BHM-#1843840-v2-JEFF CO Motion to stay abstain

EXHIBIT E

Case 2:08-cv-01703-RDP Document 77 Filed 03/23/09 Page 1 of 25 FILED

2009 Mar-23 PM 05:03
U.S. DISTRICT COURT

N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA

SOUTHERN DIVISION

THE BANK OF NEW YORK MELLON, et ) Case No.: 2:08-CV-01703-RDP
al., )
)
Plaintiffs, )
)
v. )
)
JEFFERSON COUNTY, ALABAMA, et )
al., )
)
Defendants. )

JEFFERSON COUNTY’S CONDITIONAL MOTION TO STAY

Joseph B. Mays, Jr.
J. Patrick Darby
Dylan C. Black
Kevin C. Newsom
BRADLEY ARANT BOULT CUMMINGS LLP
One Federal Place
1819 Fifth Avenue North
Birmingham, AL 35203-2104
Phone (205) 521-8000
Fax (205) 521-8800

Attorneys for Defendants

Case 2:08-cv-01703-RDP Document 77 Filed 03/23/09 Page 2 of 25
TABLE OF CONTENTS

TABLE OF AUTHORITIES .......................................................................................................... ii 
INTRODUCTION .......................................................................................................................... 1 
ARGUMENT.................................................................................................................................. 1 
I.  Assuming It Does Not Dismiss On Johnson Act Grounds, This Court Should

Abstain From Exercising Its Jurisdiction Pending Resolution Of An Appropriate
Action Filed In State Court. ................................................................................................ 1 
A.  This Court Should Abstain Under Thibodaux. ....................................................... 3 
B.  This Court Should Abstain Under Burford........................................................... 11 
C.  This Court Should Abstain Under Williams. ........................................................ 16 
II.  A Stay Would Not Unduly Delay Proceedings................................................................. 18 
CONCLUSION............................................................................................................................. 19 
CERTIFICATE OF SERVICE ..................................................................................................... 20 

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TABLE OF AUTHORITIES

Cases 

Alabama Pub. Serv. Comm’n v. Southern Ry. Co.
341 U.S. 341 (1951)........................................................................................................ 2, 13, 14

ALCOA v. Utils. Comm’n of the State of N.C.
713 F.2d 1024 (4th Cir. 1983) .................................................................................................... 2

Birmingham v. Southern Bell Tel. & Tel. Co.
176 So. 301 (Ala. 1937).............................................................................................................. 9

Burford v. Sun Oil Co.
319 U.S. 315 (1943)........................................................................................................... passim

Campbell v. Water Works & Sanitary Sewer Bd. of City of Montgomery
115 So. 2d 519 (Ala. 1959)....................................................................................................... 10

City of Monroe v. United Gas Corp.
253 F.2d 377 (5th Cir. 1958) ...................................................................................................... 2

Colorado River Water Conservation Dist. v. United States
424 U.S. 800 (1976).................................................................................................................... 4

County of Allegheny v. Frank Mashuda Co.
360 U.S. 185 (1959).................................................................................................................... 4

Ex parte Waterjet Sys., Inc.
758 So. 2d 505 (Ala. 1999)....................................................................................................... 10

Guardian Savings v. Rd. Improvement Dis. No. 7
267 U.S. 1 (1925)........................................................................................................................ 8

Hawks v. Hamill
288 U.S. 52 (1933).................................................................................................................... 12

Jefferson County Commission v. ECO Preservation Servs., LLC
788 So. 2d 121 (Ala. 2000)......................................................................................................... 6

Jefferson County v. City of Leeds
675 So. 2d 353 (Ala. 1995)..................................................................................................... 6, 7

Louisiana Power & Light Co. v. City of Thibodaux
360 U.S. 25 (1959)............................................................................................................. passim

Lunsford v. Jefferson County
973 So. 2d 327 (Ala. 2007)......................................................................................................... 5

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Marshall Durbin & Co. of Jasper, Inc. v. Jasper Utils. Bd.
437 So. 2d 1014 (Ala. 1983)..................................................................................................... 10

Matthews v. Rodgers
284 U.S. 521 (1932).................................................................................................................. 14

New Orleans Pub. Serv., Inc. v. City of New Orleans
782 F.2d 1236 (5th Cir.), amended in part, 798 F.2d 858 (5th Cir. 1986) ................................. 2

New Orleans Pub. Serv., Inc. v. New Orleans
491 U.S. 350 (1989).................................................................................................................... 4

Opinion of the Justices No. 263
379 So. 2d 939 (Ala. 1980)......................................................................................................... 9

Pamponio v. Fauquier County Bd. of Supervisors
21 F.3d 1319 (4th Cir. 1994) ...................................................................................................... 4

Pennsylvania v. Williams
294 U.S. 176 (1935)...................................................................................................... 16, 17, 18

Quackenbush v. Allstate Ins. Co.
517 U.S. 706 (1996).......................................................................................................... 2, 4, 15

Railroad Commission v. Pullman Co.
312 U.S. 496 (1941).................................................................................................................. 13

Shell v. Jefferson County
454 So. 2d 1331 (Ala. 1984)....................................................................................................... 9

Tennyson v. Gas Serv. Co.
506 F.2d 1135 (10th Cir. 1974) .................................................................................................. 2

Constitutional Provisions 
ALA. CONST. § 212.......................................................................................................................... 9
ALA. CONST. amend. 73 .................................................................................................... 5, 6, 7, 10
Statutes 
Johnson Act, 28 U.S.C. § 1342....................................................................................................... 1
ALA. CODE § 6-5-440.................................................................................................................... 18
ALA. CODE § 6-6-620 et seq.................................................................................................... 15, 17

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Other Authorities 
C. WRIGHT, A. MILLER, ET AL., FEDERAL PRACTICE & PROCEDURE (2d ed. 1997) .................... 1, 2
R. FALLON, ET AL., HART & WECHSLER’S THE FEDERAL COURTS & THE FEDERAL SYSTEM

(5th ed. 2003).............................................................................................................................. 4

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Jefferson County and the elected officials serving on the County Commission (collective-
ly, the “County”), by and through their undersigned counsel, conditionally move to stay this ac-
tion pending the completion of judicial proceedings in the state courts of Alabama.

INTRODUCTION
The County has moved (Doc. #76) to dismiss Plaintiffs’ Complaint on two grounds.
First, the Johnson Act, 28 U.S.C. § 1342, prevents the Court from exercising its jurisdiction to
grant Plaintiffs the relief they request. Second, Plaintiffs failed to observe the required precondi-
tions to suit against the County by neglecting to present their claims to the County Commission.
In this Conditional Motion to Stay, the County will show that even if the Court were to conclude
that dismissal is not required, it should nonetheless abstain from exercising whatever jurisdiction
it may have.
The County urged abstention in its most recent brief relating to Plaintiffs’ Emergency
Motion. (See Doc. # 72 at 10-17). There, of course, the County raised abstention for the specific
purpose of defending against Plaintiffs’ Emergency Motion. Here, the County argues more gen-
erally that, under three separate-but-related abstention doctrines, the Court should stay this case
to allow Plaintiffs to seek recourse in state court.

ARGUMENT
I. Assuming It Does Not Dismiss On Johnson Act Grounds, This Court Should Ab-

stain From Exercising Its Jurisdiction Pending Resolution Of An Appropriate Ac-
tion Filed In State Court.
Even if this Court were to determine that the Johnson Act did not divest it of jurisdiction,
it would “not necessarily follow that plaintiff[s] will get a judgment on the merits ….” 17A C.
WRIGHT, A. MILLER, ET AL., FEDERAL PRACTICE & PROCEDURE § 4236, at 241 (2d ed. 1997)
[“WRIGHT & MILLER”]. The reason is that “it by no means follows from the fact of district court
jurisdiction that such jurisdiction must be exercised in [a particular] case.” Alabama Pub. Serv.

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Comm’n v. Southern Ry. Co., 341 U.S. 341, 345 (1951). “Frequently one of the abstention doc-
trines or other considerations of comity will indicate the desirability of leaving the plaintiff to his
remedies in the state system even where the Johnson Act does not apply.” 17A WRIGHT &
MILLER, supra, § 4236, at 241. A number of cases fit that pattern precisely. See, e.g., Southern
Ry. Co., 341 U.S. at 350 (assuming Johnson Act inapplicable but abstaining in deference to state
administrative process); New Orleans Pub. Serv., Inc. v. City of New Orleans, 782 F.2d 1236,
1242 (5th Cir.), amended in part, 798 F.2d 858, 860-64 (5th Cir. 1986) (holding Johnson Act in-
applicable but abstaining); ALCOA v. Utils. Comm’n of the State of N.C., 713 F.2d 1024, 1027,
1030 (4th Cir. 1983) (same). And in two leading Johnson Act cases, the courts observed that if
the Act had not barred relief, they would have abstained as a matter of comity. City of Monroe v.
United Gas Corp., 253 F.2d 377, 381 (5th Cir. 1958); Tennyson v. Gas Serv. Co., 506 F.2d 1135,
1143 (10th Cir. 1974).

The Supreme Court has established a number of interrelated “abstention” doctrines, all of
which serve essentially the same purpose – namely, in appropriate circumstances, to defer a deci-
sion in federal court in favor of proceedings in a state forum. All of these abstention doctrines
are firmly rooted in principles of federalism. Justice Kennedy has aptly summarized the policy
underlying abstention: “Abstention doctrines are a significant contribution to the theory of fede-
ralism and to the preservation of the federal system in practice. They allow federal courts to give
appropriate and necessary recognition to the role and authority of the States.” Quackenbush v.
Allstate Ins. Co., 517 U.S. 706, 733 (1996) (Kennedy, J., concurring). Accordingly, “[t]he duty
to take these considerations into account must inform the exercise of federal jurisdiction.” Id.
(emphasis added).

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Plaintiffs’ case implicates at least three abstention paradigms. This Court should stay its
hand under each of them.

