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Bankruptcy Court Holds Case Subject To Dismissal When Reorganization Depends On Income Derived From Sale Of Marijuana

The Chapter 11 debtor in In re Arm Ventures, LLC, 564 B.R. 77 (Bankr. S.D. Fla. 2017) owned a commercial building. The debtor repeatedly maneuvered in state and federal court to stop foreclosure sales by the bank. Ultimately, the debtor filed Chapter 11 bankruptcy to prevent the third attempted foreclosure sale. The bank moved to dismiss the bankruptcy case as having been filed in bad faith or, in the alternative, for relief from the automatic stay to complete foreclosure proceedings. The debtor opposed the motion and filed a plan of reorganization that relied upon lease income from an entity that sold medical marijuana. The bank argued that the plan was not confirmable because income derived from selling marijuana was not legal under state and federal law. The debtor argued that the proposed tenant was applying for all of the appropriate licenses under state and federal law to sell medical marijuana. The bankruptcy court held that the plan was not confirmable because the prospect of the tenant being approved to sell medical marijuana under federal law was “highly unlikely” and “an extremely remote possibility.” The bankruptcy court further held that the fact that the debtor proposed a plan that depended on income derived from selling medical marijuana was bad faith under the bankruptcy code that permitted the court to dismiss the case. Ultimately, although the bankruptcy court held that the case was “ripe for dismissal,” the court did not dismiss the case due to significant unsecured debt and instead lifted the automatic stay in favor of the bank.

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