BRADENTON, Fla. - Jefferson County has emerged from bankruptcy but still faces uncertain times as appeals of its Chapter 9 exit plan coincide with election season.
The election will include a county commission candidate who is a plaintiff in one of three appeals challenging the county's clearance from the bankruptcy process.
Former Birmingham City Council President Roderick Royal qualified Feb. 7 to run for the District 1 Jefferson County Commission seat against incumbent George Bowman.
Royal is among 13 litigants known as the Bennett ratepayers because the lead plaintiff is Jefferson County Tax Assessor Andrew Bennett. They appealed the county's main bankruptcy exit plan and two other so-called adversarial proceedings within the case.
Regardless of their outcome the appeals may prove costly for the county and take months or even years to resolve. A successful appeal of the historic bankruptcy agreement, in which investors bought $1.8 billion of new sewer refunding warrants so the county could write down $3.14 billion in old sewer debt, would probably send a shockwave through the municipal market.
Pursuing the bulk of the bankruptcy case over two years cost Jefferson County about $25 million in fees to lawyers, consultants, and advisors. In court documents, the county has projected hundreds of thousands of dollars more in fees yet to be paid from finalizing the Chapter 9 case and defending it from appeals.
County Commission President David Carrington, who is unopposed in his candidacy for a second term, said he has not asked attorneys to estimate the length or cost of the Bennett appeals.
"I hate to sound like a broken record, but the county remains confident in our legal positions," he said when asked how he foresaw the appeals playing out. Carrington is also writing a "tell all" book on Jefferson County's bankruptcy that he plans to publish on Dec. 4, the first anniversary of the county's exit from Chapter 9.
County attorneys filed a motion asking the court for partial dismissal of all appeals on Feb. 10.
The only appeal that should proceed to the briefing stage is the bankruptcy court's denial of the Bennett ratepayers' claim against the county for $1.63 billion sought on behalf of about 130,000 sewer system customers, attorneys said.
Seeking dismissal early in the appeals process is customary since the county's Chapter 9 exit plan has been confirmed and substantially implemented, according to bankruptcy attorney John Whitlock with Edwards Wildman Palmer LLP.
"In this case, Jefferson County has a strong argument that the appeal of the confirmation order should be dismissed as moot," he said.
It could take several months for the filing of appeal briefs and oral arguments to be scheduled. Orders from the district court can be appealed to the U.S. Circuit Court of Appeals, a process that typically takes six to nine months in most circuits, Whitlock said. Appellate rulings can be appealed to the U.S. Supreme Court where it can take years to decide cases.
Whitlock previously said he did not know the percentage of confirmation orders that are appealed, but many confirmation order appeals become moot once the plan is put into effect.
The Bennett ratepayers, all customers of Jefferson County's sewer system, are represented in the appeals by attorney Calvin Grigsby, a former broker-dealer whose firm, Calvin Grigsby & Associates, is registered as a municipal advisor.
Earlier this month, Grigsby said that he would file an opening brief on behalf of his clients as early as this week.
Grigsby told The Bond Buyer that he plans to argue, as he did in the past, that sewer ratepayers are creditors in the county's bankruptcy because they were "burdened by overcharges of $1.63 billion in increased sewer fees and charges" that resulted from the unlawful issuance of $3.2 billion in adjustable-rate sewer warrants in 2002 and 2003 and related interest rate swaps.
The county's agreements to "overcharge sewer fees," Grigsby contends, were discovered by the Securities and Exchange Commission -- and later confirmed in testimony in the case against former commission president Larry Langford -- to have been the result of bribes paid by what he called "private promoters" to county commissioners.
Langford orchestrated refinancing of the county's sewer debt to avoid large rate increases. He was convicted on 61 federal charges in October 2009 for bribery, money laundering, mail and wire fraud, conspiracy, and filing a false tax return. He is serving a 15-year prison sentence in Kentucky.
Numerous issues are contested in the appeals filed by Grigsby, including the county's sale of $1.8 billion in sewer warrants, which closed on Dec. 3 and resulted in the county's exit from bankruptcy.
Grigsby calls the debt excessive and legally indefensible because it burdens sewer system ratepayers on a system in which more than 40% of the households have a median household income of less than $25,000 a year.
County attorneys, however, said in their Feb. 10 court filing that "the portion of the appeal pertaining to the order confirming the county's bankruptcy plan is constitutionally, equitably, and statutorily moot, so that aspect of the appeal should be dismissed."
They also said that appeals of two adversary proceedings should be dismissed, and the only matter that the court should consider is the Bennett ratepayers' proof of claim filed for $1.63 billion, the amount Grigsby contends that ratepayers were overcharged due to the illegal issuance of the warrants and swaps as well as corruption.
The claim, which is a request for payment filed in Jefferson County's bankruptcy case, was struck down by the bankruptcy court at the request of the county.
As the appeals proceed in U.S. District Court, election campaigns are in full swing.
Royal's
When Carrington was asked if it was awkward having a candidate for the commission who is suing the county he wants to represent, he said, "the voters in District 1 will need to decide if he is the best candidate to represent their district."
Other candidates are seeking seats on the Jefferson County Commission who have indicated they are interested in making changes to county-owned healthcare facilities.
The current commission downsized and sold healthcare facilities that were bleeding cash from the county's general fund. Those actions have proved unpopular with some members of the community and local legislators.
Former county commissioner Shelia Smoot is seeking the District 2 seat now held by incumbent Sandra Little Brown, who is running for reelection. Smoot was a commissioner from 2002 to 2010, and served during the time that the county's controversial sewer debt was refunded.
Sheila Tyson, who won a seat on the Birmingham City Council last year, has also qualified to run for the District 2 commission seat. She has been a vocal supporter of Cooper Green Mercy Hospital, according to the Birmingham News.
The county closed the inpatient hospital, turned it into a smaller outpatient clinic operation, and entered agreements with numerous area hospitals to treat the poor.
The primary is set for June 3, and the general election for Nov. 4.
