NATIONAL LABOR RELATIONS BOARD v. CALVERT

Filing 14

ORDER ON BANKRUPTCY APPEAL - For the reasons detailed within, the Bankruptcy Court's ruling is AFFIRMED in all respects. Final judgment shall issue accordingly. Signed by Judge Sarah Evans Barker on 3/31/2017.(JD)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

NATIONAL LABOR RELATIONS
BOARD,

)
)
)
)
)
)
)
)
)
)

Appellant,
vs.
EDWARD LEE CALVERT,
Appellee.

No. 1:16-cv-00161-SEB-MJD

ORDER ON BANKRUPTCY APPEAL

Presently before the Court is an appeal by the National Labor Relations Board
(“NLRB”) [Docket No. 1], filed on January 20, 2016, challenging the decision of the
Bankruptcy Court issued on December 21, 2015. For the reasons detailed below we
AFFIRM the Bankruptcy Court’s decision.
Factual Background
Debtor-Appellee Edward L. Calvert was the sole owner and president of ELC
Electric Inc. (the “Company”), an electrical contracting company operating in the
Indianapolis area. In July 2002, the International Brotherhood of Electrical Workers,
Local 481 (the “Union”) sought to become the certified bargaining representative for the
Company’s rank-and-file electricians. An election to determine whether a majority of the
electricians desired to be represented by the Union was scheduled by the NLRB for
September 26, 2002. Prior to election, Calvert became aware that the rank-and-file
1

electricians were attempting to organize; thus, in anticipation of the upcoming election,
Calvert launched a campaign against the Union’s certification because he wanted the
Company to remain union-free.
On September 26, 2002 the Union lost the election, failing to gain a majority of
support from the electricians. Shortly thereafter, the Union filed objections with the
NLRB alleging that the Company had engaged in conduct that unduly influenced the
election results in violation of the National Labor Relations Act (the “Act”), 29 U.S.C. §
101, et seq.
Following the Union’s loss in the September 2002 elections, but prior to any
decision by the NLRB on the challenges to its results, in January, February, and March of
2003, the Company laid off sixteen of its bargaining-unit electricians and promoted the
only two remaining electricians, leaving the Company with no rank-and-file workforce.
Calvert testified that he understood that by laying off the rank-and-file electricians,
the Company would no longer have obligations to pay them or provide them with other
benefits such as health insurance or retirement contributions. In addition, it was his
understanding that the layoffs left the Company with no rank-and-file employees who
could form a bargaining unit, but that, at the time he made the decision to lay off the
electricians, he did not know whether there would be future attempts to unionize workers
at the Company.
He testified further that the Company had laid off the employees to save money.
Specifically, at the time of the layoffs, the Company was contracted for several
2

“prevailing wage projects” such as schools and hospitals for which the Indiana
Department of Labor was conducting audits that were costing the Company money and
manpower, and which would, according to Calvert, “inevitably” lead to the Department
discovering a problem with the Company’s payment of wages, provision of benefits, or
classification of workers. As a result, the Company chose to shift its operations to the use
of temporary workers, whereby the Company would contract with an outside labor
provider, who would be responsible for the provision of wages, benefits, and taxes, and,
most importantly, would be responsible for any further audits by the Indiana Department
of Labor. According to Calvert, this decision “saved the Company a ton of
money.” Bankr. Dkt. 56 at 6. The Company sent each of the affected workers a letter
explaining the decision on March 7, 2003, a week prior to the layoffs.
In response to the early 2003 layoffs, the Union filed additional charges with the
NLRB alleging that, by discharging the entire rank-and-file workforce, the Company had
unlawfully discriminated against its electricians for engaging in their statutorily-protected
right to organize. Pursuant to the charges filed by the Union, the NLRB instituted
administrative proceedings against the Company for alleged violations of §§ 8(a)(1) and
(3) of the Act. A trial was conducted in Indianapolis before an Administrative Law Judge
(“ALJ”) appointed by the NLRB, and, on April 7, 2004, the ALJ issued a decision
holding that the Company’s actions had violated §§ 8(a)(1) and (3) of the Act. On July
29, 2005, the NLRB affirmed the ALJ’s rulings, findings, and conclusions as modified,