A. This Court Should Abstain Under Thibodaux.
In Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25 (1959), the Supreme
Court held that a federal district court should abstain from adjudicating the case before it where
(1) its jurisdiction is predicated solely on diversity; (2) the case involves an unsettled question of
state law; and (3) the subject matter of the unsettled question – here, the constitutional assign-
ment of ratemaking authority to a duly elected political body – implicates important state inter-
ests. See id. at 28-30.
As detailed below, Plaintiffs’ claims directly implicate a number of important and unset-
tled questions of Alabama law. In order to avoid unnecessarily trammeling on the State’s ability
to shape its own utility policy, this Court should abstain under Thibodaux and allow an Alabama
court to answer those questions.
Thibodaux itself is instructive. There, the Supreme Court upheld a federal district court’s
sua sponte decision to abstain from deciding a plaintiff’s challenge to the City of Thibodaux’s
exercise of its eminent-domain power. Id. at 25-28. The district court determined that a perti-
nent state statute seemed to conflict with a Louisiana Attorney General’s opinion and stayed the
case pending the result of an as-yet-unfiled declaratory judgment suit in Louisiana state courts.
Id. at 30. (In its eventual opinion, the Supreme Court assumed that the parties would initiate the
state-court suit after remand. Id. at 30-31.) Reversing the Fifth Circuit, the Supreme Court held
that “[t]he District Court was … exercising a fair and well-considered judicial discretion in stay-
ing proceedings pending the institution of a declaratory judgment action and subsequent decision
by the Supreme Court of Louisiana.” Id. at 30. In the circumstances presented, the Court em-

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phasized, abstention “does not constitute abnegation of judicial duty,” but rather “a wise and

productive discharge of it.” Id. at 29.

The Supreme Court “has continued to cite Thibodaux approvingly.” R. FALLON, ET AL.,

HART & WECHSLER’S THE FEDERAL COURTS & THE FEDERAL SYSTEM, at 1211 (5th ed. 2003)

(citing Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976), and New

Orleans Pub. Serv., Inc. v. New Orleans, 491 U.S. 350 (1989)). As have lower federal courts.

Writing for the en banc Fourth Circuit, for instance, Judge Widener summarized Thibodaux ab-

stention this way: “[T]he Thibodaux abstention doctrine … is applied when there is no federal

claim and there is a significant and difficult question of state law that concerns matters which are

particularly within the province of the state-sovereign to regulate or decide.” Pamponio v. Fau-

quier County Bd. of Supervisors, 21 F.3d 1319, 1325 (4th Cir. 1994) (en banc), overruled on

other grounds by Quackenbush, 517 U.S. 706.1

Like other abstention doctrines, Thibodaux abstention founded on federalism. It follows

from a healthy “regard for the respective competence of the state and federal court systems and

for the maintenance of harmonious federal-state relations in a matter close to the political inter-

ests of a State.” Thibodaux, 360 U.S. at 25. The Thibodaux Court found that eminent domain

1 To be clear, Thibodaux abstention has not been limited to the eminent-domain context. Indeed, in County of Al-
legheny v. Frank Mashuda Co., 360 U.S. 185 (1959), a case decided the same day as Thibodaux, the Court declined
to require abstention in an eminent-domain case. Eminent domain, therefore, is not the controlling criterion. Ra-
ther, as explained by Justice Stewart, one of only two Justices in the majority in both Thibodaux and Mashuda:

In Mashuda the Court holds that it was error for the District Court to dismiss the complaint. The
Court further holds in that case that, since the controlling state law is clear and only factual issues
need be resolved, there is no occasion in the interest of justice to refrain from prompt adjudication.
Thibodaux, 360 U.S. at 31 (Stewart, J., concurring). In other words, abstention under Thibodaux is appropriate
where (1) the case is stayed rather than dismissed and (2) the underlying state law is unclear. The Supreme Court
has specifically reaffirmed both of the distinctions drawn by Justice Stewart, citing his Thibodaux concurrence for
support. See Quackenbush, 517 U.S. at 717 (stating that Thibodaux applies in “cases raising issues intimately in-
volved with the States’ sovereign prerogative, the proper adjudication of which might be impaired by unsettled ques-
tions of state law”); id. at 721 (“Unlike in Thibodaux, however, the District Court in [Mashuda] had not merely
stayed adjudication of the federal action pending the resolution of an issue in state court, but rather had dismissed
the federal action altogether. Based in large measure on this distinction, we reversed.”) (punctuation, quotations,
and citations omitted).

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was “intimately involved with sovereign prerogative” of the city. Id. at 28. So too here, it is
axiomatic that utility ratemaking is a “sovereign prerogative” of Jefferson County – indeed, a
prerogative that has been expressly assigned to it in the Alabama Constitution.

This case presents a number of difficult and unsettled questions of state law. The follow-
ing are just a sampling of those that this Court would have to resolve before proceeding on Plain-
tiffs’ Complaint. Because they are questions better left to the state courts, the Court should stay
its hand while Plaintiffs pursue relief in a state forum.

1. Can anyone other than Jefferson County’s governing body set the
County’s sewer rates consistent with Amendment 73 to the Alabama
Constitution?

Amendment 73 to the Alabama Constitution states:
The governing body of Jefferson county shall have full power and authority to
manage, operate, control and administer the sewers and plants herein provided for
and, to that end, may make any reasonable and nondiscriminatory rules and regu-
lations fixing rates and charges, providing for the payment, collection and en-
forcement thereof, and the protection of its property.
ALA. CONST. amend. 73. The Amendment is self-executing. Id.
As construed by the Alabama courts, Amendment 73 would seem to be an insuperable
barrier to Plaintiffs’ request for a receiver. At the very least, the Amendment raises some very
knotty state-law questions. The Amendment vests the administration of the Jefferson County
sewer – and, in particular, ratemaking power – in the Jefferson County Commission, and it does
so as a matter of state constitutional law; accordingly, no other law may supersede it. See Luns-
ford v. Jefferson County, 973 So. 2d 327, 331 (Ala. 2007) (invalidating a state statute that pur-
ported to reduce Jefferson County’s powers under Amendment 73). Moreover, the Alabama Su-
preme Court has held that as a result of Amendment 73’s grant of “full power and authority” to
the County, not even a state court has the prerogative “to set a sewer service rate by substituting
its own judgment for that of the Jefferson County Commission.” Jefferson County v. City of

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Leeds, 675 So. 2d 353, 355 (Ala. 1995). If a state court cannot preempt the Commission’s rate-
making determinations, it would seem (in light of fundamental principles of federalism) to fol-
low a fortiori that a federal court – let alone a federal court’s designee – cannot do so.

Plaintiffs’ response to Amendment 73 is unpersuasive. Plaintiffs cite Jefferson County
Commission v. ECO Preservation Servs., LLC, 788 So. 2d 121 (Ala. 2000), for the proposition
that Amendment 73 does not give the County Commission “the exclusive right to maintain a
sewer system in Jefferson County.” (Doc. # 74 at 17). While the quotation is accurate, it does
not help Plaintiffs one bit. In ECO, the County Commission denied a permit to ECO to build its
own private sewer that passed through Jefferson County. ECO, 788 So. 2d at 123. The issue
was simply whether anyone other than Jefferson County itself could operate a sewer within the
County’s borders. Id. at 127. On that question, the Alabama Supreme Court held that Jefferson
County’s right to operate a system was not exclusive. Id. The Court thus allowed private parties
to operate their own sewers, but it certainly did not hold – or even suggest – that private parties
can set rates or otherwise interfere with the County Commission’s exclusive control over Jeffer-
son County’s public sewer. Plaintiffs can build their own sewer, to be sure. But ECO says noth-
ing about the issue before this Court: whether anyone other than the County Commission can fix
rates for Jefferson County’s sewer consistent with Amendment 73.

Nor does Plaintiffs’ assertion that a receiver “does not stand in the shoes of the judiciary”
but rather stands in the shoes of the County (see Doc. # 74 at 17-18), do anything to alleviate the
problem. Plaintiffs acknowledge, as they must, that “a receiver derives his or her power from the
court.” (Id. at 17). Plaintiffs are asking, therefore, for a court-appointed official to stand in the
shoes of the County Commission and, with judicial imprimatur, exercise the County Commis-
sion’s legislative power. Put simply, they are asking for a designee of this Court – a federal

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court sitting in diversity – to “substitut[e] its own judgment for that of the Jefferson County
Commission.” City of Leeds, 675 So. 2d at 355. Amendment 73 vests ratemaking power in the
County Commission, an elected body subject to all manner of political checks. Any appointed
receiver would be subject to none. It is because the receiver stands in the County Commission’s
shoes that Plaintiffs’ request violates Amendment 73.

2. Can the County’s ratemaking authority simply be contracted away?
It is not at all clear under Alabama law that the County’s constitutionally-assigned rate-
making power can be contracted away as Plaintiffs seem to assume. We are aware of no re-
ported decision in Alabama that addresses – let alone resolves – the question whether a county
can validly alienate its ratemaking power in an ordinary contract, without some form of legisla-
tive authorization if not a vote of the citizens. It is well recognized that ratemaking is a legisla-
tive function. See City of Leeds, 675 So. 2d at 355. As just noted, it is also settled that the Ala-
bama Constitution vests ratemaking authority exclusively in the Jefferson County Commission.
See ALA. CONST. amend. 73. What is not clear is whether the County may lawfully contract
away its constitutionally assigned powers and responsibilities without, at the very least, some
express legal authority to do so. The question seems all the more grave when the person to
whom the supposed contractual “delegation” is being made is an unaccountable designee of a
federal court.2
Plaintiffs’ own Guardian Savings case (see Doc. # 74 at 25) is instructive on this point.
There, the Supreme Court (per Justice Holmes) affirmed a district court’s appointment of a re-
ceiver over a road district. In approving the appointment of a receiver over an organ of state

2 In their initial brief seeking the appointment of an emergency receiver, Plaintiffs cited a string of cases purporting
to stand for the proposition that federal district courts should enforce contractual agreements for the appointment of
receivers. (See Doc. # 9, at 7). Notably, none of those cases involved a state or municipal government, let alone one
(like Jefferson County) whose sovereign regulatory authority was the subject of the purported agreement.

