# FIL ED
JAN 9 2020 SUSAN M . SPRAUL, CLERK U

. S. B KCY

. APP. PANEL O F T HE N I N T H CI RCUI T 

### ORD ERED PU BLISHED

U NIT E D ST A T E S BA NK RU PT CY A PPE L L A T E PA N E L OF T HE NINT H CIRCU IT In re: BLA K E MC H A R O and IN D IA R O SE MC HA R O , Deb

to rs. STA T E O F O R E GO N , Departm ent o f Hum an Servic

es, A p pellant,

v. BLA K E MC H A R O ,

A p pellee. BA P N o . O R -19-1010-LTaF Bk. N o . 6:18-b

k-61242 A dv. N o . 6:18-ap-06052

OPINION

Sub m itted W itho ut A rgum

ent o n N o vem ber 21, 2019 Filed – January 9, 2020 O rdered Pub

lished - Feb

ruary 7, 2020 A ppeal fro

m the U nited States Bankruptc y C o urt fo r the Distric

t o f O rego n H o no rab le David W

. Herc her, Bankruptc

y Judge, PresidingA ppearanc es: Ellen F. R o

senb aum and C aro

lyn G. W ade o n b rief fo r A p pellant State o

f O rego n, Departm

ent o f Hum an Servic es.

Befo r e: LA FFER

TY , TA Y LO R , and FA R IS, Bankruptc y Judges. LA FFER TY , Bankruptc

y Judge: INT ROD U CT I ON The State o

f O rego n, Departm

ent o f Hum an Servic

es (DHS), appeals the b ankruptc

y c o urt’s judgm

ent in favo

r o f c hapter 7

1 deb to r Blake Mc haro o n DHS’s c

laim fo r no ndisc hargeab ility under § 523(a)(2)(A ). A fter deb to r s failed to answer DHS’s c

o m plaint, the bankruptc

y c o urt entered default against eac

h o f them and entered judgm

ent against c

o -deb to r India Mc haro . The c

o urt, ho wever, dec

lined to enter judgm

ent against Blake 2 bec ause it fo und that his failure to

disc lo se that he had o

b t a ined
em plo ym ent was an unwritten statem ent respec

ting his financ

ial c o nditio n and thus no

t within the purview o

f § 523(a)(2)(A ). W e c o nc lude that the b

ankruptc y c o urt erred in its interpretatio n o f § 523(a)(2)(A ) and therefo re VA C A TE the judgm ent in favo

r o f Blake and

1 Unless speci fi ed other

wi s e, all chapter

and secti on r efer ences ar e to the Bankr uptcy Code, 11 U.S

. C. §§ 101-1532.

2 Because the debtor

s shar e a last name, thi s Memor andum r efer s to each debtor by fi r st name. No di sr

espect i s i ntended. 2R EMA N D fo r further proc

eedings c

o nsistent with this dispo s itio n. F A C T U A L BA CK GROU N D The fac ts are no t in dispute. In A ugust 2011, the Mc haro s applied fo

r pub lic assistanc

e c ash b enefits fro

m DHS thro

ugh the Tem

p o rary A ssistanc

e fo r N eedy Fam

ilies pro gram (TA N F). The applic

atio n they signed inc

luded their agreem

ents that: (1) they had given DHS true,
c o r rec t, and c o m plete inform

atio n; (2) they understo

o d that m aking false statem ents c o uld result in state and federal penalties and the o b ligatio n to repay any o

verpaid b

enefits; (3) they wo

uld repo rt c hanges in the info rm atio n given to

DHS; (4) the statem

ents m ade o n the applic

atio n were true and c

o rrec t, under penalty o

f perjury; and (5) they had read and understo o d their rights and respo nsib ilities as set fo

rth in b o th the applic atio n and in Fo

rm D HS 0415R . Fo

r m DHS 0415R requires that, while
rec eiving b enefits, the applic ants m ust repo rt any c hange in their so

