NLRB v. Edward L. Calvert ( 2019 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 17-1895
IN RE:
EDWARD L. CALVERT,
Debtor-Appellee.
APPEAL OF: NATIONAL LABOR RELATIONS BOARD
____________________
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:16-cv-00161-SEB-MJD — Sarah Evans Barker, Judge.
____________________
ARGUED JANUARY 8, 2018 — DECIDED JANUARY 22, 2019
____________________
Before EASTERBROOK and SYKES, Circuit Judges, and
BUCKLO, District Judge. *
SYKES, Circuit Judge. Edward Calvert was the sole owner
and president of E.L.C. Electric, Inc., an electrical contracting
company. After a labor organization unsuccessfully cam-
paigned to unionize his company’s workforce, Calvert laid
off most of E.L.C. Electric’s rank-and-file electricians, which
effectively prevented future unionization attempts. The
* Of the Northern District of Illinois, sitting by designation.
2 No. 17-1895
National Labor Relations Board (“NLRB”) determined that
the company violated the National Labor Relations Act
(“NLRA”), which prohibits discrimination against workers
for exercising their statutory rights. See 29 U.S.C. § 158(a)(3).
The Board ordered E.L.C. Electric to compensate the electri-
cians with backpay.
Calvert tried to avoid the order by shifting his company’s
operations to two new corporate entities. He didn’t succeed.
The NLRB discovered Calvert’s plan and held him personal-
ly responsible for the backpay award. Facing more than
$400,000 in liability, Calvert filed for Chapter 7 bankruptcy.
The Board challenged Calvert’s attempt to discharge the
backpay liability, arguing that the debt was not dischargea-
ble because it arose from a willful and malicious injury.
See 11 U.S.C. § 523(a)(6). Calvert conceded the willfulness
element but denied that he acted maliciously. The Board
countered by asserting that Calvert was collaterally es-
topped from litigating the malice issue, but it made little
effort to establish the elements of the doctrine. Indeed, the
Board did not identify any specific findings in the NLRB
ruling that should be given preclusive effect. The bankrupt-
cy judge declined to apply collateral estoppel and instead
held a bench trial on the issue of malice. Based on the trial
evidence, the judge found that Calvert had not acted mali-
ciously and thus ruled that the debt was not exempt from
discharge.
On appeal to the district court, the Board again raised
collateral estoppel but failed to analyze the elements of the
doctrine or provide citations to the relevant parts of the
agency record. The district judge noted these deficiencies
and affirmed.
No. 17-1895 3
We likewise affirm. The Board does not challenge the ev-
idence at trial or the bankruptcy judge’s factual findings.
Instead it stakes its entire case on collateral estoppel. But it
persists in providing only a generalized discussion of pre-
clusion doctrine that is untethered to specific findings in the
NLRB proceeding. That’s not enough to establish that
Calvert is precluded from contesting the malice issue under
§ 523(a)(6).
I. Background
In July 2002 the International Brotherhood of Electrical
Workers, Local 481, campaigned to become the certified
bargaining representative for E.L.C. Electric’s rank-and-file
electricians. Calvert launched his own campaign to oppose
the Union’s efforts. When the Union lost, it filed an objection
with the NLRB, demanding a new vote on the ground that
E.L.C. Electric had unlawfully meddled in the election.
While this objection was pending, E.L.C. Electric promot-
ed two of its bargaining-unit electricians and fired the
remaining sixteen, leaving the Union without a rank-and-file
workforce at the company to unionize. The Union filed a
second charge with the NLRB alleging that E.L.C. Electric
unlawfully fired the electricians for exercising their right to
unionize.
After a trial in April 2004, an administrative law judge
ruled that E.L.C. Electric violated sections 8(a)(1) and (3) of
the NLRA, 29 U.S.C. § 158(a)(1), (3). The NLRB affirmed the
ALJ’s ruling a year later. E.L.C. Elec., Inc., 344 N.L.R.B. 1200(2005). It determined that E.L.C. Electric violated § 158(a)(3)
of the NLRA by firing the electricians to prevent them from
4 No. 17-1895
organizing. The NLRB ordered the company to compensate
the electricians with backpay.
