Board Decides to Rethink Hiring Toll Lanes Lawyers

Troubled by ethical questions raised by a prominent law firm’s role in the failed sale of the 91 Express Lanes, Orange County supervisors on Tuesday refused to hire the firm to handle the county’s tobacco settlement money.

Instead, supervisors voted 4 to 1 to send the matter back to an advisory committee to reevaluate whether Orange County should select Orrick, Herrington & Sutcliffe of San Francisco.

The firm could still win the county’s business, but supervisors Todd Spitzer and Jim Silva expressed strong misgivings about hiring the firm in light of its controversial involvement in the collapsed sale of the privately owned lanes to a nonprofit corporation.

In that instance, Orrick did legal work for all three parties involved: the prospective buyers, the toll road operators who wanted to sell and state officials who planned to issue bonds worth up to $274 million to finance the deal.

“We need to make sure what we do is right,” Silva said. “It’s imperative to avoid even the image of doing anything wrong.”

Silva said he recognized that the firm--the nation’s largest bond counsel--was competent to handle the county’s anticipated windfall of approximately $900 million, its portion of a settlement with tobacco companies to compensate for the public health costs of treating sick smokers.

But, Silva said, the county must avoid even the slightest hint of a conflict of interest since Wall Street continues to monitor Orange County’s recovery in the wake of the county’s bankruptcy five years ago.

Spitzer said he could not vote for Orrick after studying testimony given by two of the firm’s lawyers during last month’s Public Financing Advisory Board meeting.

“This county, because of a lack of oversight, squandered away $1.6 billion, and it must be underscored that we have a legal firm here struggling with their legal obligations and their client loyalty,” Spitzer said.

“I cannot support that,” he said.

Spitzer detailed an exchange during last month’s finance committee meeting in which Orrick senior partner Roger L. Davis compared legal work in bond sales to a game of musical chairs, in which the bond counsel works with several parties during the evolution of a deal.

“We are trying very much to comport with how all other lawyers, all other contacts, determine who their client is and where their duties of loyalty and confidentiality rests,” Davis was quoted as saying in a transcript of the Jan. 13 advisory board meeting.

Orrick officials did not speak at Tuesday’s supervisors meeting, and could not be reached for comment.

Davis has said in the past that while his firm did work in the early stages for the buyer and seller, the firm never officially represented either party. Instead, Orrick represented the issuer of the bonds, which turned out be the state’s Infrastructure and Development Bank.

“Our only client was the Infrastructure Bank, and our responsibility was limited to financing documents to which the Infrastructure Bank would be a party and to matters related to the tax-exemption of the bonds,” Davis wrote in a memo to the committee last month.

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The state treasurer canceled the bond sale in December because of the threat of litigation by Riverside County officials and an investigation by California’s attorney general.

On Tuesday, Spitzer argued against hiring Orrick, saying attorney ethics and client loyalty “is not a moving target.”

Supervisors want to use a portion of the tobacco money to expand their jail facilities as well as pay down county debt. But it remains unclear whether state lawmakers in Sacramento will allow the county to use the tobacco money for anything other than health care.

On Tuesday, Supervisor Tom Wilson voted against sending the Orrick issue back to the advisory committee, saying the move might tarnish Orrick’s reputation. After all, Wilson said, the finance committee had already debated the issue and reached a decision.

At the Jan. 13 meeting after two hours of questioning, the committee voted to recommend that supervisors hire Salomon Smith Barney to underwrite the deal, Orrick as bond counsel and a small, Bay Area financial advisor, Sperry Capital, which was also deeply involved in the 91 Express Lanes deal.

The advisory committee disregarded the advice of Orange County Treasurer John M.W. Moorlach, who encouraged the committee to dump Orrick and Sperry Capital. Supervisors on Tuesday took no issue with Sperry or Salomon Smith Barney.

Moorlach said Tuesday that he was pleased with the supervisors’ action.

“We need to be ultra-cautious after what happened in the past in Orange County,” Moorlach said. “We suffered so much. The bankruptcy was caused by poor investments and poor borrowing.”