Butler Snow Strikes Out in Lamar Adams Case, Baker-Donelson to Follow?
Butler Snow and SEC Receiver Alysson Mills will have to slug it out in federal court instead of arbitration. Ms. Mills sued Lord Snow, Baker Donelson, and several other defendants in December in federal court for damages arising out of the Lamar Adams timber fraud case. Lord Snow asked the Court to dismiss her lawsuit and order both parties to submit to arbitration. U.S. District Judge Carlton Reeves rejected the motion to dismiss.
The firm claimed an engagement contract between Butler Snow Advisory Services Division and Lamar Adams had an arbitration clause:
In the event there is an unresolved legal dispute between the parties and/or any of their respective officers, directors, partners, employees, agents, affiliates or other representatives that involves legal rights or remedies arising from this engagement or any other agreement between you [Adams and Madison Timber Company] and [BSAS] and any of its affiliates, the parties agree to submit their dispute to binding arbitration under the authority of the Federal Arbitration Act...
The Receiver stands in the shoes of Arthur Lamar Adams, who signed the Engagement Contract with BSAS. The Receiver is bound by that agreement because Adams is bound by it. Adams was BSAS’s client under the Engagement Contract. The “Standard Terms and Conditions” made clear in its first paragraph that “you” and “your” as used throughout the agreement referred to “Madison Timber Company, Inc. and/or A. Lamar Adams.”...
All rights and obligations in the Engagement Contract belonged to Adams, and now belong to the Receiver who stands in Adams’ shoes
Judge Reeves recognized that part of the contract. However, he said there was another part of the contract that stated all disputes should be resolved in court:
In the forum selection clause, the parties agreed to resolve “any claim, dispute or difference” they might have in “the state and federal courts in Mississippi.” The parties agreed that those courts would have “exclusive jurisdiction” over “any” such claims. All objections to that forum or jurisdiction were explicitly waived. The arbitration provision, however, directly contradicts the forum selection clause. It sends disputes “to binding arbitration” instead of “a court of law.” It is not possible to reconcile the arbitration provision with the forum selection clause....
The Court said Lord Snow did not mention a "single case where an identical conflict was ordered to arbitration."
A basic principle of contract law is all ambiguities must be construed against the drafter of the contract. Judge Reeves upheld this principle and said since Butler Snow Advisory Services wrote the contract, the conflict must be interpreted in the Receiver's favor.
Baker Donelson and the other defendants made similar arguments to compel arbitration in their respective motions to dismiss. The decision likely dooms those motions as well.
Synopsis of Case
Receiver Alysson Mills sued Butler Snow, Butler Snow Business Advisory Division President Matt Thornton, and Baker Donelson in U.S. District Court on December 19, 2018 to recover commissions paid to them in the Lamar Adams timber fraud case. The complaint charges employees at both law firms worked with Lamar Adams to sell phony timber investments to firm clients.
The SEC accused Lamar Adams of operating a Ponzi scheme that defrauded 150 investors out of more than $85 million since 2005, in a lawsuit filed in U.S. District Court on April 20. The SEC said Adams sold bogus timber rights, deeds, and promissory notes guaranteeing 13% interest rates. Mr. Adams pleaded guilty in U.S. District Court to one count of wire fraud. The Justice Department said in that case Adams defrauded 320 investors of more than $164 million. The Court sentenced Adams to serve 235 months in prison
U.S. District Judge Carlton Reeves appointed attorney Alysson Mills to be the receiver in the case. She will recover assets, distribute them among the victims, and provide progress reports to the court. Mills sued to recover over $16 million in commissions from several "promoters". The promoters allegedly helped Adams sell his phony timber investments to unsuspecting investors. The defendants are Michael Billings, William McHenry, and Terry Kelly as well as companies they own. She has recovered over $2 million. However, Ms. Mills stated in her bi-monthly report that she was seeking commission repayments from ten unnamed parties.
The complaint states Adams and Pinnacle Trust formed the Madison Timber Fund, LLC. It sought to raise $10 million through the sale of 100 shares at a share price of $100,000. Butler Snow lawyers worked with Adams on the PPM. However, the PPM did not attract any investors.
