A Washington bankruptcy judge just held that a contractor's lie about buying materials makes the resulting debt non-dischargeable. The judge also refused to extend that holding to the rest of the project. The decision, In re Sleater, Adv. No. 25-01062-CMA, Doc. 88 (Bankr. W.D. Wash. Oct. 22, 2026) (Alston, J.), is a good read for anyone who bills cost-plus work, and for anyone who sues over it.
The setup
Brian Connorton hired NV Development, LLC to build a custom home and shop in Rathdrum, Idaho. The estimated price was $1,097,778. Jason Sleater, NV Development's sole member, ran the company.
The contract was cost-plus. NV Development would bill monthly for "the portion of the Cost of the Work performed," plus a fee. The judge read that language to cover materials NV Development actually bought. It did not cover estimated costs it had not yet incurred.
Connorton paid a 5% down payment, then $169,534.05 on Pay Application #1 and $61,517.14 on Pay Application #2. That totaled $285,940.09, about 26% of the contract price.
The lie
Before the first pay application, Connorton texted that lumber prices were rising and asked whether to buy siding. Sleater answered that "we are already locked in. Bought it Tuesday." Two days later, NV Development billed Connorton for framing, trusses, sheathing, and a shop package.
The backup invoices came from Coeur d'Alene Builders Supply. They said "QUOTATION" and "THIS IS AN ESTIMATE ONLY." Sleater testified he never bought anything from that supplier.
Then it got worse. Connorton suspected the purchase never happened. To smoke it out he falsely told Sleater that his wife needed proof of purchase. Sleater sent fabricated wire-transfer documents. At trial, Sleater admitted he made up the amounts, the descriptions, and even the confirmation number.
After terminating the contract, Sleater texted that Connorton had paid a "DEPOSIT on the lumber" that he then "canceled." That contradicted his trial testimony that he never placed a deposit. The judge also credited Connorton's account over Sleater's claim that Connorton asked for the fake documents. He found Sleater's story "defies logic."
Sleater then filed a lien for more than $400,000 and demanded $1,500 per day in damages. He admitted at trial that he had no contractual right to either.
The bankruptcy
On November 1, 2024, Sleater filed Chapter 7 bankruptcy. It was his third personal bankruptcy filing in one year, across two courts. Connorton sued to deny discharge and to except the debt from discharge.
The holding on fraud
Connorton argued three separate lies. He won on one.
Lie #1: Sleater never intended to perform. The court rejected this theory. Photographs showed substantial work on the site. Sleater obtained engineering and environmental plans. Connorton's own lawyers conceded in a January 2022 letter that he received value and sought no refund for it. So Connorton could not recover everything he paid.
Lie #2: The second wire-transfer document. The court rejected this one too. The document showed a $30,225 wire to an excavator, but the bank statement showed $28,500. The judge called the possible fabrication "extremely disturbing." The claim still failed on reliance. By early December, Connorton already believed Sleater was lying. He testified he never opened the document showing the wire to the excavator. A creditor cannot justifiably rely on a document he distrusted and never read.
Lie #3: Buying the lumber and trusses. Connorton won on this one. Sleater said he bought materials he never bought, and he billed for them. Unlike like #2, as of November 3, 2021, Connorton "had no reason to think Mr. Sleater was unreliable." So, the court found justifiable reliance. The invoices marked "quotation" and "estimate" did not change that result. Even if Connorton read them, he reasonably relied on Sleater's statement that he had bought the lumber.
The damages
The court added the three line items billed for the supposedly purchased materials: $15,270, $71,350.54, and $25,595.74. They total $112,216.28. It then added the 15% contractor fee that NV Development had collected on those items. The result was a non-dischargeable judgment of $129,948.72, plus post-judgment interest at the federal rate.
Takeaways for construction practitioners
- Pay applications are representations. Billing for materials "purchased" when the contract covers only costs incurred can be a false statement. A text message saying the lumber is "locked in" can supply the rest.
- Reliance has an expiration date. Connorton's reliance was justifiable on November 3, 2021. It was not justifiable by early December, after he concluded Sleater could not be trusted. Discovery of the truth limits reasonable reliance on later statements.
- Damages need line-item proof. The court awarded only the specific items shown to be false, plus the fee. It refused the full payment amount without evidence tying the rest to the fraud.
- Your pretext may not sink you. Connorton admitted he lied about his wife's demand to bait Sleater into producing documents. The judge accepted his testimony on the central points anyway.
In re Sleater is a bankruptcy trial court decision. It binds no one. The outcome rests heavily on credibility findings. But it is a clear template for how a court splits a construction fraud claim into the statements that count and the ones that do not.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
