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Partial Settlement Reached in Giant Lawsuit

September 11, 1987

SEATTLE (AP) _ A $92 million partial settlement has been reached in a lawsuit that arose from the default on $2.25 billion in bonds sold to finance two abandoned Washington Public Power Supply System nuclear power plants.

Junius Hoffman, a court-appointed settlement master, announced the settlement late Thursday. Under the agreement, four major brokerage firms that acted as underwriters were to pay bondholders to settle their involvement in the class-action suit.

The settlement was only partial because of the many defendants named in the various suits that were consolidated after their filing. Other defendants include the Washington Public Power Supply System and 88 Northwest utilities that signed on to build the two plants, the Bonneville Power Administration, various officials and construction companies.

″It’s a good settlement with the underwriters, based on their level of culpability in the case,″ Paul Bernstein of New York, a lead attorney for the plaintiffs, said today. ″I want to get quite a bit more from the other defendants.″

The settlement, which must be approved by U.S. District Judge William Browning of Tucson, Ariz., is the first reached in the case. Trial has been set in the case for Sept. 1, 1988.

The lawsuit stemmed from the biggest default in the history of the municipal bond market.

Money from the bond sale was used to finance construction of WPPSS nuclear plants No. 4 at the Hanford nuclear reservation in Eastern Washington, and No. 5 at Satsop, west of Olympia. Construction was terminated by 1983, when each of the plants was less than 25 percent complete, and there was no foreseeable need for the power they would produce.

Plaintiffs alleged fraud, negligence, misfeasance and interference with contract rights.

Four major brokerage firms agreeing to the settlement are Merrill Lynch & Co., Salomon Brothers Inc., Smith Barney, Harris Upham & Co., and Prudential-Bache Securities Inc.

Peter Costiglio, a spokesman for Prudential-Bache, said the settlement was not an admission of guilt in the case.

He said his firm agreed to the settlement ″because even though we maintain that our company acted properly, we thought it was in the best interests of our customers, the industry and our firm.″

Also, he and others said, reaching an agreement ″will reduce any related court costs in the future.″

Costiglio said Prudential-Bache’s share would be less than $5 million and its payment would not have a material effect on the company.

The settlement calls for the payment by underwriters of $80 million, plus interest up to 18 months, or a total of $92 million.

Al Malanca, an attorney for a group of 14 Northwest utilities named in the suit, said he did not expect the settlement to nudge any other defendants closer to settling out of court.

It was not known how much of the $92 million will get to the bondholders, once legal and other fees are extracted.

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