BRADENTON, Fla. — The 11th Circuit Court of Appeals has two potentially precedent-setting issues pending in Jefferson County, Ala., bankruptcy case.

In a cross appeal brief filed this week, the county is arguing that the bankruptcy judge erred when he allowed sewer warrant holders to continue to collect payments with the Chapter 9 case pending.

Creditors, meanwhile, are arguing that the judge erred when he tossed out the state court-appointed receiver who was in charge of the sewer system before the county filed bankruptcy last November.

Receivership is a common mechanism to protect investors and Jefferson County’s bankruptcy is believed to be the first time the issue has become a part of a Chapter 9 case.

Jefferson County and nine firms, creditors and insurers are asking the appellate court to hold oral arguments.

The case centers around Judge Thomas Bennett’s Jan. 6 rulings tossing out the receiver and determining that net revenues of the county’s sewer system securing $3.14 billion of warrants were not subject to the automatic stay that went into effect when the case was filed, a decision that protected the security interest of revenue bonds.

The stay prevents lawsuits from going forward and most creditors from being paid unless the county voluntarily makes payments.

Bennett’s opinion, which was in agreement with previous bankruptcy court determinations, allowed sewer warrant holders to be paid while the bankruptcy case is pending.

In a brief filed Tuesday, Jefferson County said that Bennett “correctly determined that the automatic stays protect the county and its inhabitants from the receiver’s continued control of the sewer system and rate setting.”

However, the county said, the judge erred by interpreting the bankruptcy code in a way that exempted creditors from the stay by allowing them to collect revenues of the sewer system during the bankruptcy case.

“The bankruptcy court reached that erroneous conclusion through a flawed method of statutory interpretation,” the brief said. “Rather than follow the ordinary method of statutory interpretation, the bankruptcy court sped past text and structure and relied instead on extrinsic sources.”

The county argues that Bennett improperly analyzed the bankruptcy code and legislative sources to determine that the “term ‘pledge’ could mean either possession or the dedication of a revenue stream to repay specified indebtedness,” according to the brief.

“The creditors therefore have no right to continued collection of net revenues during the bankruptcy case,” the county said.

In a footnote, the brief also said the county has promised the bankruptcy court that it will not spend the sewer system revenues during the bankruptcy case for other purposes, and that creditors can receive the revenues at the end of the case.

Creditors have said that Congress intended for special revenues to be protected in bankruptcy to avoid disrupting the municipal bond market.

In early September, Richard Levin, representing the Securities Industry and Financial Markets Association, asked to file an amicus, or friend of the court, brief. The appellate court has yet to rule on whether SIFMA can file the brief.

Since the appeals were filed, Lloyds TSB Bank PLC and Bank of America-Blue Ridge Investments LLC have withdrawn from the case after selling some, or all, of the defaulted sewer warrants they held. The banks said they were not interested in pursuing the appeal, or its costs.

The firms remaining in the case are Bank of New York Mellon, trustee for the sewer warrants, the ex-receiver John S. Young, Bank of Nova Scotia, Societe Generale, State Street Bank and Trust Co., JPMorgan, Financial Guaranty Insurance Co., Assured Guaranty Municipal Corp. and Syncora Guarantee.

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