Sewer services for parts of Tuscaloosa County that rely upon an Alabama One financed sewage treatment plant moved a bit closer to stability on May 11 when  the U.S. bankruptcy court formally appointed a trustee to oversee the facility.

The $613 million Tuscaloosa, Ala., based credit union has been partially responsible for managing the sewage treatment plant ever since October 2014 when its owner and one of the cooperative's largest debtors, Danny Ray Butler, filed for bankruptcy after going to prison for fraud and check kiting.

According to court records, Alabama One holds a $7.1 million note for the facility.

U.S. Bankruptcy Judge Jennifer Henderson made it clear in the order that she had already appointed Peter Colmer of the Atlanta based corporate advisory firm of Finley, Colmer and Company to be the trustee over the facility. That was official on March 26 through an oral order at Alabama One's request so that Colmer could start work immediately. However, the court never received the written order from the cooperative, so Henderson filed a written order on May 11.

Henderson's order cleared the way for the credit union to apply to regulators for permission to make a loan to the company to cover necessary fees, turn the power back on and begin making repairs to bring the facility back online. However, the counsel for the U.S. Bankruptcy Administrator, Joe Bulgarella, filed a motion to dismiss the bankruptcy proceeding because Alabama One has not funded Colmer's work as trustee.

Ray Ward, an attorney with Ray, Oliver and Ward in Tuscaloosa and the attorney for the Tuscaloosa County School Board, stressed that the school board is not a party to the bankruptcy proceeding but remains highly interested.

“I have a client who is being really damaged by the lack of progress in this proceeding,” Ward said. “They have to pay to have the waste water trucked away at quite a considerable expense.”

Meanwhile, Ward said, the schools have students and teachers in them until May 22. 

Neither Mike Hall, Alabama One's bankruptcy attorney, nor anyone at the credit union said when the cooperative might pay Colmer's fees or whether the ACUA will approve an additional $125,000 loan.

Robert Reynolds, a lawyer with the Tuscaloosa firm of Reynolds, Reynolds and Little and outside counsel to the ACUA, suggested the agency would be open to approving such a loan as long as a trustee was in place and the money was not going to Butler.  But other legal sources questioned whether such a loan wouldn't still violate the agency's cease and desist order that currently bars Alabama One from making further loans to Butler.

Read more: Alabama One's eight-year history with the sewage plant …

Alabama One and the water treatment facility have a history that goes back to beyond the facility's founding in 2008, according to county court records.

The records show Butler purchased the property that would one day host the facility in 2005 from FALPECK LLC, a property holding company formed by Charles “Tab” Swann, an executive with West Alabama Bank and Trust, and another West Alabama executive, Karl Keller. Swann would later play a key role in the fraudulent SBA loan on the Foster's Grocery Store project that would later send Butler to prison.

The transactions were a good deal for Swann and Keller. According to county records, FALPECK purchased the property from its previous owners for $1,000 per acre, or roughly $175,000, in November 2002. FALPECK took out a mortgage on it for $200,000 with Merchants and Farmers Bank, the predecessor to West Alabama Bank and Trust, where Swann and Keller worked at the time. The partnership sold it to Butler in 2004 for roughly $3,400 an acre for a total of $650,000.

Butler financed the initial purchase himself, but then Alabama One rolled the land into a mortgage package with Butler's home property in 2005 for a total of $2.6 million. Then, beginning in 2005, the credit union refinanced the loan or added additional loans 10 times until 2009, when the total indebtedness stood at more than $10.5 million.

County records show that none of the subsequent refinances or additional loans to Butler on the property ever satisfied the original FALPECK loan, which was not repaid in full until 2012.

According to county records, the bulk of loan modifications to increase the loan limit began in 2008, when Butler formed the Fosters Water Treatment LLC.

An appraisal conducted at the request of Alabama One's (then the Credit Union of Alabama) Tammy Ewing estimated the worth of the property with a sewage treatment plant on it (although there was no sewage treatment plant yet built) at $9.125 million. 

The March 31, 2009 appraisal, conducted by Mary Jane Watson of Tuscaloosa firm Green and Company, carried the conditions that the plant be built with two sewer lines and that a 50-acre commercial park and 162 acre residential development would also be added.

Neither the commercial nor the residential development ever made it to the planning stages, according to Paige Howard, Butler's fiancé, who holds his power of attorney while he is incarcerated.

“It's essentially an appraisal of $9.125 million on a bunch of then largely empty acres,” Howard observed.

Watson also estimated the cost of building the plant at roughly $4.1 million. Howard said that figure could be accurate because Butler told her it took about $5 million to complete the plant once the company added an 11-mile pipe to the high school.

“It's not like this was a proper business loan,” Howard reported. “There weren't regular draws that Danny made or anybody asked how he was spending the money. They made him the loan and said go build the plant.”