Media lose fight for access to county's bankruptcy records

CALIFORNIA–In late July, the state Supreme Court in San Francisco unanimously barred the disclosure of grand jury records concerning the criminal investigation of Orange County’s 1994 bankruptcy. The court reasoned that state law requires judges to keep secret all testimony to a criminal grand jury unless an indictment is issued.

The ruling overturned lower court decisions that would have made public the records of the county grand jury’s probe into the role of Merrill Lynch & Co., a chief broker and financial adviser to county officials. The Associated Press and other news media organizations sought the grand jury records which a superior court judge had ordered public after a settlement agreement because of the public’s strong interest in the bankruptcy.

The state’s high court said that the longstanding law requiring grand jury secrecy is based on legitimate concerns about the privacy and safety of witnesses and the reputations of innocent people under investigation. The court noted that an indictment is followed by public court proceedings in which defendants can try to clear their names. But with no indictment or legal protections, “the innocently accused and even witnesses” are more vulnerable to risk of adverse consequences “ranging from reputational injury to retaliation,” according to the court.

Orange County’s $1.64 billion bankruptcy was the largest municipal insolvency in the nation’s history. As part of its investigation into the circumstances leading to the county’s filing for bankruptcy in December 1994, an Orange County grand jury conducted a criminal investigation of Merrill Lynch in connection with its role in underwriting several debt offerings during the summer of 1994. The criminal investigation ended without indictments after a civil settlement between Merrill Lynch and the Orange County district attorney.

After the settlement, Superior Court Judge David Carter, who supervised the grand jury, granted news organization requests for access to all grand jury material, reasoning that it could illuminate the causes of the bankruptcy and address public concerns about how the case was handled.

The Court of Appeal had determined that, in the absence of any statutory provision limiting its authority, a superior court has inherent power to order the release of otherwise secret grand jury materials whenever the advantages gained by secrecy are outweighed by a public interest in disclosure. It also determined that there was a “very strong public policy in favor of preserving the public integrity of the grand jury system which can only be served by disclosure.” Release of the grand jury materials at issue, however, has been stayed pending further review by the state’s highest court. (Daily Journal Corp. v. Superior Court; Media Counsel: Kelli Sager, Los Angeles)