#Motion to dismiss chapter 11 by debtor full

However, the Trustee did not renew its motion to dismiss at the confirmation hearing. The Trustee was the only objector to the Debtors' plan of reorganization. 4 The bankruptcy court denied the Trustee's motion without prejudice to raise the issue at the plan confirmation hearing. Prior to confirmation of the Debtors' plan, the United States Trustee (Trustee) filed a motion to dismiss the Cook DARR chapter 11 case, asserting that the Green Haven Lease constituted gross mismanagement and thus cause to dismiss under section 1112(b) of the Bankruptcy Code. The plan rejected the Green Haven Lease and was structured in a manner that would pay the Debtors' monthly obligations without revenue from Green Haven.

#Motion to dismiss chapter 11 by debtor full

The Debtors' plan of reorganization provides for repayment of all creditors' claims in full and for the Debtors to continue as a going concern. The court noted that Green Haven appears to be in compliance with Washington state law, but that the Green Haven Lease is in violation of the federal Controlled Substances Act.

Pawloski, LLC (Green Haven), used the property exclusively to grow marijuana (the lease for such, the 'Green Haven Lease'). One of the Debtors, Debtor Cook Investments NW, DARR, LLC (Cook DARR), owns commercial real estate in Darrington, Washington, and leased the property to two tenants, one of whom, N.T. The decision by the court highlights the tension between a state-level push to legalize marijuana use (including in states such as Illinois) and existing federal drug laws.Īs discussed below, while the Ninth Circuit's decision paved the way for the Debtors in this case to confirm a plan of reorganization, it does not necessarily eliminate the risks associated with the ability of marijuana-related companies to avail themselves of chapter 11. The Ninth Circuit held that section 1129(a)(3) looks only to the means of a plan's proposal, not its substantive provisions, and thus, affirmed the confirmation of the plan, finding it was not proposed by any means forbidden by law. The United States Trustee objected to the plan of reorganization on the basis that the lease violated current federal drug law, rendering the plan unconfirmable under section 1129(a)(3) of the Bankruptcy Code, which requires a plan not be proposed by means forbidden by law. 1 One of the debtor real estate holding companies leased property to a company that used the property to grow marijuana.

In May 2019, the Ninth Circuit (the court) affirmed confirmation of the plan of reorganization of five real estate holding companies (the Debtors).