ORANGE COUNTY IN BANKRUPTCY : CEO to Grand Jury: Stanton Must Go : Crisis: In stunning move, Popejoy asks panel to remove O.C. supervisor from office for undermining case against broker. Stanton says he’s confident probe would be fair.

In a dramatic attack on one of his bosses, the county’s chief executive officer on Thursday asked the Orange County Grand Jury to investigate Supervisor Roger R. Stanton and remove him from office for allegedly undermining the county’s bankruptcy-related lawsuit against Merrill Lynch & Co.

CEO William J. Popejoy said he went to the grand jury because he wants Stanton ousted for publicly suggesting a possible settlement amount in the county’s $2.4-billion lawsuit against the Wall Street firm the county blames for its bankruptcy. Popejoy said Stanton’s figure of $500 million was well below the county’s expectations of $1.2 billion.

“He compromised our lawsuit against Merrill Lynch and damaged our negotiations,” Popejoy said. “He has undermined the credibility of the county negotiators.”

Stanton, who was surprised by Popejoy’s action, issued a brief statement about the development but refused to launch a counteroffensive against the county’s top executive.

“It is my understanding that requests made to the grand jury are privileged,” said Stanton, who has repeatedly denied harming the county’s suit. “If he has made a complaint, than I am confident that the grand jury will be objective in its analysis. I would hope that other people would have the opportunity to disagree with him, without being treated in this fashion.”

Popejoy invoked a rarely used government code section to try to prompt a grand jury investigation into Stanton’s alleged “willful or corrupt misconduct in office.” It is believed to be the first time in the county’s history that such inquiry into a supervisor’s actions was requested, county officials said.

Popejoy’s action was his most serious challenge to an elected county official. The development sparked a firestorm of controversy and greatly heightened the tension between Popejoy and members of the Board of Supervisors, who are his bosses.

“I think the war between the two just went nuclear,” said Supervisor William G. Steiner. “This takes a difference of opinion to a much more serious level.”

Supervisors Jim Silva and Gaddi H. Vasquez declined to comment on the situation. Supervisor Marian Bergeson could not be reached for comment. Throughout the day, speculation swirled within the Hall of Administration over how the supervisors will react to the move on one of their colleagues.

The request to investigate Stanton was the latest in a string of highly publicized comments against supervisors initiated by the county’s top executive. Throughout the county’s recovery period, Popejoy has taken supervisors to task, questioning their leadership abilities and political motives.

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Political pundits and county insiders were shocked at Popejoy’s move. Many erupted in disbelieving laughter upon hearing the news, claimed speechlessness, then groped for ways to express the unheard-of nature of the events.

“I am absolutely floored,” said political consultant Dana Reed. “I have never seen hardball played like this. This is the hardest hardball I have ever seen. This is war. This is more than war. This is burn the system, this is tear everything down, this is like dropping the nuclear bomb.”

Many observers immediately characterized the move as a last-ditch political ploy, a final attempt to drum up publicity for Measure R, the half-cent hike in the sales tax on Tuesday’s ballot.

“It’s outrageous--but it’s brilliant,” said UCI political science professor Mark Petracca.

Thomas A. Fuentes, chairman of the county Republican Party and a Measure R opponent, classified it as an act of “desperation.”

“When you are winning with the facts, you use the facts,” Fuentes said. “When you’re losing with the facts, you use politics. When you’re losing with both facts and politics, you go personal. And that is the desperation of Mr. Popejoy.

“Popejoy offered himself to the people of Orange County for free and we, the people, got what we paid for.”

Even Sacramento lawmakers took an interest in the unprecedented fight.

“I think Popejoy is justified,” said state Sen. Quentin Kopp (I-San Francisco), a member of a Senate committee on the bankruptcy. “To put it into street jargon, Stanton couldn’t hold his athletic supporter.”

The dispute between Stanton and Popejoy centers on the county lawsuit against Merrill Lynch, which was filed in December shortly after the county declared the largest municipal bankruptcy in U.S. history. In that suit, the county contends Merrill Lynch was largely responsible for causing $1.7 billion in county investment losses.

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Popejoy’s criticism of Stanton started last week when the supervisor announced 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.

Popejoy said Thursday that Stanton, who was briefed in closed session on his secret settlement negotiations in May with Merrill Lynch Chairman Daniel P. Tully, violated the trust of his office when he went public with a settlement figure and “did a tremendous disservice to the citizens of Orange County.”

During his meeting with Tully, Popejoy said the county would settle for $1.2 billion. Merrill Lynch flatly rejected that offer.

Popejoy said Thursday that Stanton has cost the county both time and money.

“It’s going to take months and months to get Merrill Lynch back to the reality that we feel we were injured by at least $1.2 billion,” Popejoy said. “Stanton obliterated any chance of a quick settlement. What he has done is nothing short of criminal. He’s out there short-circuiting the process by mentioning an irresponsible settlement figure.”

