As the legalized marijuana at the state level continues to thrive, bankruptcy courts flirt with marijuana’s place within the Bankruptcy Code. One principle begins to emerge: while presence of marijuana does not automatically call for dismissal, if the court and trustee have to participate in or condone the illegal conduct in any way, the case will be dismissed.

Background:

Since the legalization of marijuana has occurred in several states over the past several years, multiple courts have ruled that the continued illegality of marijuana on a federal level prevents debtors entrenched in the marijuana industry from garnering the benefits of bankruptcy protection. See In re Rent Rite Super Kegs W. Ltd., 484 B.R. 799 (Bankr. D. Colo. 2012) (A debtor whose plan relied on roughly 25% of its income from renting property to marijuana growing operation was “cause” to dismiss case under 11 U.S.C 1112(b), constituted gross mismanagement of the estate, and debtor was not operating with “clean hands.”); In re Arenas, 514 B.R. 887 (Bankr. D. Colo. 2014) (prohibition against marijuana related activities extended to cases under Chapter 7 and Chapter 13).

In a case of first impression, the Second Appellate District concluded that assuming fraudulent intent, the UVTA (formerly the Uniform Fraudulent Transfer Act) applies to premarital agreements which treat after marriage earnings and assets as separate property.

In 2005, Judgment Creditor Robert Strum obtained a $600k bankruptcy judgment against debtor Todd Moyer. The creditor renewed the judgment and conducted a number of debtor’s examinations. Upon an OEX in 2016, the creditor learned that the debtor married in 2014 and identified Sturm’s judgment as an exhibit to a premarital agreement.

U.C.C Section 9-319(a) grants a consignee ownership rights in consigned goods. Does it also apply to proceeds from the sale of those goods? In the recent decision of In Re Pettit Oil Company, the Ninth Circuit said that it does, holding that proceeds from goods held by a consignee at the time of a bankruptcy filing are subject to the perfection and priority rules in the Bankruptcy Code.

This week the Supreme Court issued their opinion in Obduskey v. McCarthy & Holthus LLP. In 2007, Obduskey bought a house in Colorado, borrowed $330k from a lender and secured repayment of the loan with a mortgage (or deed of trust) against the house. In 2014, Wells Fargo hired the law firm of McCarthy & Holthus LLP to commence foreclosure as the borrower was in default.

The firm sent a letter to borrower as required under state law to commence the foreclosure. The opinion did not publish the text of that initial letter but I suspect it contained a “mini Miranda” which is common in demand letters, ie, that this could be considered an attempt to collect a debt under the Fair Debt Collection Practices Act. (“FDCPA”). The borrower disputed the debt and invoked section 1692g)b of the FDCPA which would require a debt collection to cease collection until it obtains verification of the debt.

A new ruling from California’s 6th Appellate District clarifies what appeared to be a gap in what is permitted for post-judgment document discovery on third parties.

California’s Enforcement of Judgment laws (enumerated in the California Code of Civil Procedure)+ §680.010 et seq.) has very clear code sections on what is allowed for discovery of the judgment debtor:

1. the judgment creditor may propound interrogatories (§708.020), and may seek production of judgment debtor’s financial records (§708.030); and
2. the judgment creditor may take the debtor’s examination (§708.110) “The judgment creditor may apply to the proper court for an order requiring the judgment debtor to appear before the court, or before a referee appointed by the court, at a time and place specified in the order, to furnish information to aid in enforcement of the money judgment.”

Just as debtors have legal rights in the bankruptcy process, so do creditors. The specific rights depend on whether a given debt is secured or unsecured, and the priority of the debt relative to debts owed to other creditors. Working with an experienced creditors' rights bankruptcy attorney, you - the creditor - can ascertain your exact legal rights even as a debtor liquidates assets in Chapter 7 bankruptcy or a business reorganizes debt via Chapter 11 bankruptcy.

The term "bankruptcy" is loaded with meaning. When reading it, one might conjure images of a dream gone bust, a life gone wrong, and a hopeless future. Such a grim picture simply does not square with reality, however. The truth is that many individuals and businesses that choose to go through the bankruptcy process go on to experience great success in life and in business.

Take, for example, Donald Trump, the current President of the United States. Prior to being elected, Trump had filed for bankruptcy. Not only that, but Trump's companies filed for bankruptcy six times. This fact alone illustrates that bankruptcy is by no means inconsistent with prosperity. Importantly, however, one must be strategic and well-prepared in the bankruptcy process, working with an experienced San Jose bankruptcy and business law attorney every step of the way.