Trustee Seeks Fee Return in J. David Case

The bankruptcy trustee for J. David & Co. wants legal and accounting firms to return nearly $850,000 they were paid by the ill-fated company. They then will have to get in line with other creditors for a share in any ultimate distribution of the firm’s assets.

Trustee Louis Metzger, in suits filed in U.S. District Court in San Diego, is also seeking the return of $36,000 the fraud-riddled La Jolla investment firm contributed to three Southern California nonprofit organizations. The three organizations, including Pepperdine University in Malibu, were the only charitable groups that ignored Metzger’s requests to waive a statute of limitations and negotiate on returning money that J. David contributed. Twenty-two others agreed to negotiate.

Altogether, the seven lawsuits filed late Friday by Metzger seek the return of $2.6 million. That amount includes $880,000 paid to former J. David employees Michael and Linda Hall--including $30,000 J. David allegedly gave Michael Hall to pay for a luxury suite that the Los Angeles Raiders football team planned to build at the Los Angeles Memorial Coliseum.

The suits also name the San Diego law firm of Wiles Circuit & Tremblay and the national accounting firm of Laventhol & Horwath, the trustee’s first legal move against J. David’s professional advisers.

Ken Newman, an attorney for Metzger, said Monday that the suits reflect a decision by the trustee to get tough about recouping J. David assets.

“There have been a lot of talks with a lot of these people,” Newman said. “If they were not going anywhere, or they somehow felt the trustee would just go away, we had to do something about it.”

However, Jack Samet, the Los Angeles attorney representing Wiles Circuit, said he was unaware of extended discussions about returning funds paid to the firm so they could be redistributed in the J. David bankruptcy proceedings.

“I believe the services Wiles Circuit performed were proper, and that they gave quality professional services for the money they received,” Samet said.

Metzger is seeking to recoup about $706,000 from the La Jolla law firm, which handled J. David’s routine legal work. The trustee also is seeking about $138,000 paid to Laventhol & Horwath, which was J. David’s accounting firm.

Rogers & Wells, the New York law firm that performed most of J. David’s securities law work out of its San Diego office, has agreed to a separate settlement of as much as $40 million with former J. David investors. In more than 300 lawsuits, the investors claim Rogers & Wells defrauded them by continuing to represent the investment firm’s founder, J. David (Jerry) Dominelli, even after it learned J. David & Co.’s foreign currency trading activity was illegal.

In January, when Metzger issued his most recent update on efforts to recover J. David assets, the trustee had recouped about $22.5 million and was suing to reclaim an additional $29 million. Nearly 5,300 investors have filed claims totaling $1.8 billion against the defunct J. David operations in U.S. Bankruptcy Court in San Diego.

The major San Diego cultural institutions that received contributions from J. David & Co.--including the San Diego Symphony, the San Diego Opera and the La Jolla Museum of Contemporary Art--agreed earlier this month to waive a legal deadline and give Metzger time to negotiate a return of at least some of the contributed funds.

But Newman said that Pepperdine, the U.S. Human-Dolphin Foundation and the Happy Hairston Youth Foundation did not respond to letters from Metzger requesting talks about the donations, which he claims were made to build J. David’s image as a successful investment house.

“The filing now was simply to preserve the estate’s rights,” Newman said. “This doesn’t mean something may not be worked out.”

Like some San Diego charity officials, however, Happy Hairston said Monday that Metzger is unlikely to recoup any money from his foundation.

“They’ve got a snowball’s chance in hell trying to do something like that,” said Hairston, who established the foundation to send disadvantaged youngsters to private schools. He is a retired forward for the Los Angeles Lakers of the National Basketball Assn.

Hairston said he took two youngsters from Los Angeles to La Jolla in 1983 to pick up the $15,000 donation and meet Dominelli and Nancy Hoover, J. David’s second in command.

“If our $15,000 made a difference as to how much money was embezzled, I’d be interested in sitting down and talking with them,” Hairston said of the trustee’s efforts to recover the money.

Metzger’s suit against the Halls seeks the return of more than $519,000 from Michael Hall and nearly $322,000 from Linda Hall, both of whom Newman identified as former J. David employees. Newman said the money could represent salaries, loans and investment income received by the pair.

According to the suit, Hall paid the Los Angeles Raiders $45,000 in August, 1983, for one of the luxury suites that the team planned to build at the Coliseum. The amount included $30,000 from J. David. The suit says the money was refunded to Hall, but that he never returned J. David’s share to the investment firm.