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BNY Mellon Sues Alabama’s Bankrupt Jefferson County Over Sewer Revenue

By Joel Rosenblatt
February 04, 2012 12:01 AM EST

Bank of New York Mellon Corp., as trustee for $3.6 billion of sewer warrants, sued bankrupt Jefferson County, Alabama, claiming it’s entitled to all of the county’s system revenue.

The bank, in a lawsuit filed yesterday in U.S. Bankruptcy Court in Birmingham, Alabama, seeks a judgment that it is entitled to the system revenue, capital expenditures, the payment of sewer warrants and revenue for non-operating expenses, according to the filing.

If the court disagrees, it should issue a judgment “granting the trustee such other and further relief” that it determines to be “just and appropriate,” according to the filing by the New York-based bank.

Jefferson County filed bankruptcy in November. 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 judge in the case has said that if the parties can’t agree on the distribution of sewer revenue, then he would decide the issue, said Kenneth Klee, a lawyer for the county. BNY Mellon decided to file the complaint even though the two sides are still in negotiations, Klee said in a phone interview.

“The county remains confident the court will resolve the issue of net sewer revenues in its favor,” Klee said.

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).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

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

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