On August 16, 2018, the United States Court of Appeals for the Eleventh Circuit issued an opinion in the chapter 9 case of Jefferson County, Alabama, reversing the decision of the District Court and ruling that the doctrine of equitable mootness applies in municipal bankruptcies.
In Jefferson County’s chapter 9 case, the bankruptcy court confirmed the County’s chapter 9 plan over the objection of a group of sewer ratepayers, which provided for the issuance of approximately $1.8 billion of new sewer warrants with maturities that ranged up to 40 years. The chapter 9 plan included a provision that the bankruptcy court would retain jurisdiction throughout the life of the new sewer warrants to enforce a covenant that the county must raise sewer rates in sufficient amounts to cover debt service of the new sewer warrants. On December 1, 2013, two days before the effective date of the chapter 9 plan, the ratepayers filed a notice of appeal to the District Court but did not file a stay pending appeal or request that the appeal be expedited. On Dec. 3, 2013, pursuant to the bankruptcy court’s confirmation order, the County issued the new sewer warrants and creditors received distributions on their prepetition claims.