Merrill Seeks End to ‘Killer B’ Suit

Merrill Lynch & Co. on Tuesday asked the California Supreme Court to toss out a fraud lawsuit by 14 cities and local agencies that accuse the Wall Street firm of causing their losses in Orange County’s 1994 bankruptcy.

Merrill Lynch contends the cities and agencies gave up their right to sue when they entrusted their funds to the county and its treasurer, then Robert L. Citron.

The lawsuit was thrown out by a trial judge in Contra Costa County, then reinstated last month by an appeals court.

Merrill Lynch, Citron’s chief investment house, has reached several legal settlements related to the bankruptcy, including a $400-million payment to settle a lawsuit by the county.

Following the county’s $1.64-billion investment loss, most of the 200 schools, cities and agencies with money in the county investment pool agreed to let the county represent their legal interests.

But 14 agencies, known as the “Killer Bs,” chose bankruptcy settlement option B, which allowed them to sue on their own. They are the cities of Buena Park, Yorba Linda, Atascadero, Milpitas, Claremont, Montebello, Mountain View and Santa Barbara; the Santiago and Yorba Linda water districts, and the redevelopment agencies in Buena Park, Yorba Linda, Santa Barbara and Montebello.

Those agencies are seeking to recover $80 million in lost principal, interest and legal fees--an amount they contend should be trebled under racketeering laws.

Merrill Lynch spokesman Bill Halldin said the brokerage “continues to believe . . . there is no legal basis for the case” and noted that the agencies already have recovered 90% of their losses. Halldin said the remaining principal loss is just $19 million.