LOS ANGELES -- A bondholders group challenging settlements in the Washington Public Power Supply System bond fraud case probably will ask the U.S. Supreme Court to review the group's arguments.
"I anticipate that we will" take the challenge to the Supreme Court, lawyer Robert Sedgwick said yesterday. Mr Sedgwick represents the so-called Heerey group of bondholders.
He said they would do so because the U.S. Ninth Circuit Court of Appeals, having rejected appeals by the Heerey and Hoffer groups in February, last month turned down the groups' petitions for a rehearing.
The two groups oppose both the fairness of certain settlements and the extinguishment of other pending litigation. They are named after the bondholders who initiated the actions.
Among other things, the Heerey group opposes provisions in the settlements that bar it from pursuing a separate lawsuit.
A lawyer for the Hoffer group could not be reached for comment on whether his clients intend to submit a petition to the high court.
The out-of-court settlements stemmed from a bond fraud case over the supply system's $2.25 billion default in 1983 on bonds for nuclear power projects 4 and 5.
Monday marked the ninth anniversary of the Washington State Supreme Court's ruling that local utilities' promises to repay investors were invalid. The decision prompted a default later that year.
The settlement pot, including interest earnings, now totals more than $800 million. The balance remaining after payment of lawyers' fees will be distributed to various bondholders, with the allocation share tied to the date they purchased bonds for WPPSS units 4 and 5.
Under terms of the allocation plan, the bulk of settlement moneys would benefit two groups of class action bondholders who bought their units 4 and 5 securities before June 15, 1983, the date of the Washington State court ruling.
The Heerey group, also known as the late buyers, consists primarily of those investors who bought the bonds after that June 15 cutoff date.
Mr. Sedgwick said a Heerey group petition to the U.S. Supreme Court would center on the issue of whether lower federal courts acted properly by approving settlements that enjoin his clients from pursuing related WPPSS litigation. The Heerey group was not a party to the class action proceedings that produced the settlements.
The Heerey group also charges that Chemical Bank, the trustee for units 4 and 5 bonds, exceeded its authority in negotiating the settlements.
But citing legal precedent and the bond resolution, the Ninth Circuit Court concluded that Chemical Bank had broad settlement authority. It rejected arguments, for example, that the bank lost its power to settle or compromise bondholders' claims against WPPSS by failing to obtain universal bondholder consent for its actions.
The Hoffer group also appealed to the Ninth Circuit Court because the settlement package extinguished the group's pending case in Washington State. The Hoffer group pursued numerous claims against Washington and some state officials because of the default.
Although the Hoffer suit involved charges pending in a separate state court proceeding, the ninth circuit found procedent to conclude that "it was not necessary for the [federal] district court to actually exercise subject matter jurisdiction over the claims to approve their release."
Mr. Sedgwick said his clients have until mid-August to file their petition. As a result, the high court probably will consider the group's request this autumn at the earliest.
A date for distribution of settlement proceeds to class action members remains uncertain because it hinges on resolution of the legal challenges to the settlement plan.