J. David Gifts a Dilemma for Charities, Trustee

The business operations of J. David (Jerry) Dominelli, which seemed so arcane and complex while J. David & Co. was in full operation, now turn out to have been, by Dominelli’s own admission, very simple:

He took in money from investors and he spent it.

Tidying up the mess he left, however, has turned out not to be so simple, least of all for the community of charitable organizations on which J. David spread its largess.

Although the collapse of J. David & Co. affected a relative few (albeit those few deeply), it affected the interest and imagination of a large number of people in San Diego and elsewhere.

Perhaps a sense of insulation from direct impact has been what has made this particular bankruptcy interesting to most San Diegans. It could be read about and discussed with no pain, sometimes even with a certain smug glee that avarice was being punished.

This isolation is now gone. The J. David affair is reaching wider and deeper and threatens to involve, in a painful way, the entire San Diego charitable and artistic community.

J. David bankruptcy trustee Louis Metzger has written to numerous charitable organizations--including the San Diego Symphony, the La Jolla Museum of Contemporary Art and the San Diego Opera, to name just a few--that received contributions from the various J. David entities, asking that they enter negotiations for the return of such contributions.

The gist of this letter was communicated in a newspaper article days before its actual receipt by the charities. This news was startling and seemed unprecedented and profoundly wrong in a moral sense.

But not only is there a precedent for Metzger to pursue his position, reflection indicates that he must address this issue. Anyone who knows him, or about him, is aware that Metzger is deeply committed to this community and has always given of his time, money and energies to an array of local educational, medical, social and cultural organizations. Without need of a statement from him, it is clear that this duty pains him. But he is a trustee and must act to protect his trust.

The affairs of the organizations to whom Metzger’s letter was addressed also are in the hands of trustees. Moreover, because they govern the affairs of charities, these trustees are accountable not only to their own members and their own consciences, but to the state attorney general, who, by law, has direct control of the actions and assets of charitable organizations.

Thus, we’re left with a classic confrontation between protagonists, each of whom have noble motives and each of whom are acting under the aegis of a legal officer or court. It would be better that, say, opera genius Richard Wagner write this piece so that the full tragic dimensions could be illuminated by art.

It is possible that this whole issue may disappear because Metzger is aggressively and successfully pursuing claims against a number of people and organizations he alleges were culpably involved. He may never have to obtain money from the charities.

However, lacking both prescience and art, we must look at the issues.

The law is quite clear that charitable pledges and gifts are enforceable and supported by “consideration” in California. Metzger has acknowledged that the charities received the funds in “good faith” and that some of the donations were made for “consideration,” for example, advertising for the firm and event tickets for J. David employees.

It is also clear that no one can retain fruits of a fraud that they knowingly participated in. It is notable and pleasing that Metzger makes no claim of culpability by the charitable donees.

But while these are non-issues in the matter under discussion, Metzger can still seek those funds because bankruptcy laws don’t require him to prove actual wrongdoing by the recipients.

What Metzger seems to be basing his claim on is that the charities, as unknowing dupes, participated in the scheme because, by accepting and acknowledging gifts, they enhanced Dominelli’s facade of respectability and made it possible for J. David to continue to fraudulently attract funds from the public. A moment’s reflection, and a few examples, will demonstrate the poverty of thought in this notion:

- Should a recipient charity that preserved Dominelli’s anonymity--that is, accepted a donation from him but revealed nothing about it publicly--be exempted from the claim?

- Should the bankruptcy trustee ask that those who sold J. David fancy cars, beautiful offices, expensive furniture, disgorge their sales and rent receipts?

- Should he demand that the J. David employees who looked so busy and purposeful return their salaries?

All of these and more, certainly, provided Dominelli with the trappings of success in a more direct and visible way.

Our system of laws and of government is based on the just consent of the governed. In the last analysis, an attempt to enforce a law which, to the average person, seems to produce an unjust or surprising result will not succeed. In the battle of trustees, justice should triumph, not some narrow role drawn for administrative convenience.

On a practical ground, the mere possibility of success in obtaining a recovery has a chilling effect on charitable fund raising. Such organizations must constantly seek donations. Indeed, they are defined by such a need and given special status under a section of the Revenue Code.

Now, should Metzger succeed, these organizations would have two additional and crushing burdens. First, prospective donors would ask and insist that their gift not be used to repay some bankrupt estate. Second, the charity would be required to do a thorough credit check on all donors.

This does not seem to make it easy or even possible to continue to raise money from the public. Ask yourself if you would give. Also, ask who is better positioned to demand credit information, a potential investor or a volunteer solicitor for a charity?