# The Water Works and Sewer Board of the City of Prichard v. Synovus Bank (Appeal from Mobile Circuit Court: CV-23-901332).

> Supreme Court of Alabama · May 17, 2024

URL: https://www.frixlaw.com/law-library/cases/9969652

## Case

- **Court:** Supreme Court of Alabama
- **Decided:** May 17, 2024
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Sellers, J.
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/9969652

## How later opinions describe it (automated extraction)

- noting that the appointment of a receiver to act in the place of "elected and appointed officials is an extraordinary step warranted only by the most compelling circumstances"

## Opinion text

Rel: May 17, 2024

Notice: This opinion is subject to formal revision before publication in the advance sheets of Southern
Reporter. Readers are requested to notify the Reporter of Decisions, Alabama Appellate Courts,
300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-0650), of any typographical or other
errors, in order that corrections may be made before the opinion is printed in Southern Reporter.

SUPREME COURT OF ALABAMA
OCTOBER TERM, 2023-2024

_________________________

SC-2023-0881
_________________________

The Water Works and Sewer Board of the City of Prichard

v.

Synovus Bank

Appeal from Mobile Circuit Court
(CV-23-901332)

SELLERS, Justice.

The Water Works and Sewer Board of the City of Prichard ("the

Board") appeals from an order of the Mobile Circuit Court appointing a
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receiver to administer and operate the Board's waterworks and sewer

system ("the system"). We affirm.

I. Facts and Procedural History

On November 1, 2019, the Board entered into a trust indenture

("the indenture") with Synovus Bank, pursuant to which Synovus agreed

to serve as the trustee for the Board's issuance of $55.78 million in "Series

2019 Bonds." The Board issued the bonds to refund its existing "Series

2018 Bonds" and to fund capital improvements for the aging

infrastructure of the system. 1 Section 12.1 of the indenture defines the

various circumstances that constitute an "event of default" under the

indenture. The indenture also sets forth the rights and remedies

available to the trustee upon the "occurrence and continuation" of any

default. Relevant here, § 12.2(c) of the indenture provides:

"The Trustee shall be entitled upon or at any time after the
commencement of any proceedings instituted with respect to
an Event of Default, as a matter of strict right, upon the order
of any court of competent jurisdiction, to the appointment of a
receiver to administer and operate the System, with power to
fix and charge rates and collect revenues sufficient to provide

1In its "Official Statement" to prospective bondholders, the Board

represented that approximately $22.8 million of the proceeds of the bonds
would be applied to the redemption of previously issued Series 2018
bonds and that the remaining balance would be used to fund capital
improvements.
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for the payment of the Bonds and any other obligations
outstanding against the System or the revenues thereof and
for the payment of expenses of operating and maintaining the
System and with power to apply the income and revenues of
the System in conformity with the Indenture."

(Emphasis added.)

In June 2023, Synovus, in its capacity as the trustee under the

indenture ("the trustee"), commenced a breach-of-contract action against

the Board, alleging that the Board had defaulted in several respects

under the indenture and requesting, among other things, the

appointment of a receiver pursuant to § 12.2(c) of the indenture. In its

complaint, the trustee maintained that a receiver was necessary not only

because the Board had defaulted under the indenture, but also because

the system was suffering from "gross mismanagement, a lack of fiscal

integrity, and endangering public safety by failing to maintain vital

system infrastructure." The trustee also filed an emergency motion,

requesting that the trial court appoint John S. Young, Jr., LLC ("Young"),

as the receiver to administer and operate the system.2

2The indenture defines "System," in relevant part, as "the entire

water supply and distribution system and sanitary sewer system owned
by the Board."

