BRADENTON, Fla. — Attorney Calvin Grigsby is protesting Jefferson County, Ala.'s proposal to reject a $1.63 billion claim that he submitted on behalf of local elected officials and others in the county's bankruptcy case.
The claim was filed on behalf of the same group of elected officials and residents who are named in an "adversarial proceeding" filed by Grigsby contending that the county's issuance of 2002C, 2003B and 2003C sewer system warrants, and the use of swaps, was illegal. Warrants are similar to bonds.
U.S. Bankruptcy Judge Thomas Bennett, who is handling Jefferson County's Chapter 9 case, has placed a hold on the adversarial proceeding pending approval of the county's plan of adjustment, which includes a settlement with a majority of sewer system creditors.
That settlement hinges on the plan's confirmation later this year, and near simultaneous pricing of $1.9 billion of new sewer warrants to refinance $3.2 billion of outstanding debt. Warrant holders would take losses under the plan.
Jefferson County filed for Chapter 9 bankruptcy in November 2011 with $4.2 billion of municipal debt. Of that amount, $3.1 billion was mostly defaulted sewer warrants.
Earlier this month, the county filed an objection to Grigsby's claim for $1.63 billion, and asked that it be expunged from the claim register.
Grigsby said in a recent filing that his clients, who are ratepayers of the county's sewer system, deserve the right to prove their claim in a full hearing because their claim has merit. He also contended that the planned refinancing later this year could put the county back into Chapter 9.
"The purpose of the federal bankruptcy laws is to give the debtor a fresh start," Grigsby's filing said. "Unless the ratepayer claims are heard the illegality in the original issuance will not only be continued in the new sewer warrants but the unbridled push for more warrants issuance fees may bring the county right back to the bankruptcy court again."
If a hearing is not granted, Grigsby said Bennett should allow the ratepayers to return to state court to resume their legal challenge there.
Jefferson County's attorneys said Grigsby's clients "fail to allege facts sufficient to support any claims of any kind against the county, much less the $1.63 billion claim.
"The disputed proofs of claim, to the extent they state any cognizable claims at all, assert claims that rightfully can be brought and compromised only by the county," said a footnote in the county's objection to the $1.63 billion claim.
The claimants have not stated a "plausible factual or legal basis" to support any right to payment from the county, and should be disallowed, the county said.
The next court hearing in the bankruptcy case is Sept. 19.
