Arthur D. Axelrod, an Orange County businessman who raised millions of dollars that evaporated with the financial collapse of swindler J. David (Jerry) Dominelli in 1984, has claimed that his lawyer was responsible for the poor investments.
Axelrod filed a malpractice lawsuit this week against Newport Beach attorney Richard H. Bruck, alleging that Bruck erroneously advised him that Dominelli's investment strategies complied with state and federal law.
The Santa Ana businessman, who made a fortune in the salvage business, real estate and banking, asked for $19.7 million in damages for his losses in the Dominelli collapse and $10 million in punitive damages for fraud.
Dominelli is serving a 20-year prison sentence for income tax evasion and fraud. Earlier this year, he admitted that he conspired with former San Diego Mayor Roger Hedgecock to illegally finance Hedgecock's 1983 mayoral campaign. Hedgecock resigned last year after his conviction in connection with the scheme. He was sentenced to a year in the San Diego County sheriff's custody but is appealing the conviction.
Axelrod's lawsuit, filed in Orange County Superior Court, also names Bruck & Perry, Bruck's current law firm, as defendant. Bruck said he had not seen a copy of the suit and declined comment Tuesday.
Axelrod claims in the suit that Bruck "provided legal advice to him with respect to certain business and personal matters involving J. David Dominelli" and 11 firms run by the La Jolla investment adviser.
Bruck also represented four firms associated with Axelrod, including Trans Atlantic Bancorp Ltd., the largest single investor in Dominelli's enterprises, according to the suit. The Trans Atlantic deal occurred shortly before Dominelli's J. David & Co. was thrown into an involuntary bankruptcy in 1984. Trans Atlantic is now in bankruptcy.
Dominelli agreed to buy Trans Atlantic at an unusually high price, apparently as a way of obtaining Trans Atlantic investors' funds. According to a declaration filed by Axelrod in connection with the J. David bankruptcy, Dominelli was supposed to hold $4.7 million in investors' funds in reserve after the sale.
According to the lawsuit, Dominelli "misappropriated" those funds. Bruck failed "to exercise proper skill and care" as a lawyer because he did not structure the deal to include "appropriate safeguards" to prevent the loss, the lawsuit alleges.
Axelrod claims in the suit that he also lost more than $15 million in investments with Dominelli between 1979 and 1984.
The suit alleges that Bruck assured Axelrod that Dominelli's business schemes were legal. In fact, according to the lawsuit, Bruck should have discovered that Dominelli was using unlicensed brokers to sell unregistered securities that had been misrepresented in sales materials.
Axelrod also alleges that Bruck referred him to an inexperienced lawyer to handle the Trans Atlantic bankruptcy and mishandled the creation of a family trust.
The lawsuit cites four other cases in which investors have sued Axelrod over business dealings. It claims that Bruck should have to pay for Axelrod's costs in defending those suits.