Legal woes can add an interesting dimension to any story and the tale of Carolina Internet Ltd appears it will not disappoint. While many of the insider details are purely speculative, it appears that Carolina Internet, a Charlotte North Carolina based Co-location provider, first entered into a contract with TW Telecom Holdings Inc. (Time Warner Company) in 1999 which was then periodically renewed. For a reason yet to be definitively aired, TW Telcom filed suit against Carolina Internet in a Colorado court on July 29, 2010, citing a breach of the contract.

When Carolina Internet failed to respond to a number of pleadings in the allotted times (it does appears they never responded at all), Senior Judge Weinshienk of the United States District Court made Christmas come early for the TW Telcom legal team. On October 27, 2010, TW Telcom was awarded a default judgment.
Citing:

ORDERED that Plaintiff TW Telecom Holdings, Inc.'s Motion For Default Pursuant To FRCP 55(b)(2) (Doc. No. 14) is granted. It is
FURTHER ORDERED that Plaintiff is awarded damages in the amount of $2,850,000 under the 2009 Service Agreement and $331,533.93 under the April, May, and June 2010 invoices, for a total amount of $3,181,533.93. It is
FURTHER ORDERED that Plaintiff is awarded prejudgment interest in the amount of $124,012.70 pursuant to the terms and conditions of the parties' Agreement. It is
FURTHER ORDERED that Plaintiff is awarded post-judgment interest at the applicable statutory rate in effect on the date that Judgment is entered. It is
FURTHER ORDERED that a separate Judgment shall issue pursuant to Fed. R. Civ. P. 58. It is
"FURTHER ORDERED that Plaintiff shall be awarded its costs upon the filing of a bill of costs within ten days after entry of Judgment.

Ouch! Carolina Internet filed a request for a reconsideration of this judgment which the court then denied. Carolina Internet is appealing this ruling to the Tenth Circuit Court.

TW Telecom then brought various motions before the court to compel Carolina Internet into the judgment phrase. On March 21, 2011, Magistrate Judge Michael J. Watanabe among other things grants the Plaintiff's (TW Telcom) Motion for Writ of Execution.

Carolina Internet responds by filing a suit against TW Telcom on May 26, 2011 in a North Carolina Superior Court, alleging several contract based claims arising out of the service agreement with TW Telcom. TW Telcom, now as the defendant, claims and the court concurs, that this case is essentially the same as the case already actively playing out in Colorado. It is important to note that the court did conclude:

As the Western District of Colorado is familiar with the present dispute, it is in the interests of judicial economy for this case to be tried in our sister court in Colorado. Accordingly, Defendant's Motion to Transfer pursuant to 28 U.S.C. § 1404(a) is GRANTED. The Defendant's Motion to Strike is DENIED. On an issue of this magnitude, the Court found it important to consider the Plaintiff's response; however, the Plaintiff is warned that the Court's deadlines exist for a reason and should be followed for any further proceedings in which the Plaintiff is a party.

Further appeals of this order were under taken by the plaintiff, Carolina Internet, without success with the final order being handed down on September 26, 2011.

Meanwhile on July 14,2011, TW Telcom armed with the writ of execution made a withdrawal of $23K plus from the Park Sterling Bank account of Carolina Internet. Again in mid September 2011, a hold was placed on another account of Carolina Internet at the Clover Community Bank, this one containing more than $184K

On September 23, 2011 Carolina Internet, LTD. filed for Chapter 11 bankruptcy protection. A further action seeking injunctive relief was filed on September 27, seeking recovery and turnover of the money from the seized bank accounts. The filing claims amongst other issues that:

• the funds on deposit with the banks are necessary for the continuing operation of Carolina Internet
• That it (Carolina Internet) has suffered irreparable injury by virtue that its cash flow has been severely compromised threatening its continued operations
• a shortened and expedited process... speed is of the essence.

Outsiders watching what appears to be a train wreck in slow motion for Carolina Internet may wish to consider that there are certain legal advantages that can only be garnered under Chapter 11 (consider the airlines and auto industry recent woes and return to black ink minus the encumberance of all those pension liabilities). Assuming Carolina Internet has “competent” legal counsel, one can expect this drama to continue playing out in the North Carolina court room. (wasn't there a motion to have the case heard in NC that was denied earlier?)

An anonymous source with inside knowledge of the company has stated “we fully expect matters to be resolved in due time”. A web search on Carolina Internet shows a number of prior legal action involving Carolina Internet.

For the average hosting clients whose web host may be utilizing Carolina Internet as a Co-location and network provider, there is little in the way of protection that can, or should be done, beyond keeping a recent off-site back up of your site. But isn't that just good advice for everyone with a web presence!

We will continue to update this story has it unfolds