Bond Counsel Will Pay O.C. $45 Million

County officials Tuesday announced the first major legal settlement in Orange County’s effort to recover its bankruptcy losses, with school districts set to receive more than half of the $45-million windfall.

Under the deal, the county will drop its lawsuit against LeBoeuf, Lamb, Greene & MacRae, the New York law firm that served as bond counsel in the months leading up to the December 1994 financial collapse.

Attorneys for the county and the law firm had reached a tentative accord last fall, but the agreement was held up because one college district refused to drop a separate lawsuit it filed against LeBoeuf.

The North Orange County Community College District reached a $10.2-million settlement with the law firm last month, paving the way for the larger deal to go through.

The $45-million settlement announced Tuesday is one of the largest-ever professional liability payouts by a law firm.

“There’s a great satisfaction in finally beginning to recover some of the money we lost,” Supervisor William G. Steiner said. “For a 300-person law firm, this is major money. I think it’s just the beginning.”

The county is seeking $2 billion from more than a dozen other firms it holds responsible for causing the largest municipal bankruptcy in U.S. history. A key target is Merrill Lynch & Co., which sold former Treasurer-Tax Collector Robert L. Citron some of the risky securities.

The bankruptcy occurred after Citron’s investment strategies caused a pool holding the funds of more than 200 schools districts, cities and special districts to lose $1.64 billion of its value. Merrill Lynch officials deny wrongdoing.

Orange County’s 28 school districts will receive about $25 million from the settlement, while cities and special districts will get the remainder. The Irvine Unified School District will receive $2.2 million, while Newport-Mesa and Placentia-Yorba Linda each will get $1.9 million.

Educators plan to use the money to buy computers, expand classrooms and make repairs to playgrounds and buildings.

“It is a constant struggle to make ends meet,” said John Dean, superintendent of the Orange County Department of Education. “This will certainly help to relieve a bit of the strain. Every district had to cut back seriously. This will put them in a position to do what they have wanted to do.”

Several districts including Santa Ana and Capistrano plan to use their money to improve school maintenance services that they cut in 1994.

“It will be nice when the history of the bankruptcy is put behind everyone,” said Crystal Kochendorfer, president of the Capistrano Unified School District Board of Trustees.

The city of Irvine will receive $1.2 million under the settlement--a fraction of the $32 million it is still owed. City Manager Paul Brady Jr. said the money will replenish funds taken from the capital improvement budget during the financial crisis.

“Every little bit helps,” Brady said.

The case stems from LeBoeuf’s work as legal counsel on more than $1 billion in borrowings used by Citron to gamble on some of Wall Street’s riskiest securities.

County officials described the settlement as one of the largest of its kind involving a law firm. It appears to be eclipsed only by Jones, Day, Reavis & Pogue, which in 1993 paid $51 million to the Resolution Trust Corp. to settle malpractice claims involving legal work done for Charles H. Keating Jr.’s Lincoln Savings and Loan Assn.

“It is very significant, for a case given [LeBoeuf] was not our primary target,” said James Mercer, one of the county’s private attorneys.

The county’s suit against Merrill Lynch is scheduled to go to trial in September.

Last year, the Wall Street giant paid the county $30 million to end a criminal investigation by the district attorney’s office related to the bankruptcy.

The LeBoeuf settlement still must be approved by U.S. District Court Judge Gary L. Taylor.