In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

No. 18-2773 

IN RE: JACQUELINE M. STERLING, 

Debtor-Appellant. 

____________________ 

Appeal from the United States District Court for the 

Northern District of Indiana, Hammond Division. 

No. 2:16-cv-00384 — Joseph S. Van Bokkelen, Judge. 

____________________ 

ARGUED APRIL 15, 2019 — DECIDED AUGUST 13, 2019 

____________________ 

Before WOOD, Chief Judge, and BAUER and ST. EVE, Circuit 

Judges. 

ST. EVE, Circuit Judge. Debtors’ prisons are viewed as relics 

of the past, long out of use and out of favor. Yet here we face 

a case of a jailed debtor that calls to mind the days when people were imprisoned for failing to pay their debts. 

Jacqueline Sterling owed outstanding fees to Southlake 

Nautilus Health & Racquet Club, Inc., and Southlake had its 

counsel, Austgen, Kuiper & Associates, P.C. (“Austgen”),1

 1

Austgen, Kuiper & Associates, P.C., changed its name throughout 

the period relevant to this case. For ease, we will refer to it as “Austgen.” 
2 No. 18-2773 

institute a state-court collection action in Lake County, Indiana. A federal bankruptcy court later discharged Sterling’s 

debt to Southlake. Although Sterling notified Southlake of the 

discharge, it appears that no one notified Austgen or the state 

court in which the collection action was pending. Sterling 

failed to appear in the state-court proceedings, and the court 

issued a warrant for her arrest. A year later, Sterling was arrested and jailed. She was ultimately released, and Southlake 

and Austgen dropped pursuit of the debt. 

Sterling instituted adversary proceedings in bankruptcy 

court against Southlake, Austgen, and David Austgen (the 

head of the Austgen firm). She sought to have the defendants 

held in contempt for continuing to collect a debt that the bankruptcy court had ordered discharged. Both the bankruptcy 

court and the district court ruled against Sterling. She now 

appeals to us, and we affirm in part and reverse in part. We 

conclude that Austgen’s lack of knowledge of the discharge 

order prevents it from being held in contempt. But as to 

Southlake, we conclude that it must be held liable for the actions taken by counsel on its behalf. 

I. Background 

Despite involving a small sum, the procedural history of 

this case spans nearly two decades. In July 2001, Austgen filed 

a claim in Lake County Superior Court on behalf of its client, 

Southlake, alleging that Sterling owed Southlake approximately $520 in unpaid membership fees. In February 2002, the 

Lake County court entered a default judgment against Sterling and in favor of Southlake. 

For several years after, Austgen filed “proceedings supplemental” to collect on the judgment, and Sterling 
No. 18-2773 3 

repeatedly failed to show up for hearings set by the Lake 

County court. Austgen sought multiple orders to show cause 

demanding that Sterling explain why she was not complying 

with the state court’s orders. Ultimately, in April 2010, the 

Lake County court issued a “body attachment” (i.e., a bench 

warrant) for Sterling. 

Nearly a year later, in March 2011, as Sterling was driving, 

her car got a flat tire. A police officer stopped to assist her, and 

to both of their surprise, he discovered the outstanding warrant. The officer arrested Sterling, and she spent approximately two days in jail. 

The problem here was that Sterling had filed for bankruptcy in the United States Bankruptcy Court for the Northern District of Indiana in 2009. Sterling listed Southlake as a 

creditor, and the bankruptcy court discharged her debt to 

Southlake in January 2010. The discharge order effectively enjoined Austgen from pursuing Sterling’s outstanding debt to 

Southlake. See 11 U.S.C. § 524(a). Austgen, therefore, should 

not have continued to prosecute the case in Lake County 

court, and by extension, Sterling should not have been arrested and jailed. 

A lack of communication caused this misunderstanding. 

Southlake was a listed creditor in Sterling’s bankruptcy proceedings and, as a result, it was sent notice of the discharge. 

Yet Southlake failed to notify Austgen of the discharge. Sterling, for her part, failed to notify either the Lake County court 

or Austgen that the debt at issue had been discharged, despite 

a local bankruptcy rule requiring her to do so. See N.D. Ind. 

L.B.R. B-4002-1(a). 
4 No. 18-2773 

After an unsuccessful state-court lawsuit regarding her arrest,2 Sterling filed a complaint in the bankruptcy court 

against Southlake, Austgen, and David Austgen. She alleged 

that the defendants violated 11 U.S.C. § 524 by seeking to collect on a discharged debt, and she petitioned for the defendants to be held in civil contempt for violating the court’s discharge order. In November 2014, the bankruptcy court held a 

two-day bench trial. At the close of Sterling’s case, the defendants moved for judgment on partial findings. Fed. R. Civ. P. 

52(c); Fed. R. Bankr. P. 7052. The bankruptcy court granted 

the motion as to David Austgen and dismissed him from the 

case. That ruling is not at issue here. But the court deferred 

ruling on Southlake’s and Austgen’s motions until the close 

of evidence and submission of written memoranda in support 

of the motions. The parties complied, and the bankruptcy 

court later ruled in favor of Southlake and Austgen. 

To hold the defendants in contempt for violating 11 U.S.C. 

§ 524(a), the bankruptcy court noted, Sterling had to establish 

that the defendants “had knowledge of the granting of her 

discharge ... and, despite that knowledge, undertook actions 

which wilfully violated the post-discharge injunction.” The 

bankruptcy court ruled in favor of Austgen because the element of knowledge was lacking—Sterling had failed to establish that Austgen knew of the discharge order when it continued proceedings against her. The bankruptcy court concluded that, although Austgen could have looked up whether 

Sterling had entered bankruptcy proceedings, Augsten did 

 2 Sterling sued Southlake, Austgen, and David Austgen in Indiana 

state court, alleging malicious prosecution, abuse of process, and infliction 

of emotional distress. It appears that suit was dismissed for lack of subjectmatter jurisdiction. 
No. 18-2773 5 

not have an affirmative duty to inquire about Sterling’s status. 

Instead, the court said, Sterling should have notified Austgen 

of the discharge. 

As for Southlake, the bankruptcy court found that Southlake had received notice of the discharge order and had 

knowledge of it. But the court determined that Southlake did 

not willfully violate the discharge order because, beyond initially referring Sterling’s case for collection proceedings in 

2001, there was no evidence that Southlake was aware of the 

status of its case against Sterling or that it directed Austgen to 

take any particular action in the case. 

The district court affirmed the judgment of the bankruptcy 

court. Sterling appeals. 

II. Discussion 

We review the bankruptcy court’s civil contempt ruling 

for an abuse of discretion. In re Taylor, 793 F.3d 814, 818 (7th 

Cir. 2015). We will reverse a contempt decision only if it is 

based upon an error of law, which we review de novo, or of 

fact, which we review for clear error. Id.; see also In re Chlad, 

922 F.3d 856, 861 (7th Cir. 2019). “If the bankruptcy court’s 

account of the evidence is plausible in light of the record 

viewed in its entirety, we will not reverse its factual findings 

even if we would have weighed the evidence differently.” Stamat v. Neary, 635 F.3d 974, 979 (7th Cir. 2011) (internal quotation marks omitted). We review the district court’s judgment 

de novo. Lardas v. Grcic, 847 F.3d 561, 569 (7th Cir. 2017). 

When a party violates a bankruptcy court’s order by pursuing a discharged debt, the debtor can ask that the court hold 

that party in contempt. Randolph v. IMBS, Inc., 368 F.3d 726, 

728 (7th Cir. 2004). But the debtor can do so only for willful 
6 No. 18-2773 

violations. “A willful violation does not require specific intent” to violate the court’s order. In re Radcliffe, 563 F.3d 627, 

631 (7th Cir. 2009).3 A willful violation does, however, require 

that the offending party both violated the court’s order and 

had “actual knowledge that a bankruptcy is under way or has 

ended in a discharge.” Randolph, 368 F.3d at 728. Sterling, as 

the debtor, had the burden of proving the defendants’ contempt by clear and convincing evidence. See Lightspeed Media 

Corp. v. Smith, 830 F.3d 500, 508 (7th Cir. 2016). 

A. Southlake 

We first address whether Southlake committed a willful 

violation, requiring both actual knowledge of the discharge 

order and an action violating it. Here, the bankruptcy court 

found that Southlake had knowledge that Sterling’s debt to it 

had been discharged. It based this finding on several facts: (1) 

notice was sent to Southlake via the Bankruptcy Noticing 

Center through first-class mail; (2) Southlake provided no evidence that the notice was not received and thus Sterling was 

entitled to the presumption that it was received; and (3) at the 

relevant time, Southlake’s mail, including bankruptcy notices, would have been taken to the office of Martin Shreibak, 

Southlake’s corporate officer. The bankruptcy court drew the 

reasonable inference that Shreibak read the bankruptcy notices he received. Though the bankruptcy court described 

Southlake as having “knowledge” without using the added 

 3

In re Radcliffe involved 11 U.S.C. § 362, which deals with automatic 

stays, not discharge injunctions. We have, however, previously discussed 

automatic stays and discharge injunctions in tandem. See Randolph v. 

IMBS, Inc., 368 F.3d 726, 728 (7th Cir. 2004). 
No. 18-2773 7 

adjective “actual,” its findings demonstrate actual 

knowledge.4 

We see no reason to disturb the bankruptcy court’s finding 

of Southlake’s knowledge. It is possible, as Southlake argues, 

that Shreibak never actually received or read the notice. But 

the bankruptcy court’s contrary inference, based on the evidence at trial, that Shreibak did, in fact, do so was not clearly 

erroneous. See In re Chlad, 922 F.3d at 861 (noting that because 

the bankruptcy court has a “ringside view” of the case, we 

will not disturb its choice between “two permissible conclusions” (internal quotation marks omitted)). 

That leaves violative action. The bankruptcy court found 

that Southlake had itself taken no action that violated the discharge order. That finding might be factually correct, but it 

reflects an error in legal reasoning—that Southlake is responsible for only its own actions and not those of Austgen. The 

district court similarly erred in this respect, concluding that 

Southlake could only be held liable if it intentionally withheld 

notice of the discharge order from Austgen. 

We have repeatedly stated that clients are bound by their 

counsel’s conduct. See, e.g., Smego v. Payne, 854 F.3d 387, 396 

(7th Cir. 2017); Bakery Mach. & Fabrication, Inc. v. Traditional 

Baking, Inc., 570 F.3d 845, 848 (7th Cir. 2009). This makes perfect sense when viewed through the lens of agency law: “the 

clients are principals, the attorney is an agent, and under the 

 4

The district court stated that the bankruptcy court found that Sterling 

had been unable to prove that anyone at Southlake handled, saw, or was 

aware of Sterling’s discharge notice. This is a mischaracterization. The 

bankruptcy court in fact found that Southlake had no record of how it handled the notice once received. 
8 No. 18-2773 

law of agency the principal is bound by his chosen agent’s 

deeds.” Bakery Mach. & Fabrication, 570 F.3d at 848 (quoting 

United States v. 7108 West Grand Avenue, 15 F.3d 632, 634 (7th 

Cir. 1994)); see also Irwin v. Dep’t of Veterans Affairs, 498 U.S. 89, 

91 (1990) (“Under our system of representative litigation, 

‘each party is deemed bound by the acts of his lawyer-agent 

... .’”) (quoting Link v. Wabash R. Co., 370 U.S. 626, 634 (1962)). 

Though the parties have not made clear whether they believe 

Indiana law or federal common law applies here, this proposition also holds true under Indiana law. See Kmart Corp. v. 

Englebright, 719 N.E.2d 1249, 1255 (Ind. Ct. App. 1999) (“The 

long standing rule in Indiana is that ... acts or omissions of 

the attorney are attributable to the client. ... Moreover, it is 

well settled that an attorney, by virtue of the representation, 

becomes a powerful agent with a great deal of authority.” (citations omitted)). 

Southlake resists the application of agency liability. It argues that it cannot be liable for Austgen’s conduct because 

Austgen did not have the requisite knowledge to be held in 

contempt (discussed further below). It is true that, in its usual 

application, agency law holds a principal liable for the completed torts of its agent. See Meyer v. Holley, 537 U.S. 280, 285 

(2003) (“It is well established that traditional vicarious liability rules ordinarily make principals ... vicariously liable for 

acts of their agents ... in the scope of their authority or employment.”). But agency law also operates to impute an 

agent’s conduct to a principal, even if that conduct did not, 

standing alone, constitute a tort. As the Restatement (Third) 

of Agency explains: “If an agent’s action within the scope of 

the agent’s actual authority harms a third party, ... the principal is subject to liability if the same conduct on the part of 

the principal would have subjected the principal to tort 
No. 18-2773 9 

liability.” § 7.04 cmt. b (2006). Bankruptcy courts both in and 

out of our circuit have applied this principle in the same or 

similar contexts. See, e.g., In re Kramer, No. 04-02900, 2005 WL 

579721, at *4 (Bankr. N.D. Iowa Feb. 23, 2005) (concluding that 

a debtor acted in contempt of a bankruptcy court’s automatic 

stay where it had knowledge of the stay, and counsel’s actions, imputed to it, violated the stay); see also In re Gallo, No. 

05-92345, 2007 WL 2463321, at *2 (Bankr. C.D. Ill. Aug. 29, 

2007) (concluding that a party acted through his counsel 

when counsel’s actions were in the scope of his authority, applying Florida law), aff’d, 573 F.3d 433 (7th Cir. 2009). 

Applying these agency principles to the case at hand, it is 

undisputed that Austgen was Southlake’s legal counsel and 

that Southlake directed Austgen to collect Sterling’s debt. Acting within that scope, Austgen continued proceedings against 

Sterling. Austgen’s actions were a direct violation of the discharge order. 11 U.S.C. § 524(a)(2). We conclude that 

Austgen’s actions, imputed to Southlake, were taken despite 

Southlake’s knowledge of the discharge order, meeting the requirements for civil contempt. The bankruptcy court erred as 

a legal matter by concluding otherwise.5 

Southlake argues that it had no knowledge of what actions 

Austgen was taking on its behalf. It may be true that Southlake did not follow what steps Austgen was taking (an approach we consider to be ill-advised, especially after receiving 

notice of a discharge). But this is not a case where counsel 

committed a wrongful act outside of the scope of its authority. 

 5

Because we decide this issue on agency grounds, we need not address Amici Curiae’s argument that Southlake had an affirmative duty to 

dismiss its case against Sterling. 
10 No. 18-2773 

See Bakery Mach. & Fabrication, 570 F.3d at 848 (“The rule is 

that all of the attorney’s misconduct (except in the cases where 

the act is outside the scope of employment or in cases of excusable neglect) becomes the problem of the client.”). Southlake chose to aggressively pursue small debts and was familiar with the process of doing so; in fact, it referred hundreds 

of collection cases to Austgen. Southlake cannot now disclaim 

the results of its collection efforts. It had knowledge of the discharge yet turned a blind eye to the progress of Sterling’s case. 

Our conclusion here is not only consistent with our circuit 

precedent, it is sensible. Holding otherwise would create a 

loophole in the law through which creditors could avoid liability simply by remaining ignorant of their agents’ actions or 

by failing to notify their agents of debtors’ bankruptcy proceedings. We decline to incentivize such careless behavior.6 

Lastly, we note that Southlake is a sophisticated party that 

retained counsel, a fact relevant to our holding. In cases where 

counsel is appointed or recruited, however, “the usual assumptions about the agency relationship between the lawyer 

and client must be relaxed.” Dunphy v. McKee, 134 F.3d 1297, 

1302 (7th Cir. 1998). 

B. Austgen 

As we just established, Austgen’s continuation of the action against Sterling violated the discharge order. But what 

about Austgen’s knowledge? 

