In Re FAB Industries

MEMORANDUM AND ORDER

This action came on for hearing October 2, 1992, before the Court, the Honorable William J. Rea presiding, on Appellant and Debtor F.A.B. Industries’ appeal from the United States Bankruptcy Court for the Central District of California. After full consideration of the authorities submitted by the parties, and oral argument of counsel, the Bankruptcy Court’s order granting Prudential Insurance Company of America’s relief from the automatic stay is hereby reversed, and the instant action is remanded to the Bankruptcy Court for further proceedings in connection with relief from the stay motion consistent with the instant memorandum decision.

The issue presented to the Court is whether the “new value” exception to the absolute priority rule ever existed, and if so, whether it was abolished by the enactment of the 1978 Bankruptcy Code.

I. BACKGROUND

The Debtor F.A.B. Industries (“F.A.B.”) is a California general partnership. The general partners of the Debtor are the Cohen Family Trust and the Torrino Family Trust (the “General Partners”). Each General Partner owns a 50% general partnership interest in the Debtor. The Debtor’s principal asset is a medical and…