David G. Barger (VSB No. 21652) 

Thomas J. McKee, Jr. (VSB No. 68427) 

J. Gregory Milmoe (admitted pro hac vice) 

Greenberg Traurig, LLP 

1750 Tysons Boulevard, Suite 1000 

McLean, Virginia 22102 

Telephone: (703) 749-1300 

Fax: (703) 749-1301 

Email: mckeet@gtlaw.com 

Counsel to ULX Partners, LLC and UnitedLex Corp.

IN THE UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF VIRGINIA 

(Richmond Division)

In re: 

LECLAIRRYAN PLLC, 

 Debtor. 

Lynn L. Tavenner, as Chapter 7 Trustee, 

 Plaintiff, 

vs. 

ULX Partners, LLC and UnitedLex Corporation, 

 Defendants. 

Chapter 7 

Case No. 19-34574 (KRH) 

 Adv. Pro. No. 20-03142-KRH 

 

DEFENDANTS’ REPLY MEMORANDUM IN SUPPORT OF THEIR 

MOTION TO PARTIALLY DISMISS THE COMPLAINT 

 

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ii 

TABLE OF CONTENTS 

Page 

INTRODUCTION .......................................................................................................................... 1 

REPLY ............................................................................................................................................ 4 

A. There is No Tort of Deepening Insolvency or Prolonging the Life of an Enterprise to 

Support a Conspiracy Claim ............................................................................................... 4 

B. There is No Tort of Aiding and Abetting to Support a Conspiracy Claim ......................... 6 

C. There is No Unlawful Joint Venture to Support a Conspiracy Claim ................................ 8 

D. The Trustee Did Not Adequately Plead Aiding and Abetting .......................................... 11 

1. The Complaint Lacks a Predicate Claim Against Other Defendants .................... 11 

2. The Trustee Does Not Allege the Culpable State of Mind or a Benefit ............... 13 

E. The Trustee’s Claims for Avoidance of Fraudulent Transfers Under Bankruptcy Code 

Sections 548(a)(1)(A) and 544(b) and Applicable State Law Are Not Pled with Requisite 

Particularity ....................................................................................................................... 14 

F. The Trustee’s Claim for Avoidance of Constructively Fraudulent Transfers Under 

Bankruptcy Code Section 548(a)(1)(B) Is Not Sufficiently Stated .................................. 16 

G. The Trustee Has Not Sufficiently Stated a Claim for Recharacterization of the ULXP 

Note ................................................................................................................................... 16 

H. Any Avoidance of ULXP’s Security Interest Should Be Limited to a Claim Under 

Bankruptcy Code Section 547 .......................................................................................... 18 

I. The Trustee Fails to State a Claim for Disallowance Under Bankruptcy Code Section 

502(d) ................................................................................................................................ 18 

J. Defendants’ Affirmative Defenses are Appropriate on a 12(b)(6) ................................... 18 

1. Insufficient Insider Allegations to Circumvent In Pari Delicto ............................ 19 

2. The Adverse Interest Exception Does Not Circumvent In Pari Delicto ............... 22 

3. The Personal Stake Exception Does Not Circumvent the Corporate Immunity 

Doctrine................................................................................................................. 23 

CONCLUSION ............................................................................................................................. 25 

 

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iii 

TABLE OF AUTHORITIES 

 Page(s) 

Cases 

Alliance Technology Group, LLC v. Achieve 1, LLC, 

2013 WL 143500 (E.D.Va. Jan. 11, 2013) ....................................................................7, 12, 14 

Almy v. Grisham, 

639 S.E.2d 182 (Va. 2007).........................................................................................................4 

Arrowsmith v. Mallory (In re Health Diagnostic Laboratory, Inc.), 

No. 17-cv-00413, 2017 Bankr. LEXIS 2330 (E.D. Va. July 19, 2017) ...................................10 

Arrowsmith v. Warnick (In re Health Diagnostic Laboratory, Inc.), 

No. 15-32929, 2018 WL 4676339 (KRH) (Bankr. E.D. Va. 2018) ...........................................7 

AvalonBay Cmtys., Inc. v. Willden, 

2009 WL 3431571 (E.D.Va. Aug. 7, 2009) ...........................................................................7, 8 

AvalonBay Communities, Inc. v. Willden, 

No. 07-cv-00998, 2008 WL 2780983 (E.D. Va. July 16, 2008) ..............................................13 

AvalonBay Communities, Inc. v. Willden, 

No. 08-cv-00777, 2009 WL 2431571 (E.D. Va. Aug. 7, 2009) ........................................12, 13 

Buffalo Wings Factory, Inc. v. Mohd, 

622 F. Supp. 2d 325 (E.D. Va. 2007) ................................................................................23, 24 

Burtch v. Seaport Capital, LLC (In re Direct Response Media, Inc.), 

466 B.R. 626 (Bankr. D. Del. 2012) ........................................................................................21 

Cars Unlimited II, Inc. v. National Motor Co., Inc., 

472 F. Supp. 2d 740 (E.D. Va. 2007) ........................................................................................9 

Colgate v. Disthene Group, Inc., 

No. 10-00158, 2013 WL 8019576 (Buckingham Cty. Cir. Ct. Feb. 4, 2013) .........................24 

Collins & Aikman Corp. v. Stockman, 

No. 07-00265, 2010 WL 184074 (D. Del. Jan. 19, 2010) .......................................................19 

Commercial Business Systems, Inc. v. Bellsouth Services, Inc., 

453 S.E.2d 261 (Va. 1995).........................................................................................................9 

Commonwealth Biotechnologies, Inc. v. Fornova Pharmworld, Inc. (In re 

Commonwealth Biotechnologies, Inc.), 

No. 11-30381, 2012 WL 5385632 (Bankr. E.D. Va. Nov. 1, 2012) ..................................17, 18 

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iv 

Fidelity National Title Insurance Co. v. Washington Settlement Group, LLC, 

No. 12-04793, 2013 WL 9451969 (Fairfax Cty. Cir. Ct. Sept. 4, 2013) .................................24 

Flexible Benefits Council v. Feltman, 

No. 08-cv-00371, 2008 WL 2465457 (E.D. Va. June 16, 2008) .......................................23, 24 

Gavin Solmonese, LLC v. Shvamsundar (In re Amcad Holdings, LLC), 

579 B.R. 33 (Bankr. D. Del. 2017) ..........................................................................................15 

In re Greater Southeast Community Hospital Corp. I, 

353 B.R. ...................................................................................................................................19 

Gregg Valby, L.L.P. v. Great American Ins. Co., 

316 F. Supp. 2d 505 (S.D. Tex. 2004) .....................................................................................10 

Hays v. Pearlman, 

No. 10-cv-01135, 2010 WL 4510956 (D.S.C. Nov. 2, 2010) ..................................................19 

In re HDL Diagnostic Laboratory, Inc., 

2018 WL 467 6339 ..................................................................................................................14 

In re Hellas Telecommunications (Luxembourg) II SCA, 

524 B.R. 488 (Bankr. S.D.N.Y. 2015) .....................................................................................21 

In re Infinity Business Group, Inc., 

612 B.R. 76 (D.S.C. 2019) .......................................................................................................22 

Infinity Technology, LLC v. Burney, 

2020 WL 6387378 (E.D. Va. June 4, 2020) ....................................................................6, 7, 12 

Knauer v. Jonathon Roberts Financial Group, Inc., 

348 F.3d 230 (7th Cir. 2003) ...................................................................................................19 

Leveto v. Lapina, 

258 F.3d 156 (3d Cir. 2001).....................................................................................................19 

Lightsway Litigation Services, LLC v. Yung (In re Tropicana Entertainment, 

LLC), 

520 B.R. 455 (Bankr. D. Del. 2014) ........................................................................................21 

Lukas v. Bar Association of Montgomery County, Maryland, Inc., 

371 A.2d 669 (Md. Sp. App. Ct. 1977)....................................................................................10 

