## Facts

- A shopping mall in Idaho was financed by a $6.3 million loan secured by a deed of trust; the loan was later acquired by U.S. Bancorp Mortgage Co.
- Bonner Mall Partnership bought the mall in 1986 subject to Bancorp’s lien, expecting stronger cash flow than the property generated.
- After Bonner failed to pay real estate taxes, Bancorp initiated nonjudicial foreclosure and scheduled a trustee’s sale for March 14, 1991.
- On March 13, 1991, Bonner filed a Chapter 11 petition, triggering the automatic stay and halting the sale.
- Bonner proposed a Chapter 11 plan under which existing equity would retain an interest by making a new capital contribution, invoking the “new value exception” to the absolute priority rule.
- The bankruptcy court granted Bancorp relief from the automatic stay after concluding the Bankruptcy Code eliminated the new value exception; the district court reversed.

## Issues

1. Whether the Bankruptcy Code preserves a “new value exception” to the absolute priority rule allowing old equity to retain or receive an interest over creditor objection in exchange for qualifying new capital.
2. Whether relief from the automatic stay was proper where the debtor’s plan was deemed unconfirmable solely because it relied on the new value exception.

## Decision

- The Ninth Circuit held that the new value exception remains viable under the Bankruptcy Code.
- The court affirmed the district court’s reversal of the bankruptcy court’s stay-relief order.
- The court rejected the claim that a plan is legally unconfirmable merely because it relies on new value.
- The case was remanded for further proceedings applying confirmation and stay-relief standards consistent with recognition of the new value doctrine.

## Legal Principles

- Codification of the absolute priority rule in 11 U.S.C. § 1129(b)(2)(B) does not, without clear statutory language, eliminate the pre-Code new value doctrine.
- A Chapter 11 plan may be “fair and equitable” despite creditor objection if old equity’s retention or acquisition of an interest is conditioned on a qualifying new contribution.
- Traditional new value requirements include: (1) a contribution of money or money’s worth, (2) necessary to reorganization, and (3) reasonably equivalent to the interest received.
- Stay relief premised on a plan’s supposed legal impossibility is improper when the plan is not barred as a matter of law and must instead be evaluated under applicable confirmation standards.

## Conclusion

The Ninth Circuit concluded that the Bankruptcy Code does not abolish the new value exception to the absolute priority rule, and it reversed stay relief that rested on the contrary view, requiring further consideration of plan confirmability under the surviving doctrine.


Bonner Mall P’ship v. U.S. Bancorp Mortg. Co. (In re Bonner Mall P’ship), 2 F.3d 899 (9th Cir. 1993)