U.S. trustee objects to LandAmerica’s exit plan for bankruptcy

The U.S. trustee charged with upholding bankruptcy laws filed an objection late yesterday regarding LandAmerica Financial Group Inc.'s plan to exit Chapter 11.

The bankrupt Henrico County title insurer filed a mediated plan of reorganization in September, saying that liquidation was the firm's only option.

The plan detailed how creditors would be paid but also had other provisions to which U.S. trustee W. Clarkson McDow Jr. objected.

One such provision amounts to buying votes, said McDow, who represents the Eastern District of Virginia. Creditors had until Tuesday to vote on the plan, which also covers nine bankrupt LandAmerica subsidiaries.

A hearing on whether to approve it is scheduled to begin Wednesday and last three days.

McDow, whose office is under the auspices of the Department of Justice, said LandAmerica's plan did not comply with bankruptcy laws for three reasons:

• It treated similarly situated creditors differently depending on how they voted on the plan.

This provision, McDow wrote, "has the appearance of attempting to purchase votes for the plan by providing more favorable treatment to those who vote in favor of confirmation."

• It prohibits creditors or stockholders from pursuing litigation against LandAmerica officers and directors, their estates and any insurance policies they may have in place.

McDow said the bankruptcy court should not grant injunctions affecting property that has not been deemed part of the estate in the bankruptcy case.

• It freed nearly all professionals associated with the case, including directors, employees and attorneys for the estate, from guilt or blame. McDow took issue with attorneys being included because it excuses malpractice claims before a case concludes.

Some creditors for a LandAmerica subsidiary that is also in bankruptcy have been critical of their representation by the unsecured creditors committee.

This provision was an attempt to release attorneys for the committees from liability, McDow wrote.

"At the very least, standards of professionalism dictate that attorneys should not shield themselves from liability potentially resulting from carrying out their duties," he said.

Attorneys representing LandAmerica and a creditors committee could not be reached for comment last night.

LandAmerica and subsidiary LandAmerica 1031 Exchange Services Inc. filed for Chapter 11 protection last November.

The exchange-company case has been particularly complicated because more than 100 fraud complaints have been filed in bankruptcy court.

Judge Kevin R. Huennekens ordered a number of trials to take place to settle some issues in the case. Once they were ruled upon, he sent the case to mediation.

The reorganization plan is the result of mediation between LandAmerica, the unsecured creditors committees and attorneys representing clients involved in litigation.

Contact Emily C. Dooley at (804) 649-6016 or .