In the
United States Court of Appeals
For the Seventh Circuit
No. 14-3017
IN RE: CHARLES EDWARD TAYLOR, II,
Debtor-Appellant.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:13-CV-7743 — Edmond E. Chang, Judge.
ARGUED APRIL 13, 2015 — DECIDED JULY 20, 2015
Before WOOD, Chief Judge, ROVNER, Circuit Judge, and
SPRINGMANN, District Judge.*
SPRINGMANN, District Judge. In 2005, the brother of Debtor-
Appellant Charles Edward Taylor, II, died in a boating
accident. Patricia Caiarelli, the decedent’s ex-spouse and
guardian of their minor child, sought a declaration in Washing-
ton state court that the child was entitled to assets of the
decedent’s estate that were distributed to Taylor. The state
court entered judgment against Taylor for over $1.4 million.
The decedent’s estate, which was named judgment creditor,
assigned the judgment to Caiarelli. Taylor responded by
*
Of the Northern District of Indiana, sitting by designation.
2 No. 14-3017
seeking a declaration in probate court that the assignment was
void. Prior to a resolution, however, Taylor filed for
bankruptcy under Chapter 11. It’s fair to say that, at this point,
things get complicated.
Three days after the bankruptcy filing, the probate judge
sent a letter to Caiarelli and Taylor (and their attorneys)
acknowledging the bankruptcy filing and the resulting
automatic stay of Taylor’s lawsuit. The letter listed several
matters the court planned to address once the case resumed.
As to the assignment, the judge opined that although “[the]
assignment may be properly” effectuated, “[i]t appears … that
several steps were skipped at the time of assignment.” See R.
70-1, Judge Rogers Letter (April 26, 2012) at 263. The probate
judge confirmed that the letter is “not an Order.” Id. at 262.
Notwithstanding the letter, Caiarelli initiated an adversary
proceeding in the bankruptcy court, objecting to a discharge of
the judgment under 11 U.S.C. § 523(a). Taylor moved to
dismiss the objection, arguing that Caiarelli lacked standing to
e n f o r ce t he j udg me nt . To addr e ss st andin g ,
Caiarelli—represented by her attorneys, Madeline Gauthier
and Charles Kimbrough—returned to probate court and filed
a motion to ratify the assignment. But the plan backfired.
Taylor submitted to the bankruptcy court both the letter and
the motion to ratify as proof that Caiarelli lacked standing.
While noting that the letter provided no definitive answer as
to the validity of the assignment, the bankruptcy court dis-
missed the adversary proceeding and found that, as an
evidentiary matter, Caiarelli failed to establish standing. See R.
70-2, Dismissal Order Hr’g Tr. (Mar. 19, 2013) at 145–46. Upon
dismissal, the judgment was discharged, and Taylor’s creditors
No. 14-3017 3
were enjoined from collecting on the judgment by operation of
11 U.S.C. § 524(a)(2) and the bankruptcy plan of reorganiza-
tion.
Despite the dismissal order, Caiarelli returned to probate
court and pressed forward with her motion to ratify. After
conducting a hearing, the probate court granted the motion,
finding that the assignment “met all the requirements of both
law and local probate court custom” and that “[a]ll concerns
regarding the Assignment raised by [the letter] have been
addressed.” See R. 70-1, Ratification Order, In re Taylor, No. 06-
4-02116-6 (Apr. 2, 2013) at 41–42. The probate court concluded
that the assignment “is valid, and has been valid since its
original signing.” Id. at 42.
Taylor responded again, this time by seeking a civil
contempt order in the bankruptcy court. Taylor alleged that
Caiarelli and her attorneys violated both the statutory
discharge and plan injunctions by returning to the probate
court. The bankruptcy court granted Taylor’s motion and
entered a civil contempt order against Caiarelli and her
attorneys, holding that they violated the injunctions by
prosecuting and obtaining the ratification order for the
purpose of collecting on the discharged judgment; and that the
ratification order constituted an impermissible collateral attack,
rendering it void ab initio.1 The bankruptcy court then issued
a damages order and judgment for $165,662.36 in attorney’s
1
After the issuance of the contempt order, the ratification order was
vacated. See R. 40-1, Stipulation and Order (Aug. 27, 2013).
4 No. 14-3017
fees, to be paid jointly and severally by Caiarelli and her
attorneys.
Caiarelli, Gauthier and Kimbrough (collectively, the
Appellees in this Court) appealed all three orders—the
contempt order, the damages order, and the judgment—to the
United States District Court. The Appellees raised three issues:
(1) whether, as a matter of law, the ratification order violated
the statutory discharge injunction and/or the plan injunction;
(2) whether the bankruptcy court abused its discretion by
entering the civil contempt order; and (3) whether the
bankruptcy court abused its discretion by ordering $165,662.36
in attorney’s fees.
While the appeal was pending, Taylor notified the district
court that he reached a settlement with Gauthier and
Kimbrough’s legal malpractice insurance carrier. Under the
purported settlement, Taylor would receive $140,000 in
satisfaction for the judgment, and in turn, Taylor would file a
satisfaction and release of the judgment, along with a motion
to vacate all three orders challenged on appeal. However, both
Gauthier and Caiarelli denied that a full settlement had been
reached.
Notwithstanding the disagreement, Taylor moved to
dismiss the appeal as moot, arguing that the purported
settlement provides all relief sought by the Appellees. The
district court then asked Taylor to seek an indicative ruling
from the bankruptcy court as to whether it would grant a
motion to vacate in light of the purported settlement. The
bankruptcy court determined that vacatur would be approved
if the parties returned to the court “arm [in] arm,” in favor of
No. 14-3017 5
settlement.2 R. 36-1, Appellees’ Exh. 1, Indicative Ruling Hr’g
Tr. (Apr. 8, 2014) at 5. The district court then issued an order
denying Taylor’s motion to dismiss; and in a separate order,
reversed the contempt order, damages order, and judgment,
finding that the Appellees did not violate the statutory
discharge or plan injunctions, and did not impermissibly attack
a federal judgment. Taylor now appeals.
I. DISCUSSION
On appeal, we apply the same standard as the district court,
reviewing a finding of civil contempt for abuse of discretion.
Ohr ex rel. NLRB v. Latino Exp., Inc., 776 F.3d 469, 474 (7th Cir.
2015). A finding of civil contempt will only be reversed if it
“depends on faulty legal premises [or] clearly erroneous
factual findings.” Harrell ex rel. NLRB v. Am. Red Cross, Heart of
Am. Blood Servs. Region, 714 F.3d 553, 556 (7th Cir. 2013). The
legal conclusions of both the bankruptcy court and the district
2
The bankruptcy judge stated the following:
[M]y indicative ruling would be that if the parties upstairs settle
this, and they come in arm [in] arm, and they want me to—as a
condition to effectuating the settlement, to vacate the contempt
order, I’m perfectly happy to do that . . . . I just want to make clear
that in vacating it, if we had Ms. Gauthier, for example, come back
before me, and if she says that there is not a settlement agreement,
that could have some impact on it. . . . If what is holding up the
settlement is the existence of the contempt order, I will—I’m
indicating that I would, in order to effectuate that settlement, be
happy to vacate the contempt order.
Indicative Ruling Hr’g Tr. at 5–7, 10.
6 No. 14-3017
court are reviewed de novo. In re Mississippi Valley Livestock,
Inc., 745 F.3d 299, 302 (7th Cir. 2014).
Taylor presents three issues on appeal: whether the district
court erred (1) by refusing to dismiss the appeal as moot; (2) by
determining that the ratification order did not violate the
statutory discharge and/or plan injunctions; and (3) by
determining that the ratification order did not constitute an
impermissible collateral attack on a federal judgment. We
address each issue in turn, and in doing so, adopt the sound
reasoning of the district court.
A. Mootness
The jurisdiction of Federal courts is limited to actual
“cases” and “controversies.” U.S. Const. art. III. A case is moot
“only when it is impossible for a court to grant any effectual
relief whatever to the prevailing party.” Chafin v. Chafin, 133 S.
Ct. 1017, 1023 (2013) (internal quotation marks and citation
omitted). If the possibility of partial relief exists, the appeal is
not moot. In re Envirodyne Indus., Inc., 29 F.3d 301, 304 (7th Cir.
1994). As such, this Circuit’s case law holds that an unaccepted
settlement offer will only render a case moot if it “‘offers to
satisfy the plaintiff’s entire demand.’” Scott v. Westlake Servs.
LLC, 740 F.3d 1124, 1126 (7th Cir. 2014) (citing Rand v. Monsanto
Co., 926 F.2d 596, 597–98 (7th Cir. 1991); see also Damasco v.
Clearwire Corp., 662 F.3d 891, 895 (7th Cir. 2011). When a
party’s entire demand is satisfied, “there is no dispute over
which to litigate and thus no controversy to resolve.” Scott, 740
F.3d at 1126 (internal quotation marks omitted).
Here, the purported settlement lacks the consent of all the
parties—both Caiarelli and Gauthier continue to withhold their
No. 14-3017 7
consent. Nonetheless, Taylor maintains that Caiarelli and
Gauthier’s consent is unnecessary because, pursuant to the
purported settlement, the insurance carrier will pay an agreed
amount to Taylor, and then Taylor will move to vacate the
contempt order, damages order, and the judgment. And
therefore, no further relief may be granted on appeal.
As the district court thoroughly explained, Taylor’s
argument is flawed. First, according to the bankruptcy judge’s
indicative ruling, a motion to vacate would only be granted if
all the parties—Caiarelli and Gauthier included—returned to
the bankruptcy court “arm [in] arm” in favor of settlement.
Indicative Ruling Hr’g Tr. at 5. The judge noted that “if we had
Ms. Gauthier, for example, come back before me, and if she
says that there is not a settlement agreement, that could have
some impact on it.” Id. at 6–7. The record clearly demonstrates
that an “arm [in] arm” agreement has eluded the parties thus
far, calling into question whether the bankruptcy court would
even grant vacatur upon remand. And without vacatur, the
challenged orders remain in place.
Second, even if the bankruptcy court did grant vacatur, the
purported settlement does not encompass all relief sought by
the Appellees—namely, it does not negate the Appellees’ stake
in reversing the bankruptcy court’s dismissal order, and
ultimately, the discharge injunction. Again, a settlement offer
must provide the plaintiff with complete relief to render a case
moot. Scott, 740 F.3d at 1126; see, e.g., Clark Equip. Co. v. Lift
Parts Mfg. Co. Inc., 972 F.2d 817, 818–19 (7th Cir. 1992) (an
appeal of sanctions was mooted because the appellees paid the
full amount of the imposed sanctions and reached a settlement
as to the underlying case to which the sanctions arose).
8 No. 14-3017
Taylor counters that the bankruptcy court’s dismissal order
which led to the discharge injunction, was not before the
district court on appeal. The discharge injunction remains in
place, Taylor argues, with or without a ruling on the orders
challenged on appeal. While true, Taylor’s argument ignores
the Appellees’ interest in safely returning to the probate court
to ratify the assignment. The contempt order, which was before
the district court on appeal, rendered the ratification order void
ab initio. For the ratification order to be reentered, the
Appellees must file a motion for reentry in the probate court.3
And with the discharge injunction in place, any such return to
the probate court would risk a repeat violation, and a repeat
finding of civil contempt. Thus, so long as the discharge
injunction remains in place, the purported settlement provides
only partial relief, and the underlying dispute to which the
challenged orders arose remains unresolved. See Chafin, 133 S.
Ct. at 1023 (a case is moot “only when it is impossible for a
court to grant any effectual relief whatever to the prevailing
party.”) (internal quotation marks and citation omitted).
As such, the district court correctly determined that the
appeal is not moot. Article III poses no bar to our consideration
of the remaining claims.
3
Taylor’s counsel conceded this point at oral argument: “It’s true that …
if this Court was to affirm … and the Appellees returned to state court and
got the ratification order reentered, which they would have to do since it
was vacated … .” Oral Arg. (Apr. 13, 2015).
No. 14-3017 9
B. Violation of Injunctions
The district court also found that no violation of the
statutory discharge or plan injunctions occurred because the
ratification motion did not seek to collect, recover, prosecute or
satisfy the judgment against Taylor. We agree.
When a debtor confirms a Chapter 11 reorganization plan,
the plan “discharges the debtor from any debt that arose before
the date of such confirmation.” 11 U.S.C. § 1141(d)(1)(A).
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). Similarly, the plan injunction at issue 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 the
confirmation of the plan.” See R. 70, Debtor’s First Am. Plan
§ 11.1 at 135. The bankruptcy court is permitted to “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) (internal quotation marks omitted); see also 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)).
