The La Jolla law firm of Wiles, Circuit & Tremblay has tentatively agreed to pay $2.5 million to $3 million to end more than 300 lawsuits filed by former investors in the fraudulent J. David & Co. investment firm, according to sources close to the case.
The tentative understanding still must be approved by the law firm's insurer. And details have to be worked out about how Wiles, Circuit & Tremblay will resolve lawsuits by any hold-out investors who refuse to go along with the settlement.
But once completed, the settlement will end hundreds of lawsuits by former investors who lost $82 million in J. David Dominelli's fraud-ridden empire in the early 1980s.
The investor-plaintiffs already have made out-of-court settlements with other defendants, allowing them to recoup about $66 million of their losses.
Those agreements included an accord last March by the New York law firm of Rogers & Wells to pay $40 million, the largest settlement ever made a U.S. law firm. The Chicago law firm of Abramson & Fox settled for $7 million, the Laventhol & Horwath accountancy firm agreed to pay $6.5 million, and First National Bank of San Diego settled for nearly $7 million.
The Wiles, Circuit settlement comes three weeks after the law firm lost a major ruling in an El Cajon trial. In that case, Wiles, Circuit was accused by investors of aiding and abetting Dominelli in his giant Ponzi scheme between 1981 and 1984.
A second case, brought by another group of investors against Wiles, Circuit, is scheduled to begin a second long, bitter trial on April 20.
Furthermore, sources close to the case have long predicted that Wiles Circuit's malpractice insurers would be worn down by the costly legal battle.
Jack I. Samet of Los Angeles, Wiles, Circuit's defense lawyer, confirmed that settlement talks have taken place and added that defense costs "have been enormous. . . . It becomes rational for people to discuss settlement of differences to avoid those enormous costs," said Samet, who would not confirm the reported accord.
'Putting Up a Lot of Money'
Samet added that he believes that Wiles, Circuit "remains confident that we're ahead" in the El Cajon trial and that any settlement would only be because of "the economic and psychological costs."
But Dennis Kinnaird of Los Angeles, another defense attorney in the litigation, scoffed at that characterization. "Obviously, (Wiles, Circuit's) insurance carriers didn't think (Samet) was winning. They're putting up a lot of money, and you don't spend like that when you're winning. . . .
But I think the cost of defense is killing them."
The lead plaintiffs' lawyers--noted securities litigator Joseph Cotchett of San Mateo and Los Angeles lawyer Robert A. Meyer--declined comment, citing a court-imposed order.
If completed, the settlement will leave pending one major state court suit stemming from the collapse of J. David. Federal Insurance has sued Rogers & Wells for $4.7 million to the J. David bankruptcy trustee because it sold a blanket fidelity bond to J. David & Co. Rogers & Wells, in turn, has cross-sued Wiles, Circuit in that matter.
Meanwhile, the J. David bankruptcy case continues in federal court. Trustee Louis Metzger has sued to collect millions in payments made to investors and J. David insiders in the 90 days before the firm's bankruptcy. One source estimated that former investors can potentially recover another $15 million to $16 million in the bankruptcy case.
Federal authorities in San Diego--including the FBI, the Internal Revenue Service and the U.S. attorney's office--are continuing to investigate others once associated with J. David, according to U.S. Atty. Peter K. Nunez. The investigation includes an inquiry into whether some investors used their J. David accounts to launder money and avoid paying federal income taxes, sources said.
Dominelli is now serving a 20-year prison sentence after pleading guilty in 1985 to three counts of fraud and one count of income tax evasion. His former associate and live-in companion, Nancy Hoover, has been indicted on 234 counts of fraud, conspiracy and income tax evasion and is scheduled to appear in court on April 1.