Instead of having to negotiate a $7.5 million surety bond to wage an appeal before the Supreme Court of Alabama over its right to exist, the South Cumberland Cooperative District (SCCD) received news last week of a major reprieve — to the tune of $7 million dollars.

The high court granted a request by the SCCD and co-defendants in a lawsuit over the creation of the SCCD and its oversight board, the Governmental Utility Services Corporation of Cullman County (GUSC), to reduce the large bond set by Circuit Judge Don Hardeman. The new amount, $500,000, falls far short of the $7.5 million figure Hardeman ordered Sept. 1. Following a hearing in late August to determine the defendants’ liability, Hardeman had reasoned that, at a minimum, the SCCD should post a bond equal to a year’s worth of water department revenues.

Although the Supreme Court did not comment on its decision to lower the bond, it clearly didn’t agree with the trial court. Attorneys for the SCCD had motioned the high court last month to reduce the bond, arguing — among other things — the ordered amount did not reflect the SCCD’s true liability and that the circuit court had abused its discretion in treating each party differently over the life of the nearly five month-old case.

As part of an agreement both sides in the case reached at the time of the circuit court bond hearing, Hardeman entered a partial injunction whereby the SCCD pledged not to dispose of any of the county water department’s assets, except in the normal course of conducting routine business. That accord was to ensure the SCCD would not face an even higher bond amount — potentially as high as the assets’ purported $30 million value.

Attorneys for the SCCD contested that the trial court did not need to set a bond based on the potential loss of water revenues, filing a motion before the Supreme Court to reduce the bond and consider only those liabilities — principally legal costs — not covered, they argued, by the partial injunction order.

“The circuit court abused its discretion in ordering the appellants [SCCD, et. al.] to post a $7.5 million supersedeas bond on top of the partial injunction,” the board’s attorneys argued. “…[W]ith the partial injunction in place, the water revenues are already protected, and all that is needed in a bond i[s] an amount sufficient to cover the Plaintiffs’ attorneys’ fees and costs. A $7.5 million bond is unnecessary and excessive overkill.”

A supersedeas bond, also known as a defendants’ appeal bond, is a surety against potential liability incurred by appellants — in this case, the SCCD and its co-defendants — over assets in contention in the course of an appeals process.

Attorneys for the plaintiffs attempted to rebuff the defense in their response, asserting that the partial injunction agreement “…does not adequately protect the sizable revenue that is generated by those assets…A sizable bond, as was set by the trial court, ensures that the status quo ante [the way things were before the SCCD was set over the water department]…will be maintained pending this appeal and that the taxpayers of Cullman County, represented by the Appellees, will not be prejudiced…”

In resetting the bond to $500,000, the high court also granted another of the defendants’ requests — to put on hold a final circuit court hearing in the case until the appeals process has been resolved. That essentially freezes the circuit court from continuing with any aspect of discovery in the case until the Supreme Court appeal has run its course.

Dennis Haynes, who serves on both the SCCD and GUSC boards, welcomed the reduced bond, but cautioned that the case as a whole does not address many of the issues that he and other board members believe lie at the heart of the ongoing water debate in Cullman County, as well as the City of Cullman.

“The issue that exists between the plaintiffs and the defendants is simply whether the SCCD board shall continue as an entity with oversight responsibility of the water department,” said Haynes. “The issue is not the clandestine formation of the SCCD, or Duck Creek, or Smith Lake, or the Tennessee River, or a well in Blount County — the issue is fairness and transparency in the water purchase contract [between the City of Cullman and county water customers] and the delivery of fairly-priced, quality water.”

Citing the Supreme Court’s ordering of both parties into court-supervised mediation late last month, Haynes was guarded in his optimism that mediation will sufficiently bring all players to the negotiating table to hammer out a possible settlement of the lawsuit.

