United States Bankruptcy Appellate Panel of the Ninth Circuit
In re: BRIGHAM A. BURTON, a/k/a Kent Burton and CARLY RAE BURTON, Debtors.
EDWARD JOHN MANEY, Chapter 13 Trustee; STRATTON RESTORATION, LLC, Appellees. BRIGHAM A. BURTON, a/k/a Kent Burton; CARLY RAE BURTON, Appellants,
Submitted Without Argument on November 21, 2019
from the United States Bankruptcy Court for the District of
Arizona Honorable Brenda Moody Whinery, Chief Bankruptcy
Appellants Brigham A. Burton, a/k/a Kent Burton, and Carly
Rae Burton, pro se on brief; Ross M. Mumme, Esq. on brief for
Appellee Edward J. Maney, Chapter 13 Trustee.
Before: LAFFERTY, TAYLOR, and FARIS, Bankruptcy Judges.
LAFFERY, BANKRUPTCY JUDGE.
and Carly Rae Burton appeal the bankruptcy court's
dismissal of their chapter 13 case. The Burtons own the
majority interest in Agricann, LLC ("Agricann"), an
entity that was engaged in cultivating and selling marijuana,
which, while legal under Arizona law, violated federal law.
In response to the bankruptcy court's order to show cause
why the case should not be dismissed based on the
Burtons' interest in Agricann, the Burtons asserted that
Agricann was no longer operating and was not being relied
upon to fund the Burtons' chapter 13 plan. Agricann,
however, was a plaintiff in at least two state court lawsuits
in which it sought recovery of damages for breach of
contracts related to growing and selling marijuana. The
Burtons asserted that recovery from those lawsuits was
unlikely, but the bankruptcy court rejected this assertion as
not credible and concluded that any recovery from those
lawsuits would be derived from conduct that is illegal under
federal law. Accordingly, allowing the case to continue would
likely require the court and the trustee to become involved
in such illegal conduct.
the Burtons did not provide sufficient evidence that the
potential litigation proceeds would not materialize,
requiring the court and the trustee to become involved in
their administration, the bankruptcy court did not abuse its
discretion in dismissing the Burtons' case.
Burtons filed a chapter 13 petition in April 2018. On their
original Schedule A/B, they disclosed 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. They later amended Schedule A/B
to disclose additional ownership interests in other
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.
Agricann sued Total Accountability Systems I, Inc. and
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.
the Burtons proposed three different chapter 13 plans during
the approximately one year their case was pending, they were
unsuccessful in getting a plan confirmed.
29, 2018, creditor Stratton Restoration filed a motion to
convert, in which it argued that there was cause to convert
the bankruptcy case to chapter 7. It contended that the
Burtons were ineligible for chapter 13 relief because their
debts exceeded the limitations under § 109(e), based on
Stratton's $2.4 million unsecured claim arising from
state court breach of contract litigation, which the Burtons
had not included on their schedules. It also argued that the
Burtons filed their case in bad faith because, among other
things, Mr. Burton derived income from a marijuana business
that was illegal under federal law.
preliminary hearing on the motion to convert held on March 5,
2019, the bankruptcy court raised its concerns regarding the
Burtons' alleged connections to the marijuana industry.
After that hearing, the court issued an order to show cause
("OSC") requiring the Burtons to appear and show
cause why their case should not be dismissed due to their
ownership interest in, and deriving income from, an entity
involved in the marijuana industry. The Burtons filed a
response to the OSC, verified by Mr. Burton's
declaration, in which they disputed having an interest in an
entity involved in the marijuana industry.
stated that Agricann went out of business in 2016 and had
generated no income since then. As such, they claimed they
did not currently derive income from any entity involved in
the marijuana industry. Although they acknowledged that
Agricann was a party to litigation, they stated they did not
expect to receive any proceeds from such litigation due to a
contingency fee agreement with the attorney handling the
litigation and a litigation financing lien on any recovery.
The Burtons also stated their intention to abandon from the
estate their interest in Agricann, after which they would
divest themselves of their interest in that entity. Finally,
they asserted that the sole ...