LeClairRyan Defendants Reach Partial Settlement With Trustee

A group of more than 25 former LeClairRyan partners have reached a partial settlement valued at nearly $10 million with the bankruptcy trustee overseeing the dissolution of the now defunct law firm in its Chapter 7 case.

If approved, the settlement will see a management liability insurance policy pay $9.475 million to the LeClairRyan estate in exchange for dismissing some of the claims brought by the trustee, according to a court filing. The settlement also caps legal expenses to be paid by the estate at $525,000, a valuable provision considering the number of defendants in the case.

The firm’s downfall led to claims that a joint venture with alternative legal services provider UnitedLex was manufactured to benefit the firm’s co-founder. The bankruptcy trustee has sought to claw back compensation paid to firm partners shortly before the firm went defunct.

LeClairRyan’s partnership voted to dissolve the regional corporate firm in August 2019 and the firm filed for bankruptcy the following month. Its collapse into insolvency led to the appointment of a trustee, Lynn Tavenner, to oversee the firm’s liquidation.

Tavenner has said she is seeking more than $120 million from LeClairRyan and UnitedLex, which had partnered with the law firm to develop a lower-cost back-office operation before it went belly-up.

The deal resolves claims against certain LeClairRyan partners including breach of fiduciary duty, trade secrets, conspiracy and unlawful distributions in violation of Virginia law. It does not resolve claims including for unjust enrichment, conversion or other unlawful distributions claims. Some partners have settled those claims individually.

A settlement motion filed by Tavenner’s lawyers on Friday said the amount recovered by the settlement is likely more than what would be generated by proceeding to a judgment. The deal will also significantly reduce administrative fees and costs, noted Tavenner’s lawyers at Quinn Emanuel Urquhart & Sullivan, Erika Morabito and Brittany Nelson.

“For the reasons stated in the motion, the trustee believes this settlement provides tremendous value to the estate and the true creditors of LeClairRyan,” Morabito said.

Gary LeClair, who co-founded the law firm, was unsuccessful earlier this month in his effort to be dismissed from the case. The trustee has alleged he sought personal gain from the firm and its tie-up with UnitedLex, claims LeClair has dismissed as “completely meritless.”

LeClair’s lawyer did not immediately respond to a voicemail seeking comment on the proposed settlement.

The case is: Tavenner as Chapter 7 Trustee v. ULX Partners LLC, Bankr. E.D. Va., 320-ap-0314 (motion for approval of settlement filed 11/19/21)