Justices Reject Bid to Open O.C. Grand Jury File

The California Supreme Court ruled Thursday that the public has no right to review transcripts of criminal grand jury proceedings that fail to produce indictments.

The unanimous decision ensures that the transcripts of a criminal probe into Orange County’s 1994 bankruptcy will remain secret. At the request of news organizations, an Orange County trial judge had ordered the records to be opened because of “the magnitude of the public’s loss of funds and loss of confidence in government and financial markets.”

Merrill Lynch & Co., which was being investigated by an Orange County grand jury, appealed to keep the transcripts secret.

Orange County filed for bankruptcy in December 1994 after its investment fund, which purchased high risk securities from Merrill Lynch, lost a total of $1.64 billion.

The grand jury in 1996 launched a criminal probe of the investment banking firm’s activities. Having previously brought criminal charges against three public officials, the grand jury was investigating whether Merrill Lynch committed fraud in pushing the county to buy risky securities. The criminal investigation ended a year later after the financial giant agreed to a settlement of $30 million in connection with four debt offerings. The county also had filed a separate civil suit against Merrill Lynch for $2 billion. The firm settled with the county in that suit for $420 million in 1998.

The Supreme Court expressed sympathy for public concerns that a target of a criminal grand jury probe could avoid indictment by “buying its way out” of prosecution through a monetary settlement. But the court said trial judges lack “the authority to pierce the veil of grand jury secrecy” even when public interest demands it.

The ruling overturned a Court of Appeal decision that upheld the trial judge’s ruling and gave judges the right to release transcripts whenever the advantages of public disclosure outweigh those of secrecy. At issue were 9,000 pages of transcripts from 42 witnesses, including 29 from Merrill Lynch.

The Supreme Court said the Legislature has crafted specific rules for grand juries since the California Constitution’s adoption in 1879 and has sole authority for carving out exceptions to grand jury secrecy.

Attorneys for the news media, including the Los Angeles Times, had convinced the lower courts to release the records because of the unusual nature of the case and pressing public concerns about it.

Their victory marked the first time courts had agreed to make public criminal grand jury transcripts in probes that did not yield indictments.

“This was a novel ruling [in which] the media really broke new ground,” said Robert G. Morvillo, a lawyer for Merrill Lynch. He said the Supreme Court has now “reinstated the process to where it has always been.”

Kelli L. Sager, who represented the news media in the case, said other states give judges the authority to release grand jury transcripts. Although the law in California has kept transcripts of grand jury criminal proceedings secret when the target was exonerated, there had never before been a case in which the potential defendant reached a monetary settlement to end the probe, she said.

“This is the first time I know of that this particular situation has come up and has been challenged,” Sager said. She lamented that “the public will never know whether the D.A. did the right thing or not.”

Lawyer Alonzo Wickers, who works with Sager, said the ruling does not take away rights the public or media have traditionally enjoyed.

“Unfortunately,” he said, “if a similar circumstance arises in the future, the media will not likely have access as a result. This decision does make clear that any exception to the general rule of grand jury secrecy must come from the Legislature.”

A spokesman for Merrill Lynch said the firm was pleased it persuaded the court to keep the transcripts sealed. Bill Halldin, the spokesman, called the decision “consistent with California’s long-standing effort to protect the privacy of innocent grand jury witnesses.”

Former Orange County Treasurer Robert Citron had joined the media in pressing for release of the records. Citron pleaded guilty to several felonies and received a one-year jail sentence in connection with the bankruptcy. He was allowed to serve his time by working days for the sheriff’s office and spending nights at his home.

David W. Wiechert, Citron’s attorney, said Thursday that Citron wanted “the whole story” revealed about the largest municipal bankruptcy in the nation’s history. Wiechert declined to comment on the decision, however, because he had not yet read it.

Under state law, transcripts of criminal grand jury proceedings must be made available to the public 10 days after an indictment is returned, unless otherwise ordered by a court. If there is no indictment, the Legislature has not authorized such records to be made public.

Last year, the Legislature passed a law that opens up transcripts in civil grand jury proceedings, subject to judicial approval, as long as the identities of witnesses are kept secret.

Assemblyman Scott Baugh (R-Huntington Beach) said Thursday that he will introduce a bill during the current session requiring the public release of grand jury transcripts when criminal investigations end with financial settlements. Terry Francke, general counsel for the California First Amendment Coalition, said the Legislature may well pass such a bill.

Francke, whose nonprofit group advocates open government, said he believes the Orange County investigation was the only such criminal probe to ever end with a monetary settlement.

“If there is no Legislative attention to this problem,” Francke said, “then I would think it would be quite tempting for any corporate suspects . . . to try to derail [an] investigation by offering a settlement.”

Of the $30 million payment to settle the criminal probe, $3 million went to the office of former Dist. Atty. Mike Capizzi. That payment infuriated Orange County Superior Court Judge David O. Carter, who called it “extremely unusual and suspect” when he ordered the transcripts made public.

Orange County dropped its final lawsuit from the bankruptcy last month, clearing the way for 200 cities, schools, other agencies and the county to split $860.7 million in settlement proceeds from a dozen lawsuits.