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JeffCo Bankruptcy Claim Hearings Start

The judge overseeing the Jefferson County, Ala., bankruptcy case this week began hearings on a $1.63 billion class-action claim filed by a group of elected officials and residents in Birmingham, who are also seeking compensation on behalf of all of the county’s sewer system customers.

Birmingham is the seat of Jefferson County.

In a nine-count complaint against the sewer warrant trustee, various banks, bond insurers and bond counsel, the group alleged that the sewer warrants are illegal because of “complicit financial wrongdoing” and unjust enrichment on the part of “certain bank warrant-holders, credit enhancers, lenders and interest-rate swap participants, and sundry professionals.”

In December, Judge Thomas Bennett dismissed five of the nine counts cited in the suit, including one against Haskell Slaughter Young & Rediker LLC, bond counsel for the sewer warrant issue.

That leaves three counts of the suit subject to this week’s hearing. Those counts seek to invalidate the sewer warrants for violations of indenture requirements and improper issuance of the warrants without voter approval. It also argues that payment of the debt violates the Alabama constitution because it is not secured by a lien on net revenues.

In addition to the merits of the suit, Bennett will also consider a number of motions to dismiss the complaint.

Last week, Bennett dismissed a challenge brought by the city of Birmingham over the closing of inpatient treatment at the county’s hospital for the poor, Cooper Green Mercy.

The county sought the dismissal in light of Bennett’s ruling in December, which said there is no legal requirement for the county to have a hospital.

The Jefferson County government is only required to pay the cost of indigent care that is not fully reimbursed by other governmental programs or third-party payers.

In the same ruling, Bennett repeatedly blamed the state of Alabama for precipitating the county’s bankruptcy filing in November 2011.

Although many believe the Chapter 9 bankruptcy filing occurred because of the county’s $3.1 billion of defaulted sewer debt, “a major cause was actually beyond the county’s control,” the judge wrote.

“The initiating act was the Alabama Legislature’s elimination of a … tax that had been in place for a number of years and working as designed,” he said, referring to the county’s loss of an occupational tax that supported the general fund.

The state Legislature refused to re-enact the tax, which provided a significant source of revenue for Jefferson County’s budget.

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