E.L.C. Electric never paid the award. It ceased operations
in March 2006. The ALJ initiated supplemental proceedings
and concluded that Calvert shuttered the firm to avoid
paying the electricians. The judge pierced the corporate veil
and held Calvert personally liable for $437,427 in backpay
and interest. The NLRB adopted the judge’s findings and
conclusions, E.L.C. Elec., Inc., 359 N.L.R.B. 255 (2012), and we
summarily enforced the order in July 2013.
Calvert filed a Chapter 7 bankruptcy petition five months
later. See 11 U.S.C. § 727. In response the Board challenged
Calvert’s attempt to discharge the backpay debt. It raised
multiple arguments but only one remains relevant. The
Board claimed that the debt was exempt from discharge
because it arose from a “willful and malicious injury by the
debtor to another entity.” § 523(a)(6). Calvert did not dispute
that he acted willfully, but he denied that he acted mali-
ciously. The Board sought summary judgment, arguing that
the agency’s finding of liability under § 158(a)(3) of the
NLRA precluded Calvert from litigating whether the debt
was exempt from discharge under § 523(a)(6) of the Bank-
ruptcy Code. The bankruptcy judge denied the motion,
reasoning that § 158(a)(3) and § 523(a)(6) apply different
legal standards and that the NLRB proceedings lacked a
“sufficient level of ‘specific findings’” to be given preclusive
effect on the question whether the debt was exempt from
discharge—more particularly, whether Calvert had acted
with malice.
The matter proceeded to a bench trial, and Calvert testi-
fied that he laid off his employees to save money by hiring
No. 17-1895 5
independent contractors. The Board offered no evidence to
refute this explanation. The judge credited Calvert’s testi-
mony and found that the Board failed to prove that he acted
maliciously. Based on these findings, the judge rejected the
Board’s contention that the backpay debt was exempt from
discharge.
The Board appealed to the district court, once again rais-
ing issue preclusion. The district judge affirmed. She rejected
the preclusion argument, noting that the Board had failed to
analyze the elements of collateral estoppel or provide cita-
tions to the relevant parts of the agency record that might
support preclusion. On the merits the judge held that the
bankruptcy judge’s factual findings were not clearly errone-
ous.
II. Discussion
We review the bankruptcy court’s findings of fact for
clear error and conclusions of law de novo. In re Kempff,
847 F.3d 444, 448 (7th Cir. 2017). The Bankruptcy Code does
not permit the discharge of debts incurred because of “will-
ful and malicious injury by the debtor to another entity or to
the property of another entity.” § 523(a)(6). By its terms, this
exception to the general discharge rule requires “(1) an
injury caused by the debtor (2) willfully and (3) malicious-
ly.” First Weber Grp., Inc. v. Horsfall, 738 F.3d 767, 774 (7th
Cir. 2013). The Board has the burden of establishing each of
these elements by a preponderance of the evidence. Id.There’s no dispute about injury, causation, or willfulness.
The sole question concerns malice. It’s the Board’s burden to
prove that Calvert “acted ‘in conscious disregard of [his]
duties or without just cause or excuse.’” Id. (quoting In re
6 No. 17-1895
Thirtyacre, 36 F.3d 697, 700 (7th Cir. 1994)) (alteration in
original). The Board contends that the NLRB adjudication
collaterally estopped Calvert from contesting the malice
issue in the § 523(a)(6) litigation.
Calvert responds that the Board cannot now rely on col-
lateral estoppel because it did not fully develop the argu-
ment in the bankruptcy and district courts. It’s true that the
Board’s preclusion argument was overly generalized and
incomplete, as the district judge expressly noted. But the
agency said enough to overcome a forfeiture, which is not
“an overly technical appellate hurdle.” Fox v. Hayes, 600 F.3d
819, 832 (7th Cir. 2010). While not forfeited, the argument is
neither adequately nor correctly developed in this court—
even after the district judge put the Board on clear notice of
the defects in its briefing—and that defeats the Board’s
argument on appeal.
