Christopher Michael Callaway

• Court: United States Bankruptcy Court, N.D. California
• Decided: June 26, 2024
• Docket: 24-30082
• Status: Unknown

Opinion

U.S. BANKRUPTCY COURT SS NG NORTHERN DISTRICT OF CALIFORNIA □□□□ ae Me □□□ 1 . a. Wig Signed and Filed: June 26, 2024 □□□□ OL 2 Mini hi whe 4 Vin An 0 5 DENNISMONTALL | U.S. Bankruptcy Judge 6 7 UNITED STATES BANKRUPTCY COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 In re ) Bankruptcy Case 10 ) No. 24-30082-DM CHRISTOPHER MICHAEL CALLAWAY, ) 11 ) Chapter 7 12 Debtor. ) ) 13 ) 14 15 MEMORANDUM DECISION REGARDING MOTIONS TO DISMISS CASE FOR CAUSE 16 I. INTRODUCTION 17 On March 29, 2024, creditor M. Dattani Credit Trust 18 || (“Dattani Trust”) filed its Motion to Dismiss Case for Cause 19 U.S.C. § (“Dattani Motion”) (Dkt. 15). On April 18, 20 ||2024, Tracy Hope Davis, United States Trustee for Region 17, 21 ||filed her Motion to Dismiss Case Pursuant to 11 U.S.C. § 707 (a) 22 || (“UST Motion” (Dkt. 25), together with the Dattani Motion, the 23 ||“Dismissal Motions”). 24 The Dismissal Motions seek dismissal of this case under 25 ||Section 707(a)! for “cause” and both rely on similar arguments. 26 1 Unless otherwise indicated, all chapter, section and rule 27 |lreferences are to the Bankruptcy Code, 11 U.S.C. §$§ 101-1532, 28 and to the Federal Rules of Bankruptcy Procedure, Rules 1001- 9037. -l1-

1 The Dattani Motion says there is cause for dismissal “because 2 the assets of the estate are comprised of or derived from 3 cannabis.” (Dattani Motion, p. 1). The UST Motion explains that 4 the cause for dismissal is that the Debtor “possesses and 5 controls an interest in cannabis assets and business ventures 6 that are in violation of the Controlled Substances Act 21 U.S.C. 7 Sections 801-904 (“CSA”), and which a chapter 7 trustee cannot 8 lawfully administer.” (UST Motion, p. 1).2 9 The Dismissal Motions do not allege or contend that the 10 Debtor lacked good faith in filing his chapter 7 petition, do 11 not challenge his eligibility under Section 109(b) to file a 12 chapter 7 petition, do not allege that he directly owns 13 marijuana or marijuana-related tangible assets, and do not 14 contend that any of the statutory examples of “cause” for 15 dismissal under Section 707(a) exist.3 Neither relies on Section

16 2 “The word ‘marijuana’ refers to parts of or products from the 17 plant Cannabis sativa that contain substantial amounts of 18 tetrahydrocannabinol (THC),” the compound for which marijuana is famous. https://www.nccih.nih.gov/health/cannabis-marijuana-and- 19 cannabinoids-what-you-need-to-know. The word “cannabis” refers to all parts of the cannabis plant. The parties, and most 20 caselaw, appear to use the words interchangeably to mean parts 21 of the plant with substantial amounts of THC. Without further citations, the court notes there is a general preference for the 22 word “cannabis.” Unless using a direct quote or referring to the way Debtor refers to his interests in his schedules, the court 23 will use the word “marijuana” in this Memorandum of Decision. 24 3 Section 707(a) states: 25 (a) The court may dismiss a case under this chapter only after notice and a hearing and only for cause, including— 26 (1) unreasonable delay by the debtor that is prejudicial to creditors; 27 (2) nonpayment of any fees or charges required under 28 chapter 123 of title 28; and 1 105 or any inherent powers. Instead, the sole basis for each of 2 them to seek dismissal is as the UST summarized: The chapter 7 3 trustee cannot lawfully administer assets in violation of the 4 CSA, and continuation of the case would force the chapter 7 5 trustee into such a position. 6 The chapter 7 trustee, Paul Mansdorf (“trustee”), who urged 7 Dattani Trust to file the Dattani Motion, has joined in the 8 Dismissal Motions (Dkt 36). He stated:

9 “. . .although a Chapter 7 Trustee would like nothing more than to be able to administer an 10 asset case, it is clear that he would be subject 11 to prosecution in any attempt to administer the assets of this particular estate. Pursuant to the 12 UST’s motion, “a chapter 7 trustee cannot lawfully administer (cannabis assets.)” 13 14 Based on the facts of this case and applicable law, the 15 court holds that administering the ownership interests of LLCs 16 that engage in marijuana business is not necessarily equivalent 17 to administering marijuana assets. The court also holds the 18 trustee’s own personal determination that he cannot lawfully 19 administer the assets of this case is insufficient cause to 20 dismiss the debtor’s case as there are other options for the 21 trustee as discussed, infra. 22 For the reasons that follow, the court denies the Dismissal 23 Motions. 24

