power to enforce these injunctions, see 11 U.S.C. § 105(a),
it “may sanction a party for violating the discharge injunction only if the party took
some action prohibited by § 524(a)(2)—i.e., an action ‘to collect, recover or offset any
[discharged] debt . . . of the debtor.’” Paul v. Iglehart (In re Paul), 534 F.3d 1303,
1307 (10th Cir. 2008) (alteration and emphasis in original). Here, Appellants argue
that they did not violate either injunction because the ratification motion was not
an action to collect, recover, offset, prosecute, or satisfy the TEDRA Judgment as a
personal liability against Taylor.3 See Appellants’ Br. at 11-16. The Court agrees.
In a similar case, the bankruptcy appellate panel in Bank One Wisconsin,
N.A. v. Annen (In re Annen), 246 B.R. 337, 338, 340 (B.A.P. 8th Cir. 2000), held that
the creditor (a bank) did not violate the discharge injunction when it filed a
declaratory-judgment action in state court seeking a declaration that the bank’s

3Contrary

to Taylor’s suggestion, see Appellee’s Br. at 15, Appellants did not waive
this argument. They fully presented this argument to the bankruptcy court. See Objection
to Contempt Mot., In re Taylor, No. 12-16471 (May 21, 2013), at App. 247, 256-60; 6/12/13
Tr. at App. 1861-62, 1868.

12

earlier satisfaction filing was void and that the underlying mortgage was therefore
revived. The appellate panel reasoned that the bank only sought clarification
through the declaratory action and did not request any relief against the debtor. Id.
at 340-41. Therefore, the bank did not violate the discharge injunction. Id.; cf. also
Hawxhurst v. Pettibone Corp., 40 F.3d 175, 180 (7th Cir. 1994) (“Permitting a suit to
obtain a declaration of liability against a debtor is not equivalent to authorizing the
recovery of a barred claim in a bankruptcy proceeding.”); In re Hunter, 970 F.2d
299, 310 (7th Cir. 1992) (explaining that a bankruptcy discharge “precludes only
actions to establish personal liability” (emphasis in original)).
Just as the bank in Annen sought only a declaration clarifying its mortgage
rights, Caiarelli here sought only a declaration (or what she called a “ratification”)
clarifying that the TEDRA Judgment assignment was valid as of the time the
assignment was made. See Ratification Mot. at App. 147. And this case is even
clearer than Annen. Here, the Ratification Order had less impact on Taylor than the
declaration in Annen did on the debtor there. In that case, the declaration revived a
mortgage lien against the debtor, which had the practical effect of providing the
bank with a legal basis to begin a foreclosure action on the Annens’ home and also
reinstating the bank’s priority over other mortgage holders. See Annen, 246 B.R. at
340-41. But here, the ratification order had no effect on Taylor’s personal liability
under the TEDRA Judgment. As the probate court recognized, Taylor’s liability
remained exactly the same. See Ratification Order at App. 784. Moreover, because
the debt was discharged, the Ratification Order did not authorize Caiarelli to collect

13

the debt. Instead, Caiarelli can only collect on the debt, without violating the
discharge injunction, if she convinces the bankruptcy court first to vacate the
Dismissal Order and then to hold that the debt should not have been discharged.
Because the Ratification Order had no effect on Taylor’s liability under the
TEDRA Judgment, this case is distinguishable from a case that Taylor relies on, In
re Fluke, 305 B.R. 635 (Bankr. D. Del. 2004). See Appellee’s Br. at 19-20. In Fluke,
similar to this case, the debtor’s ex-husband had unsuccessfully argued to the
bankruptcy court that the court should not discharge certain debts of his ex-wife.
See 305 B.R. at 637. In an attempt to remedy this problem, the ex-husband returned
to the divorce court not to modify any ongoing maintenance or support obligations,
but instead to petition the divorce court to alter the property settlement in their
divorce decree. See id. at 637-38. The bankruptcy court held that the ex-husband’s
actions in the divorce court violated the discharge injunction. See id. at 643-44.
Here, in contrast, Caiarelli did not request any modifications to the TEDRA
Judgment; in fact, she did not request any changes to the pre-petition assignment
either (recall that Longyear assigned the Judgment to Caiarelli in April 3, 2012,
before Taylor filed for bankruptcy on April 23, 2012). Instead, as Gauthier explained
to the probate court, all Caiarelli was seeking was “an order that makes clear that
this assignment was valid from the beginning.” 4/2/13 Tr. at App. 774 (emphasis
added); see also id. at App. 777. The probate court agreed, explaining that the
assignment was “clearly . . . valid from its inception.” Id. at App. 778. The
Ratification Order also clarified both that the assignment “does not change the