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government, however, the Court emphasized that there was no risk federal-court “usurp[ation]”
of state legislative functions because “[t]here [was] no longer any legislative act to be done.”
Guardian Savings v. Rd. Improvement Dis. No. 7, 267 U.S. 1, 6 (1925). In that case, both the
interest for whose protection the receiver was sought and the receivership remedy itself were
created by state statute. See id. at 4-6 (noting that, by the explicit language of the relevant acts,
“the bonds are secured by a mortgage of the assessments and all other assets of the District, to
the plaintiff as trustee for the bondholders; and that by the terms of the acts after a default for
more than thirty days in payment of interest or principal, a receiver shall be appointed to take
charge of the affairs of the District”) (emphasis added). This case is worlds away from Guardian
Savings. The warrants in question here were issued pursuant to Chapter 28 of the Alabama
Code, which, unlike the Kelly Act, does not itself provide for a receivership remedy. (See Doc. #
72 at 26-27). Indeed, not only does the governing statute not provide for a receivership remedy,
but the Alabama Constitution seems to cut strongly against it. Against Amendment 73, Plaintiffs
stand on their contract. Because it cannot be said here, as it was in Guardian Savings, that the
only legislative act that needs doing has already been done, the threat of “usurp[ation]” is real.
This Court should stay its hand until a state court addresses Plaintiff’s novel delegation theory.3

3. Even assuming that the County could contract away its ratemaking au-
thority, does the Indenture accomplish a valid delegation under Ala-
bama law?

Even if this Court were to conclude that the County could lawfully contract away its so-
vereign ratemaking authority, it would then have to determine whether the Indenture constitutes
a valid “delegation” under Alabama law. It seems fairly clear that it does not; it certainly is not
clear that it does. On its face, the Indenture does not contain any restrictions on the receiver’s

3 Guardian Savings is distinguishable in other important ways: First, the event of default in that case was conclu-
sively proved. 267 U.S. at 5. Second, the securities at issue in Guardian Savings were bonds, not non-recourse war-
rants. Id. Third, the appointed receiver had very limited authority – namely to “collect taxes theretofore levied.” Id.

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authority, does not allow the County to retain any control over rates, and does not provide for
any judicial review of the receiver’s ratemaking determinations. Such an unfettered transfer of
power is disfavored by both Alabama and federal law. See Birmingham v. Southern Bell Tel. &
Tel. Co., 176 So. 301, 305 (Ala. 1937) (collecting state and federal cases). Complete abdication
of legislative powers by contract is antithetical to established delegation doctrine.

4. Is the power to assess a “non-user” fee a non-delegable taxing power?
Were this Court to consider appointing a receiver as Plaintiffs’ Complaint requests, it
would have to decide, among other things, what sorts of rates and charges (if any) the receiver
could impose without violating Section 212 of the Alabama Constitution, which expressly for-
bids the delegation of the taxing power. See ALA. CONST. § 212 (“The power to levy taxes shall
not be delegated to individuals or private corporations or associations”); see also Opinion of the
Justices No. 263, 379 So. 2d 939, 940-41 (Ala. 1980) (finding unconstitutional the delegation of
taxing power to the Savings and Loan Commissioner). The Special Masters have proposed sev-
eral “revenue enhancements” (e.g., non-user fees, clean-water and excess-capacity charges) that
are not tied specifically to sewer usage and may therefore constitute taxes. Alabama law,
though, is not entirely clear on the fee vs. tax issue. See Shell v. Jefferson County, 454 So. 2d
1331, 1336 (Ala. 1984) (“We… hold that the extension of the [Jefferson County] sewer system
to new customers and the imposition of user fees are not prohibited by the language of Amend-
ment 73.”). As matters stand now, it would seem that Amendment 73 is understood to authorize
the Jefferson County Commission to charge sewer-service fees only to users. Any attempt by a
receiver to impose a charge that could be deemed a “tax” will implicate serious issues of state
law. Should this Court appoint a receiver, it will first need to separate fees from taxes – and it
will have to do so without clear guidance in Alabama law.

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5. Could a receiver possibly determine what rate is “reasonable” by refer-
ence to existing Alabama law?

Amendment 73 expressly requires that Jefferson County sewer rates and charges be “rea-
sonable and nondiscriminatory.” More generally, Alabama law requires that any governmental
entity operating a public utility set rates that are “reasonable” and “non-confiscatory.” Marshall
Durbin & Co. of Jasper, Inc. v. Jasper Utils. Bd., 437 So. 2d 1014, 1018-23 (Ala. 1983), over-
ruled in part on other grounds by Ex parte Waterjet Sys., Inc., 758 So. 2d 505, 511 (Ala. 1999);
Campbell v. Water Works & Sanitary Sewer Bd. of City of Montgomery, 115 So. 2d 519, 522-23
(Ala. 1959) (same).

Plaintiffs have acknowledged, as they must, that “whatever limits there are legally for
reasonable rates are going to be a factor upon the receiver as well it would be upon the County.”
(Hearing at 11:22-25). The problem is that Alabama law does not clearly define what a “reason-
able” rate is, and as the Special Masters’ report itself underscores, “reasonableness” is an inhe-
rently uncertain concept. (See Doc. # 48-2 at 43-44) (stating that “there is no precise or com-
monly accepted definition of reasonableness” and that “rates that may be considered reasonable
because they cover all legitimate costs may still not be acceptable because of adverse impact on
the public health and welfare”).

Before appointing a receiver under federal law to make sensitive and difficult determina-
tions of “reasonableness” under state law – and then to impose those determinations on the resi-
dents of Jefferson County – this Court should consider whether those determinations would not
more appropriately be made by a state court in the first instance.

