Jefferson County Creditors Submit Questions for Sewer Appeal

Creditors of bankrupt Jefferson County, Alabama (STOAL1), listed the questions they want a federal judge to answer in deciding whether to overturn a lower court ruling that removed a receiver for the county’s insolvent sewage system.

Last month, the receiver, John S. Young Jr., and sewage system bondholders appealed a bankruptcy court ruling that ended Young’s control over the system. The questions filed today in U.S. Bankruptcy Court in Birmingham, Alabama, raise technical, legal issues about whether Judge Thomas B. Bennett exceeded his authority when he ruled that the county, not Young, should control the system.

Bennett ruled that after Jefferson County filed bankruptcy last year, Young lost his authority. Young, bondholders and the bonds’ insurers wanted the same state court judge who stripped the county of the sewage system in 2010 to retain jurisdiction.

Young asked in his filing today “whether the bankruptcy court erred in finding and concluding that it possesses exclusive jurisdiction over the property of the county.”

Jefferson County filed bankruptcy in November, more than a year after a state court gave Young control of the sewage system.

The county, state officials, the receiver and bondholders failed to implement a tentative agreement that would have required the sewer debt to be cut by about $1 billion, rates to increase and the Alabama Legislature to enact new laws to benefit the county’s finances.

The bankruptcy is tied to a sewer refinancing tainted by political corruption. In 2009, JPMorgan Chase & Co. agreed to a $722 million settlement with the Securities and Exchange Commission over payments its bankers allegedly made to people tied to county politicians to win business.

The case is In re Jefferson County, 11-05736-9, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham).

-- Editors: Peter Blumberg, Glenn Holdcraft

To contact the reporters on this story: Steven Church in Wilmington, Delaware, at schurch3@bloomberg.net.

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net.

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