WASHINGTON -- A lawsuit filed over the Heather Estates black box bond deal by an issuer in Utah will not be transferred to a U.S. district court in Pennsylvania and consolidated with other litigation pending against Matthews & Wright, a panel of federal judges ruled last week.

The ruling clears the way for the Clearfield, Utah, housing authority, other parties to the Heather Estates deal, and the Internal Revenue Service to keep trying to reach a settlement of charges made by the IRS earlier this year.

The IRS charged in June that the bonds had been issued without any reasonable expectation that the proceeds would be used for the Heather Estates apartments and therefore were not tax-exempt. It warned that bondholders would be taxed unless the authority paid the federal government $638.064 to compensate for the lost revenue.

The housing authority and its developer, Residential Mortgage Inc., filed the suit against Matthews & Wright and other parties to the deal in the U.S. District Court in Salt Lake City in April.

A few months ago they began negotiating with some of those parties to settle the charges in the lawsuit and to find money for a settlement with the IRS. In September, the housing authority reached a confidential settlement with two Texas law firms -- Stubbeman, McRae, Seally, Laughlin & Browder Inc. and Bankston, Wright & Greenhill -- and dropped them from the lawsuit. Talks with other parties to the deal continue.

Those talks could have been derailed if the authority's lawsuit had been transferred to the U.S. District Court for the Eastern District of Pennsylvania and put on hold with other litigation against Matthews & Wright, lawyers for the housing authority said.

The transfer had been sought by Matthews & Wright, which underwrote the Heather Estates bonds, and its lawyers from the Washington law firm of Williams & Connolly. The housing authority and all of the other defendants in the lawsuit had fought the proposed transfer.

They argued in a hearing in Colorado Springs late last month that the authority's lawsuit was unlike other suits pending before Judge Daniel H. Huyett 3d in the court in Pennsylvania and should continued to be heard in the federal court in Utah.

The panel of judges -- called the Judicial Panel of Multidistrict Litigation -- agreed in its order last week that consolidating the Heather Estates lawsuit with other litigation against Matthews & Wright "would neither serve the convenience of the parties and witnesses nor future the just and efficient conduct" of the Heather Estates lawsuit.

The housing authority's lawsuit, they agreed, is unlike the other lawsuits pending before Judge Huyett in that it was not brought by bond-holders, it was not filed as a class action suit, and it contains claims based on legal theories absent in the other suits.

The Heather Estates bond issue was one of 26 deals totaling $1.3 billion that were rushed to market and closed without cash by Matthews & Wright in the mid-1980s. Matthews & Wright was forced out of the municipal bond business in a settlement of securities law charges over those deals with the Securities and Exchange Commission.

The bonds were first sold for the housing authority as a $7.5 million issue on Dec. 31, 1985, and then resold as a $6.8 million issue in July 1986.

The IRS has treated the Heather Estates issue differently from the other 26 issues that were closed without cash by Matthews & Wright. In other such deals, the IRS has contended that the bonds were subject to arbitrage rebate requirements because they were not validly issued until after those requirements took effect.

The issues were sold to public investors for cash until weeks or months after the deals closed. The bonds were warehoused in an unlicensed, offshore shell bank before being sold to public investors.

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