City of Atascadero v. Merill Lynch, Pierce, Fenner & Smith, Inc.

This appeal arises from the wreckage of the Orange County bankruptcy. Appellants are 14 California cities and local agencies who deposited funds with the Orange County (the County) Treasurer for investment.in the County Investment Pools (the Pool), a statutory investment trust. After the Pool collapsed in December 1994 and the County declared bankruptcy, most Pool participants elected to settle with the County by releasing their claims against the County and assigning to the County any claims they had against third parties in exchange for a contingent, contractual right to participate in any recovery the County might obtain from its various lawsuits against third parties. Appellants opted not to waive or release their rights to proceed on direct claims against the County and third parties. They then proceeded to bring suit against Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch), and other entities and individuals associated with Merrill Lynch.

Appellants now appeal from entry of judgment in favor of respondents following the sustaining of a demurrer without leave to amend to their second amended complaint. Appellants contend they have properly pleaded causes…