Windstream Holdings, Inc. v. Charter Commc'ns, Inc. (In re Windstream Holdings, Inc.)

• Decision Date: 17 March 2020
• Docket Number: Adv. Pro. No. 19-08246,Case No. 19-22312 (RDD)
• Parties: In re: WINDSTREAM HOLDINGS, INC., et al., Debtors. WINDSTREAM HOLDINGS, INC., et al., Plaintiffs, v. CHARTER COMMUNICATIONS, INC. and CHARTER COMMUNICATIONS OPERATING, LLC, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

In re: WINDSTREAM HOLDINGS, INC., et al., Debtors.WINDSTREAM HOLDINGS, INC., et al., Plaintiffs, v. CHARTER COMMUNICATIONS, INC. and CHARTER COMMUNICATIONS OPERATING, LLC, Defendants.

Case No. 19-22312 (RDD)

Adv. Pro. No. 19-08246

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

March 17, 2020

Chapter 11

(Jointly Administered)

MEMORANDUM OF DECISION ON DEFENDANTS' MOTION TO CONTINUE BENCH TRIAL IN THE LIGHT OF JURY-TRIAL DEMAND

Appearances:

Thompson Coburn LLP, by John Kingston, Michael Nepple, and Brian Hockett, for defendants Charter Communications, Inc. and Charter Communications Operating, LLC ("Defendants")

Katten Muchin Rosenman LLP, by Terrence P. Ross, Michael R. Justus, and Shaya Rochester, for plaintiffs Windstream Holdings, Inc., et al. ("Plaintiffs" or the "Debtors")

Hon. Robert D. Drain, United States Bankruptcy Judge

This Court scheduled a trial on the remaining issues in this adversary proceeding to begin March 31, 2020. After entry of this Court's order dated March 4, 2020, which largely granted Plaintiffs' motion for partial summary judgment on liability on all counts in accordance with the Court's bench ruling, the remaining issues for trial on Counts I through IV, for violation of the Lanham Act, 15 U.S.C. § 1125, and similar state deceptive trade practices laws are the amount of damages and/or equitable relief in addition to the preliminary injunctive relief already granted, (b) the remaining issue on Count V, for breach of contract, is the amount of damages for breach of the parties' Value Added Reseller agreement, (c) the remaining issues on Count VI, for violation of the automatic stay under 11 U.S.C. § 362(a), are the willful nature of such violation and the proper sanction therefor, violation of the automatic stay having been determined, and (d) the remaining issues on Count VII, for equitable subordination under 11 U.S.C. § 510(c) of the claims of one of the Defendants, Charter Communications Operating, LLC ("Operating") against certain of the Debtors are (i) the extent to which Operating's misconduct injured creditors or conferred an unfair advantage on it (Operating's substantial violation of a generally recognized duty outside of bankruptcy law having been determined), (ii) the tailoring of any remedy to the actual harm, and (iii) whether equitable subordination of Operating's claims is consistent with bankruptcy law.¹

The Defendants timely claimed the right to a jury trial of "all issues so triable" and have not expressly consented to this Court's conduct of such a trial. Dkt. No. 41 at ¶ 8. Under 28 U.S.C. § 157(e), therefore, this Court cannot try the remaining issues if the right to a jury trial applies.²

The Defendants apparently recognize that the right to a jury trial does not apply to Counts VI and VII, but, assuming without arguing that such a right exists with respect to the remaining issues, they have filed a motion "to continue" trial of Counts VI and VII until the District Court completes its jury trial of what is left to be decided on Counts I through V (the "Motion"). Itshould be noted, however, that Defendants' motion under 28 U.S.C. § 157(d) to withdraw the reference of this adversary proceeding has not yet been granted, and, accordingly, no District Court jury trial has been scheduled. In the meantime, this Court has continued to preside over the litigation, including the Motion, as required by Federal Rule of Bankruptcy Procedure 5011(c).³

Rule 5011(c) goes on to state that the bankruptcy judge "may stay, on such terms and conditions as are proper, proceedings pending disposition of the motion [to withdraw the reference]," on motion for such a stay, id., although it is well recognized "that an order granting the stay [under Rule 5011(c)] should be the exception, not the rule, and that the circumstances under which a stay should be granted are 'essentially the circumstances under which a preliminary injunction would be appropriate under Federal Rule of Civil Procedure 65.'" 1 Collier on Bankruptcy at ¶ 3.04[1][a], quoting Antioch Co. Litig. Trust v. Miller (In re Antioch Co.), 435 B.R. 493, 497 (Bankr. S.D. Ohio 2010); see also In re Tres Hermanos Dairy, LC, 2013 Bankr. LEXIS 5043, at *6-7 (Bankr. D.N.M. Nov. 27, 2013). The Motion offers no more to meet that standard than to state that the trial of Counts VI and VII now would be "needlessly wasteful." Motion at 8.

