Bankruptcy Judge Thomas Bennett ruled Tuesday that Assured Guaranty Municipal Corp. cannot proceed with its lawsuit against JPMorgan in New York State court because it involves bankrupt Jefferson County, Ala.
Assured is bound by an automatic stay that went into effect when the county filed for Chapter 9 bankruptcy in November 2011, stopping existing suits and any new ones from going forward, Bennett said. He characterized the pending suit as “demonstrating the downside of creativity” in trying to avoid the shield afforded debtors by the stay because Assured argued that it did not sue the county.
Assured sued JPMorgan in June 2010, alleging that the bank committed fraud by inducing it to insure the county’s sewer debt. JPMorgan filed a third-party complaint denying it owed relief to Assured, and asserting two cross claims against Jefferson County.
Syncora Guarantee Inc. filed a similar suit in April 2010 citing fraud charges against the county and JPMorgan.
Bennett pointed out that Assured and Syncora’s cases are assigned to the same judge, both insurers use the same law firm, the complaints “are virtually identical,” and “it is obvious that the county is a party in interest in both cases.”
The purpose of the stay gives the county “a true breathing spell” to allow the Chapter 9 adjustment process to move forward in a fair and orderly fashion, he said.
"The court's decision, which does not address the underlying merits of our claim against JPMorgan, underscores the need for a timely resolution of the county's bankruptcy case, which has now continued for over 18 months without a confirmable plan of adjustment on the table," Assured said in a statement Thursday.
