Here’s a risk management tip: if your law firm is compared to the film “Weekend at Bernie’s,” it’s not a compliment.
Yet that’s what happened in bankruptcy litigation involving the now-defunct LeClairRyan law firm, formerly based in Virginia.
“The Chapter 7 trustee overseeing the dissolution LeClairRyan on Wednesday unveiled new claims against Gary LeClair, the firm’s co-founder and longtime leader, for shepherding an agreement with alternative legal services provider UnitedLex that contributed to the Virginia-based law firm’s 2019 bankruptcy,” according to this account in Reuters. “The 94-page complaint alleges that LeClairRyan’s 2018 deal with UnitedLex added more debt to the struggling law firm while giving UnitedLex control over the firm’s operations and the ability to use its intellectual property.”
The trustee alleges the firm operated the equivalent of a Ponzi scheme by using capital contributions from new lateral hires to pay out legacy shareholders, according to Reuters and other sources.
From the ABA Journal: “The suit quotes a UnitedLex employee, formerly a LeClairRyan shareholder, who said the situation was like the 1989 American comedy film Weekend at Bernie’s, in which a dead man is propped up to deceive others.”
LeClair’s attorney told Reuters in a statement that the amended complaint was “factually untethered and wildly misleading,” that LeClair has a nearly 40-year track record of “ethically impeccable conduct,” and had not been involved in the firm’s management for years.
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Rule 5.1: Responsibilities of Principals, Managers and Supervisory Lawyers
(a) A principal in a law firm, and a lawyer who individually or together with other lawyers possesses comparable managerial authority, shall make reasonable efforts to ensure that the firm or the organization has in effect measures giving reasonable assurance that all lawyers in the firm or the organization conform to the Rules of Professional Conduct.
(b) A lawyer having direct supervisory authority over another lawyer shall make reasonable efforts to ensure that the other lawyer conforms to the Rules of Professional Conduct.
(c) A lawyer shall be responsible for another lawyer's violation of the Rules of Professional Conduct if:
(1) the lawyer orders or, with knowledge of the specific conduct, ratifies the conduct involved; or
(2) the lawyer is a principal or has comparable managerial authority in the law firm in which the other lawyer practices, or has direct supervisory authority over the other lawyer, and knows of the conduct at a time when its consequences can be avoided or mitigated but fails to take reasonable remedial action to avoid the consequences.
Comment : Paragraph (a) applies to lawyers who have managerial authority over the professional work of a firm or legal department of an organization. See Rule 1.0(d). This includes members of a partnership, the shareholders in a law firm organized as a professional corporation, and members of other associations authorized to practice law; lawyers having comparable managerial authority in a legal services organization or a law department of an enterprise or government agency; and lawyers who have intermediate managerial responsibilities in a firm. Paragraph (b) applies to lawyers who have supervisory authority over the work of other lawyers in a firm or organization.
Comment : Paragraph (a) requires lawyers with managerial authority within a firm or organization to make reasonable efforts to establish internal policies and procedures designed to provide reasonable assurance that all lawyers in the firm or organization will conform to the Rules of Professional Conduct. Such policies and procedures include those designed to detect and resolve conflicts of interest, identify dates by which actions must be taken in pending matters, account for client funds and property and ensure that inexperienced lawyers are properly supervised.
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