Law Firms

LeClairRyan bankruptcy trustee targets firm co-founder, compares firm to movie 'Weekend at Bernie's'

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LeClairRyan’s bankruptcy trustee has added claims against firm co-founder and former CEO Gary LeClair in an amended complaint filed Wednesday.

Chapter 7 trustee Lynn L. Tavenner alleged that LeClair favored himself and other insiders as the firm’s finances deteriorated while signing an agreement with a legal services provider that effectively gave the new entity control of the law firm.

The agreement that LeClair signed with the UnitedLex Corp. was said to create a new “strategic ‘business platform’” called ULX Partners. The hope was that the transaction would provide a pathway to additional law firm funding from a private equity firm.

“In exchange,” the amended suit says, “LeClairRyan gave ULXP a license to LeClairRyan’s intellectual property and a ‘turn-key’ back office operation” that could be marketed to other law firms.

But the transaction didn’t provide LeClairRyan the expected funding. Instead, it resulted in the UnitedLex entities “extracting value from LeClairRyan while LeClairRyan’s debts increased,” the suit says. “Ultimately, the law firm had no choice but to liquidate.”

Reuters has coverage of the amended suit, which now names LeClair as a defendant.

LeClairRyan had been operating in “the red zone” for years amid declining revenues, guaranteed compensation packages for top management, and underfunded retirement plans, the suit says. During this time, certain firm insiders manipulated LeClairRyan’s financial information to make the firm look healthy.

“Indeed, LeClairRyan’s operations had aspects of a Ponzi scheme,” the suit says. “LeClairRyan funded payments to legacy shareholders with capital contributions from new lateral hires, even though the firm was insolvent at the time and slowly falling to its death. For those left unpaid when the music stopped, it was no different than a ‘money in, money out’ con game.”

The suit quotes a UnitedLex employee, formerly a LeClairRyan shareholder, who said the situation was like the 1989 American comedy film Weekend at Bernie’s, in which a dead man is propped up to deceive others.

Amid deteriorating conditions, the suit says, LeClair and other law firm managers stepped down to distance themselves from LeClairRyan’s projected failure. LeClair was able to prefer himself and certain legacy shareholders over others, allowing himself to profit, according to the suit.

LeClair had studied the downfall of Dewey & LeBoeuf “in intense detail” while “implementing steps along the way to protect his own interests and finances,” the suit says.

The suit says even as LeClairRyan was insolvent, LeClair was able to buy a vineyard in France in an all-cash transaction.

LeClair’s attorney, J. Scott Sexton, told Reuters that the amended complaint is “factually untethered and wildly misleading.” Sexton told the publication that LeClair has a nearly 40-year track record of “ethically impeccable conduct,” and he wasn’t involved in LeClairRyan management for years.

UnitedLex and ULX Partners filed a motion to dismiss the complaint Wednesday.

The motion says UnitedLex is LeClairRyan’s largest creditor, yet Tavenner is trying to “strong-arm money” from the company with “baseless and defamatory accusations.”

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