CULLMAN — Plaintiffs in a lawsuit filed May 7 against the new county water cooperative, along with its oversight board and the two associate commissioners who created the entities, have requested a restraining order that would halt the two new bodies’ actions until the suit has been resolved.

The application for the temporary restraining order, filed late Thursday, seeks to restore the Cullman County water department to its status quo ante, or the way things formerly were prior to the day-long county commission meeting on April 27 that saw the creation of the South Cumberland Cooperative District (SCCD) and its oversight body, the Governmental Utility Services Corporation of Cullman County (GUSC).

If granted, the restraining order would temporarily transfer the SCCD’s more than $30 million in assets back to Cullman County pending a trial or other resolution of the lawsuit. Until that happens, the application asserts no harm would befall the defendants “by returning to the same means of operation employed by Cullman County for more than 30 years.”

Specifically, the application asks that the defendants “be enjoined from any further corporate action, including but not limited to entering into any contract, lease, or any other agreement with any other persons or entities,” and that they “immediately cease collecting any revenues from the sale or provision of water.” Any revenues and other assets collected since the SCCD came into existence would temporarily be transferred to the county, if the court approves the request.

SCCD employees—formerly county employees working for the water department—who have since been leased by the county to the SCCD would also be “returned to the supervision of Cullman County to ensure their continued participation in the programs of the Retirement Systems of Alabama and health and dental coverage through Blue Cross and Blue Shield of Alabama,” if the request is granted.

The plaintiffs assert that public funds could be susceptible, if there is any suspension or gap in SCCD employees’ insurance coverage under the lease agreement—a responsibility that would have to be shouldered by the county. “[T]he County,” states the filing, “...is ultimately responsible for their benefits and as a result is liable for any lapse in coverage which may result from the illegal actions of the Defendants; thus public funds are at risk to cover this potential liability.”

In justifying the issuance of the temporary restraining order, the application also claims the GUSC and SCCD were “created in contravention of Alabama law and are acting and conducting business ultra vires [beyond the scope of their intended powers].” It repeatedly refers to the formation of the boards as “illegal,” and the conduct of associate county commissioners Doug Williams and Wayne Willingham as “willful” and “unlawful.”

For a description of the original lawsuit filed May 7, log onto www.cullmantimes.com and do a search for “Lawsuit filed over county water board.” To read a followup story on a May 17 amendment to Count Five of the five-count civil suit, do a search for “Charges added to water lawsuit.”

The restraining order also cites another issued raised in Count Three of the suit—the April 12 issuance of more than $7 million in public revenue bonds.

The county did not disclose to bondholders that—according to the application—a “material change in circumstances...adversely affected the marketability and soundness of those certain Water Revenue Bonds...Specifically, the purported transfer of the real and personal property of the Cullman County Water Department and the purported transfer of revenues...constitutes a material event that severely and potentially irreparably harms not only the A- [Standard & Poor’s] Bond Rating enjoyed by Cullman County but negatively affects the marketability of these bonds and other debt instruments of the County.

“Defendants Williams and Willingham acknowledged being very familiar for a long time with the application to create a GUSC and the SCCD and to transfer the assets...to these entities, yet, though they had the duty to disclose their intentions to create these entities and transfer the assets...as a material change in circumstances, only two weeks or so prior to April 27, 2010, they fraudulently concealed and suppressed their intentions.”

The plaintiffs, represented by the firm of Knight, Griffith, McKenzie, Knight & McLeroy, LLP, attached a statement of disclosure (known as the “continuing disclosure undertaking”) the U.S. Securities and Exchange Commission requires be released to potential bond investors. The county delivered this statement to bondholders ahead of the April 12 bond issue.

That attachment includes language guaranteeing that the county is obligated to disclose, among other information that reflects certain changes in its financial circumstances, the “release, substitution or sale of property securing repayment of the Series 2010-A Warrants [Bonds]...”

The defendants’ response to the Count Five amendment is expected Monday. See future editions of The Cullman Times for continuing coverage of the lawsuit, as well as for updates to changes in the status of the temporary restraining order application.



* Benjamin Bullard can be reached by e-mail at bbullard@cullmantimes.com or by telephone at 734-2131 ext. 270.