Popejoy Hints Willingness to Settle Suit for $1 Billion

Orange County Chief Executive Officer William J. Popejoy hinted Monday for the first time that he would be willing to settle the county’s $2.4-billion lawsuit against Merrill Lynch & Co. for about $1 billion to avoid protracted litigation.

In an interview, Popejoy escalated the criticism he offered Friday of Supervisor Roger R. Stanton. He said Stanton severely undermined the settlement goal when he announced last week that the county could recover from bankruptcy without a proposed half-cent sales tax if, among other things, it settled with Merrill Lynch for at least $500 million.

“That’s a figure that’s less than half of what we were thinking,” Popejoy said. “Roger has done a tremendous disservice to the county. . . . I think he potentially cost the county tens of millions of dollars.”

Popejoy’s comments came during an interview in which he and Sheriff Brad Gates--the two leaders of the effort to pass a sales tax increase--criticized Stanton and other Measure R opponents as “intellectually dishonest” for floating unrealistic plans aimed at helping the county recover from bankruptcy without a tax increase.

They issued point-by-point rebuttals of Stanton’s proposed alternative to the sales tax, as well as a previously unreleased plan drawn up by one of the groups opposing Measure R.

Stanton responded Monday that he was not suggesting that $500 million would even come close to being an adequate settlement. He said he chose that figure because it would satisfy the litigation claims of government agencies--other than the county itself--which lost money when former county Treasurer-Tax Collector Robert L. Citron’s investment portfolio collapsed.

Under a settlement agreement with the county, pool investors--excluding schools--would make up about 10% of their losses from a portion of litigation proceeds. In that agreement, the county would receive $1 out of every $3 in litigation proceeds. Since investors are owed $342 million in secured claims, Stanton said he calculated that $500 million was the minimum that county needed.

“I didn’t come up with it out of thin air,” said Stanton, adding that he would not settle with Merrill Lynch for “anything less than $2 billion.”

The continued friction between the two county officials, which came just eight days before the June 27 election, may be moot: Merrill Lynch officials say they are unwilling to settle for any amount because they believe they have done nothing wrong.

“This is a continuation of efforts by county officials to shift the blame to Merrill Lynch,” company spokesman Timothy Gilles said. “We believe we acted properly and professionally in our relationship with Orange County and therefore see no basis for Merrill Lynch to pay for problems it did not create.”

The county filed suit against Merrill Lynch shortly after declaring the largest municipal bankruptcy in U.S. history Dec. 6. County and Merrill Lynch officials have repeatedly blamed the debacle on each other.

Popejoy, who met secretly last month with Daniel P. Tully, Merrill’s chairman, said Stanton’s comments were a blow to negotiations, which he added might have been concluded within months.

“You don’t have to be too quick in negotiating to realize that [$500 million] is going to be the starting pointing” for Merrill Lynch negotiators.

Sources familiar with the negotiations between Popejoy and Tully said the county’s top official had offered to settle the lawsuit for $1.2 billion. Merrill Lynch officials rejected that offer, sources said.

Popejoy said that if Stanton were a member of a private board of directors and had released the same type of confidential information, he would be fired, sanctioned and sued by shareholders for the loss of litigation proceeds.

But Stanton said Monday that his recovery proposal was not intended to be a plan. “It was not offered as a panacea,” Stanton said. “It was a thought process as to why I don’t support Measure R.”

Stanton refused to comment on the criticism leveled at him by Popejoy and Gates.

“I will stick only to the issues,” he said. “I won’t engage in any personal diatribes.”

Popejoy and Gates, however, said Stanton is playing politics by floating a plan reliant on options the county ruled out as unworkable months ago. Stanton’s plan includes selling John Wayne Airport, selling more county assets and refusing to repay certain county enterprise funds that lost money in the investment pool.

Popejoy and Gates also assailed what they described as a soon-to-be-released alternative plan authored by Citizens Against the Tax Increase. They released a confidential document authored by the organization and rejected the plan point by point.

The plan suggests that the county not repay $407 million owed cities and special districts and that it divert Measure M transportation funds, sell county landfills, airport and jails, and settle with Merrill Lynch for $1 billion.

Gates said most of the ideas in the plan “are dead issues” because they are both legally and financially unworkable.

Paul S. Nussbaum, Popejoy’s top adviser, said the group’s proposals, dated June 6, were intended to confuse voters with bogus alternatives that can’t be scrutinized before the June 27 election.

Representatives of the organization could not be reached for comment Monday. Robert Ault, treasurer of the No on R campaign committee, defended the alternative plan prepared by Citizens Against the Tax Increase, another organization that opposes Measure R. Ault said that while the alternatives presented are not new, they are workable and should be more seriously examined by county officials.

“I think there is definitely a way to do this without a tax increase,” Ault said.

He said the possibility of using proceeds from a half-cent sales tax increase for transportation projects approved by voters in 1990 must be considered more carefully, and that it is appropriate to demand that cities and special districts forgive the last 10% of the investments they are owed.

“We need to revisit these issues through the eyes of people who want them to happen,” he said. “I think at first, the county looked at it through the ideas of people who didn’t want it, who had a vested interest in the status quo.”

Times staff writer Michael G. Wagner contributed to this report.