LOS ANGELES -- A court filing last week requested a partial distribution of $504.3 million from the settlement fund of the Washington Public Power Supply System bond fraud case, with Oct. 15 set as a target date.
The filing, by lawyers representing class action purchasers of WPPSS nuclear power units 4 and 5 bonds and their executive committee, could finally pave the way for investors to receive some money from litigation spawned by the massive $2.25 billion default in 1983.
U.S. District Court Judge William D. Browning, who oversaw the federal bond fraud case in Tucson, must approve any order to pay out settlement funds.
In their filing last week, the lawyers reminded the judge that bondholders saw their interest payments stop and the value of their investments plummet. "Now, nearly 10 years later, those investors are still waiting to receive some recovery on their losses," the filing says.
Out-of-court settlements in late 1988 cut short a trial that began in Tucson four years ago this month. But certain bondholder groups opposed aspects of the settlements, and their resulting appeals blocked distribution of the moneys.
However, only one of those challenges is still pending. The so-called Hoffer class action group, named after plaintiff Arthur Hoffer, has petitioned the U.S. Supreme Court to consider whether a federal appeals court lacked authority and jurisdiction to snuff out the group's claims against Washington State. The settlement package would extinguish the Hoffer action in exchange for a $10 million contribution from the state.
Buy lawyers for class action bondholders in the federal case believe that a partial distribution of the settlement fund is feasible, regardless of whether the Hoffer challenge succeeds. They propose setting aside some of the settlement fund to accommodate the Hoffer case and other uncertainties, such as unresolved legal fees and tax issues.
Last week's filing indicates that the settlement fund is expected to total about $892.5 million as of Oct. 15. Certain insurance funds, however, must remain in escrow, so the estimated sum available for distribution on that date will be $880.9 million.
Of that total, the filing notes that some funds must be paid to parties other than the class action bondholders or temporarily withheld from distribution.
Specifically, the plaintiffs' executive committee requests authorization to distribute $188.6 million to cover allocations to the units 4 and 5 bond fund and to pay class action lawyers for legal fees and expenses that are not in dispute.
Chemical Bank, the bond trustee, would receive the payments on behalf of the bond fund. The settlement package, including interest earnings, allocates $95 million to the bond fund and another $52.8 million to reimburse the fund for legal expenses.
Money in the bond fund will eventually be distributed to all current bondholders, regardless of when they purchased their holdings. By contrast, the bulk of settlement funds will benefit investors who bought WPPSS 44 and 5 bonds before June 15, 1983, when the Washington State Supreme Court struck down the utility participants' agreements that provided security for the debt.
In the filing, the executive committee also asks Judge Browning to approve distribution of $40.8 million in legal fees, including interest, to numerous plaintiffs' lawyers.
In addition, last week's filing requests that $188 million of settlement funds be withheld to accommodate other needs.
Of that amount, the executive committee believes that $65.8 million should be withheld from distribution as a reserve for taxes. The committee said it anticipates that the Internal Revenue Service will take the position that income generated by the settlement fund will be taxable to the fund itself.
"Subject to court approval, the executive committee intends to pay taxes prior to year's end, and if appropriate, to dispute the assessment of taxes at a later point in time," last week's filing says.
The filing also proposes holding $84.2 million in reserve for disputed legal fees and expenses. That amount, which includes interest earnings and potential tax liabilities, represents the difference between what lawyers requested and what Judge Browning approved. The lawyers have challenged Judge Browning's decision in a federal appeals court.
Another $3 million would be set aside for other potential legal fees, according to the filing.
Certain bondholders' class action claims also might be disputed, the filing says, leading lawyers to suggest that $15 million be set aside for this possibility.
Finally, the lawyers proposed holding $20 million in reserve in case the Hoffer appeal is successful. The $20 million would cover returning Washington's payment, plus interest, and also cover any defense costs "which may be triggered as a result of the continued prosecution of the Hoffer action," the filing says.
Last week's filing also sheds some light on details of an otherwise confidential settlement that prompted another bondholders group, known as the Heerey group, to drop a possible appeal to the U.S. Supreme Court because of dissatisfaction with part of the settlement package.
The filing says that class plaintiffs "may be required" to reimburse Chemical Bank an additional $200,000 to defray certain costs in conjunction with the settlement that disposed of all the Heerey claims.
Last week's filing cautions that the actual payment amounts are tentative and would change if a date other than Oct. 15 is used. The proposed amounts also remain subject to adjustment for interest earnings and taxes held in reserve.