***
Because Alabama law does not provide clear answers to any of these questions, this
Court is faced with the daunting task of deciding them without any guidance from a state court,

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let alone a controlling statement from the Alabama Supreme Court. In the circumstances pre-
sented, the prudent course is to abstain. Plaintiffs, of course, can have their day in court. As
Thibodaux itself envisions, they need only institute a suit like this one – or perhaps a declaratory
judgment action – in a state forum. A state court could provide clear answers to the questions
that Plaintiffs’ receivership request necessarily entails, and would do so without transgressing
Alabama’s sovereign interests.

B. This Court Should Abstain Under Burford.
Thibodaux abstention is related to – and in some ways is an extension of – “Burford” ab-
stention, named for Burford v. Sun Oil Co., 319 U.S. 315 (1943). Although the Thibodaux para-
digm squarely applies, abstention under Burford is appropriate here, as well.
Burford arose from an action in federal district court to enjoin the operation of an order of
the Texas Railroad Commission granting an oil-drilling permit. The district court’s jurisdiction
was invoked on both diversity and federal-question grounds. See id. at 317. The Supreme Court
posed the controlling question as follows: “Assuming the federal district court had jurisdiction,
should it, as a matter of sound equitable discretion, have declined to exercise that jurisdiction
here?” Id. at 318. The Court answered that question “yes.”
The Court opened its discussion of the abstention issue, not surprisingly, by emphasizing
federalism implications. As an initial matter, quoting Pennsylvania v. Williams (of which more
below, see infra at __), the Burford Court observed that “‘federal courts of equity should exer-
cise their discretionary powers with proper regard for the rightful independence of state govern-
ments in carrying out their domestic policy.’” Id. Then, as if to underscore the tenuousness of a
diversity court’s adjudicating interest in particular, the Court remarked that its traditional “‘reluc-
tance’” to “‘use the process of federal courts in restraint of state officials though the rights as-

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serted by complainants are strictly federal in origin’” must be “‘even greater when the rights are
strictly local; jurisdiction having no other basis than the accidents of residence.’” Id. at 318 n.5
(quoting Hawks v. Hamill, 288 U.S. 52, 61 (1933)).

In finding abstention to be appropriate, the Burford Court stressed (at some length) that
the problem to which the state Railroad Commission had addressed itself – oil and gas regulation
– was a “thorny” one. Id. The State of Texas, the Court noted, had to balance interests in,
among other things, “conserving gas and oil,” “the impact of the [drilling] industry on the whole
economy,” and state “revenue … drawn from taxes on the industry.” Id. at 321. “The primary
task of adjusting these diverse interests,” the Court observed, “is delegated to the Railroad
Commission which Texas has vested with ‘broad discretion’ in administering the law.” Id. Us-
ing an expertise developed over time, the Commission administered all aspects of the State’s oil-
drilling program – including, as relevant there, the spacing between individual wells – and its
orders were subject to “reasonableness” review in state court. See id. at 321-26.

The Supreme Court concluded that the exercise of federal jurisdiction would cause more
problems than it would solve. On the one hand, the Court emphasized, “Texas courts can give
fully as great relief, including temporary restraining orders, as the federal courts.” Id. at 327. On
the other hand, allowing federal courts to enjoin Commission orders would lead only to “[d]elay,
misunderstanding of local law, and needless conflict with the State policy.” Id. After chronicl-
ing a series of federal-court decisions misinterpreting Texas oil-and-gas law, the Burford Court
noted that the case before it, too, “raised a number of problems of no general significance on
which a federal court can only try to ascertain state law.” Id. at 331. Eager to end the “cycle of
federal-state conflict,” the Court held that the case “so clearly involve[d] basic problems of Tex-

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as policy that equitable discretion should be exercised to give the Texas courts the first opportu-
nity to consider them.” Id. at 332.

The Court concluded its opinion where it began – with federalism. Quoting its earlier
decision in Railroad Commission v. Pullman Co., 312 U.S. 496 (1941), the Court observed that
“‘[f]ew public interests have a higher claim upon the discretion of a federal chancellor than the
avoidance of needless friction with state policies,’” and stressed that federal courts must exercise
their equitable discretion with a “‘scrupulous regard for the rightful independence of the state
governments’ and for the smooth working of the federal judiciary.’” Burford, 319 U.S. at 332.
Because “[c]onflicts in the interpretation of state law, dangerous to the success of state policies,
are almost certain to result from the intervention of the lower federal courts,” a “sound respect
for the independence of state action requires the federal equity court to stay its hand.” Id. at 334.
In the case before it, therefore, the Court held that the federal district court should have abstained
from exercising its acknowledged jurisdiction to enjoin the operation of the Railroad Commis-
sion’s oil-drilling order. See id.

Alabama Public Service Commission v. Southern Railway, 341 U.S. 341 (1951), is also
instructive. In that case, a railroad had asked a federal district court to enjoin the operation of –
and give it relief from – an order of the Alabama Public Service Commission denying its request
to discontinue two trains. See id. at 343. Finding that it had jurisdiction under both the diversity
the federal-question heads, the district court refused to abstain and went on to decide the merits.