14

duties and obligations of the [TEDRA Judgment] . . . as they pertain to [Taylor]”
and that “[t]he Assignment from Mr. Longyear to Ms. Caiarelli, as Guardian of the
Estate, is valid, and has been valid since its original signing.” Id. at App. 784-85
(emphasis added). In short, both the TEDRA Judgment and the assignment went
unchanged, even after the Ratification Order.
Taylor argues next that, even if the ratification motion itself did not directly
violate the discharge or plan injunctions, Appellants still violated the injunctions
because Caiarelli’s ultimate goal was to eventually enforce the TEDRA Judgment
against Taylor. See Appellee’s Br. at 16-18. According to Taylor, Appellants would
use the Ratification Order to support a Rule 60(b) motion to vacate the bankruptcy
court’s Dismissal Order. Id. at 17. Gauthier even admitted as much to the probate
court. See Gauthier Decl. at App. 765 ¶ 9; 4/2/13 Tr. at App. 774. Then, continues
Taylor, Caiarelli could argue substantively under 11 U.S.C. § 523(a) that Taylor’s
debt arising from the TEDRA Judgment should not have been discharged.
Appellee’s Br. at 17-18. And then, if Caiarelli won on that argument, the debt would
no longer be discharged and Caiarelli could try to collect the TEDRA Judgment
from Taylor. Id. at 18. All of this is true; that is no doubt Caiarelli’s ultimate goal.
But it does not violate the discharge injunction. Taking the first step to form the
basis of a Rule 60(b) motion, in order to allow an argument that a debt is not
dischargeable—Caiarelli’s goal in pursuing the adversary proceeding under 11
U.S.C. § 523(a)—is not the same as taking action to collect a discharged debt. The
former does not violate the discharge injunction, but the latter does.

15

Taken to its logical conclusion, Taylor’s argument would effectively render
any creditors’ steps taken in support of a Rule 60(b) motion a violation of the
discharge injunction, even when the steps are not themselves acts to collect on a
debt. Here, intending to use Rule 60(b) as the procedural vehicle, Caiarelli was
simply taking steps to demonstrate that the bankruptcy court’s Dismissal Order
was incorrect. She was not taking an “act to collect” Taylor’s debt. Instead, the issue
Caiarelli presented to the probate court was an assignment issue—not a collection
issue—that had nothing to do with Taylor’s underlying liability. See 4/2/13 Tr. at
777. In fact, the assignment issue really did not involve Taylor at all.4 Simply put,
the question presented to the probate court was whether Longyear (the Estate’s
personal representative) validly assigned an Estate asset to Caiarelli. Answering
this question did not undermine Taylor’s “fresh start” under the discharge
injunction. Cf. Zerand-Bernal Grp., Inc. v. Cox, 23 F.3d 159, 163 (7th Cir. 1994)
(recognizing that the discharge injunction only bars creditors from “suing the
debtor”). In fact, after the Ratification Order, his debt remained exactly the same—
the debt even remained discharged. The only practical consequence of the
Ratification Order is that Caiarelli now has stronger support for a Rule 60(b)
motion.

4The

probate court made this same observation at the hearing on the ratification
motion. The probate court explained that because “[t]here’s nothing going on here except a
transfer,” the court did not “understand [Taylor’s] right [to] complain about the transfer.”
4/2/13 Tr. at App. 775. The court continued that Taylor would have standing to raise an
objection if Caiarelli “attempts to garnish or attach or execute against something without
the Federal Court giving its imprimatur.” Id. But in terms of the ratification motion, the
Ratification Order ultimately held that Taylor did not have standing to challenge Caiarelli’s
motion. See Ratification Order at App. 785.

16

To be sure, courts should not read § 524 so narrowly that creditors can
always point to a potential Rule 60(b) motion to shield them from a valid contempt
motion. The “coercive effects” test, however, serves as a safeguard against these
types of arguments. Under this test, “a creditor acts to collect a debt if it acts or fails
to act, in a coercive manner, with the sole purpose of collecting that debt.” In re
Kuehn, 563 F.3d 289, 292 (7th Cir. 2009). Taylor, however, does not argue that this
test applies here; he does not argue, for example, that the ratification motion put
pressure on him to pay the debt. Nor does the record suggest that the ratification
motion was a coercive tactic. Instead, the record demonstrates, and Taylor admits,
that Appellants’ only goal was to file a Rule 60(b) motion. To be clear, Appellants’
subjective intent is not relevant for determining whether their actions violated the
discharge injunction. The statute only requires “an action . . . or an act[] to collect,
recover or offset any [discharged] debt as a personal liability of the debtor.” 11
U.S.C. § 524(a)(2). Viewed from the perspective of what effect this act would have
on Taylor, Appellants’ actions (filing the ratification motion) had no coercive effect—
Taylor admits that he understood that Caiarelli simply wants to return to the
bankruptcy court to file a Rule 60(b) motion, nothing more. This was not coercive
conduct, and it did not violate the discharge injunction.
In short, Caiarelli simply sought a declaration. She did not seek to cure any
problems with the assignment, and she did not seek any relief against Taylor.
Appellants did not violate either the discharge injunction or the plan injunction by
seeking to clarify that the assignment of the TEDRA Judgment was valid. Thus, the

