UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF VIRGINIA

Richmond Division

In re:

LeClairRyan PLLC,

Debtor.

Case No.: 19-34574-KRH

Chapter 7

Lynn L. Tavenner, as Chapter 7 Trustee,

 Plaintiff, 

v.

Charles Sims

 Defendant.

Adv. Proc. No. 21-

ORIGINAL COMPLAINT

TRUSTEE’S ADVERSARY COMPLAINT

Lynn L. Tavenner, Trustee, and not individually but solely in her capacity as the Chapter 7 

trustee (in such capacity, “Ms. Tavenner” and/or the “Trustee” and/or the “Plaintiff”) of the 

bankruptcy estate (the “Estate”) of LeClairRyan PLLC (the “LCR” and/or the “Debtor” and/or the 

“Firm”), in the above-referenced Chapter 7 case (the “Case”), by her undersigned counsel, brings 

this adversary proceeding against Charles Sims (the “Defendant” or “Mr. Sims”) seeking not less 

than $261,909 and alleges as follows: 

INTRODUCTION

1. The Trustee files this lawsuit to recover distributions of substantial sums of 

money made to the Defendant, a shareholder of the Debtor, as applicable, while the Debtor was 

insolvent. The Debtor was insolvent no later than September 3, 2014 and remained insolvent 

until it filed for bankruptcy on September 3, 2019 (the “Petition Date”). Despite the Debtor’s 

insolvency and inability to pay general operating expenses and other creditors, it transferred 

millions of dollars to its shareholders and members.

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2. As a shareholder, the Defendant was privy to LCR’s deteriorating financial 

condition, and knew or should have known that the Firm was insolvent. 

3. Despite the Firm’s financial woes, LCR continued to make, and the Defendant

continued to accept, fraudulent transfers that were specifically conditioned on the Firm achieving

certain levels of profitability—levels which the Defendant knew or should have known LCR had 

failed to reach. These payments, which were made to the Defendant in addition to his regular 

salary, were made (a) with specific fraudulent intent as evident by requisite badges of fraud; 

(b) in violation of operative agreements and applicable law; and (c) on account of equity, and 

therefore, were transferred for no consideration, less than fair consideration, or less than 

reasonably equivalent value to the Debtor. 

4. Accordingly, the Trustee seeks judgment against the Defendant to recover these 

payments, which equal not less than $261,909 plus interest, fees, and costs as allowed by law. 

JURISDICTION, VENUE, AND LEGAL PREDICATE

5. This Court has jurisdiction over the subject matter of this adversary proceeding 

pursuant to 28 U.S.C. § 1334 because this is a civil proceeding arising in or related to the Debtor’s 

Case (under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”)). This 

adversary proceeding has been referred to this Court pursuant to 28 U.S.C § 157(a). This 

adversary proceeding is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2). The Trustee 

confirms her consent, pursuant to Rule 7008 of the Bankruptcy Rules, to the en try of a final 

order by the Court in connection with this Complaint to the extent that it is later determined that 

the Court, absent consent of the parties, cannot enter final orders or judgments in connection 

herewith consistent with Article III of the United States Constitution.

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6. Venue is proper in this District and this Division pursuant to 28 U.S.C. §§ 1408

and 1409.

7. The legal predicates for the requested relief in this adversary proceeding are 

Sections 544, 548, and 550 of the Bankruptcy Code, Fed. R. Bankr. P. 7001(1), (2) and (8), 

and Sections 55.1-400 and 55.1-401 of the Virginia Code, among others. 

PARTIES

8. On September 3, 2019, the Debtor commenced the Chapter 11 case by filing a 

voluntary petition for relief under chapter 11 of the Bankruptcy Code. On October 4, 2019, the 

Court entered the Order of Conversion of Chapter 11 to Chapter 7 [Docket No. 140]. On 

October 4, 2019, Ms. Tavenner was appointed as the Chapter 7 Trustee for the Debtor. 1 As 

Trustee, Ms. Tavenner has the sole authority to bring these claims on behalf of the Debtor’s 

Estate. 

9. At all relevant times, the Debtor was organized under the laws of the 

Commonwealth of Virginia. 

10. Defendant was at all relevant times a shareholder or member of the Debtor, f rom

September 19, 1997 to August 14, 2016. 

11. His relationship with the Debtor, including his compensation, was governed by 

several agreements (as described below). 

12. Defendant is an individual who may be served with process by any manner of 

service authorized by Rule 7004 of the Federal Rules of Bankruptcy Procedure. 

1

See Appointment of Interim Trustee Lynn L. Tavenner. [Case No. 19-34574-KRH,Docket No. 175]. 

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FACTUAL BACKGROUND

A. The Formation, Structure, and Conversion of the Debtor

13. The Debtor was founded in 1988 by Dennis Ryan and Gary D. LeClair. It 

initially operated as a regional corporate-focused law firm, headquartered in Richmond, Virginia.

However, the Debtor rapidly expanded – ultimately opening offices or acquiring firms across the 

United States. Prior to the Petition Date, the Debtor operated through approximately 25 offices 

throughout the United States, with offices in, among others, Richmond, Los Angeles, San 

Francisco, Newark, New Haven, Boston, Philadelphia, New York City, Dallas, Houston, Detroit, 

and Washington, D.C. At its peak, the Debtor had approximately 385 attorneys, including 

approximately 160 shareholders. 

14. Prior to March 31, 2018, the Debtor operated as a Virginia Professional 

Corporation (“PC”). On March 31, 2018, the Debtor converted (the “Conversion”) from a PC to 

a Virginia Professional Limited Liability Company (“PLLC”).

B. The Debtor’s Downfall

a. The Debtor’s Financial Mismanagement

15. Fundamental issues of financial mismanagement plagued the Debtor for years, 

including, but not limited to, over-compensation of certain attorneys, declining revenues, which 

fell short of projections and budgets by millions of dollars, and improper and erroneous 

accounting for certain income and expense items.

16. Beginning no later than January 1, 2014, the Debtor consistently missed its budget 

and its revenue fell short of expectations. By no later than September 3, 2014, the Debtor was 

insolvent, failing to pay its debts as they became due. 

17. In fact, there was only one year after 2011 that the Debtor generated an operating 

profit and positive cashflow. That year, 2013, the Debtor recorded approximately $23 million in 

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non-recurring fees resulting from a combination of a client matter and an award in a non-client 

lawsuit. This one-off influx of cash only generated approximately $5 million in Net Income for 

2013 and had no impact on future profitability. Rather than use these proceeds to fund working 

capital, pay off outstanding obligations, and/or improve the Debtor’s financial viability, the 

Debtor distributed a vast majority of these funds to shareholders. 

18. The Firm’s financials were not kept a secret from all shareholders, including but 

not limited to the Defendant.

19. For instance, in a September 3, 2013 email labeled “August 31, 2013 CEO’s State 

of the Firm and Partnership 2020 Committee’s Report,” sent to all shareholders by the Firm’s 

CEO, David Freinberg, the Firm reported, among other things, that LCR underperformed 

financially “failing for a second consecutive year to collect the amount required to pay 100% of 

projected Shareholder Total Compensation”; that “Many Shareholders, and even some Firm 

Leaders, were surprised by the projected magnitude of the 2012 revenue miss” ; and that “Too 

many Shareholders did not read our reports and insisted on repeating inaccurate facts.” 

20. By no later than 2014, the Debtor’s shareholder compensation system had become

illusory. Even though the Debtor did not meet the financial targets necessary for shareholders to 

receive discretionary sums, the Debtor still distributed the same. Rather than pay shareholders 

based on what the Debtor earned in the year, the Debtor burdened future years to pay current 

shareholders—essentially borrowing from creditors and future shareholders to pay current 

shareholders.

21. The Debtor’s shareholders, including the Defendant, knew or should have known 

that the Debtor’s financial information overstated assets and limited the Debtor’s ability to 

accurately forecast cash inflows. 

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22. The Debtor’s shareholders, including the Defendant, knew or should have known 

of the Debtor’s financial weaknesses and the issues referenced herein. 

23. Shareholders, including the Defendant, received numerous reports and budget 

communications detailing that the Debtor was not meeting budgeted amounts and that the Debtor 

was not financially healthy. 

24. For example, an April 3, 2015 email from David Feinberg to all shareholders 

provided that “Our credit line has a $7.5 million outstanding balance. Our vendor payables were 

$7.150 million (of which approximately $3.21 million were over 60 days).” 

25. Further, in an April 15, 2015 Shareholder Meeting’s presentation entitled 

“Disciplined Financial Management Project: Revenue Enhancement Plan” provided that “absent 

execution on this Plan,” we will “otherwise would have a projected deficiency of cash 

requirements in excess of cash receipts starting in July 2015” and would not be able to “pay in 

full the outstanding balance of the Wells Fargo line of credit until November 2015 (note that our 

Wells Fargo loan agreement requires that we have a zero balance on the line of credit for at least 

30 consecutive days during the 2015 calendar days).” 

26. On March 17, 2016, shareholders were informed that “For 2014 and 2015, we

Shareholders paid ourselves, collectively, more than we earned. We have borrowed to pay 

ourselves, contrary to Partnership 2020 fundamentals and our long-standing conservative 

principles of management. . . . Obviously, continued overpayment is not sustainable. We are 

going to have to reduce Shareholder compensation. If we are able to increase production margin, 

reductions to Shareholder compensation can be mitigated.”

27. In the March 17, 2016 Budget Oversight Committee report (the “2016 BOC 

Report”) provided to all shareholders, the Budget Oversight Committee stated:

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Our WIP and AR are cluttered with uncollectible accounts and 

worthless numbers. We recommend that we clear all uncollectible 

AR and all aged and unbillable WIP from our working books. Old 

AR and WIP clouds our view of financial reality, clutters the work 

desks of our billing and collection teams and provides false 

overstatement of “inventory.” 

28. In an effort to address the Debtor’s financial insolvency, the Debtor relied on 

various sources of capital to fund general operations—sources that were improper, expensive, 

and/or utilized in a fraudulent manner. 

b. Utilizing CAPE Funds for General Operations

29. To fund the Debtor’s general operations, the Debtor misappropriated for improper 

purposes funds tendered by clients for specific expenses (the “CAPE Funds”). 

30. The CAPE Funds were funds paid by the Debtor’s clients for certain enumerated 

purposes, including, but not limited to, filing fees, closing costs, third party professional fees, 

and other costs necessary to serve the Debtor’s clients. 

31. The Debtor used over $3 million in CAPE Funds for general operating purposes 

during the period at issue. 

32. The Debtor utilized the CAPE Funds for general operating purposes with the 

knowledge that CAPE Funds were designated for a specific client purpose. 

33. The Debtor’s shareholders, including the Defendant, knew or should have known

that this practice was occurring. 

c. Reliance on Preferred Stock to Fund Operations

34. In an effort to raise working capital, the Debtor relied on expensive preferred 

stock (“Preferred Stock”) offerings, carrying a dividend rate of 8% per annum. This Pref erred 

Stock became a massive burden on the Debtor’s financial solvency, a burden that the Debtor was 

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never able to recover from, shareholders continued to receive significant dividends on their 

Preferred Stock. 

35. In a 2016 BOC Report provided to all shareholders, the Budget Oversight 

Committee stated: 

For 2014 and 2015, we Shareholders paid ourselves, collectively, more 

than we earned. We have borrowed to pay ourselves contrary to 

Partnership 2020 fundamentals and our long-standing conservative 

principles of management. We also increased our preferred stock 

outstanding for this purposed, ultimately. Insofar as the preferred stock 

bears a required dividend and must ultimately be repaid, we have 

burdened ourselves with carrying costs and repayment obligations in 

order to pay ourselves now.

36. The Debtor utilized the proceeds from the Preferred Stock offerings to primarily 

fund shareholder compensation, not pay creditor balances.

37. The Defendant knew or should have known that the Debtor was burdened by 

dividends owed on the Preferred Stock – further deteriorating the Debtor’s financial health. 

d. Decreasing Revenues and Utilizing Accounts Payable as a Line of Credit 

38. To manage cash flows, the Debtor increasingly relied on its accounts payable as a 

line of unsecured credit to ensure that it could make payments to shareholders. In violation of 

the Firm’s unilateral policy requiring the Debtor to maintain accounts payable aging within 60 

days (regardless of the actual terms of the invoice)— a policy adopted by the Debtor in 2013 as a 

fortifying measure—the Debtor began to unilaterally extend payment terms with its suppliers and 

vendors well past 60 days. 

39. The following chart reflects the Debtor’s leverage of its accounts payable and the 

balance of accounts payable that was more than 60 days outstanding.

Year Total Accounts 

Payable 

Accounts Payable > 60 

Days Outstanding

Amount of AP 

Aged > 60 Days

12/31/2014 $10,109,000 $4,822,000 48%

12/31/2015 $10,668,000 $6,057,000 57%

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12/31/2016 $5,890,000 $3,293,000 56%

12/31/2017 $9,067,000 $5,892,000 65%

12/31/2018 $17,252,000 $7,687,000 45%

6/30/2019 $12,364,000 $6,345,000 51%

40. At the same time that the Debtor’s liabilities were ballooning and the Debtor was 

seeking capital, the Debtor’s revenues were decreasing at an alarming rate. 

41. The Debtor’s annual revenues decreased from approximately $200 million in 

2013 to approximately $110 million in 2018. 

42. During this time, the Debtor did not have sufficient liquidity to pay even the most 

critical operating expenses. The Debtor implemented an internal waterfall scheme to manage 

priority of payments which prioritized payroll first, shareholder payments second, intellectual 

property client expense payments third, and then critical vendor payments fourth. All other 

vendors were paid on an as needed basis. 

43. The Debtor’s shareholders, including the Defendant, knew or should have known

that the Debtor’s annual revenues were decreasing at a rate greater than the Debtor’s reduction in 

costs and that the Debtor could not pay debts as they became due. 

e. Shrinking Headcount and Loss of Shareholders

44. As a result of many factors, including but not limited to the Debtor’s financial 

mismanagement, the Debtor experienced a shrinking number of attorneys, including the loss of 

revenue-positive shareholders and members. 

45. The Debtor’s attorney attrition rate was over ten percent in all relevant years. 

46. Further, the number of shareholders and members, as applicable, decreased yearover-year as follows:

Date Number of Shareholders / 

Members

Approximate Percentage 

Change

December 31, 2015 156

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December 31, 2016 138 (11.5%)

December 31, 2017 121 (12.3%)

December 31, 2018 80 (33.9%)

June 30, 2019 44 (45%)

47. The decrease of headcount left the Debtor with overhead expenses and office 

leases far larger than what was necessary for a law firm of the Debtor’s size. 

48. The significant decrease in shareholders also resulted in significantly higher 

liabilities related to the redemption of the Debtor’s common stock (“Common Stock”) and 

Preferred Stock for the benefit of exiting equity holders. 

49. Beginning in 2015 and in each subsequent year thereafter, the Debtor redeemed 

more Common Stock and Preferred Stock than it issued through new capital infusions. For 

example, in 2016, the Debtor redeemed over $4 million in Common Stock and Preferred Stock 

while only issuing approximately $2.5 million in new Common Stock and Preferred Stock. 

50. The Debtor did not have the financial ability to redeem equity holders, resulting in 

a substantial unpaid liability. ABL Alliance LLLP, affiliated with and commonly referred to as 

Virginia Commercial Finance (“VCF”), ultimately (after recognizing the problematic practice) 

restricted the Debtor’s ability to redeem Common Stock and Preferred Stock due to the Debtor’s 

capital constraints. 

f. The Debtor’s Dissolution

51. In 2017, the Debtor turned to a potential joint venture with a third party, the legal 

services provider UnitedLex Corporation (“UnitedLex”), as a way that some perceived would 

address the Debtor’s financial difficulties (while others inside and outside of the Firm perceived 

it as a way to extract value from the Firm). The transaction was consummated in 2018.

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52. This “joint venture” with UnitedLex did not address the Debtor’s financial issues 

and instead caused significant additional harm to the Debtor and its creditors. 2 

53. On July 29, 2019, the Debtor’s members voted to dissolve LCR and wind-down 

the Debtor’s operations.

C. Shareholder and Member Compensation Paid Pursuant to Shareholder

Agreements, Board Resolutions, and Compensation Policies

54. Shareholder and member compensation was determined in accordance with 

applicable shareholder agreements, resolutions by the Debtor’s Board of Directors, and/or annual 

compensation policies (policies that were thereafter modified as needed to enable diverting 

millions of dollars of scarce funds to shareholders and/or members when the Firm failed to meet 

metrics contained in the initial policy).

a. Shareholder Agreements

55. While a PC, the Debtor’s relationship with the Defendant was governed by, 

among other operative documents, the Third Amended and Restated Shareholders Agreement of 

LeClairRyan, a Professional Corporation, effective as of December 31, 2013 (as amended, 

modified, or supplemented, the “Third A&R Shareholder Agreement”).

56. While a PLLC, the Debtor’s relationship with the Defendant was governed by, 

among other operative documents, the Fourth Amended and Restated Shareholders Agreement of 

LeClairRyan, a Professional Corporation and Operating Agreement of LeClairRyan PLLC, 

dated February 27, 2018 (as amended, modified, or supplemented, the “Fourth A&R 

2 The Trustee filed a complaint against UnitedLex and ULX Partners, LLC in the case captioned as Lynn L. 

Tavenner, as Chapter 7 Trustee, v. ULX Partners, LLC and UnitedLex Corporation, Adv. Pro. No. 20-03142-KRH 

(Bankr. E.D. Va.). 

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Shareholder Agreement,” and together with the Third A&R Shareholder Agreement, the 

“Shareholder Agreements”).

b. Board Resolutions 

57. As further explained below, the shareholders were governed by compensation 

policies and Resolutions of the Debtor’s Board of Directors, dated January 24, 2013 (the “Board 

Resolutions”). 

58. For the 2014 compensation year, the Board Resolutions:

RESOLVED, that for the 2014 budget year, the Firm must have 

calendar year profits of at least the sum of 1% of fee revenues 

(determined on an accrual basis after making adjustments to deduct 

tax liabilities determined on a cash basis), inclusive of the amount 

of dividends paid, before Shareholder or Officer At-Risk Salaries, 

or lateral Shareholder and Officer contingent performance bonuses 

with respect to such calendar year (which are payable early in the 

next calendar year) could be paid.

59. For the 2015 compensation year and later years, the Board Resolutions resolved:

Beginning in 2015, the Firm must have calendar year profits of at 

least the sum of 1% of fee revenues (determined as described 

above), plus the amount of dividends paid, before Shareholder or 

Officer At-Risk Salaries, or lateral Shareholder and Officer 

contingent performance bonuses with respect to such calendar year 

could be paid (the “Minimum Profit Guardrail”).

60. Pursuant to the Board Resolutions, the Debtor was required to achieve a minimum 

level of profits as a condition precedent before shareholders were entitled to the receipt of certain 

amounts.

c. Compensation Policies

61. In addition to being governed by the Shareholder Agreements and the Board 

Resolutions, compensation for shareholders and members, including the Defendant’s, was

governed by LCR’s annual compensation policies, which set forth the various categories of 

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compensation paid to the Debtor’s shareholders and members, as applicable (the “Compensation 

Policies”). 

62. Among other things, the Compensation Policies set forth specific financial 

metrics and other factors that the Debtor had to satisfy to pay shareholders compensation in 

addition to their regular salary. The additional compensation the Debtor paid shareholders, 

including the Defendant, was not a fixed amount and was not guaranteed (the “Contingent 

Income”). 

63. LCR paid the Defendant $147,383 in Contingent Income in violation of the 

Compensation Polices, the Shareholder Agreements, and the Board Resolutions. 

64. The Defendant knew or should have known that he was being paid Contingent 

Income while LCR was insolvent, that the conditions precedent to pay these amounts were not 

satisfied, and that the payments were made with an intent to hinder, delay, and/or defraud LCR’s

creditors.

i. 2014 Compensation Policy

65. In 2014 and in addition to the Board Resolutions, shareholder compensation, 

including the Defendant’s, was governed by the Shareholder and Officer Compensation Policy, 

effective January 1, 2014 and adopted November 26, 2013 (the “2014 Compensation Policy”). 

66. The 2014 Compensation Policy stated that shareholders’ compensation f rom the 

Debtor was comprised of (a) Regular Salary, (b) At-Risk Salary, and (c) Contingent Retention 

Incentive (each as defined in the 2014 Compensation Policy).

67. The At-Risk Salary set forth in the 2014 Compensation Policy was Contingent 

Income subject to, among other things, the Debtor’s financial performance during the year.

68. The 2014 Compensation Policy stated that a failure to satisfy the necessary 

conditions for payment of the At-Risk Salary means that the shareholder’s “right to receive a 

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particular At-Risk Salary . . . installment payment, as applicable, shall not have vested or be 

payable.”

69. Payment of the At-Risk Salary and Contingent Retention Incentive was also 

subject to a waterfall payment structure set forth in the 2014 Compensation Plan, with five 

waterfalls set forth therein.

70. At-Risk Salary was paid in Waterfalls 1, 4 and 5, and Contingent Retention 

Incentive was paid upon Waterfall 5 being fully funded.

71. The Debtor did not satisfy the necessary conditions precedent for payment of the 

At-Risk Salary or the Contingent Retention Incentive. 

72. As the Debtor did not satisfy the necessary conditions precedent, the Defendant

should not have received the At-Risk Salary payments under the 2014 Compensation Plan. 

73. Shareholders were told by management of LCR that the At-Risk Salary and the 

Contingent Retention Incentive were unearned in a presentation on October 24, 2014. 

74. In violation of the Board Resolutions and the 2014 Compensation Policy, the 

Defendant received $49,000 in At-Risk Salary.

75. In October 2014, it was communicated to Shareholders that, as a result of the 

failure to meet 2014 performance thresholds, the 5% Contingent Retention Incentive scheduled 

to be paid in installments from May to September 2015 was unearned. 

76. However, Shareholders were told that as a result a new “2015 Retention 

Incentive” would be created, and the payments would be made on the same schedule as the 

unearned Contingent Retention Incentive. 

77. In November 2014, Shareholders voted to approve this 2015 Retention Incentive 

to ostensibly pay themselves the Contingent Retention Incentive that they did not earn based on 

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2014 performance. At the time these 2015 Retention Incentive payments were made, the Debtor 

faced severe liquidity issues with a majority of its accounts payable past due and taking actions 

such as utilizing CAPE funds and making improper draws on construction loans to fund 

operations. 

78. Shareholders, including the Defendant, were or should have been aware that the 

Retention Incentives paid in 2015 were for the unearned 2014 Contingent Retention Incentive.

79. For example, an April 15, 2015 shareholder communication explained that 

“Certain shareholders were paid $2.5 million of compensation in the first quarter of 2015 that the 

Firm delayed paying them from 2014 year end.”

80. As a result, the Defendant received $49,000 of 2015 Retention Incentive 

payments that were unearned based on the 2014 Compensation Policy.

ii. 2015 Compensation Policy

81. In 2015 and in addition to the Board Resolutions, shareholder compensation, 

including the Defendant’s, was governed by the 2015 Shareholder and Of ficer Compensation 

Policy, adopted November 25, 2014 (the “2015 Compensation Policy”).

82. The 2015 Compensation Policy stated that shareholders’ compensation f rom the 

Debtor was comprised of (a) Regular Salary, (b) the 2015 Retention Incentive (described above), 

(c) the Shareholder Equalization Payment, (d) the targeted Shareholder Performance Payment, 

and (e) the 2016 Contingent Retention Incentive (each as defined in the 2015 Compensation 

Policy).

83. The Shareholder Equalization Payment and the targeted Shareholder Performance 

Payment were Contingent Income subject to, among other things, the Debtor’s financial 

performance during the year.

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84. The 2015 Compensation Policy stated that failure to satisfy the necessary 

conditions for payment of the 2015 compensation “shall mean that the Shareholder’s right to 

receive a particularly payment shall not have vested or be payable.”

85. Payment of the Shareholder Equalization Payment and the targeted Shareholder 

Performance Payment were also subject to a waterfall payment structure set forth in the 2015 

Compensation Plan, with four waterfalls set forth therein.

86. The Shareholder Equalization Payment was included in Waterfall 1 and the 

targeted Shareholder Performance Payment was included in Waterfall 4.

87. The Debtor did not satisfy the necessary financial performance to pay 

shareholders the Shareholder Equalization Payment, the Shareholder Performance Payment, and 

the 2015 Retention Incentive under the 2015 Compensation Policy in full. 

88. As the Debtor did not satisfy the necessary conditions precedent, the Defendant 

should not have received the Shareholder Equalization Payment and the targeted Shareholder 

Performance Payment payments under the 2015 Compensation Plan. 

89. In violation of the Board Resolutions and the 2015 Compensation Policy, the 

Defendant received a $49,383 Shareholder Performance Payment.

iii. 2016 Compensation Policy

90. In 2016 and in addition to the Board Resolutions, shareholder compensation was 

governed by the Amended and Restated 2016 Shareholder Compensation Policy, adopted June 3, 

2016, which amended and restated the policy adopted September 2, 2015 (the “2016 

Compensation Policy”).

91. The 2016 Compensation Policy stated that shareholders’ compensation f rom the 

Debtor was comprised of (a) Regular Salary, (b) the Shareholder Equalization Payment, and 

(c) the Targeted Pro-Rata Payments (each as defined in the 2016 Compensation Policy).

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92. The Shareholder Equalization Payment and the Targeted Pro-Rata Payments were 

Contingent Income subject to, among other things, the Debtor’s financial performance during the 

year.

93. The 2016 Compensation Policy stated that failure to satisfy the necessary 

conditions for payment of the 2016 compensation “shall mean that the Shareholder’s right to 

receive a particularly payment shall not have vested or be payable.”

94. Payment of the Shareholder Equalization Payment and the Target Pro Rata 

Payments were also subject to a waterfall payment structure set forth in the 2016 Compensation 

Plan, with four waterfalls set forth therein.

95. The Shareholder Equalization Payment was included in Waterfall 2 and the 

Target Pro Rata Payment was included in Waterfall 3.

96. The Debtor did not make contingent Shareholder Equalization Payments or 

Targeted Pro-Rata Payments under the 2016 Compensation Plan. 

iv. Wells Fargo Cash Covenant and the Cash Covenant Payments

97. A portion of the Contingent Income that the Defendant received from the Debtor 

were payments made in violation of the Debtor’s agreement with Wells Fargo Bank, N.A. 

(“Wells Fargo”) under the Second Amended and Restated Loan and Security Agreement 

between LeClairRyan and Wells Fargo (as amended, modified, or supplemented, the “Wells 

Fargo Loan Document”). 

98. From the period of no later than September 3, 2014 to December 29, 2017, the 

Debtor borrowed funds from Wells Fargo pursuant to the Wells Fargo Loan Document. 

99. Pursuant to the Wells Fargo Loan Document, the Debtor was required to maintain 

positive cash flows as of each fiscal year end for such year (the “Wells Fargo Cash Covenant”). 

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The Debtor, with fraudulent intent, manipulated certain payments made to the Debtor’s 

shareholders so as to not violate the Wells Fargo Cash Covenant and to hinder, delay, and/or 

defraud the Debtor’s creditors. Specifically, on December 31, 2014, the Debtor dated certain 

payments to shareholders, including the Defendant, for tax purposes but instructed its payroll 

provider to not release the shareholder compensation funds until January 6, 2015 (the “Initial 

Cash Covenant Payments” and each an “Initial Cash Covenant Payment”). 

100. Again, on December 31, 2015, the Debtor dated certain payments to shareholders, 

including the Defendant, for tax purposes but did not distribute those payment to shareholders 

until January 4, 2016 (collectively with the Initial Cash Covenant Payments, the “Cash Covenant 

Payments” and each, with the Initial Cash Covenant Payment, a “Cash Covenant Payment”). 

101. The Cash Covenant Payments were delayed until January 6, 2015 and January 4, 

2016 with the express purpose to avoid reporting the cash outflow for the Wells Fargo Cash 

Covenant. Otherwise, if it had made the Cash Covenant Payments on December 31, 2014 and 

December 31, 2015, the Debtor would have violated the Wells Fargo Cash Covenant at the end 

of each calendar year. 

102. Shareholders, including the Defendant, knew or should have known that the Cash 

Covenant Payments were a violation of the Wells Fargo cash covenant.

103. For example, in a December 22, 2015 shareholder information meeting, 

shareholders were told that Shareholder Payments would be funded in 2015, but not paid until 

2014 because of a “Wells Fargo cash covenant compliance issue. . . . Wells Fargo cash covenants 

regarding the Firm’s cash profits/loss prohibit the payments of both . . . payroll and Shareholder 

Equalization payments . . . .” Despite failing to meet the necessary budget metrics, shareholders 

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were told that some payments “will be paid December 31, 2015 via live check” and “available 

for pickup in the office January 4th, 2016.”

104. The Defendant received Cash Covenant Payments totaling $29,400 which were 

paid by the Debtor to the Defendant as part of his Contingent Income. 

D. Shareholder and Member Compensation From the Debtor’s Deferred 

Compensation and Supplemental Retirement Plans

a. The Deferred Compensation Plan 

105. The Debtor maintained a deferred compensation plan (the “Deferred 

Compensation Plan”), adopted by the Debtor in 1992.

106. The Deferred Compensation Plan was governed by the 2014 Amended and 

Restated Shareholders Deferred Compensation Plan, adopted November 13, 2013 (the “Deferred 

Compensation Plan Document”).

107. Section 9.1 of the Deferred Compensation Plan Document stated that the:

right of a Participant or his beneficiary to receive a distribution 

hereunder shall be an unsecured (but legally unenforceable) cl aim 

against the general assets of the Company, and neither the 

Participant nor his beneficiary shall have any rights in or against 

any amount credited to any Deferral Account or any other specific 

assets of the Company. Thus, the Plan at all times shall be 

considered entirely unfunded for ERISA and tax purposes. Any 

funds set aside by the Company for the purpose of meeting its 

obligations under the Plan, including any amounts held by a 

trustee, shall continue for all purposes to be part of the general 

assets of the Company and shall be available to its general 

creditors in the event of the Company’s bankruptcy or insolve ncy. 

The Company’s obligation under this Plan shall be that of an 

unfunded and unsecured promise to pay money in the f uture. All 

Company Contributions attributable to services prior to 2014, all 

property and rights purchased with such contributions, and all 

earnings attributable to such contributions, property or rights shall 

be held in the Trust until distributed to the Participant or his

beneficiary and shall remain subject to the claims of the 

Company’s general creditors.

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108. The Deferred Compensation Plan utilized a rabbi trust (the “Rabbi Trust”), which 

was governed by the Amended and Restated Rabbi Trust Document, dated February 13, 2014 

(the “Rabbi Trust Agreement”).

109. Section 3 of the Rabbi Trust Agreement provides, among other things, that: 

[t]rustee shall cease payments of benefits to Plan participants and 

their beneficiaries if the Company is Insolvent. Company shall be 

considered “Insolvent” for purposes of this Trust Agreement if (i) 

Company is unable to pay its debts as they become due, or (ii) 

Company is subject to a pending proceeding as a debtor under the 

United States Bankruptcy Code.

(the “Cease Payments When Insolvent Requirement”).

110. Section 3(b) of the Rabbi Trust Agreement also states that “[a]t all times during 

the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the 

Trustee shall be subject to the claims of general creditors of Company under federal and state 

law as set forth below.”

111. The Rabbi Trust was funded by either a whole life insurance policy, variable lif e 

insurance policies, or an investment in a long-term tax-exempt bond fund.

112. The Rabbi Trust Agreement also provides, among other things, that

The Board of Directors and the Chief Executive Officer of 

Company shall have the duty to inform Trustee in writing of 

Company's Insolvency. If a person claiming to be a creditor of 

Company alleges in writing to Trustee that Company has become 

Insolvent, Trustee shall determine whether company in Insolvent 

and, pending such determination, Trustee shall discontinue 

payment of benefits to Plan participants or their beneficiaries.

(the “Insolvency Notification Requirement”).

113. A participant became vested in the Deferred Compensation Plan after 15 full 

calendar years as an employee and 10 full calendar years as a shareholder, or age 62.

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114. Shareholders of the Firm, including the Defendant, were aware, or should have 

been aware, that the assets were available to satisfy creditors.

115. For instance, in the 2015 Plan Year Enrollment Kit, all participants were told that 

“assets held in the Rabbit Trust are considered Company assets and are available to satisf y the 

claims of creditors of the Company. In the event the Company becomes insolvent, you are an 

unsecured general creditor of the Company with regard to your benefits under the Plan.”

b. The Supplemental Retirement Plan

116. The Debtor also maintained a supplemental retirement plan (the “SERP”), 

adopted by the Debtor in 2004.

117. The SERP was governed by the Amended and Restated LeClairRyan, a 

Professional Corporation, Supplemental Retirement Plan, effective January 1, 2014 (the “SERP 

Plan Document”).

118. The SERP designated amounts as being in either a Deferral Account or a Secular 

Trust (together, the "SERP Accounts”). 

119. Pursuant to the SERP, the Secular Trust received and held vested contributions 

made by the Debtor to the SERP participant and contributions made by the SERP participant to 

the Secular Trust.

120. The funds held in the Secular Trust were not subject to the claims of the Debtor’s 

general creditors. 

121. To the contrary, funds held in the Deferral Accounts were subject to the claims of 

the Debtor’s general creditors. 

122. In contravention of the SERP Plan Document, at times, the Debtor failed to 

segregate the funds in the Deferral Account from the Debtor’s general operating accoun ts. 

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Rather than depositing the funds into the SERP Accounts prior to distribution to shareholders 

and members, the Debtor utilized a practice of making these payments directly to shareholders 

and members and recorded them for accounting purposes only as payments from the Secular 

Trust (the “Deferral Payments”).

c. Termination of the Deferred Compensation Plan and the SERP 

123. On September 27, 2016, the Retirement Plans Task Force issued a report 

(the “Task Force Report”) that recommended, among other things, the termination and payment 

of the Deferred Compensation Plan assets to participants pursuant to Section 409A of the 

Internal Revenue Code. 

124. Specifically, the Task Force Report stated that “[a]fter a number of meetings, 

thoughtful consideration and good discussion, the Task Force feels it is in the best interest of the 

Firm and the participants to take steps to terminate the [Deferred Compensation Plan and SERP 

Plan] on or before January 1, 2019. The Task Force understands this is the most expensive option

and financial discipline is needed to get the Firm to the point where this is executable.” In 

explaining its recommendation, the report noted that the “[Deferred Compensation and SERP

[P]lan is painfully complex, and there is no comfort surrounding the possibility of hidden pitfalls 

that may present themselves in the future.”

125. On November 17, 2016, the Debtor’s Board of Directors approved the Task Force 

Report’s recommendation to terminate the Deferred Compensation Plan on or before January 1, 

2019.

126. On December 9, 2016, the Debtor provided communication to shareholders 

stating that 100% vesting would occur upon the formal termination of the Deferred 

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Compensation Plan and that distributions will be made to comply with Section 409A of the 

Internal Revenue Code.

127. One issue that remained was that there was a significant “payment gap” of 

approximately $2 million dollars in the Deferred Compensation plan. Thus, terminating the plan 

meant that the Debtor had to find funding for this payment hole. 

128. As described above, from September 2016 to November 2017, the Firm’s 

finances continued to decline and there was not the “financial discipline” needed to get the Firm 

where executing termination of the Deferred Compensation Plan and SERP would not harm 

creditors. 

129. Thus, on November 30, 2017, the Retirement Plan Committee issued a 

memorandum to the Board of Directors that it was not endorsing a recommendation to accelerate 

the termination of the Deferred Compensation Plan to 2017. 

130. Specifically, the Retirement Plan Committee concluded that termination prior to 

2017 “may result in the loss of flexibility the Firm may need to fund the [existing] shortfall [in 

the plans] needed to make distributions. Since a resolution to terminate the plans is irrevocable, 

if the Firm finds itself in a position to not fully fund the shortfall by December, 2019, the Firm 

will be obligated to payout the amounts, possibly in lieu of point value or increased accounts 

payable.” 

131. Notwithstanding the Retirement Plan Committee’s refusal to endorse an

accelerated termination, on December 29, 2017, the Board formally voted to terminate the 

Deferred Compensation Plan and the SERP, effective December 31, 2017. 

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132. The termination allowed the Debtor to distribute the funds in the Deferred 

Compensation Plan to its members, diverting them away from the Firm’s general unsecured 

creditors. 

133. The Board of Directors made this decision aware that it would “benefit high 

performing Shareholders,” and made that a factor in trying to message the payments made to 

shareholders in the year ending 2017. 

134. At the time that this decision was made, the Board anticipated and represented 

that “The Firm will have to fund the payment gap in the [Deferred Compensation] Plan and that 

will be in the 2019 budget, but not a 2018 expense.” 

135. Notwithstanding that the decision to accelerate the termination was made because 

the payments would be in the 2019 budget and not in the 2018 budget, and that the tax code 

allowed until December 2019 for the funds to be distributed to the members, the Board of 

Directors voted on December 28, 2017 to distribute the funds in December 2018.

136. Such a decision was made to benefit the individual members of the firm, as a 

distribution from the termination of the Deferred Compensation Plan or the SERP “ordinarily 

would be taxable to the Partners, but it is anticipated that the approximately $3 million in 

projected PLLC-related tax savings to Partners will effectively offset much of the tax.”

137. The Defendant received distributions from the Rabbi Trust in a total amount of 

$114,526 between September 1, 2014 and December 31, 2018 (the “Deferred Compensation 

Payments”). 

138. Notwithstanding the expressed Insolvency Notification Requirement in the Rabbi 

Trust Agreement, upon information and belief, the Debtor failed to ever provide notice of its 

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insolvency to the Rabbi Trust’s trustee upon its insolvency or prior to the distribution of Rabbi 

Trust assets to shareholders/members.

139. As the Debtor was insolvent at the time of the Deferred Compensation Payments 

from the Rabbi Trust to the Defendant, the Defendant was not entitled to receive a distribution 

from the Rabbi Trust because of the Cease Payments When Insolvent Requirement and the Rabbi 

Trust’s assets should have been maintained for the benefit of the Debtor’s general creditors. 

140. The payment of the Deferred Compensation Payments to the Defendant was made 

by the Debtor to the Defendant with the intent to hinder, delay, and defraud the Debtor’s 

creditors and while the Debtor was insolvent. 

141. The Defendant knew or should have known that distribution of the Deferred 

Compensation Payments occurred while the Debtor was insolvent, and that the payment were 

made with an intent to hinder, delay, and/or defraud the Debtor’s creditors.

CLAIMS FOR RELIEF

COUNT I: Avoidance and Recovery of Contingent Income Made in Violation of the 

Shareholder Agreements, the Board Resolutions, and the Compensation Policies as Actual 

Fraudulent Transfers Pursuant to 11 U.S.C. §§ 544, 550, and Va. Code § 55.1-400.

142. The Trustee repeats and re-alleges the allegations set forth in all preceding 

paragraphs of this Complaint, as if set forth herein.

143. The Debtor transferred $147,383 in Contingent Income to the Defendant between 

September 3, 2014 and the Petition Date. 

144. The transfers of Contingent Income constitute multiple transfers of property of the 

Debtor to the Defendant. 

145. The transfers of Contingent Income were distributed to the Defendant while the 

Debtor was insolvent and unable to pay its debts as they became due. 

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146. The Debtor transferred Contingent Income with the actual intent to hinder, delay, 

and/or defraud one or more of the entities the Debtor was indebted or became indebted to on or 

after the date of each of the transfers of Contingent Income. 

147. The transfers of Contingent Income to the Defendant were accompanied by 

several badges of fraud, including, but not limited to the following: (a) the Debtor was insolvent 

and unable to pay its debts as they became due when it made the transfers of Contingent Income; 

(b) the transfers of Contingent Income were distributed to the Defendant, a shareholder of the 

Debtor; (c) the transfers of Contingent Income were distributed to the Defendant in violation of 

the Shareholder Agreements, Board Resolutions, the Compensation Policies, and/or applicable 

Virginia law; (d) the transfers of Contingent Income amount to significant portions of the 

Debtor’s Estate; and (e) the transfers of Contingent Income were distributed to the Defendant in 

secrecy or concealment—particularly as it relates to the Cash Covenant Payments.

148. The transfers of Contingent Income and Member Draws were distributed to or for 

the benefit of the Defendant.

149. Pursuant to Virginia Code Section 55.1-400, 11 U.S.C. § 544 and 11 U.S.C. § 

550, the Trustee is entitled to judgment against the Defendant: (a) avoiding the transfers of 

Contingent Income, (b) directing the transfers of Contingent Income be set aside, and 

(c) requiring the Defendant, as the recipient of the transfers of Contingent Income and/or the 

person for whose benefit the transfers of Contingent Income were given, to return the transfers of 

Contingent Income, or the value thereof, to the Trustee for the benefit of the Estate.

COUNT II: Recovery Under Conversion

150. The Trustee repeats and re-alleges the allegations set forth in all preceding

paragraphs of this Complaint, as if set forth herein. 

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151. The Debtor did not satisfy the necessary conditions precedent for the Defendant to 

receive the transfers of Contingent Income (the “Defendant’s Fraudulent Transfers”) in all 

relevant years. Accordingly, the Defendant’s Fraudulent Transfers were wrongfully paid to the 

Defendant.

152. The Debtor is entitled to immediate possession of the Defendant’s Fraudulent 

Transfers. 

153. The Trustee is entitled to recover the damages suffered by the Debtor in the 

amount to be proven at trial, but in no event less than the total amount of the Defendant’s 

Fraudulent Transfers. 

COUNT III: Recovery Under Unjust Enrichment

154. The Trustee repeats and re-alleges the allegations set forth in all preceding 

paragraphs of this Complaint, as if set forth herein. 

155. The Debtor did not satisfy the necessary conditions precedent for the Defendant to 

receive the Defendant’s Fraudulent Transfers in all relevant years. 

156. The Debtor conferred a benefit on the Defendant through the conveyance of the 

Defendant’s Fraudulent Transfers.

157. The Defendant accepted and retained the benefit of the Defendant’s Fraudulent 

Transfers without the Debtor satisfying the conditions precedent necessary to pay the 

Defendant’s Fraudulent Transfers.

158. The Defendant knew or should have known the Debtor did not satisfy the 

conditions precedent necessary for the Defendant to receive the Defendant’s Fraudulent 

Transfers.

159. Allowing the Defendant to retain the benefits he received would be unjust. 

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160. As a direct and proximate result of the foregoing wrongful acts and Defendant’s 

unjust enrichment, the Debtor sustained damages in the amount of the Defendant’s Fraudulent 

Transfers and the Trustee is entitled to recover the same. 

COUNT IV: Avoidance and Recovery of the Deferred Compensation Payments Made in 

Violation of the Deferred Compensation Plan and Rabbi Trust Agreement as an Actual 

Fraudulent Transfer Pursuant to 11 U.S.C. §§ 544, 550, and Va. Code § 55.1-400.

161. The Trustee repeats and re-alleges the allegations set forth in all preceding 

paragraphs of this Complaint, as if set forth herein.

162. The Debtor transferred $114,526 to the Defendant as Deferred Compensation 

Payments between September 3, 2014 to the Petition Date. 

163. The Deferred Compensation Payments were transferred to the Def endant while 

the Debtor was insolvent and unable to pay its debts as they became due. 

164. The Debtor transferred the Deferred Compensation Payments with the actual 

intent to hinder, delay, and/or defraud one or more of the entities the Debtor was indebted or 

became indebted to on or after the date of the Deferred Compensation Payments. 

165. The Deferred Compensation Payments to the Defendant were accompanied by 

several badges of fraud, including, but not limited to the following: (a) the Debtor was insolvent

and unable to pay its debts as they became due when it made the Deferred Compensation 

Payments; (b) the Deferred Compensation Payments were transferred to the Defendant, a 

shareholder of the Debtor; (c) the Deferred Compensation Payments were distributed to the 

Defendant in violation of the Deferred Compensation Plan, the Deferred Compensation Plan 

Document, and the Rabbi Trust Agreement; and (d) the Deferred Compensation Payments

amount to significant portions of the Debtor’s Estate.

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166. The Deferred Compensation Payments were distributed to or for the benefit of the 

Defendant.

167. Pursuant to Virginia Code Section 55.1-400, 11 U.S.C. § 544 and 11 U.S.C. §

550, the Trustee is entitled to judgment against the Defendant: (a) avoiding the Deferred 

Compensation Payments, (b) directing the Deferred Compensation Payments be set aside, and 

(c) requiring the Defendant, as the recipient of the Deferred Compensation Payments and/or the 

person for whose benefit the Deferred Compensation Payments were given, to return the 

Deferred Compensation Payments, or the value thereof, to the Trustee for the benefit of the 

Estate.

PRAYER

WHEREFORE, the Trustee respectfully requests and prays that the Court:

A. On Count I, awarding judgment to the Trustee, pursuant to Section 544 and 550 

of the Bankruptcy Code, Va. Code Sections 55.1-400 and 55.1-401, or pursuant to other 

applicable state fraudulent conveyance or fraudulent transfer law, in an amount of the transfers 

of Contingent Income, and directing the Defendant to pay the Trustee an amount to be 

determined at trial, totaling not less than $147,383, plus interest, plus her reasonable attorneys’ 

fees and costs, pursuant to section 550(a) of the Bankruptcy Code;

B. On Counts II and III, awarding the Trustee damages in an amount to be proven 

at trial, but in no event less than $261,909;

C. On Count IV, awarding judgment to the Trustee, pursuant to Section 544 and 

550 of the Bankruptcy Code, Va. Code Sections 55.1-400, or pursuant to other applicable state 

fraudulent conveyance or fraudulent transfer law, in an amount of the transfer of the Deferred 

Compensation Payments, and directing the Defendant to pay the Trustee an amount to be 

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determined at trial, totaling not less than $114,526, plus interest, plus her reasonable attorneys’ 

fees and costs, pursuant to section 550(a) of the Bankruptcy Code;

D. Awarding the Trustee her costs incurred in connection with this Adversary 

Proceeding, including but not limited to her reasonable attorneys’ fees and costs;

E. Awarding post-judgment interest at the maximum legal rate running from the 

date of the Judgment until the date the Judgment is paid in full, plus costs;

F. Directing the Defendants to pay forthwith all amounts awarded; and

G. Granting such other and further relief as this Court deems just and appropriate.

Respectfully submitted,

LYNN L. TAVENNER, CHAPTER 7 TRUSTEE

/s/ Brittany J. Nelson

Erika L. Morabito (VSB No. 44369)

Brittany J. Nelson (VSB No. 81734)

QUINN EMANUEL URQUHART & SULLIVAN LLP

1300 I Street, N.W., Suite 900

Washington, DC 20005

(202) 538-8334 (telephone)

erikamorabito@quinnemanuel.com

brittanynelson@quinnemanuel.com

Special Counsel to Lynn L. 

Tavenner, the Chapter 7 Trustee 

of the Estate of LeClairRyan 

PLLC

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