434
OCTOBER TERM, 1998
Syllabus
certiorari to the united states court of appeals for the seventh circuit
No. 97-1418. Argued November 2, 1998—Decided May 3, 1999
A loan by petitioner Bank of America National Trust and Savings Association (Bank) to respondent 203 North LaSalle Street Partnership (Debtor) was secured by a mortgage on the Debtor's interest in a Chicago office building, the value of which was less than the balance due the Bank. After the Debtor defaulted and the Bank began state-court foreclosure, the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code, 11 U. S. C. § 1101 et seq. The Debtor proposed a reorganization plan under which, inter alia, certain of its former partners would contribute new capital in exchange for the Debt-or's entire ownership of the reorganized entity. That condition was an exclusive eligibility provision: the old equity holders were the only ones who could contribute new capital. The Bank objected and, as sole member of an impaired class of creditors, thereby blocked confirmation of the plan on a consensual basis. See § 1129(a)(8). The Debtor, however, resorted to the alternate, judicial "cramdown" process for imposing a plan on a dissenting class. § 1129(b). Among the conditions for a cramdown is the requirement that the plan be "fair and equitable" with respect to each class of impaired unsecured claims that has not accepted it. § 1129(b)(1). A plan may be found to be fair and equitable if "the holder of any claim . . . junior to the claims of such class will not receive or retain under the plan on account of such junior claim . . . any property." § 1129(b)(2)(B)(ii). Under this "absolute priority rule," the Bank argued, the plan could not be confirmed as a cramdown because the Debtor's old equity holders would receive property even though the Bank's unsecured deficiency claim would not be paid in full. The Bankruptcy Court approved the plan nonetheless, and the District Court and the Court of Appeals affirmed. The Seventh Circuit found ambiguity in the absolute priority rule's language, and interpreted the phrase "on account of" to permit recognition of a "new value corollary" to the rule, under which the objection of an impaired senior class does not bar junior claim holders from receiving or retaining property interests in the debtor after reorganization, if they contribute new capital in money or money's worth, reasonably equivalent to the property's value, and
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