Injunction reaffirmed

Judge Hardeman rules against defendants in water utility case

By Benjamin Bullard The Cullman Times

Two months of legal posturing in a lawsuit over ownership of the Cullman County water department came full circle Friday, leaving defendants in the case where they started in late May before they requested a stay of a judge's order to deed the department's assets back to the county and filed an appeal of the decision to the Alabama Supreme Court.

Circuit Judge Don Hardeman's ruling Friday reaffirmed the temporary injunction he ordered May 28, when he directed the Governmental Utility Services Corporation of Cullman County (GUSC) and the South Cumberland Cooperative District (SCCD) to cease all deliberative action and to place the water department's assets back under the control of the county commission.  

Those assets, a combination of real and personal property valued at more than $30 million, were wrested from county control on April 27, when two members of the

three-member commission passed the utility

 corporations into existence and deeded the department to the SCCD during the course of a single commission meeting that unfolded, via numerous recesses and reconvenings, throughout the day.

Associate commissioners Doug Williams and Wayne Willingham had formed the quorum in April that allowed the creation of the entities, with commission chair James Graves voicing his opposition to the proceedings at every turn. He and six county residents filed the lawsuit days later. Williams, Willingham, the GUSC, SCCD and their respective board members are all named as defendants in the civil case.

All the court proceedings that have occurred since the suit was filed—including the Supreme Court appeal and emergency motion to stay—have dealt with a particular allegation made in the case: that the defendants, namely Williams and Willingham, violated the Open Meetings Act of Alabama in secretly planning the formation of a utilities corporation and cooperative. The suit makes a number of separate allegations against the defendants, including the improper exploitation of state statutes allowing for the creation of a utilities board; conspiring to defraud; breaching fiduciary duty to bondholders; and wasting public assets.

The Supreme Court remanded, or referred, back to the local court the defendants' request for a emergency stay of Hardeman's May 28 instruction that the assets be returned to the county, paving the way for a hearing held Monday to allow Hardeman to render a judgment on an injunction he had already made. Because the remanded motion had been requested by the defendants, theirs was the burden of proof if Hardeman were to be swayed to change his original ruling.

In his multipart order Friday, Hardeman cited several factors in the case supporting a reaffirmation of his original judgment.

"The Court finds," he stated, "that but for the entry of the Preliminary Injunction on May 28, 2010, there are real and substantial risks of harm to the plaintiffs, all of whom are citizens and taxpayers of Cullman County, the County and the citizens and taxpayers thereof, and the purchasers and holders of bond obligations of the County, as follows:



1. "There is no contract between the SCCD and the supplier of the County's water, the City of Cullman, whereby the City is contractually obligated to supply water to the SCCD. But for decency and common sense, the City could turn off the water. The City is, however, contractually obligated to supply water to Cullman County.

2. "There would be no water revenue to the County, which the County has pledged to pay the approximately $20 million water department bond indenture indebtedness (the 2010 bond and the unpaid portion of the previous bonds as testified by [plaintiffs' expert witness] David Hooks and set out in the bond documents.

3. "The employees of the Cullman County Water Department would be at risk of losing, at least temporarily, their employee benefits, including insurance and retirement.

4. "The bond indentures could be declared in default and the County forced to immediately repay same.

5. "The bond issuers could declare default and demand recapture of various fees, and the bonds would thereby be uninsured.



"The court finds the entry of the preliminary injunction presents no risk of harm to the defendants, specifically the GUSC and SCCD inasmuch as they have made no investment in the water department (at least after two hearings on the record they have presented none) and have been in existence such a short time it cannot be said they have relied upon the action of the County in transferring assets to them (once again, they have not shown any to the Court). In addition, the injunction merely transferred the assets back to the County and not to third parties or the plaintiffs. The Court is not persuaded by the defendants' argument of judicial economy in that is a simple matter to transfer the assets, as testified to by [plaintiffs' expert witness] Finis St. John, Esq., and as evidenced by the ease of which the same was accomplished in the first place...

"The defendants are hereby ordered to implement the orders of this Court dated May 28, 2010, forthwith, without further delay."



What happens next in the suit will depend on a number of factors. As long as the Supreme Court considers whether to weigh the defendants' appeal, the advancement of the lawsuit in circuit court is on hold. If the high court affirms the validity of the May 28 injunction order, the case can continue, potentially launching another round in the discovery process whereby both parties cultivate evidence and testimony on the remaining four counts in the five-count suit. Until the Supreme Court rules on the appeal, however, the suit and its discovery process is in suspense. In the meantime, too, the parties could arrive at a settlement, ending further litigation.



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

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