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Following a two-day hearing, the trial court entered a detailed

order, finding that the Board was in default of numerous provisions of

the indenture and that it had not diligently pursued appropriate

corrective action for those defaults. 3 The trial court appointed Young

("the receiver") to administer and operate the system. In its order, the

trial court found that the trustee was entitled to the appointment of a

receiver based solely on § 12.2(c) of the indenture. However, the trial

court also found other compelling circumstances that justified the

appointment of a receiver:

"As a result of years of mismanagement and fiscal
irresponsibility, [the Board's] assets have dissipated and
fallen into ruin. The undisputed evidence showed that 60% of
the water purchased by [the Board] is lost through the
[Board's] dilapidated … system before it reaches its
consumers. That is a staggering figure, and it constitutes
compelling evidence that the system is in crisis -- without
regard to the fiscal fraud, theft and abuse which occurred on
[the Board's] watch. This is not a situation where a natural
disaster (hurricane, earthquake, etc.) caused immediate and
unforeseen damage to the infrastructure of [the system], but
instead, the dilapidated state of [the Board's] system is the

3The defaults included the Board's failure to make the full interest

payment due on the bonds on May 1, 2023; to replenish the reserve fund
after money in that fund was used to make the May 1, 2023, interest
payment on the bonds; to reimburse the reasonable fees of the trustee
and the trustee's attorney; to provide audits of its books and records; and
to fix and maintain rates sufficient to provide annual net income to
satisfy its debt obligations on the bonds.
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result of years of poor planning, mismanagement or worse.
Consequently, when seeking a badly needed bond issue, [the
Board] undoubtedly had no choice but to agree to the terms of
the Indenture which provided for the appointment of a
receiver upon the occurrence of any contractual default. The
evidence also showed that bond proceeds of the Indenture,
which were earmarked for specific capital improvements,
were mostly used as operational funds. That is, very little of
the bond money received in 2019 was actually used for the
capital improvements designated in the Indenture.
Accordingly, the Court finds that the Trustee was entitled to
seek this remedy, and the Court further finds that irreparable
harm will occur through the dissipation and wasting of [the
Board's] assets if a receiver is not appointed by the Court."

The trial court further determined that there was no other adequate

remedy at law for the injuries the trustee would suffer absent the

appointment of a receiver. The Board appealed. See Rule 4(a)(1)(B), Ala.

R. App. P. (permitting appeal of "interlocutory order appointing … a

receiver").

II. Standard of Review

"Because the trial court heard 'live' testimony at the
hearing it conducted in this case, we review its findings of fact
under the ore tenus standard of review. ' "Under the ore tenus
rule, a trial court's findings of fact are presumed correct and
its judgment will be reversed only if plainly or palpably wrong
or against the preponderance of the evidence." ' Ex parte
Baron Servs., Inc., 874 So. 2d 545, 548 (Ala. 2003) (quoting Ex
parte Cater, 772 So. 2d 1117, 1119 (Ala. 2000)). '[T]he ore
tenus rule does not extend to cloak a trial judge's conclusions
of law ... with a presumption of correctness.' Baron, 874 So. 2d
at 549 (quoting Eubanks v. Hale, 752 So. 2d 1113, 1144-45
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(Ala. 1999)). Therefore, we review all legal issues in this
appeal de novo. Brown v. Board of Educ. of Montgomery
County, 863 So. 2d 73, 75 (Ala. 2003)."

Eagerton v. Second Econ. Dev. Coop. Dist., 909 So. 2d 783, 788 (Ala.

2005).

The determination whether to appoint a receiver rests within the

sound discretion of the trial court; this Court will not reverse the trial

court's ruling unless the trial court has clearly exceeded its discretion.

Wood v. Phillips, 823 So. 2d 648, 652 (Ala. 2001).

III. Discussion

A. Power to Appoint Receiver Under the Indenture and Pursuant to
Alabama Law

The indenture is the operative document and controlling contract

that outlines the rights and responsibilities, benefits and detriments, and

continuing obligations relating to the issuance of the Series 2019 Bonds

and the numerous parties involved in that transaction. Section 12.2(c) of

the indenture provides, in relevant part, that, in the event of a default,

the trustee shall be entitled "as a matter of strict right" to the

appointment of a receiver to administer and operate the system. A court's

power to appoint a receiver in a pending action is also statutorily

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recognized. See Carter v. State ex rel. Bullock Cnty., 393 So. 2d 1368,

1371 (Ala. 1981) ("The power of a court to appoint a receiver in a pending

action is statutorily recognized (§ 6-6-620, [Ala.] Code 1975); and,

generally, the exercise of such power rests within the sound discretion of

the trial judge."). The trustee initiated this action seeking the

appointment of a receiver as one of its remedies under the indenture and

pursuant to Alabama law. As indicated, the trial court determined that

the trustee was entitled to the appointment of a receiver based solely on

§ 12.2(c) of the indenture. Nonetheless, the court also set forth the

compelling circumstances that justified the appointment of a receiver.

