The Seventh Circuit, in Airadigm Communications, Inc. v. Federal Communications Comm’n. (In re Airadigm Commc’n, Inc.), 519 F.3d 640 (7th Cir. 2008), has joined the circuits permitting the non-consensual releases of non-debtor third parties from their obligations to creditors in chapter 11 reorganizations. In Airadigm, the court considered the validly of releasing a guarantor and major reorganization financer, Telephone and Data Services (hereinafter TDS), from liability resulting from the reorganization of debtor Airadigm Communications. The Court came to three conclusions on the subject: 1. Bankruptcy code section 524(e) does not prevent bankruptcy courts from granting third-party releases; 2. Bankruptcy courts have the affirmative power to grant third-party releases; and 3. The applicable standard for granting a third-party release is that the release must be necessary for the reorganization and the release must be as narrowly tailored.
This article will begin by describing the statutory framework for third party releases. Next, the article will examine the factual background of the Airadigm case. Then, the article will explore the reasoning other circuits have used to either grant or deny non-consensual third-party releases and the reasoning the Seventh Circuit used in coming to the three conclusions stated above in Airadigm. Finally, the article will briefly conclude on what Airadigm adds to the discussion on non-consensual third party releases.