July 29, 2008 3:49 PM

Orrick Settles with San Diego for $2.8 Million

Posted by Ross Todd

For the second time in little more than a month, an Am Law 100 firm has agreed to a multimillion-dollar settlement with the city of San Diego stemming from a city pension fund scandal. San Diego city attorney Michael Aguirre announced a $2.8 million deal with Orrick, Herrington & Sutcliffe at a press conference this afternoon.

Today's settlement comes nearly three years after San Diego filed suit against the firm, charging it with failure to disclose the extent of the city's pension debt while the law firm served as the city's bond and disclosure counsel. Orrick won the work representing the city in 1992. From 1996 to 2003, the city's unfunded pension debt ballooned to an estimated $1.7 billion.

"I brought this lawsuit because I believed Orrick should have discovered the pension problems earlier than it did in September 2003, at which time Orrick advised the City that its financial statements had failed to properly disclose the scope of the shortfall of funds in the pension," Aguirre said in a statement released today.

Shortly after the city filed its lawsuit in November 2005, Orrick partner Lanny Davis, quoted in the San Francisco Business Times, described the move as "the epitome of gall." The San Diego City Council's own investigative report concluded that Orrick used "dogged effort" to pressure the city to come clean with the public about its pension debt, Davis told the paper. "Now the city council that failed to oversee its own finances is scapegoating Orrick and everybody else. What's wrong with this picture?," Davis said.

Orrick was represented in the case by Munger Tolles & Olson partners George Garvey, Stuart Senator, and Rick Drooyan. The city of San Diego turned to Bryan Vess and Dan Stanford, who handled the case on a contingency fee basis under the supervision of executive city attorney Don McGrath II. Of the $2.875 million settlement, the city will net about $1.87 million. "I have no notice of Orrick ever paying a settlement to a municipal client lest one of this magnitude," Vess said.

Orrick has admitted no wrongdoing as part of today's settlement. Indeed, the city announced that Orrick has been added to the city's list of bond counsel firms for future offerings. "We are proud of the work we performed for the city of San Diego and we've consistently maintained from the beginning that Orrick acted with highest ethical standards and in the best interest of San Diego," said firm spokesperson Allan Whitescarver. Whitescarver said two independent investigations commissioned by the city council found that Orrick did nothing wrong and the court dismissed the city's original complaint. "At the request of our insurance carrier we've settled this matter with the city," said Whitescarver, adding that insurance will cover the entire settlement amount.

Today's settlement follows the announcement in mid-June that the city reached a $4.35 million settlement with Vinson & Elkins. V&E was hired to run an independent investigation of the city's disclosure practices and to represent the city in an SEC investigation in the wake of the pension mess.

Another related case brought by the city against Willkie, Farr & Gallagher is pending. Willkie lawyers were brought in as a part of an additional investigation after the city's auditors at KPMG rejected V&E's initial investigation.

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