LeClairRyan trustee targets firm co-founder in UnitedLex lawsuit

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Signage is seen at the United States Bankruptcy Court for the Southern District of New York in Manhattan, New York City, U.S., August 24, 2020. REUTERS/Andrew Kelly

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  • Amended complaint alleges LeClairRyan operated as Ponzi scheme in firm's final years
  • UnitedLex says trustee trying to "strong-arm" company

Aug 25 - The Chapter 7 trustee overseeing the dissolution of law firm LeClairRyan on Wednesday unveiled new claims against Gary LeClair, the firm's co-founder and longtime leader, for shepherding an agreement with alternative legal services provider UnitedLex that contributed to the Virginia-based law firm's 2019 bankruptcy.

The 94-page complaint alleges that LeClairRyan's 2018 deal with UnitedLex added more debt to the struggling law firm while giving UnitedLex control over the firm's operations and the ability to use its intellectual property.

LeClair, meanwhile, enriched himself in his law firm's final years, with LeClairRyan operating as a Ponzi scheme by using capital contributions from new lateral hires to pay out legacy shareholders, Chapter 7 trustee Lynn Tavenner alleged.

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"For those left unpaid when the music stopped, it was no different than a ‘money in, money out’ con game," Tavenner added.

LeClair's attorney, J. Scott Sexton, a senior litigation partner at Gentry Locke, called Tavenner's amended complaint "factually untethered and wildly misleading" in a statement.

Sexton said LeClair has a nearly 40-year track record of "ethically impeccable conduct," and had not been involved in the firm's management for years.

J. Gregory Milmoe, a Greenberg Traurig shareholder who is representing the UnitedLex entities, declined to comment. Tavenner's attorneys at Quinn Emanuel Urquhart & Sullivan did not respond to a request for comment, nor did LeClair.

Tavenner, of Tavenner & Beran, was tapped as the trustee in October 2019, one month after the law firm filed for bankruptcy. In October 2020, Tavenner, in her capacity as trustee, sued UnitedLex.

Earlier this month, Tavenner sought permission to add more claims and add LeClair as a defendant, filing the amended complaint under seal. Last week, a bankruptcy judge in Richmond gave Tavenner the go-ahead to proceed with her amended complaint

U.S. Bankruptcy Judge Kevin Huennekens pushed back a scheduled trial in the case from October to April to account for the fact that LeClair was added as a defendant.

UnitedLex and LeClairRyan created ULX Partners in 2018, promising a new model for supporting law firm operations that could expand to other firms.

But the deal allowed ULX Partners to take control of LeClairRyan's accounting, marketing, conflict management, and business development operations, Tavenner alleged. UnitedLex also pressured the firm to prioritize payments to it as opposed to other creditors, the trustee added.

UnitedLex and its affiliated entities, ULX Partners LLC and ULX Manager LLC, represented by attorneys from Greenberg Traurig, pushed back hard against Tavenner's claims on Wednesday, filing its own 73-page answerand a motion to dismiss on the same day.

In its answer, the alternative legal services provider accused Tavenner of trying to "strong-arm money" from the company, and ignoring the fact that UnitedLex is LeClairRyan's largest creditor.

"Rather than investigating objectively the facts underlying the demise of LeClairRyan, the trustee chose to manufacture a bizarre and perverted story cobbling together baseless and defamatory accusations and twisting facts to fit inapplicable legal theories," UnitedLex wrote.

EDITOR'S NOTE: This story has been updated with a statement from J. Scott Sexton, one of Gary LeClair's attorneys.

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LeClairRyan trustee gets green light to expand lawsuit over UnitedLex deal

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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.