Customers file 2nd suit over 1031 Exchange

A class-action lawsuit claiming breach of contract, fraud and theft of property has been filed relating to LandAmerica Financial Group Inc.'s 1031 Exchange business.

The suit, filed Friday in U.S. Bankruptcy Court in Richmond, is on behalf of LandAmerica 1031 Exchange Services customers.

Named in the suit are the Henrico County-based holding company, its exchange company and several executives, including former chairman and chief executive Theodore L. Chandler Jr., who stepped down Friday; Chief Financial Officer G. William Evans; and controller Christine R. Vlahcevic.

A LandAmerica spokeswoman could not be reached for comment yesterday, nor could the attorney who filed the suit.

On Wednesday, a separate class-action suit was filed in U.S. District Court in the Southern District of California against Evans, exchange company executive Stephen Connor and SunTrust Banks Inc.

That lawsuit alleges that the LandAmerica executives and SunTrust engaged in or allowed money from new customers to be used to pay off clients who had put money into the exchange company earlier.

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The class-action suit filed in bankruptcy court could be an attempt to give more weight to the claims of exchange customers, said Nathan B. Oman, an assistant professor at the College of William and Mary's Marshall-Wythe School of Law. If the bankruptcy judge agrees that the class exists, it increases bargaining power by creating a larger number of claimants, he said.

The suit comes just days after Bankruptcy Court Judge Kevin R. Huennekens set a protocol to hear some test cases that will be used to determine how claims of exchange customers will be handled. Customers situations fall into five categories.

"That looks to me like they saw where the judge was going and are trying to push for leverage," Oman said.

Exchange companies act as a way for investors to defer tax on capital gains on the sale of investment property as long as the proceeds are reinvested in a similar type of property within a specified amount of time.

The class-action suit in bankruptcy court was filed by two California residents who represent a family trust. In October, they transferred $230,000 to the exchange company after the sale of property in California. With LandAmerica's bankruptcy filing in late November, their money was locked up before they had identified another property in which to reinvest.

The lawsuit claims they were intentionally misled on the financial health of LandAmerica and its exchange company.

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