urc e o f inc o m e (i.e., getting, lo

sing, o r quitting a jo

b ) within ten days. A t the tim

e the Mc haro s filled o ut the applic

atio n, Blake was no

t
wo rking. Ho

wever, o n O c to ber 13, 2011, he b

ec am e em plo yed with R ent-A

C enter, Inc

. and rem

ained em

plo yed there until June 30, 2012. O n N o vem ber 9, 2011, India c

o m pleted an “Interim

C hange R epo

rt.” In that do

c um ent, she m

arked the “N o ” b

o x next to the questio

n, “Do es anyo ne wo rk? ” N ext, o

n June 7, 2012, India c

o m p leted an applic

atio n listing Blake as a m

em ber o f her ho useho ld b ut did no

t inc lude him as a
3perso

n fo r who m she was requesting b

enefits. In the sec

tio n regarding ho useho ld inc o m e, she answered “N o ” to the questio

n “Do es anyo ne have
o r expec t to get any m

o ney? ” She also

left b lank the questio

n asking her to list earned inc

o m e o f anyo ne in the hom

e who was related to her o

r her
c hildren. A t no po int after the initial applic atio n did Blake sign o

r sub m it any do c um ent regarding the c

hange in his em

plo ym ent status. A ll during this period, b etween Septem

ber 2, 2011, and June 30, 2012, the Mc haro s were rec

eiving TA N F benefits. O n O c to ber 1, 2015, DHS rec

o rded two

distraint warrants, o

ne against eac

h o f the Mc haro s, sho wing the b a

lanc e due fo r o verpaym

ent o f pub lic assistanc

e benefits plus fees. DHS c o llec ted $1,276 fro

m the Mc haro s befo r e they filed their c

hapter 7 petitio

n. The Mc haro s filed a jo

int c hapter 7 petitio

n o n A pril 22, 2018. 3

DHS tim ely filed a c

o m plaint under § 523(a)(2) o b jec ting to disc

harge o f the deb t
o wed to it. The c o m plaint alleged the fac

ts rec ited ab o ve and requested that the $3,843 still o

wed to DHS b y the Mc haro s b e dec lared no ndisc hargeab le under § 523(a)(2), witho ut spec ifying whether relief was so ught under sub sec t io n (A ) o r (B). The Mc

haro s did no t file an answer. A t a pretrial
c o nferenc e, the b ankruptc

y c o urt direc ted DHS to

file default papers and

3 The chapter

7 tr ustee fi led a r epor

t of no di str

i buti on, di schar

ge was enter

ed, and the case was closed i n August 2018. 4b

riefing on the questio

n o f whether the failure to fulfill an o b ligatio n to repo rt a future c

hange in c

irc um stanc es c an b e fraud under § 523(a). DHS duly filed the requested do c um ents and c

larified that relief was so u ght under § 523(a)(2)(A ). The b ankruptc y c o urt then granted DHS’s m o tio n to enter default against India and Blake and entered a default judgm ent against India o

nly. It to o k under advisem

ent the request fo

r entry o f judgm ent against Blake. In Dec em ber 2018, the b

ankruptc y c o u rt issued a m

em o r andum dec isio n and judgm

ent in favo

r o f Blake. In the m

em o randum dec isio n, the
c o u rt held that DHS failed to state a c laim under § 523(a)(2)(A ) b ec a use Blake’s failure to

repo rt a c hange in em

plo ym ent status c

o nstituted an unwritten statem

ent regarding his financ ial c o nditio n, thus falling o

u tside the purview o

f bo th § 523(a)(2)(A ) and (B).

