Orange County in Bankruptcy : Judge Won’t Hear 6 Claims Against Merrill

SANTA ANA — U.S. Bankruptcy Judge John E. Ryan ruled Thursday that under bankruptcy and federal laws, he cannot ultimately rule on six out of seven claims in Orange County’s lawsuit against Merrill Lynch & Co.

The county’s lawsuit alleges that the Wall Street firm “wantonly and callously” sold risky investments to the county, and seeks $2.4 billion in damages. Ryan, who is handling the county’s bankruptcy, said the lawsuit is framed in terms of alleged violations of federal and state laws and that such allegations should be decided by a U.S. District Court judge.

County bankruptcy attorneys said they will file an amended complaint by May 12 that will frame their claims more in terms of bankruptcy law violations in hopes that Ryan will keep the case.

“We still believe this is the appropriate court,” said county bankruptcy attorney Bruce Bennett. “All this amounts to is additional procedures and delay.”

Merrill Lynch attorney Harvey Miller said the firm is likely to oppose the county’s new filing on the same jurisdictional grounds.

Ryan said the one claim he can review is the county’s contention that because of the bankruptcy, the brokerage has no right to liquidate any county securities it may still hold. The county contends that Merrill Lynch still holds $1.6 billion worth of county securities.

Merrill Lynch played a key role in supplying the county’s ill-fated bond pool with some of its riskiest securities, but has denied that any of the investments were improper and contends that county officials were aware of the risks involved.

Contributing to today’s coverage of former County Treasurer-Tax Collector Robert L. Citron’s guilty pleas were staff writers Eric Bailey, Anna Cekola, Ken Ellingwood, Matt Lait, Mark Platte, H.G. Reza, Lisa Richardson, Diane Seo, Debora Vrana, Michael G. Wagner, Peter M. Warren, Jodi Wilgoren, Chris Woodyard and correspondents Shelby Grad and Steve Scheibal. Also contributing were photographers Robert Lachman, Al Schaben, Geraldine Wilkins, Don Bartletti and Craig Wallace Chapman and researcher April Jackson.