LOS ANGELES - A federal judge wants to see how the U.S. Supreme Court handles a pending appeal petition before authorizing a partial distribution of settlement funds from the Washington Public Power Supply System bond fraud case.
U.S. District Court Judge William D. Browning said in an order Friday that a partial distribution can be made immediately if the Supreme Court denies an appeal petition by the last bondholder group opposing settlements in the case.
But Judge Browning said he will consider arguments against a partial distribution if the high court grants a hearing or does not act on the petition by Oct. 30.
The Supreme Court is unlikely to review the petition until mid-October at the earliest.
Earlier this month, lawyers representing class action purchasers of WPPSS nuclear power units 4 and 5 bonds asked Judge Browning to approve distributing $504.3 million of settlement moneys. The funds were generated by out-of-court settlements from the massive federal litigation spawned by the supply system's $2.25 billion default in 1983 on units 4 and 5 bonds.
The settlement fund is expected to total about $892.5 million as of Oct. 15. Lawyers are seeking only a partial distribution because some money must be held in reserve to cover legal fees, taxes, and other allocations.
Judge Browning's decision to delay any distribution is linked to the so-called Hoffer class action lawsuit, named after plaintiff Arthur Hoffer.
The Hoffer group has argued that a federal appeals court lacked authority and jurisdiction to snuff out the group's claims in connection with a complex settlement package that brought the fraud case to a close in late 1988.
The U.S. Ninth Circuit Court of Appeals upheld the settlements in February, following appeals from the Hoffer group and two other bondholder groups challenging the fairness of certain settlements and the extinguishment of other pending litigation.
The other two groups are not pursuing their appeals further.
Mr. Hoffer and others began their lawsuit in November 1984 in a Washington State superior court. They alleged that the state and certain of its officials bore partial responsibility for misleading WPPSS investors.
But under terms of the settlements in the separate federal bond fraud case, Washington State agreed to pay $10 million even though it was not a defendant in the federal action. In exchange for that contribution, the state was protected in the settlement language from other pending or future claims, including the Hoffer challenge, arising out of the default.
The Hoffer group asked the Supreme Court to review its case on grounds that the federal courts lacked such broad-based authority to interfere with the state court proceedings.
In a conference call Friday with Judge Browning, two contributors to the settlement fund raised concern over a partial distribution before disposal of the Hoffer case, according to Clearing Up, a weekly newsletter that covers the case and other Pacific Northwest energy matters.
Lawyers for the Bonneville Power Administration and Seattle raised questions about what would happen if the Hoffer case stays alive, specifically in regard to indemnification agreements that require WPPSS units 4 and 5 class action lawyers to defend the settling parties against additional legal action.
Judge Browning said in his order that he will rule on such objections if the Supreme Court hears the Hoffer case or does not act on it by Oct. 30.
The Washington State Supreme Court in June 1983 struck down the utility participants' agreements that secured units 4 and 5 bonds. By contrast, WPPSS units 1, 2, and 3 bonds did not go into default because of a net-billing arrangement obligating Bonneville to secure that debt.