JU RISD ICT ION The b ankruptc y c o urt had jurisdic

tio n under 28 U .S.C . §§ 1334 and 157(b )(1) and (b

)(2)(I). W

e have jurisdic

tio n under 28 U .S.C . § 158. ISSU E W hether the b a

nkruptc y c o urt ab used its disc

r etio n in denying DHS’s request fo

r entry o f a default judgm

ent against Blake Mc

haro o n DHS’s § 523(a)(2)(A ) c

laim o n the b asis that a failure to disc lo se a c hange in
em plo ym ent status c

o nstitutes an unwritten statem ent relating to

financ ial
c o nditio n.
5ST A ND A RD S OF RE V IE W

The b ankruptc y c o urt’s denial o

f a default judgm

ent is reviewed fo

r an ab use o f disc retio n. Eitel v. M cC o

o l , 782 F.2d 1470, 1471 (9th C ir. 1986). A b ankruptc y c o urt ab uses its disc

retio n if it applies the wro

ng legal standard, m

isapplies the c

o r rec t legal standard, o

r m a kes fac tual findings that are illo

gic al, im plausib le, o r witho ut suppo rt in inferenc

es that m

ay b e drawn fro

m the fac ts in the rec

o rd. S e e Tra fficS cho o l .co m , Inc. v. Edriver Inc. , 653 F.3d 820, 832 (9th C ir. 2011) (c iting U nited S ta

tes v. H ink

so n , 585 F.3d 1247, 1262 (9th C ir. 2009) (en b anc )). W e review de no

vo the bankruptc

y c o urt’s interpretatio

n o f the Bankruptc

y C o de. Ba rnes v. Belice (In re Belice) , 461 B.R . 564, 572 (9th C ir. BA P 2011). “W

hen we c o nduc t a de no vo review, we loo

k at the m

atter anew, the sam

e as if it had no

t b een heard b efo

re, and as if no

dec isio n previo usly had b

een rendered, giving no deferenc

e to the ba nkruptc y c o u rt’s determ

inatio ns.” Id. at 572–73 (c

itatio ns o m itted). D ISCU SSION Sec tio n 523(a)(2)(A ) o

f the Bankruptc

y C o de exc epts fro m disc harge any deb t “o b tained b y false pretenses, a false representatio n, o r ac tual fraud, o ther than a statem

ent respec

ting the deb

to r’s o r an insider’s financ ial c o nditio n.” Sec tio n 523(a)(2)(B) in pertinent part exc epts fro m disc harge deb

ts o b tained b y m aterially false written statem ents respec

ting a deb to r ’s o r insider’s financ

ial c o nditio n. U nless the deb

t c o uld fall under

6ano

t her exc eptio n to disc harge as desc

ribed in the C o

de, deb t s o b tained b y
m aterially false, b

ut unwritten, statem

ents respec

ting a deb

t o r’s financ

ial
c o nditio n are still sub

j ec t to disc harge. S ee La

m a r, Archer, &

C o frin, LLP v. Appling , 138 S. C t. 1752, 1757 (2018). A c redito r asserting no

ndisc hargeab ility o f a deb t under § 523(a)(2)(A )
m ust dem o nstrate b y a prepo

nderanc e o f the evidenc

e . . . (1) m isrepresentatio

n, fraudulent o

m issio n o r dec eptive c o nduc t b y the deb

to r; (2) kno wledge o

f the falsity o

r dec eptiveness o

f his statem

ent o r c o nduc t; (3) an intent to dec eive; (4) justifiab

le relianc

e b y the c redito r o n the deb

to r’s statem ent o r c o nduc t ; and (5) dam

age to the c redito r pro xim ately c aused b y its relianc

e o n the deb

to r’s statem

ent o r c o nduc t. Turtle R o ck M e a do ws H o m eo wners Ass’n v. S lym

a n (In re S lym

a n) , 234 F.3d 1081, 1085 (9th C ir. 2000). A fraudulent o

m issio n in the fac

e o f a duty to

disc lo se m a y c o nstitute a false representatio

n. C itiba nk (S o uth D a k o ta ), N .A. v. Ea

sha i (In re Ea

sha i) , 87 F.3d 1082, 1089 (9th C ir. 1996); cf. H a rm o n v. K o brin (In re H a

rm o n) , 250 F.3d 1240, 1246 &

n.4 (9th C ir. 2001). In c ases where a plaintiff estab lishes the no ndisc lo sure o f a m aterial fac

t that the deb

t o r was under a duty to disc lo se, the relianc

e and c a usatio n elem ents are estab

lished and need no

t be separately pro

ven. Apte v. R o

m esh Ja pra , M .D ., F .A.C .C ., Inc. (In re Apte) , 96 F.3d 1319, 1323 (9th C ir. 1996).

