A Virginia Court Denies LeClair’s Motion to Dismiss a Trustee’s Complaint to Avoid $2.3M in Alleged Fraudulent Transfers
November 3, 2021, Eastern District of Virginia – Trustee Lynn L. Tavenner, for the bankruptcy estate of LeClairRyan PLLC (the “Debtor”), brought an adversary proceeding against Defendants Grey LeClair, ULXP, ULX Manager, LLC, and UnitedLex Corporation to avoid and recover certain transfers of interests in the Debtor’s property under §§§ 547, 548(a)(1)(A) and 550 of the Bankruptcy Code. The Trustee also brought a breach of fiduciary duty, misappropriation, and unjust enrichment claims against the Defendants. The Court found that between 2014 and the Debtor’s petition date, Debtor transferred at least $2,363,965.00 to Defendant LeClair. LeClair argued that some of the alleged transfers were not of the Debtor’s property and were made from a secular trust which was the property of LeClair. Defendants’ filed a motion to dismiss some of the thirty-four counts pled by the Trustee under Rule 12(b)(6) of the Federal Rules of Civil Procedures for failure to state a claim upon which relief can be granted.
The Court concluded that the Trustee pleaded sufficient allegations to establish a prima facie case. The Court held that the Trustee alleged at least three badges of fraud in support of its assertions:
• That LeClair was an insider.
• That the Debtor was taking on new debts and liabilities.
• That the Debtor was or became insolvent when each transfer occurred.
The Court also found that the Trustee alleged facts to describe a relationship between LeClair and the Debtor, such that LeClair had sufficient control over corporate policy and disposition of assets to qualify as an insider. Next, the Court opined that the statute of limitations could not be used at this phase of the case to defeat any of the Trustee’s claims because a factual record needed to be developed to determine whether the statutory period was tolled. The Court denied Defendant’s motion to dismiss and ruled that the Trustee alleged sufficient facts to survive a motion to dismiss.
Tavenner v. ULX Partners, LLC (In re LeClairRyan PLLC), Nos. 19-34574-KRH, 20-03142-KRH, 2021 Bankr. LEXIS 3038 (Bankr. E.D. Va. Nov. 3, 2021)