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ORANGE COUNTY IN BANKRUPTCY : County Opposes Court Change for Suit : Law: It wants bankruptcy judge on Merrill Lynch case. Brokerage may try to move it out of the area entirely.

TIMES STAFF WRITER

Arguing that a transfer of its $2-billion damage suit against Merrill Lynch would cost the cash-strapped county added legal fees and needlessly involve two federal judges instead of one, Orange County is formally opposing the Wall Street giant’s bid to get the case out of U.S. Bankruptcy Court here.

In court documents that became available Tuesday, attorneys for the county suggested that Merrill Lynch was engaged in “forum-shopping,” trying to get the case in a courtroom where a judge or jurors might be more sympathetic to the brokerage that Orange County blames for the largest municipal bankruptcy in U.S. history.

Meanwhile, other court documents filed by Merrill Lynch state that it may eventually try to move the case not merely out of Judge John E. Ryan’s Bankruptcy Court in Santa Ana, but entirely out of Orange County, because the firm fears it cannot get a fair trial here.

"(We) reserve the right . . . to request transfer of this proceeding to another venue outside the County of Orange,” the firm’s attorneys wrote in another recent court filing, pointing to the “publicity that has filled the newspapers in Orange County since commencement of these Chapter 9 cases.”

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The county’s $2-billion damage suit against Merrill Lynch was filed Jan. 12 in U.S. Bankruptcy Court. It alleges the firm violated state laws by making massive extensions of credit to the county and encouraging it in risky investments. Last week, Merrill Lynch surprised county attorneys by filing a motion in U.S. District Court to have the suit moved there from Bankruptcy Court.

Attorneys for Merrill Lynch have argued that the Bankruptcy Court is inappropriate for the case, because the lawsuit includes civil issues and questions about interstate commerce, as well as bankruptcy law matters. The attorneys have also pointed out that the county has asked for a jury trial, yet bankruptcy courts typically have little experience conducting jury trials.

But county attorneys countered in this week’s court filing that at most only those parts of the suit dealing with non-bankruptcy law should be moved to U.S. District Court. It is also likely that a jury trial can be avoided, if at some point one of the parties asks for a summary judgment, a ruling by the judge, they argued.

According to the county’s filing, Merrill Lynch has no right to shop around for a different court, and the county will likely oppose any attempt to move the case out of Orange County.

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An attorney for Merrill Lynch said the firm is likely to submit a response to the county’s latest filing in U.S. District Court on Thursday.


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