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

• Decision Date: 06 October 2022
• Docket Number: 21-CV-4552 (CS)
• Parties: In re WINDSTREAM HOLDINGS, INC. et al., Debtors. v. CHARTER COMMUNICATIONS INC. and CHARTER COMMUNICATIONS OPERATING, LLC, Defendants-Appellants. WINDSTREAM HOLDINGS, INC. et al., Plaintiffs-Appellees,
• Court: U.S. District Court — Southern District of New York

In re WINDSTREAM HOLDINGS, INC. et al., Debtors.

WINDSTREAM HOLDINGS, INC. et al., Plaintiffs-Appellees,
v.
CHARTER COMMUNICATIONS INC. and CHARTER COMMUNICATIONS OPERATING, LLC, Defendants-Appellants.

No. 21-CV-4552 (CS)

United States District Court, S.D. New York

October 6, 2022

Terence P. Ross Shaya Rochester Robert T. Smith Eric T. Werlinger Timothy H. Gray Katten Muchin Rosenman LLP New York, New York Washington, D.C. Counsel for Plaintiffs-Appellees

Susheel Kirpalani Benjamin I. Finestone Quinn Emanuel Urquhart & Sullivan, LLP New York, New York Counsel for Defendants-Appellants

OPINION AND ORDER

CATHY SEIBEL, U.S.D.J.

Before the Court is the appeal of Defendants-Appellants Charter Communications Inc. and Charter Communications Operating, LLC (together, “Charter”) from the Bankruptcy Court's

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April 15, 2021 judgment holding Charter in contempt for violation of the automatic stay under 11 U.S.C. § 362(a) and assessing sanctions (the “Judgment”). (Bankr. Dkt. 334.)^[1] For the following reasons, the Judgment is VACATED in part.^[2]

I. BACKGROUND

Plaintiffs-Appellees Windstream Holdings Inc. and its debtor affiliates (collectively, “Windstream”) and Charter are telecommunications service providers. (Bankr. Dkt. 1 (“Adv. Compl.”) ¶¶ 11-12.) Windstream filed for Chapter 11 reorganization on February 25, 2019. (Id. ¶ 14.) By operation of 11 U.S.C. § 362, the automatic stay went into effect on that date.

Charter competes with Windstream in providing residential and commercial voice and data communication services in certain locations. (Id. ¶¶ 11-13.) In March 2019, Charter launched a direct-mail advertising campaign directed at Windstream customers. (Id. ¶¶ 18-19.) The initial mailing had text on the front of the envelope that stated: “Important Information Enclosed for Windstream Customers.” (Bankr. Dkt. 341-7.) Inside was a two-sided advertisement for Spectrum (which is Charter's residential internet brand). (Bankr. Dkt. 341-6 at 1-2.) Text on the front of the ad stated in large text: “Windstream Customers, Don't Risk Losing Your Internet and TV Services.” (Id. at 1.) In smaller text below that, the advertisement read (in relevant part): “Windstream has filed for Chapter 11 bankruptcy, which means

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uncertainty. Will they be able to provide the Internet and TV services you rely on in the future? To ensure you are not left without vital Internet and TV services, switch to Spectrum.... Windstream has a 2-year contract. With Spectrum there are no contracts. Plus, we will buy you out of your current contract up to $500.” (Id.) The back of the advertisement stated, among other things, “Windstream's future is unknown, but Spectrum is here to stay ....” (Id.) Windstream alleges that this advertising was knowingly false, in that Charter was aware that Windstream's bankruptcy was not going to result in any interruption of service to its customers. (Adv. Compl. ¶¶ 3-4.)

Charter mailed this advertisement to 800,000 residences in geographic markets that it determined were likely to include Windstream subscribers. (See Bankr. Dkt. 343-35 at 26:6-14, 32:13-33:9.) At trial, Windstream introduced evidence and testimony that the advertisement caused confusion among its customers, (see, e.g., Bankr. Dkt. 341-26 at 11:19-14:14, 25:1526:21; Bankr. Dkt. 328 at 37:4-8), and caused it to lose several thousand customers, (see Bankr. Dkt. 343-27 ¶¶ 17-19; Bankr. Dkt. 343-28 ¶ 20; see also Bankr. Dkt. 328 at 57:23-58:7). Windstream also introduced evidence that it offered credits and discounts, (Bankr. Dkt. 343-27 ¶¶ 12-14; Bankr. Dkt. 342-55), launched a corrective advertising campaign, (Bankr. Dkt. 343-27 ¶ 16; Bankr. Dkt. 342-13; Bankr. Dkt. 342-14), and later launched an additional promotional campaign, (Bankr. Dkt. 328 at 48:5-15, 56:3-23, 109:11-110:12; Bankr. Dkt. 343-27 ¶ 15; Bankr. Dkt. 342-53), all to mitigate the impact of this advertising on its business.

On April 5, 2019, Windstream initiated an adversary proceeding before the Bankruptcy Court, bringing seven claims. (Adv. Compl.)^[3] On the same day it sought a temporary

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restraining order and preliminary injunction against Charter's advertising campaign. (Bankr. Dkt. 2.) On April 16, 2019, the Bankruptcy Court granted Windstream's request for a temporary restraining order and enjoined the direct mail campaign, (Bankr. Dkt. 25), and on May 16, 2019 issued the requested preliminary injunction providing the same relief, (Bankr. Dkt. 61).

