Lynn Tavenner, the trustee overseeing the estate of the collapsed Richmond law firm LeClairRyan, last week filed a wave of lawsuits against dozens of former LeClairRyan partners in a bid to recoup potentially tens of millions of dollars for creditors.
The complaints, which total nearly four dozen, make similar claims against the various defendants depending on their prior stature at the firm. From each of the shareholding partners, Tavenner seeks to claw back certain compensation they were paid in the years leading up to LeClairRyan’s demise.
For the defendants who were partners and had served on the firm’s board of directors, Tavenner alleges they breached their fiduciary duty to the firm as directors and their decisions helped contribute to its financial losses.
From most of the shareholder defendants Tavenner wants five to six figures’ worth of compensation to be returned. For many of the former directors the suits seek tens of millions in damages.
Among the higher-ranking defendants on Tavenner’s hit list is Erik Gustafson, who served as CEO of LeClairRyan from 2016 until its dissolution in 2019.
Tavenner’s 69-page complaint against Gustafson seeks to recoup $786,000 in allegedly improper compensation and $41 million in damages.
Also being sued is Lori Thompson, who was the firm’s general counsel in its final days and served on its dissolution committee. Tavenner wants $386,000 in claw-backs and $34 million in damages from Thompson.
Thompson took over the role of general counsel from Bruce Matson, who is facing his own separate legal troubles dating back to his days at LeClairRyan.
Tavenner had previously indicated her intent to fight for funds from the firm’s former shareholders. Those efforts first came in the form of demand letters offering to settle through mediation. For those who refused to go to mediation, Tavenner took the next step and sued in this latest round of lawsuits, all filed Sept. 2.
Among the common threads in the 40-plus lawsuits are Tavenner’s assertions that LeClairRyan was insolvent beginning in 2014 and until its ultimate demise into bankruptcy in the summer of 2019. She claims the firm was profitable only during one year since 2011.
Its annual losses peaked in 2018 at $16 million, while annual revenues dropped from $200 million in 2013 to $110 million in 2018, when it didn’t have liquidity to pay many basic expenses.
The lawsuits also show the rapid decline in shareholder attorney headcount at the firm. It had peaked at 156 at the end of 2015 and was down to 44 by the time of the bankruptcy filing less than four years later.
As is typical in big corporate bankruptcies, Tavenner’s lawsuits also could trigger an insurance policy that would have been in place to cover any of the defendants who were members of the firm’s board of directors at any point after 2014.
She has said in previous court filings that the value of that policy was $10 million.
The Sept. 2 filings come on the heels of Tavenner amending her complaint against legal services technology company UnitedLex by adding LeClairRyan cofounder and namesake Gary LeClair as a defendant.
UnitedLex and LeClairRyan struck an ill-fated joint venture in the law firm’s final months known as ULX Partners. That partnership, designed to cut costs by outsourcing back-office jobs from LeClairRyan to ULX, is seen as having had a hand in the law firm’s undoing.
Tavenner first sued UnitedLex in 2020, seeking $128 million in damages by alleging that the ULX plan was a conspiracy to siphon millions out of the 30-year-old law firm as it was teetering toward collapse.
In adding LeClair as a defendant along with UnitedLex, the case paints a picture of a “deceitful law firm ‘entrepreneur’ conspiring with an opportunistic ‘global enterprise legal services provider…,’ Tavenner alleged on Aug. 25.
“Indeed, LeClairRyan’s operations had aspects of a Ponzi scheme,” Tavenner claims. “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.”
UnitedLex, which is among LeClairRyan’s largest creditors, has continued to fight for the case to be dismissed.
LeClair, who is now a partner at Williams Mullen in Richmond, has yet to file his response to the allegations.