 6

This loophole would not apply in situations where there is no agency 

relationship, for example, when there is solely an independent contractor 

relationship. Cf. Randolph, 368 F.3d at 729 (discussing the creditor and 

debt-collector relationship under the Fair Debt Collection Practices Act). 
No. 18-2773 11 

The bankruptcy court found that Austgen “had neither 

notice nor knowledge” of the discharge order. Specifically, 

the court concluded that, although “at times” Southlake had 

a practice of sending bankruptcy notices to Austgen, there 

was no evidence that Southlake sent Sterling’s discharge order to Austgen or that Austgen received it. Sterling urges us 

to find otherwise. 

Recall that Sterling was required to show Austgen’s 

knowledge by clear and convincing evidence. But, unlike the 

evidence against Southlake, which included a certificate of 

mailing for the discharge order, there is a dearth of evidence 

showing that Southlake sent the order to Austgen. On top of 

that lack of evidence, David Austgen testified that he had reviewed Austgen’s files on Sterling, and they contained no record of receiving the order. The bankruptcy court apparently 

considered David Austgen credible, as it found that Austgen 

had no record of receiving any bankruptcy notices pertaining 

to Sterling. 

Sterling points to evidence that might suggest the opposite 

inference: she told Austgen that she was thinking of filing for 

bankruptcy (albeit over a year before she actually did); 

Shreibak testified that Southlake usually sent bankruptcy notices to Austgen; and Austgen had poor record-keeping practices and a portion of her file was missing. As we have already 

noted, however, we do not disturb a bankruptcy court’s finding when it accepts one of two reasonable inferences. The 

bankruptcy court has the opportunity to scrutinize witnesses 

and determine credibility firsthand, an advantage we lack. See 

In re Chlad, 922 F.3d at 861. The bankruptcy court’s finding 

that Austgen did not have the requisite knowledge was 
12 No. 18-2773 

reasonable and was supported by the evidence. We see no 

clear error in it. 

This puts Austgen in the inverse position of Southlake—

Ausgten was unaware of the bankruptcy court’s discharge order but acted in violation of it. Unlike with Southlake, however, we do not impute the principal’s knowledge to the 

agent. See Restatement (Third) of Agency § 5.03 cmt. g (2006) 

(“[A]n agent who deals with third parties on the principal’s 

behalf is not treated as knowing facts known by the principal 

that the agent does not know or have reason to know.”); 

Schmitt v. FMA All., 398 F.3d 995, 997 (8th Cir. 2005) (per curiam) (noting that “established agency law ... dictates that 

while the knowledge of the agent is imputed to the principal, 

the converse is not true.”); see also Moriarty v. Glueckert Funeral 

Home, Ltd., 155 F.3d 859, 866 n.15 (7th Cir. 1998) (noting that 

courts rely on the Restatement of Agency to develop the federal common law of agency). Again, this proposition also appears to be true under Indiana law. See Hargis v. United Farm 

Bureau Mut. Ins. Co., 388 N.E.2d 1175, 1179 (Ind. Ct. App. 1979) 

(declining to impute the knowledge of a principal to its 

agents). 

So Austgen did not have firsthand knowledge of the discharge order, nor do we impute Southlake’s knowledge to it. 

Without knowledge, Austgen cannot have willfully violated 

the discharge order and cannot be held in contempt. Both the 

district court and the bankruptcy court correctly concluded as 

much, and we affirm their rulings. 

III. Conclusion 

A final word of caution. Although we conclude that Southlake acted in contempt, we note that this regrettable event 
No. 18-2773 13 

could have been avoided had Sterling complied with Northern District of Indiana Local Bankruptcy Rule B–4002–1(a). 

Like the bankruptcy court, we strongly advise debtors and 

their counsel to comply with this rule to avoid similar situations in the future. We leave to the bankruptcy court’s discretion whether to factor this into the damages calculation. 

We AFFIRM in part and REVERSE in part the judgment of 

the district court and REMAND to the bankruptcy court for 

further proceedings consistent with this opinion.