Amid a flurry of legal briefs, attorneys for Bridgeport and Connecticut last week readied for a showdown scheduled to start tomorrow in U.S. Bankruptcy Court.
Judge Alan H.W. Shiff set roughly 40 hours court time to hear arguments from both sides on the state's motion to dismiss the bankruptcy petition the city filed June 6.
James Berman, an attorney with Bridgeport counsel Zeisler & Zeisler, called the grueling slate of hearings "a recognition that there are some very complicated legal and factual issues here."
The judge has already heard arguments and received legal briefs on whether the city is "generally authorized" by the state to file for bankruptcy, as required by Chapter 9 of the federal Bankruptcy Code.
For Mr. Berman and other attorneys for Bridgeport, Friday came as a coda to a furious bout of litigation. The city filed three briefs this week. Attorneys for the state filed two.
"Now, having a chance to review all the briefs and memorandums, I think the city's position is the stronger one," Mr. Berman said. "We're optimistic."
Ranks have formed, with attorneys representing a number of interested parties -- known and unknown -- appearing on mailing lists for court documents.
Among the attorneys listed are Wiggin & Dana, a New Haven firm representing United Illuminating. Davis, Polk & Wardwell, counsel to Merrill, Lynch, Pierce, Fenner, & Smith Inc., also appears in court documents.
Merrill's bond fund group has a natural interest in the proceedings, according to spokeswoman Monica Prihoda.
"Certain [unit investment trusts] hold small amounts of Bridgeport bonds and are simply monitoring the bankruptcy proceedings as an obligation to the funds' shareholders," she said. "It's not an unusual thing for the firm to do."
Wheelbrator Environmental Systems, the Hampton, H.H.-based concern that owns and operates the trash incinerator in Bridgeport, also showed up on the mailing list for court documents.
But in spite of the numerous parties taking an interest in the case, arguments next week will likely be limited to two sides: Connecticut and its refractory largest city.
The judge has reportedly scheduled 10 hours for each side to make direct arguments, and another 10 hours for cross-examination of the opposing side.
Judge Shiff reportedly has asked that in this week's hearings attorneys avoid the issue of whether the city is "generally authorized" by Connecticut to file for bankruptcy.
Arguments on that issue, which could likely be the linchpin of the judge's ultimate decision, emerged at a hearing last month.
Other points that will probably be addressed this week are charges that Bridgeport filed its petition "in bad faith," that the city is not insolvent, and that its petition did not receive the proper authorization from the city's Common Council.
Connecticut charges that 1989 bond documents show the city did not file its petition in "good faith." Under Chapter 9, a court "may dismiss" a petition if it was not filed "in good faith."
"The city has recognized that it has no authority to file for bankruptcy," Connecticut's motion says. It cites the official statement for the city's 1989 borrowing as evidence that Bridgeport's bankruptcy petition "was filed with the knowledge that it was inconsistent with the provisions of the [bank ruptcy] code."
The state's motion continued, citing a passage from the official statement that accompanied the 1989 bond deal, to the effect that "absent specific authority granted by a statute enacted by the state," Bridgeport would "not have the legal capacity to file a petition."
Bridgeport attorneys, though, say the state took that passage out of context.
Succeeding paragraphs in the official statement, city attorneys note, show that the city attorneys to have surrendered its right to file for bankruptcy protection. So the charges of bad faith are baseless, they say.
Those paragraphs contain the caveat that "rights of the owners of the bonds to receive interest, principal payments, and redemption premiums, if any, from the city could be adversely affected by a restructing of the city's debt under Chapter 9 of the federal Bankruptcy Code."
To determine whether such charges as "bad faith" and not being insolvent are true, the judge will need to hear testimony from witnesses, according to Burns & Levinson bankruptcy lawyer Jeffrey D. Sternklar.
"Those are things the judge can't determine simply by reading statutes and cases," Mr. Sternklar said. "In contrast, on the question of whether the city was 'generally authorized' to file, the judge doesn't need to know any particular facts. The mayor can't tell him anything about that; it's just a question of law. The judge can look up the law as well as anyone else."
