Bankruptcy and Labor Law: Decision by Appeals Court Permits Debtor to Discharge an NLRB Fine in Bankruptcy
If the National Labor Relations Board (“NLRB”) fines an employer for unlawfully firing workers who tried to unionize, can the employer discharge the fine in bankruptcy, or will the exception to discharge found in Bankruptcy Code section 523(a)(6) apply? That section bars discharge of debts that arise from “willful and malicious injury.” The issue was addressed recently in a decision by the United States Court of Appeals for the Seventh Circuit following proceedings before an administrative law judge (“ALJ”), the NLRB, a District Court, and a Bankruptcy Court. An individual debtor had sought to use bankruptcy to discharge a liability imposed by the NLRB. However, the NLRB argued that the discharge should be denied because the debtor had engaged in “willful and malicious injury,” citing 11 U.S.C. §523(a)(6). In a 2-1 decision, the Seventh Circuit held that the administrative finding that the debtor violated §158(a)(3) of the National Labor Relations Act —which prohibits an employer from discriminating an employee to encourage or discourage membership in any labor organization—did not bar the debtor from arguing that he had not acted with malice.