Thursday, April 26, 2007

Two Turntables and a Microphone...

Yesterday, the renowned technology and bankruptcy attorney Warren Agin posted a blurb on his blog Tech Bankruptcy about the recent 5th Circuit decision (In re Darby, 470 F.3d 573 (5th Cir. 2006) finding that cable TV was not a utility for purposes of section 366 of the Bankruptcy Code. Agin posed the question of whether or not Internet service could constitute a utility, such that sec. 366 would protect a debtor with past due bills from having service cut off.

Agin, by the way, is the author of Bankruptcy and Secured Lending in Cyberspace, 3D edition, which I am adding as item #3 on my Christmas wish list, just below the PS3 and the Sony Reader. When Agin publicly wonders about something like this, I suspect it isn't just so he can win the next pick up game of Trivial Pursuit - Insolvency version. I also suspect he has a better handle on such issues than just about every lawyer, and dare I say, most jurists, in the lower 48.

While doing some unrelated research on another topic I recently promised to write about, I stumbled across an interesting provision in Texas law which tripped my early morning curiosity about Agin's musings. Chapter 35 of the Texas Business and Commerce Code is the aptly named Miscellaneous Commercial Provisions Section. The lead-off provision (tip of the hat to Cleveland Indians for beating my beloved and beleaguered Texas Rangers in 11 innings) is sec. 35.01, defining certain terms related to security instruments and utilities. Sec. 35.01(a)(2) defines "utility", at least for purposes of chapter 35, as "a person engaged in... (A) generation, transmission, or distribution and sale of electric power; (B) transportation, distribution and sale through a local distribution system of natural or other gas for domestic, commercial, industrial, or other use; (C) ownership or operation of a pipeline for the transmission or sale of natural or other gas, natural gas liquids, crude oil or petroleum products to other pipeline companies, refineries, local distribution systems, municipalities, or industrial consumers; (D) provision of telephone or telegraph service to others; (E) production, transmission, or distribution and sale of steam or water; (F) operation of a railroad; and (G) the provision of sewer service to others.

Interesting. What, by the way, is a telegraph? Is that a term of art for the new feature allowing me to email my voice messages to myself? I am still saddened by Western Union's decision to bow out of the telegram service. I always dreamed of doing something grand enough to warrant at least a single telegram.

After making sure that "utility" was not a term defined in the Code, at least not in either section 101 or 366, I decided to dig a little deeper into the Texas statutes. Turns out that Texas has a Utility Code, and that Chapter 51 of that code addresses Telecommunication Utilities. As luck would have it, section 51.002 of the Utility Code has a rather wordy definition section, full of multi-syllable words arranged in combinations to defy understanding. A quick pass through those big words looks to me as though Internet providers are not considered utilities under this definition unless, essentially, a telephone company is providing both telephone and Internet services (even then it seems to be limited to situations where the Internet service is considered part of the "basic local telecommunications service." In Texas, basic local service consists of two tin cans and a piece of twine. Probably no luck for consumers in this definition. (Not for nothing, but my sons and I love those Vonage commercials. I sure do hope Vonage can survive the current onslaught...)

Perhaps I am, as I am prone to do, getting ahead of myself in unravelling this puzzle. Looking back at the 5th Circuit's Darby opinion, I want to see how the court defined "utility". Exactly as Agin suggested, the court said that a "utility" was necessary to maintain minimum standards of living", and that such providers stand in a "special relationship" with the debtor as a provider of such services. Instead, the court suggested, Darby could have obtained access to television from a satellite provider.

I am guessing the 5th Circuit didn't sign up for cable tv when the court was temporarily displaced to Houston. Until recently, cable tv in Texas was administered as a franchise through municipalities. Although this is merely anecdotal, I noticed that cable tv is also a matter largely taken up in, you guessed it, the Utility Code.

Cable tv, just like our beloved foray into deregulated electricity, is also in the throes of deregulation. The Court deduced that, since alternate services were available, such as satellite tv, there was no special relationship between Time Warner and Mr. Darby. Texans are constantly bombarded now with the "good news" that they can seek out alternate providers of their electric service, and are no longer stuck with just one provider. Does this mean then that the 5th Circuit has, by logical extension of its analysis, opened the door to allow electric companies to slide around any unfavorable restrictions in sec. 366?

Even more perplexing is the idea that the Internet is not necessary to maintain minimum standards of living. For any lawyer practicing before federal courts, where ECF filings have rapidly transformed from mandatory to common place, certainly Internet access is necessary to feed a lawyer. On-line banking has allowed my creditors to empty my pockets on a much more timely basis. My health insurance provider alerts me through email that my online EOB's are ready for review. I have a touch of the multiple sclerosis, which means from time to time I am just not able to come into the office. Without Internet access, I would not have the ability to remote in and at least scratch out some of the day's "to-do" list.

Who, you might ask, is my Internet provider? It is my Cable TV provider.

In my humble opinion, rather than rely on what was, at the time, a 9 year old opinion from a bankruptcy court in North Carolina, the 5th Circuit ought to have at least waded through the definitions of "utility" as that term is understood in Texas statutes. The outcome may have been very much the same as that reached in the Darby opinion. If the court had looked to Texas law though, at least that type of analysis would give debtor's counsel, especially for consumers, an infinitely better understanding of what is in, and what is out, for purposes of section 366. Saving for another day the argument of whether or not Darby was outcome driven, the Darby opinion will have a very short lifespan as practical and applicable precedence as it overlooks the dynamic forces of changing business models, advances in technology, and the day to day reality of state regulatory authorities.

Dang-blast that Agin! Rickin-fracking racken' varmit! I will never finish my next post, let alone my All-American Novel, getting caught up in mental pretzels!

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