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Garvin v. Cook Investments NW, SPNWY, LLC

922 F.3d 1031 (2019)

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Garvin v. Cook Investments NW, SPNWY, LLC

United States Court of Appeals for the Ninth Circuit

922 F.3d 1031 (2019)

Facts

Michael Cook owned five real-estate holding companies including Cook Investments NW, DARR, LLC (Cook DARR) (debtors). Cook DARR leased property in Darrington, Washington to an entity known as Green Haven, which used the property to grow marijuana. Cook DARR’s lease with Green Haven provided that Green Haven would use the property as a marijuana establishment. Although marijuana is legal in Washington state, the lease violated a federal law that prohibits knowingly leasing any place for the purpose of manufacturing, distributing, or using any controlled substance. In 2009, Cook’s companies filed chapter 11 bankruptcy petitions. The United States bankruptcy trustee moved to dismiss Cook DARR’s case, alleging that the lease with Green Haven was gross mismanagement that provided cause for dismissal. The bankruptcy court denied the motion. Cook subsequently lawfully proposed an amended joint reorganization plan that contemplated fully repaying all creditors and allowing Cook’s companies to continue operating. The amended plan was structured so that Cook’s monthly obligations could be paid without using any revenue from Green Haven, even though Cook would continue to receive rent from Green Haven. Cook’s creditors all supported the plan, but the trustee objected. The bankruptcy court ultimately confirmed the plan, and acting United States bankruptcy trustee Gregory Garvin appealed. Garvin argued that the amended plan had been proposed by unlawful means because the Green Haven lease violated federal drug laws, and Cook’s continued receipt of rent payments from Green Haven at least indirectly supported the plan. Garvin thus asserted that the plan was unconfirmable under 11 U.S.C. § 1129(a)(3).

Rule of Law

Issue

Holding and Reasoning (McKeown, J.)

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