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No Pay for Investors’ Lawyer : Court Ruling Backs J. David Trustee

San Diego County Business Editor

A federal judge ruled Wednesday that the trustee in charge of bankrupt J. David & Co. does not have to pay the lawyer representing former investors in the fraud-ridden La Jolla investment company.

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

Wildman said that he will continue to represent the creditors’ committee.

Irving’s ruling is an appealable order, said Wildman, although he added that he “will have to consult with the creditors’ committee” before embarking on such an appeal.

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“The big issue was never money or whether or not I was compensated for my services,” Wildman 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.”

Trustee Louis Metzger had appealed the 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 bankruptcy, not in a Chapter 7 liquidation such as J. David. Last month, Irving hinted in court that he might reverse Pyle’s order.

In his ruling, 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.

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

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“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, 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.

“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 . . . (while) we’re fighting to keep administrative expenses low.”

In another development, former J. David executive Nancy Hoover recently received $40,000 as part of her settlement with the estate. Under the agreement, Hoover receives 20% of the proceeds from the sale of her assets. The most she can receive is $389,500. To date, she has been paid $78,391.

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