Jefferson County Judge Won’t Let JPMorgan Suit Proceed

By Steven Church 

Assured Guaranty Municipal Corp., the bond insurer, was blocked by a judge from proceeding with a lawsuit against JPMorgan Chase & Co. (JPM) on grounds that it would interfere with the reorganization of Jefferson County, Alabama, the biggest U.S. municipal bankruptcy.

U.S. Bankruptcy Judge Thomas B. Bennett in Birmingham, Alamaba, found that the case Assured has against JPMorgan in New York state court involves the same facts, circumstances and lawyers as a similar case in which Syncora Guarantee Inc. sued Jefferson County. Because Assured hadn’t named the county in its case, the insurer argued that its lawsuit should proceed.

“The degree of sameness between the Assured action and the Syncora action requires equality of treatment,” Bennett ruled.

In 2011, Jefferson County filed for bankruptcy protection from its creditors, blaming the loss of a business-related tax and more than $3 billion in warrants that the sewage system couldn’t repay.

Once a municipality enters bankruptcy, any lawsuits against it are temporarily halted.

Syncora and Assured insured some of the sewer warrants. They argued in their lawsuits that the insurance policies were only written because the county and JPMorgan, the underwriter for the warrants, committed fraud.

The case is In re Jefferson County, Alabama, 11-05736, U.S. Bankruptcy Court, Northern District of Alabama (Birmingham). The Assured case is Assured Guaranty Municipal Corp. v. JPMorgan Chase Bank, N.A., 650642/2010 New York State Supreme Court (Manhattan).

To contact the reporter on this story: Steven Church in Wilmington, Delaware, atschurch3@bloomberg.net.

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