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In re Way To Grow, Inc.

United States District Court, D. Colorado

January 18, 2019

In re WAY TO GROW, INC. PURE AGROBUSINESS, INC. GREEN DOOR AGRO, INC. Debtors. WAY TO GROW, INC., et al ., Appellants,
v.
COREY INNISS Appellee.

          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, 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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