25 (3) failure of the debtor in a voluntary case to file, 26 within fifteen days or such additional time as the court may allow after the filing of the petition 27 commencing such case, the information required by paragraph (1) of section 521(a), but only on a motion 28 by the United States trustee. 1 II. FACTS4 2 Debtor Christopher Michael Callaway filed for chapter 7 on 3 February 12, 2024. He has never filed under any other chapter 4 of the Bankruptcy Code and has made no attempt to convert this 5 case to any other chapter. His Schedules and Statement of 6 Financial Affairs (Dkts. 1 and 12) indicate that he owns and 7 operates 100% of Caliverde, LLC (“Caliverde”), a retail cannabis 8 dispensary in San Francisco, and owns a 40% interest in Grassy 9 Castro, LLC (“Grassy Castro”), another retail cannabis store in 10 San Francisco. Debtor also owns interests in other LLCs, some 11 operating, some no longer operating, some never operated, some, 12 but not all, related to cannabis. One of the LLC interests is a 13 61% ownership of Mr. C’s, LLC (“Mr. C’s”), an art gallery/flower 14 shop/cannabis dispensary that has never operated as a dispensary 15 due to circumstances that led to litigation by Dattani Trust 16 against Debtor and others in the San Francisco Superior Court. 17 That matter was about to go to trial when Debtor filed his 18 petition. 19 The Schedules show some other assets of very slight value, 20 or values unknown, including intangibles such as domain names5, 21 22 4 The following discussion constitutes the court's findings of fact and conclusions of law. Fed. R. Bankr. P. 7052(a). 23 5 Domain names: jodolphins.com, tracknappers.com, 24 tracknaps.com, outerhayes.com, blaze-valley.com, 25 project-flowers.com, theouterhaze,com, porn.com, hazevalley.com, petitfleur.com, pot-monster.com, snarcs.com, 26 highroadbikes.com, caliverde.com, oasis-delivery.com, haze-valley.com, blazevalley.com, hybryd.com, indica.com, 27 sativa.com, potmonster.com, chris-callaway.com, 28 christopher-callaway.com, postmonster.org, lafrum.com, 1 which collectively are claimed as exempt on Schedule C under the 2 California wildcard exemptions of less than $30,000. There are 3 no tangible assets listed that bear any connection with 4 marijuana plants, marijuana equipment or anything else covered 5 by the CSA. This is for good reason: all those assets are 6 likely owned by Caliverde, Grassy Castro or other LLCs and as 7 such, are not property of the bankruptcy estate. 8 The only other noteworthy item on the Amended Schedule A/B 9 (Dkt. 12) is “Claims for distributions owed as minority owner of 10 Grassy Castro LLC” in an UNKNOWN amount. Debtor has never 11 received any distribution from Grassy Castro or its owners in 12 the past. Debtor did explain at his Meeting of Creditors that 13 Grassy Castro’s yearly revenue is in the ballpark of three 14 million dollars (Dkt. 15-1) and he assumes that his claim for 15 distributions from it are in the ballpark of “several hundred 16 thousand dollars.” 17 As of the petition date to the present, the trustee owns 18 those claims under Section 541 and would be expected to seek to 19 recover any money owed to the estate. 20 Debtor also reports on Schedule I his monthly income from 21 Caliverde but as of and after the moment he sought bankruptcy 22 protection, none of his post-petition income was property of 23 this estate and is not subject to the control of the trustee. 24 Section 541(a)(6) excepts from property of the estate 25 “. . .earnings from services performed by an individual debtor 26 27 coke.com, joydolphins.com, lilnappers.com, lilnapperz.com, fleurlocale.com, lefleur.shop, grandefleur.co, kidsvalley.co, 28 highroadcoffee.co, vinoflores.com, hazevalley.co, caliverde.co 1 after commencement of a case”. Debtor’s post-petition income as 2 someone employed in the marijuana business, therefore, does not 3 bear upon the question of whether there is cause to dismiss 4 Debtor’s chapter 7 bankruptcy. That he is also the owner and 5 partial owner of marijuana-related LLCs does not matter either, 6 because the trustee is the owner now and it is his choice, not 7 the Debtor’s, whether to sell the ownership interests, and sale 8 of those ownership interests may not violate the CSA in any 9 event or may otherwise be restricted by the respective LLC’s 10 articles of incorporation. Nothing in the record presented 11 sheds any meaningful light on these questions. Debtor’s own 12 statements at the Meeting of Creditors, while made under oath, 13 have not been confirmed or tested for foundational legal or 14 factual accuracy by the trustee or anyone else. 15 III. DISCUSSION 16 A. The CSA 17 The CSA is a statutory scheme that regulates nearly every 18 facet of the manufacturing, distribution, and dispensing of 19 controlled substances. 