Legal Battle With O.C. Boosts Merrill’s Costs : Expenses: Firm reports 28% third-quarter increase in lawyers’ and professional fees. Earnings rise 30%.

Costly court wranglings with Orange County helped boost Merrill Lynch & Co.’s legal fees and development costs 28% during the past three months, the company reported.

The investment giant said it spent $114 million on legal and professional fees during the third quarter, compared with $89 million spent during the same period a year ago. The added costs give shareholders a preview into what the financial burdens could be as the New York-based brokerage engages in lengthy and expensive litigation with Orange County.

Still, because Merrill’s third-quarter earnings also rose 30% to $300 million, analysts said the legal fee increases were not a major problem for the firm.

“In the scheme of things, relative to their revenues and profitability, these legal costs are not a big concern,” said Teri Seelig, a credit analyst with Fitch Investors Service Inc., a rating agency. “The outcome of the suit is really what’s important to us.”

Seeking $2.4 billion in damages, Orange County, in a lawsuit that was dismissed Tuesday, has accused Merrill of making illegal loans to former county Treasurer Tax-Collector Robert L. Citron and encouraging him to buy unsuitable securities that cost the county nearly $1.7 billion in losses and forced it to file for bankruptcy Dec. 6.

Merrill vigorously denies the accusations.

While a federal judge dismissed the suit on procedural grounds Tuesday, the county is expected to file a revised suit as early as Monday.

Merrill would not reveal how much of the $114 million in added costs during the past three months was the result of legal fees involving Orange County.

“Certainly a portion of the legal fees were due to Orange County,” said Jim Wiggins, spokesman for Merrill. “We have all kinds of legal involvement.”

During the second quarter, Merrill reported that its legal and development fees increased 21% to $104 million.

Through June 30, the county reported that payments to its litigation lawyers at the Los Angeles firm of Hennigan, Mercer & Bennett totaled at least $3.6 million. Various legal costs to more than a dozen law firms for the county reportedly were at least $30 million through June 30.

“Merrill appears to be spending four or five times what the county is spending,” said James Mercer, an attorney for the county who said he could not estimate how much the county has spent in the past three months.