By Jonathan Randles
Cable operator Charter Communications Inc. told consumers to say goodbye to competitor Windstream Holdings Inc. when it filed for chapter 11 bankruptcy in 2019. That farewell message could be costly following a bankruptcy judge's ruling Thursday.
Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., said that Charter, which operates under the Spectrum brand, must pay more than $19 million in damages for sending "literally false and intentionally misleading" mailers urging customers to switch telecom providers after Windstream filed for chapter 11.
The legal fight highlights the ways companies can try to capitalize when a competitor files for bankruptcy, and the perils that can invite. Mailers that Charter sent to Windstream customers in March 2019 said they should switch to Spectrum "to ensure you are not left without vital Internet and TV services" because of the bankruptcy and told consumers to say "Goodbye, Windstream. Hello, Spectrum."
The ads were mailed in envelopes with a color strip mimicking the bright pink and purple color scheme Windstream had used in its own advertising, court papers said, a similarity that Windstream argued was meant to confuse its customers.
Jude Drain agreed, ruling that Charter, which could appeal, used misleading advertising to attract Windstream customers and therefore violated the automatic stay, a legal shield forbidding businesses from meddling with customer deals when a competitor files for chapter 11 protection.
The decision represents the largest compensatory damages award a bankruptcy court has awarded for violating the bankruptcy stay, said Terence Ross, a lawyer who represented Windstream.
The award was calculated based on Windstream's legal fees as well as its estimated lost profit from customers who switched providers as a result of Charter's mailers and advertising that Windstream produced in response to them, according to the ruling.
A Charter spokesman declined to comment on the decision.
Charter denied in bankruptcy court that the advertisements were false or misleading and disputed the damages asserted by Windstream. The mailers, produced by an advertising agency, fairly drew on information from Windstream's bankruptcy and industry experts, Charter said in a June court filing.
Little Rock, Ark.-based Windstream said when it filed for bankruptcy in 2019 that its services to customers wouldn't be affected and that it hadn't sought chapter 11 protection because of any operational failures. Windstream filed for bankruptcy after losing a costly legal fight with hedge fund Aurelius Capital Management LP.
Windstream emerged from chapter 11 protection last year with a court-approved plan backed by Elliott Management Corp. that cut about $4 billion in debt.
Windstream included as evidence a lawsuit Charter had filed over what it claimed were misleading advertisements produced by DirecTV when Charter itself filed for chapter 11 protection in 2009.
Charter argued that the DirecTV ads weren't relevant to Windstream's case and that its own mailers would have been permissible under the legal standard applied in the earlier case.
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(END) Dow Jones Newswires