Creditors want cuts in fees of attorneys

Creditors of LandAmerica 1031 Exchange Services Inc. are not happy about fees claimed by attorneys in the case and have launched an offensive to reduce the amounts in U.S. Bankruptcy Court in Richmond.

Since Monday, more than two dozen former clients and customers of the defunct company have filed objections saying the money requests from attorneys and other professionals are excessive.

The creditors question requests for more than $3.8 million in fees and expenses from four law firms and one financial advising company for work done from March 1 to May 31, according to court documents. Two of the firms -- McGuireWoods and Tavenner & Beran -- are from Richmond.

A hearing on whether to approve the fees will go before Bankruptcy Judge Kevin R. Huennekens on Tuesday.

"It's just ludicrous," said Denise Wilson, an exchange-company customer from Tacoma, Wash., who placed nearly $99,000 with the company before it filed bankruptcy. "They are spending a ton of money."

The exchange company and its parent, LandAmerica Financial Group Inc. of Henrico County, filed for Chapter 11 bankruptcy protection in late November.

The customers of the exchange company have battled against what they claim is an unfair classification as unsecured creditors, which puts them at the end of the line when claims are settled. They claim to be "involuntary creditors."

The exchange company acted as a third party and held proceeds from the sale of investment property until a new property to invest could be found. If the money was reinvested, or exchanged, within a certain time period, the investor was able to defer capital-gains taxes.

When the exchange company filed for bankruptcy, it held $419.2 million in customer money. Huennekens ruled earlier this year that those funds belonged to the estate.

"That cash should never have been used as an asset, and [LandAmerica] is using it to fund their defense," Wilson said.

The fees cover costs incurred by attorneys for the exchange company and the unsecured creditors committee. The attorneys representing the company and the committee could not be reached for comment.

Also expected to come up at next week's hearing is a request by LandAmerica to hire special litigation counsel to analyze, investigate and pursue claims relating to how auction-rate securities were marketed to the company.

LandAmerica's exchange company was hit hard when the market for these supposedly liquid securities dried up in February 2008 because the company was using it as a place to stow customer money and earn interest.

At the time of the filing, LandAmerica had $201.7 million invested in auction-rate securities through SunTrust Robinson Humphrey and Citigroup Inc.'s Smith Barney unit. A similar request made in June was withdrawn.

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