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Editor’s Note:  One of the many fascinating things about restructuring work is its willingness to evolve by borrowing from other areas of the law.  Just as business practices change, new financing techniques evolve, and transactions become more complex, the bankruptcy world must adapt as well, to allow for a well functioning insolvency system and not a stilted, out of date process.  To that end, we at The Bankruptcy Cave love finding curious decisions in tangential fields of the law, and thinking about how they may change bankruptcy practice, or how bankruptcy practice may change them (for instance, click here for a neat post last year about “Obamacare” and bankruptcy, or here for the most recent edition of The Guarantor Chronicles).  Anyway, here is our latest curious find – “net neutrality” and its effect on Section 366 “utility providers.”

On June 14, 2016, the Court of Appeals for the District of Columbia Circuit affirmed the legality of the Federal Communications Commission’s new “net neutrality” rules.[1]  In part, the rules determined that broadband Internet service is a telecommunications service under the Telecommunications Act of 1996 (the “Act”).[2]  The determination reclassified broadband Internet service providers as telecommunications carriers, which are common carriers under the Act.[3]

The reclassification imposed new obligations on broadband providers under Title II of the Act, though the FCC forbore from enforcing some requirements.[4]  “Among other things, Title II requires that carriers ‘furnish . . . communication service upon reasonable request,’ 47 U.S.C. § 201(a), engage in no ‘unjust or unreasonable discrimination in charges, practices, classifications, regulations, facilities, or services,’ id. § 202(a), and charge ‘just and reasonable’ rates, id. § 201(b).”[5]

However, the reclassification could affect broadband providers’ Bankruptcy Code duties as well.  The Bankruptcy Code forbids utility providers from discontinuing service to customers who file for bankruptcy.[6]  Previously, courts did not treat cable television and Internet services as utilities, essentially concluding that they were “luxuries.”[7]  (Despite that one study shows that 34% of Americans think broadband internet is a necessity, and 23% think cable TV is a necessity as well.)  Oppositely, telephone services are utilities.[8]  Courts base this distinction partly on the “special governmental regulation[s]” that apply to telephone companies,[9] including Title II common carrier requirements.[10]

The Bankruptcy Code does not define “utility.”  Accordingly, judges will likely continue employing the same standards used when classifying telephone services as utilities.  As the FCC increasingly treats broadband like basic telephone services, bankruptcy judges may eventually do the same.  If the FCC’s net neutrality rules stand, broadband providers should anticipate the possibility that their Title II obligations may trigger Bankruptcy Code obligations as well.

[1] U.S. Telecom Ass’n v. Fed. Commc’ns Comm’n, No. 15-1063, slip op. at 8 (D.C. Cir. June 14, 2016).

[2] Id. at 24.

[3] 47 U.S.C. § 153(51) (“The term “telecommunications carrier” means any provider of telecommunications services, except that such term does not include aggregators of telecommunications services (as defined in section 226 ).  A telecommunications carrier shall be treated as a common carrier under this Act only to the extent that it is engaged in providing telecommunications services . . . .”).

[4] Id. at 21 (citing 2015 Open Internet order, 30 FCC Rcd. At 5804–05 ¶ 434, 5849–51 ¶ 513).

[5] U.S. Telecom Ass’n, slip op. at 11.

[6] 11 U.S.C. § 366(a) (“[A] utility may not alter, refuse, or discontinue service to, or discriminate against, the trustee or the debtor solely on the basis of the commencement of a case under this title or that a debt owed by the debtor to such utility for service rendered before the order for relief was not paid when due.”).

[7] Carlson v. U.S. Bank Home Mortg., 2012 WL 6861333, at *11 (D. Minn. 2012) (quotations omitted) (cable television and internet services are not utilities within the meaning of 11 U.S.C. § 366); In re Moorefield, 218 B.R. 795, 796 (Bankr. M.D.N.C. 1997) (“[C]able television does not rise to the level of other utilizes listed under legislative history . . . . Cable television is not a necessity as millions of Americans continue to exist without such service.”)

[8] One Stop Realtour Place, Inc. v. Allegiance Telecom, Inc., 268 B.R. 430, 436 (Bankr. E.D. Penn. 2001) (“[A telephone company] is a “utility” within the ordinary meaning of that term, since it provides telephone service to the public and is subject to regulation by the FCC and the Pennsylvania PUC.”).

[9] Id. at 435 (quoting Public Utility, Merriam-Webster’s Collegiate Dictionary (10th ed.)).

[10] Nat’l Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967, 976 (2005) (noting that the FCC treats telephone services as a “basic service,” subjecting it to Title II common carrier regulation).