The already complex relationship between Alabama One andDanny Ray Butler grew more complicated yesterday after Butlercharged the cooperative lacks valid claims to some of his propertyit is trying to sell.

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

In a motion filed in court Monday, Butler alleged he neversigned the mortgage and that his signature on the document was aforgery.

Butler began serving a 36 month sentence in the federal prisonsystem in September 2014, but was represented in Henderson’scourtroom by his fiancé Paige Howard and Anniston, Ala.-based bankruptcy attorney HarryLong. Howard had power of attorney for Butler.

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

The fact that two of the four parcels of land appeared to haveother owners at the time they were used as collateral did not comeup in the proceeding, which only considered the validity of thesignature on the $13 million mortgage for the temporary restrainingorder.

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

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

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

Legal sources who spoke on background to CU Times saidAlabama law provides that mortgages and deeds containing forgedmakers’ signatures are void as a matter of law. Therefore, if aprospective buyer purchases property in which the seller claims tohold good title, but with the knowledge that the seller’s claim oflegal title is or may be based upon forged signatures in therelevant deeds and/or mortgages, such a purchase may bechallenged.

Alabama One responds ...

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

“Danny Butler freely signed every document he now challenges:Every deed, mortgage, and agreement,” wrote the cooperative'sinhouse attorney Paul Toppins in an email. “Not only did he sign thedocument he now challenges, but he signed numerous other documentsacknowledging the earlier mortgage and agreement. To try and takethe position now that he did not sign them is as ridiculous as itis offensive for someone serving a prison sentence for fraud. Theallegations his bankruptcy estate made yesterday are a recentconcoction that he has never even hinted at before, including inhis earlier sworn testimony in this case.”

Alabama One also provided part of a transcript of a previousbankruptcy proceeding where Butler, under oath, said to the best ofhis 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 ofAlice in Wonderland,” Howard wrote in an email. "How can hepossibly say that Danny Butler freely signed documents which wereforged by somebody else? Even a child in elementary school wouldknow better than to believe that."

“What is really as ridiculous as it is offensive, to use thewords of the Alabama One lawyer, is that it has taken regulators this long to uncover the awful mismanagementat this credit union,” she added. “When the truth is fully told,and it will be, it’s going to be crystal clear that Danny Butlerwas a willing participant in a fraud scheme that was much biggerthan he was. Common sense tells you that he could never haveplanned or carried this off by himself without the activeinvolvement of the credit union management and its professionaladvisors.”

Howard added that she never claimed Butler was completeinnocent.

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

Meanwhile, there are indications that the entire bankruptcyproceeding to this point may be imperiled because Judge Hendersonmay 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, CummingsLLP, 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, AlabamaOne hired Bradley Arent to do an independent review of theperformance of Alabama One CEO John Dee Carruth, and then citedthat report in its public request for an appeal of the AlabamaCredit Union Administration’s April 2 cease and desist order.

Henderson went into a private discussion with attorneys at theemergency hearing and said she would investigate further, but legalobservers who had been in the courtroom said the conflict ofinterest exists for every partner in a firm if the firm takes on aclient, not just for the attorneys that work directly with thatclient.

Should Henderson recuse herself, legal sources said what mighthappen to the case next is unclear. She could recuse herself fromanything in the case going forward, or she could recuse herself andvacate previous decisions she already made, particularly thosewhich may have been based on documents with forged signatures.

Howard said she felt relieved and excited that, finally, more ofthe details about Danny and what happened with Alabama One havebegun to come to light.