In seeking ratification, the Appellees were not attempting
to modify the judgment against Taylor. They were not even
10 No. 14-3017
attempting to modify or cure a deficiency with the assignment
of the judgment. The ratification order, as spelled out by the
probate court, was nothing more than a declaration that the
assignment “is valid, and has been valid since its original
signing.” See Ratification Order at 42. The probate court
recognized that the order had no impact on the legal status of
the parties, and in particular, it had no impact on Taylor’s legal
obligations in relation to the judgment. With or without the
ratification order, Taylor’s liability remained the same. See
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”).
Nonetheless, Taylor argues that ratification, albeit not a
direct attempt to enforce the judgment, is prohibited because
it constitutes an indirect attempt at establishing personal
liability. According to Taylor, the ratification order would “set
in motion a series of events” that may enable collection of the
judgment. See Appellant’s Br. at 40. Taylor’s cites a handful of
bankruptcy court decisions from other circuits to support this
theory. See, e.g., Torres v. Chase Bank USA, N.A. (In re Torres),
367 B.R. 478 (Bankr. S.D.N.Y. 2007); Atkins v. Martinez (In re
Atkins), 176 B.R. 998 (Bankr. D. Minn. 1994).
The Appellees readily admit that ratification was sought to
lay the groundwork for a Rule 60(b) motion (incorporated
under Bankruptcy Rule 9024) to vacate the dismissal order and
No. 14-3017 11
reopen the adversary proceeding.4 But gathering evidence to
support a Rule 60(b) motion, in order to argue that a debt is not
dischargeable, is not the same as taking action to collect on the
debt. When taken to its logical conclusion, Taylor’s theory
would render any attempt by a creditor to support a Rule 60(b)
motion—a permissible motion under the Federal Rules of Civil
Procedure and the Bankruptcy Code—as a violation of a
discharge injunction. Such an outcome would undermine the
purpose of Rule 60(b), and would, in effect, shut down
Caiarelli’s remaining avenue for relief.
The ratification order is also, to say the least, several steps
removed from a collection on the judgment. Before Caiarelli
could even present her argument that the judgment is non-
dischargeable—let alone initiate a collection action—the
bankruptcy court must approve a Rule 60(b) motion to reopen
the adversary proceeding. This is a high bar for relief. See, e.g.,
Eskridge v. Cook Cnty., 577 F.3d 806, 809 (7th Cir. 2009) (“relief
under Rule 60(b) is ‘an extraordinary remedy and is granted
only in exceptional circumstances’” (quoting McCormick v. City
of Chi., 230 F.3d 319, 327 (7th Cir. 2000)). And even if Caiarelli
does establish that “exceptional circumstances” warrant relief
under Rule 60(b), she must also convince the bankruptcy court
that the judgment is non-dischargeable. Then, and only then,
could Caiarelli attempt collection. It goes without saying that,
4
While the appeal was pending before the district court, Caiarelli filed a
Rule 60(b) motion to vacate the dismissal. The bankruptcy court denied the
motion with prejudice to the extent it was based on subsections (1)–(3), and
without prejudice to the extent it was based on subsections (4)–(6). See R. 47-
1, Order (Apr. 29, 2014).
12 No. 14-3017
at this stage of the litigation, a direct action to collect is purely
hypothetical.
Given the facts presented—and in particular, the
procedural gulf between the ratification order and an action to
collect—we are not convinced that the Appellees violated the
statutory discharge or plan injunctions by obtaining evidence
in support of a permissible post-judgment motion.
C. Collateral Attack
Lastly, the district court correctly determined that the
ratification order is not an impermissible collateral attack on a
federal judgment—i.e., the bankruptcy court’s dismissal order.
In its dismissal order, the bankruptcy court held that
Caiarelli presented insufficient evidence to establish standing
to enforce the judgment against Taylor. In contrast, when
adjudicating the motion to ratify, the probate court did not
determine whether Caiarelli may enforce the judgment against
Taylor, or even whether Caiarelli had standing to make such
an argument before the bankruptcy court. The probate court
issued a declaration as to the validity of the assignment—and
that is all. As Taylor noted in his brief, such a declaration is a
“routine aspect of Washington probate practice.” Appellant’s
Br. 27. The record reveals that the bankruptcy court was
reluctant to engage in this “routine aspect” of probate court, as
it passed on determining the validity of the assignment. See
Dismissal Order Hr’g Tr. at 145 (“In order to find [out whether
the assignment is valid], we have to send it back to Judge
Rogers to determine that. It’s an evidentiary issue for me. I
have exclusive jurisdiction to determine standing. And I think
No. 14-3017 13
that … [Caiarelli failed] to me[et] the burden of proving
standing.”).
Additionally, the dismissal order did not expressly prohibit
Caiarelli from returning to the probate court. Instead, it
prohibited her from “cur[ing]” any deficiencies with the
assignment—or in other words, retroactively establishing
standing. R. 70-9, Hr’g Tr. (Mar. 19, 2013) at 63 (“[T]he
discharge injunction doesn’t permit the plaintiff … to go back
nunc pro tunc and cure whatever defects there may have been
in … her standing when she original brought the [adversary
proceeding]”). But Caiarelli was not seeking to “cure” any
deficiencies with the assignment. She sought a declaration that
the assignment “has been valid since its original signing.”
Ratification Order at 42. Thus, the state court declaration and
the federal judgment are not in conflict.
Taylor claims that an action may still constitute an
impermissible collateral attack if its “inevitable effect” is to
undermine a federal judgment. See Appellant’s Br. at 23–25
(citing Miller v. Meinhard-Commercial Corp., 462 F.2d 358 (5th
Cir. 1972), and GAF Holdings, LLC v. Rinaldi (In re Farmland
Indus., Inc., 376 B.R. 718 (Bankr. W.D. Mo. 2007)). The
inevitable effect of the ratification motion, argues Taylor, was
to “overrule the legal and practical effects” of the dismissal
order. Id. at 27.
Taylor’s interpretation of the collateral attack doctrine,
when applied to the present facts, is unduly broad. The
ratification order was sought to support, or “muster additional
evidence” for, a Rule 60(b) motion, see Appellees’ Br. at 22, and
neither party disputes that a Rule 60(b) motion is a permissible
14 No. 14-3017
collateral attack on a federal judgment. See Bell v. Eastman
Kodak Co., 214 F.3d 798, 800–01 (7th Cir. 2000). So under
Taylor’s “inevitable effect” theory, obtaining evidence to
support a permissible collateral attack may, in and of itself,
constitute an impermissible collateral attack. Such an outcome
would, again, undermine the purpose of Rule
60(b)—particularly in the present circumstances, where the
ratification order is central to the Appellees’ argument for
relief.5
Further, there is nothing “inevitable” about the effect of the
ratification order. The bankruptcy court retains exclusive
jurisdiction to determine whether Caiarelli has standing to
pursue the adversary proceeding against Taylor. See U.S.C. 11
§ 523(c)(1). Upon receipt of the ratification order, the
bankruptcy court is free to take it, leave it, or otherwise do
with it what it pleases. See also McCormick, 230 F.3d at 327 (a
court’s decision to reinstate a case under Rule 60(b) amounts
5
Taylor argues that “Rule 60(b) does not exist to extricate a litigant from
risky litigation tactics that later turn out to have been improvident.”
Appellant’s Reply 2. He notes that the Appellees had ample opportunity to
resolve standing without resorting to a post-discharge return to probate
court. Namely, the Appellees could have requested a lift of the automatic
stay to permit a resolution of the assignment issue in state court; requested
an extension to file an adversary proceeding under § 523(a); directly
appealed the dismissal order; or moved to vacate the dismissal order under
Rule 59(e). Perhaps, but this is an argument as to why relief is inappropriate
under Rule 60(b), see Fed. R. Civ. P. 60(b) (“the court may relieve a party …
from a final judgment … for … newly discovered evidence that, with
reasonable diligence, could not have been discovered in time to move for a new trial
under Rule 59(b).” (emphasis added)), and is therefore more appropriately
made before the bankruptcy court.
No. 14-3017 15
to “discretion piled on discretion.”) (internal quotation marks
and citation omitted). As Appellees’ counsel aptly noted at oral
argument, the road to collection is an “uphill battle.”
Accordingly, the district court correctly determined that the
ratification order is not an impermissible collateral attack on a
federal judgment.
II. CONCLUSION
For the foregoing reasons, we concur with the district
court’s findings that the appeal was not moot, and that the
bankruptcy court abused its discretion by issuing the contempt
order, damages order, and judgment. The judgment of the
district court is AFFIRMED.