LandAmerica creditors lose bid on payments

Interim fees charged by attorneys and other experts in LandAmerica Financial Group Inc.'s Chapter 11 case will be paid.

U.S. Bankruptcy Court Judge Kevin R. Huennekens approved the fee payments yesterday despite objections from creditors.

Nearly three dozen creditors of the company's LandAmerica 1031 Exchange Services Inc. subsidiary sent written protests to Huennekens objecting to the requests from attorneys and experts for payment of more than $3.8 million in fees and expenses relating to the exchange company's case.

The exchange customers also sought the appointment of an independent fee examiner, which was denied.

Huennekens said the fee payments would be reviewed at the close of the bankruptcy case and could be revised at that point.

"I'm an exchanger, a victim as many of us now feel," said William McIllwaine Thompson Jr., an attorney from Charlottesville who placed $950,000 with the exchange company before its bankruptcy filing in November.

"We have no prospects right now, it appears, of getting our money returned," said Thompson, the only exchange customer to appear in court to protest the fees. "The exchangers have been very poorly represented here."

Customers placed proceeds from the sale of investment properties with the exchange company as a way to legally defer federal capital gains taxes. When Henrico County-based LandAmerica filed Chapter 11 in November, the money became locked up in the estate.

Huennekens subsequently ruled the exchange money belonged to LandAmerica 1031 Exchange -- not to the customers.

Exchange company customers did not agree with the ruling, and many have been at odds with Charles R. Gibbs, the Dallas attorney who represents unsecured creditors of the exchange company.

At the root of the LandAmerica's problems were investments made by the exchange company. Exchange customer money often went into an account that was used to purchase auction-rate securities, which were marketed as supposedly liquid securities.

When the auctions for the securities failed in February 2008, LandAmerica 1031 Exchange could not recoup its investments. Parent company LandAmerica gave two loans of more than $65 million to allow the exchange company to continue operations, but that was not enough.

Dion W. Hayes, an attorney representing LandAmerica, said the case was complex and the fees were justified.

From March 1 to May 31 -- the time period the requests cover -- attorneys worked on claim-related matters, including mediation related to customers of the failed exchange company.

They also worked on selling assets and subsidiaries, as well as reducing the headcount at the parent company, Hayes said.

Also yesterday, Huennekens approved a request to hire special counsel to litigate, investigate and pursue claims against firms that marketed auction-rate securities to LandAmerica.

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