American court hearing recordings and interviews - 22 2891 In re Windstream Holdings 9/7/2023 oral argument to US Court of Appeals for the 2nd Circuit

Episode Date: September 30, 2023

--

is automated Windstream Holdings. It please the court. Terrence Ross with Katten Mucci and Rosamund for the debtor plaintiff appellant, Windstream. The district court's decision here is predicated on two errors that mandate reversal. First, it ignored the bankruptcy court's multiple findings of fact that Charter sent a false mailer to Winstream's customers designed to appear as if it came from Windstreet. Second, it misread the bankruptcy court's decision as a failing to apply the Taggart standard from the Supreme Court to Charter's violation, despite multiple express references to Taggart in the decision as being the standard. Let me talk about the first error.

On no less than four separate occasions, the bankruptcy court found Charter intentionally designed its false mailer to appear as if it came from Winstreet. Isn't that claim still viable? In other words, your client still has the patent infringement or copyright infringement claim, correct? False advertising claim. False advertising. You know, the copying of the colors and logo of your client. That claim can still go forward. Yes, Your Honor, but a party should not be required to pursue one cause of action

when the same set of facts give rise to multiple causes of. action and here the most expedient way to obtain full relief was through a violation of the automatic stay. But how is the copying of the image of violation of the automatic stay versus the act itself? So the- I understand your question. The act of whether your opponent's actions or the competitor's actions were affecting the property that was the subject of the bankruptcy, not the method by which they went about doing that, which is the copyright infringement or copying of the company logo.

So, Your Honor, I think we always start up with the statute, which could not be any broader and has been referred to by the Supreme Court as fundamental to the bankruptcy of regime. It says that it's applicable to all entities, that's quote, and here's the key language. It stays, quote, any act, any act to obtain possession of property of the estate or to exercise control over property of the estate. And the actions that we allege did that was sending out the false mailer communicating false information

about Windstream's continued ability to provide service and doing it as if it was an official bankruptcy notice from Winstreet. But competitors do that. It may not be a nice thing to do, but competitors do that. I guess I'm trying to understand if you can help me understand how

that, how the district court got it wrong, that that conduct, albeit may not be a nice thing for a competitor to do, amounts to a violation of the automatic stay because it controls the assets or the property that's the subject of the bankruptcy. First, Your Honor, this is not normal competitive advertising. This court must accept the finding the fact of the bankruptcy court. Because remember, in a Deep Atista, you independently review the bankruptcy court's decision accepting its findings of fact. And it found, as a matter of fact, that this was not mere competitor advertising, that this was something more than that. It was an attempt to mislead customers windstream about the bankruptcy process, about the ability to provide service.

And worse, it did so by impersonating the debtor. And here is what makes it a violation of the automatic stay. They took the identity of the debtor and used it as if it were their own. That is a taking of goodwill. Goodwill is considered property of the debtor's estate. All the courts have said that. Colliers in bankruptcy said that. Goodwill is property of the estate subject to the automatic stay.

And here it's the ultimate form of taking that. They became Windstreet. They sent out this mailer wanting people to believe that it was part. part of the official bankruptcy notice process, and it was at the exact same time that those notices were going out, that is a taking of the goodwill. So this is different from general advertising, which can go on during a bankruptcy.

I mean, the automatic stay doesn't reach a competitor's desire to put up a billboard. Please, you know, please adjust. You're absolutely right, Your Honor. This is different because this mailer was specifically attention windstream customers. in the color and style of a wind stream package. So it's reaching out to Windstream's client list, essentially.

But then when you open it, it's spectrum saying, you know, we're happy to help you. But that's not a fact in evidence in the record here. What is in evidence is that we received hundreds and hundreds of phone call from the recipients. All who said the same thing. We thought this was from Windstream telling us that we were going out of business and we switch our service to spectrum and here's a special deal from them. And that was false in the bankruptcy courts, by the bankruptcy court's findings of facts because Charter knew at that time that Winstream was going to be continuing in bankruptcy. It wasn't at danger of having to cut off service. Yes, Your Honor.