Issue preclusion prevents a party from relitigating issues
that were resolved in a prior legal action. Adams v. City of
Indianapolis, 742 F.3d 720, 736 (7th Cir. 2014). The party
invoking preclusion must show that
(1) the issue sought to be precluded [was] the
same as that involved in the prior litigation,
(2) the issue [was] actually litigated, (3) the de-
termination of the issue [was] essential to the
final judgment, and (4) the party against whom
estoppel is invoked [was] fully represented in
the prior action.
Matrix IV, Inc. v. Am. Nat’l Bank & Trust Co. of Chi., 649 F.3d
539, 547 (7th Cir. 2011) (quoting H-D Mich., Inc. v. Top Quali-
ty Serv., Inc., 496 F.3d 755, 760 (7th Cir. 2007)).
No. 17-1895 7
To determine whether the NLRB proceeding “involved”
the same issue as the bankruptcy proceeding, the first step is
to “determine with precision what matters actually were
decided” in the labor proceeding. 18 CHARLES ALAN WRIGHT
ET AL., FEDERAL PRACTICE AND PROCEDURE § 4417, at 459–60
(3d ed. 2016). This determination must be grounded in the
actual findings and analysis in the ALJ’s ruling. See, e.g., In re
Davis, 638 F.3d 549, 554 (7th Cir. 2011) (defining the issue
“[i]n the context of the entire [prior] court opinion”); H-D
Mich., Inc., 496 F.3d at 760–61 (defining the issue with refer-
ence to specific statements in the prior opinion).
It’s the Board’s job to identify the actual findings in the
NLRB proceeding that it claims are entitled to preclusive
effect, and it must then map those findings onto the stand-
ard for malice under § 523(a)(6). Compare First Weber Grp.,
738 F.3d at 775 (finding preclusion on the issue of malice
because the prior action’s analysis “substantially mirrored”
the standard under § 523(a)(6)), with Gerard v. Gerard,
780 F.3d 806, 810–11 (7th Cir. 2015) (holding that a slander-
of-title verdict did not preclude litigation over whether the
underlying injury was “willful” under § 523(a)(6) because
the jury instructions for the verdict required only negli-
gence).
The Board has not satisfied its burden. It has not identi-
fied the specific issues that were actually decided in the
labor proceeding, much less mapped the ALJ’s findings onto
the elements of § 523(a)(6). Instead, the Board’s argument for
collateral estoppel is stated at a high level of generality. It
argues that § 158(a)(3) and § 523(a)(6) ask the same general
question: “Why did Calvert discharge his employees, or,
what was his intent in doing so?” Like the lower courts, we
8 No. 17-1895
cannot assess the applicability of issue preclusion without a
more precise analysis of what was actually decided in the
labor proceeding as a legal and factual matter. See Econ.
Folding Box Corp. v. Anchor Frozen Foods Corp., 515 F.3d 718,
721 (7th Cir. 2008) (“It is not the court’s responsibility to
research the law and construct the parties’ arguments for
them.”).
The Board maintains that preclusion applies as a categor-
ical matter because § 158(a)(3) prohibits discrimination
based on antiunion animus. As the Board sees it, a factual
finding that Calvert acted with malice necessarily nests
within the agency’s imposition of § 158(a)(3) liability. But for
preclusion to apply, the Board must establish that the issue
of discriminatory intent under § 158(a)(3) of the NLRA is the
same as the issue of malice under § 523(a)(6) of the Bank-
ruptcy Code and also that the issue of Calvert’s intent was
actually decided in the agency proceeding. It has not done so.
To repeat, the Board has not grounded its argument in
specific findings entered in the NLRB proceeding, much less
applied those findings to the malice standard under
§ 523(a)(6). Moreover, as the bankruptcy judge noted, the
agency’s determination lacks specificity on the issue of
Calvert’s intent. The ALJ found only that the NLRB estab-
lished a prima facie case under § 158(a)(3) that E.L.C. Electric
failed to rebut.