MicroStrategy Servs. Corp. v. OpenRisk LLC, 

2015 WL 1221263 (E.D.Va. Mar. 17, 2015) .......................................................................7, 11 

Nasser v. Waller, 

No. 16-cv-00032, 2017 WL 913816 (W.D. Va. Mar. 7, 2017) .................................................9 

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v 

Nisselson v. Lernout, 

568 F.Supp.2d 137 (D. Mass. 2008) ........................................................................................19 

Pattenson v. Horsley, 

70 Va. 263 (Va. 1877)................................................................................................................7 

In re Radnor Holdings Corp., 

353 B.R. 820 (Bankr. D. Del. 2006).........................................................................................20 

Reliance National Insurance Co. v. Sears, Roebuck & Co., Inc., 

792 N.E.2d 145 (Mass. Ct. App. 2003) ...................................................................................10 

Saks Fifth Avenue, Inc. v. James, Ltd., 

630 S.E.2d 304 (Va. 2006).........................................................................................................8 

Schnelling v. Crawford (In re James River Coal Co.), 

360 B.R. 139 (Bankr. E.D. Va. 2009) ......................................................................................12 

St. Paul Fire and Marine Insurance Co. v. Hoskins, 

No. 10-cv-00087, 2012 WL 748574 (W.D. Va. Mar. 7, 2012) ...............................................11 

Star Broad., Inc. v. Reed Smith LLP, 

No. 08-0616, 2009 WL 482833 (E.D. Va. Feb. 24, 2009) ........................................................9 

Studco Bldg. Sys. United States LLC v. 1st Advantage Fed. Credit Union, 

2020 U.S. Dist. LEXIS 238945 (E.D. Va. Dec. 18, 2020) ..............................................6, 7, 13 

Tysons Toyota, Inc. v. Globe Life Insurance Co., 

No. 93-1444, 1994 WL 717598 (4th Cir. Dec. 29, 1994) ........................................................13 

Visiting Nurse Association of Greater Philadelphia v. St. Paul Fire and Marine 

Insurance Co., 

65 F.3d 1097 (3d Cir. 1995).....................................................................................................10 

Zazzali v. Hirschler Fleischer P.C., 

482 B.R. 495 (D. Del. 2012) ....................................................................................................22 

Statutes 

Bankruptcy Code Section 502(d) ...................................................................................................18 

Bankruptcy Code Section 547 .......................................................................................................18 

Bankruptcy Code Sections 548(a)(1)(A) and 544(b) .....................................................................14 

Bankruptcy Code Section 548(a)(1)(B) .........................................................................................16 

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Other Authorities 

Federal Rule of Civil Procedure 12(b)(6) ..................................................................................1, 19 

Federal Rules of Bankruptcy Procedure Rule 7012(b) ....................................................................1 

Rule 5.4 ............................................................................................................................................8 

Rule 12(b) ......................................................................................................................................19 

Virginia Rules of Professional Conduct Rules 5.4(a) and 5.4(d)(3) ............................................8, 9 

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ULX Partners, LLC (“ULXP”) and UnitedLex Corporation (“UnitedLex” and together 

with ULXP, the “Defendants”), by counsel and pursuant to Federal Rule of Civil Procedure 

12(b)(6), made applicable to this proceeding by Rule 7012(b) of the Federal Rules of Bankruptcy 

Procedure, respectfully submit this reply (the “Reply”) in support of Defendants’ ULX Partners, 

LLC’s and UnitedLex Corporation’s Motion to Partially Dismiss the Complaint [Docket No. 17]1

and related Memorandum of Law in Support of Defendants’ ULX Partners, LLC’s and UnitedLex 

Corporation’s Motion to Partially Dismiss the Complaint [Docket No. 18] (collectively, the 

“Motion”)2 and in response to Plaintiff’s Opposition to Defendants’ Motion to Partially Dismiss the 

Complaint [Docket No. 25] (the “Opposition”),3 filed by Lynn L. Tavenner, in her capacity as 

Chapter 7 Trustee (the “Trustee”) of the bankruptcy estate of LeClairRyan, PLLC (“LeClairRyan”, 

“LCR” or the “Debtor”). In support hereof, the Defendants state as follows: 

INTRODUCTION 

Shorn of inflammatory rhetoric and conclusory statements that are undermined by facts in 

the Trustee’s own exhibits, the Complaint fails to allege plausible or reasonable facts sufficient to 

state a cause of action for conspiracy, aiding and abetting a breach of fiduciary duty, fraudulent 

conveyance, or recharacterization of debt as equity. The Complaint alleges: “the Defendants . . . 

prioritized their own desires for financial gain and prolonged the Debtor’s lifespan, enabling the 

Defendants and others to improperly and unfairly extract millions of dollars from the Estate, to the 

detriment of LeClairRyan’s creditors.” (Compl. ¶1). The Trustee continues by asserting in her 

Opposition that, “[t]he gravamen of the Complaint is that the Defendants exploited LeClairRyan’s 

1

 References to “Docket No. __” are to the Court’s docket in the adversary proceeding, case 

number 20-03142 (KRH). 

2

 References to pages of the Motion are with respect to Docket No. 18. 

3

 Capitalized terms used but not otherwise defined in this Reply shall have the meanings given to 

them in the Motion or the Opposition, as applicable. 

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2 

precarious financial situation through a one-sided venture (ULXP) governed by an unlawful 

contract.” (Opp., p. 1). Putting aside for a moment the fact that such statements are pure fiction, 

stripped of their overheated rhetoric these charges would simply read: “Defendants entered into a 

business deal with LeClairRyan, which had not been doing well but hoped to do better, with the 

intention of making a profit.” This is hardly illegal and certainly does not provide a predicate for 

a claim of conspiracy, aiding and abetting, or otherwise. 

Among other “nefarious” acts attributed to the Defendants, the Trustee notes that when 

pre-deal diligence showed the financial health of LeClairRyan to be less robust than previously 

understood the Defendants restructured the proposed deal. While this may have been 

disappointing to LeClairRyan and made the overall deal less attractive to it, there is nothing 

remotely improper or unusual about arm’s length parties renegotiating a deal when underlying 

assumptions change prior to signing it. Nor is there any plausible basis for asserting that 

Defendants in any way, shape or form controlled the decision of LeClairRyan to enter into the 

joint venture. Indeed, the Trustee admits and concedes in her Opposition that prior to the joint 

venture, “the Debtor and UnitedLex accomplished these things [such as entering into the joint 

venture] while UnitedLex and LeClairRyan were indisputably separate legal entities.” (Opp., 

p. 25) (emphasis added); see also Opp., p. 26 (“UnitedLex and the Debtor acted separately prior 

to the creation of the ULXP venture”). 

Whether or not the ULXP joint venture actually contributed to prolonging the life of LCR, 

(and the Trustee concedes that deepening insolvency does not sate a cause of action), the 

documents filed by the Trustee in support of the Complaint identify LCR’s motives for entering 

into the transaction – none of which support the Trustee’s allegations of a grand conspiracy, 

nefarious aiding and abetting, or an intentional fraudulent conveyance. 

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 . . . LR will be invoiced for the JV’s Services, including those costs and expenses 

for personnel and services that we will migrate to the JV. Functionally, rather than 

LR paying for those services ad hoc every day as it does now, the JV will invoice 

LR in a lump sum of accumulated services at the end of each month, generally on 

a 30 day basis for payment. This should initially assist with short term cash flow, 

and more regularize our support cost and payment cycle. The deal is structured so 

that LR’s costs for our current staff services will remain proportional to what LR 

pays now, meaning we will not pay a premium back to the JV for the services from 

our team members who will be housed in the JV. 

Compl., Ex. 6, p. 7 of 11. 

The Trustee also contends that the conversion of LCR from a taxable professional 

corporation to an LLC was “required” by ULXP as a condition to going forward with the joint 

venture. While that is untrue4, it is neither unlawful nor nefarious to try to maximize the benefits 

available under the tax code. Nor would there have been anything unlawful or improper about the 

Defendants requiring LCR to seek to do so as a condition of the deal. With the benefit of hindsight, 

and given that LCR and its partners may not have received all the anticipated tax benefit from such 

conversion, the conversion may or may not have been a wise business decision by LeClairRyan. 

