Judge to Rule Soon on Moving Lawsuits Against Firms

A federal judge will decide soon whether to remove from U. S. Bankruptcy Court Orange County’s multibillion-dollar damage suits against the Wall Street and accounting firms the county blames for its 1994 financial collapse.

U. S. District Judge Gary L. Taylor said he will issue a written ruling on requests--by brokerage giant Merrill Lynch & Co. and the county’s former outside auditor, KPMG Peat Marwick--to have the county’s lawsuits moved to federal District Court.

The county has sued Merrill Lynch and Peat Marwick for $2 billion and $3 billion respectively, claiming the brokerage’s sales of risky securities to former Treasurer Robert L. Citron and the auditing firm’s failure to identify the problems caused the county to lose $1.64 billion and file the nation’s largest-ever municipal bankruptcy.

Both firms have denied any wrongdoing.

More than a year ago, Taylor denied Merrill Lynch’s attempt to move the case into district court, calling the brokerage’s request premature.

On Tuesday, Merrill Lynch and Peat Marwick renewed the request, saying the lawsuits no longer belong in Bankruptcy Court because the county has filed its recovery plan and is poised to emerge from Chapter 9 bankruptcy.

“We don’t have issues [in this damage case] that have anything to do with Bankruptcy Court,” said Robert McLean, an attorney for Peat Marwick. “It’s a malpractice claim. [The county’s lawsuit] has been threatened for a year, there has been lots of adverse publicity, and we want to move this case along” in district court.

George Garvey, a Los Angeles attorney for Merrill Lynch, argued that the district court could save time by accepting the case now. Garvey said many legal issues in the cases involved non-bankruptcy federal law and rulings by U. S. Bankruptcy Judge John E. Ryan will be routinely appealed to district court.

Garvey said district court was the appropriate venue to develop Merrill Lynch’s contention that the county was to blame for its financial problems.

But J. Michael Hennigan, the county’s lead litigation counsel, disagreed.

Hennigan argued that the federal courts could save time by allowing Ryan to handle the cases.

“For the past 1 1/2 years, Judge Ryan has toiled mightily in this precise area,” Hennigan said. “Because [the judge] has seized control of this case, it would be a waste of judicial resources to come here and begin anew.”