$40-Million J. David Settlement Approved

Rogers & Wells, the high-powered New York law firm that lent its prestige to J. David & Co.’s bogus investments, won court approval Friday for a settlement as high as $40 million with more than 300 J. David investors--the largest settlement ever entered into by an American law firm.

Under the agreement, investors will receive roughly 45 cents for each dollar they deposited with J. David, with no consideration for earnings posted while the defunct La Jolla firm held their money or for profits they might have earned had they invested elsewhere.

Rogers and Wells “purchased its peace,” said Dennis Kinnaird, attorney for the firm, which is headed by William P. Rogers, a former U.S. secretary of state who is chairman of the presidential commission probing the space shuttle tragedy.

The firm’s insurers already have deposited $40 million in a bank outside San Diego, according to lawyers involved with the case. But while the settlement envisions payments being issued to the defrauded investors within two months, appeals are expected to delay that timetable, at least briefly.

Presiding Judge Donald W. Smith of the San Diego County Superior Court approved the agreement over the objections of several of Rogers & Wells’ co-defendants, mainly law and accounting firms that also provided professional services to J. David but did not participate in the settlement.

The firms--including the La Jolla law firm of Wiles Circuit & Tremblay and the national accounting firm of Laventhol & Horwath--argued that Rogers & Wells should bear more than 45% of the burden of paying investors’ damages. They also objected to provisions of the settlement that barred them from pursuing their own claims against Rogers & Wells.

Nonetheless, Smith found that the settlement had been reached “in good faith,” as required by law. “Forty million dollars sounds like a lot of good faith,” he quipped, provoking a laugh from the 30 or so attorneys who participated in an hourlong hearing Friday afternoon.

“Certainly that 45% figure is not oppressive, and it certainly meets the standard of the law,” Smith ruled.

Rogers & Wells advised J. David on securities matters, continuing to represent the firm through its San Diego office even after its London office concluded that J. David was trading in illegal, unregistered securities.

Former Rogers & Wells partner Norman Nouskajian and Don Augustine, an attorney with the firm, are potential targets of a federal grand jury that is investigating J. David and several of its principals, according to sources.

Before it was forced into bankruptcy in February, 1984, about 1,500 investors sank about $200 million into J. David, which promised annual returns as high as 40%. But the profits were nonexistent, and the firm’s founder, J. David (Jerry) Dominelli, has since admitted he was operating a Ponzi scheme, in which new investors’ deposits were used to pay earnings to earlier investors.

Dominelli, who has suffered a series of debilitating strokes since the firm’s collapse, is serving a 20-year prison term, following his guilty plea in June to charges of fraud and income tax evasion.

Court documents describe the six months of negotiations that led to the settlement as “long and adversarial.” They began in earnest in October, after another judge ruled that there was a “substantial probability” that the investors would prevail in their claims of fraud against Rogers & Wells.

Under terms of the settlement, Rogers & Wells will pay the full $40 million if the investors are able to demonstrate losses totaling at least $88.2 million. If verified claims submitted to a major accounting firm total less than than amount, Rogers & Wells will pay 45% of the total claims.

The investors would share up to $2.5 million more in the year 2000 if a fund established to pay further, as yet unlitigated claims is not exhausted by that time.

However, Rogers & Wells can opt to cancel the agreement if investors with losses exceeding $2 million choose not to participate in the settlement. It also would dissolve if the other defendants are successful in challenging it on appeal.

Attorneys for the investors were celebrating the settlement Friday as a major victory that held out the likelihood that their clients’ would recover at least some of their losses a little more than two years after J. David’s failure.

“There are people who need this money now,” said attorney Robert Meyer.

“It’s a more than fair figure,” added another attorney, Patrick McCormick.

Kinnaird insisted that the monumental payout would not sully Rogers & Wells’ reputation.

“I don’t think it will have any adverse impact,” he said. “It’s a big institution. It’s a very viable institution. This came up in most unusual circumstances.” Sources close to the litigation have told the Times that the firm, which reportedly was paid $900,000 for its work for J. David, has total insurance of less than $80 million.

Current plans call for a trial to begin May 13 in suits brought by six investors against the remaining defendants in the case, though an appeal of the settlement with Rogers & Wells presumably could prompt a delay in those proceedings.

Smith overrode a number of objections in approving the settlement, including the co-defendants’ contention that Rogers & Wells should bear more than 45% of the investors’ losses.

Attorneys for Abramson & Fox, a Chicago law firm that also advised J. David on securities matters, argued in court documents that the 45% figure “is simply not in the ballpark in view of the court’s prior finding . . . that Rogers & Wells committed fraud.”

Lawyers for Wiles Circuit, meanwhile, called for Rogers & Wells to assume a bigger share of the damages because the larger firm was better insured and thus better able to pay. Documents filed in the case say Wiles Circuit has just $2 million in liability coverage.

The documents, unsealed by Smith Friday, say Wiles Circuit had an opportunity to settle all claims against it for that $2 million in December, 1984, but declined on the grounds that it did not believe it would be found liable for the investors’ losses.

The settlement hearing landed in Smith’s court because of a last-minute challenge to the impartiality of Superior Court Judge Ben Hamrick, who had presided in the case throughout the course of the negotiations.

Hamrick had disclosed to lawyers in the case Tuesday that as a lawyer in San Diego for 35 years, he unavoidably had longstanding social ties to some of the parties in the litigation.

For instance, he said he played handball every Wednesday with Malin Burnham, chairman of First National Bank, which recently was named as a defendant in the cases. Hamrick said he also was a frequent golfing partner of investors’ lawyer McCormick.

But while the judge said he was confident his impartiality was not compromised by such relationships, attorneys for Wiles Circuit and Laventhol & Horwath said Friday they intended to seek his removal from the case under a rule citing the appearance, if not the existence, of partiality.

So Hamrick testily ordered all the lawyers, who had gathered in his courtroom, to proceed to Smith’s court, refusing to entertain even minor procedural motions. “If I’m not trusted to deal with a settlement action, I’m not going to waste my time doing the other things,” he declared.

However, Hamrick said he might contest the defendants’ effort to remove him from handling further proceedings in the suits.