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UnitedLex, LeClairRyan Founder Look to Dismiss Bankruptcy Claims

Oct. 19, 2021, 9:14 PM

Alternative legal services provider UnitedLex Corp. and attorney Gary LeClair sought Tuesday to dismiss claims filed against them by a Chapter 7 trustee handling the dissolution of LeClair’s namesake law firm LeClairRyan.

Federal Judge Kevin Huennekens in Richmond, Va., heard arguments via teleconference from lawyers at Greenberg Traurig representing UnitedLex and Gentry Locke on behalf of LeClair, a prominent Virginia lawyer who along with fellow former name partner Dennis Ryan co-founded LeClairRyan in 1988.

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 to oversee the firm’s liquidation.

In August, LeClairRyan’s Chapter 7 trustee Lynn Tavenner filed an amended complaint against LeClair, now a Richmond-based partner at Williams Mullen. Tavenner accused the defunct firm’s former leader of protecting his own financial interests and pushing LeClairRyan into a crippling partnership with UnitedLex.

UnitedLex, which had a joint venture with LeClairRyan called ULX Partners LLC, was sued a year ago this month by Tavenner. She alleged that the Lenexa, Kan.-based company misappropriated nearly $42 million in LeClairRyan funds and skipped other creditors in line for payment. Tavenner is seeking $128 million in damages from UnitedLex and its related entities.

Tavenner’s bankruptcy lawyers—led by Erika Morabito and Brittany Nelson, who previously worked at Foley & Lardner—earlier this year joined Quinn Emanuel Urquhart & Sullivan as partners.

Greenberg Traurig bankruptcy partner J. Gregory Milmoe and litigation partners David Barger and Thomas McKee Jr., counsel to UnitedLex, argued that six counts from Tavenner’s amended complaint should be dismissed. The list includes claims of breach of fiduciary duty, conspiracy, and misappropriation of LeClairRyan’s assets.

Milmoe co-chaired the bankruptcy and restructuring practice at Skadden, Arps, Slate, Meagher & Flom before retiring from that firm to join Greenberg Traurig in 2018.

At one point during the hearing held via Zoom, Milmoe waived a binder of documents detailing what he said were Greenberg Traurig’s policies for client intake, compensating partners, evaluating associates, and resolving conflicts.

“The assertion that these are highly proprietary trade secrets stretches credibility,” said Milmoe, citing such materials as being of dubious worth to others. He and his colleagues reiterated in court papers that there was no fraudulent conveyance of assets, just a licensing agreement, between UnitedLex and LeClairRyan.

Milmoe said UnitedLex wanted to take the joint venture model it developed with LeClairRyan and reproduce it to charge other law firms for its services.

“This is a case, your honor, about trying to convert a back-office operation, which at every law firm is a cost center,” Milmoe said. “We have to pay our accountants, our secretaries, our people, and with rarely limited occasion we’re not able to turn them into revenue producers.”

LeClair: Allegations ‘Reckless’

Andrew Bowman, a partner at Roanoke, Va.-based Gentry Locke, also told Huennekens that LeClair didn’t breach his fiduciary duties.

LeClairRyan was not a closely held corporation but a legal services outfit with more than 100 partners across the U.S., Bowman said. He also noted that LeClair left his leadership role in 2016 and reduced his own compensation by $1.8 million before LeClairRyan went bust. LeClair left the firm to join Williams Mullen in July 2019.

LeClair’s legal team filed its motion to dismiss in late September. The lawyers accused Tavenner in a recent court filing of making “reckless factual allegations” in her amended complaint adding him as a defendant.

Bowman said Tavenner hasn’t disputed that LeClair, in his work as an attorney for LeClairRyan, generated more than $1.5 million in work for the debtor during the first six months of 2019. LeClair reduced his monthly salary that year from $45,000 to $37,000 per month, said Bowman, claiming that his client provided services to LeClairRyan that exceeded in value what he took out of the firm.

Nelson, the Quinn Emanuel partner representing Tavenner, in a brief response to the defendants’ arguments said that UnitedLex extracted roughly $18.5 million in intellectual property assets from LeClairRyan. Huennekens issued a ruling over the summer allowing Tavenner to expand her lawsuit against UnitedLex and LeClair.

Court filings show that discovery in the litigation between Tavenner, LeClair, and UnitedLex should be completed by Jan. 21, 2022, ahead of an expected trial date in April of next year. Huennekens said in Tuesday’s hearing that he expects to rule shortly on the defendants’ motions to dismiss.

The case is: Tavenner as Chapter 7 Trustee v. ULX Partners LLC, Bankr. E.D. Va., 320-ap-0314 (hearing 10/19/21)

To contact the reporter on this story: Brian Baxter in New York at bbaxter@bloomberglaw.com

To contact the editor responsible for this story: Chris Opfer at copfer@bloomberglaw.com

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