LandAmerica unit’s clients lose bid

Customers owed money by the bankrupt LandAmerica 1031 Exchange Services Inc. will not get separate representation in bankruptcy court, a judge ruled yesterday.

But fees and expenses for attorneys representing one test case will be paid, U.S. Bankruptcy Court Judge Kevin R. Huennekens ruled in Richmond yesterday.

The exchange company and its parent, Henrico County-based LandAmerica Financial Group Inc., filed for bankruptcy protection Nov. 26. Since then, battle lines have been drawn between customers and creditors who are seeking money from the company. All have been represented by a committee of unsecured creditors.

Customers claim they had a fiduciary relationship and were not creditors. They used the business as a tax shelter and parked money there between investments in property.

Elizabeth Bower, an attorney for both LandAmerica companies, argued that the request for a separate committee would be duplicative and amounted to a subsidy from the debtor's estate, which would have to cover committee costs.

Huennekens deferred to a trustee who earlier had declined requests for a second committee. The judge did say the matter could be brought up again if customers do not get adequate counsel from the unsecured creditors committee.

The judge approved the request for attorney fees to speed along the bankruptcy case.

When it filed for bankruptcy, the exchange company was holding money for more than 450 customers. To expedite claims, Huennekens ordered five test cases to be heard. Attorneys have not been able to sign on a customer to represent one type of case relating to clients whose money was lumped together in one account and then invested.

Attorney Jay S. Geller, who represents five exchange customers and spoke on behalf of the petition, said it would be unfair to expect a test case client to cover attorneys fees if the outcome of the case would be used to determine the settlement of other customers with similar arrangements.

Huennekens said that if attorneys representing the other test cases file paperwork for similar treatment, he will hear motions.

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