In short, the Board has not met its burden to establish
that the prior agency adjudication involved and actually
decided the issue of whether Calvert acted with malice,
which is fatal to its preclusion argument. And because the
Board does not challenge the bankruptcy judge’s factual
finding that Calvert did not act with malice, its claim that the
No. 17-1895 9
backpay debt is exempt from discharge under § 523(a)(6)
necessarily fails. Accordingly, the judgment below is
AFFIRMED.
10 No. 17-1895
BUCKLO, District Judge, dissenting. I respectfully dissent.
The question before the bankruptcy court was whether
Calvert acted maliciously, i.e. “without just cause or excuse,”
when he laid off nearly all of his rank-and-file workforce in
violation of the National Labor Relations Act. First Weber
Grp., Inc. v. Horsfall, 738 F.3d 767, 774 (7th Cir. 2013). In
adjudicating the underlying 29 U.S.C. § 158(a)(3) discrimina-
tion claim in the NLRB’s favor, the ALJ conducted an analy-
sis that “substantially mirrored” the malice inquiry under
11 U.S.C. § 523(a)(6), id. at 775, and determined that Calvert’s
conduct was unsupported by any lawful purpose. That
finding should have been given preclusive effect in the
bankruptcy court.
My colleagues rule against the NLRB on the ground that
its preclusion analysis is overly general. In their view, the
Board “has not grounded its [preclusion] argument in
specific findings” or established that “the issue of Calvert’s
intent was actually decided in the agency proceeding.” But the
NLRB points to several findings that the ALJ made regard-
ing Calvert’s intent. First, the Board cites the ALJ’s determi-
nation that Calvert laid off his employees “because of their
union activities, to wit, to avoid having further NLRB pro-
ceedings and the risk that the Union might ultimately be
certified as the collective-bargaining representative[] of [his]
employees.” (Emphasis added.) The phrase “because of”
tells us that the ALJ actually decided the issue of Calvert’s
intent. Moreover, the ALJ’s determination that Calvert was
motivated by a discriminatory purpose was essential to the
ALJ’s ultimate holding. See SCA Tissue N. Am. LLC v.
N.L.R.B., 371 F.3d 983, 988 (7th Cir. 2004) (proof of discrimi-
nation requires evidence that “employer acted because of
No. 17-1895 11
anti-union animus”); Bloedorn v. Francisco Foods, Inc.,
276 F.3d 270, 290 (7th Cir. 2001) (employer’s unlawful dis-
criminatory motive is the “critical question” in a § 158(a)(3)
proceeding); Van Vlerah Mech., Inc. v. N.L.R.B., 130 F.3d 1258,
1263 (7th Cir. 1997) (“In evaluating [§ 158(a)(3) allegations],
the Board must determine the employer's motivation in
taking a particular action.”).
Second, the Board identifies the ALJ’s determination that
Calvert did not establish a “legitimate business reason” for
his conduct. Notwithstanding the ALJ’s finding that Calvert
acted with discriminatory intent, Calvert could have avoid-
ed liability under § 158(a)(3) by showing that he had a
legitimate business reason for his actions. See N.L.R.B. v.
Dorothy Shamrock Coal Co., 833 F.2d 1263, 1266 (7th Cir. 1987)
(“The employer … may avoid liability by showing that his
actions would have been the same ‘regardless of his forbid-
den motive.’”). Calvert attempted to make such a showing,
offering three different explanations for the layoffs, but the
ALJ rejected all of them. Indeed, the ALJ found Calvert’s
“shifting” justifications to be “wholly unreliable” and con-
cluded that they “utterly failed to rebut” the Board’s evi-
dence of “antiunion animus.” The upshot of the ALJ’s
burden-shifting analysis was a conclusive finding on the
issue of Calvert’s intent: specifically, that Calvert laid off his
workforce based on “antiunion animus” rather than “legiti-
mate business considerations.”
