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Bennett v. Jefferson County

United States District Court, N.D. Alabama, Southern Division

August 1, 2019

ANDREW BENNETT, et al., Appellants,



         The Appellants seek to reverse several orders issued by the bankruptcy court in adversary proceedings stemming from Jefferson County, Alabama's Chapter 9 bankruptcy. Docs. 1; 1 in 2:14-cv-00215-AKK.[1] The Appellants contend, among other things, that the dismissal of the adversary proceedings pursuant to the order confirming the County's Chapter 9 Plan (“the Confirmation Order”) violated the Bankruptcy Rules and Rules of Civil Procedure and denied them due process. See doc. 21. These appeals are before the court on Jefferson County's motion to dismiss, doc. 17, which the Appellants oppose, see doc. 21. Because these appeals challenge the County's bankruptcy plan and the Confirmation Order, which have become final and nonappealable, see Bennett v. Jefferson County, Alabama, 899 F.3d 1240 (11th Cir. 2018), cert. denied, 139 S.Ct. 1305 (March 4, 2019), and, as a result, the court cannot grant meaningful relief to the Appellants, the motion to dismiss is due to be granted.


         The County filed a petition for bankruptcy in 2011 related to $3.2 billion in debt the County incurred for its sewer system. Bennett, 899 F.3d at 1243. During the course of the Chapter 9 bankruptcy proceeding, some of the County's creditors filed an adversary proceeding (AP-16) seeking a declaration that the County was required to remit certain monthly payments to them from sewer system revenues. See In re Jefferson Cnty., Ala., 482 B.R. 404 (Bankr. N.D. Ala. 2012). The Appellants, on behalf of themselves and a putative class of County homeowners and sewer ratepayers, filed a complaint in intervention in AP-16, seeking an alternative declaratory judgment to void or invalidate certain sewer system warrants issued by the County. See doc. 21-1.[2] The bankruptcy court severed the Appellants' complaint in intervention and transferred it to a separate, newly-opened adversary proceeding (AP-120). Doc. 17 at 4.

         The County subsequently reached a tentative agreement with its major creditors. Bennett, 899 F.3d at 1243. The County then moved to stay further proceedings in AP-120 based on its contentions that the Chapter 9 plan would resolve all disputes relating to the County's liability for the sewer warrants, and the bankruptcy court granted the motion. Doc. 17 at 5. Thereafter, the County filed its Chapter 9 Plan of Adjustment (the “Plan”), and, after a two-day hearing, the bankruptcy court issued the Confirmation Order over the Appellants' objections. See Bennett, 899 F.3d at 1243. See also docs. 21-3; 21-4.

         Pursuant to the Confirmation Order, the Plan is binding on the County, its creditors, and “all past, present, current, and future ratepayers and users of the Sewer System . . . .” Doc. 21-3 at 57. Among other things, the Plan resolved and released all “Sewer Released Claims, ” which includes disputes related to the validity of the sewer warrants and “the scope and extent of any liens or other property rights under the [s]ewer [w]arrant[s] . . . .” Doc. 21-4 at 68-70, 90-91. Because the claims settled and released under the Plan encompass the claims asserted in AP-16 and AP-120, the Plan specifically required, and the Confirmation Order directed as such, the dismissal with prejudice of AP-16 and AP-120 and enjoined the Appellants from continuing any action to assert their claims. Docs. 21-3 at 64-65, 74-75; 21-4 at 6, 69, 81, 89-91; Bennett, 899 F.3d at 1243.

         Relevant to these appeals, the Plan also provided that the County would issue and sell new sewer warrants and that the County would use the net proceeds to redeem and retire the prior warrants and related obligations. Docs. 21-4 at 18; 21-3 at 50-52. See also Bennett, 899 F.3d at 1243. And, to retire these new sewer warrants, the Plan provides for the County to implement a series of rate increases over a period of forty years. Bennett, 899 F.3d at 1243. In addition, under the Plan and Confirmation Order, the validity of the new sewer warrants “and the covenants made by the County for the benefit of the holders thereof . . . shall not be subject to any collateral attack or other challenge by any [p]erson in any court . . . from and after the [Plan's] [e]ffective [d]ate.” Docs. 21-4 at 85-86; 21-3 at 67.

