Utility Services—Darby v. Time Warner Cable, Inc. (In re Darby), No. 05-20931 (5th Cir., Nov. 14, 2006)

The U.S. Court of Appeals for the Fifth Circuit has held, in an issue of first impression in the circuit, that a cable service provider was not a utility under section 366 of the Bankruptcy Code. Therefore, the cable company was not obligated to provide services to a bankrupt debtor, even though the debtor offered assurances of future payment. The ruling affirmed the holdings of two lower courts.

After the debtor in Darby filed a petition for relief under chapter 13 of the Bankruptcy Code, the debtor’s cable provider, Time Warner, discontinued his cable service. The debtor offered a deposit to Time Warner to reinstate his service but Time Warner refused. The debtor thereafter filed a motion with the court seeking an order compelling Time Warner to reinstate his service under 11 U.S.C. § 366, pursuant to which utilities are required to reinstate service after receipt of adequate assurances of future payments.

Initially the court agreed with the debtor, over Time Warner’s objection, and ordered the service reinstated upon the grant of a $250 super-priority claim to Time Warner in the event of default. However, Time Warner filed for reconsideration of the court’s order, whereupon the bankruptcy court reversed its decision and held in favor of Time Warner.

“Utility” is not defined in the Bankruptcy Code, so in rendering its decision, the court turned to the legislative history. The legislative history states that section 366 is meant to cover utilities that have a “special position with respect to the debtor,” such that the debtor cannot easily obtain service from another provider. The services discussed in the legislative history are those which are necessary to meet a minimum standard of living.

The bankruptcy court held, and the court of appeals agreed, that for a service to be “special” it must be a necessity and, because cable television is not a necessity and is not required to sustain a minimum standard of living, cable service is not a utility under the Bankruptcy Code.

While the debtor agreed that cable was not a necessity but a convenience, he argued that he could not easily obtain comparable service from another provider. The court disagreed and stated that the debtor could readily obtain service through a satellite provider for a cost equal to that which the debtor sought to offer Time Warner as adequate assurance of payment.