Legal Malpractice: Womble Carlyle Resolves $33M Claim

Legal Malpractice Womble CarlyleA legal malpractice suit seeking over $33 million in damages from Am Law 200 member Womble Carlyle Sandridge & Rice, LLP, whose work on a business sale contract allegedly left the founder with a “shell of a company”, after the buyer defaulted, has been resolved.

Underlying Case

According to the malpractice complaint, in the mid-1990s, Philip Loy founded American Viatical Services (AVS) and a related entity, AVS Underwriting. His wife, Sharon Loy, be-came co-owner of the company, which engaged in viatical settlements, the purchase of life insurance policies from their owner for less than what the policyholder’s estate would receive upon his/her death. The seller, usually a person who’s terminally ill, receives cash to pay medical bills, etc., while the buyer, often an investor like AVS, earns the dif-ference between the cash it paid to the buyer and the death benefit it receives after the policyholder dies.

In 2009, Womble Carlyle lawyers Coleman and Smith— who had advised Philip Loy in the formation of AVS Underwriting—helped put together a deal to sell AVS and AVS Un-derwriting for $40 million to Portsmith Securities Limited Malaysia.

The contract called for Portsmouth to form a new company, which was ultimately named Longevity Partners, to buy the Loys’ stock in the AVS companies for $7 million cash, plus a promissory note for $12 million, secured by the stock, which the Loys would re-gain, if Longevity/Portsmith defaulted on the note.

The balance of the sale price was to be paid based on the AVS companies’ working cap-ital and annual earnings, plus post-sale employment agreements for the Loys.

After the deal was finalized, the Loys received their initial payment of $7M, but then Longevity defaulted.

The Loys entered into a forbearance agreement in 2011, but Longevity defaulted on that, also.

In 2012, the Loys executed their right to have the collateral reassigned to them, but the sales contract allegedly failed to delineate that AVS and AVS Underwriting were legally distinct entities, and the Loys’ equity interests included AVS Underwriting.

As a result, the Loys received only AVS when Longevity defaulted, but by then Longevity had shifted many of AVS’ operations to AVS Underwriting, and AVS was “effectively a shell” of a company.

The Loys were told that Longevity still owned AVS Underwriting and all of its contracts and receivables, and they were “banned from the office and unable to participate in the operation of the companies they had founded.”

Two other Womble Carlyle attorneys, Ambler and Connelly, sued Longevity in 2012 on the Loys’ behalf. Connelly allegedly claimed “he could get both companies back,” for an estimated $160,000 in fees.

AVS Underwriting and Longevity responded by suing Philip Loy and AVS.

Those suits, and a federal suit against AVS filed by insurer Lloyd’s of London in 2013, were derailed when AVS declared bankruptcy. During the bankruptcy, the Loys were forced to relinquish their interest in AVS.

Malpractice Claim

The Loys sued Womble Carlyle and its partners Robert Ambler and James Connelly, and former partners Bernard Coleman, Jr. and John “Sandy” Smith in November, 2014 for legal malpractice, breach of fiduciary duty, and breach of contract.

The Loys sought more than $33 million – the portion of the sales price that Longevity defaulted on – plus over $450,000 in fees and costs that they had paid Womble Carlyle since 2009, and punitive damages of $15 million or more.

Settlement

“The litigation was resolved amicably,” said plaintiffs attorney John Stivarius Jr.

Terms weren’t disclosed.

About Curtis Cooper