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Merrill Lynch Tries Again to Move O.C. Lawsuit

Bankruptcy: The brokerage argues that U.S. District Court is the proper venue for the $2-billion action.


SANTA ANA — Merrill Lynch & Co. is once again seeking to move the county's $2-billion lawsuit out of Bankruptcy Court and into U.S. District Court, according to a motion the brokerage firm filed Monday.

The county successfully fought an attempt by the brokerage firm more than a year ago to move the case into District Court, where the action would proceed less quickly. In denying that request, the U.S. District Court called it premature.

But now, Merrill Lynch argues, since the county has filed its recovery plan and is poised to emerge from the Chapter 9 bankruptcy as early as June 30, the lawsuit no longer belongs in Bankruptcy Court.

"In a series of amended complaints and aggressive motions, [Orange County has] demanded rulings now on a variety of far-reaching and unprecedented theories of non-bankruptcy federal law," Merrill Lynch stated in its motion.

"In light of the many federal issues raised [and] filed to date, severe delay and duplication of effort will result from the need to seek repeated rulings from [U.S. District Court] on appeal on matters ruled on by the bankruptcy court," the motion reads.

J. Michael Hennigan, who represents the county in its case against the brokerage, could not be reached for comment.

In December, U.S. Bankruptcy Judge John E. Ryan rejected a Merrill Lynch motion to dismiss the lawsuit altogether. Two weeks ago, the brokerage firm appealed that decision to the District Court, where it is pending.

In its lawsuit, the county blames Merrill Lynch for selling former Treasurer-Tax Collector Robert L. Citron inappropriately risky securities and arranging for Citron to borrow money in violation of state constitutional limits.

The firm has denied the charges and insisted that it acted professionally in its dealings with the county.

Merrill Lynch sold the county 68% of the securities in the county's portfolio that once topped $21 billion. Some $14 billion of the securities were purchased with borrowed funds.

At the December hearing, Merrill Lynch argued that the securities sold to the county's failed investment pool belonged to the cities, school districts and other agencies, and that any lawsuit for damages must be filed by those agencies.

Further, Merrill Lynch contended that under California law, counties cannot claim ownership of monies held by county investment pools.

But Ryan disagreed. Siding with the county, Ryan accepted the county's contention that the proceeds in the investment pool had been hopelessly commingled, making specific funds virtually untraceable to any single investor.

With the lawsuit intact, the county was then able to complete and issue its recovery plan.

This latest motion by Merrill Lynch will be heard at 10 a.m. March 4 before U.S. District Judge Gary L. Taylor.

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