Sandra Malul filed a Chapter 7 Bankruptcy Case in 2011. She received a discharge and her case was closed. At the time, Malul did not disclose a previous $50,000 investment in Heartland Caregivers, LLC, an entity formed by John Fritzel to grow and sell medicinal marijuana. Malul never received a return on her investment in Heartland Caregivers and thought it had been lost. Years later, after reviewing a Denver Post article featuring Fritzel’s success in the marijuana industry, Malul brought litigation claims in Denver District Court arising from her interest in Heartland Caregivers.
Malul then moved to reopen her bankruptcy case to disclose the initial Heartland Caregivers investment. The Court conditionally granted the Motion to Reopen, and a Chapter 7 Trustee was re-appointed. Shortly thereafter, Malul filed a motion to compel the trustee to abandon her interest in Heartland Caregivers, because any efforts by the Trustee to administer the asset would violate the Federal Controlled Substances Act (21 U.S.C. § 101, et seq.). Meanwhile, the Trustee reached an agreement with Fritzel to settle Malul’s lawsuit for $100,000. Later, the United States Trustee filed a motion to vacate the Order re-opening the bankruptcy case, arguing any administration of Malul’s interest in Heartland Caregivers would necessarily violate the Controlled Substances Act.
The Court concluded Malul’s ownership in Heartland Caregivers is an ongoing violation of the Controlled Substances Act. Although Heartland Caregivers never produced or sold marijuana in violation of CSA § 841(a)(1), Malul’s stake in Heartland Caregivers was intended as an illegal investment in the proceeds of a criminal enterprise in violation of CSA ڊ 854. Because Malul’s ownership of Heartland Caregivers is an ongoing criminal act, Malul is also engaged in an ongoing CSA violation by asserting rights arising from her Heartland Caregivers investment in the Denver District Court lawsuit. Accordingly, the Court held any administration of Malul’s interest in Heartland Caregivers by the Trustee, whether by abandoning the interest or settling the ensuing litigation claims, would involve the Court and the Trustee with an ongoing violation of federal law. The Court granted the US Trustee’s motion and vacated its Order re-opening this Bankruptcy Case.