Jefferson County Accuses BNY Mellon of Taking $584,742 From Fund

Jefferson County accused Bank of New York Mellon Corp. of taking $584,742 from a construction fund without authorization to pay lawyers and expert witnesses in a lawsuit against the bankrupt Alabama county.

The county yesterday filed its counterclaims in the suit the bank brought in U.S. Bankruptcy Court in Birmingham. Jefferson County said BNY Mellon should be held liable for conversion and violating bankruptcy court procedures.

“It is difficult to imagine a more adverse use of the county’s own money,” the county said in its filing.

The claims are related to a case that will be heard tomorrow in bankruptcy court where BNY Mellon, the trustee for Jefferson County’s sewer bondholders, is seeking to force the county to turn over all sewer revenue except for the money needed to pay expenses listed in the bond contract, known as an indenture.

The county argues that under the bankruptcy code, it has the power to withhold money for items opposed by the trustee, including “project expenditures” to keep the sewer system up- to-date with changing laws or industry standards.

In November, Jefferson County sought court protection after county, state officials, a receiver for the sewer system and bondholders failed to implement a tentative agreement to cut sewer debt by about $1 billion, increase rates and assistance from the Alabama Legislature.

Jefferson County’s bankruptcy was opposed BNY Mellon, the trustee for more than $3 billion in sewer debt, and creditors JPMorgan Chase & Co. (JPM), which owns more than $1 billion of the sewer warrants, Bank of America Corp. and Assured Guaranty Municipal Corp.

BNY Mellon spokesman Kevin Heine didn’t return a call yesterday seeking comment on the county’s counterclaims.

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

The adversary case is The Bank of New York Mellon v. Jefferson County, 12-16, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham.)

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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