Court denies Jefferson County warrant insurer's stay relief motion

By Caroline Salls

Pittsburgh, April 16 - Jefferson County, Ala., sewer warrant insurer Assured Guaranty Municipal Corp.'s motion for relief from the automatic stay imposed by the county's bankruptcy filing to proceed with a lawsuit against warrant underwriter JPMorgan Chase Bank, NA was denied Monday by the U.S. Bankruptcy Court for the Northern District of Alabama.

According to the ruling, Assured filed a complaint against JPMorgan on June 16, 2010 in the New York court alleging fraud and aiding and abetting fraud in connection with the financing of the county's sewer system.

"The court holds that based on the unusual circumstances presented in this case - specifically, the identity of interests between JPMorgan and the county, the affect on the county's reorganization efforts, and the potential preclusive effect of a judgment in the Assured action - that the automatic stay of 11 U.S.C. § 362 applies to the Assured Action," judge Thomas B. Bennett said in Monday's ruling.

"Further, because the prejudice to the county far outweighs any hardship to Assured, the court will not modify the automatic stay in order for the Assured action to proceed."

The judge said allowing the Assured action to proceed would significantly infringe on the county's "breathing spell" by requiring it to spend time and resources defending its interests.

In addition, Bennett said Assured's fraud allegations might affect the claims allowance, subordination and adjustment of debt processes, and Assured might try to rely on a finding of fraud to advance its interests ahead of other county creditors by turning its non-recourse contract claim into one against the county's general fund.

The judge said the Assured action also represents an attempt to fix the amount of Assured's claim against the county through outside litigation "even though the bankruptcy court is the more efficient forum for making such a determination."

Jefferson County filed for bankruptcy on Nov. 9, 2011 under Chapter 9 case number 11-05763.

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