BRADENTON, Fla. Two groups of Jefferson County, Ala., sewer system customers filed appeals of the county’s Chapter 9 exit plan, which hinged on the recent sale of $1.8 billion of new sewer warrants to pay creditors.
However, Jefferson County closed on the warrants at 9:17 a.m. Tuesday, so the appeals could become moot.
Attorneys representing the so-called Charles Wilson ratepayers asked for an emergency hearing Tuesday to halt the confirmation of the plan and the closing of the Nov. 19 pricing of $1.8 billion of sewer warrants, both of which were confirmed by order of U.S. Bankruptcy Judge Thomas Bennett on Nov. 22.
Bennett did not impose a stay, or delay, on implementation of the plan though an appeal period of the order runs through Friday, Dec. 6.
However, a stay was requested by the Wilson group pending a ruling on their motion to appeal or the appeal itself, according to attorney Joshua Firth with Birmingham-based Hollis, Wright, Clay & Vail PC.
“We decided to challenge two aspects of the bankruptcy,” Firth said.
One challenge is of Bennett’s denial of the Wilson ratepayer’s claim in the bankruptcy estate. The second is confirmation of the plan “because it purports to moot and/or bar any and all litigation involving the sewer system and rates,” he said.
The litigation includes a count that is still pending in state court, which was not removed from that venue to the county’s bankruptcy case. Bennett dismissed all claims and pending litigation against the county, including those filed by Wilson and another group known as the Bennett sewer system ratepayers.
“We do not believe Judge Bennett has jurisdiction over [the Wilson state court] claim to dispose of it in the confirmation order,” said Firth.
On Sunday, attorney, financial advisor, and former broker-dealer Calvin Grigsby filed an appeal on behalf of the Bennett ratepayers, a group of local elected officials and residents in Birmingham and Jefferson County who are sewer system customers.
Among the issues cited in Grigsby’s appeal is the question of whether the county could sell new warrants in order for the underlying $3.2 billion of sewer debt to be accelerated and paid at a loss.
“One of the cornerstones of the plan is that by rushing into market with the new warrants they can moot any claims,” Grigsby said. “That won’t work.”
County Commission President David Carrington said the county is confident in its legal positions.
“I think Mr. Grigsby’s clients would be shocked to learn that he approached the county’s attorneys right before the second day of the confirmation hearing began with an offer to drop his client’s objections to the county’s plan of adjustment and agree to not appeal the court’s ruling if the county would agree to pay him $250,000 for legal fees,” Carrington said.
In bankruptcy cases, appeals can become moot before the court even hears them unless appellants can obtain a stay, said bankruptcy attorney John Whitlock with Edwards Wildman Palmer LLP. A plan of adjustment can also be consummated before the appeal is heard.
The county has said that closing on the $1.8 billion of new sewer warrants would be the last major step in implementing the Chapter 9 plan enabling it to exit bankruptcy.
Jefferson County filed what was then the largest municipal bankruptcy in November 2011 with $4.1 billion of debt.
The county’s case has been eclipsed by Detroit’s Chapter 9 filing in July with $18 billion of debt. On Tuesday, the judge overseeing Detroit’s case ruled that the city is eligible to file for Chapter 9 reorganization.
