(Reuters) - The federal judge handling the bankruptcy of Alabama's Jefferson County rejected two legal arguments that he cannot limit the powers of a receiver who is running the county's massively indebted sewer system.
In a partial written ruling, U.S. Bankruptcy Judge Thomas Bennett said on Monday that neither the Rooker-Feldman doctrine nor the 1934 Johnson Act barred him from deciding whether to curb the executive authority of the receiver, John Young, at the Jefferson County sewer system.
Lawyers for Young, who was named receiver last year by a state court at the request of banks and other creditors owed $3.14 billion of sewer debt, argued that Rooker-Feldman and the Johnson Act prevented a federal judge such as Bennett from interfering with a state court's decision.
Bennett, who last week heard oral arguments in the dispute over Young's role at the sewer system now that Jefferson County declared what ranks as the largest-ever U.S. municipal bankruptcy, did not speak to other legal arguments that he should remove or modify an automatic stay that would constrain Young's power.
The stay was triggered by the bankruptcy filing on November 9 and, according to lawyers for Jefferson County, returns control of the 126,000-customer sewer system to the county's cash-short government.
Creditors such as JPMorgan Chase want Bennett to leave Young in control to safeguard and increase the system's net revenues that service the sewer-system debt they own. Lawyers for Jefferson County said they will set aside the systems revenue after expenses for debt payments while the county is in bankruptcy.
Bennett, at last week's hearing in Birmingham, Alabama, gave lawyers until Friday to submit written arguments on other aspects of what is the first significant courtroom clash in a case that is likely to run for years.
(Reporting by Michael Connor in Miami; Editing by Leslie Adler)