But it does not serve as a factual predicate for a claim of conspiracy, aiding and abetting, or 

intentional fraudulent conveyance. Nor is it alleged that the Defendants received any benefit from 

the conversion – they did not. Indeed, as set forth in the Exhibits to the Complaint, there were 

valid reasons for the conversion that had nothing to do with the ULXP joint venture, not to mention 

that the conversion was approved by LCR’s shareholders prior to the time there was any 

contractual relationship between the parties. Similarly, the determination to terminate the pension 

4

 Exhibit 12 to the Complaint, which describes the benefits and risks of the conversion to the LCR 

Partners prior to their voting on it states that, “[t]he LLC conversion makes senses as a stand alone 

initiative. It will generate an estimated $9 million benefit to our Partners.” The conversion was 

not tied in any way to the ULXP venture, except to note the benefit that the LLC (as opposed to 

corporate form) would be able “to avoid double tax on any gain on JV/ULX equity.” “Retention 

of Partners via the equity incentive is a key requirement for ULX,” is the only allusion to any 

“requirement” of ULXP. Compl., Ex. 12, p. 4 of 6. 

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4 

plans had nothing to do with ULXP and provided no benefit to the Defendants. Except to the 

extent that support from ULXP helped keep LCR alive long enough to make the distribution to 

plan beneficiaries required by the tax code at the end of 2018, Defendants had no direct or indirect 

involvement with the pension plan termination. 

At the end of the day, ULXP was a business venture that UnitedLex and LCR entered into 

voluntarily after months of discussion, diligence, and as now acknowledged by the Trustee, 

negotiated while the parties were separate entities and acted separately. (Opp., pp. 25-26). Both 

parties sought to benefit from the business relationship: LCR to have a third party handle 

administrative and support services to enable the firm to focus on providing exceptional legal 

services to their clients, and UnitedLex to develop a leading market position in the legal support 

services industry. Ultimately, LCR’s loss of attorneys and accompanying revenue, among other 

reasons, caused LCR to file bankruptcy and caused ULXP to be owed approximately $12 million 

dollars for expenses it paid to the 300 ex-LCR employees who came to work for ULXP (and who 

were billed to LCR at no markup). The Trustee’s attempt to cast the above as intentionally 

injurious, wrong, or unlawful, simply is not plausible and should be rejected by the Court. 

For the reasons set forth in the Motion, as supplemented herein, the Defendants contend that 

the Trustee has failed to satisfy the required pleading standard for Counts I, II, III, V, VI, VII, VIII, 

IX, X and XI of the Complaint. Accordingly, such claims should be dismissed. 

REPLY 

A. There is No Tort of Deepening Insolvency or Prolonging the Life of an 

Enterprise to Support a Conspiracy Claim 

The Trustee admits in her Opposition, as she must, that “deepening insolvency” is not a cause 

of action; accordingly, and as a matter of law, it cannot serve as the requisite predicate act underlying 

conspiracy claims. See Almy v. Grisham, 639 S.E.2d 182, 188 (Va. 2007) (“[I]n Virginia, a 

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5 

common law claim of civil conspiracy generally requires proof that the underlying tort was 

committed.”). Nevertheless, the Trustee makes a last-ditch effort to shoe-horn the rejected theory of 

deepening insolvency into this case by falsely recharacterizing it as being merely part of her damages 

claim. More specifically, although she now asserts that “Defendants’ tortious actions unreasonably 

prolonged the life of the Debtor, resulting in additional damages to the Debtor’s estate and its 

creditors,” her Complaint repeatedly identifies such purported prolongation as the wrong itself. 

(Opp., p. 7) (emphasis in original). By way of example, the Trustee alleges: 

 “the actions or inactions of the ULX Entities only served to plunge LeClairRyan further 

into insolvency . . . .” (Compl. ¶1) (emphasis added). 

 “the conspiracy between the ULX Entities and the LCR Officers and Directors caused 

damages . . . including but not limited to damages relating and/or arising out of (i) keeping 

the Debtor operating instead of winding down the insolvent law firm . . . .” (Compl. ¶2) 

(emphasis added); 

 “As a result of their breaches of fiduciary duties of care and loyalty, including their 

decision to enter into the ULXP transaction, instead of winding down the insolvent law 

firm, the LCR Officers and Directors caused significant damage . . . .” (Compl. ¶109) 

(emphasis added); 

 “The Debtor suffered injury from extending the life of the Debtor . . . .” (Compl. ¶293) 

(emphasis added). 

The foregoing allegations, among others, confirm that despite what she may now claim in her 

Opposition, the Trustee is not alleging that deepening insolvency is only a measure of damages; 

rather, she is alleging that deepening insolvency caused the damage. The allegations clearly imply 

that, according to the Trustee, the Board of LCR had an obligation to wind up its affairs rather than 

enter into the ULXP joint venture. This theory, however, has been expressly rejected by this Court 

in Schnelling v. Crawford (In re James River Coal Co.), where it said that “Virginia law does not 

require a financially challenged company to abruptly wind up its business affairs and liquidate its 

assets . . . .” 360 B.R. 139, 179 (Bankr. E.D. Va. 2009). 

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The Trustee’s attempt to re-write, (i) the Complaint to classify deepening insolvency as 

merely a measure of damages, and (ii) Virginia law by imposing a retroactive fiduciary duty, must be 

summarily rejected. To hold otherwise risks turning any attempt by a corporation that, “acting with 

due diligence and good faith, pursues a business strategy that it believes will increase the corporation’s 

value, but also involves the incurrence of additional debt,” into an actionable claim if the strategy 

proves unsuccessful – a possible result and reliance on hindsight that this Court has already 

disallowed. Id. at 178-79 (quoting Trenwick America Litigation Trust v. Ernst & Young, L.L.P., 906 

A.2d 168, 205 (Del. Ch. 2006)). Accordingly, the Court should reject the Trustee’s attempt to inject 

deepening insolvency into this case in any form. 

B. There is No Tort of Aiding and Abetting to Support a Conspiracy Claim 

Just as “deepening insolvency” cannot support a conspiracy because it is not itself actionable, 

the Trustee’s attempt to allege a conspiracy to “aid and abet” fails for the same reason – it is not a 

recognized cause of action in Virginia. 

While the Trustee’s Opposition grasps at various older cases to try to piece together an aiding 

and abetting tort, the Trustee’s Opposition, incredibly, fails to acknowledge or address the two most 

recent cases on the issue in this District. The Trustee completely ignores Judge Ellis’s opinion from 

June 2020 in Infinity Technology, LLC v. Burney, No. 19-cv-01507, 2020 WL 6387378 (E.D. Va. 

June 4, 2020) that was cited in Defendants’ Motion, where the Court stated that the “Supreme 

Court of Virginia has not expressly recognized a cause of action for aiding and abetting a tort.” 

Id. at *6. Nor does the Trustee acknowledge the even more recent case from this District of Studco 

Bldg. Sys. United States LLC v. 1st Advantage Fed. Credit Union, No. 20-cv-00417, 2020 U.S. 

Dist. LEXIS 238945 (E.D. Va. Dec. 18, 2020), where again, contrary to what the Trustee implies 

in her Opposition, Judge Jackson of the District Court stated that “[n]either Virginia law, Virginia 

State Courts, nor the United States Court of Appeals for the Fourth Circuit have recognized aiding 

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7 

and abetting fraud as a separate tort.” (Id. at *18).5 Notwithstanding this Court’s prior holdings 

in cases such as Arrowsmith v. Warnick (In re Health Diagnostic Laboratory, Inc.), No. 15-32929, 

2018 WL 4676339 (KRH) (Bankr. E.D. Va. 2018), the Defendants respectfully contend that such 

a clear, forceful, and recent pronouncement by this District in Studco, coupled with Judge Ellis’s 

equally clear and recent opinion in Infinity Technology, LLC, demonstrates an unmistakable trend 

against recognition of a stand-alone tort and clear guidance that the claim should be dismissed. 