The majority’s contrary view nods to Calvert’s argument
that because § 158(a)(3) does not require the NLRB to prove
affirmatively that Calvert lacked a legitimate business
reason for his conduct, the ALJ did not conclusively decide
the issue of Calvert’s intent. See supra at 8 (“The ALJ found
12 No. 17-1895
only that the NLRB established a prima facie case under
§ 158(a)(3) that E.L.C. Electric failed to rebut.”). That inter-
pretation fails to appreciate that in the labor proceedings, the
NLRB at all times carried the burden of establishing that
Calvert discharged his employees “based in whole or in part
on antiunion animus.” N.L.R.B. v. Transp. Mgmt. Corp.,
462 U.S. 393, 401 (1983), abrogated in non-relevant part by Dir.,
Office of Workers’ Comp. Programs, Dept. of Labor v. Greenwich
Collieries, 512 U.S. 267, 276–78 (1994)). Moreover, it overlooks
the text of the ALJ’s decision, which, in a paragraph that
opens, “[s]pecifically as to why [Calvert] made the deci-
sion …” the ALJ concluded that Calvert’s decision to lay off
his workers “was motivated by … antiunion animus.”
To establish issue preclusion, the NLRB needed to show
that the ALJ’s analysis of Calvert’s intent “substantially
mirrored” the standard for malice under § 523(a)(6). Horsfall,
738 F.3d at 775. In fact, the Board had a tougher row to hoe
to prevail in the labor proceedings than it did before the
bankruptcy court, since it had not only to prove Calvert’s
impermissible motive, but also to withstand Calvert’s af-
firmative defense of a legitimate business reason. Regardless
of who bore the burden on which issue, the universe of
evidence presented to the ALJ had to persuade him that a
prohibited reason—not a legitimate one—motivated
Calvert’s actions. And as the text of his decision makes clear,
persuade him it did.
The majority faults the Board for failing to perform a
more exacting exercise to “map[] the ALJ’s findings onto the
elements of § 523(a)(6).” In my view, no heavy lifting was
required to illustrate how the ALJ’s twin findings that
Calvert acted with a prohibited motive and without a legiti-
No. 17-1895 13
mate business reason satisfy the malice inquiry under
§ 523(a)(6). Malice is established by proof that a debtor acted
“without just cause or excuse.” Horsfall, 738 F.3d at 774. The
Board proved to the ALJ, notwithstanding Calvert’s contrary
testimony, that Calvert acted with antiunion animus—a
prohibited motive. It is not clear to me what additional
analytical dots the Board needed to connect to show that
Calvert’s actions lacked just cause or excuse.
Bankruptcy courts in this circuit and elsewhere have held
that an agency or state court finding that the debtor acted
with discriminatory intent and without just cause satisfies
the malice standard under § 523(a)(6). In re Fogerty, 204 B.R.
956, 962 (Bankr. N.D. Ill. 1996) (NLRB’s conclusion that the
debtor wrongfully terminated two employees in violation of
§ 158(a)(3) decided the issue of malice because it was based
on the determination that the debtor lacked just cause to
discharge the employees and terminated them solely be-
cause of their protected activities); In re Goldberg, 487 B.R.
112, 129 (Bankr. E.D.N.Y. 2013) (applying collateral estoppel
to state court’s factual findings of intentional discrimination,
reasoning that declining to do so would “sanction the view
that there exists some ‘just cause or excuse’ for discrimina-
tion … where the state court has already found otherwise”).
When the ALJ held that Calvert discriminated against his
employees in violation of § 158(a)(3) and held him liable for
that violation, he resolved the question of whether Calvert
had just cause for his actions. Instead of giving the ALJ’s
findings about Calvert’s intent the preclusive effect they
were due, the bankruptcy court offered Calvert another bite
at the apple, affording him an opportunity to relitigate his
purported justifications for violating federal law. But the
14 No. 17-1895
ALJ’s analysis left no room for finding Calvert’s conduct
justified. Accordingly, I would hold that the bankruptcy
court was precluded from reopening an inquiry into
Calvert’s intent.