3

adopted the recommended order as modified, and adopted the ALJ’s recommendation
that the September 26, 2002 election be set aside and a new election be held.
In reaching its conclusion that the Company, through unfair labor practices, had
interfered with the election results, requiring that they be set aside and a new election be
held, the NLRB found that the Company discriminatorily discharged all sixteen of its
bargaining-unit employees and that Calvert had personally made the decision to
discharge the Company’s thirteen electricians on March 14, 2003.1 The NLRB also found
that Calvert’s intent in discharging these employees was to thwart their pursuit of union
representation, given that he continued to avail himself of their services after their
termination by contracting with the labor contractors for whom they worked. The NLRB
also noted that it was unpersuaded by Calvert’s explanations for the Company’s actions,
finding instead that Calvert’s actions were based on unlawful antiunion animus. The
NLRB ordered the Company, its officers, agents, successors, and assignees, to make
whole through the payment of backpay the sixteen employees who had been unlawfully
discharged in violation of the Act.
On March 25, 2006, nearly eight months after the NLRB ordered the payment of
backpay, the Company ceased operations, prompting the NLRB to conduct a subsequent
proceeding intended to address who was to become responsible for paying the
Company’s backpay liability. On November 8, 2012, an ALJ issued a Supplemental

1

The record does not reflect who made the decision to layoff three of the sixteen bargaining-unit
employees in January and February 2003, only that Calvert, as president, made the decision on March 14,
2003 to either promote or layoff the remaining rank-and-file workers.

4

Decision and Order finding that Calvert had created new corporate identities for the
express purpose of avoiding the Company’s liability for payment under the NLRB’s
original order, that the new corporate identities were alter-egos of the Company, and that
Calvert had disregarded the separateness of the corporations and comingled and diverted
funds in order to “evade his legal obligations to the backpay owed to the 16
discriminatees.” Tr. Ex. 4 at 15. The ALJ held that the corporate veil should be pierced
and Calvert should be held personally liable for $437,427 in backpay and interest to be
paid to the sixteen discharged employees. The Order was modified, affirmed, and
enforced by the Seventh Circuit on July 23, 2013. Tr. Ex. 5.
Five months thereafter, on December 19, 2013, Calvert filed a Chapter 7
bankruptcy petition seeking discharge of his debts. In response, the NLRB initiated the
present adversary proceeding seeking to have its claim for the unsatisfied payment of
backpay adjudicated as nondischargeable pursuant to 11 U.S.C. § 523(a)(6) and to have
Calvert deemed ineligible for discharge pursuant to 11 U.S.C. § 727(a)(3) and (4).
On June 5, 2015, the NLRB moved the Bankruptcy Court for entry of summary
judgment on grounds that its § 523(a)(6) claim for nondischargeability, which requires a
showing of willfulness, deliberate injury, and malice, had been fully adjudicated in the
NLRB’s unfair labor practice proceedings and therefore the Bankruptcy Court should
rely on the findings and conclusions in the NLRB’s Decision and Order. The Bankruptcy
Court denied the motion on September 1, 2015, holding that “the level of ‘mens rea’
required for a determination of nondischargeability is not the same with respect to an
5

