LOS ANGELES - The U.S. Supreme Court's expected decision tomorrow on whether to hear an appeal petition tied to the Washington Public Power Supply System bond fraud case also has implications for the timing of a settlement fund payout.
The high court is mulling a petition from the Hoffer class action group, which comprises the last bondholders opposing certain settlements in the case.
The group, named after plaintiff Arthur Hoffer, argues that a federal appeals court erred by concluding that Hoffer's lawsuit, which is pending in Washington State, could be snuffed out as part of an out-of-court settlement package that brought the complex federal case to a halt in late 1988.
Tomorrow's decision on whether the Hoffer group will get a hearing before the high court indirectly affects a proposed partial distribution of settlement funds generated by the federal case.
Last month, U.S. District Court Judge William Browning said he wants to see how the Supreme Court handles the Hoffer petition before authorizing a partial distribution of settlement funds.
Judge Browning, who presided over the settlement-shortened WPPSS trial in Tucson, said a partial distribution could be made immediately if the high court denies the petition. He added, however, that he would consider arguments against a partial distribution if the high court grants a hearing.
Investors in WPPSS nuclear power units 4 and 5 bonds still remain hostage to the judicial process before they actually receive some money from the massive litigation. The suits were spawned by the supply system's $2.25 billion default in 1983 on units 4 and 5 bonds.
The settlement fund totals almost $900 million. Last month, lawyers representing class action members in the federal litigation asked Judge Browning to approve distributing about $500 million as soon as possible. They are seeking only a partial distribution because some money must be held in reserve to cover legal fees, taxes, and other allocations.
But two contributors to the settlement fund, the Bonneville Power Administration and Seattle, raised concern last month over distributing any moneys while Hoffer's case is pending. Judge Browning said he will rule on those arguments if the Supreme Court agrees to hear Hoffer.
The Hoffer lawsuit began in 1984 in a Washington State superior court. The group alleged that the state and certain of its officials bore partial responsibility for misleading WPPSS investors.
Washington State was not a defendant in the separate federal litigation that produced the huge set-exchange for protection from other pending or future claims - including Hoffer - tied to the default.
The Hoffer group seized on this point when the group filed its petition to the U.S. Supreme Court in August. Among other things, lawyers for the group say the U.S. Ninth Circuit Court of Appeals erred in concluding it had jurisdiction to settle Hoffer, especially when the state was not a party to the federal proceeding.
Chemical Bank, the bond trustee for WPPSS 4 and 5 debt, supports the settlement package. Last month, the bank, filing a brief jointly with lawyers who represent class action plaintiffs in the federal case, listed reasons why the high court should reject the Hoffer pethe class action group in Hoffer is identical to the class represented in the federal case.
"Petitioners would have the court pretend that there are two entirely separate and distinct classes, based solely on the fact that there are different class representatives" in the state action, the brief says.
The brief argues that lawyers representing class bondholders in the federal suit "could and did adequately represent the Hoffer class interests" because the groups were identical.
A court decision to the effect that lawyers in the federal case could not settle all of the class claims in one proceeding "would seriously undermine the ability to settle class actions by using all potential
Lower court decisions that permitted the settlements to include releases of non-parties also are "essential to avoid putting settlements at the mercy of a handful of class members."
Among other arguments, Chemical Bank and the federal class action lawyers said there is federal precedent to settle the state proceeding because the claims arose out of the "same facts" asserted by the same class.
The brief adds that the case did not involve "some jurisdictional struggle" between state and federal courts that raises broader issues. Rather, the brief argues, it was simply a matter of the parties choosing "to resolve their differences in one court rather than another."