In re Calvert

• Decision Date: 22 January 2019
• Docket Number: No. 17-1895,17-1895
• Citation: 913 F.3d 697
• Parties: IN RE: Edward L. CALVERT, Debtor-Appellee. Appeal of: National Labor Relations Board
• Court: U.S. Court of Appeals — Seventh Circuit

913 F.3d 697

IN RE: Edward L. CALVERT, Debtor-Appellee.

Appeal of: National Labor Relations Board

No. 17-1895

United States Court of Appeals, Seventh Circuit.

Argued January 8, 2018

Decided January 22, 2019

William Russell Warwick, III, Attorney, Dalford Dean Owens, Jr., Attorney, National Labor Relations Board, Contempt Litigation & Compliance Branch, Washington, DC, for Appellant.

Dustin DeNeal, Attorney, Elizabeth M. Little, Attorney, Harmony Ann Mappes, Attorney, Faegre Baker Daniels LLP, Indianapolis, IN, for Debtor-Appellee.

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 campaigned 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 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 electricians 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 personally 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 dischargeable 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 estopped 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 bankruptcy 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 maliciously 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.

We likewise affirm. The Board does not challenge the evidence 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 preclusion 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 promoted 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 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 maliciously. 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 Bankruptcy 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 testified that he laid off his employees to save money by hiring independent contractors. The Board offered no evidence to refute this explanation. The judge credited Calvert’s testimony 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 raising 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 citations 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 erroneous.

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 "willful 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) maliciously." 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 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 collateral estoppel because it did not fully develop the argument 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 determination 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 Quality Serv., Inc. , 496 F.3d 755, 760 (7th Cir.2007) ).

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 reference 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 standard for malice under § 523(a...