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In re Rent-Rite Super Kegs West, Ltd.

484 B.R. 799 (2012)

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In re Rent-Rite Super Kegs West, Ltd.

United States Bankruptcy Court for the District of Colorado
484 B.R. 799 (2012)

Facts

Rent-Rite Super Kegs West, Ltd. (Rent-Rite) (plaintiff) owned a warehouse and used the warehouse as collateral for a $1.8 million loan. Rent-Rite’s lender assigned the loan to VFC Partners 14, LLC (VFC) (defendant). Rent-Rite leased a portion of its warehouse space to tenants who grew marijuana. The tenants’ marijuana cultivation was arguably legal under Colorado law, but it violated the federal Controlled Substances Act (CSA). The rent from these tenants accounted for approximately 25 percent of Rent-Rite’s revenues. Rent-Rite filed a Chapter 11 bankruptcy petition and named VFC as a secured creditor, requesting that the bankruptcy court relieve Rent-Rite of its obligation to repay the $1.8-million loan. VFC moved to dismiss Rent-Rite’s petition pursuant to the clean-hands doctrine, arguing that Rent-Rite should not be relieved of its debt because its activities violated federal law.

Rule of Law

Issue

Holding and Reasoning (Tallman, C.J.)

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