unfair labor practice determination under §8(a) of the National Labor Relations
Act.” Bank. Dkt. 39 at 4–5. Accordingly, the Bankruptcy Court held that the finding of
antiunion animus in the NLRB decision did not necessarily compel a finding that Calvert
had the subjective intent required by § 523(a)(6); however, the Bankruptcy Court held
that any “specific findings” made by the ALJ with regard to Calvert’s intent to cause
injury to the electricians were entitled to preclusive effect under the doctrine of collateral
estoppel, but upon review of the prior decisions, found that the NLRB adjudications
lacked sufficient “specific findings” as to Calvert’s intent so as to enable the Bankruptcy
Court to give preclusive effect to the to the legal issues of liability and
nondischargeability. The Bankruptcy Court held that it would instead analyze whether the
facts proven at trial would support a conclusion of nondischargeability under § 523(a)(6)
of the Bankruptcy Code.
A trial on the issue of nondischargeability was held on September 23, 2015, after
which, on December 21, 2015, the Bankruptcy Court issued its Findings of Fact and
Conclusions of Law, holding that, based on the evidence adduced at trial, Calvert’s debt
to the NLRB was not excepted from discharge pursuant to 11 U.S.C. § 523(a)(6). The
Bankruptcy Court concluded: (1) that Calvert’s decision to promote or lay off all of the
Company’s bargaining-unit employees prevented them from exercising their legal rights
to organize under the NLRA and therefore caused a cognizable injury under § 523(a)(6);
(2) that Calvert understood that there would be no bargaining-unit employees who could
exercise their legal right to organize at the Company once they were all either laid off or

6

promoted and therefore he acted with requisite willfulness under § 523(a)(6); and (3) that
Calvert’s testimony that the Company switched to temporary employees from labor
providers in order to avoid costly audits by the Indiana Department of Labor in
confluence with the fact that he made the decision to switch to temporary employees
more than a year prior to the ALJ’s decision to set aside the first election’s results and
order a second election sufficiently refuted the NLRB’s claim that, at the time the
decision to lay off the workforce was made, it was more likely than not that Calvert
consciously disregarded the organizational rights of the Company’s employees. See
Bankr. Dkt. 56 at 14–15, ¶¶ 12–14. Accordingly, construing the exception to discharge
strictly against the NLRB and liberally in favor of Calvert, the Bankruptcy Court held
that “the NLRB did not prove by a preponderance of evidence that Calvert acted
maliciously. The debt owed by Calvert is NOT excepted from discharge pursuant to §
523(a)(6).” Id. at ¶ 15.
On January 20, 2016, the NLRB appealed the Bankruptcy Court’s decision
arguing that the NLRB’s determination made in the underlying labor proceedings that
Calvert had unlawfully discriminated against the bargaining-unit employees for
exercising their statutory rights should be given preclusive effect with regard to the issue
of whether Calvert had acted “in conscious disregard of [his] duties or without just cause
or excuse.” See Dkt. 10 at 9. The appeal became fully briefed on May 2, 2016, and is
now ripe for decision by this Court.

7

Standard of Review
This Court has subject-matter jurisdiction to hear this appeal pursuant to 28
U.S.C. § 158(a)(1), which provides that “the district courts of the United States shall have
jurisdiction to hear appeals (1) from final judgments, orders, and decrees.” Pursuant to
Fed. R. Bankr. P. 8013, the District Court may “affirm, modify, or reverse a bankruptcy
judge’s judgment, order, or decree or remand with instructions for further proceedings.”
In reviewing a bankruptcy court’s judgment, questions of law are reviewed de novo and
the bankruptcy court’s findings of fact are reviewed for clear error. In re Salem, 465 F.3d
767, 773 (7th Cir. 2008).
Discussion
On appeal, the NLRB asks us to hold that the Bankruptcy Court erred in finding
that the NLRB failed to prove by a preponderance of evidence that when DefendantAppellee Calvert terminated his former employees he acted with the requisite malice to
establish the nondischargeability of a debt pursuant to 11 U.S.C. § 523(a)(6).
For a debt to be nondischargeable pursuant to 11 U.S.C. § 523(a)(6), it must be the
result of a “willful and malicious injury by debtor to another entity or to the property of
another entity.” The Seventh Circuit has defined “willful and malicious injury” as “one
that the injurer inflicted knowing he had no legal justification and either desiring to inflict
the injury or knowing it was highly likely to result from his act.” Jendusa-Nicolia v.
Larson, 677 F.3d 320, 324 (7th Cir. 2012). In analyzing whether a debt fits this
description, bankruptcy courts within our Circuit focus on three points: (1) whether an
8

