After a circuit court hearing ordered by the Supreme Court of Alabama to determine the bond defendants must post as a condition of the high court’s granting of an emergency stay of the lower court’s injunction against them, Circuit Judge Don Hardeman set a $7.5 million bond for the South Cumberland Cooperative District (SCCD) last week.

The bond order was the latest court proceeding in the legal saga that has unfolded since six citizens filed a lawsuit in early May against the Cullman County Commission and the two new utility boards — the Governmental Utility Services Corporation of Cullman County (GUSC) and SCCD — it set over the Cullman County water department in April.

The two boards had appealed to the high court an order in late May by Judge Hardeman instructing the SCCD to return its $30 million in water department assets back to the county commission pending a resolution of the lawsuit. The Supreme Court granted the SCCD’s request for a stay of that transfer last month, with the stipulation that the defendants must post a bond after Hardeman had held a hearing to determine the amount. That hearing took place on August 25; Hardeman set the bond at $7.5 million a week later.

The bond, technically called a supersedeas bond, is essentially an insurance measure mandated by an appellate court as part of a defendant’s burden in moving forward with an appeal. Typically, such a bond is used to protect against the prospect of making good on plaintiffs’ claims for monetary damages, should the defendants lose a case on appeal.

In setting the bond, Hardeman noted the $7.5 million figure was based on the department’s financial statements from the 2009 fiscal years, which reflected an income of $7,502,302 and expenses of $6,786,709, yielding an operating income of $715,593.  

Hardeman also noted the county’s possible exposure to significant financial loss, should the SCCD have free rein to manipulate the real assets of the water department without guaranteeing potential losses of the disputed property ahead of the lawsuit’s resolution.

Citing both the county’s 30-year water purchase agreement with the city of Cullman — which exclusively obligates the county to buy treated water from the city until 2020 — as well as the county’s reliance on water revenues to defray a series of bond issues to pay for ongoing infrastructure upgrades, Hardeman observed the county has a right to expect a legal assurance that it can meet its obligations to creditors.

“...[T]he effect of the transfer of assets from Cullman County to the SCCD,” he wrote, “is that Cullman County remains exposed for the liabilities of the water system [including more than $21 million of principal debt on water revenue bonds] but no longer has the assets to [generate the revenue to] pay those liabilities. This fact makes the argument of the Defendants’ counsel on this point concerning the SCCD’s assumption of liabilities somewhat disingenuous.”

Plaintiffs in the case had pressed for a much higher bond — as much as $30 million — if the SCCD could not agree to submit to a new injunction stipulating it would not sell or give away any of the disputed assets until the Supreme Court appeal is resolved. Instead, the two parties agreed to the injunction, which became part of the the bond order Hardeman issued Wednesday:

“Pursuant to the agreement of the parties to a partial injunction, the Defendants are hereby enjoined from selling, giving away or otherwise disposing of any real or personal assets of the Cullman County Water Department except in the ordinary course of business pending a resolution of the appeal to the Supreme Court,” the order read.

Hardeman also acknowledged the plaintiffs’ point that, without the injunction, substantially more than $7.5 million in income could be at risk for their client:

“This injunction is in lieu of a substantial portion of the total bond amount and in addition to [the $7.5 million],” he noted.

The appeals process is still ongoing before the Supreme Court, as both sides wait to hear the high court’s ruling on whether Hardeman’s full preliminary injunction of May 28 may stand. That injunction suspended all corporate powers of the GUSC and SCCD and stripped the SCCD of its custody of the water department, pending a resolution of the civil suit originally filed in circuit court.

Meanwhile, plaintiffs have filed a motion asking the Supreme Court to reconsider its granting of the defendants’ request to keep the water assets while the suit goes forward. Read more on the plaintiffs’ motion in a coming edition of The Cullman Times.



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