21 U.S.C. § 841 et seq. For now, 20 marijuana products remain a Schedule I controlled substance 21 under the CSA, the most tightly regulated classification of 22 controlled substances.6 23 24 25 26 6 As of June 2024, the Justice Department has submitted a proposed rule change that would reclassify marijuana as a 27 Schedule III substance, but that change has not yet gone into effect. See https://www.justice.gov/opa/pr/justice-department- 28 submits-proposed-regulation-reschedule-marijuana. 1 In addition to the prohibition on most actions related to 2 the manufacture and distribution of marijuana, the CSA, in 3 brief, prohibits the following in relation to those activities: 4  Using the internet, or aiding or abetting use of the 5 internet to engage in marijuana business. 21 U.S.C. § 6 841(h). 7  Conspiring or conspiring to commit marijuana business. 8 21 U.S.C. § 846. 9  Engaging in the marijuana business in an 10 organizational, supervisory, or management role and 11 deriving substantial income or resources from that 12 role. 21 U.S.C. § 848. 13  Investing proceeds of marijuana business in securities 14 on the open-market or any other enterprise that may 15 affect interstate or foreign commerce. 21 U.S.C. § 16 854. 17  Deriving profits or proceeds from marijuana business. 18 21 U.S.C. § 855. 19  Leasing or maintaining, owning, or occupying any space 20 that is used for marijuana business. 21 U.S.C. § 856. 21 Most relevant to this case is that each of these sections 22 of the CSA prohibit direct acts or benefits as they relate to 23 engaging in marijuana business. None of these prohibitions, or 24 others in the CSA, even when directed to be read as broadly as 25 possible, 21 U.S.C. § 854(d), include a direct prohibition on 26 owning or disposing of an interest in an entity that engages in 27 28 1 marijuana business7, or owning other intangible assets of such as 2 domain names with catchy words conveying messages about 3 marijuana. 4 As it relates to marijuana, the Justice Department has for 5 years taken both an implicit and explicit hands-off approach to 6 enforcement of the CSA as it relates to state-regulated 7 manufacture and distribution.8 This hands-off approach has been 8 in place in various iterations since 2013, and marijuana 9 businesses that adhere to state and local laws permitting such 10 business have grown. In 2024, it seems the only arm of the 11 executive branch with an explicit mission to enforce the CSA 12 against state-regulated marijuana businesses is the UST Program 13 in seeking to dismiss bankruptcies on the basis of a trustee or 14 estate’s potential administration of assets in violation of the 15 CSA.9 16 Like many people and businesses involved in any industry, 17 those people and businesses engaged in marijuana business at the 18 state-regulated level sometimes face economic hardship and seek 19 economic relief in the form of a fresh start via bankruptcy. 20 21 7 Caliverde and Grassy Castro no doubt are at least deriving 22 revenue or proceeds, and likely profits, from marijuana and are therefore violating the CSA, but this is for another branch of 23 the Department of Justice, not the UST, nor this court, to be concerned about. Nor is it relevant to the question of whether 24 cause exists to dismiss Debtor’s bankruptcy. 25 8 See https://www.jdsupra.com/legalnews/attorney-general- 26 garland-reconfirms-the-9983989/. 27 9 Why Marijuana Assets May Not Be Administered In Bankruptcy, Clifford J. White III and John Sheahan, 36 Am. Bankr. Inst. J. 28 34 (Dec. 2017). 1 As a result, there is a growing body of cases of debtors 2 involved in some way with marijuana. Each of these cases is 3 essentially a fact-driven matter of first impression. Against 4 that backdrop, the court in each bankruptcy weighs whether and 5 how the CSA applies, and how and whether that application 6 creates such a problem of legality that an otherwise eligible 7 debtor can or cannot seek the fresh start of a bankruptcy 8 discharge that would otherwise be available absent connections 9 with marijuana. 