injury was caused by the debtor; (3) whether the debtor acted willfully; and (3) whether
the debtor acted with malice. First Weber Grp., Inc. v. Horsfall, 738 F.3d 767, 774 (7th
Cir. 2013). Throughout the analysis, the burden remains on the creditor (the NLRB) to
establish these facts by a preponderance of evidence. Id.
Following a trial on this issue, the Bankruptcy Court found that Calvert’s debt of
$437,427 in backpay and interest to be paid to the sixteen discharged Company
employees was the product of an injury to the employees, caused by Calvert, who acted
willfully in causing the injury. See Bankr. Dkt. 56 at 14–15.The Bankruptcy Court
declined the find, however, that the NLRB had proven by a preponderance of evidence
that Calvert acted with the requisite malice in causing the injury, thereby satisfying the
third prong of the § 523(a)(6) analysis and excepting the debt from discharge. Id. at ¶ 15.
The NLRB’s primary argument on appeal is that the Bankruptcy Court failed to
give appropriate preclusive effect to the underlying unfair labor practice proceedings in
which the ALJ and NLRB determined that Calvert’s company, ELC Electric Inc., had
violated § 8(a) of the National Labor Relations Act. See Dkt. 10 at 11–14. At first blush it
appears that the NLRB is appealing the Bankruptcy Court’s legal conclusion contained
within its order on summary judgment [Bankr. Dkt. 39] that, although the material facts
presented in a nondischargeability adversary proceeding and an unfair labor practice
proceeding may be similar, the level of mens rea needed to establish nondischargeability
under § 523(a)(6) of the Bankruptcy Code is sufficiently distinct from that needed to
prove an unfair labor practice under § 8(a) of the NLRA so as to require the Bankruptcy
9

Court to conduct its own analysis of dischargeability under § 523(a)(6), notwithstanding
a prior determination of liability under § 8(a) of the NLRA. See Bankr. Dkt. 39 at 4–5
(citing National Labor Relations Board v. Gordon (In re Gordon), 303 B.R. 645, 657
(Bankr. D. Colo. 2003)). But if the NLRB’s position were truly that its prior
determination of liability under the NLRA should be given preclusive effect with regard
to the Bankruptcy Court’s determination of dischargeability under the Bankruptcy Code,
then its claim for collateral estoppel would necessarily call for an analysis of whether: (1)
the issue sought to be precluded is the same as that involved in the prior proceeding, (2)
the issue was actually litigated in that proceeding, (3) the determination of that issue was
essential to the final judgment of the proceeding, and (4) the party against whom the
preclusion is invoked was fully represented in the prior proceeding. Matrix IV, Inc. v. Am.
Nat'l Bank & Trust Co., 649 F.3d 539, 547 (7th Cir. 2011) (citing H–D Mich., Inc. v. Top
Quality Serv., Inc., 496 F.3d 755, 760 (7th Cir. 2007)). Moreover, to determine whether
the issues “involved” and “actually litigated” in the prior labor proceedings are the
“same” as those at issue in the adversary bankruptcy proceedings, we would need to take
a closer look at the underlying unfair labor practice decisions promulgated by the ALJ,
NLRB, and Seventh Circuit to determine whether the NLRA analysis conducted in those
proceedings “substantially mirrored the federal test for maliciousness ” such that it should
be given preclusive effect here. Horsfall, 738 F.3d at 775.
Yet the NLRB conducts none of the aforementioned analysis. Indeed, rather than
discussing the analysis conducted in the underlying unfair labor practice proceedings,

10

with specific regard to the mens rea elements needed to prove a violation of § 8(a) of the
NLRA, the NLRB simply makes vague reference to certain “findings” from those
proceedings which it views as persuasive in its argument that the debt should be excepted
from discharge. See Dkt. 10 at 13. Specifically, the NLRB references (without citation)
the Board’s findings that Calvert, on behalf of his company, acted out of antiunion
animus in intentionally discharging Company employees to avoid future collective
bargaining, which was unlawfully discriminatory under the NLRA. Id. The NLRB then
abruptly concludes:
The NLRB has found that Calvert terminated his employees unlawfully—to
deprive them of their right under the Act—and, a fortiori, without just cause.
Therefore, the maliciousness of the injury, as reckoned by the Seventh
Circuit, is the same issue litigated in the underlying unfair labor practice
proceeding.