In any event, moreover, Defendants' counsel confirmed at oral argument that the Defendants do not seek a stay under Bankruptcy Rule 5011(c). Transcript of February 13, 2020 hearing on the Motion ("2/13 Tr."), at 6-7. Instead, Defendants based the Motion on the principle articulated in Ross v. Bernhard, 396 U.S. 531, 537-38 (1970), in furtherance of the Seventh Amendment of the Constitution that "where equitable and legal claims are joined in thesame action, there is a right to jury trial on the legal claims which must not be infringed either by trying the legal issues as incidental to the equitable ones or by a court trial of a common issue existing between the claims," and Dairy Queen, Inc. v. Wood, 369 U.S. 469, 479 (1962) ("legal claims involved in the action must be determined prior to any final court determination of respondents' equitable claims"), as well as Fed. R. Bankr. P. 7042, incorporating Fed. R. Civ. P. 42(b), which states that "[w]hen ordering a separate trial [of one or more separate issues or claims], the court must preserve any federal right to a jury trial." 2/13 Tr. at 7. See also Lytle v. Household Mfg., Inc., 494 U.S. 545, 552-53 (1990); Beacon Theatres v. Westover, 359 U.S. 500, 508-511 (1959).⁴

Plaintiffs object to the Motion on three grounds. First, they contend that the Motion incorrectly assumes that the Defendants are entitled to a jury trial on any of the remaining issues, relying in large measure on the Second Circuit's interpretation of Supreme Court and its own bankruptcy-specific exceptions to the Seventh Amendment right to a jury trial in Bankruptcy Servs. v. Ernst & Young (In re CBI Holding. Co.), 529 F.3d 432 (2d Cir. 2008), cert. denied, 556 U.S. 1883 (2009); see also Katchen v. Landy, 382 U.S. 323, 339 (1966) (declining to apply Beacon Theatres and Dairy Queen in derogation of fundamental aspects of equitable, bankruptcy jurisdiction to matters that also necessarily involve claims of a legal nature). Second, for essentially the same reason they contend that even if Defendants are entitled to a jury trial on some of the remaining issues on Counts I through V, Seventh Amendment considerations do not compel postponement of the bench trial on the remaining issues on Counts VI and VII because of its alleged potential collateral estoppel effect on any of the remaining issues on Counts I throughV. In re CBI Holding, 529 F.3d at 468-69 (interpreting Lytle, 494 U.S. at 545, and Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979)). Finally, they argue in the alternative that because the trial of the remaining issues on Counts VI and VII will have no collateral estoppel effect on the remaining issues on Counts I through V, Defendants offer no valid constitutional (or other) reason to defer the bench trial on Counts VI and VII until the conclusion of a jury trial on the remaining issues on Counts I through V.

This Memorandum of Decision explains the reasons for denying the Motion based on Plaintiffs' third argument.

Jurisdiction

The Court has jurisdiction over the Motion and the underlying adversary proceeding under 28 U.S.C. §§ 157(a)-(b) and 1334(b). On Counts VI and VII the Court has "arising under" jurisdiction pursuant to 28 U.S.C. § 1334(b). On the remaining Counts, the Court has "arising in" jurisdiction under 28 U.S.C. §§ 1334(b) because the causes of action are based on Defendants' (a) postpetition inducement of the Debtors' customers to terminate service based on deceptive communications that the Debtors were not going to be able to deliver service in the light of their chapter 11 cases, or (b) Defendants' postpetition breach of contract for interrupting service, again stemming from the bankruptcy cases. "At a minimum, a bankruptcy court's 'arising in' jurisdiction includes claims that are not based on any right expressly created by Title 11 but nevertheless, would have no existence outside of the bankruptcy." Elliott v. GM LLC (In re Motors Liquidation Co.), 829 F.3d 135, 153 (2d Cir. 2016) (quotation and citation omitted); see also Ace Am. Ins. Co. v. DPH Hldgs. Corp. (In re DPH Holdings Corp.), 448 Fed. Appx. 134, 136 (2d Cir. Nov. 25, 2011), cert. denied, 567 U.S. 935 (2012); Tanguy v. West (In re Davis), 538 Fed. Appx. 440, 443 (5th Cir. Aug. 8, 2013); In re Arnold Print Works, Inc., 815 F.2d 165, 168 (1st Cir.1987). Accordingly, all Counts are statutorily "core." 28 U.S.C. § 157(b)(1); In re Motors Liquidation, 829 F.3d at 153. As discussed below, however, there are limitations under both Article III of the Constitution and the Seventh Amendment on the Court's full exercise of its statutory "core" jurisdiction. See, e.g., Stern v. Marshall, 564 U.S. 462, 493-99 (2011); In re CBI Holding, 529 F.3d at 465-66 (determination of jury trial right made without regard to whether the claim is "core" or non-"core" under 28 U.S.C. § 157(b)); Messer v. Magee (In re FKF 3, LLC), 2016 U.S. Dist. LEXIS 117258, at *14 (S.D.N.Y. Aug. 30, 2016).

The Court's jurisdiction extends to deciding whether and when the remaining issues shall be tried by a jury. Am. Universal Ins. Co. v. Pugh, 821 F.2d 1352, 1355 (9th Cir. 1987); Nisselson v. Salim, 2013 U.S. Dist. LEXIS 42556, at *12-13 (S.D.N.Y. Mar. 24, 2013); In re McCorhill Pub., Inc., 90 B.R. 633, 637 (Bankr. S.D.N.Y. 1988).

Discussion

A. Are the Defendants entitled to a jury trial on any of the counts?

Three Supreme Court decisions guide analysis of the Defendants' right to a jury trial and how that right affects the Motion's request for a continuance premised on the Seventh Amendment. The first two, Granfinanciara v....