Arguments Delayed in Jefferson County Bankruptcy Appeal

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BRADENTON, Fla. – Getting an audience in front of an appellate court has proved challenging for Jefferson County, Ala., which is still trying to knock down an appeal to its Chapter 9 bankruptcy exit.

Justices for the 11th Circuit Court of Appeals in Atlanta have said before they make a decision, they need to hear oral arguments about whether portions of the county's 2013 bankruptcy exit plan can be unwound.

However, tentative dates for arguments have been set in April, May, and July, and those dates have been postponed without a reason.

On Monday, Jefferson County Commission president Jimmie Stephens acknowledged that the "scheduling is unusual," but he said the postponements are because of scheduling conflicts.

"There are no settlement discussions," he said, when asked if the county was attempting to resolve an underlying appeal with litigants.

Stephens and other county commissioners, have routinely said the county believes the bankruptcy case they filed in 2011, and subsequently exited two years later with a plan of adjustment, is on sound legal ground.

Jefferson County emerged from the Chapter 9 case after selling $1.8 billion in sewer refunding warrants to write down $1.4 billion in related sewer debt in December 2013.

Since that time, the plan has been under appeal before U.S. District Judge Sharon Blackburn in the Northern District of Alabama.

The appeal was filed by a local group of ratepayers on the county's sewer system, who have said that the plan violates their constitutional rights.

County attorneys have argued that the appeal is moot because the plan of adjustment was implemented at the time the refunding debt was issued.

In 2014, Blackburn rejected the county's mootness contention, and ruled that she could consider the constitutionality of the plan. The county appealed Blackburn's ruling, which is before the 11th Circuit Court of Appeals awaiting oral arguments.

Calvin Grigsby, an attorney representing the ratepayers, has said that Jefferson County's plan of adjustment contains a provision that allows the bankruptcy court to retain jurisdiction over the plan while the sewer refunding warrants are outstanding – a measure that he contends is prohibited by law because it gives a federal judge authority to affect sewer system rates.

The county is using the mootness doctrine to support a plan of adjustment that violates individual rights because it contains the prohibited federal oversite, Grigsby said Tuesday.

"The fundamental point of the argument in Atlanta is going to be about whether a [federal] judge can approve a bankruptcy plan that deprives the citizens of their constitutional rights," he said.

Separately, both Jefferson County and the sewer system ratepayers are also fighting over the county's ability to return to the bond market since the sewer debt sale in 2013. Both cases involve a 2015 bill passed by the state Legislature, and are on appeal before the Alabama Supreme Court.

A lower court ruled that House Bill 573, which would have allowed the county to issue $595.5 million of limited obligation sales tax refunding warrants, was invalid because it was not passed by the required quorum of legislative votes.

Jefferson County appealed the lower court ruling in an attempt to prove the bill valid, while the local rate payers contend that HB 573 is unconstitutional.

The cases have been pending before the Supreme Court since late last year.

"I have asked for an expedited hearing on the sales tax," Stephens said, when asked for an update on the case Monday.

The county had hoped to issue the refunding debt in a private placement before the end of 2015, marking its return to the bond market after emerging from bankruptcy in December 2013.

The refunding would have enabled the county to restructure the one-cent sales tax, and leverage it to pay for infrastructure improvements.

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Bankruptcy Alabama
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