County Wants Bankruptcy Suit Heard in Federal Court

SANTA ANA — Orange County wants a lawsuit challenging the constitutionality of a key element of its recovery plan to be heard by the judge who presided over its 19-month-long bankruptcy case, its lawyer said Monday.

Bruce Bennett, who was the county’s lead bankruptcy attorney, said he filed a notice late Friday to remove the case from state court to the more familiar courtroom of Bankruptcy Judge John E. Ryan, who approved the intricate plan last June.

Even though Ryan’s confirmation of the county’s plan effectively ended the bankruptcy, he retains “post-confirmation jurisdiction” over certain types of issues, Bennett said, such as the challenge brought last month in Orange County Superior Court by a government watchdog group, the Committees of Correspondence.

The county activists filed the action two weeks after a Los Angeles Superior Court judge declared unconstitutional a statute similar to the special-purpose legislation that enabled Orange County to divert some tax revenues, enabling the county to borrow $880 million and bail itself out of bankruptcy.

In the lawsuit filed by Century City attorney Richard I. Fine, the Committees of Correspondence contends that that special-purpose legislation unconstitutionally allowed money to be siphoned from special funds intended for transportation, redevelopment and recreation.

Attempting to remove the case to bankruptcy court, said Fine, “is simply a delaying tactic and a failure [by the county] to face the bottom-line issues.”

Fine said he would file a motion to put the matter back before a state court judge, adding “it appears as if the bankruptcy court was never asked to review the constitutionality of the legislation and there’s a question as to whether [the bankruptcy court] even has the power to do that.”

But Bennett, a bankruptcy specialist, said “believe it or not, if you read the code carefully the [county’s bankruptcy] case may never end.”

Wherever the matter is ultimately heard, Bennett said, Orange County feels the issues in this lawsuit will be viewed differently.

“Generally . . . we just think Fine is wrong,” said Bennett. “We don’t think it’s a special law, we don’t think it’s in that category.

“We are also extremely confident,” Bennett continued, “that the tax revenue streams are not the products of special taxes. They are flows that come from general taxes.”

Fine said California law has been well-established on the use of tax funds to solve fiscal crises since the late 1880s.

In the lawsuit challenging the transfer of $50 million in transportation funds to prop up the failing Los Angeles County health-care system, Fine convinced a judge that the California Constitution has not permitted such diversions since it was amended to ban such transfers 116 years ago.

The Orange County lawsuit named as defendants the Board of Supervisors, the Orange County Transportation Authority, State Controller Kathleen Connell and several unnamed parties. They have until Feb. 4 to answer the complaint.