LandAmerica is back in the headlines, and again it’s for the wrong reasons. Twenty-one former members of the now defunct title insurance company’s board of directors are being sued by a trustee for $365 million in damages on seven counts.
Bruce Matson, the trustee of LandAmerica Financial Group (LFG) liquidation, is alleging that some of the company’s directors breached their fiduciary duty, which led the company to suffer massive losses and ultimately implode. Among the defendants is former LandAmerica chief executive officer Ted Chandler. (See bottom for full list of defendants)
At one time, LandAmerica was the third largest title insurance underwriter in the country. What eventually sunk the company was the way it managed its 1031 exchanges, and this suit alleges that the problem was running rampant before anyone decided to act.
According to the court documents filed in the U.S. Bankruptcy Court for the Eastern District of Virginia, Richmond Division, the plaintiff alleges that from February 2008 on, the practices of LandAmerica 1031 Exchange Services Inc. (LES) became a critical issue for the company. Years earlier, LES had started investing substantial portions of its 1031 proceeds into auction rate securities, which is a debt instrument with a long-term maturity that has its interest rate set through an auction process. On Feb. 11, 2008, LES’ auction failed and rendered its auction rate securities illiquid. Clearly, that wasn’t good for the company’s 1031 exchanges.
This is where the basis of Matson’s suit forms, as he calls the response from the LES board of directors “non-existent.”
“For at least seven months after the auction rate securities market seized up, the LFG board of directors and its officers failed to become adequately informed about the extent of the crisis and failed to consider or take timely action to avoid or mitigate the resulting damage to LFG,” the allegation states. “If the defendants had timely and adequately informed themselves about this crisis, it would have been plain that simply allowing LES to conduct business as usual after February 2008 posed too great a risk to LFG.”
LES was taking new customer money for more than seven months after the auction rate securities market froze, according to the court documents. The allegations go on to say that the inaction placed LandAmerica in a “bet the company” situation, which violated its corporate guidelines and breached its duty of care.
“Certain LFG officers caused $65 million to be transferred from LFG to LES in an attempt to put out the fires at LES …To that same end, approximately $70 million of liquid securities were transferred from LFG’s title insurance subsidiaries to LES in exchange for approximately $88 million face value of wholly liquid auction rate securities,” the allegation states.
All of these failures, stacked one on top of the other led to the companies demise and the loss of hundreds of millions of dollars for LandAmerica’s stakeholders.
The board of director defendants in this case are: Janet Alpert, Gale Caruso, Theodore Chandler, Michael Dinkins, Charles Foster, John McCann, Dianne Neal, Robert Norfleet, Robert Skunda, Julious Smith, Thomas Snead, Eugene Trani, Marchall Wishnack, G. William Evans, Michelle Gluck, Pamela Saylors, Jeffrey Selby, Christine Vlahcevic, Stephen Connor, Brent Allen, and Ronald Ramos.