Civil Suits Wait While O.C. Sorts Out Bankruptcy

Diane Curtright says she was on her way to work when a truck driver employed by Orange County slammed into the back of her car, leaving her with severe neck injuries and chronic pain that keeps her awake at night.

“It changed my life totally,” said Curtright, 37, who says she relies on muscle relaxants and other medication to get through the day. “I’m in pain every day, and I guess I’m going to be like this for the rest of my life.”

Curtright sued the county in 1993, seeking $250,000 to pay her medical bills and to compensate her for lost income, legal expenses and emotional distress.

Her case was set for trial Dec. 12--six days after Orange County became the largest municipality in U.S. history to declare bankruptcy.

The filing left Curtright and more than 800 other people with lawsuits against the county in legal limbo because federal laws automatically froze all pending civil cases against the county until the bankruptcy is resolved, unless a potential litigant wins special permission to file suit from the judge who’s handling the bankruptcy.

Resolution of the bankruptcy could take a year, maybe two, attorneys said.

“It’s totally ridiculous,” said Curtright, who has worked for a credit reporting agency in Orange for 10 years. “They have millions of dollars and they put the little people off. But what can you do? I didn’t put the county into bankruptcy, but it’s like I’m paying for it. Everyone is bigger than I am.”

An arbitrator appointed by Orange County Superior Court ruled last July that the county was liable for Curtright’s accident. Under state law, a municipality is held responsible when an employee commits a negligent act on the job.

The arbitrator recommended that the county pay Curtright $36,000 in compensation. But the county rejected the offer and opted to take the case to trial, denying all responsibility for Curtright’s injuries.

Desperate to move ahead, Curtright and a dozen other people with cases pending against the county have turned to U.S. Bankruptcy Judge John E. Ryan seeking special permission go to trial in state or federal court.

But Ryan, who is handling the county’s bankruptcy, has turned them all down, saying the county has a bigger mission these days than fighting over the 524 pending civil lawsuits. Ryan has told lawyers handling the suits that he does not want to allow the county’s resources or attorneys to be diverted from the county’s most important task--coming up with a plan as swiftly as possible to solve the bankruptcy.

“In general, a case of this magnitude requires a substantial amount of time--a breathing spell--for the debtor to understand and get control of a case without being distracted by other litigation,” Ryan said during one of several court hearings on the requests.

“The county’s highest priority is its reorganization effort,” Ryan added.

The lawsuits against the county include 247 land disputes, 172 cases alleging civil rights violations, false arrest or excessive force by law enforcement authorities, 41 personal injury cases, 40 suits claiming improper road design, 18 flood damage or environmental suits and six contract or assessor disputes, according to court documents filed by the county.

County bankruptcy attorneys have put the cost of litigating all those pending lawsuits at more than $230,000 per month in legal fees, and have estimated that potential losses from the suits could range from $50 million to $100 million.

Given other pressing bills and tasks, such as $1 billion in debt to bondholders coming due this summer, those are expenses the county cannot afford to pay right now, said county bankruptcy attorney John Amsden, who has been responsible for defending the county against attempts to revive the lawsuits.

Although Judge Ryan has not prohibited further attempts to lift the ban against going forward with suits, his rulings have discouraged what could have been a flood of requests, Amsden said.

“I think people have gotten the message that now is not the right time to pursue their claims against the county,” Amsden said.

“People have backed off. Every reasoned person believes the county needs a period of time to focus on its rehabilitation efforts,” he said.

Five petitioners have withdrawn their requests for special permission voluntarily, and no new petitioners have filed a request recently, he said.

Some people with pending lawsuits say they don’t blame the bankruptcy judge for the delays--they blame county officials for causing the financial crisis.

Still others are troubled by the uncertainty of not knowing when--or if--they will get their day in court.

“The worst part is that this is looming over my head,” said Violet Brown, a Laguna Beach hotel owner who has sued the county for flood damage to eight of her units in 1992.

“I don’t like any unsettled things, and I don’t like operating close to the belt. This place is my whole life.”

The delay has cost tens of thousands of dollars in lost income from the boarded-up units, said her attorney, Roy A. Abelson.

