ENCINITAS — Just weeks from his scheduled Dec. 31 retirement, Rancho Santa Fe attorney David M. Peters will likely spend the remainder of his career mired in arbitration following accusations of “gross financial abuse” and “destructive behavior” by former partners of his Encinitas-based law firm, Peters & Freedman, LLP.
Peters, 59, recently named one of the Top Attorneys of North America for 2018 and considered a “virtuoso” in construction-defect litigation, called the allegations by his former associates a “clumsy attempt” to avoid the terms of a buy-out agreement and loot the firm’s client base.
“They threw a grenade without knowing where it’s going to hit,” Peters told The Coast News. “For the people that know me, they know I’m one of the most intense, relentless people they’ve ever met. I’m going to protect myself and my agreements because I’ve earned them over 30 years.”
Shortly after dissolving their partnership with Peters & Freedman, senior partner James McCormick and junior partners Zach Smith, Kyle Lakin and Christina DeJardin filed a petition seeking provisional remedies on Oct. 29 in Vista Superior Court, claiming that Peters had acted in bad faith, engaged in frequent acts of financial misconduct and posed an ongoing risk to company assets.
The petitioners — founding partners of the newly established Delphi Law Group — allege Peters frequently made secret cash withdrawals, used the firm’s credit cards for personal expenses including $346,381 in cash advances to cover gambling losses, misappropriated millions in assets to offshore accounts and withheld partnership earnings, according to court documents.
The joint requests for relief offer a rare glimpse behind the curtain of a private business dispute, which are generally kept in-house and out of the public eye.
“One of the benefits of arbitration is confidentiality,” said Michael Clarke, spokesperson for the American Arbitration Association. “But the parties have a right to go public should they choose. And (filing for provisional relief) is one way of making it public. The actual arbitration itself is going to be confidential.”
Peters & Freedman is regarded in legal circles as one of the finest construction defect and homeowners association law firms in Southern California, boasting an impressive list of high-profile legal victories.
In 2013, Peters helped obtain nearly $48 million in settlements after winning a construction lawsuit involving a San Diego condominium development’s use of defective Chinese cast-iron pipe.
After the firm’s partners broke with Peters & Freedman, serious charges of financial wrongdoing were levied against the award-winning litigator.
According to several bank statements dating back to December 12, 2016, Peters allegedly used the company credit card for large cash advances at Commerce Casino, at times spending in excess of $55,000 a day.
Peters also spent $50,000 on July 3, 2017, at the Bellagio Hotel and Casino in Las Vegas, according to the complaint.
In his written response, Peters stated that it’s well known that he plays professional poker and paid back the “cash advances and charges to the firm the next business day,” a fact he claims the petitioners intentionally omitted as “a means to infer improprieties.
“First and foremost, there is nothing secret about any of this stuff,” Peters said. “And if you take all the allegations and the amount of money coming in, I’m well within my contract.”
According to his World Series of Poker profile, Peters has competed in 15 WSOP-related tournaments, winning a total of $688,305.
Peters said that his former colleagues also had a penchant for racking up personal expenses on the company books, alleging the following in his written declaration:
— On June 18, McCormick purchased a brand new BMW M-5, registered in his own name, for $137,738 using a Peters & Freedman check.
— During the last 14 months, McCormick has charged $317,000 on the firm’s credit cards, including $18,500 for wine.
— Since 2017, Smith has received “in excess of $700,000” and that the firm has been paying for Smith’s “truck payments, vehicle insurance, mileage and gasoline, large cell phone bills” and payments for his children’s youth programs.
— DeJardin received distributions “in excess of $1.1 million” and used the firm’s credit cards for expenses, although “not remotely to the degree of McCormick.”
“It’s clear all four of them weren’t paying attention to the allegations,” Peters said. “The credit cards point the finger back at them. The cars point the finger back at them. I am completely not worried about how this will end up.”
Peters also asserts that all four attorneys continue to operate Delphi out of the offices of Peters & Freedman and are using partnership employees and resources to “divert and service clients in the name of their new law firm.”
After filing for relief in Superior Court, McCormick sent an email to Kettners Homeowners Association, a Peters & Freedman client, announcing that “effective October 28, 2018, the law firm of Peters & Freedman, LLP has been dissolved and will no longer be engaging in the practice of law.”
McCormick went on to add that, “James, Christina, Kyle and Zach have formed a new law firm (Delphi) and will continue to practice law in the common interest development.”
McCormick sent a similar email to all 27 employees at Peters & Freedman.
Peters said that McCormick’s emails were intentionally misleading and designed to “scare” clients and employees into moving over to Delphi.
“I don’t know what they were all thinking,” Peters said. “They are saying that the firm is completely dissolved. A big client base is going to say, ‘Oh my God, we’ve got to look for someone else. Now you’ve created panic with no viable place (for clients) to go. Of course, they point out, ‘Hey, come to me at the Delphi group.’ ”
Delphi has a company website and a post office box but no physical address.
Despite a lengthy list of grievances on both sides still pending arbitration, Peters said he doesn’t plan on responding to every claim and wasting time and resources, adding that a well-thought decision is always better than a knee-jerk reaction.
“(The petitioners) have given me a lot to unwind,” Peters said. “But how do you eat an elephant? You eat an elephant one bite at a time.”
Judge Jacqueline Stern issued an order on Nov. 27 prohibiting both parties from collecting debts, issuing checks or withdrawing funds in excess of $5,000, and destroying any financial documents or records. Stern scheduled a follow-up hearing for March 15.
Orange County attorney Joshua Waldman, of Burkhalter Kessler Clement & George, LLP, who is representing McCormick, Lakin, Smith and DeJardin, declined to comment.