Huntington to Drop Suit Over Pool Funds

After racking up $750,000 in legal fees in its suit against the county and Merrill Lynch, the City Council on Monday decided to drop the action and accept a settlement that precludes a lawsuit.

“It’s one of the most important decisions the council will make,” Councilwoman Shirley S. Dettloff said. “Going with Option A is giving our citizens the very best protection we can provide.”

Huntington Beach had $43.6 million in the county investment pool when the county filed for bankruptcy Dec. 6.

The 4-3 vote means the City Council rejected the recommendation of its city attorney, who urged officials to stick with settlement Option B.

Under Option B, the city would receive about 77% of its pool money in cash and retain the right to sue for the remainder. Option A provides 80% of pool money in cash and recovery notes, with the remainder promised by the county at an unspecified later date. Under Option A, however, agencies give up their right to sue.

Councilman Ralph Bauer, who voted against the switch along with council members David Sullivan and Dave Garofalo, said, “We just blew a few million dollars,” referring to the difference between the settlements. “Why should I be happy? Every attorney has told us that we have a solid lawsuit against Merrill Lynch. We’re now giving our proxy to the people of the county who stole our money. It doesn’t make sense.”

The county is pursuing litigation against Merrill Lynch.

City Atty. Gail C. Hutton argued unsuccessfully that Option B gave the city the best opportunity for recouping all its money. Choosing the other option is “a leap of faith, and a gamble with the county for a full recovery,” she said.

City Administrator Michael T. Uberuaga disagreed, calling Option A a “more secure decision.” Over the past few weeks, several pool investors including Brea, Costa Mesa, Fountain Valley and Tustin have switched from Option B to Option A.