A new lawsuit filed last week in federal court is going after 21 former executives and directors of the bankrupt company — including some big Richmond names — and is seeking to recover $365 million for the bankruptcy estate.
The suit alleges that certain officers and directors of LandAmerica Financial Group and its subsidiary LandAmerica 1031 Exchange Services breached their fiduciary duty and caused the companies to suffer massive financial losses. Those losses ultimately led to LandAmerica imploding in late 2008 and filing for Chapter 11 bankruptcy.
The suit was filed by the trustee overseeing the LandAmerica Financial Group Liquidation Trust in U.S. Bankruptcy Court in Richmond.
Among the defendants are former LandAmerica CEO Ted Chandler, former Virginia Commonwealth University President Eugene Trani, former banker Robert Norfleet Jr. and former LandAmerica chief legal officer Michelle Gluck, who is now general counsel at the Federal Reserve Bank of Richmond.
“[LandAmerica Financial Group] met its demise because the LFG and [LandAmerica 1031 Exchange Services] directors and officers failed to properly inform themselves and failed to consider and implement any timely action to mitigate the effects of the LES liquidity crisis,” the suit alleges. “These failures caused LFG and its stakeholders to incur hundreds of millions of dollars in damages.”
At its height, LandAmerica was the third largest title insurance underwriter in the United States. It was toppled when the market for auction rate securities froze in February 2008. Much of the company’s fortunes were tied up in such securities.
“And yet, for at least seven months thereafter, the directors and officers of LFG and LES remained ostrich-like, with their heads buried in the sand, as the crisis worsened through neglect and unexamined missteps,” the suit says.
“When LFG’s officers and directors finally awoke from their slumber, the alternatives available to address the crisis had severely diminished or were lost entirely.”
The suit is seeking $365 million in damages on seven counts.
The plaintiff in the case is trustee Bruce Matson.
Jeff Sabin, an attorney with Bingham McCutchen who is representing the plaintiff, had no comment on the suit.
Buddy Allen and Robert Best of LeClairRyan are also representing the trustee.
The 21 defendants are being representing by various attorneys from across the country.
Two attorneys representing 17 of the defendants issued a prepared statement on Thursday.
Saul Pilchen of Skadden, Arps, Slate, Meagher & Flom and Scott Fredericksen of Foley & Lardner in Washington contend that the lawsuit has no merit.
“The LFG Trustee’s complaint seeks unfairly and inappropriately to judge the conduct of our clients with the benefit of hindsight, and turns a blind eye toward much of what actually occurred,” they said.
“The named LFG officers and directors acted in complete and informed good faith, served the best interests of shareholders and customers, and exercised prudent and well-informed business judgment throughout the process.”
The remaining defense attorneys working the case either would not comment or did not respond to calls by press time.
Attorneys who have seen the case agree that part of the purpose of the suit is to trigger insurance policies that protect executives and directors in such instances.
“There is substantial amount of insurance that is available, and there’s a hope to recover additional assets from that,” said Tom Ebel, a bankruptcy attorney with Sands Anderson, which has represented 20 claimants in the LandAmerica bankruptcy.
However, the insurance coverage won’t come close to covering the $365 million that the suit is seeking. The potential insurance payout is more likely in the range of $60 million to $80 million, according to several local attorneys familiar with the case.
The question that remains is whether the named executives and directors could even come close to covering the remaining damages, should the court rule against them.
“I don’t know many former directors or officers of LandAmerica that have pockets that deep,” Page said.
The 21 defendants named in the suit:
Janet A. Alpert
Gale K. Caruso
Theodore L. Chandler Jr.
Charles H. Foster Jr.
John P. McCann
Dianne M. Neal
Robert F. Norfleet Jr.
Robert T. Skunda
Julious P. Smith Jr.
Thomas G. Snead Jr.
Eugene P. Trani
Marshall B. Wishnack
G. William Evans
Michelle H. Gluck
Pamela K. Saylors
Jeffrey C. Selby
Christine R. Vlahcevic
Ronald B. Ramos
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected].