Bloomberg News

Jefferson County Judge Rejects Two Sewer Receiver Arguments

November 29, 2011

(Updates with pending ruling in third paragraph.)

Nov. 29 (Bloomberg) -- The judge overseeing the bankruptcy of Jefferson County, Alabama, rejected two of three main legal challenges to his authority to limit the power of the receiver running the county’s insolvent sewer system.

U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham found that two legal doctrines that allegedly barred him from interfering with the receiver’s powers do not apply, he said yesterday in a one-paragraph order.

Bennett hasn’t ruled on a third challenge, which is based on the theory that the receiver is acting with the power of the state of Alabama and therefore cannot be limited by a federal court under the U.S. Constitution.

The receiver, John S. Young Jr., and bondholders owed about $3.1 billion are asking Bennett to verify the receiver’s control over the sewer system. The county argues that the bankruptcy filing imposes limits on Young, including on his ability to raise rates and control payments to bondholders.

Jefferson County became at least the 12th entity to file a Chapter 9 bankruptcy this year after the county, state officials and bondholders all failed to implement a tentative agreement that would have cut debt related to the sewer system by about $1 billion.

Bennett’s written ruling reiterates comments he made during a court hearing last week related to the so-called Rooker- Feldman Doctrine and the Johnson Act of 1934.

The judge also said in the hearing that if he decides that the bankruptcy code gives him the authority to limit the receiver, he must then decide what limits, if any, to impose.

Bennett asked lawyers to file additional written arguments on Dec. 2 about whether the state-court ruling that appointed the receiver last year also precludes the county from challenging Young’s power.

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

--Editors: John Pickering, Charles Carter

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

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


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