         The Appellants filed a direct appeal of the Confirmation Order to this court two days prior to the Plan's effective date, see doc. 1 in 2:14-cv-00213-AKK, but did not move for a stay of the Confirmation Order pending appeal, Bennett, 899 F.3d at 1244. Relatedly, the Appellants also filed these two appeals in which they seek the reversal of several orders in their adversary proceedings. After the Plan became effective, the County moved this court to dismiss the direct appeal, arguing in part that the appeal was moot because the Plan's consummation made it impossible for the court to grant the Appellants meaningful relief.[3] Doc. 4 in 2:14-cv-00213-AKK. This court (Judge Sharon Lovelace Blackburn) denied the motion to dismiss the direct appeal, and, at the County's request, certified its order for interlocutory review. Docs. 35; 36; 48 in 2:14-cv-00213-AKK. In the interim, the court stayed these two appeals of the adversary proceedings pending the resolution of the direct appeal in No. 2:14-cv-00213-AKK. Doc. 11.

         On review, the Eleventh Circuit reversed this court and remanded the direct appeal back to the court to dismiss the appeal of the Plan and Confirmation Order. Bennett, 899 F.3d at 1254. The Eleventh Circuit found that the appeal of the Plan and Confirmation Order is equitably moot because granting the relief sought by the Appellants “would seriously undermine actions taken in reliance on the [C]onfirmation [O]rder, ” and “would be inequitable or practically impossible.” Id. at 1252. The Appellants petitioned unsuccessfully for a writ of certiorari. Bennett v. Jefferson Cnty., Ala., 2019 WL 465193 (U.S. Mar. 4, 2019). Thus, the Plan and Confirmation Order are final and nonappealable.

         II. ANALYSIS

         In light of the resolution of the direct appeal, the stay in these two appeals is no longer necessary. Indeed, the parties have filed various motions seeking to bring these appeals to a resolution. And, presently before the court is the County's motion to dismiss. Doc. 17. Notwithstanding the Circuit's clear mandate for this court to dismiss the direct appeal due to equitable mootness, Bennett, 899 F.3d at 1252 and 1254, and the decision's related implications to these two appeals, the Appellants maintain that they can still challenge aspects of the Plan and Confirmation Order through these appeals of their adversary proceedings, and have filed various motions related to their position. See docs. 15; 16. See also doc. 21. For its part, the County argues in its motion to dismiss that, in light of the Eleventh Circuit's decision in the direct appeal, these appeals stemming from the adversary proceedings are barred by res judicata, doc. 17 at 16-19, or alternatively, are moot, id. at 19-20. The court agrees with the County.

         A. Whether these Appeals are Barred by Res Judicata

         As its primary argument in support of dismissal, the County argues that these appeals are a collateral attack on the Plan and Confirmation Order the Circuit upheld on direct appeal, and are therefore barred by res judicata. See doc. 17 at 16-19. Under the doctrine of res judicata, “[a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in the action.” Federated Dep't Sores v. Moitie, 452 U.S. 394, 398 (1981) (citations omitted). The doctrine bars a subsequent action when “(1) the prior decision was rendered by a court of competent jurisdiction, (2) there was a final judgment on the merits, (3) the parties were identical in both suits; and (4) the prior and present causes of action are the same.” Davila v. Delta Air Lines, Inc., 326 F.3d 1183, 1187 (11th Cir. 2003). Only the first and last elements are in contention here.[4] More specifically, the Appellants argue that (1) as to the first element-the Confirmation Order is not a prior judgment and that the bankruptcy court exceeded its jurisdiction in issuing the order, and (2) as to the last element-the Plan and Confirmation Order involve a different nucleus of operative facts than the adversary proceedings. Doc. 21. The court addresses these contentions in turn.

         1. Whether the Confirmation Order is a prior judgement issued by a ...

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