{"id":336,"date":"2024-04-26T19:39:50","date_gmt":"2024-04-26T19:39:50","guid":{"rendered":"https:\/\/usatrustedlawyers.com\/blog\/cannabis-dispensary-worker-ineligible-for-bankruptcy-relief-under-ch-13\/"},"modified":"2024-04-28T10:09:11","modified_gmt":"2024-04-28T10:09:11","slug":"cannabis-dispensary-worker-ineligible-for-bankruptcy-relief-under-ch-13","status":"publish","type":"post","link":"https:\/\/usatrustedlawyers.com\/blog\/cannabis-dispensary-worker-ineligible-for-bankruptcy-relief-under-ch-13\/","title":{"rendered":"Cannabis dispensary worker ineligible for bankruptcy relief under Ch. 13"},"content":{"rendered":"\n
\n
\n
Listen to this article<\/div>\n<\/div>\n

The U.S. Bankruptcy Appellate Panel has found that an employee of a state-licensed cannabis business could not avail himself of Chapter 13 protection.\n<\/p>\n

The debtor, Scott Blumsack, is a full-time employee of Society Cannabis Co., a Clinton-based retailer, wholesaler and producer of cannabis products. He manages one of its retail operations and supervises 19 other employees.\n<\/p>\n

When Blumsack petitioned for bankruptcy under Chapter 13, he sought to fund his plan with income from his $75,000-a-year job with Society.<\/p>\n

A U.S. Bankruptcy Court judge dismissed Blumsack\u2019s petition, finding that because the sale of cannabis is still illegal under the federal Controlled Substances Act, or CSA, Blumsack\u2019s plan should not be confirmed and his petition should be dismissed.\n<\/p>\n

While finding that the Bankruptcy Court erred in fashioning a rule that employees in the cannabis industry are flatly barred from seeking Chapter 13 relief, the BAP affirmed dismissal of Blumsack\u2019s petition.\n<\/p>\n

\u201c[T]he nature of the debtor\u2019s employment, by itself, does not render him ineligible to file a chapter 13 petition in good faith [but] his Plan would have funneled his income from the dispensary into the chapter 13 trustee\u2019s office, and from there to creditors, bringing the proceeds of illegal activity directly into the administration of the bankruptcy case,\u201d U.S. Bankruptcy Court Judge Michael A. Fagone wrote for the panel. \u201cHere, where the debtor proposed to fund his reorganization with the proceeds of illegal activity, the degree of connection between that criminal activity and the debtor\u2019s reorganization efforts crossed a line into bad faith territory. On these facts, we agree with the bankruptcy court that the Plan did not satisfy \u00a71325(a)(3).\u201d<\/p>\n

The 20-page decision is In Re: Blumsack, Scott H., <\/em>Lawyers Weekly No. 03-002-24.\n<\/p>\n

\"DmitryDebtor\u2019s counsel Dmitry Lev of Watertown said he and his client were disappointed that the BAP affirmed dismissal of the Chapter 13 case but \u201cthrilled\u201d the panel rejected the lower court\u2019s rule that would prohibit any individual employed in the cannabis industry from seeking Chapter 13 relief.\n<\/p>\n

\u201cProviding much needed guidance for the bankruptcy bar, the panel outlined what bankruptcy options exist for cannabis industry employees and where the roadblocks may lie,\u201d he said.\n<\/p>\n

Matthew Nies, a spokesperson for the U.S. Trustee Program at the Department of Justice, declined to comment.\n<\/p>\n

Opposition to plan<\/strong><\/h2>\n

When Blumsack filed his Chapter 13 case in April 2021, he was working as a part-time \u201cbudtender\u201d at a retail marijuana dispensary.\n<\/p>\n

Several months later he took a part-time job with another dispensary and, by September, had become a full-time employee and soon became general manager of the facility.\n<\/p>\n

At no point did Blumsack acquire an ownership interest in the business.\n<\/p>\n

In Blumsack\u2019s bankruptcy filing, his schedule of assets disclosed both his wages from the dispensary and his spouse\u2019s income from her employment as an engineer. Their incomes were commingled in a joint checking account.\n<\/p>\n

The schedule also indicated that while the account had a $70,000 balance as of the petition date, the funds did not belong to him and were attributable to a withdrawal from his spouse\u2019s retirement account.\n<\/p>\n

Meanwhile, Blumsack\u2019s schedule of debts included $459,000 in secured debt attributable to several home mortgages and $557,000 in unsecured debt, including a $21,000 student loan.\n<\/p>\n

Blumsack\u2019s plan proposed to make a $250 payment each month to the Chapter 13 trustee over a 36-month period, resulting in each creditor with a general unsecured claim receiving a small dividend. He also proposed to make direct payments to his secured creditors and toward his student loan.\n<\/p>\n

The trustee ultimately moved to dismiss the case while also opposing confirmation of the debtor\u2019s plan, asserting that he was ineligible because his activities in connection with his employment constituted criminal behavior under the CSA. Thus, he could not satisfy the requirements of \u00a71325(a)(3) of the Bankruptcy Code, which requires that a plan be proposed in good faith, and \u00a71325(a)(7), which requires that the debtor\u2019s action in filing the petition was in good faith.\n<\/p>\n

Blumsack countered that cases cited by the trustee in support of dismissal were distinguishable in that they involved business owners, not simply employees.\n<\/p>\n