In the face of such clear precedent, the Trustee’s Opposition resorts to asking this Court to 

see “aiding and abetting” as an “appropriate avenue to establish joint tortfeasor liability,” and cites 

cases such as Alliance Technology Group, LLC v. Achieve 1, LLC, No. 12- cv-00701, 2013 WL 

143500 (E.D. Va. Jan. 11, 2013) and Patteson v. Horsley, 70 Va. 263 (Va. 1877) in support of the 

same. (Opp., p. 9). Judge Ellis addressed these cases in the Infinity Technology, LLC decision, 

however, stating that such cases “have recognized that individuals who act jointly to breach a 

fiduciary duty may be held jointly liable for that tort,” yet he continued by stating, “[b]ut 

importantly, those cases do not establish a separate cause of action for aiding and abetting a tort 

under Virginia law.” Infinity Technology, LLC, 2020 WL 6387378, at *6. As a result, Judge Ellis 

expressly rejected reliance on such cases and dismissed the claim for aiding and abetting with 

prejudice because it is not a recognized cause of action. Id. 

The Trustee’s reliance on AvalonBay Cmtys., Inc. v. Willden, No. 08-cv-00777, 2009 WL 

3431571 (E.D. Va. Aug. 7, 2009) for the proposition that “Virginia law allows a third party to be 

liable for another party’s breach of fiduciary duty when that third party knowingly participated in 

the breach,” is no more convincing. (Opp., p. 8). In MicroStrategy Servs. Corp. v. OpenRisk LLC, 

5

 The Court in StudCo goes on to address the potential elements of a cause of action for aiding 

and abetting a breach of fiduciary duty, noting that any such claim would require the requisite 

“mens rea, or culpable state of mind.” Id. at *20. This is further discussed in Section D.2 below. 

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8 

No. 14-cv-01244, 2015 WL 1221263 (E.D. Va. Mar. 17, 2015), Judge Cacheris of the District 

Court noted that he “decline[d] to adopt AvalonBay’s reasoning,” explaining that “[w]hile 

AvalonBay has not been expressly overruled, its reading of Halifax overlooked the Supreme Court 

of Virginia’s equivocal language about such a cause of action.” Id. at *3. 

In light of the foregoing, reliance on an asserted tort of “aiding and abetting” should be 

rejected in this case. 

C. There is No Unlawful Joint Venture to Support a Conspiracy Claim 

The Trustee offers no support for her allegation that the ULXP joint venture is the requisite 

“wrongful act” to support any conspiracy-related claim. The ULXP joint venture was not 

“unlawful,” and the Trustee points to no case or statute that says otherwise. Instead, the Trustee 

relies upon Rules 5.4(a) and 5.4(d)(3) of the Virginia Rules of Professional Conduct regarding 

alleged improper fee sharing and inappropriate control.6 But the Virginia Rules of Professional 

Conduct do not have the force of law; an alleged violation of a Rule of Professional Conduct – 

6

 To be clear, Defendants dispute that the ULXP joint venture violated the Rules of Professional 

Conduct in any manner whatsoever, and Defendants reserve all rights with respect thereto. Even 

if the Production Service Fees are eventually deemed to constitute improper fee sharing under Rule 

5.4, which the Defendants contend they are not, the Trustee’s heavy reliance on such provision in 

this case is misplaced because there is no allegation that the payment of such fees actually 

happened. Instead, and as pointed out in the Motion, the Trustee only alleges that “[u]pon 

information and belief, ULXP was sharing in fees from [LCR]’s legal practice” – a inappropriate 

and troubling pleading tactic where the Trustee already possesses all of the information necessary 

to determine the veracity of this allegation. (Motion, p. 13). Given her possession of LCR’s books 

and records which enabled her to reference every payment made by LCR to ULXP (see Exhibit 26 

to the Complaint) and her “extensive independent investigation,” the Trustee must know that no 

such payments were in fact made. In other words, without alleging that any of the allegedly 

improper payments actually occurred, and without alleging that such fee arrangement proximately 

caused any of the alleged damages at issue in this case, the Trustee seeks to invalidate the entire 

transaction merely because the MSA contained such provision. See Saks Fifth Avenue, Inc. v. 

James, Ltd., 630 S.E.2d 304, 311 (Va. 2006) (“First, a plaintiff must show a causal connection 

between the defendant’s wrongful conduct and the damages asserted. Second, a plaintiff must 

prove the amount of those damages by using a proper method and factual foundation for 

calculating damages.”). 

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9 

particularly by a non-lawyer – is not a basis for a finding of illegality as the Trustee suggests. As 

noted in the preamble of the Virginia Rules of Professional Conduct, a “[v]iolation of a Rule should 

not give rise to a cause of action nor should it create any presumption that a legal duty has been 

breached.” (Va. Rules of Prof’l Conduct, Preamble (2008)). Rather, it continues, “[t]he Rules are 

designed to provide guidance to lawyers and to provide structure for regulating conduct through 

disciplinary agencies.” Id.; see also Star Broad., Inc. v. Reed Smith LLP, No. 08-00616, 2009 WL 

482833, at *10 (E.D. Va. Feb. 24, 2009) (stating that a violation of a Rule of Professional Conduct 

does not, by itself, establish a claim of legal malpractice); Nasser v. Waller, No. 16-cv-00032, 

2017 WL 913816, at *7 (W.D. Va. Mar. 7, 2017) (granting motion to dismiss, in part, because all 

of the plaintiff’s claims were “premised on violations of ethical rules [that] are subject to dismissal 

because a violation of a rule of professional conduct (and similarly, a judicial canon of conduct) 

does not give rise to a private cause of action.”). 

Nevertheless, as the Trustee repeatedly does throughout the Opposition, she offers the 

Court cases that do not withstand scrutiny. None of her cited cases involve alleged violations of 

ethical standards that would support the Trustee’s novel theory; rather, they stand for the 

unremarkable proposition that an alleged violation of an actual law could render an action 

“unlawful.” See Cars Unlimited II, Inc. v. National Motor Co., Inc., 472 F. Supp. 2d 740 (E.D. Va. 

2007) (considering a motion to dismiss claims of actual fraud and statutory business conspiracy under 

Virginia law where a lender alleged a borrower made material misrepresentations as to collateral for 

the purpose of fraudulently inducing a loan); Commercial Business Systems, Inc. v. Bellsouth 

Services, Inc., 453 S.E.2d 261 (Va. 1995) (reviewing a summary judgment order with respect to 

claims of common law conspiracy and statutory business conspiracy where an individual was alleged 

to have interfered with the renewal of a party’s contract in exchange for bribes by the party’s 

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competitor); Arrowsmith v. Mallory (In re Health Diagnostic Laboratory, Inc.), No. 17-cv-00413, 

2017 Bankr. LEXIS 2330, at *23-*24 (E.D. Va. July 19, 2017) (considering a motion to dismiss, 

among others, claims of common law conspiracy and statutory business conspiracy under Virginia 

law and tortious interference under Connecticut law where defendants were alleged to have been 

participants of a scheme involving illegal business practices including violations of federal and 

state anti-kickback statutes). 

