Stalemate Delays Lawsuit Settlement

The North Orange County Community College District has offered to resume negotiations with county attorneys to resolve a stalemate currently delaying a $50-million bankruptcy lawsuit settlement from a New York law firm.

Chancellor Tom K. Harris Jr. said the district is willing to have a legal dispute with the county resolved by a mediator.

During the past few weeks, attorneys for the district and the county have deadlocked on how to resolve suits against LeBoeuf, Lamb, Greene & MacRae, a New York law firm that served as bond advisors to the county and the school district.

The law firm’s malpractice insurer has agreed to pay $50 million, but only if the college district, which is a party to the county’s legal action, drops a separate damage suit against LeBoeuf.

College district officials have called the settlement offer inadequate, saying the law firm should be made to pay more by dipping into its own profits.

The deal has been accepted by virtually all of the 214 agencies that lost $1.64 billion when the county’s investment pool crashed in December 1994, triggering the nation’s largest municipal bankruptcy.

Leaders of cities, schools and other agencies that will recoup some money from the LeBoeuf settlement have been pressuring college district officials to approve the settlement, saying the delay is robbing them of much-needed funds.

Under the deal, local schools would receive nearly $25 million, a sum school officials said could be used to carry out overdue repairs and maintenance to school facilities.

Last week, Sheriff Brad Gates urged the college district to approve the settlement.

“It is important to all parties that the settlement not come unraveled,” Gates said, in a letter to the district’s Board of Trustees, “especially since local schools will receive about [$25 million] and the local public could be damaged.”

In a separate letter to the trustees, Marian Bergeson, Gov. Pete Wilson’s education secretary, warned that if the LeBoeuf suit was not promptly settled, the settlement money “will be lost to attorneys’ fees.”

County officials are studying whether they could apply pressure on the school district by freezing more than $250,000 in funding for the college district. They are also investigating whether they can get legislators to cut off some state funds allocated annually to the district.

But officials with the college district, which operates Fullerton and Cypress community colleges, have refused to budge.

Harris, the district’s chancellor, said the district would incur “a multimillion-dollar loss of principal, interest, out-of-pocket expenses and attorney’s fees” if it dropped its suit against LeBoeuf.

Harris said the county reneged on an agreement to submit the dispute to an outside mediator and has refused to negotiate with the district, relying instead on a “campaign of political pressure, including a series of threats.”

Said Harris: “Instead of trying to negotiate a reasonable workout of the settlement standoff, the county has resorted to hardball tactics, which have allowed LeBoeuf the luxury of sitting back and watching the unseemly spectacle of the county and other local agencies trying to beat up one of their fellow team members.”

County attorneys were not available to comment on Harris’ allegations that they had not negotiated in good faith.

But in his letter, Gates faulted college trustees for not accepting a mediator’s recommendation under which the district would have received $6.7 million of the $8.5 million it lost in the bankruptcy.