Judge Keeps Bankruptcy Suit on Fast Track : Litigation: Court declines for now Merrill Lynch’s bid to question all county pool participants.

In a move that keeps Orange County’s $2-billion lawsuit against Merrill Lynch & Co. on a fast track, a judge on Tuesday declined to allow the brokerage firm’s attorneys to begin questioning the almost 200 participants in the county’s investment pool.

U. S. Bankruptcy Judge John E. Ryan said he needed more time to decide if Merrill Lynch could eventually interview and get documents from all of the special districts, schools, cities and other agencies that invested in the county investment pool run by Robert L. Citron, former Orange County treasurer-tax collector.

After a three-hour court hearing Tuesday afternoon, Ryan said he would reconsider Merrill’s discovery request at another hearing Feb. 16.

“I would like to try and narrow the discovery down so we can reach some of the legal issues that have factual aspects,” Ryan said.

In a hearing that provided a glimpse of how each side will argue its position, county lawyers said that a lengthy discovery process involving all of the pool participants would unnecessarily delay resolution of the case, while Merrill Lynch’s attorney maintained that it was essential to uncovering all of the facts.

The county’s lead attorney, J. Michael Hennigan, welcomed the judge’s decision. “This will speed things up, at least for now. We seem to be moving the case forward in the direction we want.”

Hennigan has said he hopes to have a resolution of key issues in the case by next June 30, the end of the county’s budget year.

Merrill’s lawyers said they hope the judge will eventually grant them full discovery with the pool participants.

“We’re also anxious to move this case forward. We still expect to do full discovery with the pool participants,” said Ronald L. Olson, Merrill’s lead attorney. “We believe their knowledge and understanding is key to this case.”

Andrew Gilford, a lawyer for the pool participants, many of whom stand to benefit if the county prevails in the lawsuit and is awarded damages, said the ruling could reduce attorney fees for the pool participants.

“And that can only save Orange County taxpayers money,” Gilford said.

With its lawsuit, Orange County hopes to recover all of the $1.69 billion in investment pool losses it claims that Merrill Lynch caused by selling the county volatile securities that were inappropriate for a government treasury.

Moreover, the county argues that most of these risky securities were illegally purchased on credit in excess of borrowing limitations imposed by the California Constitution.

The giant Wall Street firm vehemently denies the county’s lawsuit claims and insists that it did nothing wrong or improper.

Although he did not agree to extend the discovery process to the pool participants, the judge on Tuesday did approve Merrill Lynch’s plans to start deposing key county officials, the custodian of the investment pool and others.