Cannabis businesses and those that deal with them should note Garvin v. Cook Investments Northwest, a decision published by the U.S. Court of Appeals for the Ninth Circuit on May 2, 2019.Importantly, the court decided that a landlord receiving rent from someone involved in the state-legal cannabis industry could confirm a plan of reorganization under chapter 11 of the Bankruptcy Code.

1. The debtor is judicially or equitably estopped from arguing that pre-petition payments under an executory contract or unexpired lease were improper and must be avoided when, during the bankruptcy case, the debtor successfully argued that assumption of the contract or lease cum onere is in the best interests of the estate;
2. The requirement of § 365(b) that all defaults must be cured for an executory contract or an unexpired lease to be assumed is irreconcilable with preferences and fraudulent transfers seeking to reverse pre-petition payments that, had they not been made pre-petition, would have been required by § 365(b) to be made; and
3. Assumption of executory contracts and unexpired leases in and of itself and as a matter of law is proof that the contract or lease counterparty receiving the challenged pre-petition payments provided reasonably equivalent value for those payments.

Personal Communications Devices LLC (PCD) and Personal Communications Devices Holdings LLC (“Holdings” and, collectively with PCD, the “debtors”) were wireless telecommunications companies that filed for chapter 11 relief. PCD sold, repaired and refurbished various wireless communications devices and accessories. Pre-petition, more than 97 percent of PCD’s warranty repair work was performed by third parties, including KMT Wireless LLC (“KMT”).