LeClairRyan co-founder Gary LeClair faces new claims that he advanced a joint venture with UnitedLex Corp. that ultimately contributed to his now defunct law firm’s bankruptcy.
The trustee overseeing LeClairRyan’s bankruptcy brought the claims in an amended complaint filed Wednesday in the U.S. Bankruptcy Court for the Eastern District of Virginia.
The trustee alleges that LeClair implemented steps to protect his own interests and finances as he pushed the partnership with UnitedLex.
Founded in 1988 as a regional corporate firm, LeClairRyan increased overhead expenses as it expanded across the U.S. and suffered declining revenues and mass partner defections, ultimately filing for bankruptcy in 2019. LeClair, who served as the firm’s leader until 2015, left just ahead of its dissolution, joining Williams Mullen.
The Chapter 7 trustee last October brought claims against UnitedLex Corp., as well as ULX Partners, a 2018 joint venture that was supposed to help the struggling Richmond, Va.-based law firm stay afloat.
U.S. bankruptcy Judge Kevin Huennekens earlier this month granted the trustee’s motion to add additional claims and a former LeClairRyan lawyer as a defendant.
The trustee, Lynn Tavenner, in the amended complaint alleges that LeClair conspired with “an opportunistic global enterprise legal services provider, an actively complicit investment bank, and a group of scheming lawyers to manipulate a law firm for their own gain and benefit.”
William Broscious and Gentry Locke’s J. Scott Sexton and Andrew Bowman are representing LeClair, while Quinn Emanuel’s Erika Morabito and Brittany Nelson are representing the trustee.
“Gary LeClair has an almost-40-year track record of ethically impeccable conduct in the legal and business communities in Richmond and beyond,” Sexton said in a statement to Bloomberg Law. LeClair “had not been involved in the firm’s management for a long time and had not even served on its board for several years” when the bankruptcy took place, he said.
The joint venture, ULX Partners, was designed to provide nonlegal operations for law firms. It rebadged more than 300 administrative and legal support professionals from LeClairRyan to ULX Partners.
Tavenner’s complaint alleges that LeClair profited along with UnitedLex as the firm floundered under the firm’s operations that the trustee claims “had aspects of a Ponzi scheme,” including payments to legacy shareholders with capital contributions from new lateral hires.
The amended complaint also alleges that ULX Partners ultimately gained control over the firm’s operations, including intellectual property that “resulted in the ULX Entities extracting value from LeClairRyan while LeClairRyan’s debts increased.”
UnitedLex and its entities, ULX Partners and ULX Manager, represented by Greenberg Traurig’s David Barger, Thomas McKee and J. Gregory Milmoe, responded to the allegations in the amended complaint and filed a motion to dismiss on Wednesday. They claimed that the trustee is attempting to “strong-arm money” away from UnitedLex, one of LeClairRyan’s largest creditors.
“The Trustee continues to allege in the Amended Complaint that ULXP was an “illegal enterprise” because, she claims, it transferred control of a law firm to a non-lawyer in violation of Virginia State Bar Rules,” UnitedLex said in its answer to the amended complaint.
“She continues to make this allegation notwithstanding the fact that the Court ruled previously that there was no legal cause of action that would flow from alleged violations of the Virginia State Bar Rules even if they were true,” UnitedLex said.
Following the firm’s decision to wind-down operations, former LeClairRyan partners told Bloomberg Law of LeClair’s ambitions to structure the firm to be able to receive outside investment from nonlawyers, if a law firm could eventually do so.