October 26, 2021

Volume XI, Number 299

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October 25, 2021

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Windstream Bankruptcy Court Slams Charter Communications for Violating Automatic Bankruptcy Stay, Holds Company in Contempt

The breadth and scope of the Bankruptcy Code’s automatic stay and the potential cost a company may face for violating the stay made national news last week in a dust-up between two telecom providers, when the U.S. Bankruptcy Court overseeing Windstream’s bankruptcy case ordered Charter Communications to pay Windstream more than $19 million in damages.  The automatic stay is triggered immediately when a bankruptcy petition is filed.  It is broad and enjoins other parties from taking most actions against a company or individual who has filed a bankruptcy petition and gives the debtor breathing space to restructure its business or to liquidate its assets.  The ruling provides a cautionary tale for wholesale providers that provide telecom services to a network services firm in Chapter 11 with which it also competes for end user customers, suggesting that aggressive actions against the debtor could carry significant risk.

The Bankruptcy Court found that Charter Communications had breached the automatic stay by terminating “last mile” services to certain of Windstream’s customers based on Windstream’s pre-bankruptcy defaults under the parties’ Spectrum Business Value Added Reseller Agreement and by running an advertising campaign containing false and misleading information aimed at inducing Windstream’s customers to terminate their contracts with Windstream.  Links to several of the ads at issue can be found herehere and here.

The automatic stay bars parties from terminating most contracts with a debtor without court approval.  In Windstream’s case, Charter Communications argued that the termination of the connectivity service was not intentional but occurred because of nonpayment protocols programmed into its computerized billing system.  The Bankruptcy Court rejected that argument finding that it is not a legitimate defense for a large and sophisticated company to argue that its computer systems do not contain an effective fail-safe to prevent it from violating the automatic stay.

Charter Communications’ efforts to poach Windstream’s customers proved to be an even costlier mistake and was the basis for the bulk of the $19 million judgment.  Charter sought to capitalize on Windstream’s bankruptcy through an advertising campaign that was intended to create the impression, through mailings designed to seem that they were coming from Windstream, that Windstream was going out of business.  The Court found that the campaign was intended to interfere with Windstream’s contract rights with its customers as well as to impair its goodwill and it held Charter Communications in contempt of the automatic stay and ordered it to pay Windstream’s damages and attorneys’ fees. 

This decision is a useful reminder about the risks that parties to contracts with debtors as well as competitors of debtors face when the debtor files a petition in bankruptcy, as well as the need to navigate the Bankruptcy Code’s automatic stay provisions.

Copyright © 2021 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume XI, Number 105
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Caressa D. Bennet Partner Womble DC Regulatory, IP Technology Data
Partner

Having launched several startups, including her own successful boutique communications and technology law firm prior to joining Womble Bond Dickinson, Carri Bennet uses her entrepreneurial spirit and smarts to make the often times seemingly impossible achievable. Carri is exacting and persistent in achieving her clients’ goals.  When working with clients, Carri determines the desired outcome and then creatively develops solutions that are structured to be cost effective and result oriented.  She is known as a spunky outspoken advocate for small rural carriers, having battled with...

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Martin L. Stern, Womble Carlyle Law Firm, Regulatory Policy Attorney
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Mr. Stern provides legal and strategic counsel on regulatory, policy and commercial matters to telecommunications, information technology and media firms, including network operators, programmers, and technology companies, in the United States and globally.  He represents clients before the Administration, Congress, and federal agencies, including the FCC, U.S. Departments of Justice, Commerce, Transportation, and Homeland Security, FTC, White House Office of Science and Technology Policy, and CFIUS.  He also develops and executes regulatory and legislative strategies,...

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Jeffrey Tarkenton Commercial Bankruptcy Attorney Womble Bond Dickinson
Partner

Creditors, landlords, trustees and those with equity interests in commercial bankruptcy cases, fraudulent conveyance litigation and preference lawsuits rely on Jeff’s seasoned legal counsel. With more than 35 years of experience in bankruptcy cases, Jeff not only has the knowledge and background to deal with almost any issue that can arise in a commercial bankruptcy case, but he also has a long track record of achieving successful results for his clients.

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Any result the lawyer or law firm may have achieved on behalf of clients in other matters does not...

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