Were the bosses at LandAmerica so incompetent in their handling of the company during the dark days of 2008 that they should pay damages to creditors? Or were they making the best decisions they could in a tumultuous time?
Those the questions attorneys are fighting over in a $365 million lawsuit filed against 21 former heads of the collapsed financial firm.
The case will come to a head Nov. 17, when the two sides will duke it out before a federal judge over whether the suit should be dismissed.
The original case was filed in June and alleged 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.
The Nov. 17 hearing is a result of more than 300 pages of back and forth arguments over whether case has legal merit.
Should the attorneys for the former LandAmerica bosses get their way, the case will be thrown out because the suit doesn’t hold up to current law and is trying to punish the defendants for making bad — but not illegal — business decisions.
Should plaintiff Bruce Matson (the trustee overseeing the bankruptcy estate of LFG) and his lawyers get their way, a three-week trial will be held about a year from now unless a settlement is reached in the meantime.
The arguments included some real legal zingers.
The defendants, who include some notable Richmond figures, struck first on Aug. 22.
“In a nutshell, the Trustee alleges no more than the exercise of bad business judgment,” the defendants argued in court documents.
“Based upon this remarkable contention, the Trustee now seeks to hold the officers and directors liable for the entire loss of the enterprise value of LFG and its subsidiaries that resulted from the financial crisis that gripped this country in 2008.”
Last week, attorneys for the trustee fired back with 139 pages to the contrary.
Their main argument is that the executives and directors failed to take timely and informed action in response to the risks the company faced after the collapse of the auction rate securities market in February 2008.
“Defendants would have this Court believe that this case amounts to no more than nitpicking with the benefit of 20/20 hindsight,” the plaintiff argued in the response.
“Corporate fiduciaries have a duty to act promptly upon learning of a crisis to try to prevent or mitigate damages to the corporation. And the law holds them responsible for failing to do so.”
The defendants also argued that Virginia adheres to what is known as the “Business Judgment Rule,” whereby officers and directors of a company are protected against personal liability in instances where there is no allegation of self-dealing, improper personal benefit, bad faith or disloyalty.
“The Trustee’s claims for breach of fiduciary duty amount to nothing more than his view that the officers and directors mismanaged a business risk,” the defense argued in its call for dismissal. “This sort of second guessing, with 20-20 hindsight, is exactly what the Business Judgment Rule prohibits.”
The trustee’s attorneys had an answer for that as well:
“This case is not about a failure to generally monitor corporate risks, nor is it predicated on a failure to manage ‘business risks.’
“This case is about the failure to address, in a timely manner, known liability-creating activities that posed the risk of enormous reputational and financial harm to LFG.”
Ultimately, the case might be little more than an attempt to trigger insurance policies that protect executives and directors in such instances, according to several attorneys familiar with the suit.
The case is seeking to recover $365 million for the bankruptcy estate. Those funds would then go to company’s creditors.
However, the insurance won’t come close to covering the $365 million. The potential insurance payout is more likely in the $60 million to $80 million range, according to several local attorneys familiar with the case.
Among the defendants are former LandAmerica chief executive Ted Chandler and former LandAmerica chief legal officer Michelle Gluck, who is now general counsel at the Federal Reserve Bank of Richmond, as well as former Virginia Commonwealth University president Eugene Trani and former banker Robert Norfleet Jr., both of whom were directors at the company.
The Nov. 17 hearing will be open and held in federal bankruptcy court in downtown Richmond before Judge Kevin Huennekens.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected]