College District Bond Suit Deal May Be Near

The North Orange County Community College District is poised to drop its damage suit against its former bond attorneys, a move that would pave the way for the county to get a multimillion-dollar damage settlement from the same New York law firm, sources said.

LeBoeuf, Lamb, Greene & MacRae, which faced a trial in the college district’s suit starting Friday, has tentatively agreed to pay the college district an undisclosed sum to settle the dispute, sources said.

The college district’s suit against the law firm had been a major sticking point in a proposed lawsuit settlement negotiated by the county and LeBoeuf.

As the county’s bond counsel, LeBoeuf advised former Treasurer-Tax Collector Robert L. Citron about the legality of the county’s bond offerings and the adequacy of the information disclosed to the buyers of more than $1 billion in county bonds in 1993 and 1994.

After the county got into hot water with the U.S. Securities and Exchange Commission over some of the bond issues that fueled the county’s gambling on Wall Street securities, it sued LeBoeuf for damages.

Under a deal hammered out several weeks ago, the law firm’s malpractice insurer agreed to pay nearly $50 million to settle the county’s suit and to pay its own lawyers, but only if the college district dropped a separate damage suit it had filed against LeBoeuf.

College district officials initially declined to drop their suit, saying that their share of the county’s proposed settlement with LeBoeuf wouldn’t cover the $11 million they lost when the county’s investment pool crashed in December 1994.

Their refusal triggered a barrage of criticism from other agencies that lost money in the investment pool’s collapse. It also brought pressure from local and state officials. At one point, the county studied whether it could freeze more than $250,000 in job-training funding it gives the district.

A state lawmaker even introduced a measure seeking to withhold funding equal to whatever the district received from its own lawsuit against LeBoeuf.

But the college district refused to budge, contending that LeBoeuf should be required to dip into its own profits to help repair the damage it helped cause and not rely solely on its insurance carrier for settlement funds.

The district’s tenacity seems to have paid off with LeBoeuf’s tentative agreement to settle the school district’s suit instead of going to trial.

Under the deal struck several weeks ago, the county was to have been paid $45.3 million to drop the lawsuit that had been filed on behalf of all 200 depositors in the investment pool.

In light of the separate settlement LeBoeuf has negotiated with the college district, it is now unclear whether the county will receive the same amount, sources said.

Any payoff by LeBoeuf to the county would allow cities, schools and special districts to recover yet another portion of the hundreds of millions of dollars they lost when risky securities purchased by Citron plunged in value in the fall of 1994, triggering the nation’s largest bankruptcy by a government entity.

Under the county’s bankruptcy recovery plan, local schools stood to get $24.6 million of the $45.3-million settlement.

The settlement by LeBoeuf would become the first major victory in Orange County’s campaign to recover through damage suits the $1.64 billion in securities trading losses that drove it into bankruptcy.

Acting on behalf of the 200 government agencies that lost money in the county’s investment pool, the county has filed lawsuits seeking about $5 billion in damages from the brokerages, investment banks and other financial firms that the county blames in part for its financial fiasco. LeBoeuf was sued for $500 million.

The county alleges that the firm failed to alert county leaders to Citron’s high-flying investment strategies, even though LeBoeuf’s partners had intimate knowledge of the treasurer’s activities.

The community college district filed a separate $11-million suit against LeBoeuf last year, also accusing the firm of not warning college administrators about Citron’s risky investments.

Attorneys for LeBoeuf and the county did not return telephone calls seeking comment.

Edmond M. Connor, an Irvine attorney for the college district, said he could not talk about the case.