In contrast to the unlawful activities in the above-referenced cases, ULXP was only 

providing “back office” services at the same rates LCR had paid prior to the formation of ULXP; 

the joint venture did not entail fraudulently inducing loans, interfering with LCR or its competitors’ 

business, bribes or the like. LCR’s outsourcing of such services to ULXP did not equate to 

granting control of the practice of law over to ULXP. Instead, the billing and other administrative 

tasks were only an effect of the practice of law, not part of the practice of law itself. See Visiting 

Nurse Association of Greater Philadelphia v. St. Paul Fire and Marine Insurance Co., 65 F.3d 

1097, 1101 (3d Cir. 1995) (recognizing the billing/professional services dichotomy, and 

classifying the act of billing as a commercial, rather than professional, aspect of practicing law); 

Gregg & Valby, L.L.P. v. Great American Ins. Co., 316 F. Supp. 2d 505, 513-14 (S.D. Tex. 2004) 

(finding billing and fee-setting practices to not be professional services, the court explained, “even 

tasks performed by lawyers are not considered professional services if they are ordinary activities 

that can be completed by those lacking legal knowledge and skill,” and that such activities “are 

merely administrative tasks inherent to all businesses.”); Reliance National Insurance Co. v. Sears, 

Roebuck & Co., Inc., 792 N.E.2d 145, 148 (Mass. Ct. App. 2003) (holding the billing function of 

a lawyer is “largely ministerial” and “not a professional service”); Lukas v. Bar Association of 

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Montgomery County, Maryland, Inc., 371 A.2d 669, 673 (Md. Sp. App. Ct. 1977) (holding that 

activities such as engineering, accounting or clerical work do not involve the practice of law). 

Other than unilaterally throwing the label of “unlawful” on the ULXP joint venture, the 

Trustee offers no authority or fact in support of such label. Reliance on the same to support her 

claims should be rejected. 

D. The Trustee Did Not Adequately Plead Aiding and Abetting

Assuming, arguendo, that the Court recognizes “aiding and abetting” as a cause of action, 

the Court should nevertheless dismiss the Trustee’s claim because it is not properly pled. As noted 

in the Motion, the Trustee fails to plead the requisite predicate claims, and she fails to allege the 

necessary elements. 

1. The Complaint Lacks a Predicate Claim Against Other Defendants 

In MicroStrategy and Calderon v. Aurora Loan Serv., Inc., No. 10-cv-00129, 2010 WL 

2306343 (E.D. Va. June 3, 2010), the District Court refused to acknowledge an “independent 

action” of aiding and abetting where the plaintiff alleged only an independent cause of action for 

“aiding and abetting,” but failed to also plead a cause of action for the underlying tort against 

another defendant. See MicroStrategy Services Corp., 2015 WL 1221263, at *3; Calderon, 2010 

WL 2306343, at *6; see also St. Paul Fire and Marine Insurance Co. v. Hoskins, No. 10-cv-00087, 

2012 WL 748574, at *1, *5 (W.D. Va. Mar. 7, 2012) (finding a cause of action for aiding and 

abetting breach of fiduciary duty was adequately pled where the plaintiff alleged a count of breach 

of fiduciary duty against one defendant, and a separate count of aiding and abetting that breach 

against distinct co-defendants). The Trustee’s claim should meet the same fate. 

In this case, the Trustee alleges that certain LCR officers and directors breached their 

fiduciary duties to LCR, its shareholders and creditors, and that such actions serve as the predicate 

breach of fiduciary duty claim for which the alleged aiding and abetting claim against the 

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Defendants attaches. Unlike the cases relied upon by the Trustee where claims for aiding and 

abetting breach of fiduciary duty were asserted against defendants in addition to claims against 

specific parties who were alleged to have breached fiduciary duties, here, the Trustee has not 

identified any particular LCR directors or officers, and the Trustee has not commenced any 

separate adversary proceedings against any of LCR’s former directors or officers. A vague 

assertion that some party breached a fiduciary duty is insufficient to support a claim that a third 

party should also be held liable for such claim.7

The case law relied on by the Trustee in support of her argument that an aiding and abetting 

claim is actionable in Section B.1 of the Opposition illustrates Defendants’ point. In each of the 

cases, a predicate breach of fiduciary duty of a third party was either being pursued concurrently 

or had already been established. In In re Health Diagnostic Laboratory, Inc., in addition to the 

aiding and abetting breach of fiduciary duty claims against certain defendants, the trustee asserted 

claims for breach of fiduciary duties against other, specific defendants who were both shareholders 

in and directors of the debtor. 2018 WL 4676339, at *6-*7; see also In re James River Coal Co., 

360 B.R. at 173-74 (same); Alliance Technology Group, LLC v. Achieve 1, LLC, 2013 WL 143500, 

at *4-*5 (same, where claim against defendant for aiding and abetting breaches of fiduciary duties 

by other employees was “an [apparent] alternative theory to the [separate] breach of fiduciary duty 

claim” that was also asserted against the defendant). In AvalonBay Communities, Inc. v. Willden, 

7

 This is not to say that Defendants concede that the Trustee would have cured this deficiency or 

established joint tortfeasor liability had the Complaint also asserted a breach of fiduciary duty 

against other defendants. In fact, the Defendants dispute that the adding of additional claims or 

defendants resolves the issue, particularly in light of Judge Ellis’s ruling in Infinity Technology, 

LLC where he dismissed the aiding and abetting claim against the defendant corporation even 

though the operative complaint contained a separate count for breach of fiduciary duty against 

another individual defendant. 2020 WL 6387378, at *3 and *6. In other words, any purported 

joint tortfeasor liability was not enough to save an alleged separate claim for aiding and abetting. 

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the court held Art Willden liable for aiding and abetting his brother James Willden’s breach of 

fiduciary duty. 2009 WL 2431571, at *11. Prior to commencing the action against Art Willden, 

AvalonBay Communities, Inc. had already prevailed on a summary judgment action against James 

Willden for, among other claims, breach of fiduciary duty of loyalty. AvalonBay Communities, 

Inc. v. Willden, No. 07-cv-00998, 2008 WL 2780983, at *6 (E.D. Va. July 16, 2008). With respect 

to Tysons Toyota, Inc. v. Globe Life Insurance Co., in connection with the aiding and abetting 

claims asserted against the defendants, the president and member of the board of the plaintiff was 

alleged to have breached his fiduciary duty to the plaintiff; the Court noted his absence from the 

case, however, due to his filing of bankruptcy and because he was precluded from being joined 

due to a confirmed plan of reorganization). No. 93-1444, 1994 WL 717598, at *1 n.1, *3-*5 (4th 

Cir. Dec. 29, 1994).

2. The Trustee Does Not Allege the Culpable State of Mind or a Benefit 

Rather than directly dispute Defendants’ contention in the Motion that she failed to alleged 

the requisite actual knowledge that certain alleged actions, such as entering into the ULXP joint 

venture, requiring the Conversion, or termination of the Deferred Compensation and Supplemental 

Retirement Plans, the Trustee falls back upon arguing that “constructive” knowledge is sufficient. 

(Opp., p. 20). But such is not the law. As noted just two months ago in Studco Bldg. Sys. United 

States LLC v. 1st Advantage Fed. Credit Union, “to establish a claim for aiding and abetting another 

party’s breach of fiduciary duty, the third party must affirmatively aid the breach with the requisite 

mens rea, or culpable state of mind.” 2020 U.S. Dist. LEXIS 238945, at *20 (internal quotations 

omitted) (emphasis added); see also AvalonBay Communities, Inc. v. Wilden, 2009 WL 2431571, 

at *11 (stating that the claim requires the requisite mens rea or culpable state of mind). 

The Trustee had to allege in the Complaint, but did not allege, that Defendants had actual 

knowledge that they were doing something wrong. In trying to satisfy the pleading standard, the 

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Trustee points to a July 2017 legal opinion from UnitedLex’s counsel (that applied to another deal 

and pre-dates the ULXP joint venture by nearly a year), or that Defendants allegedly had 

knowledge of LCR’s supposed insolvency, or that Defendants were simply told about LCR’s past 

misappropriation of client funds. (Opp., p. 20). None of these come anywhere close to 

demonstrating the culpable state of mind required to show that Defendants actually knew of LCR’s 

fiduciary duties and that Defendants sought to intentionally assist in the breach of such duties. 

