The already complex relationship between Alabama One and Danny Ray Butler grew more complicated yesterday after Butler charged the cooperative lacks valid claims to some of his property it is trying to sell.

Property backing a $13.08 million cross-collateralized mortgage loan was at stake when U.S. bankruptcy judge Jennifer Henderson gaveled her courtroom to order late Monday. Henderson was holding  an emergency hearing on a motion for a temporary restraining order to stop some of the property from being auctioned to the public Tuesday.

In a motion filed in court Monday, Butler alleged he never signed the mortgage and that his signature on the document was a forgery.

Butler began serving a 36 month sentence in the federal prison system in September 2014, but was represented in Henderson’s courtroom by his fiancé Paige Howard and Anniston, Ala.-based bankruptcy attorney Harry Long. Howard had power of attorney for Butler.

The property in question included four parcels.  A Northport, Ala., residence currently occupied by Butler’s developmentally disabled youngest brother Andrew was the frst. Butler owned the property jointly with two other brothers, Johnny and Larry. A pecan orchard which occupied more than 60 acres in Fosters, Ala. was the second parcel. Additionally, parts of the acreage that currently makes up the Fosters Water Treatment plant that is currently in the foreclosure process made up the third parcel and a roughly five acre undeveloped parcel currently owned by Tuscaloosa businessman Tim Mims was the fourth.

The fact that two of the four parcels of land appeared to have other owners at the time they were used as collateral did not come up in the proceeding, which only considered the validity of the signature on the $13 million mortgage for the temporary restraining order.

Alabama One scheduled a public auction on the Pecan Orchard property for Tuesday. According to legal sources at the hearing, Henderson denied the motion for a temporary restraining order on the grounds that the sale would not irreprebaly harm Butler, but also because she accepted the affidavit from the handwriting expert and concluded that such a sale maybe unlikely anyway, at least until the matter of the alleged forgery had been cleared up.

Henderson will hear evidence May 26 related to an injunction against any further attempt to sell the property before the signature issue is addressed.

Howard and Long brought a sworn affidavit from Stephen Drexler of the Drexler Documents Laboratory in Birmingham that concluded the signature on the $13 million loan was not Butler’s. Drexler also appeared at the hearing and answered questions from Henderson but did not give sworn testimony.

Legal sources who spoke on background to CU Times said Alabama law provides that mortgages and deeds containing forged makers’ signatures are void as a matter of law. Therefore, if a prospective buyer purchases property in which the seller claims to hold good title, but with the knowledge that the seller’s claim of legal title is or may be based upon forged signatures in the relevant deeds and/or mortgages, such a purchase may be challenged.

Alabama One responds ...

Alabama One said the sale would still take place and downplayed Butler’s forgery claims.

“Danny Butler freely signed every document he now challenges: Every deed, mortgage, and agreement,” wrote the cooperative's inhouse attorney Paul Toppins in an email. “Not only did he sign the document he now challenges, but he signed numerous other documents acknowledging the earlier mortgage and agreement. To try and take the position now that he did not sign them is as ridiculous as it is offensive for someone serving a prison sentence for fraud. The allegations his bankruptcy estate made yesterday are a recent concoction that he has never even hinted at before, including in his earlier sworn testimony in this case.”

Alabama One also provided part of a transcript of a previous bankruptcy proceeding where Butler, under oath, said to the best of his knowledge no one at Alabama One had harmed him.

Howard bristled at the cooperative’s statement.

“The statement by Mr. Toppins sounds like something right out of Alice in Wonderland,” Howard wrote in an email. "How can he possibly say that Danny Butler freely signed documents which were forged by somebody else? Even a child in elementary school would know better than to believe that."

“What is really as ridiculous as it is offensive, to use the words of the Alabama One lawyer, is that it has taken regulators this long to uncover the awful mismanagement at this credit union,” she added. “When the truth is fully told, and it will be, it’s going to be crystal clear that Danny Butler was a willing participant in a fraud scheme that was much bigger than he was. Common sense tells you that he could never have planned or carried this off by himself without the active involvement of the credit union management and its professional advisors.”

Howard added that she never claimed Butler was complete innocent.

“But I have long believed that he was not the only guilty party in all these loans and frauds and anyone who knows Danny knows he didn’t come up with all this on his own. There are still people who haven’t yet paid the piper and I am more than happy to help them do that," she said.

Meanwhile, there are indications that the entire bankruptcy proceeding to this point may be imperiled because Judge Henderson may have to recuse herself from the case.

A possible recusal arose because, when in private practice, Henderson had been a partner at Bradley, Arant, Boult, Cummings LLP, a 470-lawyer firm with offices in Birmingham, Washington, D.C. and across the Southeastern U.S. In the second quarter of 2014, while Henderson may have still been partner at the firm, Alabama One hired Bradley Arent to do an independent review of the performance of Alabama One CEO John Dee Carruth, and then cited that report in its public request for an appeal of the Alabama Credit Union Administration’s April 2 cease and desist order.

Henderson went into a private discussion with attorneys at the emergency hearing and said she would investigate further, but legal observers who had been in the courtroom said the conflict of interest exists for every partner in a firm if the firm takes on a client, not just for the attorneys that work directly with that client.

Should Henderson recuse herself, legal sources said what might happen to the case next is unclear. She could recuse herself from anything in the case going forward, or she could recuse herself and vacate previous decisions she already made, particularly those which may have been based on documents with forged signatures.

Howard said she felt relieved and excited that, finally, more of the details about Danny and what happened with Alabama One have begun to come to light.