Judge May Block Paying of J. David Group’s Legal Fees

A federal judge said Friday he likely will rule that the lawyer representing the J. David & Co. creditors’ committee should not be paid by the J. David bankruptcy estate.

U.S. District Judge J. Lawrence Irving said he would make his decision in a few days, but added that his “preliminary plan” is to reverse a lower court order that approved the payment of fees to Richard Wildman, the attorney for the J. David & Co. creditors’ committee. The group is composed of former investors in the fallen La Jolla investment firm.

In October, U.S. Bankruptcy Judge Ross M. Pyle approved in concept that J. David bankruptcy trustee Louis Metzger should pay Wildman’s fees.

Metzger appealed Pyle’s order, claiming that a bankruptcy estate is liable for a creditors’ committee’s attorney fees only in a Chapter 11 bankruptcy reorganization, not in a Chapter 7 liquidation such as J. David.

Irving said he intends to overrule Pyle’s order because “I don’t feel that under Chapter 7 there was authorization” to approve the payment.

Wildman has not yet submitted a bill for his services. He has logged about 275 hours to date on the case, at an hourly rate of $100, he told Irving.

Asked by Irving what he would do if the court ruled against paying him fees, Wildman said he would continue to represent the creditors’ committee. “My best interests aren’t of much concern,” Wildman said, adding that he had no case precedents to support payment of creditors’ committee legal fees under a Chapter 7 bankruptcy.

Under an agreement with the committee, unless Wildman’s fees are paid by the bankruptcy estate, he will receive nothing, Wildman told Irving. The agreement ensures that no individual creditor or former J. David investor is liable for payment for the services.

Wildman asked Irving to delay ruling on the appeal, even though a member of the creditors’ committee called Irving’s office last week to urge that a ruling be made soon.

Last week, Wildman and the creditors’ committee were strongly criticized in court by U.S. Magistrate Harry R. McCue for “carping” on Metzger’s efforts to retrieve and liquidate J. David & Co. assets. McCue chastised the committee for not having scrutinized the affairs of J. David (Jerry) Dominelli as arduously as they have examined Metzger’s expenditures.

Dominelli, founder of the bankrupt firm who acts as his own attorney in the bankruptcy proceedings, took no official position on whether the committee’s legal fees should be paid by the estate.

Dominelli will be sentenced next month to as much as 20 years for pleading guilty in March to four felonies. He admitted that he and his firm garnered about $200 million from 1,500 investors, and that he fabricated the foreign currency trading profits that investors thought were being generated.

To date, Metzger has recouped only about $11.4 million from selling various J. David assets and expects another $5.3 million to be obtained soon. After expenses and mortgages, the estate will net about $10 million from those amounts.

Metzger is trying to retrieve another $25 million paid to investors in the 90 days before the Feb. 13, 1984, J. David & Co. bankruptcy.