Colorado marijuana bankruptcy denial put on hold pending appeal

As Doug blogged about previously here, last month a Colorado bankrupcty judge dsimissed a Denver marijuana business owner’s bankrupcty petition.  The court reasonined that allowing the petition to go forward would put the bankrupcty trustee in the untenable position of administering assets that are being used to commit federal crimes.

As the story last month noted, the debtor was appealing the decision.  And, late last week, the bankruptcy judge granted the debtor’s request to stay enforcement of the court’s judgment pending appeal.  The decision does not seem to be available yet on the Colorado bankrupcty court’s site (or, at least, it is not coming up in response to my searches.)  But, it is on Lexis at 2014 Bankr. LEXIS 4409.

This development will essentially put everything on hold in the case until the appeals court has weighed in.

Here are a few excerpts from the court’s opinion: 

The Debtors’ appeal raises important questions. As illustrated by this case, the intersection between the federal marijuana prohibition and state level liberalization of marijuana laws significantly complicates bankruptcy proceedings where those issues arise. For a trustee, taking custody of and administering assets that are used in the commission of a federal crime can involve a trustee in conduct that violates the federal criminal law. Because of those complications in this case, the Court found that bankruptcy relief was impossible to grant to these Debtors. 

 

The policy of The United States Department of Justice, with respect to state citizens who are acting in compliance with liberalized state marijuana laws, is to initiate enforcement actions under the CSA primarily where overriding federal concerns are implicated. The same Department of Justice, through the United States Trustee (the “UST”), moved to dismiss these Debtors’ bankruptcy case on account of conduct which does not appear to implicate the type of federal concerns that would typically lead a United States Attorney to initiate a criminal prosecution or other enforcement action under the CSA.

 

…

 

The Court finds that the balance of the harms favors granting the stay. In the Court’s Dismissal Order, after hearing evidence at the trial of the UST’s motion to dismiss, the Court recognized that the denial of bankruptcy relief would be “devastating” to the Debtors. (Dismissal Order at p. 9). Also, in its response to the Debtors’ Motion, the UST has not alleged that the creditors would suffer any harm if the Court’s Dismissal Order is stayed and the UST asserted that it does not oppose the stay. Given that the UST is statutorily tasked with supervising “the administration of cases and trustees in cases under chapter 7 . . . ,” 28 U.S.C. 586, and is the party that sought dismissal of the Debtors’ case in the first instance, his lack of opposition to the Debtors’ Motion is significant to the Court. Thus, the balance of the harms strongly favors granting a stay pending appeal.

 

…

 

The Court also believes that the Debtors’ appeal presents novel and substantial questions of law that will benefit from appellate review. As a consequence of these factors, the Debtors have raised at least some uncertainty as to the merits of their appeal.

…

Even though the Court cannot assess the Debtors’ likelihood of success as being great, because the balance of the harms supports granting the stay, the UST does not oppose granting such relief, and the Debtors’ appeal raises important legal issues, a stay of the Court’s Dismissal Order pending appeal is appropriate in this case. 

 

This appeal will certainly be worth watching closely.