BRADENTON, Fla. - A Jefferson County, Ala., circuit court judge Wednesday afternoon dismissed eight of nine defendants from a lawsuit that sought to use a novel approach to invalidate $2.2 billion of sewer auction-rate securities issued by the county and $4.2 billion of related swaps.
The original suit, filed Aug. 28 in U.S. District Court in Birmingham, asked the court to set aside the Series 2003B and C sewer bonds and swap transactions because they were based on public contracts that were "allegedly obtained through the bribery and corruption of one or more public officials."
Defendants in the suit included Wall Street and Alabama companies involved in the bond deals. It sought to nullify the bonds and swaps by using an Alabama statute that would vacate or annul a corporation charter through relief known as quo warranto.
"[Plaintiffs] appear to recognize that they are proceeding under 'a novel or even extreme' theory of the application of quo warranto, but ask that they be allowed to proceed," Judge Caryl Privett said Wednesday's ruling. "Even at its most liberal construction, the statue simply will not stretch that far."
Since seven of the defendants were not Alabama corporations, Privett said relief under the quo warranto statute was not available. Dismissed from the suit as a result were JPMorgan, JPMorgan Chase Bank, Bear Stearns Capital Markets Inc., Bank of America NA, Goldman Sachs Capital Markets Inc., National Bank of Commerce of Birmingham (now RBC Bank), and the Bank of New York Mellon.
Regarding the two Alabama corporations named as defendants - Stern, Agee & Leach and Blount Parrish & Co. - Privett ruled that the suit was defective because it failed to detail when, where, or how Stern Agee violated its charter or the law, so the firm also was dismissed from the suit.
But Privett left the door open for the suit to continue against Blount Parrish, if the defendants filed an amended complaint. Privett said the allegations against Blount Parrish were more extensive.
"We are obviously disappointed with the court's ruling," said attorney James O'Neal from Law One Group LLC, who filed the complaint on behalf of two Birmingham residents and sewer ratepayers, Carnell E. Fowler and William Young, and a nonprofit organization called Citizens for Sewer Accountability Inc.
"The legal issues are both novel and complex," O'Neal said. "We anticipate proceeding against Blount Parrish and are considering our options with respect to the dismissed claims against the other investment banks."
Blount Parrish & Co. is named in a securities fraud suit filed by the Securities and Exchange Commission last year concerning a series of bond transactions and swaps in 2003 and 2004 related to Jefferson County's sewer system. The SEC case is on hold pending criminal cases against Birmingham Mayor Larry Langford, lobbyist Albert LaPierre, and Alabama bond dealer William Blount of Blount Parrish. The firm is not charged in the criminal case.