A federal appellate court said Wednesday that it will not rehear an appeal in Jefferson County, Alabama’s bankruptcy case.
Calvin Grigsby, an attorney representing a group of ratepayers on the county’s sewer system, had requested a rehearing after three judges on the Atlanta-based U.S. Court of Appeals for the Eleventh Circuit in August reversed a lower court decision against Jefferson County.
Grigsby wanted the entire 12-member court to reconsider the ruling, and said the three justices who heard the case failed to consider constitutional issues. The court’s decision effectively ended his clients’ appeal, which was filed shortly after Jefferson County exited bankruptcy in November 2013.
Grigsby said Friday that he will appeal to the U.S. Supreme Court.
“I am going to make one last try at the Supreme Court because the ‘prudential doctrine’ of ‘equitable mootness’ should never be allowed to deprive consumers of public utility services of their property rights and constitutional rights without a hearing on the merits of their claims,” he said.
Jefferson County Commission President Jimmie Stephens said Friday that he had expected that the appellate court would not rehear the case.
“It is unfortunate that these rulings are not accepted by the plaintiffs,” he said of the long-running case. “I would expect the plaintiffs to continue the appeal process to the Supreme Court. I would also expect that to be denied.”
An order posted by the appellate court said no judge requested that the court be polled in order to consider the plaintiffs request for rehearing en banc.
Jefferson County filed for Chapter 9 reorganization on Nov. 9, 2011. The county emerged from bankruptcy in December 2013 after closing on $1.8 billion of 40-year sewer warrants to write down $3.2 billion of old sewer debt, resulting in an overall 40% haircut to bondholders.
Grigsby claimed that because a portion of the 2013 deal used capital appreciation refunding bonds it will require paying principal and interest of $6.6 billion, compared to $1.4 billion in interest on the $3.2 billion of debt the county shed in the restructuring.
“So the bankruptcy increased the pre-petition $4.6 billion in debt to $6.6 billion without raising any new money for projects,” he said. “Bankruptcy is supposed to reduce debt not increase debt.”
Grigsby also said he does not believe the county or the bankruptcy court understood the back-end loaded structure of the deal.
“Under recent amendments to the tax code there are no more tax-exempt advance refundings,” he said. “The ratepayers are stuck with this unconscionable deal.”
Jefferson County paid premiums for early call provisions on all six series of sewer warrants that were sold, and commissioners have said they plan to refund the debt to lower carrying costs.
The case remained alive because of the plaintiffs' appeal, making it one of the longest ongoing Chapter 9 cases among large municipalities, according to bankruptcy attorney James Spiotto.
Appellate Judge Adalberto Jordan, who wrote the ruling on behalf of three judges who heard oral arguments in December 2016, focused on the fact that the ratepayers did not seek a stay to delay the implementation of the county’s bankruptcy plan after U.S. Bankruptcy Judge Thomas Bennett confirmed it on Nov. 22, 2013.
Eleven days after the plan was confirmed, the county closed on the new sewer warrants in a deal that included a rate covenant. The exit plan also included a requirement that the bankruptcy court retain jurisdiction over the case with the power to ensure that commissioners increase sewer system rates at levels that will service the debt over the life of the warrants.
The plaintiffs filed their appeal citing several constitutional violations, including the confirmation plan’s provision allowing the bankruptcy court to retain jurisdiction even though they did not request the customary stay to prevent the confirmation plan from being implemented.
“The relief sought here, even if limited to striking the provision giving the bankruptcy court jurisdiction with respect to future rates, would seriously undermine actions taken in reliance on the confirmation order,” the appellate ruling said. “We think it is fair to assume that, at the very least, whoever ultimately held those warrants would be adversely affected.”
The appellate judges ruling overturned a September 2014 decision by U.S. District Judge Sharon Blackburn.
Blackburn rejected the county’s argument that the appeal should be dismissed because it was moot when the sale of the new sewer warrants closed and unwinding the 2013 deal would inequitably affect those who purchased the sewer warrants in reliance of the plan’s confirmation.
Jefferson County appealed Blackburn’s decision, and the appellate court concurred that Blackburn erred.
Stephens said the long-running case should end.
“It is really time that we put this chapter behind us and work together for the future of our great county,” Stephens said. “Our county and its sewer system are doing great.”