See Carter, 393 So. 2d at 1371 (noting that the appointment of a receiver

is an extraordinary remedy and should not be granted "unless there is a

clear legal right to be protected, no other adequate remedy, and a

showing that the complainants will otherwise sustain irreparable

damage"); see also Morgan v. McDonough, 540 F. 2d 527 535, (1st Cir.

1976) (noting that the appointment of a receiver to act in the place of

"elected and appointed officials is an extraordinary step warranted only

by the most compelling circumstances"). The trustee maintains that the

trial court acted within its discretion to appoint the receiver solely

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pursuant to the plain terms of § 12.2(c) of the indenture. This Court has

not specifically addressed whether a party's advance consent to the

appointment of a receiver in a contract is dispositive regarding the

propriety of such an appointment or whether it is simply one factor

among other equitable factors that a court must consider. However,

because the appointment of a receiver is an extraordinary remedy, we

conclude that the trial court properly considered not only the provision of

the indenture allowing for the appointment of a receiver, but also the

factors set forth in Carter. See, e.g., LNV Corp. v. Harrison Fam. Bus.,

LLC, 132 F. Supp. 3d 683, 691 (D. Md. 2015) ("In [the court's] view, the

parties cannot, through their contract, obligate the court to appoint a

receiver. 'The receiver is considered to be an officer of the court,' … and

thus creates obligations for the court. But, the parties' agreement is one

factor, among many, in the court's consideration. Therefore, [the court]

will consider the provisions in the loan documents … that call for a

receiver, along with the equitable factors.").

B. Section 11-50-230 et seq., Ala. Code 1975

The Board does not dispute that events of default occurred under

the indenture; nor does it dispute that both the indenture and § 6-6-620,

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Ala. Code 1975, provide for the appointment of receiver. Rather, the

Board argues that the trial court exceeded its discretion by appointing a

receiver because, it says, the legislature has not authorized receivers to

be appointed for waterworks and sewer boards organized under § 11-50-

230 et seq. The Board argues that, in the absence of such statutory

authorization, the judicial appointment of a receiver violated the

separation-of-powers doctrine. 4 The Board is a public-utility corporation

organized under the provisions of § 11-50-230 et seq. It is undisputed

that the Board has control over the system. See § 11-50-235(a)(4), Ala.

Code 1975 (noting that a public-utility corporation formed under § 11-50-

230 et seq. has the power to "acquire, purchase, construct, operate,

maintain, enlarge, extend, and improve any system …."). It is also

undisputed that the statutory framework grants the Board other powers,

including the power to borrow money, to issue bonds, to pledge revenues

4The trial court rejected the Board's argument, noting that, if the

argument was correct, then "a receiver could never be appointed to run a
statutorily created public entity" like the Board. Notably, the legislature
has endorsed the concept of appointing a receiver to administer and
operate public-utility corporations. See Ala. Code 1975, § 11-81-180
(providing for the appointment of a receiver when a county defaults on
bond obligations); § 11-50-529 (same for district electric corporations);
and § 11-50A-14 (same for municipal electric cooperatives).
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to secure payment of those bonds, and enter into contracts binding itself

for money borrowed. See § 11-50-235(a)(5) (noting the power of a public-

utility corporation formed under § 11-50-230 et seq. "[t]o borrow money

and to issue … bonds payable solely from the revenues derived from the

operation" of its system); § 11-50-235(a)(6) (noting the power of a public-

utility corporation formed under § 11-50-230 et seq. "[t]o pledge for

payment of its bonds any revenues from which such bonds are made

payable and to mortgage, pledge, or otherwise convey the system or

systems the revenues from which are so pledged"); and § 11-50-236, Ala.