Similarly, in merely claiming the Defendants gained the ability to market a “revolutionary 

business model” and “secure additional investment” (Opp., p. 21), the Trustee fails to show that 

the Defendants benefitted from the alleged breaches. The “ability to market” is not the type of 

benefit that satisfies this element. See In re HDL Diagnostic Laboratory, Inc., 2018 WL 467 6339, 

at *4 and n.19 (where the benefit included distributions to shareholders and payments made by 

debtor to IRS on behalf of shareholders in excess of approximately $79 million); Alliance 

Technology Group, LLC, 2013 WL 143500, at *1, *5 (alleged breaches of fiduciary duty enabled 

former employees of one entity to utilize trade secrets and proprietary information in employment 

with newly formed, competitor to usurp corporate opportunities). These examples starkly contrast 

the asserted “benefit” allegedly obtained by the Defendants. Indeed, there is no allegation that the 

alleged benefit of marketing the concept lead to the addition of any other law firms to the desired 

“constellation.” 

E. The Trustee’s Claims for Avoidance of Fraudulent Transfers Under 

Bankruptcy Code Sections 548(a)(1)(A) and 544(b) and Applicable State Law 

Are Not Pled with Requisite Particularity 

The Defendants moved to dismiss the Trustee’s fraudulent transfer claims in Counts I, III, 

and VI of the Complaint because the Trustee did not allege that payments to ULXP were made for 

any purpose or intent other than procuring the ordinary back office and support services necessary 

for the smooth functioning of a law firm, and because the Trustee’s allegations regarding “badges 

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of fraud”, such as insolvency, lacked the requisite particularity and were nothing more than 

conclusory statements. (Motion, p. 31). 

The Trustee seeks to cure her pleading defects by trying to give the appearance of detailed 

allegations by summarizing and listing various allegations from the Complaint on pages 31-33 of 

her Opposition. These allegations, however, do not point to supporting facts, but instead make 

conclusory statements that LCR “was insolvent” or “within the zone of insolvency” at the time of 

the various transfers. (Opp., pp. 31-33) (citing Complaint, ¶¶ 24, 53, 73, 93, 129, 195, 212, 262). 

The mere grouping of conclusory allegations together does not cure their conclusory nature; in 

other words, in this instance, the whole is not greater than the sum of its parts. See Gavin 

Solmonese, LLC v. Shvamsundar (In re Amcad Holdings, LLC), 579 B.R. 33, 38-39 (Bankr. D. 

Del. 2017) (“Mere recitations by a trustee that a debtor is insolvent are conclusory and will not 

survive a motion to dismiss.”). 

And even when the Trustee provides the slightest bit of additional color, such as in 

paragraph 24 of the Complaint where she says that in 2014 LCR “fail[ed] to generate sufficient 

revenue to pay its debts as they became due,” she does not acknowledge or address the statements 

of LCR’s CEO in her own exhibits that as of 2017 LCR had generated profit and reduced debt, or 

the fact that VCF entered into a $13 million dollar loan with LCR on December 29, 2017 – just a 

few months prior to the formation of ULXP. (Compl., Ex. 5, p. 3); (Compl., ¶37, Ex. 19, p. 2). 

The Trustee cannot overcome these facts that she alleged, and that directly undermine her claims, 

simply by offering conclusory statements to the Court that LCR was insolvent. Indeed, her own 

exhibits point to a different conclusion. 

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F. The Trustee’s Claim for Avoidance of Constructively Fraudulent Transfers 

Under Bankruptcy Code Section 548(a)(1)(B) Is Not Sufficiently Stated 

Apparently realizing that ULXP did in fact provide services to LCR and that LCR was not 

charged a premium for such services, the Trustee’s theory regarding reasonably equivalent value 

under Section 548(a)(1)(B) appears to have shifted – with the Trustee now brazenly seeking to 

wipeout, disregard, and simply ignore the contributions of hundreds of ULXP employees (formerly 

the support staff of LCR) that provided thousands of hours of support services to LCR’s attorneys 

during the course of the MSA. More specifically, the Trustee argues that ULXP was “an unlawful 

business venture” and that the services the staff provided, such as secretarial and billing support, 

“were effectively unlawful” and therefore cannot constitute reasonably equivalent value. (Opp., 

p. 36). The Trustee’s novel and aggressive theory is not supported by law as described in Section 

C above, and therefore, fails. And as clearly described above and in the Motion, appropriate and 

necessary services were provided by ULXP to LCR at the same rates LCR previously paid when 

it handled such services internally, creating at a minimum a strong presumption of reasonably 

equivalent value. 

G. The Trustee Has Not Sufficiently Stated a Claim for Recharacterization of 

the ULXP Note 

The Trustee’s attempts to rehabilitate her recharacterization claim are unpersuasive as 

several of the Dornier Aviation factors are in fact present with respect to the ULXP Note – all of 

which weigh heavily in favor of a debt finding. (See Compl., Ex. 19). Specifically, the title of the 

instrument, “Outstanding Deferred Loan Promissory Note”, characterizes the arrangement as a 

debt-based transaction and makes reference therein to the parties as a borrower and a lender. 

Further, the ULXP Note contains a fixed maturity date – only to be extended once to another date 

in the event LCR did not receive a distribution by the first date. The maturity date is not, as the 

Trustee argues, “conditional” in any respect as payment is always required – whether it occurs by 

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the first maturity date or the extended date triggered by the terms of the ULXP Note. In addition, 

not only does the ULXP Note include a fixed rate of interest that must be paid by the maturity 

date, but it also includes a fixed rate of interest in the event LCR defaulted under the ULXP Note.8 

To support her argument though, the Trustee argues that the ULXP Note should be 

recharacterized because LCR “sought to have the ULXP Note be seen as ‘equity like’ by [VCF],” 

and because VCF, the Trustee alleges, “did treat it as equity.” (Opp., p. 41). She points to Exhibit 

22 of the Complaint, which is an email between the Debtor and VCF dated January 31, 2019, as 

well as allegations in paragraphs 141-143 of the Complaint regarding the same. Yet the Trustee 

completely ignores the existence of the Intercreditor Agreement between ULXP and VCF that was 

executed months later in April 2019 that acknowledges the ULXP Note as debt subject to 

subordination and standstill provisions.9 In other words, any questions raised by the email attached 

to the Complaint and the Trustee’s conclusory allegations are quickly disposed of in light of VCF’s 

clear acknowledgment of the ULXP Note as debt in the Intercreditor Agreement. 

The Trustee’s cited cases serve her no better. Commonwealth Biotechnologies, Inc. v. 

Fornova Pharmworld, Inc., (In re Commonwealth Biotechnologies, Inc.), No. 11-30381, 2012 WL 

5385632 (Bankr. E.D. Va. Nov. 1, 2012), for example, involves a convertible promissory note – 

8

 It is not uncharacteristic for lending instruments to include an alternative maturity date, or for a 

note not to require periodic interest payments. Including the alternative maturity date in the initial 

instrument evidences the parties’ intended long-term relationship and ULXP’s support of LCR. 

Similarly, not requiring interest payments until the maturity date helped provide a cash float to 

LCR. Regardless of which maturity date applied, however, the debt (principal and interest) always 

remained due. The ULXP Note provided no mechanism to forgive such obligations. 

9

 The Intercreditor Agreement is properly before the Court for consideration on a Motion to 

Dismiss because the Trustee has placed ULXP’s secured Proof of Claim (Claim No. 174) at issue 

in the Complaint. More specifically, in Count VIII the Trustee expressly asks this Court to 

recharacterize ULXP’s secured Proof of Claim. The Intercreditor Agreement is attached as an 

exhibit to the Proof of Claim. 

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of which the ULXP Note is not. Further, in that case the court noted that “[t]he cash infusion 

[resulting from the note] was conditioned upon Plaintiff relinquishing control to Defendant in ways 

that are usually associated with an equity transaction”, including that the defendant joint venture’s 

CEO, who arranged for the note and capital infusion, be appointed as the chairman of plaintiff’s 

board of directors and the joint venture be entitled to nominate two additional directors to 

plaintiff’s board. Id. at *4, *7. Here, no member of either of the Defendants’ management teams 

was appointed to LCR’s Board nor did they have the right to nominate or appoint members to 

LCR’s Board.

Count VIII should be dismissed. 

H. Any Avoidance of ULXP’s Security Interest Should Be Limited to a Claim 

Under Bankruptcy Code Section 547 

For the reasons set forth herein, the Defendants dispute the Trustee’s contention that at the 

time of the ULXP Note Transfer, ULXP was “an insider of the Debtor, who exercised dominion 

and control over the Debtor”. (Opp., p. 39). Therefore, the Trustee’s allegation that the ULXP 

Note constitutes an actual fraudulent transfer is baseless and should be disregarded by the Court. 

I. The Trustee Fails to State a Claim for Disallowance Under Bankruptcy Code 

Section 502(d) 

For the reasons set forth herein, the Defendants stand by their contention in the Motion that 

the Trustee’s allegations with respect to the alleged Avoidable Transfers and Preferential Transfers 

are meritless and the Trustee’s claim for disallowance should similarly fail. Therefore, Count VII 

should be dismissed. 

J. Defendants’ Affirmative Defenses are Appropriate on a 12(b)(6)

The Trustee attacks Defendants’ arguments that certain affirmative defenses, such as in 

pari delicto or the intra corporate immunity doctrine, are appropriate for a motion to dismiss 

because they are premature and involve questions of fact. Defendants’ assertion of these defenses 

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at this stage, however, is not contingent upon extraneous facts not yet before the Court; rather, the 

defenses are clear from the face of the Complaint based on the facts the Trustee alleges (or fails to 

allege) and are appropriate for a motion to dismiss. See Leveto v. Lapina, 258 F.3d 156, 161 (3d 

Cir. 2001) (“[A] complaint may be subject to dismissal under Rule 12(b)(6) when an affirmative 

defense . . . appears on its face.”); Alberts v. Tuft (In re Greater Southeast Community Hospital 

Corp. I), 353 B.R. 324, 335 (Bankr. D.D.C. 2006) (quoting Smith–Haynie v. District of Columbia, 

155 F.3d 575, 578 (D.C. Cir. 1998)) (“affirmative defenses ‘may be raised by pre-answer motion 

under Rule 12(b) when the facts that give rise to the defense are clear from the face of the 

complaint.’”). See also Knauer v. Jonathon Roberts Financial Group, Inc., 348 F.3d 230, 231, 

233 (7th Cir. 2003) (affirming dismissal of, among others, claims for breach of fiduciary duty 

under Rule 12(b)(6) where pleadings showed suit was barred by in pari delicto); Official 

Committee of Unsecured Creditors v. R.F. Lafferty & Co., Inc., 267 F.3d 340, 360 (3d Cir. 2001) 

(same); Hays v. Pearlman, No. 10-cv-01135, 2010 WL 4510956, at *7 (D.S.C. Nov. 2, 2010) 

(dismissing claims based on application of in pari delicto); Collins & Aikman Corp. v. Stockman, 

No. 07-00265, 2010 WL 184074, at *1, *7 (D. Del. Jan. 19, 2010) (same). 

1. Insufficient Insider Allegations to Circumvent In Pari Delicto 

The Trustee seeks to avoid the in pari delicto defense by arguing that she has alleged that 

Defendants are insiders. Yet the Trustee’s insider arguments fail to distinguish the status of 

Defendants and LCR before the parties contracted and after. See Nisselson v. Lernout, 568 

F.Supp.2d 137, 144-46 (D. Mass. 2008) (acknowledging the “corporate insider exception” while 

holding it was not applicable as “the correct moment to analyze the in pari delicto inquiry is at the 

time of the wrongdoing” and the alleged breaches by the director defendants relating to approval 

of and effectuating a merger “all predated or were contemporaneous with the merger”). To be 

precise, certain of the alleged claims occurred prior to the point in time when the Defendants had 

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any relationship with the Debtor where they could theoretically exercise control over the Debtor. 

On their own accord, the LCR officers and directors and shareholders, as applicable, took actions 

prior to the formation of ULXP (e.g., converting to a professional limited liability corporation, 

terminating the Deferred Compensation and Supplemental Retirement plans and entering into the 

joint venture with UnitedLex) that they deemed to be in the best interest of LCR, regardless of 

whether the joint venture with UnitedLex was effectuated.10 Such decisions were made by a 

collective group, including, presumably, individuals who had no direct involvement in 

negotiations with UnitedLex. Accordingly, the Defendants cannot be deemed to have been 

“corporate insiders” at the time of the allegations and the Trustee does not overcome the in pari 

delicto defense. 

Additionally, the Trustee insinuates that the Defendants became insiders after the 

formation of ULXP through the exertion of control over LCR. However, once again, the 

allegations do not support the assertion that the Defendants, among other things, controlled the 

Debtor’s bank accounts, including timing and amount of payments to Debtor’s creditors, including 

themselves, hired or fired any of Debtor’s employees, or otherwise took any actions that would 

impact the Debtor without prior approval from the Debtor’s management, as the Trustee asserts. 

See, e.g., In re Radnor Holdings Corp., 353 B.R. 820, 841 (Bankr. D. Del. 2006) (holding access 

to performance reports and other financial information from a company is insufficient to establish 

insider status). The Trustee relies on the use of buzzwords, without more, to support her assertion. 

Importantly, statements and information included in exhibits to the Complaint actually contradict 

many of her highlighted allegations. See, e.g., Motion, Ex. B, Addendum 1, pp. 1, 2, 4 and 6 of 

10 (noting that only policies and practices that LCR approves of will be implemented, and that 

10

 See Motion, p. 8; Compl., Exs. 6, 12. 

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LCR’s “General Counsel [is] to provide [ULXP] with oversight and final determination of all 

conflict resolution); see also Compl., Ex. 6, pp. 4-5 of 11 (LCR’s Chief Executive Officer stating 

that the “Members [of LCR] remain the sole owners of LR, and LR remains and independent law 

firm. ULX is not acquiring [LCR]. We will continue to govern our own operations, elect our 

leadership, set our compensation, approval lateral or promoted Members, and will be responsible 

for directing and delivering excellent legal solutions and services to our clients”). This is 

particularly troubling since the Trustee chose what exhibits to include and presumably carefully 

reviewed them before making such allegations. 

The case law relied on by the Trustee in support of her position is inapplicable. For 

instance, In re Hellas Telecommunications (Luxembourg) II SCA, 524 B.R. 488 (Bankr. S.D.N.Y. 

2015) involved defendants who were deemed to be insiders, unable to avail themselves of the in 

pari delicto defense, where, among other things, they owned and controlled entities that held all 

of the debtor’s and debtor’s parent’s common stock and controlled the debtor’s affiliates by 

installing certain key employees on the board of directors or board of managers; Lightsway 

Litigation Services, LLC v. Yung (In re Tropicana Entertainment, LLC), 520 B.R. 455 (Bankr. D. 

Del. 2014) involved a defendant who was the sole director or manager of certain debtors and/or 

the chief executive officer of the sole manager or sole member of other debtors; Burtch v. Seaport 

Capital, LLC (In re Direct Response Media, Inc.), 466 B.R. 626 (Bankr. D. Del. 2012) involved 

defendants who were directors and officers of the debtor or control persons pursuant to 

interlocking directorates between certain defendants and the debtor. 

No employee of either of the Defendants was alleged to be installed as or otherwise served 

on the Board of the Debtor nor did the Trustee allege that the Defendants hold an ownership stake 

in the Debtor. Moreover, when one reads the exhibits attached to the Complaint, it cannot be 

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plausibly alleged that the Defendants performed any tasks or took any actions that could be 

construed as exerting control or direction over the Debtor or its officers and directors justifying 

designation as an “insider” as nothing happened without LCR’s approval. (See Motion, Ex. B, 

Addendum 1, pp. 1, 2, 4 and 6 of 10). The Trustee’s accusation is baseless, and the in pari delicto

defense should remain available to the Defendants and bars recovery on the face of the Complaint. 