7A ltho ugh the b ankruptc

y c o u rt ac kno w ledged the fo

rego ing autho r ities, it fo

und that Blake’s fraudulent o m issio n was a “statem

ent respec ting financ

ial c o nditio n” and thus fell o

utside the purview o

f § 523(a)(2)(A ). The c

o urt c o nc luded that a statem

ent need no

t b e express,
c iting the definitio n o

f “statem

ent” fro m Blac k’s Law Dic

tio nary: “A verb a

l assertio n o r no nverb al c

o nduc t intended as an assertio n.” The c o urt no ted that this definitio

n trac ks with the definitio

n fo und in Federal R ule o

f Evidenc e 801(a): “a perso

n’s o ral assertio

n, written assertio

n, o r no nverb al
c o nduc t, if the perso

n intended it as an assertio n.” The b ankruptc y c o urt rejec t ed DHS’s argum

ent that the Suprem

e C o urt’s rec ent dec isio n in A ppling

estab lished that a failure to

disc lo se do es no t c o nstitute a “statem

ent.” In Appling

, the Suprem

e C o u rt c o nsidered whether a false o

ral statem

ent regarding a single asset, an antic ipated tax refund, c o nstituted a “statem

ent respec

ting financ

ial c o nditio n” that wo

uld fall under the exc

eptio n to disc harge o f § 523(a)(2). In its analysis, the Suprem e C o urt c ited the definitio n o

f “statem

ent” set fo

rth in W eb ster’s Third N ew Internatio

nal Dic tio nary: “the ac

t o r pro c ess o f stating, rec

iting,
o r presenting o

rally o r o n paper; so

m ething stated as a repo

rt o r narrative; a single dec

laratio n o r rem ark.” A ppling

, 138 S. C t

. at 1759. Bec

a use A ppling invo lved an o

ral statem

ent, the Suprem

e C o urt did no

t address the questio n o f whether a “statem

ent” c o uld inc lude an o

m issio n. The b ankruptc y c o urt reaso ned that no

nverb a l c o nduc t nec essarily

8inc

ludes silenc

e in the fac

e o f a duty to

disc lo s e, and thus Blake’s failure to disc lo se his c hanged inc

o m e to DHS c o nstituted a statem

ent respec

ting financ ial c o nditio n. The c o urt c o nc luded that this interpretatio n m ade
sense as m

atter o f po lic y b ec ause if suc

h silenc e were no

t c o nstrued as a “statem ent,” then tho

se deb to rs who rem a ined silent c

o uld b e punished
m o re harshly than tho

se who ac t ively lied, whic

h wo uld b e an inc o ngruo u s result. 4 W e respec tfully disagree with the b ankruptc y c o urt’s analysis. C o ngress did no

t define “statem

ent” in the Bankruptc

y C o de. A fundam ental c ano n o f statuto ry c o nstruc tio n is that, when a term

is undefined, wo

r ds within a statute “will b e interpreted as taking their
o rdinary, c

o ntem po rary, c o m m o n m eaning.” Perrin v. U nited S ta tes , 444 U .S. 37, 42 (1979). In interpreting an undefined term , c o urts m ay c o nsult dic tio nary definitio

ns. Tra nswestern Pipeline C o

., LLC v. 17.19 Acres o

f Pro p. Lo ca ted in M a r ico pa C ty. , 627 F.3d 1268, 1270 (9th C ir. 2010). The W eb ster’s definitio n–the ac t o r pro c ess o f stating, rec