The important thing here is that Charter itself had gone through Chapter 11 reorganization. It knew how this bankruptcy process worked. And it had been the victim of the exact same scheme. When it was in bankruptcy, DirecTV set out a mailer to the chartered customers saying they're going out of business, they're bankrupt, switch your service. Now, here, they should have known that that was wrongful because they sued over that and branded is it unlawful. And that satisfies the Taggart standard. Could you address your adversary's argument that the record doesn't really contain evidence that there was probably. property, at least in the form of contracts at issue here?

Well, first, this court has to start recognizing that that's a finding of fact by the bankruptcy court. It has to accept. They challenged that finding at the district court, and the district court said, this was not clear error. There's enough evidence on the record. This court now needs to accept that. What's the actual evidence of record? We have charter executives testified. They knew they had contracts, and we want to get those contracts, and let's send out this mailer.

In the mailer, it says, charter has two-year contracts. We're willing to buy them out. Then there is JA 1025 in the record, which is an internal document from Charter's records showing the contracts of windstream subscribers they bought out. Actually shows them. The district court, I mean, the bankruptcy court that I made finding that these contracts have an average term life of 55-0 years, and that's based on testimony in the record. And finally, there is the website, which is where it is a lot to take judicial notice of, which indicates that they have these contracts.

So there's ample evidence of that. Just tell me out in understanding bankruptcy. If these contracts, and I know the record may suggest otherwise, but if these contracts were all terminable at will, would it constitute contracts property of the estate? Your Honor, these contracts were based on termination on 30 days notice. And this court and other courts in bankruptcy contexts have repeatedly found that such contracts are executory contracts which make them property of the debtor's estate for the bankruptcy. Because of the 30 days notice?

Well, there are two types of contracts. There are two-year contracts. Those are obviously executory contracts. Then there are also some of these contracts that are based on 30 days notice to cancel. And that makes them executory contracts. My time is almost up. Your Honor, I would have left for a rebuttal, unless there's another question now.

May it please the Court, David Cooper on behalf of Charter Communications. The issue here is not whether the advertising was unfair in their view. The question here is whether Charter's mailings, and to be clear, these were mass mailings, not using a customer list, mass mailings to a random 800,000 people. But directed to Windstreams, customers. I mean, the front of the envelope says, pay attention if you're a wind stream customer. There's no question that they were intended to get the intention of windstream customers,

but not using a customer list, just sent to people who may or may not have been Winston customers. And the question is whether or not that mailer controlled Winstrom's property and whether there's no fair ground of doubt on the issue. Or attempted to control. I don't, or obtain possession of. I mean, I'm just looking at the statute. Correct. If it was possession, that would be another, but they don't argue possession. The only avenue that they argue for a violation of the automatic stay is control over property. And here, where the district court itself said, not only is there no fair ground of doubt, but there's no control over property, no violation of the automatic stay at all, at the very least that provides a fair ground of doubt

on the issue. And that's especially true when there's no court ever that has held the contrary until this very case, until the bankruptcy court in this very case, no court had ever said that advertising could violate the automatic stay. And so there's at the very least a fair ground of doubt when the district court itself said that was not a violation. And the reason is that the automatic stay has never been used as a tool to police unfair advertising. As Judge Kahn indicated, that's what the Lanham Act is for. There is a claim here that can deal with their concerns about whether or not this advertising was fair or unfair. false or true, and that claim is pending right now in the district court. The automatic stay, on the other hand, is defined in the bankruptcy code. That's the only place that a party can look

to know whether or not they could be held in contempt for violating the automatic stay. And what the bankruptcy code says is control over property. It does not say affecting property, it does not say producing the value of property. It says control over property. So this idea that they have that this is not competitive activity, this goes beyond. It's not a question of how we want to characterize it. It's a question of whether or not there's control, literal control over property. And it's telling that the closest case that they can cite for something that would be control over property is a case where not only did the competitor use a customer list that is something that's clearly property, but they literally went inside people's homes, changed a chip inside

their homes to have the billing directed to themselves to the competitor instead of the debtor. That is the closest case that they can come up with. You refer to this as advertising, and maybe that's what it is. It seems pretty much like a solicitation to me. It's directed at Winstream's customers, because if you're not a Winstream customer, you're not even going to open this. And when you open it, it does have information. It says Windstream is in bankruptcy.

