Ruling That Trustee Pay Creditors’ Lawyer Is Reversed : Fee to Attorney Denied in J. David & Co. Case

A federal judge in San Diego overturned a lower court Wednesday and ruled that the trustee in charge of bankrupt J. David & Co. does not have to pay the lawyer representing the company’s creditors committee.

The ruling by U.S. District Judge J. Lawrence Irving reverses a lower court order from last October that Richard Wildman, the attorney representing the creditors committee, be paid out of J. David bankruptcy estate funds.

Creditors committee attorney Richard Wildman said he will continue to represent the committee, composed of investors in the bankrupt, fraud-ridden J. David & Co. investment firm once operated by San Diego financier J. David Dominelli.

Irving’s ruling can be appealed, Wildman said, adding that he “will have to consult with the creditors committee” before embarking on such an 0appeal.

“The big issue was never money or whether or not I was compensated for my services,” he said. “The real issue was the representation of the creditors committee in this action, and that was clarified . . . as far as their ability to be heard.”

“I never held high hope that I would be paid by anybody,” Wildman said Wednesday. Under an agreement with Wildman, no member of the committee will be liable for his fees relating to the J. David case. Through April, those fees totaled $27,500 because Wildman had logged about 275 hours of work on the case at an hourly rate of $100. He has not been paid for any of it.

Trustee Louis Metzger had appealed the lower court order, made by now-retired U.S. Bankruptcy Judge Ross M. Pyle, claiming that a bankruptcy estate is liable for a creditors committee’s attorney fees only in a Chapter 11 reorganization, not in a Chapter 7 liquidation such as the J. David case.

“Obviously we have no objection to the creditors committee receiving legal advice,” Metzger said. “But I didn’t want to see the estate paying additional legal fees when it was already well-represented by a legal firm and (while) we’re fighting to keep administrative expenses low.”

In the ruling filed in federal court Wednesday, Irving said it would be “unfair” for Wildman to work “hundreds of hours on behalf of the committee and then find out at some later date that he will not be paid for any of it” by the estate.

Trustee Metzger also has an “interest in knowing the liability of the estate,” Irving said.

Meanwhile, in another J. David development, former executive Nancy Hoover recently received $40,000 as part of her settlement agreement with the estate. Under the agreement, Hoover receives 20% of the proceeds from the sale of her assets.

To date, she has been paid $78,391, while the estate has garnered four times that amount from the sale of her assets.

Much of Hoover’s money has been used for legal expenses, according to a source familiar with the case.