Butler Snow created an Advisory Services division that would provide “non-legal business advice” in 2011. Mike Billings joined Lord Snow in 2012 as a “strategic advisor.” Ms. Mills said Billings gave strategic advice to Madison Timber as the company sought to raise $30-$50 million. Thornton allegedly "alerted" senior partners Don and Barry Cannada about the new business. Adams paid BSAS $3,500 per month for 17 months. Thornton and Billings looked for clients to purchase timber shares. They created a list of over thirty local individuals and families as prospects. Many people on the list purchased the phony timber shares.
The complaint stated Lord Snow lawyers created a PPM in February 2013 that sought to raise $100 million by selling $1,000 shares at a price of $100,000 per share. Lord Snow moved up from local yokels and began to pitch the shares to larger, institutional investors. Unfortunately (sarcasm) for Team Thornton, the PPM fell flat but there was a timber lining in the cloud of failure as many of the prospects invested in “standing tracts” of timber land. Adams delivered commission checks for each sale to Lord Snow.
The Receiver accused Butler Snow, Billings, and Thornton, of acting as "unlicensed brokers, in violation of state and federal law." No one ever registered with the SEC as the promissory notes were sold and commission checks were delivered. Ms. Mills aimed her complaint squarely at Barry Cannada:
Butler Snow knew or should have known what it was doing was unlawful. Among the notes in Butler Snow’s Madison Timber files is this comment from Don Cannada in 2009: “Very broad definition of what a broker is . . . Includes one who for a commission procures a purchaser or prospect etc. See 73-35-31 for penalties. Says you can’t pay an unlicensed broker, but doesn’t provide any penalty if you do so.”
Billings was making so much money off of the timber scheme that he left Lord Snow in December 2013 and began working directly for Lamar Adams. Adams stopped paying the $3,500 monthly retainer fee to Lord Snow. However, Adams engaged Lord Snow to assist him in other projects such as the Oxford Springs development in North Mississippi. The complaint makes it clear that Adams enjoyed the full range of Lord Snow’s diverse offerings: legal services, business advice, and lobbying. Butler Snow, in true Shylock fashion, continued to bill Adams for services rendered after he was caught. Lord Snow finally terminated the relationship on May 11 – two days after he pleaded guilty and 11 days after he was indicted.
46 comments:
This can be an episode of American Greed and a John Grisham book.
And off to the 5th Circuit we go.
It will be fascinating to see -- ultimately -- the sources for all of Ms. Mills' inside information. Obviously Lamar Adams sang like a canary, but she's getting documents from somebody on the inside.
So, Butler Snow wrote a contract that stated:
In the forum selection clause, the parties agreed to resolve “any claim, dispute or difference” they might have in “the state and federal courts in Mississippi.” The parties agreed that those courts would have “exclusive jurisdiction” over “any” such claims
Looks as if they're legal mumbo-jumbo backfired on them. They "out-lawyered" themselves.
So, Butler Snow is not even capable of drafting a contract (for themselves) that covers such a simple issue as this? Includes both an arbitration clause and a court jurisdiction clause in the same contract?
If there were not enough other reasons to avoid the high fees of the Kings of Renaissance of Madison, this should make one think again before entering "Don" Clark's palace.
"...but she's getting documents from somebody on the inside."
Adams was the client and he is entitled to the documents. As the client, he owns the privilege and he can waive it or give the file to anyone he wants. Whatever the exact situation, it should be a lot easier for Mills to get everything, including work product, if Adams is going along with it. Maybe Butler will fight discovery, but she may already have the complete file. Butler made the "steps into the shoes" argument, so it wouldn't be unreasonable for Mills to argue that she is entitled to the files simply upon request rather than by formal discovery requests.
As to the 5th Circuit, it might not be the best strategy to piss them off over small stuff with a weak and whiny argument that they couldn't even provide a single citation to support in the lower court. Of course, it probably wasn't the best strategy to get involved with Adams as deeply as they did, knowing what they obviously knew.
More billable hour$. cha ching.
