Amy Beth Sharp formed a company to transport cannabis and hemp products and hired Nick Cox and Georgia Forsee as delivery drivers and administrative staff. Sharp promised the employees a monthly salary of $3,500 and agreed to pay accrued wages once the company secured investment funding. For approximately two years, Sharp repeatedly told the employees that investments had been secured to keep them working, even though she knew no such investments were being made. She used personal loans to pay other company expenses but never paid the employees their promised salaries. When the employees eventually learned the company was struggling, Sharp fired one and the other left. Sharp later secured significant investment funds but refused to pay the employees, arguing they were no longer involved in the business. The employees sued in bankruptcy court, seeking a ruling that the debt for unpaid wages was nondischargeable. The bankruptcy court found that Sharp had incurred the debt through false pretenses and actual fraud, ruling the $84,000 debt could not be wiped out in bankruptcy. Sharp appealed to the district court, where she raised a new argument for the first time: that her statements regarding the company's finances fell under a specific exception in the bankruptcy code that would make the debt dischargeable. The district court affirmed the bankruptcy court's judgment, holding that Sharp had forfeited this new argument. Sharp then appealed to the Tenth Circuit.
The Tenth Circuit addressed a single issue: whether the bankruptcy court erred by failing to find Sharp's debt dischargeable under the 'financial condition' exception of 11 U.S.C. § 523(a)(2)(A). The court began by noting that Sharp never raised this specific argument in the bankruptcy court proceedings. In her pretrial brief and oral motions, Sharp only argued that the employees failed to prove false pretenses or fraud. She did not contend that the debt was dischargeable because the statements were merely representations of financial condition. Under Tenth Circuit precedent, an issue is not preserved for appeal unless a party alerts the trial court to the issue and seeks a ruling. The court explained that raising a related theory, such as arguing about the elements of fraud, does not preserve a distinct legal theory like the financial condition exception. Because Sharp failed to articulate this theory below, she forfeited it. Sharp asked the court to review the argument de novo, claiming it was a matter of pure statutory interpretation. The court rejected this, citing controlling precedent that purely legal arguments do not bypass forfeiture rules in the absence of plain error. The court then applied the plain error standard, which requires showing an error that is plain, affects substantial rights, and seriously affects the fairness or integrity of judicial proceedings. The court found Sharp failed the third prong because even if her statements were considered 'financial condition' statements, the statute also provides for nondischargeability under § 523(a)(2)(B) for materially false written statements of financial condition. Since Sharp provided no explanation as to why the debt would be dischargeable under § 523(a)(2)(A) but not § 523(a)(2)(B), she could not show that the result would have been different. Furthermore, the court found she failed the fourth prong, noting that the plain error standard in civil cases is 'extraordinary and nearly insurmountable' and generally applies only when physical liberty is at stake. The court concluded that allowing Sharp to discharge debts owed to employees she deceived would not seriously harm the integrity of judicial proceedings, but rather, the failure to enforce the judgment would harm the employees.
The debt for unpaid salaries remains enforceable against Amy Beth Sharp and cannot be discharged in her bankruptcy case. The decision reinforces the strict requirement that debtors must raise all specific legal defenses in the bankruptcy court to preserve them for appeal. It clarifies that even if a debtor raises a new argument on appeal claiming it is a 'pure question of law,' the court will not review it unless the debtor can prove plain error, a very high bar in civil cases. The ruling leaves open the question of how § 523(a)(2)(B) applies to written financial statements but confirms that the debt is nondischargeable under § 523(a)(2)(A) based on the fraud findings.
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