A federal judge in the U.S. Bankruptcy Court in the Southern District of New York has ruled that Charter Communications has to pay for letters that will be sent to Windstream subscribers saying that an advertisement sent to them by Charter "was untrue and improper."
A preliminary injunction was filed on Wednesday that outlined the steps that Charter needs to take to remedy an advertising campaign that said Windstream, which filed for Chapter 11 bankruptcy protection in February, was going out of business.
On April 5, Windstream filed a federal lawsuit against Charter that said Charter was engaging in a "scare-tactic campaign" to entice Windstream subscribers to switch over to Charter. Among other issues, Windstream said in its filing that Charter, which filed for its own bankruptcy protection back in 2009, used envelopes that had Windstream's trademark and company colors to imply that it would not be able to provide services to its subscribers and that it was going to liquidate its assets.
The court entered a temporary restraining order against Charter on April 16. Evidentiary hearings were held by the court on April 15 and May 14, with the Judge Robert D. Drain ruling that there was "good and sufficient" cause to issue the preliminary injunction on Tuesday.
The preliminary injunction included the following: "The legal and factual bases set forth in the Motion and at the evidentiary hearings on April 15, 2019 and May 14, 2019, establish good and sufficient cause exists for granting the relief provided herein because the Debtors (Windstream) have demonstrated that: there exists a substantial likelihood of success on the merits of their claim against Charter for false advertising under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); the Debtors and their estates and creditors will suffer irreparable harm if a preliminary injunction is not issued; the serious and irreparable harm to the Debtors from failure to issue a preliminary injunction far outweighs any harm to Charter; and issuance of a preliminary injunction is in the public interest by preventing harm to the Debtors’ reorganization efforts and their estates and precluding additional harm under the Lanham Act."
Charter will provide Windstream with a list of every person or entity that it mailed the advertisements to, as well as the full names and addresses that it has. Windstream will review the list and let Charter know of any deficiencies.
Windstream has been authorized to send a letter, which will be paid for by Charter, to each Windstream customer that received the advertisements covered in the preliminary injunction.
The injunction said Windstream demonstrated that Charter violated the automatic stay of the Bankruptcy Code when Charter discontinued service to Windstream customers on or around March 14. The injunction also cited the recent discontinuation of service to a Windstream customer in San Antonio. Charter is required to restore service to the Windstream subscribers that were disconnected.
"Without limitation," Charter also must refrain from implying that Windstream is going out of business in its advertising efforts and door-to-door campaigns. Along the same lines, Charter also can't express or imply that Windstream's bankruptcy will impair or adversely impact its ability to provide services to its customers.
Charter can no longer use "Goodbye, Windstream, Hello Spectrum," or "Windstream Customer, Don't Risk Losing your TV and Internet Service" in any ads or door-to-door campaigns.
Charter is also required to send copies of the preliminary injunction to each of its employees that took part in the advertising and door-to-door campaigns. Charter acknowledged that service was disconnected to a Windstream customer after the temporary restraining order (TRO) was filed on April 16. Also after the TRO, Charter told Windstream customers in a door-to-door campaign that Windstream was going out of business and that their internet and phone services would be shutdown unless they switched to Charter.
In February, Windstream lost a legal battle with New York hedge fund Aurelius Capital Management over whether Windstream had defaulted on bonds by spinning off Uniti Group four years ago. Windstream filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York.
Windstream announced the same month that it had received a commitment from Citigroup Global Markets for $1 billion in debtor-in-possession financing. Windstream said that upon approval by the bankruptcy court, it would have enough cash on hand to meet its operational needs and "continue operating its business as usual."
A spokeswoman for Charter Communications declined to comment.
Judge approves bonus plan
Also this week, Judge Drain approved Windstream's request to use up to $24 million for bonuses for its top executives, including CEO Tony Thomas and CFO Robert Gunderman, according to a story by Arkansas Business.
Windstream also set aside $18.9 million in bonuses for its top-five executives if they meet this year's goals. Windstream had asked for $20 million, according to the Arkansas Business story, but agreed to the lower amount.
Judge Drain also allowed Windstream to use up to $5 million for bonuses in order to keep other key employees, according to Windstream's bankruptcy filing. Windstream said in the filing that some of its employees are being targeted by its competitors and that it has already lost some of its key employees.
To cap off a busy week, Windstream Holdings reported in its first quarter earnings on Wednesday a net loss of $2.3 billion, or $54.26 per share. Windstream posted a net loss of $121 million, or $3.25 per share, in the same quarter a year ago.
Windstream's revenue came in at $1.32 billion, which was down 9% from $1.41 billion in the same quarter in 2018.