Love how the judge entered an order that basically said he didn't want to see anyone showing up with 'old white guy' as their attorney, and Butler Snow and the other Defendants ran out and hired the oldest whitest attorneys they could find. Shrewd.
2:50- My thoughts exactly. So I guess it isn't just customer contracts that get screwed up. They screw up their own contracts too.
The receiver is kicking everyone's ass.
From pages 5-6 of the court's "Factual Findings,"
"The _advisors_ (sic) made a list of more than 30 potential investors and refined their pitch...Thompson told one potential _mark_...But that was a lie...He told another potential _mark_... That conveniently omitted..._They_ told potential _marks_..." (_emp_ add)
Uh-oh. The "marks" weren't from a list of folks Adams created and suggested Butler Snow contact, the "marks" were a list of folks Butler Snow created internally and to whom it "pitched" Adams' scheme. Assuming the court wasn't being snarky when it wrote, "Butler Snow is undoubtedly a sophisticated law firm with many talented attorneys," maybe it thinks someone on the Defendants' side will take note of and a clue from those passages.
It’s been a while since I looked this up, but as I recall, the Federal Rules require the trial court to grant permission for immediate appeal of an interlocutor order, such as this one.
Is there some significance to the fact that where I would assume I could find posted a copy of the court's order what actually appears is a view of "Charlie Brown and the Great Pumpkin" with Lucy bringing forth her football for Charlie to kick?
Couldn't tell exactly who the players were in this YouTube video that I could click on, but I assume Lucy is playing the part of the Receiver, and maybe Charlie is representing Butler Snow's contract drafters?
ooops!
In response to 5:32PM:
Just because you CAN do something does not mean you SHOULD do it. When a federal judge makes an interlocutory order that a Defendant law firm must live with the consequences of the contract it drafted and finds as facts in that order that the law firm knowingly and willfully ignored securities regs in setting up an unlicensed investment advisory subsidiary whose personnel immediately began lying to its clients in "pitching" them to invest in a Ponzi scheme being perpetrated by another client, all while ignoring myriad and blatant "red flags" of suspicious claims and conduct by that client, the Rules do allow a Defendant to make it worse by making an unsupportable, piss-poor argument to the circuit...if that is what they feel is appropriate. Put another way, the Rules do not prohibit parties from shooting themselves in the ass if that is what they insist upon doing.
I wonder what Butler Snow's argument will be if they do appeal, and when they get bitch-slapped, Mills asks for and receives sanctions?
Hey Cannada, if you go to sell that pretty tract of land off 55 in Holmes county, I’m interested.
Is that a snow job or a blow job coming out of the Renaissance high rise?
Asking for a friend.
The order states that it was "senior partner Don Cannada" who researched Section 73-35-31 and concluded there are no penalties for violating it. I think such analysis would be a normal part of legal research, but it sure lends itself to the inference that the top brass at BS considered that it may be profitable to break the law.
This whole thing stinks of arrogance and avarice.
Love the Charlie Brown cartoon about notarizing document. Will be interesting to read about McHenry after sentencing. Ms. Mills job well. Done!
6:58, my point was that BS probably needs to obtain permission to appeal from the same judge who already ruled against it, i.e, an interlocutory appeal of this order is unlikely. In the spirit of helpfulness, try using more of these: "."
-5:32
Contrary to what you may think, an order denying a motion to compel arbitration is immediately appealable under 9 U.S.C. § 16 even though it is interlocutory.
Thank you, 9:11. I stand corrected. -5:32/8:17
Was Adams working out of an office at Butler Snow?
(Just like Feel Bryant will set up shop with BS)
Ah, young Jedi, you might want to re-read 9 U.S.C. § 16. This isn't a case of a contract in which arbitration is compelled. Compelled, by definition, means that the action contemplated is clearly mandated. In stark contrast, this is a case in which the drafter of the contract failed to compel arbitration - even arguably directly negated it - by a subsequent contradiction of its own boilerplate. Butler Snow negated (under at least two well-settled legal principals) any such terms by drafting and inserting in the non-boilerplate additional and superseding recitation of terms a comprehensive "courts and laws" clause. Since arbitration is not compelled, and certainly not in an unambiguous and legally-sufficient manner, Butler Snow loses. If you're a fan of such proceedings, have the noshes and adult beverages ready should Butler Snow attempt to unfuck its own fuckup via the 5th Circuit.