Save your valuable. don't take the chance of losing your valuable internet service. You can switch to us. I mean, maybe that's advertising, but it seems to me that it is aimed at Windstream and pretty much saying get out of your contract because otherwise you may go two weeks without Internet service. So there's no question that it is aimed at Wimstream customers,

that the purpose of it was to attempt to get Wynstream customers to switch to charter. That is undeniably true. And right on the very top of the advertisement, once you open the envelope, it says spectrum. It says that we want you to switch to spectrum is the brand that Charter uses in this context. And so it is very clear that we're asking customers to switch. The question is, are we controlling customers by asking them to switch? No.

And are those customers themselves property of Winstream, and they are not. And so that's ultimately what it comes down to. Not the customers, but the contractual relationships. Sure. So as far as the contractual relationships, there are literally no contracts in the record. You could search the record in Maine to try to find a contract that exists. And while it's absolutely true that the Banksy Court found that there must be some contract, and the district court accepted that finding.

What the district court said is, yes, I can accept the finding that some contracts must exist somewhere, or may exist somewhere, let's say. But we have no idea what those contracts. contract say because those contracts are not in the record. And then that leaves the question of, are there property rights in those contracts, let alone the second question of, is there control over those property rights in the contract? And as Your Honor noted, if these are not executory contracts, if these are terminable at will, and if you look at their very website, it suggests that they are terminable at will, if they are,

then there is no property right in maintaining the customers. And it is their burden, their obligation to come forward to put into evidence what contracts there are that define what property rights they say that we are controlling. And they failed to do so. So there's not a question of deference to the bankruptcy court, which did not address this question of what's in the contracts because there were no contracts in the record. You can accept that they exist, but there still doesn't answer the question of were their property rights and were those properties? Some of the notices, however, said to the customers, if you're in a two-year contract, we'll buy your contract out. or we'll give you credit for that. So there was some mention in an effort to get Winstream's customers about to the extent they had a contract that it would be honored, no?

That absolutely was in the advertisement. And I think it's notable that Winstream has never actually said that they have two-year contracts. That they could have said, theoretically, you said we have two-year contracts. We do have two-year contracts. And that's our property right. They never said that. because what they advertise, what they claim, what they've always claimed is, right prominently on their website, we don't have contracts. So while it's certainly true that that's what was said in the advertisement, that doesn't define whether or not they actually, A, exist, and B, give them property rights.

It's their burden to come forward and say, here are the contracts, here are the property rights we have. But even if these contracts existed, even if there was a two-year deal and they had a right to keep these customers for two years, that still doesn't answer the question of, are you controlling that property right? And here, there is no control from simply telling customers, we would like you to switch. Here are a bunch of reasons why we have better service, we have more channels, we have faster internet,

and also they're in bankruptcy and their risk to bankruptcy. That is all that Charter said, and that does not control whatever rights that Winstream had to keep its customers, that asked the customers to switch. And that is a fundamental distinction that, frankly, no court has breached. No court has said, if you influence customers, that constitutes a control over property. This would be the first case ever to do that. And it would take courts, I believe, down a very dangerous road.

Because as Your Honor has indicated, this is something that happens all the time. Competitors advertise. Competitors ask consumers to switch. What do we make of the evidence that your adversary referred to? of customers being confused and thinking there was some relationship between spectrum and and windstream. Sure. So two things on that.