10 B. Cause to Dismiss 11 One of the bedrock principles of our bankruptcy law and 12 system is that the honest but unfortunate debtor is entitled to 13 a fresh start. Lamar, Archer & Cofrin, LLP v. Appling, 584 U.S. 14 709, 715 (2018) (“One of the ‘main purposes’ of the federal 15 bankruptcy system is ‘to aid the unfortunate debtor by giving 16 him a fresh start in life, free from debts, except of a certain 17 character.’”) (quoting Stellwagen v. Clum, 245 U.S. 605, 617 18 (1918) (internal formatting omitted))); Grogan v. Garner, 498 19 U.S. 279, 286-87 (1994) (“the [Bankruptcy] Act limits the 20 opportunity for a completely unencumbered new beginning to the 21 ‘honest but unfortunate debtor.’) (quoting Local Loan Co. v. 22 Hunt, 292 U.S. 234, 244 (1934). 23 Another well-established principle is to refrain from 24 applying statutory mandates in a contradictory manner. For 25 example, in Law v. Siegel, 134 S. Ct. 1188 (2014), the Supreme 26 Court declined to contravene expressed provisions of the 27 Bankruptcy Code regarding administrative expenses on the one 28 hand and exemptions on the other hand and held that a debtor’s 1 exempt property could not be used to pay those administrative 2 expenses notwithstanding debtor’s egregious conduct that was not 3 related to his exemption claim. Stated otherwise, the 4 provisions of the Bankruptcy Code regarding exemptions would not 5 give way to another section of the Bankruptcy Code that 6 permitted allowance of administrative expenses. 7 Another familiar principle is a rule of construction found 8 in Section 102(3): “includes” and “including” are not limiting. 9 Thus, in Section 707(a), the causes that justify court’s 10 dismissal include, but are not limited to, the subsection’s 11 three enumerated events listed supra at fn. 3. 12 In chapters 11, 12 and 13, there are longer lists of 13 examples of what constitutes cause justifying dismissal, but 14 almost all, without exception, are based upon conduct, or the 15 absence of conduct, by the debtor or some other representative 16 of the estate. See Sections 1112(b)(4); 1208; 1307(c). 17 There is a “stated reluctance in this Circuit to adopt per 18 se bright-line rules requiring the immediate disposition of 19 bankruptcy cases in which marijuana activity is present[.] 20 Burton v. Maney (In re Burton), 610 B.R. 633 (9th Cir. BAP 21 2020). “Congress did not adopt a ‘zero tolerance’ policy that 22 requires dismissal of any bankruptcy case involving violation of 23 the CSA (or other activity that might be proven to be illegal.)” 24 In re Hacienda Co., 647 B.R. 748, 754 (Bankr. C.D. Cal. 2023); 25 see also In re Blumsack, 657 B.R. 505, 515 (BAP 1st Cir. 2024) 26 (citing Hacienda for the proposition that Congress has not 27 adopted a zero-tolerance policy that requires dismissal for any 28 violation of the CSA, and going on to state “[t]hat type of policy choice to close the 1 doors to the bankruptcy court categorically, without regard to 2 individual circumstances, is one more appropriately left to the 3 legislature.”). To repeat, Section 109(b) does not lock the 4 bankruptcy court’s doors to exclude individuals in the marijuana 5 business. 6 Taking all these points into consideration, before this 7 court will dismiss debtor’s case for cause, it needs to locate 8 any causal connection linking the debtor to whatever dire 9 outcomes the statute and the context either specifically or 10 inferentially identify. Here is where the Dismissal Motions 11 fall short of the mark. 12 The only cause asserted is the Debtor’s ownership interests 13 in LLCs involved in the marijuana business when he filed 14 bankruptcy, and the resulting duty of the trustee to administer 15 some of those assets that he believes will result in his 16 violation of federal law. Debtor has played by all of the rules 17 of the bankruptcy game so far and as noted above, it is not 18 Debtor’s pre- or post-petition conduct but the trustee’s 19 anticipated actions alone which the Dismissal Motions hold out as 20 cause for dismissal. 