By-the-by, I'll suggest that very few overloaded circuit judges (or their overworked staff), at the 5th or any other, will be amused or sympathetic having the calendar clogged by bullshit.
"In the spirit of helpfulness, try using more of these: '.'"
You have a valid point. I did consider the length of that sentence (pardon the possible pun). I can parse. I choose not to do so.
Why would anybody think Feel Brant will be gifted with a desk at Butler Snow? What they hell would they do with a duck-tailed, hick deputy sheriff?
What has Feel got to do with this??? He already has a desk at Barbour and Barbour Lobbying Firm....
the quote senator baker in the watergate hearings, {who ironically is the baker in baker donaldson}, "what did BD and BS know and when did they know it"
Fortunately I invested heavily in popcorn futures when this all broke.
I guess Cynical Sam is the winner in the latest episode as I went long popcorn early in the Great TimbaLand Debacle.
I made the mistake of taking physical possession and as a result I done et it all allready.
So now I'm forced to return to the market at a time when Mr Popcorn Market isn't my friend.
Not even Blackmon can save them from this, I am thinking she will go away for 25 to 40 million.
Feel's name keeps coming up. Will somebody please tell me why anybody, any firm, any organization, any employer would hire or contract with Phil Bryant. Seriously. What in the name of Goolesby's Grape Orchard has he got to offer? I'll wait...
I really don't think McHenry has the intelligence to be too tightly wrapped around this axle. He's got the mentality of a funeral-insurance salesman. And surely Mills is not counting on his ratting out of others as a strategy. The guy is a junior player but is still a crook and ought to take a fall.
It’s appealable immediately and will be.
If for anything to delay this process.
Behind the scenes insurers and reinsurers are scrambling to figure out the scope of their liabilities. Lots of tender letters flying now.
Butler Snow is concurrently probably trying to insert vague language into some statute dealing with this very issue.
They alter the law to fit their needs.
Pretty devious but watch....I’ve seen it happen several times.
@10:28 "Butler Snow is concurrently probably trying to insert vague language into some statute dealing with this very issue. They alter the law to fit their needs.Pretty devious but watch....I’ve seen it happen several times."
Absolutely true....and the reason that the scumbags in the legislature are not required to make all records available to taxpayers. Mississippi is corrupt to the marrow.
10:28 AM wrote, "Behind the scenes insurers and reinsurers are scrambling to figure out the scope of their liabilities. Lots of tender letters flying now."
Any idea how much the premiums are for "we set up an unlicensed 'investment advisory' subsidiary, treated our clients as 'marks,' and lied to them when 'pitching' them to 'invest' in a Ponzi perpetrated by another client" coverage might be? Coverage for honest errors and mistakes has gotten pretty high, so I imagine a "wanton and willful misconduct" policy is really up there.
Seriously, the insurance aspect has been debated on JJ in the past and it seems unlikely that coverage would exist if several of the alleged facts are ultimately found (and upheld) to be facts.
12:03 pm
There may be uncovered portions of the claims but they will be subsumed by the covered conduct.
Adept jury instructions can cloudy that issue to the insureds Benefit too.
Lots of motions to follow for sure
If you are a lawyer this is sort of fascinating.
And the idea that these same lawyers continue to represent companies boggles my mind.
I can’t wait for the appeal. Out of state. The whole “In Mississippi” part is very amusing.
Enough is enough already with the posturing. The best course of action was always to reach a settlement. In the end, Ms Mills is gonna get her money.
12:03 responding to 2:54,
Anything is possible and as you say and suggest, a lot of things could be tried. For example, I guess it could be argued that the conflicting arbitration v. courts clauses was an unintentional professional error (I doubt it was unintentional...I'll leave "professional" alone). I would also guess that the counter would be the only thing the error did was put excluded conduct before a judge/jury rather than an arbiter. In other words, the insurer would argue that it wouldn't matter as to coverage if an arbiter, a judge or jury, or the Easter bunny made the decision because the conduct was excluded. Most PL policies are designed to cover unintentional conduct or actions that make the insured liable to the client for a mistake in representing that client -and- which causes the client actual monetary damage.
