Bonner Mall Partnership v. U.S. Bancorp Mortgage Co. (In re Bonner Mall Partnership)

2 F.3d 899 (1993)

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Bonner Mall Partnership v. U.S. Bancorp Mortgage Co. (In re Bonner Mall Partnership)

United States Court of Appeals for the Ninth Circuit
2 F.3d 899 (1993)

Facts

Bonner Mall Partnership (Bonner) (debtor) owned mall property that was subject to a lien held by U.S. Bancorp Mortgage Company (Bancorp) (creditor). After Bonner failed to meet its financial obligations, Bancorp commenced foreclosure proceedings and scheduled a sale of the property for March 14, 1991. On March 13, Bonner filed for Chapter 11 bankruptcy, which automatically stayed the sale. Bonner subsequently proposed a reorganization plan that relied on the new-value exception to the absolute-priority rule (i.e., the rule that a reorganization plan must pay a class of unsecured creditors in full before junior claimants can receive anything under the plan). Under the new-value exception, which existed prior to the enactment of the Bankruptcy Code, shareholders of a debtor corporation could retain an interest in the reorganized entity by making a new capital contribution, even if a class of objecting creditors had not been fully paid. Bancorp moved for relief from the automatic stay, asserting that the new-value exception was no longer viable after the enactment of the Bankruptcy Code. The bankruptcy court agreed and granted Bancorp’s motion. However, the district court reversed, holding that the Bankruptcy Code had not eliminated the new-value exception. Bancorp appealed.

Rule of Law

Issue

Holding and Reasoning (Reinhardt, J.)

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