BRADENTON, Fla. - Jefferson County, Ala., must retain its bankruptcy attorneys a bit longer as two groups have said they plan to pursue appeals of the county's confirmation order, and the cases could take years to resolve, a bankruptcy attorney said.
The county emerged from the nation's second-largest municipal bankruptcy on Dec. 3 after closing on $1.8 billion of new refunding sewer warrants to complete implementation of its debt adjustment plan. The warrant proceeds were used to pay creditors holding $3.14 billion of old sewer debt.
U.S. Bankruptcy Judge Thomas Bennett's order confirming the plan also ended litigation that had been brought into the case from other courts as well as numerous "adversarial" complaints that were filed within the bankruptcy case over the two-years that it took to adjudicate.
Notices of appeals in two adversarial complaints were filed Monday by Calvin Grigsby, a former broker-dealer and attorney representing 13 clients who include current and former Birmingham City Council members, two state lawmakers, and others who are on the county's sewer system.
One appeal deals with a $1.63 billion claim Grigsby filed for his clients contending that most of the sewer warrants, and associated swaps in 2002 and 2003, were illegally issued. That debt is no longer outstanding because it was taken out as part of the Dec. 3 closing.
The second appeal by Grigsby concerns a complaint filed by Bank of New York Mellon over Jefferson County's use of sewer revenues for certain expenses. Grigsby's clients intervened in the case.
Three other sewer system customers, referred to as the Wilson ratepayers, previously said they would file a direct appeal of Bennett's Nov. 22 confirmation order.
In response to Grigsby's appeals, Jefferson County's attorneys told the court that "the confirmation order overruled all objections to the plan and concluded all litigation," including complaints filed by Grigsby's clients.
It can take months for an appeal to be heard, and by then the plan can be substantially implemented, said bankruptcy attorney John Whitlock at Edwards Wildman Palmer LLP..
"In many cases, the appeal becomes moot once the plan is implemented, and so the appeal is then dismissed as moot rather than being decided on the merits," Whitlock said. "In some cases, depending on the issue in the appeal, the consummation of the plan does not make the appeal moot, and if the confirmation order is overturned on appeal, the debtor might have to rework its plan if that is even possible."
The county "remains extremely confident in its legal position," County Commission president David Carrington said.
"The debt has sold and the train has left the station," he added.
Carrington also said that the county plans to continue retaining Bradley Arant Boult Cummings LLP to "handle most of the clear-up going forward."
During the Chapter 9 case, the county had also hired California-based Klee, Tuchin, Bogdanoff & Stern LLP.
Rulings at the federal district court level on objections to Jefferson County's confirmation plan can be appealed all the way to the U.S. Supreme Court, in a process that could take years, Whitlock said.
Jefferson County filed for bankruptcy in November 2011 citing a total of $4.1 billion in long-term debt. Nearly all of that will be paid back, with the exception of the sewer warrants on which holders accepted haircuts from par.
It cost the county more than $25 million in legal fees from the time the case was filed until the Nov. 22 confirmation order was released by the court.