THE GROWING CANNABIS PROBLEM: A LOOK AT MARIJUANA-RELATED BANKRUPTCIES AND THE INFEASIBILITY OF THE FEASIBILITY DOCTRINE.

• Author: Bushman, Brittani

INTRODUCTION

Bankruptcy is a unique area of law where federal and state law often collide. (1) Federal law allows for bankruptcy relief, while state law defines the debtor and creditor relationship, delineating the rights and obligations of each. (2) And bankruptcy is frequently described as the process that gives debtors a "fresh start." (3) But often the debtors involved with the marijuana industry are not afforded that same fresh start. In fact, the majority of their cases are dismissed, leaving debtors to cope with their financial difficulties without the structure and oversight of the bankruptcy system. (4) As states continue to legalize the cultivation, sale, and use of marijuana, whether for recreation or medicinal purposes, the interplay between federal and state law becomes even more fraught. While other bankruptcy cases routinely include considerations of state-created rights and obligations, bankruptcy cases with direct or indirect ties to the marijuana industry are often systematically and categorically barred from bankruptcy protection, with little or no consideration of the legal status of marijuana in the debtor's state. (5)

This article explores the collision of federal and state marijuana laws as it relates to the use of the feasibility doctrine in dismissing marijuana-related bankruptcy cases. Part One of this Note explores the history of bankruptcy, the U.S. Trustee program, and the law related to marijuana, particularly as it has led the U.S. Trustee program to escalate its enforcement of marijuana-related bankruptcies. Part Two examines a handful of marijuana-related bankruptcies, explaining the theories utilized by the U.S. Trustee and federal courts' holdings, reasonings, and policy considerations behind the dismissal of marijuana-related bankruptcy cases. Finally, Part Three takes a look at feasibility, and how this specific theory used to dismiss cases is insufficient and inappropriate in marijuana-related bankruptcies because neither mere potential financial uncertainty nor the possibility that hypothetical events will occur is an adequate basis to deny confirmation of a bankruptcy plan.

1. THE ESCALATED ENFORCEMENT OF MARIJUANA-RELATED BANKRUPTCIES

   1. Bankruptcy Law and the U.S. Trustee Program

      Bankruptcy is a federal legal proceeding that provides for remedial debt relief of obligations and debts that are created and governed by state law. (6) The United States Constitution provides Congress with the legislative power to establish bankruptcy laws. (7) However, it took Congress nearly a century to exercise its powers under the Bankruptcy Clause. (8) In fact, until the first permanent nationwide comprehensive bankruptcy law was passed in 1898, many states had created their own bankruptcy systems. (9)

      While various amendments were made to the 1898 bankruptcy law, (10) it wasn't until 1978 when another major overhaul of the bankruptcy system took place. (11) The Bankruptcy Reform Act of 1978 ("1978 Reform Act") created what is known as the "Bankruptcy Code." (12) The Bankruptcy Code is codified in Title 11 of the U.S. Code. (13) For businesses and individuals, the 1978 Reform Act made it easier to file for bankruptcy protection, with the Code solidifying the "famous 'chapter' system of bankruptcy, including liquidation procedures in chapter 7 for businesses and consumers, reorganization for businesses in chapter 11, and repayment bankruptcy for individuals in chapter 13." (14)

      The 1978 Reform Act also addressed growing administrative problems. (15) The concern was that bankruptcy judges were "required both to adjudicate legal issues and supervise the administration of bankruptcy cases." (16) This led to "overburdened bankruptcy judges... [and] inconsistency between the judicial and administrative roles," causing conflicts of interest and compromised impartiality. (17) The original house bill for the 1978 Reform Act intended to permanently create the U.S. Trustee, a new "mechanism" to oversee the administrative functions, but this was opposed by the Senate. (18) Instead, a compromise was reached to include the U.S. Trustee system in the 1978 Reform Act "as a pilot program only, to be instituted in 18 judicial districts for a period of four and one-half years, with a concomitant evaluation to determine whether it should be continued or expanded." (19)

      The U.S. Trustees Program ("USTP") was permanently implemented nationwide through the passing of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986 ("Bankruptcy Act of 1986"). (20) "The mission of the United States Trustee Program is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders--debtors, creditors, and the public. ("21) The role of the USTP under Chapters 7, 11, and 13 varies, but U.S. Trustees have "an overall responsibility to 'serve as bankruptcy watch-dogs to prevent fraud, dishonesty, and overreaching in the bankruptcy arena.'" (22)

      The next substantial overhaul of the bankruptcy system occurred with the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). (23) It took nearly a decade for Congress to pass BAPCPA because of many controversial and contested provisions. (24) The overhaul was based on the premise "that bankruptcy law needed to be rebalanced in favor of creditors because it was too often being abused by debtors." (25) Despite its enactment, BAPCPA is still controversial in many aspects. (26)

      While a discussion of the full changes made under BAPCPA is outside the scope of this article, some key changes to the bankruptcy system include: (1) the introduction of what is colloquially known as the "Means Test," a statutory formula that establishes whether debtors qualify for a chapter 7 or chapter 13 bankruptcy; (27) (2) the requirement for individual filers to complete credit counseling and debtor education courses; (28) (3) an increase in the amount of time a debtor must wait before filing for bankruptcy protection after a prior bankruptcy discharge; (29) and (4) an expansion of the USTP's authority and new responsibilities. (30) Notwithstanding the controversy surrounding BAPCPA, bankruptcy still ultimately provides a "fresh start for the debtor" and ensures "equity among creditors." (31) Bankruptcy is "a lifeline" for individuals, families, and businesses who need it. (32)

   2. History of Marijuana

      Marijuana comes from the "dried leaves, flowers, stems, and seeds from the Cannabis sativa or Cannabis indica plant." (33) "When it is smoked, eaten, or otherwise ingested, it can produce an altered state in users, making them feel 'high' that can be described as a sense of euphoria." (34) Of the various chemicals in marijuana, the two chemicals often discussed are delta-9-tetrahydrocannabinol ("THC") and cannabidiol ("CBD"). (35) THC is the "mind-altering (e.g., psychoactive) compound" in marijuana. (36) CBD, on the other hand, is defined as "[a] non-psychoactive substance" in marijuana. (37) Both THC and CBD can provide medicinal benefits. (38)

      Marijuana has had an interesting history in the United States. As early as 1492, marijuana was brought to the new world by Christopher Columbus. (39) Additionally, the "Jamestown settlers brought the cannabis plant to Virginia, where they raised it to produce hemp." (40) Virginia subsequently passed a law to allow hemp growing in 1619, resulting in "[m]any of the early U.S. presidents [growing] marijuana." (41)

      But at the beginning of the Twentieth Century, views on marijuana began to change. (42) Massachusetts became the first state to ban marijuana in 1911. (43) The earliest federal ban occurred in 1906, but it wasn't until the Harrison Act in 1914 when Congress officially outlawed buying and selling marijuana for "nonmedicinal purposes." (44) Shortly thereafter, "Harry Anslinger, the head of the federal Bureau of Narcotics, waged a campaign to eliminate marijuana use" and "campaigned for federal legislation." (45) This campaign was successful, and Congress passed the Marijuana Tax Act in 1937. (46) While not imposing any additional bans, the Marijuana Tax Act greatly restricted marijuana use by requiring "anyone who bought, sold, or grew marijuana... to file paperwork with the federal government and buy a stamp from the Department of the Treasury." (47) Additionally, the Act "made it difficult if not impossible for physicians to prescribe marijuana to patients" effectively stopping all medicinal use. (48)

      Various additional restrictions were passed in subsequent years, (49) but the Marijuana Tax Act was repealed and replaced by the Comprehensive Drug Abuse Prevention and Control Act in 1970. (50) Title II of this Act, the Controlled Substances Act ("CSA"), "is the federal U.S. drug policy under which the manufacture, importation, possession, use and distribution of certain narcotics, stimulants, depressants, hallucinogens, anabolic steroids and other chemicals is regulated." (51)

      The CSA categorizes all substances into five schedules based on the following factors:

      (1) Its actual or relative potential for abuse.

      (2) Scientific evidence of its pharmacological effect, if known.

      (3) The state of current scientific knowledge regarding the drug or other substance.

      (4) Its history and current pattern of abuse.

      (5) The scope, duration, and significance of abuse.

      (6) What, if any, risk there is to the public health.

      (7) Its psychic or physiological dependence liability.

      (8) Whether the substance is an immediate precursor of a substance already controlled under this subchapter. (52)

      The five schedules are essentially a sliding scale system distinguishing between the medical value of the substance and the "potential for abuse or addiction." (53) "The CSA provides penalties for unlawful manufacturing, distribution, and dispensing of controlled substances. The penalties are basically determined by the schedule of the drug or other substance." (54) Those who...