Dominelli Allows Lawyers to Testify : Waiver of Attorney-Client Privilege in Civil Suits Comes on Eve of Sentencing

J. David (Jerry) Dominelli on Wednesday waived the confidentiality privilege that has prevented his former attorneys from disclosing information in civil lawsuits about his bankrupt and fraud-ridden La Jolla investment firm.

In a surprise move that could “open the floodgates” of information in the numerous lawsuits filed against former lawyers and accountants for J. David & Co., Dominelli agreed to “assist the investors” by signing a declaration waiving the attorney-client privilege, according to Patrick R. Frega, a San Diego attorney representing former J. David clients.

Frega has filed lawsuits against Rogers & Wells, J. David’s former law firm, and other professionals seeking damages totaling more than $20 million.

The notarized declaration will be filed in San Diego Superior Court either today or Friday, Frega said.

Dominelli’s waiver comes only five days before he is scheduled to be sentenced to as many as 20 years in federal prison for pleading guilty to four counts of fraud and income tax evasion in connection with the collapse of his firm.

Before it was forced into bankruptcy in February, 1984, Dominelli’s J. David & Co. received $200 million from 1,500 investors over five years, with promises of 40% annual returns.

Dominelli’s waiver means that “all the lawyers involved can now make absolutely truthful disclosures,” according to Nicholas Coscia, the former Securities and Exchange Commission attorney who joined J. David as general counsel in December, 1983.

Coscia discovered within a few weeks of joining the firm that J. David was a fraudulent scheme, and he wrote letters to the firm’s outside lawyers detailing his findings.

At least one of those firms, Rogers & Wells, already knew of possible improprieties, according to previously reported documents. Rogers & Wells faces several lawsuits seeking a total of $120 million.

The law firm warned Dominelli that his foreign currency trading should be halted and his clients’ monies returned because the company was selling unregistered and therefore illegal securities. Despite the warning, Rogers & Wells lawyers in San Diego convinced state regulators in early 1983 that J. David’s accounts did not have to be registered as securities.

In civil depositions, attorneys who once worked for J. David have refused to answer sensitive questions, claiming that to do so would violate the attorney-client privilege.

The plaintiffs “weren’t getting that much from the depositions, but now that the privilege has been waived, the lawyers won’t have so much to hide,” said one former J. David attorney.

To violate the privilege is to “violate the rules of professional conduct--and you owe that duty to your client,” said another former J. David lawyer.

Former J. David general counsel Frederick Storm said he “knew I was always going to have to testify,” but can freely do so now that Dominelli has waived the privilege.

Storm’s deposition is scheduled for Monday, the day of Dominelli’s sentencing.

Jerry McMahon, the attorney representing former Rogers & Wells attorney Norman Nouskajian, said only that he is “pleased” with Dominelli’s action. Nouskajian was Rogers & Wells’ lead attorney at J. David and reportedly was to become a full-time employee of J. David had the firm not collapsed.

The waiving of the privilege “takes away a smoke screen behind which some (attorneys) were trying to hide,” according to Michael J. Aguirre, who represents another group of former J. David investors who have sued Rogers & Wells and others.

Mitchell Lathrop, Rogers & Wells managing partner in San Diego, would not comment Wednesday on Dominelli’s action.

The question of attorney-client privilege in the ongoing federal grand jury investigation into J. David has been settled since May, 1984, according to Assistant U.S. Atty. Robert D. Rose. At that time, U.S. District Judge Gordon Thompson Jr. ruled that the privilege passed to J. David bankruptcy trustee Louis Metzger in all of the criminal proceedings involving the company. Metzger has waived that privilege.

The U.S. Supreme Court reaffirmed Thompson’s ruling last month, when it ruled in a case brought by the Commodities Futures Trading Commission that a bankruptcy trustee becomes the holder of the debtor’s privilege.