Waller’s Involvement in the Jefferson County Matter:
Pre- and Post-Bankruptcy Filing

Waller serves as lead counsel to the Indenture Trustee for approximately $3.2 billion in special revenue warrants issued by Jefferson County, Alabama.

Pre-Bankruptcy Filing

Beginning in the late 1990s, Jefferson County legislators issued approximately $3.6 billion in sewer warrants to fund improvements to its sewer system. In 2008, the County began to default on the warrants, and Waller filed suit on behalf of the Indenture Trustee to enforce the terms of the indenture and to obtain the appointment of a receiver to remedy the payment defaults, which by 2010 exceeded $515million.

The default involved a complicated debt structure, massive corruption (resulting in a censure and a $75 million fine by the SEC for bribery of Jefferson County officials), the conviction and incarceration of more than 20 individuals and an impaired insurer guarantying a significant portion of the warrants.

After extensive litigation and two evidentiary hearings, a federal district judge held that the Indenture Trustee had proven the County's defaults and all elements required for appointment of a receiver, but that the federal Johnson Act prohibited the federal court's taking such action. Following the federal court's decision to abstain, the Indenture Trustee commenced litigation in Alabama state court. After extensive and complex procedural activities, the case was set for trial on September 7, 2010. On the day trial was to commence, the judge granted the Indenture Trustee's previously-denied motion for summary judgment and awarded the requested relief, including a monetary judgment for $515 million and the appointment of a receiver to take over the County's sewer system.

Action in the case then began to focus on the legality of the Receiver's efforts to raise the sewer system's revenues. After negotiations for a settlement broke down, the County filed for bankruptcy protection.

Post-Bankruptcy Filing

On November 9, 2011, Jefferson County filed (what was at the time) the largest municipal bankruptcy in the history of the United States. In connection with its bankruptcy, the County sought to have the Receiver enjoined and to take back control of the sewer system. On behalf of the Indenture Trustee, Waller immediately filed motions with the Bankruptcy Court seeking to allow the Receiver to remain in possession and control of the sewer system and system revenues, and for the Indenture Trustee to continue receiving the net system revenues and applying them to the County's obligations to the warrant holders under the Indenture despite the filing of the bankruptcy case. Waller also filed, on behalf of the Indenture Trustee, an objection to the County's eligibility to file for Chapter 9 bankruptcy relief.

On questions of first impression, the bankruptcy court has issued orders upholding the Indenture Trustee's position with respect to the continued receipt and application of net system revenues and the inability of the County to use system revenues for purposes inconsistent with the indenture. Over the Indenture Trustee’s objections, the bankruptcy court ruled that the automatic stay divested the Receiver of control of the sewer system and its bank accounts.  The County and the Indenture Trustee have both appealed the adverse rulings against them. There is currently pending a direct appeal to the United States Court of Appeals for the 11th Circuit, and an appeal to the United States District Court for the Northern District of Alabama.

Litigation in and related to this large and complex municipal bankruptcy continues both in the federal bankruptcy, district and appellate courts. The case has also spawned third party litigation against the Indenture Trustee, as well as certain warrant holders and insurers of the warrants. The County has filed claims against the Indenture Trustee and other parties seeking declaratory relief with respect to approximately $100 million of funds held by the County and the Indenture Trustee.

In November, 2012, the County Commission enacted a new fee structure for the sewer system that it said would raise the average customer’s bill by approximately 15 cents per month.  The Indenture Trustee filed a motion to lift the stay based upon the County’s failure adequately to protect the interests of warrant holders.  The Trustee’s motion asks the bankruptcy court to authorize the state receivership court to determine whether further remedies are required, such as permitting the receiver to enact a rate increase to protect the warrant holders’ interests.