Jefferson County Commission President David Carrington took the witness stand oblivious of the cowlick jutting from the back of his head. He had things on his mind more important than bedhead. The county’s creditors were fighting to block the county from taking back control of its destiny. In particular, the creditors had challenged the the county’s right to enter Chapter 9 municipal bankruptcy, and by doing so, freezing the state-court appointed sewer receiver in place.
The creditors argued that the receiver, John Young, was best suited to run the county sewer system. Since taking control of the county sewers last year, Young has become a favorite target of public ire. His $500-per-hour pay rate alone had made him more despised than the commission, but few people who dealt with the county professionally had questioned Young’s character. It should have been more obvious when Carrington did just that, but few in the courtroom noticed.
Larry Childs, lawyer for the bondholders’ trustee, asked Carrington about Young. On the witness stand, Carrington said that he and Young had worked well together and that he thought Young wanted to find a solution to the county’s financial disaster. Carrington also said he thought Young was diligent.
“Have you found him to be honest?” Childs asked.
“I have had some concerns with several statements, but you know, all of us make statements at certain times, sir,” Carrington said.
Childs paused for a moment, but he did not ask Carrington to elaborate. Whether he knew it or not, Childs had stepped in a bear trap, but he toed it gingerly enough not to set it off. He proceeded instead to ask Carrington if Young was hard working and competent. Carrington, again, agreed. By the time court broke for lunch, everyone’s minds seemed to have moved on to other things. The proceeding lacked the fireworks the press had been hoping for.
It could have ended very differently.
In fact, Carrington felt that Young had deceived him and the commission and was ready and willing for Childs to push him further.
In September, the Jefferson County Commission passed a term sheet for a settlement with its creditors. At the time, Young hailed the county’s decision as a bold move by the commission toward fixing the county’s sewer crisis.
When the commission passed that term sheet, it was under the impression that the receiver had all but secured numerous concessions from the county’s creditors, including $11 million of concessions from Morgan Keegan, the brokerage arm of Regions bank. Carrington says the commission was led to believe those concessions were still good and that it was given that impression by the receiver.
A month later, the county learned that Morgan Keegan had sold its Jefferson County debt. The commissioners were furious, openly accusing the bank of betraying its own home county. By selling its debt before finalizing a settlement, the bank had all but ensured bankruptcy by further complicating the county’s attempts to make a deal on its debt.
Regions bank had betrayed Jefferson County, or so the story went. Only problem is that the story wasn’t true.
According to officials at the bank, Regions sold the last of its Jefferson County debt in August and had informed Young’s attorney, Patton Hahn, that it had sold the debt.
“Morgan Keegan sold the auction rate securities in question prior to the term sheet going to the County Commission and we also told the receiver’s attorney about the sale prior to the term sheet going to the Commission,” Regions spokesperson Tim Deighton said in an official statement.
If that is true, the implications are troubling: Either the receiver’s attorney did not tell him that Region’s concessions were no longer any good, or he did tell him and Young never told the commission.
“We categorically deny that we mislead anybody or withheld anything,” Hahn said when reached by phone Monday. He would not elaborate beyond that statement.
As of Tuesday the receiver had not responded to multiple phone calls and two voicemail messages seeking comment.
Carrington is not shy about commenting, however.
“If we had known about this in September we would have gone into [chapter] nine then,” he said.
Carrington now says he questions whether other concessions Young represented were real. In particular, Lehman Brothers — or at least the remnants of the defunct investment bank — balked on almost $70 million in concessions. Carrington says he’d like to know when Young knew that was going to happen.
Ultimately, the county found itself and its creditors about $140 million apart on proposed settlements. Had the county known sooner it was not going to be able to close that gap it could have declared bankruptcy sooner.
All of this might be little more than a post script to the receiver’s story, however. On Friday, U.S. Bankruptcy Judge Thomas Bennett ruled that the county’s bankruptcy filing stays the receiver. As the county’s lead bankruptcy lawyer, Kenneth Klee, describes it, the order puts Young in “suspended animation.” Young remains a state court-appointed receiver, but while the county is in bankruptcy, he has no power and no authority over the system. Young cannot raise sewer rates 25 percent, as he had proposed before the county’s bankruptcy filing.
But the receiver isn’t gone altogether. At least, not yet. The Rooker-Feldman doctrine prevents a federal court from overturning the state court and removing the receiver entirely, and Judge Bennett said in his order that he might reconsider lifting the stay on the receiver if the county does not do its part to manage the sewer system well.
“Subsequent stay modification requests are available to parties should the County not take the necessary actions to maintain the improvements wrought during the Receiver’s tenure and go forward to address the various other matters that need further action, including appropriate revenue enhancements, be it by a rate increase or by some other manner,” Bennett wrote. “Should the County fail to do what it needs to in the context of its bankruptcy case, this Court will consider future, warranted, and properly supported requests for stay modification.”
On Monday, Hahn said Young had not yet decided whether to appeal Judge Bennett’s decision.
John Young has been a useful bogeyman for Jefferson County, but if the county commission repeats the mistakes of the past, the bogeyman could come back.
The Messenger Shoots Back is a column about political culture.