On October 9, 2019, Charter filed in this Court a motion to withdraw the reference on Counts I through V of the Adversary Complaint. (No. 19-CV-9354, ECF No. 1; Bankr. Dkt. 104.) On October 14, Charter filed in the Bankruptcy Court a motion for judgment on the pleadings on Count VI of the Adversary Complaint and a motion to dismiss Count VII. (Bankr. Dkt. 109.) On November 15, 2019, while Charter's motion to withdraw the reference as to Counts I through V was pending, the parties filed cross-motions for summary judgment in the Bankruptcy Court: Charter moved for summary judgment on Counts I through V, (Bankr. Dkt. 129), and Windstream moved for summary judgment on all counts, (Bankr. Dkt. 122). On December 18, 2019, the Bankruptcy Court held a hearing on the parties' motions and issued rulings from the bench, including denying Charter's motion for summary judgment, (Bankr. Dkt. 237 (“SJ Hr'g”) at 132:6-156:9; see Bankr. Dkt. 275); denying Charter's motion for judgment on the pleadings as to Count VI and denying in part and granting in part Charter's motion to dismiss Count VII, (SJ Hr'g at 54:8-61:10; see Bankr. Dkt. 259); granting Windstream's motion for summary judgment on Counts I-V as to liability (SJ Hr'g at 136:24-151:21); and granting in part and denying in part Windstream's motion for summary judgment on Counts VI-VII, (id. at 151:22-154:24; see Bankr. Dkt. 274). With respect to Count VI, the Bankruptcy Court determined that Charter was liable for violating the automatic stay through its advertising

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campaign, which the Bankruptcy Court described as “an act to control property of the estate, namely, the debtors' customers or contracts with those customers.” (SJ Hr'g at 152:7-14.)^[4] The Bankruptcy Court did not determine damages at that time, explaining that disputed facts remained as to “whether the actions taken as alleged in the motion and the complaint in violation of the stay would satisfy the standard for civil contempt as most recently articulated by the Supreme Court in the Taggart case.” (Id. at 135:23-136:23.)^[5]

In May 2020, the Bankruptcy Court held a four-day trial on Counts VI and VII to determine, as relevant to this appeal, whether Charter should be held in contempt for violation of the automatic stay and, if so, what sanctions should be imposed. On April 8, 2021, the Bankruptcy Court issued a memorandum of decision (the “Order”) noting its prior summary judgment rulings as to Counts VI and VII and setting out its decisions on the remaining issues on those counts. (See Bankr. Dkt. 332.) As relevant to this appeal, the Order noted the Bankruptcy Court's previous holding that Charter had breached the automatic stay by its “literally false and intentionally misleading advertising campaign that wrongfully interfered with the Debtors' customer contracts and goodwill” and held that Charter should be (1) held in contempt for that violation and (2) sanctioned $19,179,329.45 for the losses caused thereby. (Order at 3.) On

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April 15, 2021, the Bankruptcy Court entered Judgment on Counts VI and VII of the Adversary Complaint in favor of Windstream. (Bankr. Dkt. 334.) On April 29, 2021, Charter timely filed a notice of appeal. (Bankr. Dkt. 337.)

II. LEGAL STANDARD

This Court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1) to hear appeals from final judgments, orders, and decrees of a bankruptcy court. “Generally in bankruptcy appeals, the district court reviews the bankruptcy court's factual findings for clear error and its conclusions of law de novo.” R2 Invs., LDC v. Charter Commc'ns, Inc. (In re Charter Commc'ns Inc.), 691 F.3d 476, 482-83 (2d Cir. 2012). The Court reviews de novo the bankruptcy court's legal conclusion that Charter violated the automatic stay. Bank of Am., N.A. v. Adomah (In re Adomah), 368 B.R. 134, 137 (S.D.N.Y. 2007).

“When reviewing for clear error, [the Court] may reverse only if [it is] left with the definite and firm conviction that a mistake has been committed.” United States v. Bershchansky, 788 F.3d 102, 110 (2d Cir. 2015) (cleaned up). “Thus, if the factual findings of the bankruptcy court are plausible in light of the record viewed in its entirety, this Court may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently.” Savage & Assocs., P.C. v. Williams Commc'ns (In re Teligent Servs., Inc.), 372 B.R. 594, 599 (S.D.N.Y. 2007) (cleaned up). “[W]here there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.” Id. (cleaned up).

“On appellate review, this Court may set aside a bankruptcy court's order holding a party in contempt only for abuse of discretion, but such review is more exacting than under the ordinary abuse-of-discretion standard because a bankruptcy court's contempt power is narrowly circumscribed.” Blair Ventures, LLC v. Famous Restoration Inc. (In re Blair Ventures), 581 B.R. 728, 732 (S.D.N.Y. 2017)

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(cleaned up). A bankruptcy court's award of sanctions is also subject to an “abuse of discretion” standard. Solow v. Kalikow (In re Kalikow), 602 F.3d 82, 91 (2d Cir. 2010). A bankruptcy court “abuses its discretion if it (1) bases its decision on an error of law or uses the wrong legal standard; (2) bases its decision on a clearly erroneous factual finding; or (3) reaches a conclusion that, though not necessarily the product of a legal error or a clearly erroneous...