Reversing, the Supreme Court invoked Burford and emphasized that “it by no means fol-
lows from the fact of district court jurisdiction that such jurisdiction must be exercised” in a par-
ticular case. Id. at 345. Notably, the Court observed that the state-law issues in the case were
not “so ill-defined” as to fall under the rule that “a federal court should hold the case pending a

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definitive construction of that statute in the state courts.” Id. at 344. Even so, the Court stressed
that the case’s subject matter implicated no distinctly federal concern. See id. at 346
(“[R]egulation of intrastate railroad service is primarily the concern of the state.”) (citation and
internal quotation omitted). Because Alabama law provided for “adequate state court review of
an administrative order based upon predominantly local factors” – namely, from the Commission
to state circuit court, and from there to the Alabama Supreme Court – federal-court intervention
was not necessary. Id. at 349. Observing (as it had before and would again) that federal courts
must exercise their equitable discretion “with the ‘scrupulous regard for the rightful indepen-
dence of state governments which should at all times actuate the federal courts,’” the Court held
that “the usual rule of comity” required abstention in the case before it. Id. at 349-50 (quoting
Matthews v. Rodgers, 284 U.S. 521, 525 (1932)).

Burford and Southern Railway require abstention here. Like those cases, this case raises
“the propriety of a federal court injunction enjoining enforcement of a state regulatory order” –
here, the Jefferson County Commission’s orders setting sewer rates. Southern Ry., 341 U.S. at
346.4 As in those cases, this case turns principally on questions of state-law – here, whether a
breach of contract has occurred, whether utility rates should be raised and by how much, whether
the County Commission’s Amendment 73 authority may be alienated by mere contract, etc. As
in Burford (though not in Southern Railway, which arguably makes this an a fortiori case for ab-
stention), a number of the underlying state-law questions are “thorny,” Burford, 319 U.S. at 318,
as we have explained elsewhere (see supra at __; Doc. # 72 at 13-16). And as in those cases,
state law in this case provides Plaintiffs with remedies that have not been shown (or even as-
serted) to be illusory or otherwise inadequate. In particular, Alabama law provides for a process

4 For reasons we have explained elsewhere (see Doc. # 72 at 9-10), there can no doubt that Plaintiffs’ request for a
receiver is tantamount to an injunction. Plaintiffs’ very purpose in seeking a receiver is to effect a change in exist-
ing sewer rates.

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by which Plaintiffs may petition a state court for the appointment of a receiver. See ALA. CODE
§§ 6-6-620 – 628. More generally, Plaintiffs could (as in Thibodaux) file a declaratory judgment
action in state court seeking answers to the unsettled state-law questions that lurk in this case.

***
What “ultimately” drives Burford doctrine, the Supreme Court has recently summarized,
is a balancing of state and federal interests. Following “a careful consideration of the federal in-
terests in retaining jurisdiction over the dispute and the competing concern for the “independence
of state action,” the reviewing court must inquire whether “the State's interests are paramount
[such] that a dispute would best be adjudicated in a state forum.” Quackenbush, 517 U.S. at 728
(citation and internal quotations omitted). “This equitable decision balances the strong federal
interest in having certain classes of cases, and certain federal rights, adjudicated in federal court,
against the State’s interests in maintaining uniformity in the treatment of an essentially local
problem, and retaining local control over difficult questions of state law bearing on policy prob-
lems of substantial public import.” Id. (citations and internal quotations omitted). The “balance”
that Burford requires tips decisively in favor of abstention here. There are no “federal rights” at
issue here, nor is this case part of a “class[] of cases” that for some reason needs to be “adjudi-
cated in federal court.” Id. This is a pure diversity case. The federal interest is negligible at
best. On the other side of the ledger, the State has a strong interest in having “difficult questions
of state law” decided by the state courts that are best equipped to decide them.

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C. This Court Should Abstain Under Williams.
Even before it decided Burford (1943) and Thibodaux (1959), the Supreme Court held in
Pennsylvania v. Williams, 294 U.S. 176 (1935), that federal district courts sitting in diversity
should abstain from appointing receivers when state law provides an adequate remedy. Wil-
liams, too, counsels abstention here.
The Williams case arose as follows: Invoking diversity jurisdiction, a New York share-
holder of a Pennsylvania savings and loan association sued the association in federal district
court in Pennsylvania. Id. at 178. He alleged the insolvency of the association and “a threatened
race by its creditors to satisfy their claims from [its] assets,” and asked the federal court to ap-
point receivers to supervise the liquidation and distribution of the association’s assets. Id. With
the association’s consent, the district court appointed the requested receivers. Id. Shortly the-
reafter, Pennsylvania’s secretary of banking moved the district court to order the federal receiv-
ers to relinquish the association’s property so that it could be “liquidated and administered in ac-
cordance with state statutes,” which provided for a joint administrative-judicial liquidation
process that gave the secretary the “powers of a receiver of a court of equity.” Id. at 178 & n.1.
The district court refused the secretary’s request; it found that its jurisdiction had attached with
the filing of the plaintiff’s complaint and that it had a “duty” to “retain that jurisdiction and to
proceed with the liquidation to the exclusion of the state authorities.” Id. at 179-80.
The Supreme Court held that the district court should have abstained and remitted the
plaintiff to the state receivership process. The Court acknowledged that the district court had
subject-matter jurisdiction under the diversity statute. See id. at 180-81. The question, though,
was whether the district court “rightly retained its jurisdiction” rather than abstaining, id. at 182,
and on that score the Supreme Court concluded that the district court had erred. The Court noted

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that “[b]y local statutes elaborate provision is made for accomplishing the same end, through the
action of a state officer, in substantially the same manner and without substantially different re-
sults from those to be attained in receivership proceedings in the federal courts.” Id. Because
there was “no allegation or contention that the procedure thus provided is inadequate, or that it
will not be diligently and honestly followed,” the Court held that the district court should have
relinquished jurisdiction in favor of the state receivership process. Id.

