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Details Scarce on $50-Million O.C. Legal Fund


SANTA ANA — It's the final piece of Orange County's bankruptcy puzzle, $50 million in taxpayer money that was set aside to pay for lawsuits against the Wall Street firms the county blames for its December 1994 financial collapse.

If the multibillion-dollar damage suits are successful, scores of cities, school districts and other government agencies could recoup the remainder of the losses they suffered 26 months ago, when the county-run investment pool lost $1.64 billion on risky Wall Street securities.

Despite the high stakes, however, the litigation effort is being waged with little or no scrutiny from the public whose money is being spent.

The more than 200 plaintiffs in the lawsuits have given one man, former California Treasurer Thomas W. Hayes, total control over how the $50 million is spent, and how the cases are handled.

And Hayes, who even has the power to settle the cases without approval from anyone, isn't answering questions about spending.

Citing public records laws, The Times sought information from Hayes about the money paid thus far to the law firms handling the litigation, and whether any cost-control guidelines, like those adopted by the county, were being followed.

Similar requests were sent to county officials from time to time during the 18-month bankruptcy, and county officials routinely produced copies of the legal bills they had received, including those related to the litigation.

Hayes elected not to respond to the latest request himself, and instead forwarded it to Bruce Bennett, the county's lead bankruptcy attorney whose law firm continues to submit the lion's share of the legal bills.

Bennett said his firm's fees had totaled $3.5 million from June through November last year, but declined to itemize the charges or explain Hayes' billing policy. He said that a detailed rendering of the legal bills would reveal the county's litigation strategy to its adversaries, and thus jeopardize the cases.

Anyway, Bennett added, "we do not agree that the information you have requested falls within the California Public Records Act."

This tight-lipped approach troubles some attorneys, community activists and legal experts, who said a lack of public oversight makes it difficult if not impossible to detect overly generous payments to attorneys, or flaws in the legal strategy.

"We are talking about public financing here, not national security," said Ron Rus, an Irvine bankruptcy attorney. "The whole problem with litigation like this is conducting a case while still complying with a sense of the public's right to know."

"Unless you have ongoing scrutiny, you can see that everyone in the process accommodates each other, and the taxpayers get sold down the river," added Bruce Whitaker, a leader of the Committees of Correspondence, a citizen watchdog group that came together in the wake of the county's bankruptcy. "People need to be asking questions."

Whitaker, Rus and others agree that Hayes' legal strategy should not be aired publicly. But they question whether all litigation activities should remain secret.

"I'm very skeptical of any lawyer [paid with public funds] saying his bills are not covered by the public records act," said James L. Markman, the city attorney for Buena Park and Brea. "If I were a city's attorney, and I didn't want the public to see my bills, I'd be looking for new clients."

Markman, however, is one of very few government officials to express concerns about arrangement.

Many elected leaders hail Hayes' powerful role as the only realistic way to handle such complex lawsuits involving so many public agencies.

Hayes, a respected public finance expert who helped manage the county's fiscal affairs in the weeks following the 1994 bankruptcy filing, was chosen to administer the litigation fund because local cities didn't trust county government to handle the cases.

There were also fears that having so many agencies involved could turn the litigation into a political football.

The solution was to appoint Hayes as the litigation czar.

"There was no effort to shield [the litigation process] from the public," Bennett said. "But there needed to be a decision-making process that is efficient and coherent. Time will tell if we are successful."

After battling over the bankruptcy for nearly two years, several city officials said they were eager to hand off responsibility for the lawsuits to a third party and get back to the business of local government.

"We basically signed-off on this and hope they are successful," said Claremont Mayor Algird Leiga, a critic of county government's handling of the bankruptcy. "I don't see our role as being more than that."

But some critics said they are alarmed that officials aren't doing more to oversee their litigation dollars.

"There seems to be an out-of-sight, out-of-mind mentality here," Whitaker said. "They seem to feel the bankruptcy is now water under the bridge."

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