474 B.R. 228
Bankr. N.D. Ala.2012Background
- Jefferson County, Alabama filed a Chapter 9 municipal bankruptcy, prompting motions by The Bank of New York Mellon as Indenture Trustee and John S. Young, Jr. LLC as Receiver for the County’s sewer system.
- The Indenture Trustee and Receiver sought abstention from interfering with Alabama state court receivership and to modify automatic stays to allow the receivership to proceed unimpeded.
- Alabama state court had appointed a Receiver for the sewer system; the Receiver’s powers included setting rates, collecting revenues, paying expenses, and pursuing improvements under the Receiver Order.
- Upon filing, the court concluded the County’s sewer system properties fell under this Court’s exclusive jurisdiction under 28 U.S.C. 1334(e)(1), with the Receiver acting for the state court only in custodia legis.
- Pledged Revenues from the sewer system secure the warrants; the court held that automatic stays under 362(a) and 922(a) do not apply to Net Revenues, subject to necessary operating expenses per 928(b).
- The court denied abstention requests and declined to modify the automatic stays; it reserved the possibility of later stay modification if warranted by future circumstances.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court has exclusive jurisdiction over the sewer system properties | Indenture Trustee/Receiver: exclusive jurisdiction under 28 U.S.C. 1334(e)(1) transfers property to this Court. | County: state court receivership retained some authority over assets and related matters. | This Court has exclusive jurisdiction over the sewer system properties. |
| Whether automatic stays apply to pledged special revenues | Net Revenues pledged to secure warrants are not stayed under 362(a) or 922(a). | Automatic stays should apply to actions against the County and its property. | Automatic stays do not apply to Net Revenues pledged to the Indenture Trustee. |
| Whether the Receiver constitutes a governmental unit whose actions are exempt from stays | Receiver is not a governmental unit; its possession is custodia legis for the court, not sovereign action. | Receiver, acting for Alabama, may be seen as exercising governmental powers. | Receiver is not a governmental unit; police/regulatory power exclusion does not apply. |
| Whether abstention from the bankruptcy case is warranted | Abstention is inappropriate given exclusive federal jurisdiction and the status of the case. | Abstention should be considered to respect state proceedings and sovereignty. | Abstention motions denied. |
| Whether the stays should be modified to allow the Alabama receivership to proceed | Modification may be appropriate to advance the receivership’s goals and protect secured creditors. | Modification would undermine the bankruptcy case and jeopardize the debtor’s adjustment. | Stay modification denied at this time; future requests may be considered if warranted. |
Key Cases Cited
- Taylor v. Sternberg, 293 U.S. 470 (1935) (bankruptcy exclusive in rem jurisdiction; receiver possession passes to bankruptcy court)
- Gross v. Irving Trust Co., 289 U.S. 342 (1933) (first in time in rem rule; bankruptcy court supremacy over receiver-held property)
- Butner v. United States, 440 U.S. 48 (1979) (property interests defined by state law; uniform treatment in federal bankruptcy)
- Whiting Pools, Inc., 462 U.S. 198 (1983) (expansive view of property of the estate and turnover concepts in bankruptcy)
- In re County of Orange, 191 B.R. 1005 (Bankr. C.D. Cal. 1996) (relevant abstention considerations in municipal bankruptcy)