Splits Created or Widened in the Circuits - 3/11-3/13

• Can a Bankruptcy Court Release a Non-Debtor from Creditor Liability when the Creditor Objects? In re Airadigm Comms., Inc., 2008 WL 649704, *25-*30 (7th Cir. Mar. 12, 2008)

The facts of this litigation, which concerns a complicated second bankruptcy reorganization plan, are largely irrelevant to the strict legal question at the heart of the circuit split. Section 524(e) of the Bankruptcy Code provides that the “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.” The question is whether this section precludes the non-consensual discharge of liability of a non-debtor, or merely defines the common effect of a Chapter 11 reorganization without limiting other possible equitable remedies.

As a matter of first impression, this panel of the Seventh Circuit finds that the latter definition is more consistent with the statutory text. Section 524(e) is a savings clause, and should be understood as such. “If Congress meant to include such a limit, it would have used the mandatory terms ‘shall’ or ‘will’ rather than the definitional term ‘does.’” *27. Furthermore, the traditional equitable powers of the bankruptcy court extend to marshalling the resources and permitting the non-consensual release on non-party liability. In so holding, the Seventh joins the CAs 2,4,6; the CAs 9,10 disagree and favor the first reading of this section. Even though the CAs 2,4,6,7 agree that discharge should be allowed in some circumstances, they differ as to what the governing standard should be. In this case, the Seventh Circuit finds that the release was appropriately tailored – subject to the other conditions of the plan, limited to liability in connection with the plan, and excluding willful misconduct – and necessary to effectuate the reorganization.

• Does the Dual Sovereignty Doctrine Apply to the Sixth Amendment Right to Counsel? United States v. Burgest, 2008 WL 659550, *3-*8 (11th Cir. Mar. 13, 2008)

Earl Burgest was charged for possession of cocaine in violation of Florida law. Thereafter, he was interrogated by federal investigators and indicted on two counts of possession of crack-cocaine with intent to distribute. The district court admitted the statements made during the interrogation at his trial, and Burgest was convicted. This appeal challenges the statements’ admission because, even though Burgest signed a valid Miranda waiver of his Fifth Amendment rights, he asserts the interrogation violated his Sixth Amendment rights which had attached by virtue of the state law charge.

The Eleventh rejects this argument, noting that the Sixth Amendment right to counsel is offense specific. “Because the Sixth Amendment right to counsel is offense specific, Burgest's prior invocation of his right to counsel for the charged state offense did not attach to Burgest's uncharged federal drug offenses if the federal offenses are separate offenses from the state drug offense. We hold that where conduct violates laws of separate sovereigns, the offenses are distinct for purposes of the Sixth Amendment right to counsel.” *6. In so holding, the Eleventh widens a circuit split between the CAs 1,4,5 (applying doctrine) and the CAs 2,8 (not applying).