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Fla. AG Flouting Ch. 11 Stay In State Suit, Windstream Says

Windstream Holdings said Florida's attorney general won't stand down in a state suit over 911 fees despite an automatic stay kicked off by its Chapter 11 filing, and the telecom is demanding a New York bankruptcy court enforce the stay and slap the AG with costs and damages.
Windstream asked the court last week to stop the efforts of Florida Attorney General Ashley Moody to intervene in the 3-year-old lawsuit over emergency service fees, arguing that Moody's office won't back off despite repeated warnings from U.S. Bankruptcy Judge Robert D. Drain.
Judge Drain has specifically cautioned the attorney general that it "'is on notice that it may be violating the automatic stay,'" and that it needs to get permission from the bankruptcy court to go any further in pursuing claims against the company while it is under Chapter 11 protection, according to Windstream.
But "no such motion has been filed" with the bankruptcy court, Windstream said, adding that recent communications with Moody's office demonstrate "there are no plans to heed this advice."
In emails attached to Windstream's motion, special counsel for Florida's attorney general said the position that they need to ask the New York court to lift the stay before intervening in the state case is "frivolous." And according to that email exchange — which is from late June — special counsel Russel S. Kent went on to criticize Windstream's "posturing" as "far from productive."
In its bid to intervene, the office contended it was exempt from the automatic stay, citing case law that says "an action by a governmental unit to enforce its police and regulatory powers is excepted from the automatic stay so long as the action is not to enforce a money judgment."
But Windstream argued in its filing last week that the 911 fee case is only hinged on "advancing the government's fiscal interests." And it added that regardless, the governmental unit needs to kick off or continue an action to fall under this exemption, and the Florida Attorney General's Office is doing neither.
A representative for Florida's attorney general declined to comment Monday. Counsel for Windstream did not respond to requests for comment Monday.
Judge Drain is scheduled to hold a hearing on the motion July 26.
Windstream filed for Chapter 11 in February after a federal court ruling that a 2015 real estate spinoff left it in default of senior notes and owing a hedge fund more than $310 million. And the state court suit — filed in 2016 — alleges Windstream failed to collect and distribute certain emergency service fees to support 911 services in Florida.
Windstream is represented by Stephen E. Hessler, James H.M. Sprayregen, Marc Kieselstein, Ross M. Kwasteniet, Cristine Pirro Schwarzman, Brad Weiland and John R. Luze of Kirkland & Ellis LLP.
Florida's attorney general is represented in the state court case by Russell S. Kent, special counsel for litigation in the Florida Department of Legal Affairs.
The bankruptcy case is In re: Windstream Holdings Inc. et al., case number 19-22312, in the U.S. Bankruptcy Court for the Southern District of New York. The state court case is State of Florida ex rel. Phone Recovery Services LLC v. Windstream Communications LLC et al., case number 2016-CA-002103, in the Second Judicial Circuit of the State of Florida.