MONTGOMERY, Ala. (Legal Newsline) - The Alabama Supreme Court has declined to review a trial court's decision not to dismiss a case against J.P. Morgan Securities and JPMorgan Chase Bank, among others, for alleged fraud and conspiracy.
In an opinion filed Friday, the Court shot down a petition by J.P. Morgan, JPMorgan Chase and Charles E. LeCroy and another by Douglas W. MacFaddin, saying they "failed to demonstrate a clear legal right to the relief sought."
In 1996, Jefferson County, as a result of unrelated ligitation, was required to make certain improvements to its sewer system. From 1997 to October 2002, it issued several series of revenue warrants to raise the funds needed for the improvements, the majority of which carried fixed interest rates.
In late 2002 and in 2003, the county converted the fixed-rate warrants into ones with either variable interest rates or rates set by an auction process. J.P. Morgan was the lead underwriter for the majority of the refinanced warrants.
The county also engaged in numerous interest rate swap transactions with JPMorgan Chase. According to the county's complaint, the then-president of the county commission, Larry Langford, insisted that it employ Blount Parish & Company, another underwriting firm.
The idea was to transform the county's debt from the fixed-rate debt to a riskier debt that was more subject to acceleration.
In addition, the county paid large fees to J.P. Morgan, JPMorgan Chase and Blount Parish to underwrite the transactions. The county's complaint alleges that those fees were "artificially inflated" in part because of various "bribes, kickbacks and pay-offs."
The county asserts that Blount Parrish performed little work on the transactions and that the company, through its owner William B. Blount and its agent/employee Albert W. LaPierre, essentially bribed the commission president Langford to have the county employ Blount Parish, J.P. Morgan, JPMorgan Chase and others.
In November 2009, the county filed a lawsuit against J.P. Morgan, JPMorgan Chase, Blount Parrish, Blount, LaPierre and Langford, as well as LeCroy and MacFaddin, two former employees of J.P. Morgan. The complaint sought damages against the defendants based on theories of fraud, suppression, conspiracy and unjust enrichment.
The petitioners filed motions to dismiss the case, arguing that the county lacked standing as a plaintiff. After a hearing, the trial court denied the motions.
J.P. Morgan, JPMorgan Chase and LeCroy then petitioned the Court for review of the trial court's order denying their motion to dismiss; MacFaddin also petitioned for review.
Justice Greg Shaw authored the Court's 13-page opinion.
The petitioners contend that state code grants the governor the sole authority to maintain such an action, and that the county has no standing to pursue.
"The Governor may cause actions to be commenced for the recovery of any public moneys, funds or property of the state or of any county which have been lost by the neglect or default of any public officer, which have been wrongfully expended or disbursed by such officer, which have been wrongfully used by such officer or which have been wrongfully received from him," the code reads.
The Court said it was the intent of the state Legislature to confer on the governor "the nonexclusive authority to commence an action to recover, among other things, funds wrongfully expended by public officials."
Nothing in the statute, the Court said, indicates that the governor has the "sole power, exclusive of the county" to file an action to recover such funds.
From Legal Newsline: Reach Jessica Karmasek by e-mail at firstname.lastname@example.org.