\n
<\/p>\n

In Re: Blumsack, Scott H.<\/strong><\/a>\n<\/p>\n

THE ISSUE:<\/strong> Could an employee of a state-licensed cannabis business avail himself of Chapter 13 protection?\n<\/p>\n

DECISION:<\/strong> No\u00a0<\/strong>(Bankruptcy Appellate Panel)\n<\/p>\n

LAWYERS:<\/strong> Dmitry Lev of Watertown, Massachusetts (debtor)\n<\/p>\n

Eric K. Bradford and Stephen E. Meunier, of the Office of U.S. Trustee, Worcester, Massachusetts; Frederick G. Hall of the Executive Office for U.S. Trustees, Washington, D.C. (trustee)\n<\/p>\n<\/div>\n<\/div>\n

Additionally, Blumsack argued, the trustee\u2019s position would potentially extend to anyone deriving an economic benefit from marijuana-related businesses, including employees of janitorial agencies that clean dispensaries, pizza shops where dispensary employees buy lunch, and couriers delivering packages for dispensaries.\n<\/p>\n

The debtor further asserted that should his plan not be confirmed, he should be allowed to file an amended plan funded by wages or retirement withdrawals from his spouse \u2014 income unrelated to the cannabis industry.\n<\/p>\n

U.S. Bankruptcy Court Judge Elizabeth D. Katz granted the trustee\u2019s motions, finding by a preponderance of the evidence that Blumsack\u2019s responsibilities as a budtender and subsequently as a manager violated the CSA.\n<\/p>\n

In doing so, she declined to adopt Blumsack\u2019s distinction of employees and owners of cannabis businesses.\n<\/p>\n

Katz additionally found that the case should be dismissed for abuse of process, emphasizing Blumsack\u2019s intention to keep working in the cannabis industry while his bankruptcy was pending, regardless of whether he proposed an alternate plan funded solely through his spouse\u2019s income.\n<\/p>\n

According to the bankruptcy judge, irrespective of any segregation of funds, Blumsack\u2019s continued employment in the cannabis industry during the pendency of a bankruptcy case would \u201cinevitably\u201d require the court and the trustee to support his \u201ccriminal enterprise.\u201d\n<\/p>\n

Blumsack appealed to the BAP.\n<\/p>\n

Dismissal affirmed<\/strong><\/h2>\n

The BAP affirmed dismissal of Blumsack\u2019s plan.\n<\/p>\n

In doing so, however, the panel parted ways with Katz\u2019s denial of confirmation under \u00a71325(a)(7) on grounds that Blumsack\u2019s act of petitioning for bankruptcy was in bad faith.\n<\/p>\n

\u201c[I]n adopting a categorical rule that a debtor employed in the marijuana industry lacks good faith for purposes of \u00a7 1325(a)(7), the bankruptcy court established a bar to eligibility,\u201d Fagone wrote. \u201cThat is a subject addressed not by \u00a7 1325, but rather in \u00a7 109. Broad categorical parameters regarding who is eligible to be a debtor are not the stuff of good faith, a fact-intensive inquiry specific to individual debtors and their particular financial circumstances.\u201d\n<\/p>\n

Moreover, Fagone continued, quoting In re Hacienda Co.,<\/em> a 2023 ruling from the Central District of California, \u201cAs far as eligibility goes, Congress has not articulated a \u2018\u201czero-tolerance\u201d policy that requires dismissal of any bankruptcy case involving violation of the CSA (or other activity that might be proven to be illegal).\u2019 That type of policy choice to close the doors to the bankruptcy court categorically, without regard to individual circumstances, is one more appropriately left to the legislature.\u201d\n<\/p>\n

Regardless, the panel agreed with Katz\u2019s denial of confirmation under \u00a71325(a)(3) because Blumsack lacked good faith in proposing his Chapter 13 plan.\n<\/p>\n

\u201cThe debtor proposed to fund the Plan with the income he derived from his employment at the dispensary; he did not offer his spouse\u2019s income or assets unrelated to marijuana activities until after the Trustee filed the Motion to Dismiss,\u201d Fagone observed. \u201cWhen given the opportunity at the evidentiary hearing, the debtor did not establish that he segregated his marijuana income from his spouse\u2019s income or other assets unrelated to his employment. The Plan he proposed would have placed the chapter 13 trustee in the untenable position of knowingly administering assets derived from an activity illegal under federal criminal law.\u201d\n<\/p>\n

The panel further found that Katz did not abuse her discretion in refusing to permit the filing of a modified plan funded by the earnings of Blumsack\u2019s spouse, emphasizing his failure at his evidentiary hearing to produce sufficient evidence regarding the availability of non-cannabis-tainted funds.\n<\/p>\n

<\/div>\n","protected":false},"excerpt":{"rendered":"

Listen to this article The U.S. Bankruptcy Appellate Panel has found that an employee of a state-licensed cannabis business could not avail himself of Chapter 13 protection. The […]<\/p>\n","protected":false},"author":1,"featured_media":337,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[116],"tags":[128,258,259,261,262,260],"class_list":["post-336","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bankruptcy","tag-bankruptcy","tag-cannabis","tag-dispensary","tag-ineligible","tag-relief","tag-worker"],"_links":{"self":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/336","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/comments?post=336"}],"version-history":[{"count":1,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/336\/revisions"}],"predecessor-version":[{"id":350,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/posts\/336\/revisions\/350"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media\/337"}],"wp:attachment":[{"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/media?parent=336"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/categories?post=336"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/usatrustedlawyers.com\/blog\/wp-json\/wp\/v2\/tags?post=336"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}