Lessons from the Windstream Chapter 11 Bankruptcy
Stay violations come in all shapes and sizes. We often represent debtors who have claims for violations and accompanying damages. Usually these involve consumers and one of their creditors such as a small bank, an individual creditor, a used car company, or another local business with a claim.
The recent situation involving Charter Communications (a/k/a Spectrum here locally) and Windstream reminds us that stay violations can also occur among large and sophisticated players. A potential stay violation must always be taken seriously, and the Windstream Bankruptcy Court has made that reminder painfully clear.
The Automatic Stay in Bankruptcy
In this day and age, pretty much everyone understands that when an individual or a company files for bankruptcy, there is an immediate stay in taking pretty much any action. This gives the debtor a “breathing spell” to restructure or liquidate. The scope of the stay is very broad, and the common wisdom is that when in doubt, consult with an attorney with bankruptcy experience. No contract may be terminated by the non-bankrupt party without court approval. Parties can always go to the court to seek court-approved relief from the automatic stay.
WindStream Chapter 11 Bankruptcy and Aftermath
Windstream and Charter were parties to a contract called the “Spectrum Business Value Added Reseller Agreement.” Under this contract, Spectrum provided “last mile” services to certain Windstream customers. After the Windstream Chapter 11 was filed, Spectrum ran an advertising campaign. Windstream alleged the ads were false and misleading, and which encouraged Windstream customers to change carriers. Spectrum also terminated services to certain Windstream customers for the last mile services due to contract defaults between Windstream and Spectrum. See below for example of one ad:
I’m pretty sure that “Goodbye Windstream/Hello Spectrum” are words that Charter never wants to hear again. After an evidentiary hearing, the Court awarded $19 million in damages to Windstream, including its attorneys fees and costs.
There is almost always some reason given, some excuse to try to argue why there was not a violation. Charter argued that its computer systems had terminated certain customers from the last mile services due to Windstream’s nonpayment under the contract. This excuse was flatly rejected.
The Court also rejected Charter’s arguments regarding the marketing campaign. The Court made a finding that the direct-mail advertising campaign was intended to interfere with Windstream’s contract rights with its customers, and that is also damaged Windstream’s goodwill value.
It’s pretty incredible that parties this sophisticated could take this level of risk. Aggressive competitive behaviors are increasingly common in business. However, when there is a bankruptcy involved, then “Aggressor Beware” is probably a good rule to follow. Let Charter’s $19 million lesson be one everyone can learn from.
About DelCotto Law Group
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