ATLANTA -- A Mississippi state court judge last Friday dismissed a lawsuit filed this summer by a group of bondholders seeking repayment of about $15 million of Mississippi debt that defaulted 152 years ago.
Judge Chet Dillard of the Hinds County Chancery Court, ruled that a seven-year statute-of-limitations law passed by the state in 1873 applied to the bonds, and preempted the lawsuit, according to Paul Neville, the bondholders' lawyer.
Neville said that Dillard arrived at his ruling after concluding that the 1875 amendment to the state constitution that forbids repayment of the bonds is unconstitutional. In an argument that preceded the judge's ruling, Nelville contended that the statute of limitations does not apply to the bonds because Mississippi law holds that it cannot be applied to a lawsuit if another law -- such as the 1875 amendment -- prevents the lawsuit from being carried foward.
"We consider this ruling a partial victory because while it dismissed the suit, it held that the very law we are seeking to overturn is unconstitutional," Neville said. "I think we have very good grounds for an appeal."
But special assistant attorney general T. Hunt Cole, who argued the defendants' side before Dillard, disputed Neville's interpretation of the ruling.
"As far as we're concerned, today's ruling puts the bond dispute to rest -- the judge was very clear on the statute-of-limitations question, and that is what's relevant," Cole said in an interview. "If the case is appealed, we expect the ruling to be upheld."
Diller's ruling follows the filing this summer of two lawsuits -- one by a group of 15 European bondholders and the other by a trio of Americans -- that sought to overturn the 1875 amendment to Mississippi's constitution barring the state from making good on bonds that defaulted in 1841.
The suits, which were later consolidated, each named Gov. Kirk Fordice, Treasurer Marshall Bennett, and Attorney General Mike Moore. Altogether, the consolidated suit asked for repayment of more than $15 million. This represents a portion of the interest and principal due on $7 million of state general obligation bonds that were issued in the 1830s but later defaulted following the collapse of two banks funded by proceeds from the borrowing.
According to a brief filed Sept. 1, the defendants contended that the lawsuit should be thrown out because it falls under a seven-year statute-of-limitations law enacted in Mississippi in 1873, and because a federal court dismissed the plaintiff's claims last year.
The suit brought before the state court this summer follows the rejection in December 1992 of a lawsuit filed by four of the European bondholders in the U.S. District Court in Jackson. The federal suit, which also sought to overturn Mississippi's ban on repayment, was dismissed on the grounds that the 11th Amendment to the U.S. Constitution bars citizens of foreign nations from suing a nonconsenting state in federal court. The case is before the Fifth Circuit Court of Appeals.
In a brief filed Oct. 22, which formed the basis of his argements before the court on Friday, Neville said each of the reasons advanced by the defendants in the Sept. 1 brief is invalid.
According to Neville, the statute of limitations claim was invalid because Mississippi law provides a "saving statute," whereby a statute of limitations cannot be applied to a lawsuit if another law prevents that lawsuit from being carried forward.
The superseding law, according to Neville, is provided by the 1875 amendment to the state constitution forbidding repayment of the bonds.
The constitutional amendment, Neville said, "will continue to toll, or suspend the running of the statute of limitations, until it is repealed by constitutional amendment, or until it should be declared unconstitutional by a court of competent jurisdiction -- which of course is one of the purposes of the [present] litigation."
Speaking of the defendants' contention that the federal court ruling justifies dismissal of the state court challenge, Neville said, "Under the law, a cause of action dismissed for lack of subject matter jurisdiction does not operate as any kind of adjudication on the merits," Neville said in his brief.
Finally, Neville argued against the related claim that the U.S. Constitution bars the plaintiffs from suing the state.
"Plaintiff's actions are not actions for damages for deprivation of Plaintiff's constitutional rights," according to the brief. "This is a simple contract action under state law against the State of Mississippi for breach of a contract to pay bonds...."
In the 152 years since the debt defaulted, many bondholders -- including the poet William Wordsworth, Queen Isabella II of Spain, and the prince of Monaco -- have tried and failed to force the state to repay.
The latest effort began last year after the European Association of Mississippi Bondholders, a London-based group of investors that had bought some of the defaulted bearer bonds in a 1990 auction, decided to launch the federal lawsuit.