ORANGE COUNTY IN BANKRUPTCY : Pool Settlement Must Hit Court Within 30 Days, Judge Says : Crisis: At a bankruptcy hearing, attorneys for a small group of investors ask the court to throw out the county’s separate Chapter 9 filing for the fund.

U.S. Bankruptcy Court Judge John E. Ryan on Tuesday issued a stern warning that any proposed settlement for Orange County’s ill-fated bond pool had best land in his courtroom within the next 30 days.

Ryan’s directive came at the end of a nearly five-hour court hearing during which attorneys for a small group of dissident pool investors pressed the judge to rule on the county’s Dec. 6 bankruptcy filing strategy.

Ryan delayed a decision for a month, saying he needed time to digest nearly 50 years of accumulated state and federal law that might have a bearing on the county’s decision to file two separate bankruptcy petitions--one for itself and one for the failed pool. Ryan then advised more than 120 lawyers gathered in his Santa Ana courtroom that, “if there are going to be things done in this case, they better get done” quickly.

The complex hearing, which filled Ryan’s sixth-floor courtroom and spilled over into an adjacent courtroom where the proceedings droned over a public address system, focused on the arcane matter of whether the bond pool was a municipality or an instrument of the state.

The issue speaks to the essence of a Chapter 9 bankruptcy filing. Lawyers spent hours debating definitions culled from Webster’s Unabridged Dictionary, federal bankruptcy law and state regulations.

Attorneys for Huntington Beach, two local water districts and an obscure joint powers agency pressed Ryan to throw out the separate pool bankruptcy filing that the county made on Dec. 6. The small group of dissident investors drew support from an unlikely ally--Merrill Lynch & Co., the Wall Street investment house that, Orange County alleges, illegally sold county securities after the pool filed for bankruptcy on Dec. 6.

Attorney Ron Rus, who represents two local water districts with funds in the pool, angered pool settlement proponents with charges that the plan is being negotiated in secret. Rus also argued that elected officials in Orange County seem to be more concerned about their own political careers than the best interests of county residents.

“What really is going on out there is not right,” Rus said. “And this court ought not to sanction it any longer.

Attorney Patrick Shea denied that the investors committee is negotiating in secret, and said he regularly reads about the supposedly secret negotiation in daily newspaper accounts.

“We are on the verge of having a settlement,” Shea said. “It’s all going to be outlined (in the settlement plan) and the court will have every opportunity to review it.”

Shea and Bruce Bennett, the county’s bankruptcy attorney, cautioned that throwing the pool bankruptcy filing out might imperil the proposed settlement plan that’s designed to give cash-strapped investors immediate access to 77 cents in cash for each dollar invested in the ill-fated pool. Shea argued that giving investors a chance to vote on the plan “is the professionally responsible thing to do.”

During an impassioned plea, an attorney representing the Newport-Mesa Unified School District asked dissident investors not to jeopardize the financial health of the county’s cash-strapped schools by stalling or derailing the proposed settlement. Describing schools as the “lifeblood” of the county, Katherine Butts Warwickargued that abandoning settlement discussions would lead to a “Draconian result for schools.”

Merrill Lynch attorney Ron Olsen likened the county’s legal argument for the joint filing as akin to a hiker “trying to leap a chasm in two steps . . . you can’t turn (an investment pool) into a (bankruptcy) filing.”

But attorneys for pool investors who are working with the county on the proposed settlement plan maintained that Merrill Lynch’s appearance was driven solely by its desire to lessen its exposure to class-action lawsuits being brought by disgruntled investors.

John Poppin,an attorney representing Huntington Beach, argued that the bond pool was little more than a collection of bank accounts that were operated by former county Treasurer-Tax Collector Robert L. Citron. Poppin quipped that, following the county’s logic, “a deputy sheriff’s vehicle becomes an instrumentality . . . and could file a Chapter 9.”