Gregory Garvin v. Cook Investments Nw, Spnwy, 922 F.3d 1031

Five related real-estate debtors owned/managed by Michael Cook filed Chapter 11; the Second Amended Joint Debtors’ Plan of Reorganization (Amended Plan) was confirmed and repaid creditors in full while allowing Cook to continue operations.
Cook DARR owned the Darrington Property and had a lease with N.T. Pawloski, LLC (Green Haven) to operate a marijuana business; that lease arguably violates the federal Controlled Substances Act § 856(a)(1).
Columbia State Bank obtained default judgments and receiverships against Cook’s properties before the joint Chapter 11 filings; the Amended Plan incorporated a prior Plan Agreement with the bank and restructured payments so Columbia and unsecured creditors would be repaid.
The U.S. Trustee sought dismissal under 11 U.S.C. § 1112(b) for gross mismanagement based on the Green Haven lease and objected to confirmation under 11 U.S.C. § 1129(a)(3) arguing the Plan was proposed by means forbidden by law.
The bankruptcy court denied dismissal (inviting renewal at confirmation); the Trustee did not renew the dismissal motion at confirmation and was the sole objector to confirmation. The bankruptcy court confirmed the Amended Plan; district court and this Court affirmed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Cook DARR’s case should be dismissed under 11 U.S.C. § 1112(b) for gross mismanagement	Trustee: Green Haven lease constitutes gross mismanagement warranting dismissal	Cook: Dismissal inappropriate; plan cures issues and Trustee failed to renew motion	Waived by Trustee for failure to renew at confirmation; district and appellate courts affirmed denial of dismissal
Whether § 1129(a)(3) bars confirmation because the Plan relies on income tied to activity that violates federal law	Trustee: Plan was "proposed by . . . means forbidden by law" because it depends on rent from an activity illegal under federal law	Cook: § 1129(a)(3) governs the manner of proposing a plan, not the plan’s substantive terms; plan was lawfully proposed and creditors supported it	§ 1129(a)(3) addresses how a plan is proposed, not whether plan provisions rely on nonbankruptcy law; confirmation was proper

Tighe v. Celebrity Home Entm’t, Inc., 210 F.3d 995 (9th Cir. 2000) (de novo review of Bankruptcy Code interpretation)
Duncan v. Walker, 533 U.S. 167 (2001) (respect for statutory text; give effect to every clause and word)
In re Irving Tanning Co., 496 B.R. 644 (B.A.P. 1st Cir. 2013) (§ 1129(a)(3) focuses on plan proposal, not content)
Walsh v. Nevada Dep’t of Human Res., 471 F.3d 1033 (9th Cir. 2006) (waiver when arguments not re-raised)
Platinum Capital, Inc. v. Sylmar Plaza, L.P. (In re Sylmar Plaza, L.P.), 314 F.3d 1070 (9th Cir. 2002) (good-faith test evaluates consistency with Code objectives)
In re Rent-Rite Super Kegs W. Ltd., 484 B.R. 799 (Bankr. D. Colo. 2012) (contrasting view that § 1129(a)(3) can block plans relying on illegal income)
In re Food City, Inc., 110 B.R. 808 (Bankr. W.D. Tex. 1990) (confirmation does not shield debtors from criminal prosecution)