Supreme Court asked to review Jefferson County bankruptcy ruling

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The U.S. Supreme Court has been asked to review the ruling that could end Jefferson County, Alabama’s long-running bankruptcy appeal.

Attorney Calvin Grigsby said Tuesday that he’d filed for a writ of certiorari seeking to have the Supreme Court review the August appellate decision that ended his clients’ appeal of the county’s bankruptcy case.

Grigsby, in a 59-page petition, asks the Supreme Court to consider several questions, including whether the “doctrine of equitable mootness” should bar his clients’ appeal of the county’s plan of adjustment because it alleges that the plan violates the 10th amendment, which reserves municipal utility ratemaking to the states and local governments.

Grigsby, a former broker-dealer who is representing a group of ratepayers on the county’s sewer system, has said numerous times in court filings that his clients participated in the bankruptcy case but were never given an opportunity to have a hearing on the merits of their claims.

Getting the justices to consider the petition might be difficult, said bankruptcy attorney John Whitlock, who is of counsel with Locke Lord LLP. The firm is not involved in the case.

“It is always difficult to predict whether the Supreme Court will grant certiorari in a particular case, but the odds are against it not only because certiorari is granted for only a very only a small number of petitions but also because overturning a plan this many years after it was consummated would clearly affect many settled financial interests,” Whitlock said.

Jefferson County Commission President Jimmie Stephens said he expects the county to prevail if the Supreme Court agrees to review the lower court decision.

"This battle should cease and allow the county to move forward," he said. "The plan of adjustment is right on track just as the credit rating of the warrants affirms."

In December, S&P Global Ratings raised its rating to BBB-plus from BBB on the county's 2013 senior-lien sewer revenue warrants and raised the rating to BBB from BBB-minus on the 2013 subordinate-lien warrants. S&P said the upgrades reflect an established trend of rate increases, resulting in positive operating margins.

Fitch Ratings assigns its BB-plus rating to the senior lien warrants and BB to the subordinate warrants.

On Aug 16, the United States Court of Appeals for the Eleventh Circuit issued an opinion agreeing with the county’s contention that the doctrine of equitable mootness barred the ratepayers’ appeal from the bankruptcy court because it would “seriously undermine actions taken in reliance on the confirmation order.”

U.S. Bankruptcy Judge Thomas Bennett confirmed the plan on Nov. 22, 2013.

Relying on the order in December 2013, the county proceeded to close on $1.8 billion of new, 40-year sewer warrants sold in the bond market to write down $3.2 billion of old sewer debt, resulting in an overall 40% haircut to bondholders.

The appellate ruling concurred with Jefferson County’s contention that the appeal was mooted when the sale of the new sewer warrants closed, and that unwinding the deal would inequitably affect those who purchased the sewer warrants in reliance of the plan’s confirmation.

The appeals court was also critical of Grigsby’s clients because they failed to seek a stay in order to delay implementation of the plan, which would have prevented issuance of the warrants.

Grigsby’s petition said timing issues made it difficult if not impossible to file for a stay before the refinancing took place because the bankruptcy court waived a 14-day automatic stay required by the bankruptcy code “to take away any ability of the petitioners to request a stay.”

Whitlock said the core of the appeal is a provision in the confirmation plan that allows the bankruptcy court to retain jurisdiction over the plan while the 40-year warrants are outstanding. That provision allows bondholders to seek recourse in the court if county commissioners fail to impose sewer rate charges that support the debt.

“The ratepayers have other avenues of redress if there is ever a decision by the bankruptcy court that adversely affects their interests, including the appeal of any actual decision,” he said. “I realize that the appellants want to preserve all arguments to protect ratepayers, including the argument that the bankruptcy court would be exceeding its jurisdiction if it ever did decide some case involving rates, but as of today, the issue is only hypothetical.”

With each passing month, Whitlock said the equities of Jefferson County’s case “become less and less for the Supreme Court to grant extraordinary relief.”

The appellate court on Oct. 31 denied Grigsby’s request for a rehearing, which led him to petition the Supreme Court.

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Bankruptcy Revenue bonds Jefferson County Alabama