Pending $21 million settlement in dispute LeClairRyan-UnitedLex

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LeClairRyan’s former padlocked office in Richmond. (BizSense file)

After a lengthy mediation process, the LeClairRyan bankruptcy estate appears to have reached a substantial settlement in one of the case’s highest-profile disputes.

The liquidating trustee of the collapsing Richmond law firm has agreed to settle its dispute with legal services giant UnitedLex for $21 million, according to court transcripts.

Trustee Lynn Tavenner had initially sued UnitedLex in 2020, seeking $128 million in damages, claiming the company unfairly profited from LeClairRyan’s demise through their failed ULX Partners joint venture.

The agreement avoids a trial between the two sides that was scheduled to start today and end on May 27. It also allows everyone involved to walk away without admitting fault or liability.

The agreement, which has yet to be commemorated by the court, was preliminarily reached less than an hour before the parties were due to meet in front of Judge Kevin Huennekens on April 19. At that hearing, Erika Morabito, an attorney with the Quinn Emanuel Law Firm representing Tavenner, presented a summary of the settlement.

The $21 million in cash would be paid from various sources, Morabito said, according to a transcript of the hearing. Most of it would be $12.25 million in insurance proceeds from a policy through CNA that covered UnitedLex.

Another $8.25 million would come directly from UnitedLex and its private equity backer CVC Capital Partners. An additional $500,000 would come from another Travelers Insurance Co.

Morabito told Huennekens that the insurers will pay his account in full upon closing, while UnitedLex and CVC will pay in installments, starting with $2 million upfront. They would then pay an additional $3 million a year later and a final installment of $3.25 million a year after that. The installments would be guaranteed by a letter of credit.

Additionally, as part of the settlement, ULX Partners agrees to waive its $12.5 million claim against the bankruptcy estate.

richmond federal court

The LeClairRyan case is unfolding in the US District Court for the Eastern District of Virginia. (BizSense file)

Huennekens ordered the case to mediation in February after denying UnitedLex’s attempted dismissal. He appointed Frank Santoro, an experienced bankruptcy judge from Hampton Roads, to oversee the process.

Morabito, at the hearing on April 19, described the settlement as a “unilateral mediator’s proposal,” which was not suggested by any of the litigants.

Morabito said it’s a “resolution that I guess no one is excited about, but I guess that means it’s a good deal.”

Since then, UnitedLex has filed a motion to seal some of the details of the settlement and the transcript of the hearing from public view. That motion is pending.

Morabito declined to comment on the deal when it was reached last week.

UnitedLex is represented in the case by a team of Greenberg Traurig attorneys, including David Barger, who did not return a call at press time.

Quinn Emanuel, the hearing transcript says, would receive $10.5 million of the settlement proceeds instead of his previously agreed-upon 35 percent contingency fee. The payment was described as an “equalizer” because the case, and in particular the dispute with UnitedLex, became more complicated and time-consuming than expected.

ULX Partners was an ill-fated joint venture formed by UnitedLex and LeClairRyan in 2019, just before the law firm’s demise that same year. ULX was a white-collar outsourcing effort heralded at the time as an innovative cost-cutting approach, but is now widely considered to have had something to do with LeClairRyan’s undoing. Tavenner had alleged that ULX was a conspiracy to siphon millions from the 30-year-old law firm when it was on the brink of collapse.

The pending settlement with UnitedLex is the latest multi-million dollar deal for the LeClairRyan estate. The firm’s namesake and longtime CEO, Gary LeClair, had been charged in the same UnitedLex case, but was released from the matter after reaching a $10 million settlement with the estate in late 2021. Other former members of LCR were also part of the deal, which was funded by insurance proceeds.

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