BRADENTON, Fla. - In a long-awaited ruling late Friday, federal Judge David Proctor said that Jefferson County's sewer bond trustee and two insurers of the troubled sewer debt "are entitled to prevail on the facts" but he could not appoint the receiver they sought for the sewer system because the law favored the Alabama county.
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Proctor said that the Johnson Act under the federal code prohibits federal courts from taking actions that directly and indirectly affect the rates of utilities organized under state laws.
In response to the ruling, a spokesperson for Bank of New York Mellon said the bank is "reviewing next steps following the judges ruling." None of the other plaintiffs or their attorneys could be reached for a comment about the decision.
Proctor also said he is inclined to stay remaining aspects of the case to "avoid piecemeal litigation." The remaining case involves the county's counterclaims against the insurers for breach of contract.
The judge said he would enter a separate, final order after the parties file a joint report within 14 days about whether they want him to stay the case, continue to litigate the remaining issues, or discuss some other approach.
The ruling was not a surprise, according to Jeffrey Cohen with Cohen & Associates PC, a Denver law firm whose practice includes municipal bankruptcy.
"The bond insurers should have gone to state court and they should go to state court," he said.
Cohen said the plaintiff's case may, in fact, be strengthened by Friday's analysis by the judge, which discusses whether there was fraudulent conduct on the part of Jefferson County for failing to reveal the results of a revenue study it ordered from the engineering firm Paul B. Krebs and Associates Inc. in March 2003.
Proctor said the plaintiff's "presented compelling evidence that the county has been aware, since at least March 2003 (if not before), that its net sewer revenues were insufficient to service its debt load."
"Rather than heed this warning, the evidence before the court suggests that the county suppressed the 2003 Krebs Report and took little (if any) steps to generate the additional revenues which would be required to meet the looming sewer debt crisis," Proctor said. "Even worse, the county refinanced more than $2 billion of its fixed-rate warrants to auction and variable-rate warrants, and in doing so did not disclose the existence of the 2003 Krebs Report to any of the warrant purchasers."
Cohen said the judge didn't really have to address the Krebs report.
"One may argue that was not his jurisdiction," he said. "But it seems he really wanted to make a statement. I think maybe it could help get a [receiver] appointed in state court."
