A state appeals court says San Mateo County isn't responsible for $20 million in losses suffered by a dozen school districts in a county-run investment fund that had holdings in Lehman Bros. when it collapsed in 2008.
The districts sued the county and its treasurer, the now-deceased Lee Buffington, under state laws requiring the treasurer to act as a "prudent investor" when managing funds.
They claimed Buffington placed too much of the San Mateo Pooled Money Investment Fund in Lehman securities, failed to diversify the fund and should have foreseen the brokerage's September 2008 bankruptcy, which cost the fund $155 million.
But the First District Court of Appeal in San Francisco said a county treasurer can be sued only for violating a specific, measurable duty - like failing to invest a participant's funds - and not for actions that require discretion and judgment.
The law required Buffington to act with "care, skill, prudence and diligence" but did not set measurable standards for a judicial inquiry into "highly subjective and speculative investment decisions," said Justice Robert Dondero in a 3-0 ruling issued Thursday. The court upheld a San Francisco judge's dismissal of the suit.
Stuart Gasner, a lawyer for the county, said the court recognized that "the treasurer cannot be sued for making complex investment decisions or for failing to predict Lehman's collapse." In a separate case, the county and other investors are suing Lehman Bros. executives in a New York federal court.
Farley Neuman, a lawyer for the school districts, said they may appeal to the state Supreme Court. He said the "prudent investor" law was no more subjective than laws requiring individuals to act with "reasonable care," which courts regularly enforce.