SANTA ANA — In what would become the first major victory in Orange County's campaign to recover the $1.64 billion in securities trading losses that drove it into bankruptcy, the county has tentatively agreed to settle its lawsuit against its former bond lawyers in exchange for as much as $50 million, officials said.
But the proposed settlement with LeBoeuf, Lamb, Greene & MacRae is being held up by the North Orange County Community College District, which is a party to the county's lawsuit and has a separate legal dispute with the law firm.
During the last few months, attorneys for the county and LeBoeuf have held a series of secret bargaining sessions to negotiate the settlement, which legal experts said could amount to one of the largest damage settlements ever by a law firm. Sources said the firm's malpractice insurance would cover any payment up to $50 million.
A payoff by the law firm would allow cities, schools and special districts to recover a portion of the hundreds of millions of dollars they lost when risky securities purchased by former Treasurer-Tax Collector Robert L. Citron plunged in value in the fall of 1994, triggering the nation's largest bankruptcy by a government entity.
After filing for bankruptcy in December 1994, the county, acting on behalf of the nearly 200 government agencies that lost money in the county's investment pool, sued LeBoeuf in federal court, seeking $500 million.
The county alleged in its lawsuit that the firm failed to alert county leaders to Citron's high-flying investment strategies, even though LeBoeuf's partners had intimate knowledge of the treasurer's activities.
LeBoeuf's lawyers have indicated they will settle the county's suit only if the community college district drops its separate damage suit against the law firm, according to officials close to the negotiations.
Gary M. Cohen, a San Francisco attorney representing LeBoeuf, declined to comment.
Community college district trustees have so far resisted the county's requests that they drop their separate lawsuit, saying that they should have the right to seek additional compensation.
"The question we would ask is why is the county willing to settle for less than 10% of its claims . . . and limit itself solely to insurance proceeds without having LeBoeuf's partners pay a penny from their rather sizable annual profits," said Edmond M. Connor, an Irvine attorney for the college district.