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Saturday, May 18, 2024 | Back issues
Courthouse News Service Courthouse News Service

Alabama County Not Out |of Woods on Bankruptcy

(CN) - A federal judge ruled that ratepayers in Jefferson County, Ala., can appeal a county bankruptcy plan filed in the wake of a $4.2 billion sewer system scandal.

In 2011, Jefferson County filed what was, at the time, the largest municipal bankruptcy in the country. It attributed its going bust to "the massive borrowing in the form of warrants issued from 1997 - 2008 to finance the construction and repair of a sewer system."

But there was more to the bankruptcy than simply costs spiraling out of control.

After the scope of the fiscal disaster became known, several county commissioners pleaded guilty to federal bribery charges, and a number of businesses that had secured contracts for the work were charged with fraud.

In 2013, a bankruptcy court approved an exit plan that was "the result of extensive arms' length negotiations among the County and its significant Creditor constituencies," and that included creditors agreeing to write off almost $1.4 billion of the debt owed.

Ratepayers, including several elected officials, appealed the plan as "not fair and equitable" because the increases in sewer costs over a 40 year period are "not merely unpleasant, but they are unsustainable."

In response, the county argued that an appeal of the confirmation order is "equitably moot" because the ratepayers did not seek a stay pending appeal, and the plan has been "substantially consummated."

It argues that the relief ratepayers seek would "destroy the entire Plan and propel the County back to square one in bankruptcy."

The ratepayers countered that the county was using a legal strategy of equitable mootness "to deprive Ratepayers of a hearing on the merits of their claims."

U.S. District Judge Sharon Lovelace Blackburn agreed, concluding that a live controversy still exists between the parties.

Blackburn also held that "seeking a stay was futile and cost-prohibitive," and that the ratepayers did nothing to stay the consummation is not "particularly inexcusable."

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