J. David & Co. Judge Removes Self From Suit : Cites Conflicts Related to Action by Trustee

Citing a potential conflict of interest, the federal judge overseeing the complicated J. David & Co. bankruptcy withdrew Friday from presiding over a civil lawsuit filed by the J. David trustee against First National Bank of San Diego.

U.S. District Judge J. Lawrence Irving said in a court hearing that he has a business relationship and a 15-year friendship with attorney Patrick A. McCormick, who on Thursday filed a $10-million lawsuit against First National Bank on behalf of J. David bankruptcy trustee Louis Metzger.

Irving also said that he was a personal friend of First National’s outside attorney, Alex L. Cory. In addition, Irving’s son, Craig, works for John Burnham & Co., whose chief executive, Malin Burnham, is also the chairman of First National.

U.S. District Judge Howard B. Turrentine has been assigned the case. Irving will continue to oversee other J. David bankruptcy matters.

The possible conflicts, Irving said in a court hearing Friday, involve a bank account he has at First National Bank and a real estate parcel in Hillcrest owned by a 12-member limited partnership that includes Irving and McCormick.

Irving previously said that all of his business interests were placed in an irrevocable trust soon after he was appointed a federal judge in September, 1982.

The $10-million complaint by Metzger was filed Thursday in both federal and superior courts by McCormick, who also represents former J. David investors in various lawsuits against professional firms that represented the collapsed La Jolla investment firm.

Named in Lawsuit

Named in the lawsuit were First National Bank, First National Corp., the banks’ parent company, former executives Ed Cunningham and Ed Peterson, and current executives Tom LaHay and Donna Smith.

McCormick said Friday that First National Bank’s insurance totaled about $15 million.

Investors who had deposited funds in the J. David Banking Co. Ltd. account believed that their funds would be used for investment purposes and not for J. David (Jerry) Dominelli’s personal benefit. But Dominelli and “other unauthorized persons” withdrew millions of dollars from that account and put some of those funds to personal use, according to the suit.

Previously, accountants for the trustee have said in court that investor funds were massively commingled and that money flowed in and out of various accounts at First National Bank.

Weeks of Negotiations

First National officials announced in December that Metzger had threatened to sue the bank. The announcement--made, officials said, because of the bank’s status as a publicly traded company--followed weeks of unsuccessful, closed-door settlement negotiations between bank officials and attorneys for Metzger before U.S. Magistrate Harry R. McCue, according to sources close to the case.

Earlier this month, First National was added as a defendant in nine civil lawsuits by J. David investors who are seeking $247 million in damages.