Brown, who owns the 62-unit Aliso Creek Inn, alleges that the county’s Environmental Management Agency failed to install adequate flood and erosion controls on a construction site above her property in violation of county ordinances.

As a result, she contends, the Aliso Creek Channel that winds through her 11-acre property overflowed in February, 1992, sending a torrent of mud and water through her hotel. She is seeking $1.5 million in damages.

County officials have denied that their agency violated any ordinances or that the county has any responsibility for damage to her property.

Amsden said the county is not ignoring the cases of people who have relatively small claims. Rather, attorneys are trying to deal with the most important tasks first for the benefit of all. Amsden pointed out that there are at least 50,000 other creditors who are owed money by the county. Litigants will have to get in line with them, he said.

“There are tens of thousands of creditors ranging from pennies to billions,” Amsden said. “It’s not so much a matter of the size of claims as the sheer number. We’re doing the best we can under the circumstances and we think we’re doing it effectively.”

Henry Kevane, an attorney for the Official Committee of Creditors, which was formed to represent creditors during the bankruptcy, helped file a recent motion on behalf of the committee supporting county efforts to hold off the lawsuits. Kevane said that Curtright and others who are suing the county are not yet creditors in the same class as those his committee represents because the county has not yet accepted their claims as legitimate, much less agreed on the amounts in question.

“They still have to prove their case,” Kevane said. “They’re not the same as someone who has done business with the county and has a bill. But we’re not making a judgment on the merits of their cases.

“For the committee, the issue is really a question of timing. Until we know in greater detail the contours of the county’s eventual plan of adjustment, it’s just premature to let people start duking it out in the courts.”

Edmund Slymen, Brown’s nephew and manager of her hotel, said he would like the county to consider allowing people who are suing the county to move forward at least with the pretrial business of exchanging sworn statements and documents about a claim. Pretrial work helps determine whether a claim is valid and if so, how much it is worth.

Once the bankruptcy is over, he said, the county should also prioritize lawsuits according to how long people have been waiting for their day in court, he said.

County attorneys are considering a process now to help speed the lawsuits along that could be in place by the end of the year, Amsden said, and the county may decide to take the seniority of claims into account.

Although details are sketchy, Amsden said the county could set up a process to settle stronger claims through negotiations while asking Ryan to summarily dismiss groups or classes of claims considered to have no merit.

But he ruled out the possibility of allowing people with suits to move ahead with pretrial work that normally costs the county an average of $2.8 million a year. That phase can sometimes be the most expensive and time-consuming of all, he said.

So far, Ryan has permitted only one case to move forward into discovery because of special circumstances, but he has not permitted that case to go to trial, Amsden said.

The case involves a wrongful-death lawsuit filed by the family of a 37-year-old Santa Ana man, Albert Arzate Hernandez, who died under mysterious circumstances at the Orange County Jail last October. Family members contend Hernandez was beaten to death, but do not know by whom. They are seeking $10 million.

The Sheriff’s Department says Hernandez, who was being held on a narcotics charge, died of a seizure.

Last month, Hernandez’s wife, Kimberly Kirbee of Orange, asked Ryan to allow her attorneys to subpoena the county coroner’s office for autopsy report on Hernandez and to do other pretrial work to find out more about her husband’s death. Ryan agreed.

Kirbee said she is grateful for the special treatment but is still worried that because of the county’s bankruptcy it might take many more months before the case is resolved.

“I guess it could be a long, long time,” Kirbee said. “I guess there’s nothing we can do. We’re still in limbo.

“I think about this every day,” she said. “There’s not a moment I don’t think about it. I know they can’t mend broken hearts. I know they can’t bring him back. But I’d like justice--some kind of justice so we can start getting over this.”

Amsden said that despite attempts to delay all civil trials, the cases are “top priorities” for the county.

“Unfortunately, the county must have hundreds of top priorities at this point,” Amsden said.

“We wish the county hadn’t sustained the loss,” he said. “We wish our services weren’t needed and we don’t wish any litigant or any other creditors to suffer, but those aren’t the facts that we have.”