As in the later Burford and Thibodaux decisions, the Supreme Court’s decision was dri-
ven by concerns for federalism. In particular, the Court stated that “federal courts of equity
should exercise their discretionary powers with proper regard for the rightful independence of
state governments in carrying out their domestic policy.” Id. at 185. “It has long been accepted
practice,” the Court observed, “for the federal courts to relinquish their jurisdiction in favor of
the state courts, where its exercise would involve control or interference with the internal affairs
of a domestic corporation.” Id. The reasons are even “stronger,” the Court continued, “for
adopting a like practice where the exercise of jurisdiction involves an unnecessary interference
by injunction with the lawful action of state officers.” Id.

The same considerations that animated the Court’s decision in Williams make abstention
appropriate here. Again, as Plaintiffs themselves have been at pains to point out (see Doc. # 74
at 13-18), Alabama law provides for a receivership process, see ALA. CODE §§ 6-6-620 – 628,
and as already noted, Plaintiffs could also institute a declaratory judgment action in state court to
obtain clarification of state law. As was the case in Williams, Plaintiffs here have not shown –
or for that matter even alleged – that these state remedies are inadequate. And just as in Wil-
liams, appointment of a federal receiver here would interfere with the actions of duly-elected
state officers – here, the Jefferson County Commissioners who, as we have shown elsewhere (see

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Doc. # 72 at 3-5) are busily attempting to resolve the sewer-debt crisis. A “proper regard for the
rightful independence of state governments,” Williams, 294 U.S. at 185, counsels abstention to
allow Plaintiffs to pursue relief in state court should they so desire.
II. A Stay Would Not Unduly Delay Proceedings.

It is no answer that abstention may entail some delay. To the extent that delay will result,
it is a problem of Plaintiffs’ own making. Plaintiffs could have – and we submit should have –
filed their claim in state court. As they have made clear by their extensive reliance on Alabama
law (see Doc. 74 at 13-18), Plaintiffs are aware state law provides them an opportunity to seek a
receiver. Plaintiffs were entitled to invoke this Court’s diversity jurisdiction, of course, but they
were not entitled to invoke it free and clear of all jurisdictional and abstention-related restric-
tions. Having chosen their forum, in other words, Plaintiffs must take that forum as they find it.
Put simply, the federalism principles that underlie the Johnson Act and the abstention doctrines
matter; they are not mere inconveniences. “Judicial economy,” properly understood, is not nec-
essarily best served by the fastest possible resolution.

There would be no undue delay, in any event. While the litigation in this Court was in-
itiated in September, the case is still in its infancy. There has been no parties’ planning meeting,
no scheduling order, and no formal discovery. To this point, the litigation has centered on Plain-
tiffs’ Emergency Motion. In six months, the parties have not progressed past the pleadings.
Continuing this suit in state court would pose no serious problem and entail no substantial delay.5

Furthermore, given the complex state law issues present in this matter, resort to Ala-
bama’s courts will allow this Court to obtain the authoritative interpretations of state law that it
needs to make its rulings. Time spent now may well be time saved in the long run.

5 The County itself could have already filed a declaratory judgment action in state court if not forbidden from doing
to by ALA. CODE § 6-5-440.

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CONCLUSION
For these reasons, should the Court conclude that it has jurisdiction despite the Johnson
Act, the County conditionally requests that it enter an order staying this action and directing the
parties to pursue an action in state court should they so desire.
Respectfully submitted this 23th day of March, 2009.

/s/ Joseph B. Mays, Jr.
One of the Attorneys for Defendants

OF COUNSEL
Joseph B. Mays, Jr.
J. Patrick Darby
Dylan C. Black
Kevin C. Newsom
BRADLEY ARANT BOULT CUMMINGS LLP
One Federal Place
1819 Fifth Avenue North
Birmingham, AL 35203-2104
Phone (205) 521-8000
Fax (205) 521-8800

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CERTIFICATE OF SERVICE

I hereby certify that on March 23, 2009, I electronically filed the foregoing with
the Clerk of the Court using the CM/ECF system which will send notification of such filing to
the following:

Larry B. Childs, Esq. Henry E. Simpson, Esq.
Waller Lansden Dortch & Davis LLP Laurence J. McDuff, Esq.
1901 Sixth Avenue North Richard P. Carmody, Esq.
Suite 1400 Adams and Reese LLP
Birmingham, AL 35203 2100 Third Avenue North
Suite 1100
H. Slayton Dabney, Jr., Esq. Birmingham, AL 35203
George B. South III, Esq.
Kimberly L. Frederick, Esq.
King & Spalding, LLP
1185 Avenue of the Americas
New York, NY 10036

and I hereby certify that I have mailed by United States Postal Service the document to the fol-
lowing non-CM/ECF participants:

Gerald F. Mace, Esq.
Waller Lansden Dortch & Davis LLP
511 Union Street, Suite 2700
Nashville, TN 37219

/s/ Joseph B. Mays, Jr.
Counsel of Record

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