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Securities and Exchange Commission v. Adams

United States District Court, S.D. Mississippi, Southern Division

March 13, 2019

Securities and Exchange Commission, Plaintiff,
v.
Arthur Lamar Adams and Madison Timber Properties, LLC, Defendants.

          Before Carlton W. Reeves, District Judge .

          ORDER DENYING MOTION FOR DECLARATION OF RIGHTS

          CARLTON W. REEVES UNITED STATES DISTRICT JUDGE

         Jeanne Lehan, on behalf of the beneficiaries of the Jeanne M. Lehan Trust, and Pamela Lehan-Siegel, on behalf of the beneficiaries of the Pamela Lehan-Siegel Trust (collectively, the “Lehan parties”), have moved for a declaration that the Court’s previous Order, which stays all ancillary litigation related to this case, does not apply to their case in Madison County Chancery Court. Docket No. 79. The Receiver and the SEC oppose the motion.

         I

         Procedural History

         On June 22, 2018, this Court appointed the Receiver to oversee the estate of Lamar Adams and Madison Timber Properties (“MTP”). Docket No. 33. That Order stayed “all civil legal proceedings of any nature . . . or other actions involving . . . any Receivership Property . . . [or any] past or present officers, directors, managers, agents, or general or limited partners” of MTP. Id. at 12–13.

         After the Court issued its Order, the Lehan parties filed a complaint against Pinnacle Trust in Madison County Chancery Court. Their complaint alleges that “Pinnacle Trust committed breaches of trust, fiduciary duties, and loyalty, and acted with negligence/gross negligence” because Pinnacle Trust used the Lehan parties’ two trusts as a vehicle to loan MTP money. Docket No. 80 at 2.

         In November 2018, the Receiver notified the Lehan parties and Pinnacle Trust that she believed the case should be stayed because “[c]ourt proceedings in cases arising from the Madison Timber Ponzi scheme against the Receivership Estate’s own targets risk inconsistent rulings. Judgements in those cases also risk inequitable distribution of money to victims.” Docket No. 79-2. The Receiver went on to tell the parties that she was still assessing the claims of the Receivership Estate and had “not ruled out claims against Pinnacle Trust Company.” Id. Pinnacle Trust then moved to stay the case in Chancery Court, using the Receiver’s letter as support.

         In response, the Lehan parties came here asking “this Court [to] determine whether the Receiver has standing to stay or pursue any of the claims asserted” in Chancery Court. Docket No. 80 at 6. If the stay does apply to their case, the Lehan parties request the stay be lifted so they may proceed with their action.

         The Receiver and the SEC argue that the stay applies to the Chancery Court action because the Receiver has potential claims against Pinnacle Trust, which may have been acting as an agent of MTP and may have contributed to the liability of the Receivership Estate. The Receiver adds that keeping the stay in place is prudent to preserve Receivership Property and avoid prioritizing the recovery of certain victims over others.

         II

         The Receiver’s Standing

          The Court will start with the Lehan parties’ main argument: “[t]he Receiver should not be allowed to stay or pursue any claims in the Lehan Case, other than possible claims concerning Pinnacle Trust’s receipt of recruitment fees and/or kickbacks, if any, because the Receiver lacks constitutional standing to do so.” Id. at 3. The Lehan parties reason that if the Receiver does not have standing to pursue the unique claims against Pinnacle Trust they have asserted, the stay cannot apply to them.

         As the Receiver and the SEC point out, however, the Receiver does have standing to pursue a variety of actions against Pinnacle Trust. Courts have “held that the Receiver may assert tort claims against third parties based on allegations that the third parties’ torts contributed to the liabilities of the Receivership Estate.” Official Stanford Inv’rs Comm. v. GreenbergTraurig, LLP, No. 3:12-CV-4641-N, 2014 WL 12572881, at *4 (N.D. Tex. Dec. 17, 2014); see also Marion v. TDI Inc., 591 F.3d 137, 148 (3d Cir. 2010) (“[a] receiver no doubt has standing to bring a suit on behalf of the [receivership entity] against third parties who allegedly helped that [receivership entity’s] management harm the [receivership entity].”); SEC v. Stanford Int'l Bank Ltd., No. 3:09-CV-298-N, 2017 WL 9989250, at ...


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