Id. at 13–14. Again, in order to conclude that a determination of liability under the NLRA
is the “same” as a finding of malice under § 523(a)(6) of the Bankruptcy Code for
purposes of collateral estoppel, the Court would need to compare the methods of analysis
germane to each statute and determine whether the they “substantially mirror” one
another. It is the NLRB’s burden to make such a showing, see e.g., Cobin v. Rice, 823 F.
Supp. 1419, 1431 (N.D. Ind. 1993), but the NLRB has failed to do so; indeed, the NLRB
has failed to even attempt to meet its burden by engaging in the necessary analysis. “It is
the parties’ duty to package, present, and support their arguments,” Roger Whitmore’s
Auto Srv. v. Lake Cnty., 424 F.3d 659, 664 n.2 (7th Cir. 2005), and for good reason; for
us to embark on an expedition through the records of the underlying labor and bankruptcy
11

proceedings in order to engage in a collateral estoppel analysis without it having been
briefed before us would defeat the adversarial aims of our jurisdiction. Moreover, it
would risk striking a severe unfairness to Calvert, the party against whom the NLRB
seeks to offensively employ estoppel. As the D.C. Circuit Court of Appeals recognized,
“The doctrine is detailed, difficult, and potentially dangerous.” Jack Faucett Assocs. v.
AT&T, 744 F.2d 118, 124 (D.C. Cir. 1984). The effect of its acceptance is, in essence, to
close the courthouse doors to a party with regard to a particular claim or issue, which is
why the doctrine’s use is limited to only those situations where that party has already
received a “full and fair” opportunity to litigate its claims, see Parklane Hosiery Co. v.
Shore, 439 U.S. 322 (1979). An issue carrying such grave consequences requires full
analysis by the parties and the court. Because the NLRB has provided us no analysis of
the elements of collateral estoppel, nor has it provided with specific citation the materials
needed to conduct such an analysis, we are ill-equipped to rule on this issue.
Accordingly, we leave undisturbed the Bankruptcy Court’s ruling regarding the
preclusive effect of the NLRB’s determination of liability for violations of the NLRA.
See Bankr. Dkt. 39.
Alternatively, the NLRB appears to take the position that, in reaching its
conclusion that Calvert did not act with the malice required to except the debt from
discharge pursuant to § 523(a)(6), the Bankruptcy Court must have failed to give
appropriate weight to the factual findings made in the prior proceedings. See Dkt. 10 at
13 (“the Bankruptcy Court erred here by analyzing the maliciousness of Calvert’s

12

conduct without deference to the administrative record in the prior unfair labor practice
proceeding.”). It is somewhat unclear what deference the NLRB believes the
administrative record is due. In its order on summary judgment, the Bankruptcy Court
held that a ruling of liability under the NLRA does not compel a ruling of
dischargeability under § 523(a)(6), but it went on to state that “‘[i]f the ALJ made
specific findings of fact with respect to the [debtor’s] intent as to the employees,’” those
findings would be given preclusive effect and accepted as binding upon the Bankruptcy
Court. See Bankr. Dkt. 39 at 5 (quoting In re Gordon, 303 B.R. at 657). However, the
Bankruptcy Court’s review of the underlying labor proceedings revealed that the only
finding of fact made by the ALJ with regard to Calvert’s intent was that Calvert acted out
of “antiunion animus” in discharging the employees. Id. at 5–6. Because this finding of
antiunion animus, alone, was insufficient to establish maliciousness under § 523(a)(6),
the Bankruptcy Court denied the NLRB’s motion for summary judgment and stated that
it would “analyze whether the facts proven at trial, particularly with respect to the intent
of Calvert to harm the subject employees, will support a conclusion of
nondischargeability.” Id. at 6.
We have no indication that the Bankruptcy Court discarded the NLRB’s finding of
antiunion animus in weighing the evidence here. Rather, it appears that the only new
evidence adduced at trial was that, following the Union’s loss in the September 2002
election, Calvert’s company switched to temporary employees in order to avoid the costs
associated with any further audits being conducted by the Indiana Department of Labor,

13

but that, at the time he made the cost-saving decision, he was unaware that the ALJ
would, a year later, order a new election or that the ALJ’s decision would be affirmed
two years later by the NLRB. See Dkt. 11-4 at ¶ 14. Weighing the NLRB’s finding of
antiunion animus (which the Bankruptcy Court had already stated could not by itself
establish malice) against this newly-developed evidence regarding Calvert’s motives and
knowledge, the Bankruptcy Court held:
The NLRB did not present evidence from which the Court can conclude that,
at the time the decision was made, it was more likely than not that Calvert
consciously disregarded the organization rights of the Company’s employees
when Calvert presented uncontroverted evidence of a legitimate business
reason for the layoffs/promotions.
Id.
“The question whether an actor behaved willfully and maliciously is one of fact.”
Horsfall, 738 F.3d at 776. As such, we must accept the Bankruptcy Court’s finding that
Calvert did not act maliciously within the meaning of the dischargeability exception so
long as that finding is not “clearly erroneous.” See Matter of Thirtyacre, 36 F.3d 697, 700
(7th Cir. 1994); see also 11 U.S.C. § 523(a)(6); Fed. R. Bankr. P. 8013. “Under this
standard, if the trial court's account of the evidence is plausible in light of the record
viewed in its entirety, a reviewing court may not reverse even if convinced that it would
have weighed the evidence differently as trier of fact.” Matter of Love, 957 F.2d 1350,
1354 (7th Cir. 1992). Indeed, reversal under the clearly erroneous standard is only
warranted if “the reviewing court on the entire evidence is left with the definite and firm
conviction that a mistake has been committed.” Id., citing, EEOC v. Sears, Roebuck &
14

Co., 839 F.2d 302, 309 (7th Cir. 1988). We are left with no such conviction here. It
appears that the Bankruptcy Court was persuaded by the testimony elicited from Calvert
during his trial that, at the time he made the decision to eliminate his full-time workforce
in favor of less-expensive temporary workers, he did not know whether there would be a
union going forward, nor was he aware that the NLRB would throw out the September
2002 elections results, find that his company engaged in unlawful conduct under the
NLRA, and order a new elections to be held, but instead he believed that the switch was a
legitimate cost-saving measure. See Bankr. Dkt. 56. As the Seventh Circuit instructs,
“We must be especially deferential toward a trial court's assessment of witness
credibility.” Horsfall, 738 F.3d at 776. With that deference in mind, we do not find the
Bankruptcy Court’s conclusion to be clearly erroneous. Accordingly, we accept the
Bankruptcy Court’s finding that the NLRB failed to establish by a preponderance of
evidence that Calvert acted with the requisite malice to except his debt owed to the
Company’s former employees from dischargeability pursuant to 11 U.S.C. § 523(a)(6).
Conclusion
For the reasons detailed above, the Bankruptcy Court’s ruling is AFFIRMED in all
respects. Final judgment shall issue accordingly.
IT IS SO ORDERED.
_______________________________

3/31/2017
Date: _____________

SARAH EVANS BARKER, JUDGE
United States District Court
Southern District of Indiana

15

Distribution:
Dustin R. DeNeal
FAEGRE BAKER DANIELS LLC -- Indianapolis North
[e-mail]
Harmony A. Mappes
FAEGRE BAKER DANIELS LLP (Indianapolis)
[e-mail]
William R. Warwick
NATIONAL LABOR RELATIONS BOARD
[e-mail]
Dalford D. Owens, Jr.
NATIONAL LABOR RELATIONS BOARD
[e-mail]

16