Also, it would be a rare PL policy that covered punitive, exemplary, or other "other than actual" damages on top of covering"egregious," "willful," or other such acts. The underwriting and premium calculations would be difficult to say the least - the premium would likely exceed the amount of coverage. Furthermore, unless it was very carefully worded, it would tend to violate public policy. Think of a homeowner's policy that provided coverage to the insured/homeowner for burning down their own home - all else aside, the premium would have to exceed the "day one" highest potential payout.
From what has been posted, it would seem Baker may have a better "rogue conduct" argument than Butler Snow, assuming either have such coverage.
Two things I haven't seen brought up yet:
1. If any of the potential PL insurance had a clause that required the insured firm/attorneys to have an arbitration clause in the client rep agreement.
2. Mills is in a potentially tough spot as far as money from PL carrier(s) if BS has common-form coverage and exclusions. Assume Butler Snow's coverage excludes the conduct and Mills secures a large damage award. However, if the various BS parties do not have reachable assets to cover the damages, it would be interesting to read her argument, if she attempts to make one, to now drag BS's carrier unto the battlefield.
And that’s why how one analyzes something matters I suppose.
From a litigators standpoint this is an easy win for Mills.
In the hyper technical weeds it’s a boon for coverage counsel.
At the end of the analysis Mills can get to a jury and BS BD partners who are personally liable will squeal to get out.
This will resolve and I bet sooner rather than later.
Interesting that Ms. Mills out-lawyered a firm of lawyers. You would think that BS would recognize their legal position and know the risks. Seems like BS underestimated Ms. Mills. Probably not for the last time.
I agree with 6:08 on all counts. Arrogance tends to underestimate the opposition, and I suspect that may be in play in this case.
We plaintiffs' attorneys pretty much always want insurance coverage for a defendant so that we don't wind up with a worthless judgment. I'm fascinated by intricate coverage issues as much as the next nerd, but in this case I think coverage issues are probably academic.
1:54PM wrote:
"From a litigators standpoint this is an easy win for Mills.
In the hyper technical weeds it’s a boon for coverage counsel."
I tend to agree that it appears Mills' position is a lot better than that of the various Defendants. Any indication that there IS any coverage counsel? I do not see the point you are attempting to convey re: a boon for coverage counsel in relation to it being an easy win for Mills - it may be a great point and I do not see it. Again, assuming the alleged facts to be the ultimately found facts, it would seem PL coverage is unlikely for a number of reasons. The unlicensed "Butler Snow Advisory Services" role seems to add even more excluded conduct. If BS had drafted a contract and agreement for a third-party, arm's-length client, it might have a claim that Butler Snow's PL would cover, but since BSAS is neither a (true) third party nor at arm's length client, I just do not see any coverage available from "standard" PL coverage.
and:
"At the end of the analysis Mills can get to a jury and BS BD partners who are personally liable will squeal to get out."
If those partners have reachable assets, why would/should she let them get out of much of anything? I understand that getting a certain amount via settlement is more certain than a protracted fight to obtain a larger amount, but she is now fighting for the "investors" and her own paycheck. Every Defendant wants to get out for the least amount it can, but I do not see that Mills has any great incentive to settle for substantially less at this point.
6:32 pm
You misunderstood my statement
At a certain stage, Once the insured and the insurer reach a conflict (mills offers to settle claims against insureds within policy limits (and those limits are substantial I promise)) then the insurer has a duty to protect the insured...ie pay mills demand within limits to stop the insured from suffering a personal loss.
How insurance operates during litigation is unique.
The partners (absent some actual fraud) will lose nothing personally but insurance premiums will increase.
6:32 PM, responding to 8:52PM:
I guess we just do not see eye-to-eye on the (assumed) existence of coverage - what do you see as the covered conduct that triggered potential coverage and defense to cover the firms or the partners at risk?
September 15, 2019 at 10:28 AM is spot on. Right on the law and facts!
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