21 C. Marijuana Cases and the Debtor 22 Most of the reported decisions cited in the Dismissal 23 Motions and by the Debtor arise in chapter 11 or chapter 13. See 24 Hacienda, 647 B.R. 748 (Bankr. C.D. Cal. 2023); In re Blumsack, 25 657 B.R. 505, (BAP 1st Cir. 2024); In re Johnson, 532 B.R. 53 26 (Bankr. W.D. Mich. 2015); Arm Ventures, LLC, 564 B.R. 77 (Bankr. 27 S.D. Fla. 2017); In re Way to Grow, Inc., 597 B.R. 111 (Bankr. 28 D. Colo 2018); In re Rent-Rite Super Kegs West Ltd., 484 B.R. 1 799 (Bankr. D. Colo. 2012); In re Mayer, 2022 WL 18715955 2 (Bankr. D. Ariz. Jan. 31, 2022); In re Kittrell, 2020 WL 6821720 3 (Bankr. D. Ariz. Oct. 6, 2020). In these cases, the courts deal 4 with the actual or anticipated post-petition conduct expected of 5 the debtor, the debtor-in-possession or the chapter 13 trustee, 6 almost entirely in the context of use of income or funds from 7 businesses that are in violation of the CSA during chapter 11 8 reorganization or administration of a chapter 13 plan. Those 9 cases, therefore, but not chapter 7 cases, present a different 10 and difficult issue is whether the bankruptcy court and the 11 court appointed bankruptcy trustee should play a role in the 12 continued administration of income derived from a marijuana 13 business. 14 Other chapter 7 cases are also distinguishable from this 15 Debtor’s situation: Arenas v. U.S. Tr. (In re Arenas), 535 B.R. 16 845 (10th Cir. BAP 2015) (dismissal of chapter 7 was appropriate 17 because trustee would have had to administer rental income from 18 marijuana business as well as proceeds of the joint-debtor’s 19 personal cultivation and sale of marijuana); In re Great Lakes 20 Cultivation, LLC, 2022 WL 3569586 (E.D. Mich. August 18, 2022) 21 (corporate debtor’s business consisted entirely of the growth 22 and sale of medical marijuana, bankruptcy court’s finding that 23 cause for dismissal was appropriate because chapter 7 trustee 24 could not lawfully administer the assets of the debtor 25 corporation); In re Medpoint Management, LLC, 2016 Bankr. 26 LEXIS 2197, 2016 WL 3251581 (9th Cir. BAP June 3, 2016) 27 (substantially same to Great Lakes, except debtor managed 28 another corporation’s marijuana operations). In re Malul, 614 1 B.R. 699 (Bankr. D. Col. 2020) (debtor sought to schedule 2 previously undisclosed marijuana business investments and 3 related causes of action in her reopened chapter 7 case solely 4 to compel trustee’s abandonment of those assets as a means to 5 strengthen her position in state court litigation). 6 Because Debtor is the named operator of Caliverde, the 7 trustee may cease those operations immediately if he deems that 8 appropriate and necessary. Debtor does not receive rental 9 income from a marijuana business, nor does he personally 10 cultivate marijuana. Debtor is not hiding his interests in 11 marijuana businesses, nor is there any indication that his 12 bankruptcy filing was part of a litigation strategy other than 13 stemming the tide of a run-of-the-mill contract dispute with 14 Dattani Trust. Whether the trustee chooses to abandon assets 15 after his own analysis is discussed below, and is 16 distinguishable from the debtor’s attempts to manipulate the 17 bankruptcy system as in Malul. 18 Here, Debtor is separate from the entities that engage in 19 the marijuana business, meaning the trustee is not in danger of 20 having to administer the actual tangible marijuana assets held 21 by those businesses. Neither entity is in bankruptcy, nor are 22 their tangible assets. 23 While it is true that realizing profits from a marijuana 24 business is prohibited by the CSA, there is nothing presented 25 by the parties, nor discovered by the court, that suggests that 26 monetizing an intangible ownership interest is the equivalent 27 of profiting from a marijuana business. The words of the CSA 28 1 simply do not reach as far as the authors of the Dismissal 2 Motions might prefer. 3 Under California law, shareholders “neither own the 4 corporate property nor the corporate earnings. The shareholder 5 simply has an expectancy interest in each, and he becomes the 6 owner [upon a liquidation action or declaration of a dividend]”) 7 See Miller v. McColgan, 17 Cal.2d 432, 436 (1941); see also In 8 re Pettit, 217 F.3d 1072, 1078 (9th Cir. 2000) (“bankruptcy 9 courts must look to state law to determine whether and to what 10 extent the debtor has any legal or equitable interests in 11 property as of the commencement of the case.”)10 12 This separation from the CSA-prohibited products and 13 proceeds is important regarding both the equity ownership of 14 Caliverde and the claim for distributions from Grassy Castro. 