2. The Adverse Interest Exception Does Not Circumvent In Pari Delicto

Rather than examine the conduct of LCR’s officers and directors, the Trustee incorrectly 

focuses on Defendants’ alleged conduct when attempting to invoke the very narrow “adverse 

interest” exception to in pari delicto. The exception instead requires examination of whether 

LCR’s officers and directors were allegedly at equal fault on account of the alleged wrongful acts, 

and whether they were allegedly motivated by self-interest rather than a desire to serve the firm. 

See Baena v. KPMG LLP, 453 F.3d 1, 8 (1st Cir. 2006); see also In re Infinity Business Group, 

Inc., 612 B.R. 76, 140, 146 (D.S.C. 2019) (holding adverse interest exception did not apply where 

the alleged wrongful conduct of the debtor’s management, among other things, helped the 

corporation extend its life); Zazzali v. Hirschler Fleischer P.C., 482 B.R. 495, 513 (D. Del. 2012) 

(holding Trustee’s argument that adverse-interest exception to imputation applied was 

unpersuasive where the conduct of the debtor’s insiders was not adverse to the debtor’s interests 

as the alleged fraud conferred a benefit on the debtor in the form of more than $100 million of 

revenue). The Trustee’s Complaint does not sufficiently plead such self-interest by the LCR 

Directors and Officers. 

According to allegations set forth in the Complaint, when the discussions surrounding the 

formation of ULXP began, LCR was “searching for a lifeline” and the joint venture with ULXP 

allegedly provided such lifeline to the firm (not the individual directors and officers). (Compl., 

¶25). In addition, conversion of the firm from a professional corporation to a professional limited 

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liability corporation and termination of the Deferred Compensation and Supplemental Retirement 

plans, actions voted on by LCR’s shareholders, allegedly yielded significant tax savings, enabled 

LCR to materially reduce its monthly cash burn, and put LCR in a position to be able to pay 

sizeable amounts to shareholders on account of partner draws and residuals of the compensation 

and retirement plan balances. (Compl., ¶¶95-99, 102-105). These actions benefitted the LCR 

Directors and Officers just as they allegedly benefitted other partners at LCR, as well as LCR 

itself. Accordingly, the adverse interest exception is not the safe-harbor the Trustee seeks. 

3. The Personal Stake Exception Does Not Circumvent the Corporate 

Immunity Doctrine 

The Trustee’s attack on the intra corporate immunity doctrine reveals the failings of the 

Trustee’s theories. While alleging in the Complaint that Defendants “required” that LCR take 

several actions, such as converting to a PLLC and terminating the Deferred Compensation and 

Supplemental Retirement plans, the Trustee now appears to back away from such purported 

direction by arguing that “UnitedLex, ULXP, and LeClairRyan were separate legal entities when 

all the events predicating the conspiracy occurred,” and thus, the intra corporate immunity doctrine 

could not apply. (Opp., p. 25) (emphasis added). Nevertheless, as stated herein, the Complaint is 

devoid of any allegation that would render such pre-ULXP actions “unlawful,” and therefore their 

separate legal status prior to forming ULXP is of no consequence to the doctrine. 

The Trustee also seeks to avoid having her “insider” allegations defeat her conspiracy 

claims via the intra corporate immunity doctrine by alleging that Defendants had an “independent 

personal stake” that precludes its application. (Opp., p. 25). But yet again, the Trustee relies on 

case law for which the holdings provide soundbites for her argument, but the facts of which do not 

support her claim. For example, both Buffalo Wings Factory, Inc. v. Mohd, 622 F. Supp. 2d 325 

(E.D. Va. 2007) and Flexible Benefits Council v. Feltman, No. 08-cv-00371, 2008 WL 2465457 

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(E.D. Va. June 16, 2008) involve suits against former employees who were accused of conspiring 

against their employers and alleged to have stolen money and/or the employer’s intellectual 

property while still employed or shortly following termination of employment for use by a newly 

formed, competing entity. Unlike Buffalo Wings and Flexible Benefits Council, UnitedLex was 

not an employee or agent of the Debtor prior to the formation of ULXP (nor thereafter) and ULXP 

was not created as a competitor of the Debtor; ULXP did not provide legal services, but only “back 

office” services, such as accounting, marketing, technology and human resource services to 

support LCR. (Compl., ¶¶26, 84, Ex. 11; Motion, Ex. B). 

Moreover, the Fidelity National Title Insurance Co. v. Washington Settlement Group, LLC, 

No. 12-04793, 2013 WL 9451969 (Fairfax Cty. Cir. Ct. Sept. 4, 2013) and Colgate v. Disthene 

Group, Inc., No. 10-00158, 2013 WL 8019576 (Buckingham Cty. Cir. Ct. Feb. 4, 2013) cases the 

Trustee cites involve suits against defendants who were alleged to have conspired against the 

plaintiffs for their own personal benefit to, among other things, engage in self-dealing transactions 

where they paid themselves salaries, bonuses and fees grossly in excess of the value of services 

rendered, made interest-free loans to themselves with the plaintiff’s capital, used plaintiff’s 

employees to perform personal services, or misappropriated third-party funds. Here there are no 

adequate allegations that Defendants looted LCR or themselves misappropriated LCR client funds 

for their own benefit. Rather, the Trustee’s own exhibit shows that ULXP was paid for services 

at the same rates that LCR had paid prior to the formation of ULXP and would invoice LCR (as 

ULXP neither had access to nor control over LCR’s bank accounts) for those fees. (Compl., Ex. 

6, p. 6). 

Importantly, the Defendants did not have or act on account of an independent personal 

stake at the expense of LCR. With LCR as the alleged “test case” law firm for the contemplated 

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“constellation of law firms”, the Defendants did not seek to harm the Debtor’s business. On the 

contrary, the Defendants were invested in LCR’s success as the Debtor’s success would impact 

ULXP’s success. For these reasons, the exception must fail, and Counts X and XI should be 

dismissed in their entirety. 

CONCLUSION 

For the reasons set forth in the Motion, and those additional reasons stated in this Reply, 

the Defendants respectfully request that the Court grant the relief requested by the Defendants in the 

Motion, deny the Trustee leave to amend, and grant such other and further relief as may be just and 

appropriate under the circumstances. 

Dated: February 19, 2021 /s/ Thomas J. McKee, Jr. 

David G. Barger (VSB No. 21652) 

Thomas J. McKee, Jr. (VSB No. 68427) 

Greenberg Traurig, LLP 

1750 Tysons Boulevard, Suite 1000 

McLean, Virginia 22102 

Telephone: (703) 749-1300 

Facsimile: (703) 749-1301 

Email: bargerd@gtlaw.com 

 mckeet@gtlaw.com 

and 

J. Gregory Milmoe (admitted pro hac vice) 

Greenberg Traurig, LLP 

One International Place, Suite 2000 

Boston, MA 02110 

Telephone: (617) 310-6064 

Email: milmoeg@gtlaw.com 

Counsel to Defendants 

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CERTIFICATE OF SERVICE

I hereby certify that on this 19th day of February 2021, I served a true and correct copy of 

Defendants’ Reply Memorandum in Support of Their Motion to Partially Dismiss the Complaint 

via the Court’s CM/ECF filing system upon: 

 Erika L. Morabito, Esq. 

 Brittany J. Nelson, Esq. 

 FOLEY & LARDNER LLP 

 3000 K Street, NW, Suite 600 

 Washington, DC 20007-5109 

 emorabito@foley.com 

 bnelson@foley.com 

Special Counsel to Lynn L. Tavenner, Chapter 7 Trustee 

/s/ Thomas J. McKee, Jr. 

Thomas J. McKee, Jr. (VSB No. 68427) 

Greenberg Traurig, LLP 

1750 Tysons Boulevard, Suite 1000 

McLean, Virginia 22102 

Telephone: (703) 749-1300 

Facsimile: (703) 749-1301 

Email: mckeet@gtlaw.com 

Counsel to Defendants 

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