Code 1975 (providing that, "[t]o further secure the repayment of any

money borrowed by it, [a public-utility] corporation [formed under § 11-

50-230 et seq.] may enter into a contract or contracts binding itself for

the proper application of the money borrowed ….").

Relevant here, § 11-50-235(b) provides:

"Any mortgage, deed of trust, or pledge agreement made by [a
public-utility] corporation [formed under § 11-50-230 et seq.]
may contain such agreements as the board of directors may
deem advisable respecting the operation and maintenance of
the [system] and the use of the revenues subject to such
mortgage, deed of trust, or pledge agreement and respecting
the rights or duties of the parties to such instrument or the
parties for the benefit of whom such instrument is made;
provided, that no such mortgage or deed of trust shall be
subject to foreclosure."
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(Emphasis added.) Contrary to the Board's assertion, § 11-50-235(b)

grants the Board broad power to enter into contracts containing terms

that the Board "may deem advisable" with respect to the operation and

maintenance of the system and the use of its revenues, and it does not

contain any language expressly prohibiting the Board from contractually

agreeing to the appointment of a receiver as a bargained-for remedy to

protect bondholders in the event of a default. The only limitations on the

Board's power under § 11-50-235(b) is that it may not contractually agree

to the foreclosure of a mortgage or deed of trust encumbering the system.

A waterworks and sewer board provides necessary public services to its

citizens, so maintaining the operation of its system must continue for

health and safety reasons; thus, foreclosure cannot be an option because

the provision of water and sewer services cannot be terminated or abated.

The legislature certainly could have included in § 11-50-235(b) that a

public-utility corporation, such as the Board, be prohibited from

contractually agreeing to a receivership over its system, but it did not.

See Ex parte Jackson, 614 So. 2d 405, 407 (Ala. 1993) ("The judiciary

will not add that which the Legislature chose to omit."). Accordingly, we

find no merit in the Board's argument that it did not have the power to
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contractually agree to the appointment of receiver under the indenture.

See McGlathery v. Alabama Agric. & Mech. Univ., 105 So. 3d 437, 444

(Ala. Civ. App. 2012) (noting that a statute that "did not contain any

language prohibiting the board from delegating its power 'to remove any

such instructors or other officers,' and the language granting the board

the power 'to regulate, alter or modify the government of the university,

as it may deem advisable[,] ... and to do whatever else it may deem best

for promoting the interest of the university,' is broad enough to include

the power to delegate its power 'to remove any such instructors or other

officers' ").

C. Equitable Considerations

In addition to acknowledging the controlling and binding

obligations of the indenture, the trial court also determined that, based

on the compelling circumstances of the case, the trustee had a clear legal

right to the appointment of a receiver under Alabama law. Carter, 393

So. 2d at 1371 (noting that the appointment of a receiver, being an

extraordinary remedy, "should not be granted unless there is a clear legal

right to be protected, no other adequate remedy, and a showing that the

complainants will otherwise sustain irreparable damage").

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The Board argues that the trial court was not justified in appointing

a receiver because, it says, the issuance of a writ of mandamus compelling

the performance of the Board's duties under the indenture -- e.g., the

issuance of an order requiring the Board to make all payments required

under the indenture, among other things -- was an adequate remedy. In

fact, the Board suggests that the issuance of an order compelling

performance of its duties and its noncompliance with such an order are

conditions precedent to the appointment of a receiver. This argument

has no merit. The Board concedes that the indenture governs the rights

and remedies of the parties. The indenture sets forth three specific

remedies available to the trustee in the event of a default by the Board.

Section 12.2(a) of the indenture provides that the trustee may declare the

bonds to be immediately due and payable; § 12.2(b) provides that the

trustee may compel performance of the Board's duties by "by civil action,

mandamus[,] or other proceedings"; and § 12.2(c) provides that the

trustee "shall be entitled upon or at any time after the commencement of

any proceedings … as a matter of strict right … to the appointment of a

receiver to administer and operate the System." Section 12.7 of the

indenture specifically states that "[n]o remedy … reserved to the Trustee

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or to the Bondholders is intended to be exclusive of any other available

remedy or remedies, but each and every such remedy shall be cumulative

and shall be in addition to every other remedy …." In this case, the

trustee, exercising its discretion under the indenture, elected to

commence a civil action alleging breach of contract, and it sought the

appointment of a receiver as a remedy for the alleged breaches. There is

simply nothing under the indenture or Alabama law that required the

trustee, under the circumstances of this case, to seek a writ of mandamus

compelling performance of the Board's duties under the indenture before

seeking another available remedy that it felt was justified. Notably, in

its "Official Statement" to prospective bondholders, the Board disclosed

in a section on "Bondholder Risks" that the remedies granted to the

bondholders may not be available due to judicial discretion:

"The Indenture does not grant a foreclosable mortgage on any
properties of the Board, and no foreclosure or sale proceedings
with respect to any property of the Board may occur. The
remedies available to the registered holders of the [bonds]
upon the occurrence of a default … are in many respects
dependent upon judicial actions, which are often subject to
discretion and delay. Under existing law, the remedies
provided therein may not be readily available or may be
limited, and no assurance can be given that mandamus or
other legal action to enforce payment would be successful."

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As the trustee points out, the Board did not disclose in the Official

Statement that it may later challenge the appointment of a receiver as

being a violation of the Alabama Constitution or as being impermissible

under § 11-50-230 et seq. As the trustee further notes, the bondholders

have no right of foreclosure, and the only security for the bonds held by

the trustee are the net revenues generated by the operation of the system.

Without a foreclosure right, the trustee must have assurance that the

system's assets, which are in a disarray, can generate sufficient revenues

to cover both operating expenses and debt service. Mac Underwood, the

Board's operations manager since January 2023, testified that the Board

did not have enough revenue to pay its operating expenses and that the

Board was operating at a deficit, specifically losing $120,000 to $130,000

a month before taking into account the debt service under the indenture

that it was not paying. Accordingly, the trial court's finding that no

adequate remedy at law existed for the injuries the trustee would suffer

absent the appointment of a receiver is well supported by the record.

The Board also contends that the evidence did not warrant a finding

that the trustee would suffer either imminent or irreparable injury in the

absence of the appointment of a receiver. As indicated, the trial court

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found that the condition of the system had developed into a crisis because

of years of "mismanagement and fiscal irresponsibility." The trial court

noted that the system's infrastructure had "dissipated and fallen into

ruin" and that 60% of the water purchased by the Board was "lost"

through the Board's dilapidated system before it reached its consumers.

The Board does not dispute that the system suffers from a crisis. Rather,

the Board relies heavily on the fact that it has a "calculated and targeted"

plan to decrease the water loss and that it was "attempting" to take steps

in that direction through Underwood, its operations manager since

January 2023. The Board posits that the receiver appointed by the trial

court is faced with the same circumstances and is no better position than

the Board and its new operations manager in curing defaults under the

indenture and ensuring future bond payments. Although Underwood

testified regarding the actions that had been implemented to correct the

system's infrastructure and water loss, he also testified that Board was

unable to pay its operating expenses, that the Board was operating at a

deficit, that the Board was in default under the indenture, and that the

defaults had not been cured. The trial court was in the best position to

resolve all the issues regarding whether to appoint a receiver and, if so,

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who to appoint. Notably, the Board appears to concede that it was

necessary that someone other than the Board take to control of its

operations because it not only hired Underwood to serve as its operations

manager beginning in January 2023, but also requested that the trial

court appoint him as the receiver to administer and operate the system.

Moreover, in July 2023, the Board issued an invitation to bid for a

concession agreement to operate and maintain the system. Despite the

Board's recent efforts aimed at curing events of default under the

indenture, the evidence supports the trial court's finding that irreparable

harm would occur through the continued dissipation and wasting of the

Board's assets if a receiver was not appointed.

D. Order Appointing Receiver

The Board argues, alternatively, that the order appointing the

receiver should be modified to limit the receiver's powers to the

enforcement of ministerial duties of the Board and to eliminate the

trustee's control of the receiver's decisions. The indenture, which is valid

and enforceable under Alabama law, provides that, upon the occurrence

and continuation of any event of default, the trustee shall be entitled to

the appointment of a receiver to administer and operate the system

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"with power to fix and charge rates and collect revenues
sufficient to provide for the payment of the Bonds and any
other obligations outstanding against the System or the
revenues thereof and for the payment of expenses of operating
and maintaining the System and with power to apply the
income and revenues of the System in conformity with the
Indenture."