Stanton, who floated the settlement figure as part of a “Plan B” alternative to the Measure R tax increase, has denied that he damaged the county’s case against Merrill Lynch. He said he was not suggesting that $500 million would even come close to being an adequate settlement. In fact, he said he wouldn’t be satisfied with anything less than $2 billion.

Stanton said he chose the $500-million figure because it would satisfy the litigation claims of government agencies--other than the county itself--that lost money when the county investment pool collapsed Dec. 6.

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Under a public 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 the county needed.

“I didn’t come up with it out of thin air,” Stanton said earlier this week.

The disclosure of any settlement figure is moot, Merrill Lynch officials said, because they aren’t planning to pay the county a dime.

Merrill spokesman Paul W. Critchlow, a vice president and member of the firm’s executive committee, said Merrill officials “made it very clear that the notion of a billion-dollar payment from Wall Street firms was absurd.”

Popejoy said he is seeking Stanton’s ouster under civil government code section 3060, which gives the grand jury authority to investigate “an accusation in writing against any officer of a district, county, or city, including any member of the governing board . . . for willful or corrupt misconduct in office.”

Grand jury foreman Mario Lazo Jr. would not comment Thursday.

But sources familiar with the grand jury said Popejoy approached the panel Thursday afternoon and delivered a written request that it investigate Stanton. The document discussed the reasons he felt the panel should take action against Stanton and specifically cited Stanton’s release of the figures Popejoy discussed with Tully when he met with Tully in New York on May 17.

Popejoy initially met with a small group of grand jurors, sources said. Later in the afternoon, Popejoy’s request was shared with the 19-member panel.

The grand jury is expected to review Popejoy’s request in greater detail today, sources said.

Under California law, a county grand jury can initiate an action to remove a county officer for “willful or corrupt misconduct in office.” That misconduct can be criminal or civil in nature, said a source familiar with the grand jury, and can involve misfeasance, malfeasance or nonfeasance.

If the grand jury decides the accusation does not involve a crime, it can still issue an “accusation” against a county officer in order to remove that person from office. It takes 12 grand jurors to support an “accusation” under the government code. The accused is then entitled to a jury trial in which the criminal standard of proof beyond a reasonable doubt is applied.

In cases involving accusations against county officers, the grand jury can ask the county district attorney or any other attorney to present the case.

Attorney Wylie A. Aitken, who is a close friend and confidant of Stanton’s, said he thought it was unlikely that the grand jury would find anything wrong with the supervisor’s actions.

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“As an attorney, I cannot fathom what would be improper with his political position,” said Aitken. “I can see nothing improper about him giving a conservative estimate of a settlement. I do not believe that the county’s position is compromised because of the comments of one supervisor.”

The little-used code section was used locally in the mid-1980s against three trustees in the scandal-plagued Orange Unified School District. The trustees, Ruth C. Evans, Joe Cherry and Robert J. Elliott, were accused of not supervising contracts closely enough and thus allowing a $3 million bid-rigging scheme to occur in 1981 through 1984.

The Orange Unified trio escaped from penalty because of a technicality, when a judge ruled that they could not be prosecuted in 1987 for misconduct that had occurred during a previous term of office, even though they had been reelected.

Times staff writers Michael G. Wagner and Eric Bailey contributed to this report.

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Popejoy Leads Pack

Chief Executive Officer William J. Popejoy enjoys a much higher rating for his efforts in handling the county’s financial problems than does the Board of Supervisors:

* “How would you rate the job performance of the Orange County Board of Supervisors / County Chief Executive Officer William Popejoy in handling the county’s financial crisis?”

Popejoy Supervisors Excellent/good 35% 12% Only fair 33 33 Poor 16 49 Don’t know 16 6

Source: Times Orange County Poll, June

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Code 3060

Orange County CEO William J. Popejoy cited a state government code when he asked the county grand jury to investigate ousting Supervisor Roger R. Stanton from office. What that law states:

Accusation by grand jury; Willful or corrupt misconduct

An accusation in writing against any officer of a district, county or city, including any member of the governing board or personnel commission of a school district or any humane officer, for willful or corrupt misconduct in office, may be presented by the grand jury of the county for or in which the officer accused is elected or appointed. An accusation may not be presented without the concurrence of at least 12 grand jurors. Source: Deering’s California Code Annotated

* CEO’S SURPRISE OFFENSIVE

Reactions from all sides are the same: Everyone’s stunned. A17

* INVESTORS WON’T ROLL OVER

Debt rollover near agreement but faces court challenge. A18

* TWO SIDES OF TAX QUESTION

Two economists disagree on the need for tax hike. A18