BRADENTON, Fla. - Jefferson County, Ala.'s counterclaims seeking a jury trial and more than $100 million in damages against Financial Guaranty Insurance Co. and Syncora Guarantee Inc. should not be dismissed, the county's attorneys said in a 23-page brief filed in federal court Thursday.

FGIC and Syncora, along with the county's bond trustee, the Bank of New York Mellon, filed a lawsuit Sept. 16 in Alabama federal court seeking a receiver for Jefferson County's financially troubled sewer system. FGIC and Syncora insure about $2 billion of the $3.2 billion of outstanding sewer system debt that is in troubled variable- and auction-rate mode.

Responding to the lawsuit, Jefferson County filed a three-count counterclaim that said the insurers were negligent and that resulted in their rating downgrades, that they breached their contracts with the county by failing to provide investment-grade insurance, and that the insurers committed fraud by failing to disclose risks associated with their investment portfolios and residential mortgage-backed securities.

The insurers filed a motion asking the judge to dismiss the counterclaims but Jefferson County said the motion lacked detail and supporting legal citations. The insurers also claimed the county lacked standing to bring the counterclaims, but the county disagreed and said the payment of insurance premiums was "not a gift."

"It would be odd indeed to find that more than $30 million in premium payments leaves the county without standing to sue when the benefit for which the county paid - investment-grade bond insurance - has evaporated," the county's brief said. "Plaintiffs' actions have caused concrete and particularized injury to the county, injury about which the county has standing to complain and which the court has power to redress."

The county also rejected the insurer's claim that because warrant holders benefit from the insurance, the county could not bring suit.

"This argument cuts no ice at all," the county's brief said. "The county paid millions of dollars of premiums for the insurance policies so that the sewer warrants would be marketable."

U.S. District Court Judge R. David Proctor, who is presiding over the case, will hold a status conference call with parties on Thursday.

A hearing on the issue of appointing a receiver is scheduled for Nov. 17. The countersuit is expected to proceed separately from the receivership issue.

Jefferson County commissioners face expiration Friday of forbearance agreements that delay payments on the troubled sewer debt as well as non-sewer general obligation warrants that could not be remarketed and are held by liquidity banks.

The county has been negotiating with creditors since February to restructure the debt. A plan is on the table but Alabama lawmakers are balking at the suggested use of excess locally collected sales tax revenues to supplement debt payments.

The sales tax is dedicated to education projects so an act of the Legislature would be required to redirect some of those revenues to the restructuring plan.

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