United States District Court, W.D. Washington, Tacoma
ORDER DENYING TRUSTEE'S MOTION TO STAY
BENJAMIN H. SETTLE, UNITED STATES DISTRICT JUDGE.
matter comes before the Court on the motion to stay judgment
pending appeal filed by Appellant Gregory Garvin, Acting
United States Trustee for Region 18, (“Trustee”).
Dkt. 18. The Court has considered the pleadings filed in
support of and in opposition to the appeal and the remainder
of the file and hereby denies the motion for the reasons
PROCEDURAL AND FACTUAL BACKGROUND
November 21, 2016, Cook Investments NW, SPNWY, LLC filed a
Chapter 11 voluntary petition in the Western District of
Washington United States Bankruptcy Court. Dkt. 12, Excerpts
of Record (“ER”) at 2. On December 15, 2016, the
bankruptcy court ordered joint administration of related
bankruptcy cases joining the voluntary bankruptcy petitions
of Cook Investments NW, DARR, LLC (“Darrington”);
Cook Investments NW, FERN, LLC; Cook Investments NW, LLC
(“Cook Investments”); and Cook Investments NW,
ARL, LLC (collectively, with Cook Investments NW, SPNWY, LLC,
referred to as “Debtors”). ER 43-44.
Cook owns and manages the Debtors. In 2006, Cook Investments
secured a loan from Columbia State Bank (“Bank”).
Mr. Cook personally guaranteed the loan and the note was also
secured by Debtors' properties. Each of the four debtors,
exclusive of Cook Investments, owns a commercial business
property. Cook Investments defaulted on the loan, the Bank
obtained a judgment against Cook Investments, and the Bank
sought to enforce the judgment forcing the Debtors to file
for bankruptcy protection.
2015, Darrington leased part of its property to N.T. Pawloski
LLC, d\b\a Green Haven. The lease term is for five years with
an option to renew for an additional five years and requires
Green Haven to pay $10, 000 per month. Relevant to the
appeal, Green Haven is a state-licensed grower of marijuana
and the lease prohibits Green Haven from using the premises
for any purpose other than growing marijuana.
January 18, 2017, the Trustee moved to dismiss the petition
for cause. ER 45- 51. The Trustee argued that the petition
should be dismissed for gross mismanagement of the estate
because leasing premises to an entity that grows marijuana
violates the Controlled Substances Act, 21 U.S.C. § 801
et seq. Id. On March 9, 2017, the
bankruptcy court denied the motion with leave to renew
because Debtors asserted that they could propose a plan that
specifically rejected the Green Haven lease. ER 139-145.
March 28, 2017, Debtors filed a second amended plan of
reorganization (“Plan”). ER 155-72.
April 3, 2017, Debtors filed a motion for order authorizing
rejection of unexpired lease requesting that the bankruptcy
court reject the Green Haven lease. ER 173-76.
April 27, 2017, the Trustee filed an objection to the Plan
arguing that “any confirmation order and related plan
injunctions entered in this case would tacitly promote
ongoing criminal conduct” regardless of whether the
Plan accepted or rejected the Green Haven lease. ER 193-99.
The Trustee sought rejection of the Plan because it did
“not meet the confirmation requirements of 11 U.S.C.
§ 1129(a)(3).” ER 194. Section 1129(a)(3) requires
that the “plan has been proposed in good faith and not
by any means forbidden by law.” On May 22, 2017, the
bankruptcy court granted the motion to reject the Green Haven
lease and deemed the lease “rejected pursuant to
Bankruptcy Code § 365(a), effective immediately.”
21, 2017, the bankruptcy court confirmed the Plan. ER
234-243. In confirming the Plan, the bankruptcy court
considered the interpretation of § 1129(a)(3). The
bankruptcy court rejected Debtors' narrow interpretation
of the section where a bankruptcy court “should not
look to the content of the plan at all in analyzing
compliance” with the code. ER 239. Instead, the
bankruptcy court concluded that, “when [it] is
presented with an undisputed, known criminal violation, the
Court cannot ignore [the violation] and fail to consider
whether [the court] is confirming a plan that is premised on
known illegal behavior.” ER 241. Under this
interpretation of § 1129(a)(3), the bankruptcy court
found and concluded as follows:
Debtors are presenting a plan based on income of all other
Debtors. Payments under the plan will be made from
non-marijuana related income. The lease to Green Haven is not
only not assumed in the Second Amended Plan, it has been
specifically rejected. The secured creditor has agreed to its
treatment, and unsecured creditors are to be paid in full
within five months of confirmation. The Court concludes
Debtors' Plan is proposed “in good faith and not by
any means forbidden by law” as required by Section
This appeal followed.
27, 2017, the Trustee filed a motion to stay the confirmation
pending appeal. Dkt. 5. The Trustee argued that
“section 1129(a)(3) of the Bankruptcy Code prohibits
the confirmation of a chapter 11 plan that invites the
violation of federal criminal law” and that courts of
equity should not be used to “facilitate illegal
conduct.” Id. at 8. On August 24, 2017, the
Court denied the ...