17

bankruptcy court’s Contempt Order, Damages Order, and Judgment, all of which
were premised on the incorrect legal conclusion that Appellants’ actions violated
both injunctions, must be reversed.5 See Corporate Assets, Inc., 368 F.3d at 767.
B. Collateral Attack on the Dismissal Order
In addition to concluding (incorrectly) that Appellants violated the discharge
and plan injunctions, the bankruptcy court also held that Caiarelli’s ratification
motion was an improper collateral attack on the bankruptcy court’s earlier order
dismissing Caiarelli’s adversary proceedings (the Dismissal Order). See 7/23/13 Tr.
at App. 1913-15. In the Dismissal Order, the bankruptcy court held that Caiarelli
had failed to produce sufficient evidence to establish that she had standing to
proceed with her adversary complaint. See Dismissal Order at App. 750; see also
3/19/13 Tr. at App. 2612-13. Caiarelli’s motion to ratify was not a collateral attack
on the bankruptcy court’s holding on the standing issue.
As the probate court recognized, only the bankruptcy court could determine
whether Caiarelli could collect the TEDRA Judgment. See 4/2/13 Tr. at App. 775,
777. The probate court also recognized that it was not deciding a collection issue or
even a standing issue: it was deciding an assignment issue. See id. The probate
court was right. The bankruptcy court continues to have exclusive jurisdiction to
resolve whether Caiarelli has standing to pursue the adversary proceedings against
Taylor in the bankruptcy court. And even now that Caiarelli has the Ratification
Order in hand, that standing issue is still exclusively for the bankruptcy court to

5Naturally,

this holding also reverses the portion of the Contempt Order that held
that the probate court’s Ratification Order is void.

18

determine (of course, now through the restrictive lens of Rule 60(b), so victory is far
from assured for Caiarelli). In other words, although the probate court properly
decided whether the assignment of a probate asset was valid,6 only the bankruptcy
court can now decide whether Caiarelli’s possession of that probate asset is
sufficient to establish standing to pursue the adversary proceeding in the
bankruptcy court.
Next, as both Appellants and Taylor admit, the ratification motion was
undoubtedly “an attempt to muster additional evidence to support a direct
challenge to the dismissal of the adversary proceeding in the form of a motion to
reconsider.” Appellants’ Br. at 17; see also Appellee’s Br. at 22. True, a Rule 60(b)
motion is a collateral attack on a judgment. See Bell v. Eastman Kodak Co., 214
F.3d 798, 800-01 (7th Cir. 2000). But a Rule 60(b) motion is a permissible collateral
attack, authorized by the Federal Rules of Civil Procedure. So even if Caiarelli uses
the Ratification Order to support a new Rule 60(b) motion,7 that is a perfectly
acceptable step to take.

6Citing

the “probate exception” to federal-court jurisdiction recognized in Marshall v.
Marshall, 547 U.S. 293, 305-08, 12 (2006), Appellants argue that only the probate court
could have determined whether the assignment was valid. See Appellants’ Br. at 17; R. 74,
Appellants’ Reply Br. at 7. The Court need not decide whether this was the case. As the
label implies, the probate exception does not affirmatively create exclusive probate-court
jurisdiction. Instead, it operates to “preclude[] federal courts from endeavoring to dispose of
property that is in the custody of a state probate court.” Marshall, 547 U.S. at 311-12
(emphasis added); see also 7/23/13 Tr. at App. 1914-16 (bankruptcy court also recognizing
this distinction). The question here is not whether the bankruptcy court could determine
whether the assignment was valid (a question that Marshall would help answer). Instead,
the question is whether the probate court invaded the exclusive jurisdiction of the
bankruptcy court over bankruptcy matters. As discussed above, it did not.
7Caiarelli has already filed an unsuccessful Rule 60(b) motion challenging the
Dismissal Order. See R. 69-3, Appellee’s Exh. 3; R. 69-4, Appellee’s Exh. 4. This Court’s
opinion reversing the Contempt and Damages Orders in no way dictates how the

19

Finally, the bankruptcy court’s Dismissal Order did not prohibit Caiarelli
from returning to the probate court. Instead, it held that she could not go back to
“cure” any problems with the assignment in an effort to establish, after the fact,
that she had standing to file the adversary complaint. 3/19/13 Tr. at 2612. The
transcript from the ratification-motion hearing and the Ratification Order itself
make clear that Caiarelli was not “curing” anything. See 4/2/13 Tr. at App. 774, 777.
Instead, she got a declaratory order stating that the assignment “has been valid
since its original signing.” Ratification Order at App. 785.
In sum, because Caiarelli’s ratification motion was not a collateral attack on
the bankruptcy court’s Dismissal Order, it did not provide an alternative basis for
the bankruptcy court to hold Appellants in contempt. The bankruptcy court’s
Orders and Judgment must therefore be reversed.

bankruptcy court should rule on any motions to reconsider or any future Rule 60(b)
motions.

20

IV. Conclusion
For the reasons stated above, the bankruptcy court erred in finding that
Appellants violated both the discharge injunction and the plan injunction. The
Court therefore reverses the bankruptcy court’s Contempt Order, Damages Order,
and Judgment.

ENTERED:

s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge

DATE: August 29, 2014

21