iting, o r presenting o

rally–do es no t c o ntem plate silenc

e o r even no

nverb al c

o m m unic atio n. Appling itself pro

vides suppo

rt fo r the c o nc lusio n that an o

m issio n is

4 We note that the bankr u ptcy cour t r ecently deci ded a case wi th facts near ly i denti cal to those pr esented her e and r uled i n fav or

of the gov er

nment plai nti ff i n Washington County Department of Housing Services v. Hall (In re Hall) , No. 18-03121-DWH, 2019 WL 4281911 (Bankr . D. Or . S ept. 9, 2019). In Hall , the bankr uptcy cour

t r econsi der ed i ts analysi s of the meani n

g of “statement” and concluded that, for pur poses of § 523(a)(2)(A), a fr a udulent omi ssi on i s not a “statement.”

9no

t a “statem

ent,” alb eit in dic ta. The Suprem

e C o urt no t ed that deb

t inc urred thro

ugh fraudulent c

o nduc t m ay b e no ndisc hargeab le under § 523(a)(2)(A ). Appling

, 138 S. C t. at 1763 (c

iting H usk y Int’l Elecs., Inc. v. R itz , 136 S. C t. 1581, 1586 (2016), ho lding that “ac

tual fraud” under § 523(a)(2)(A ) inc

ludes sc hem es that c an b e undertaken witho

ut a representatio

n). In a related fo

o tno te, the C o

urt c ited U nited S ta

tes v. Tuck

er (In re Tuck

er) , 539 B.R . 861 (Bankr. D. Idaho 2015), and U nited S ta tes v. D rum m o nd (In re D r

um m o nd) , 530 B.R

. 707 (Bankr. E.D. A rk. 2015). Bo th
c ases invo

lved fac ts sub stantially sim

ilar to this c

ase, and b

o th held that a deb t inc urred b y o verpaym

ent o f go vernm ent b enefits b ec

ause a deb

to r failed to disc lo s e a c hange in em

plo ym ent status was no

ndisc hargeab le under § 523(a)(2)(A ). Appling , 138 S. C t. at 1763 n.4. W e further find no

c o m pelling po

lic y basis to treat o

m issio ns as statem ents. W ith respec

t to the c o nc ern that deb

to r s who rem ain silent regarding their financ

ial c o nditio n m ay b e punished m

o re harshly than tho se who m ake affirm

ative o ral m isrepresentatio

ns, a vo luntary lender
c an typic ally pro tec t itself b y requiring financ

ial info r m atio n in writing befo r e loaning m

o ney. O n the o

ther hand, go

vernm ent agenc

ies that pro vide b enefits to deb

t o r s do no t intentio

nally set o

ut to b ec o m e c redito rs: a deb to r -c redito r relatio nship arises o

nly when the applic

ant b ec o m es disqualified fro

m rec eiving b enefits b

ut fails to repo

rt the c hange in status. A s suc h, tho se agenc ies are reliant o

n the applic

a nt to m ake full, c

o ntinuing

10disc

lo sures. In re H a

ll, 2019 W

L 4281911 at *4 (c

itatio n o m itted). CONCL U SION The b ankruptc y c o urt erred when it c

o nstrued Blake’s failure to disc lo se his c hange in em

plo ym ent status as a “statem

ent respec

ting . . . financ ial c o nditio n” under 11 U .S.C . § 523(a)(2)(A ). A c c o rdingly, we VA C A TE and R EMA N D fo r further proc

eedings c

o nsistent with this dispo sitio n. 5

5 We emphasi z e that our holdi ng i s li mi ted: wher e the debtor

has made a wr

i tten appli cati on that i ncludes fi nanci al i nfor mati on and promi ses to r epor t any changes i n that i nfor

m ati on, the debtor ’s fai lur e to make such a repor

t i s not a “statement r especti ng . . . fi nanci al condi ti on.” On r emand, the cour t wi ll need to consi der and make fi ndi ngs as to the elements of the § 523(a)(2)(A) clai m. 11