San Mateo County Superintendent of Schools Anne Campbell said today that she and 12 local school districts will appeal the dismissal of their lawsuit against the county over a $20 million failed investment in the now-bankrupt Lehman Brothers Holdings Inc.
“We’re obviously disappointed and we do plan to appeal,” Campbell said.
“We really think there are some very important principles here. We felt they really had not kept to prudent investment standards,” she said.
The lawsuit against San Mateo County and former county Treasurer Lee Buffington was dismissed Thursday by San Francisco Superior Court Judge Richard Kramer, who said the county and Buffington were protected by state law from being sued for discretionary decisions.
The appeal will go to the state Court of Appeal in San Francisco. After that court rules sometime next year, the losing side can appeal to the California Supreme Court.
Campbell and 12 of the county’s 23 school districts filed the lawsuit in January.
They claim the county and Buffington were negligent and violated a “prudent investor” standard in state law when they invested pooled county funds in securities issued by Lehman Brothers, which declared bankruptcy during the global financial crisis on Sept. 15, 2008.
The districts say they lost $20 million in Lehman investments and are seeking to recoup that amount from the county through the lawsuit.
The district funds–which included school bond revenues and money for operating expenses–were held and invested by the county under a structure established by state law for a pooled investment fund for school districts and other local agencies within a county.
The lawsuit claims that agencies participating in the San Mateo County Pooled Investment Fund lost a total of $155 million from Lehman investments, including the $20 million lost by the plaintiff districts.
It charges that the county and Buffington were imprudent in investing too much money in the financial sector, placing too much of the financial sector investment with Lehman Brothers, and failing to sell the Lehman investments quickly when the company began to collapse.
Michael Celio, a lawyer for the county, said Kramer issued his ruling from the bench on Thursday after a hearing and that the judge agreed with two arguments in which the county sought dismissal.
The first argument was the claim that state law gives officials immunity from being sued for exercising their discretion in making policy decisions.
The second, Celio said, was that the districts could not sue for breach of contract because the pooled investment fund was established by state law and not by a contract.
Celio said, “We understand that the case isn’t over, but we’re pleased that the judge agreed with us at this step, and we hope we’ll win at the next step as well.”
The districts participating in the lawsuit are the San Mateo Union High School District, the Cabrillo Unified School District and the Menlo Park, Belmont-Redwood Shores, Burlingame, Jefferson, Ravenswood City, San Bruno Park, San Carlos, Las Lomitas, Portola Valley and Woodside elementary school districts.
Julia Cheever, Bay City News