Judge Again Denies Merrill Lynch Request to Move Suit

For the second time in 15 months, a federal judge has denied a request by Merrill Lynch & Co. to remove from U. S. Bankruptcy Court the multibillion-dollar damage suit Orange County has filed against the Wall Street firm it blames for its 1994 financial collapse.

In a decision issued Friday, U. S. District Judge Gary L. Taylor said the Merrill Lynch case, as well as another that the county has filed against its former outside auditors, KPMG Peat Marwick, should remain in Bankruptcy Court for now to ensure a speedier and less costly legal process.

“These cases are part of a unique and complex group of related matters that are presently being skillfully and appropriately managed by the bankruptcy judge [John E. Ryan],” Taylor said. “The time is not yet at hand to change that status.”

Taylor did not rule out the possibility that the suits could end up in his court. Both cases may require jury trials, which cannot proceed in bankruptcy court without the consent of both sides, Taylor said.

But “on balance, the most economical use will be made of the [parties’] resources by presently leaving these cases in the bankruptcy court,” he said.

The judge’s decision was a small--and possibly only a temporary--setback for Merrill Lynch and Peat Marwick, which have been sued by the county for $2 billion and $3 billion respectively.

The county’s attorneys claim the brokerage’s sales of risky securities to former Treasurer-Tax Collector Robert L. Citron and the auditing firm’s failure to identify the risks caused the county to lose $1.64 billion and file the nation’s largest municipal bankruptcy. Both firms have denied any wrongdoing.

Two weeks ago, Merrill Lynch and Peat Marwick asked Taylor to move the suits into U.S. District Court, 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 on June 30.

Although Taylor ruled against the firms Friday, he did note that transfer of the suits to his court “might eventually be appropriate in both these cases, the parties have not shown that it must be done now.”

Michael Swartz, an attorney for the county, said he was pleased with Taylor’s ruling because “Judge Ryan has [overseen the case] for more than a year.”

On Friday, Andy Sieg, Merrill Lynch’s spokesman, called Taylor’s decision “simply a procedural ruling that has nothing to do with the merits of the case.

“Whatever court we may be in, Merrill Lynch will keep working to convey the truth that the county’s bankruptcy filing was ill-advised and unnecessary, and the responsibility for Orange County’s financial problems rests squarely with county officials,” Sieg said.

In January 1995, Taylor denied Merrill Lynch’s first attempt to move the case into district court, calling the brokerage’s request premature.