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Both Los Angeles Lumber and Kansas City Terminal had noted that it would not be a violation of the absolute priority rule if equity holders gave new value to retain their interests.371 This has often been called the "new value exception," although lately it has more properly been recognized as a corollary of the general rule.372
A footnote in the Supreme Court's Ahlers opinion raised the question of whether the new value corollary had survived the Code's partial codification of the absolute priority rule.373 This led to years of circuit court dictum on the issue374 before the Ninth Circuit held in Bonner Mall, the first on-point decision after Ahlers, that the new value corollary had survived the Code's partial codification of the absolute priority rule.375 It appeared to be headed for resolution by the Supreme Court when it granted certiorari, but the parties settled before it was argued, and the Supreme Court ultimately decided the Ninth Circuit's opinion should not be vacated.376 In the meantime the Fourth Circuit weighed in with the conclusion that if a new value corollary survived, it requires that the opportunity to contribute the new value be put up for auction so that old equity does not retain the exclusive right to contribute.377 The Second Circuit agreed with that analysis in Coltex.378
371
Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 60 S. Ct. 1 (1939); Kansas City Terminal
R. Co. v. Central Union Trust Co., 271 U.S. 445, 46 S. Ct. 549 (1926).
372
The Ninth Circuit has noted that its common name, "the new value exception," is misleading, because the doctrine is not actually an exception to the absolute priority rule, but "rather a corollary principle, or, more simply, a description of the limitations of the rule itself." In re Bonner Mall Partnership, 2 F.3d 899, 906 (9th Cir. 1993). The Seventh Circuit called it a corollary without even noting that other opinions had called it an exception. In re 203 N. LaSalle Street Partnership, 126 F.3d 955 (7th Cir. 1997), rev'd, 119 S. Ct. 1411 (1999). For proof that it mathematically qualifies as a true corollary, see Markell, "Owners, Auctions and Absolute Priority Rule in Bankruptcy Reorganizations," 44 STAN. L. REV. 69 (1991-92).
373
Norwest Bank Worthington v. Ahlers, 108 S. Ct. 963, 967 n.3 (1988).
374
In re Snyder, 967 F.2d 1126 (7th Cir. 1992)(dictum concluding corollary exists); In re Greystone III Joint Venture, 948 F.2d 134 (5th Cir. 1991)(Jones, J., dissenting in part)(dictum concluding corollary does not exist), cert. denied, 113 S. Ct. 72 (1992); Kham & Nate's Shoes No. 2, Inc. v. First Bank of Whiting, 908 F.2d 1351 (7th Cir. 1990)(dictum questioning existence of corollary); In re Stegall, 865 F.2d 140, 142 (7th Cir. 1989)(dictum questioning existence of corollary); In re Potter Material Service Inc., 781 F.2d 99 (7th Cir. 1986)(applying new value corollary without discussing the codification issue).
375
In re Bonner Mall Partnership, 2 F.3d 899 (9th Cir. 1993).
376
115 S. Ct. 386 (1994).
377
In re Bryson Properties, XVIII, 961 F.2d 496 (4th Cir.), cert. denied, 113 S. Ct. 1991 (1992)
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