John Stivarius (John Disney/Daily Report)
A legal malpractice suit seeking $33 million in damages from Womble Carlyle Sandridge & Rice and four of its lawyers over what the plaintiffs claimed was the mishandled sale of a Kennesaw company has apparently settled, with all claims dismissed with prejudice.
The former owners of American Viatical Services (AVS), Philip and Sharon Loy, sued Womble along with current partners Robert Ambler and James Connelly and former partners Bernard Coleman Jr. and John “Sandy” Smith in 2014 for claims of legal malpractice, breach of fiduciary duty and breach of contract.
On June 21, the Loys filed a voluntary dismissal with prejudice of the individual lawyer defendants, and on July 20 they dismissed the firm as well, with each side to bear its own costs.
“The litigation was resolved amicably,” said plaintiffs attorney John Stivarius Jr. of Elarbee Thompson Sapp & Wilson, who filed the suit with firm partner Stanford Wilson. Stivarius said he could not comment further.
The defense team included King & Spalding partners David Balser and John Brumbaugh, and firm attorneys Kathleen Sacks and Julia Barrett. Neither Balser nor Brumbaugh responded to requests for comment.
The suit originated from the 2010 sale of AVS and a related entity, AVS Underwriting, founded by Philip Loy around 1994 to research and purchase viatical settlements, which occur when someone sells the right to his life insurance benefits to a third party for a lump-sum payment that is less than what the insured’s estate would receive upon his death.
In 2009, according to the complaint, Womble lawyers Coleman and Smith— who had advised in the formation of AVS Underwriting—helped put together a deal to sell the companies for $40 million. The buyer, Portsmith Securities Limited Malaysia, was to pay $7 million cash at closing and provide a secured promissory note for $12 million. Other payments based on AVS’ working capital, annual earnout payments and post-sale employment agreements for the Loys were also written into the deal.
The deal included the creation of a new company, which would ultimately be named Longevity Partners, to purchase the Loys’ equity interests in AVS. The collateral for the promissory note was to be the Loys’ stock and ownership interests in the businesses, which they would recover if Portsmith defaulted, the suit said.
But the documents failed to delineate AVS and AVS Underwriting as “legally distinct entities,” and the lawyers failed to ensure that the Loys’ equity interests included AVS Underwriting. After the deal was finalized, the Loys received their initial payment; then Longevity defaulted.
The Loys entered into a forbearance agreement in 2011, but Longevity defaulted on that as well and in 2012 the Loys executed their right to have the collateral reassigned to them. But by then Longevity had shifted many of AVS’ operations to AVS Underwriting, and AVS was returned to the Loys as “effectively a shell of the company,” the complaint said.
The Loys were told Longevity still owned AVS Underwriting and all of its contracts and accounts receivables, and they were “banned from the office and unable to participate in the operation of the companies they had founded.”
Womble’s Ambler and Connelly sued Longevity in 2012 on the Loys’ behalf, with Connelly asserting that, for an estimated $160,000 in fees, “he could get both companies back,” the complaint said. AVS Underwriting and Longevity responded by suing Philip Loy and AVS.
Those suits, in Fulton and Cherokee counties, as well as a federal suit against AVS filed by Lloyd’s of London underwriters in 2013, were all derailed when AVS declared bankruptcy. During the bankruptcy, the Loys were forced to relinquish their interests in AVS.
The suit the Loys filed in November 2014 sought in excess of $33 million—the amount lost when Longevity defaulted after paying the initial $7 million—plus more than $450,000 the Loys paid Womble for its services from 2009 onward, as well as punitive damages of $15 million or more.