In re Kent and Carley Rae Burton

Case Type:
Consumer
Case Status:
Affirmed
Citation:
BAP No. AZ-19-1126-LTaF (9th Circuit, Jan 14,2020) Published
Tag(s):
Ruling:
BAP for 9th Circuit affirmed dismissal of chapter 13 case after bankruptcy court (D. Az.) determined that debtors' potential recovery from marijuana business lawsuit created impermissible risk of conflict for chapter 13 trustee and court in administering marijuana-business derived funds. Notwithstanding legality of marijuana business under state law, risk of administration of assets derived from business illegal under federal law, even though uncertain, justified dismissal. Bankruptcy court did not abuse discretion.
Procedural context:
Bankruptcy court (D. Az.) issued order to show cause to chapter 13 debtors as to why case should not be dismissed based on disclosure that debtors had interest in a marijuana business's lawsuit against a third party. Following debtors' response, bankruptcy court dismissed case. Debtors appealed to BAP for 9th Cir.
Facts:
Burtons filed chapter 13 in April 2018, disclosing interests in four limited liability companies, all with unknown values, including a 65 % membership interest in Agricann, of which Mr. Burton was a manager and its president. They also listed a pending claim belonging to Agricann against Natural Remedy Patient Center LLC, described as a breach of contract action, also with an unknown value. Postpetition, Agricann sued two other parties, including Cannabis Research Group in state court. Both lawsuits sought damages for breach of contracts under which Agricann was to cultivate, grow, and sell medical marijuana. According to original and amended Schedule I, Mr. Burton was unemployed during the pendency of the bankruptcy case. All Schedule I income was attributed to Ms. Burton’s wages from her employment. Schedule J showed a monthly net income of $458.80, with which the Burtons proposed to fund their chapter 13 plan.
Judge(s):
Lafferty, Taylor, Faris

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