On August 5, 2019, Keith Owens was quoted in Continuing Education of the Bar regarding the Ninth Circuit's decision in Gavin v. Cook. According to the article, Michael Cook, a debtor who leased property to a marijuana business in Washington, won Chapter 11 relief from the bankruptcy court, and the Ninth Circuit's three-judge panel upheld that decision.
The U.S. Trustee moved to dismiss Cook's reorganization plan on the basis that it was proposed "by means forbidden by law " and was thus unconfirmable under 11 U.S.C. § 1112. But the panel held that the statute directs bankruptcy courts "to police the means of a reorganization plan's proposal, not its substantive provisions."
Owens noted that the decision was unique because "normally these cannabis cases don't even get to this point," as they're usually dismissed by bankruptcy courts under § 1129(a)(3). He also pointed out that Cook's victory may have hinged on a procedural error by the U.S. Trustee, who was given the chance to file an amended motion to dismiss in the bankruptcy court but failed to do so.
"It opens up the door, but it just cracks the opening," he said of the opinion.
The decision also leaves several open legal questions, Owens said – such as whether a debtor who has operated a cannabis business is eligible for Chapter 11 relief if it ceases those business operations before filing a bankruptcy petition and subjecting itself to the bankruptcy court's jurisdiction, or whether such a Chapter 11 debtor or bankruptcy trustee can liquidate cannabis-related assets like equipment and real estate for the benefit of creditors.