One, I don't think there could be any reasonable confusion once you opened the envelope and saw a spectrum prominently in large letters at the top of both pages of the advertisement. But the second thing is, again, customer confusion is something that the Lanham Act specifically deals with. It says it has a specific provision that talks. about if you are advertising a way that causes customers to be confused about where the advertisement comes from, that could be a violation. And notably, while they brought a Lanham Act claim for false advertising, they didn't

bring a Lanham Act claim for that specific provision of the Lanham Act. And the reason is because using a couple of colors that a competitor uses is not close to a trade dress violation. It is not close to a trademark violation. And that is the property right in identity. So when they, when Winston Council says they took, literally they took our identity, we know what property rights in a corporation's identity look like. Those are defined by law. They're defined by law in terms of trademark and trade dress. They do not argue that there was a violation of trademark or trade dress here, because there's no legitimate claim that using a few colors is an actual violation of property rights. Again, the same is true when they talk about goodwill. Goodwill is, is a accounting concept that depending on exactly what we're talking about could be property or could not be property. The only property right they talk about in Goodwill is based on what they call, and this is page 15 of their reply brief, their brand and their customer relationships.

Their property right and their brand is defined by law. It's defined by law in terms of trademark and trade dress. They assert no violation of that. Their customer relationships are defined by contract. They put in no contracts and there was no control over contractual right. And again, at the absolute minimum, there is a fair ground of doubt on this issue when literally no court has ever held the contrary before. There is value in goodwill. People buy businesses just for the name or the reputation of a particular business or companies. So there is some value in goodwill, correct?

There is value in goodwill? But the question is, is there control over the property that is embodied within goodwill? That's the question here. and the property embodied in the goodwill that they, by their own definition, is their brand. And so, again, there could be goodwill, for example, in customer lists, something like that. And that's why we have cases that deal with customer lists and physically taking them and using them. But when we're talking about just a brand, there we have a property rate that's defined specifically in terms of the trade dress and the trademark, of which there was no violation here. And so I see my time is up.

For those reasons, we'd ask this court to affirm. Counsel has studiously avoided talking about the taking of the name and the identity. Your Honor has already mentioned that name appears right on the front cover. Taking the name and identity is a violation of the goodwill. She says that no case has ever said that. I'm sorry, that's incorrect. The Golden Distributors case says exactly that. The Golden Distributors case says,

you mail advertisements to customers of a debtor, and you pose as the debtor in doing that, that is a taking of goodwill, and it is a violation of the automatic stay. In that case, there was no imposter taking position. Here, the court has found that they were an imposter. They took the identity. They took the goodwill.

That's property of the state, and that is a violation of the automatic state. What makes this worse, though, is this all happened to charter during its Chapter 11 bankruptcy. How can they say that it was objection? objectively reasonable or that was a close call or there was no there was some doubt in their minds when they said that that exact same conduct in chapter 11 constituted unlawful and wrongful acts and sued over it that is exactly what taggart says satisfies the standard for holding someone in contempt remember they sued over it but not in bankruptcy for it to get the stay that is correct so presumably in your pending claim still against them you'll be able to use those those same words. Well, we intend to, but we believe that this decision by the district court is wrong,

should be vacated. It's clearly mistaken in that it ignored findings of fact without identifying any clearer. And you notice there, again, was no identification clear error. There was a lot of speculation as to what the customers saw when they opened up. But the record says they believe that even after opening it up, that it was from Windstream telling them to switch to spectrum. Now, let me have one last thing. My time is almost out, but Your Honor got at this by talking about attempts. The courts, including this court, have said it's not just control over debt or property.

It's any interference. That interference equals control. And that when you go and interfere with the customer relationship by telling them lies about the company and misleading them about the bankruptcy process, you have interfered, you have exercised control over property of the debtor, the goodwill, and the contracts. Thank you, Your Honor. Thank you both. Well argued. We'll take the matter under advisement.