“My primary responsibility is to the customers of the Cullman County water department, but my greater desire is to secure fairness for all of the citizens of Cullman County,” he said. “If the city is not involved in the mediation process, then mediation is a waste of time. If the four candidates for county commissioner are not present, then we are wasting our time. The issue is the water purchase contract…An alternate source of water, duplicity in water treatment, and some form of regional board or regional cooperation are certainly desirable as well, but fairness and transparency in the water purchase contract is paramount.”

A separate lawsuit over the SCCD’s right to manage the water department, filed by Trimble-area farmer Billy Meeks in late August, may also effectively be placed temporarily on hold while the mediation process in the original suit unfolds. A response letter from the law firm representing the county commission in the Meeks case cautioned last week that “…we expect that further litigation in this [new] lawsuit will be stayed between the parties and/or the Court to allow for mediation to be completed in the other lawsuit as those issues directly relate to the issues in this matter.”

The lawsuit from which all the high court activity stemmed began as a result of the creation of the SCCD and GUSC by the Cullman County Commission in late April. The two boards were formed and set over the county water department, with the commission deeding all the department’s assets to the SCCD.

Soon after the GUSC and SCCD were formed, commission chairman James Graves led six county residents in filing the suit, charging that his peers — associate commissioners Doug Williams and Wayne Willingham — violated state open meetings laws in creating the boards. They also accused the commissioners and the boards of attempting to thwart the spirit of the state statutes that allow for the formation of a water utility cooperative, accusing the defendants of essentially using the GUSC as a shell entity to protect the SCCD from any oversight or direction by the county commission.

Because he occupies the chairmanship of the county commission — one of the entities named as a defendant in the suit — Graves has since been reassigned by the court as a defendant in the case. That move has provided fodder for defense attorneys to challenge a number of plaintiffs’ subsequent efforts, including their request for a substantial supersedeas bond. That’s because, they argue, it is paradoxical to order the county’s governing body to post a bond against itself.

Plaintiffs’ attorneys countered that argument, unsuccessfully, by noting that the revenue risk against the county is a very real concern, since the county is obligated to pay several million dollars in bond indentures based on the assurance of revenues generated by its water department — revenues that, if the SCCD wins the case, will be beyond the county’s legal reach.

“The Appellants’ argument that requiring Cullman County to post a bond would create a paradox ignores the fact that, if a bond is made, the SCCD — not the county — would collect and control average water revenue,” plaintiffs reasoned. “As the trial court [previously] found, the focus of the amount of the bond set by the trial court is the income stream that would flow to the SCCD, not the county.

“The only paradox,” they added, “is that the county is, for now, not seeking to have the assets and revenue returned to it. This is the county’s position for now only because the same two associate commissioners that [sic] gave the system away, despite their defeat in the primary election on June 1st, remain in office and comprise a majority until their successors take office in November.”

Graves said Friday he declined Williams’ request to place on the commission’s Sept. 28 meeting agenda a resolution that would have obligated the county to pay “…all legal expenses, whether now or hereinafter due, of the law firm Johnston Barton Proctor & Rose LLP for legal services rendered by said law firm with respect to (a) the formation of the South Cumberland Cooperative District (“SCCD”) and The Governmental Utility Services Corporation of Cullman County (the “GUSC”) and (b) the legal representation and defense of the County, SCCD, and the GUSC…in connection with certain legal proceedings involving the Defendants.”

Johnston, et. al. is the Birmingham-based law firm which drafted the incorporation documents for the SCCD and GUSC, and which continues to represent the boards as appellants before the state Supreme Court.

The resolution would have also tasked the county with paying the Supreme Court-ordered supersedeas bond. Because the item never appeared before the commission, however, the county is for the time being not attached to any financial commitment associated with either the law firm or the bond. Graves said Monday that, although no invoice itemizing specific legal services was presented with the proposed resolution, the total amount sought by the firm, to date, amounts to approximately $172,000.

The Supreme Court has suspended all further proceedings in circuit court for 10 days, giving the defendants time to come up with a bond payment by mid-October. No bond had been posted by deadline for this article.

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