Additionally, the trial court vested the receiver with "all

contractual, statutory, and common law powers, rights and privileges of

a receiver, including but not limited to those set forth in Rule 66 of the

Alabama Rules of Civil Procedure …." The trial court entered a detailed

27-page order describing the powers and duties of the receiver and

instructing how it would interact with not only the trustee, but also the

Board, the Prichard Citizens Advisory Council ("the advisory council"),

and the trial court. The Board takes issue only with various parts of the

order granting consent powers to the trustee. For example, the trial court

indicated (1) that the receiver has the sole authority, after notice to the

trustee and the Board, to enter into employment contracts necessary for

the operation of the system, notwithstanding any "applicable rule or

regulation that would otherwise be applicable to [the Board] in entering

into such employment contract"; (2) that the receiver is instructed to

develop a master plan and a revised plan, "acceptable in form and

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substance" to the trustee, to address the stabilization of the system and

to address the capital-improvement needs to ensure compliance with the

"Rate Covenant" as defined in the indenture; (3) that the receiver is

responsible for making expenditures in accordance with the budget and

that it cannot amend the budget without the trustee's "prior written

consent"; and (4) that the receiver has the right and authority upon

consent of the trustee and the trial court to employ professionals. The

Board claims that the trustee's consent powers destroy any notion that

the receiver is an impartial officer of the trial court and that the trustee

essentially "has been empowered to control the actions of the Receiver

and thus the operations of the System." Board's brief at 66. We find this

argument without merit. When considering the order in its entirety, it is

clear that the trial court deemed it necessary to have a checks-and-

balances system to confirm that the terms of the indenture are complied

with and that the system will be administered and operated efficiently.

The trustee has rights and duties under the indenture, and the trial court

deemed it necessary for the trustee to have input. The trial court also

deemed it necessary to involve the advisory council that it created:

"The Receiver shall request feedback from the Advisory
Council before assets are sold, rates are raised, or any
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discontinuance of service to a group of five or more customers.
The Advisory Council shall vote on the Receiver's major
decisions (including but not exclusive of rate increases or
asset sales). The results of such vote shall be provided to the
Receiver, but the vote shall not be binding on the Receiver.
Further, the Advisory Council should be apprised of, and
feedback should be sought during, the financial audit that
[the Alabama Department of Environmental Management] is
financing once the Receiver has received this information.
The Advisory Council shall cease to exist when the Court
terminates the Receiver's position as Receiver and the Court
ends its supervision of the System."

Finally, the trial court emphasized:

"[The Board] is not being dissolved, and its board
members are not being impeached or otherwise removed. The
Order herein provides that any rate changes sought by the
receiver will be proposed to [the Board]. Any plan for
refinancing the subject bonds will be proposed to [the Board
and the trustee]. Likewise, any plan to sell, dispose, or
transfer system assets (or privatize the system) will first be
proposed to [the Board], the Trustee, the Advisory Council
[created by court] …, the City of Prichard, and the Court."

Based on the foregoing, we conclude that the trial court properly

exercised its discretion in fashioning an order that was best for all

concerned. The trial court balanced the competing interests of the parties

by considering their respective equities and obligations, all for the benefit

of creating a viable system to provide water and sewer services that

would enable the bondholders to not lose their investments. See Corner

Stone Funeral Chapel, Inc. v. MVMG, LLC, 170 So. 3d 626, 630 (Ala.
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2014) ("Generally, '[t]he court has the discretion in receivership

proceedings to do what is best for all concerned.' 65 Am. Jur. 2d Receivers

§ 135 (2011).").

IV. Conclusion

We affirm the order of the trial court appointing the receiver and

vesting the receiver with all powers necessary to administer and operate

the system.

AFFIRMED.

Parker, C.J., and Wise, Stewart, and Cook, JJ., concur.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/9969652. Public record. Not legal advice.