United States District Court, D. Colorado
In re WAY TO GROW, INC. PURE AGROBUSINESS, INC. GREEN DOOR AGRO, INC. Debtors.
v.
COREY INNISS Appellee. WAY TO GROW, INC., et al., Appellants,
ORDER DENYING STAY PENDING APPEAL
William J. Martinez United States District Judge.
Appellants
Way to Grow, Inc., Pure Agrobusiness, Inc., and Green Door
Agro, Inc. (together, “Appellants”), are debtors
in the underlying Chapter 11 bankruptcy proceeding. They
appeal the bankruptcy court's order dismissing their
bankruptcy proceedings. The bankruptcy court found, after an
evidentiary hearing, that Appellants sell products
(hydroponic gardening equipment) that they know will be used
to grow marijuana, which remains illegal under federal law
(both the marijuana itself and sale of equipment knowing that
it will be used to grow marijuana). The bankruptcy court
reasoned that bankruptcy protection is unavailable to
Appellants in such circumstances, and that there was no
feasible alternative (e.g., ordering Appellants to
stop servicing the marijuana industry) that might permit the
case to remain in bankruptcy court.
Currently
before the Court is Appellants' Motion for Stay Pending
Appeal Pursuant to Fed.R.Bankr.P. 8007. (ECF No. 9.) Appellee
Corey Inniss, who filed the motion in the bankruptcy court
that prompted that court to dismiss the proceedings, opposes
Appellants' current motion. (ECF No. 10.) For the reasons
explained below, the Court concludes that Appellants have not
shown a sufficient likelihood of success on appeal, and so
declines to enter a stay pending appeal.
I.
BACKGROUND
The
Court draws the following summary from the bankruptcy court
order at issue here. (“Dismissal Order, ” ECF No.
9-1.)[1]
Appellants
Way to Grow and Green Door operate retail outlets, selling
equipment for indoor hydroponic gardening and related
supplies. (Id. at 1-2.) Both entities are
subsidiaries of Appellant Pure Agrobusiness. (Id. at
1.)
Appellee
originally founded Way to Grow, but sold it for $2.5 million
in cash, a promissory note in the principal amount of $22.5
million, and 12.5 million shares of Pure Agrobusiness.
(Id. at 2.) The promissory note was secured by all
three Appellants' property and assets. (Id.)
Appellants,
however, operated at a significant loss. (Id. at 3.)
Thus, in April 2018, Appellee filed an action in Larimer
County District Court against Appellants, seeking appointment
of a receiver. (Id. at 2.) Appellants then filed for
Chapter 11 bankruptcy, before the state court could rule on
the request to appoint a receiver. (Id. at 3.)
In the
bankruptcy court, Appellee moved to dismiss the bankruptcy
proceeding on a number of grounds including, as relevant
here, that Appellants' business is inextricably linked to
the marijuana industry, which remains illegal under federal
law and therefore Appellants cannot qualify for bankruptcy
protection. The bankruptcy court held a four-day evidentiary
hearing and then issued the Dismissal Order. The bankruptcy
court concluded that Appellants knew they were selling their
hydroponic equipment for use in the marijuana industry, and
so were violating 21 U.S.C. § 843(a)(7), which prohibits
such sales in light of that knowledge. (Id. at
20-26.) The bankruptcy court further concluded that it could
not “enforce federal [bankruptcy] law in aid of
[Appellants] because [Appellants'] ordinary course
activities constitute a continuing federal crime.”
(Id. at 26.) The bankruptcy court therefore granted
Appellee's motion to dismiss on December 14, 2018.
(Id. at 28.)
On
December 17, 2018, Appellants moved the bankruptcy court for
a stay pending appeal. (See ECF No. 4 at 8.) The
bankruptcy court denied that motion the next day, December
18, 2018. (See ECF No. 10-4.)
Also on
December 18, 2018, Appellants filed this appeal.
(See ECF No. 1.) On December 28, 2018, Appellants
filed the motion currently under consideration. (ECF No. 9.)
The matter was drawn to the undersigned on January 8, 2019.
(ECF No. 11.) On January 9, 2019, the Court sua
sponte granted a temporary stay pending resolution of
Appellants' motion. (ECF Nos. 12, 15-16.)
II.
LEGAL STANDARD
The
stay-pending-appeal analysis comprises four factors:
(1) whether the stay applicant has made a strong showing that
he is likely to succeed on the merits; (2) whether the
applicant will be irreparably injured absent a stay;
(3) whether issuance of the stay will substantially injure
the other parties interested in the proceeding; and (4) where
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