15 First, no one – not the Debtor, not the Dattani Trust, not the 16 UST, not the trustee - have analyzed either the legal 17 possibility or the financial likelihood of realizing value by 18 sale of the ownership of Caliverde, including its name, goodwill 19 customer list and other intangibles. They do not on their face 20 appear to implicate the CSA. 21 As for Grassy Castro, only the Debtor has opined as to what 22 he thinks of his claim against his co-owners. The trustee and 23 movants have taken this opinion as fact without further 24 investigation or analysis, despite Debtor’s other statement that 25 26 10 For a very recent example of how the Ninth Circuit dealt 27 with this separation of an owner from the assets of a corporation, see the unpublished decision Kasolas v. Aurora 28 Capital Advisors et al. (In re Brower), 2024 WL 2826283 (9th Cir. June 4, 2024). 1 his co-owners have stated that there has not yet been any profit 2 derived from the business that could be distributed. 3 The case that is most factually related to Debtor’s 4 situation is In re Burton. In Burton, the joint debtors were 5 individuals who held a 65% membership interest in a corporate 6 marijuana business called Agricann, along with one of the joint 7 debtors being the manager and president of the business. Burton 8 at 634. The debtors filed chapter 13 and listed their interest 9 in Agricann, as well as a cause of action Agricann held against 10 another entity. Id. Agricann commenced litigation while the 11 debtors tried and failed multiple times to confirm a chapter 13 12 plan. Id. at 634-35. Faced with a motion to convert the case to 13 chapter 7, the bankruptcy court determined that conversion 14 would force a chapter 7 trustee to administer a potential 15 recovery, and that recovery would constitute marijuana assets in 16 violation of the CSA. Id. at 639. The bankruptcy court 17 concluded that debtors’ ownership interest in Agricann and thus 18 the trustee’s forced administration of the “tainted” proceeds of 19 the Agricann litigation was “cause” for dismissal. Id. at 639. 20 The BAP held that “[t]he bankruptcy court did not err in 21 this finding, nor did it abuse its discretion in dismissing the 22 case on those grounds.” 23 This case is instructive, but as with others, turns on the 24 facts presented. The bankruptcy court found not credible the 25 debtors' assertion that the Agricann claims were worthless, and 26 noted that those claims related specifically to the growing and 27 selling of marijuana. 28 -15- 1 What this court deems to be more instructive is the 2 analysis in The Green Earth Wellness Center, LLC v. Atain 3 Specialty Insurance Company, 163 F.Supp. 3d 821 (D. Colo. 2016). 4 That case involved a claim by a marijuana grower for recovery on 5 an insurance policy when the grower’s plants were damaged in a 6 fire. The issue the court was presented with relevance here was 7 whether the insurer could avoid its obligations to the insured 8 under its insurance policy based upon public policy concerns 9 since some of the property lost in the fire was covered by the 10 CSA. The court rejected the position of the insurer that the 11 demand for payment under the policy was a demand for monetary 12 replacement of marijuana plants and accessories. In doing so, 13 the court stressed that the dispute was over interpretation and 14 application of mutually agreed upon contract terms, and that is 15 why the insurer would be called upon honor its contractual 16 promise to pay money to the insured for its marijuana losses. 17 Contrary to the bankruptcy court’s holding in Burton that 18 proceeds from litigation arising between two entities engaging 19 in marijuana business must therefore be proceeds from a 20 marijuana business, this court aligns with the Green Earth court 21 and holds that any potential sale of a membership interest in an 22 LLC is just that—the sale of an ownership interest whose rights 23 are bundled in applicable articles of incorporation or operating 24 agreements. It is not necessarily the proceeds of a marijuana 25 business because the LLC is itself engaged in marijuana 26 business. Likewise, a claim against fellow LLC owners for owed 27 proceeds are not necessarily a claim for the profits of a 28 marijuana business, but a claim for the entitlements owed to the 1 holder of ownership interests. 2 Further still, no party has suggested, nor does the court 3 know of a reason, why the trustee would violate the CSA or any 4 other law were he to offer to sell, and actually sell, such 5 intangible assets of the estate such as domain names. 6 In sum, possible sales of interests in LLCs, enforcement 7 of LLCs’ contractual rights and sale of other intangibles 8 related to marijuana, but not directly implicated by the 9 language of the CSA, are not sufficient for this court to find 10 cause to dismiss an otherwise eligible individual debtor’s 11 chapter 7 case. 12 D. The Chapter 7 Trustee’s Options 13 There are many tools in the bankruptcy toolbox to deal with 14 debtors who misbehave pre- or post-petition. For instance, a 15 debtor making a false oath or refusing to obey a lawful order of 16 the bankruptcy court can be the basis to seek denial of 17 discharge by the UST, the case trustee or any other creditor.11 18 Debtors who misbehaved pre-petition may be subject to a 19 determination of non-dischargeability of certain debts.12 20 Another rarely used tool in that toolbox is available if 21 the trustee chooses not to continue in that role, and no other 22 private panel member will do so. That tool is found in 28 23 U.S.C. § 586(a)(2), permitting the United States Trustee to step 24 25 26 11 Bankruptcy Code Sections 727(a)(4) and 727(a)(6)(A). 27 12 Dattani Trust has already filed A.P. No. 24-03023 alleging grounds for denial under Section 727 and to determine non- 28 dischargeability under Section 523. 1 in and act as case trustee. Balser v. Dept of Justice, Office 2 of U.S. Trustee, 327 F.3d 903 (9th Cir. 2003). See also In re 3 Tyrone F. Conner Corp, Inc., 140 B.R. 771, 780-781 (Bankr. E.D. 4 Cal. 1992).13 The UST can step in here if need be. 5 All experienced bankruptcy practitioners are quite familiar 6 with Section 554, another available tool. They know that 7 property of the estate that is burdensome to the estate can be 8 abandoned. If the trustee here cannot realize value from the 9 assets because of CSA-related prohibitions, the solution is 10 there waiting. The fact that an abandoned asset is returned to 11 the debtor is of no legal significance; it is simply a legal 12 result. Before the trustee, whoever that turns out to be, moves 13 to abandon, the Dattani Trust or any other creditor will have 14 an opportunity to offer to acquire any such available intangible 15 non-exempt assets and exploit them free of any bankruptcy 16 connections, thus ensuring that Debtor will not regain control 17 of them. 18 Thus, as stated above, if the trustee can make a case for 19 enforcement of Debtor’s rights vis-à-vis Grassy Castro’s co- 20 owners, he presumably will be enforcing contractual rights, not 21 some sort of specific performance obligations to deliver 22 23 24 13 In that case the court’s displeasure was clear: “As the UST has failed to diligently and realistically conduct a search for 25 a Chapter 11 trustee, and refuses to look further, the Court 26 finds and holds that necessity exists as contemplated under 11 U.S.C. § 321(c) for the UST to serve as trustee for the interim. 27 The UST shall forthwith assume all duties of the Chapter 11 trustee proscribed under the Code and shall serve until they 28 (sic)are able to appoint another candidate.” 1 marijuana, just as the court held in Green Earth. If that 2 supposition proves to be unfounded, the trustee can abandon any 3 claim against those co-owners. 4 The same result follows if the trustee determines that he 5 cannot capitalize on the potential value of the intangibles such 6 as the domain names and the ownership of Caliverde and the other 7 wholly or partially owned LLCs. 8 IV. CONCLUSION 9 The Dismissal Motions do not justify a discretionary 10 dismissal of this case. There is no clear basis to disqualify a 11 debtor from the benefits of chapter 7 because of perceived but 12 unanalyzed difficulties the chapter 7 trustee might face when 13 administering the bankruptcy estate. To somehow equate the 14 trustee’s dilemma with cause to deny this debtor’s right to file 15 and stay in chapter 7 has not been explained by the Dismissal 16 Motions, and the court would be abusing its discretion under 17 Section 707(a) to grant them for the reasons argued in those 18 motions. 19 By separate orders issued concurrently with this Memorandum 20 Decision, the court will deny the Dismissal Motions for the 21 foregoing reasons. 22 23 *** END OF MEMORANDUM DECISION *** 24 25 26 27 28