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Am Law 200 firm LeClairRyan filed for bankruptcy Tuesday, five weeks after members voted to dissolve in late July.

The Chapter 11 filing, in the Eastern District of Virginia, indicates LeClairRyan owes nearly $15 million to two secured creditors: ULXP, the joint venture the firm launched with UnitedLex to handle support services, and the firm's primary lender, ABL Alliance LLLP.

The firm did indicate that it expected to have some funds left for its unsecured creditors, which it estimated to number more than 200 but less than 1,000. The firm said that both its estimated liabilities and estimated assets fell between $10 million and $50 million.

LeClairRyan is being represented by attorneys from Hunton Andrews Kurth. LeClairRyan general counsel Lori Thompson, who joined Spilman Thomas & Battle to continue her law practice in August, is chairing the firm's dissolution committee.

Thompson's declaration in support of the bankruptcy petition revealed that since the firm's members voted to dissolve July 29, a move it confirmed to the public 10 days later, she and securities attorney Christopher Lange were the only two names left on the committee. Former CEO Erik Gustafson and former New Haven, Connecticut, office leader Richard "Deke" Bowerman have since stepped down.

Thompson said that between the dissolution vote and the Chapter 11 filing, LeClairRyan has taken steps to reduce its overhead, closing down operations at all of the 25 offices it once operated around the country, with the exception of fewer than 10 employees who are overseeing the firm's wind down.

But the wind-down process also includes an unnamed number of employees of ULX Partners, the joint venture unveiled in June 2018 that involved the rebadging of over 300 administrative and legal support professionals formerly with LeClairRyan.

Secured Creditors

ULX Partners is also the largest of the firm's two secured creditors. According to Thompson's declaration, in Dec. 2018 LeClairRyan agreed to pay ULX $8 million in deferred fees owed under a contract dating to the previous April. That figure remains steady, but now includes interest. UnitedLex has repeatedly declined to comment on how developments at LeClairRyan have affected its interests and that of ULX, beyond reiterating that the firm remains its client through the wind down process.

ULX Partners has the second crack at the firm's assets, which include cash, accounts receivable and work in progress. The first-priority lien is held by an entity called ABL Alliance, a limited liability limited partnership founded in 2015 that, according to Thompson, lent the firm $15 million in December 2017.

While details on ABL are scant, the entity shares an address and a principal with lender Virginia Commercial Finance. That company touts a lending product structured as a "revolving loan based on borrowing base certificates provided by the borrower, detailing the values of current receivables and inventory." VCF provides a maximum loan of $15 million, according to its website. President John McCauley did not immediately respond to a request for comment.

According to Thompson, after ABL sent LeClairRyan a notice of default July 16, the firm renegotiated its lending agreement in a fashion that extended the lender's control over the firm's use of its cash, accounts receivable and related property. On July 19, the firm owed $9.8 million, a figure that has since dropped to $6.8 million.

Another filing in the package filed Tuesday indicates that while LeClairRyan prepared a wind-down plan that it submitted to ABL that would have kept the matter out of court, the lender was unwilling to provide the necessary funding to make it work. Consequently, the firm sought Chapter 11 to ensure that it can continue to use cash collateral to pay necessary expenses during the wind down like payroll, critical vendors, rent and insurance.

Unsecured Creditors

The firm's largest unsecured creditors, meanwhile, include a mix of landlords and service providers.

At the top of the list are the owners of the firm's Newark, New Jersey, offices, who are owed over $815,000. Another notable name in the landlord category is Latham & Watkins, who owns the space leased by LeClairRyan in New York City. That firm is owed $370,000 in lease obligations.

In a separate part of its bankruptcy filing, LeClairRyan filed to reject a total of 23 ongoing leases for offices around the country, noting that all of its lawyers have vacated the locations and that its remaining non-lawyer employees handling the wind down are either working remotely or from ULX Partners' space. Out of an "abundance of caution," that rejection also extends to the firm's locations in New Haven and Glen Allen, Virginia, where firms picking up former LeClairRyan attorneys have also talked about taking on lease obligations.

On Friday, amid news that a 20-lawyer group was moving to Barclay Damon in the Northeast, that firm said it was exploring taking on LeClairRyan's New Haven lease.

Atop the list of service providers hoping to recoup money from LeClairRyan is Richmond, Virginia-based Proxios, the firm's long-time IT vendor, which is owed approximately $623,000. The two entities have a tight relationship going back years. LeClairRyan founder Gary LeClair, who left the firm in July, was representing Proxios since the early 2000s, and sources close to the firm have confirmed that multiple LeClairRyan partners were investors in the company.

The other creditors include a series of names familiar to those in the law firm world: Thomson Reuters, legal process outsourcing outfit Integreon, and Iron Mountain Records Management, among others.

'Never Seen These Things Go Smoothly'

The failure to work out an out-of-court solution means that the bankruptcy could play out for many years, said Leslie Corwin, a veteran Big Law partnership expert who joined Beverly Hills-based boutique Eisner in 2018.

He said the bankruptcy trustee will likely put together a partnership contribution plan that works to get as many LeClairRyan partners as possible to chip into a settlement package in order to satisfy both the secured creditors and unsecured creditors.

And the news is not good for the many LeClairRyan partners, estimated to be at least 50, who had put in additional capital in recent years, some as much as $100,000, and those who invested in the firm's preferred stock, which at one time promised an 8% dividend.

"Any capital accounts or preferred shares, those are probably never going to be recouped by the partners," Corwin said.

Beyond that, there will be nothing quick about the process.

"I've never seen these things go smoothly," said Corwin, who has handled the bankruptcies of former legal luminaries Heller Ehrman and Testa, Hurwitz & Thibeault, and also represented now-defunct WolfBlock in its years-long, out-of-court liquidation process. "I think it's hard on the former partners and staff of LeClairRyan. Their lives are going to be disrupted for a long period of time."

 

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