LeClairRyan trustee gets green light to expand lawsuit over UnitedLex deal

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A sign is seen outside the U.S. District Bankruptcy Court. REUTERS/Brendan McDermid

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  • Filings indicate LeClairRyan founder to be added as defendant
  • Judge pushes October trial back to April

(Reuters) - A bankruptcy judge in Richmond, Virginia, on Thursday gave the Chapter 7 trustee overseeing the dissolution of bankrupt law firm LeClairRyan the go-ahead to sue a former firm lawyer over its doomed joint venture with alternative legal services provider UnitedLex.

The trustee had already been seeking at least $128 million in damages from UnitedLex and related entities. After Thursday's ruling, the suit will include another $18.5 million or more in additional claims against UnitedLex entities, and will add a former LeClairRyan attorney as a defendant. While the lawyer wasn't identified by name in the hearing, court records indicate it is Gary LeClair, the firm's co-founder and longtime leader.

In allowing the trustee to amend her complaint, U.S. Bankruptcy Judge Kevin Huennekens said he would push back a scheduled trial in the case from October to April in order to accommodate the new defendants and additional claims.

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UnitedLex created a joint venture, ULX Partners, with LeClairRyan in 2018, promising a new model for supporting law firm operations that could expand to other firms. But ULX Partners caused already-struggling LeClairRyan to plunge "further into insolvency," Chapter 7 trustee Lynn Tavenner alleged in her October 2020 complaint.

Meanwhile, UnitedLex, ULX Partners and others were able "to improperly and unfairly extract millions of dollars from the estate, to the detriment of LeClairRyan’s creditors," Tavenner alleged.

Huennekens rejected a bid by UnitedLex and ULX Partners to dismiss the lawsuit in July. On Aug. 5, Tavenner sought to amend her complaint to add at least two defendants, UnitedLex Management and a defendant whose name was redacted in public filings but "whose misconduct was integral to the scheme by the 'ULX Entities' to loot the debtor of its valuable assets," her motion alleged.

Court filings show that the redacted defendant is Gary LeClair, who served as chairman and CEO of the Virginia-based law firm that bore his name for 25 years. A trio of attorneys -- William Broscious, Andrew Bowman and J. Scott Sexton -- filed unredacted notices of appearance on LeClair's behalf on Aug. 13 and Monday. The lawyers soon after filed a redacted objection to Tavenner's proposed amendment, calling her allegations against their client "immaterial, impertinent and scandalous."

The attorneys, who also argued against adding their client as a defendant during Thursday's hearing, referred to him at the hearing as the "former attorney" or "John Doe," and not by name. LeClair, who is now at Richmond-based Williams Mullen, did not respond to a request for comment, nor did Broscious, Bowman and Sexton.

Tavenner's proposed amended complaint was also filed under seal, but in her Aug. 5 motion, she said she was adding new claims, including allegations that UnitedLex entities extracted at least $18.5 million in intellectual property assets from LeClairRyan through the joint venture.

J. Gregory Milmoe, a Greenberg Traurig shareholder who is representing the UnitedLex entities, declined to comment. Erika Morabito, a partner at Quinn Emanuel Urquhart & Sullivan representing Tavenner, also declined to comment.

The case is Lynn Tavenner, as Chapter 7 Trustee v. ULX Partners LLC, et al., U.S. Bankruptcy Court for the Eastern District of Virginia, Adversary Proceeding No. 20-03124.

For Lynn Tavener: Erika Morabito and Brittany Nelson, of Quinn Emanuel Urquhart & Sullivan

For UnitedLex Corp and ULX Partners LLC: J. Gregory Milmoe, David Barger and Thomas McKee, of Greenberg Traurig

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David Thomas reports on the business of law, including law firm strategy, hiring, mergers and litigation. He is based out of Chicago. He can be reached at d.thomas@thomsonreuters.com and on Twitter @DaveThomas5150.