United May Be Way to Fight Bid for J. David Gifts

Several charitable and civic organizations may band together to respond to the J. David & Co. bankruptcy trustee’s demands that they return more than $1 million in contributions from the fraud-ridden investment firm.

Concerned over the legal and financial implications of returning the donations, at least two groups will meet later this week to discuss whether they should join with other arts, cultural and civic organizations to deal jointly with the trustee’s request.

Representatives of the San Diego Opera and the La Jolla Museum of Contemporary Art said they will huddle Friday to “see if there is an interest” in collectively confronting the issue.

Officials of other local nonprofit groups said Tuesday that Metzger’s demands may be the first time a bankruptcy trustee has tried to recoup charitable donations made by a private business.

“The idea is that the . . . organizations should get together and determine if there is economic or other sense in formulating a joint response,” said attorney Vic Vilaplana, a volunteer vice president of the opera.

The opera received $100,000 from J. David & Co. and the La Jolla museum received $110,000.

J. David bankruptcy trustee Louis Metzger on Tuesday mailed letters to about 30 local nonprofit organizations demanding the return of more than $1 million donated by J. David & Co., as well as the firm’s principals, J. David (Jerry) Dominelli and Nancy Hoover. The organizations, which include some of San Diego’s largest cultural and civic groups, are being asked to return 60% of the funds, according to the letter.

Among other groups receiving J. David’s largess were the San Diego Symphony ($180,000), UCSD Mandell Weiss Center for the Performing Arts ($162,500), KPBS-TV ($58,000), Scripps Clinic and Research Foundation ($10,000), and the University of San Diego ($30,000).

Vilaplana said he also plans to talk to these groups about a joint response.

Officials of the nonprofit groups questioned the legal basis for Metzger’s demands.

Returning the funds centers on the issue of “consideration,” according to Vilaplana: “Did Dominelli get something for what he gave? Did he receive something that by law is recognized as a fair exchange for what he gave?”

Those “considerations” would include marketing and advertising value received by the firm, and would reduce the trustee’s claim, Vilaplana said.

Metzger said that it was “very clear that if Jerry Dominelli got consideration such as tickets or advertising, then we’ll have less of a claim than if it was an outright donation.” However, Metzger’s position remains unchanged: Dominelli used funds he obtained fraudulently to further his scheme and, therefore, those funds should be returned.

Metzger’s 60% offer is similar to a settlement proposal made last year to former J. David investors who received so-called “preference payments” or “fraudulent conveyances” from the now-defunct La Jolla firm. Most investors declined Metzger’s offer and the issue is still pending in the courts.

Metzger’s action does not imply that the groups receiving funds from J. David were “in any way involved in fraud,” the trustee wrote in his letter. “It merely means that as defined by the Bankruptcy Code, it was a transfer of monies by one who was insolvent and who had not received substantially equivalent value in return.”

Metzger, himself active in a handful of civic groups, said that the decision to retrieve the funds from otherwise financially lean nonprofit organizations was a painful one.

In his letter, however, Metzger wrote that the J. David contributions represented an attempt by Dominelli to “increase his image and prestige within the community.” That process, wrote Metzger, “aided his fraudulent activities.”

Metzger’s letter asks the nonprofit groups to waive for one year any statute of limitations laws that may apply to their J. David contributions and to discuss an out-of-court settlement of the donation. The waiver would not imply any legal liability, according to the letter.

Metzger said that the statute of limitations varies for each nonprofit group, but he declined to disclose the deadlines for specific organizations.

However, the letter asks that the waivers be signed and returned no later than March 14, implying, according to sources familiar with the J. David case, that the statute of limitations is fast approaching.

Retrieving funds from financially strapped organizations may prove difficult for Metzger.

“Most charitable institutions . . . have very tight budgets and would find it very difficult to respond or give the funds back,” said Bob Smith, chief fund raiser at Scripps Clinic and Research Foundation.

Smith and other local fund raisers said they were unaware of any other case where a charitable contribution was asked to be returned because the donor was engaged in a fraud scheme.

“I have never heard of anything like this,” said William Pickett, vice president for university relations at the University of San Diego. “I can see the trustee’s position--he’s trying to get as much of the money back in. But it’s a tough issue all the way around.”

All of USD’s $30,000 in contributions from J. David involved sports-related activities. About $2,000 in donations were made in the 90-day period prior to the J. David bankruptcy, which means it is considered a “preference payment” and must be returned to the trustee.

Metzger must be “pretty hard pressed to go after small contributions,” said one San Diego Symphony source, “because, in the scheme of things, the contributions are so minuscule as to be a non-event compared to the money J. David took in.”

Indeed, Metzger has retrieved only about $16 million from liquidating J. David’s assets. Still unresolved are more than $27 million in preference payments received by former investors, and Metzger has filed 367 lawsuits to recover those.

J. David & Co. was forced into bankruptcy two years ago--Feb. 13, 1984--after a group of disgruntled investors were unable to withdraw their funds. The company attracted about $200 million from approximately 1,500 investors with promises of annual returns of up to 40%.

The profits were non-existent, however, and Dominelli has since admitted that he operated a typical Ponzi scheme, in which new cash receipts were used to pay off existing investors.

Dominelli was sentenced to 20 years in federal prison in June after pleading guilty to three counts of fraud and one count of income tax evasion.

A federal grand jury is continuing its probe into other key figures in J. David & Co. According to sources close to the case, potential targets of the investigation include Hoover, Mark Yarry and Norman Nouskajian, an attorney with Rogers & Wells, which represented J. David.

Dozens of civil lawsuits by former investors have also been filed against former J. David officials and the various outside professionals who advised Dominelli.