By: Craig Lutterbein
St. John's Law Student
American Bankruptcy Institute Law Review Staff
The Seventh Circuit, in Airadigm Communications, Inc. v. Federal Communications Comm’n. (In re Airadigm Communications, Inc.), has joined the circuits permitting the non-consensual release of a non-debtor third party from its obligations to creditors in chapter 11 reorganization.
The case revolved around Airadigm Communication’s purchase and financing of fifteen personal communication services licenses from the FCC.
When Airadigm began to fail the company filed for reorganization, and the FCC cancelled the licenses.
During Airadigm’s first chapter 11 reorganization, it received financing from Telephone and Data Services (TDS), who agreed to repay the FCC the debt owed on the licenses if the FCC reinstated the licensees.
Although the FCC did not originally reinstate the licenses, in FCC v. Next-Wave Personal Communications Inc., the Supreme Court ruled that FCC could not legally cancel licenses simply because a communication company files bankruptcy.
Thus, the FCC was forced to reinstate Airadigm’s licenses, which caused Airadigm to file a second Chapter 11 case.
The plan confirmed by the bankruptcy court contained a release protecting TDS from all liability “in connection with” the reorganization except willful misconduct.
On appeal, the Seventh Circuit found that the release was necessary and appropriate because the release was narrowly drawn and TDS was making a substantial contribution that was necessary for Airadigm’s reorganization to be successful.