The Bank of New York Mellon says a suit seeking class-action status in Jefferson County, Ala.'s bankruptcy case is "a procedurally improper attempt to pursue frivolous claims."
BNY Mellon, the trustee for the county's $3.14 billion of defaulted sewer warrants, has asked the judge overseeing the case not to certify the class, which has been requested in a suit filed by more than a dozen residents of Birmingham, the county seat.
The residents, including two City Council members and two Alabama state lawmakers, filed a $1.63 billion claim in Jefferson County's Chapter 9 bankruptcy case in June asserting that the sewer warrants and associated swaps were illegally issued.
The suit also seeks to include the 130,000 people who pay taxes and other assessments for the county's sewer system. A hearing on the case has been set for Aug. 8.
Before the county filing for bankruptcy in November, the Birmingham residents attempted to bring a claim in the Jefferson County Circuit Court case filed by BNY Mellon to pursue the appointment of a receiver for the county's sewer system. The state court denied their request to intervene in the receivership case, and that ruling was not appealed, the trustee said.
The attempt to certify a class action is an improper attempt to attack the state court's order and "inappropriately pursue, in a different forum and through the proof of claim process, their baseless claims against the trustee and others," BNY Mellon said.
The trustee also said that the Birmingham residents lacked standing to unwind the county's sewer warrants, and that certifying their claim would adversely affect the administration of the case, in addition to being costly to litigate.
The claim was filed by attorney Calvin Grigsby, who is also president of broker-dealer firm Grigsby & Associates Inc.
Grigsby's filing said the potential class action represents ratepayers who paid recoverable overcharges due to illegally issued sewer warrants, and associated swaps.
"Creditors base their claims on wrongful gain or unjust enrichment on the part of certain bank warrant holders, credit enhancers, lenders and interest rate swap participants and sundry professionals," including the Bank of New York Mellon, the complaint alleged.
The complaint also said that the county passed along the costs of its "complicit financial wrongdoing" to ratepayers, and the recovery of $1.63 billion in damages would compensate them for the costs of wrongful issuance of the debt and swaps.