## Facts

- Five related real-estate holding companies owned and managed by Michael Cook filed for Chapter 11 after loan defaults tied to their properties.
- One debtor leased property to a tenant operating a marijuana grow, lawful under Washington law but unlawful under the federal Controlled Substances Act (CSA).
- The lease expressly contemplated marijuana cultivation; under the CSA, knowingly leasing premises for manufacturing or distributing marijuana is illegal.
- The debtors proposed a Second Amended Joint Plan of Reorganization that provided for full payment to creditors and continued operations.
- The plan allowed the marijuana tenant’s lease to continue, but was structured so plan payments to creditors did not depend on rent from that lease.

## Issues

1. Whether a Chapter 11 plan is unconfirmable under 11 U.S.C. § 1129(a)(3) as “proposed … by … means forbidden by law” because it contemplates continuation of a lease that violates the CSA.

## Decision

- The Ninth Circuit affirmed confirmation of the plan.
- Section 1129(a)(3) was interpreted to police the legality of the means of proposing a plan, not the legality of the plan’s substantive provisions.
- Because the plan was not proposed through unlawful methods, the existence of an ongoing CSA-violating lease did not bar confirmation under § 1129(a)(3).

## Legal Principles

- A plan may be confirmed only if it “has been proposed in good faith and not by any means forbidden by law.” 11 U.S.C. § 1129(a)(3).
- For § 1129(a)(3), “means forbidden by law” refers to unlawful methods in the plan proposal process (e.g., improper conduct in solicitation or proposal), not every potential conflict between plan terms and nonbankruptcy law.
- Substantive illegality in conduct associated with the debtor’s operations is not, without more, a basis to deny confirmation under § 1129(a)(3).

## Conclusion

The court held that § 1129(a)(3) does not require denial of confirmation merely because the plan contemplates continued performance of a lease that violates federal drug law; the statute addresses unlawful means of proposing the plan, and no such unlawful proposal means were shown.


Garvin v. Cook Invs. NW, SPNWY, LLC, 922 F.3d 1031 (9th Cir. 2019)