Financial disaster: Schools might not be able to proceed on some construction projects if they can’t proceed with legal action against the county due to Lehman Bros. (AP file photo)Financial disaster: Schools might not be able to proceed on some construction projects if they can’t proceed with legal action against the county due to Lehman Bros. (AP file photo)

Peninsula schools hoping Lehman lawsuit pays off

A lawsuit pitting Peninsula schools against the county could have wide-ranging impacts on campus construction projects.

The loss of bond money means districts are either halting or cutting back on projects for new facilities, classrooms, campus modernization, energy efficiency and purchasing of up-to-date technology.

Twelve financially strapped San Mateo County school districts will soon find out whether they have legal grounds to recoup $20 million in lost investments from the county. San Francisco Superior Court Judge Richard Kramer is expected to make a determination soon after a final hearing Nov. 10 on a case stemming from the 2008 collapse of Lehman Bros.

At issue is whether the county is immune from lawsuits pertaining to discretionary investment decisions and if the school districts filed their suit in a timely manner.

The districts sued in October 2010 after the county lost more than $20 million because former county Treasurer Lee Buffington had recklessly invested in Lehman despite indications that the financial powerhouse was in trouble, the districts claim.

“There is a higher principle here,” said Anne Campbell, the county’s superintendent of schools. “If we are required by law to put our funds into the county treasury, there should be an understanding that the treasurer is going to invest that money according to the standards of the investor.”

The county, which manages the $2.6 billion investment pool for school districts and other public agencies, lost roughly $155 million — more than any other municipality nationwide — in the Lehman debacle.
Michael Celio, the county’s attorney, said state law provides immunity to Peninsula officials who perform investment actions that involve the exercise of discretion.

“Just because an investment the county made didn’t turn out the way everyone hoped it would doesn’t mean you get to sue them for it,” Celio said.

But Farley Neuman, the attorney for the districts, said government code also mandates that the county adhere to prudent investment practices, meaning investments should be limited to 1 or 2 percent in any single fund.
“It’s a mandatory duty, and therefore there is no immunity in this case,” Neuman said.

At one point, the county had as much as 17 percent of its pool invested in Lehman holdings, and roughly 6 percent of the fund was still tied up in the firm at the time of its bankruptcy.  

But the Nov. 10 hearing will focus on whether the school districts filed the suit in a timely manner.
Celio argued that the statute of limitations had expired by the time the districts filed suit, more than two years after the Lehman’s collapse.

However, Neuman said the districts had plenty of contact with the county through email, telephone and in-person meetings prior to the filing.

“We talked to them about whether they wanted to participate in some sort of settlement process and they flatly refused,” Neuman said.

Financial heartache

San Mateo County lost $155 million when Lehman Bros. collapsed in 2008, and 12 Peninsula school districts suffered a $20 million hit.

September 2008
Lehman goes bankrupt

October 2010
12 Peninsula school districts file suit against county and then-Treasurer Lee Buffington

June 2011
Judge asks school districts to revise suit

November 2011
Final hearing

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