United States District Court, S.D. Mississippi.
Carlton W. Reeves, District Judge .
Carlton W. Reeves, United States District Judge
Butler Snow LLP, Butler Snow Advisory Services LLC, and Matt
Thornton have moved to send this case to ar- bitration. For
the reasons that follow, the motion is denied.
Factual and Procedural History
least 2010 until April 2018, Lamar Adams operated timber
investment companies called Madison Timber Com- pany LLC and
Madison Timber Properties LLC. He told in- vestors they were
purchasing shares of timber tracts that would be harvested
and sold to lumber mills at a significant profit. The demand
for lumber was so great, he said, he could guarantee
investors a fixed rate of return in excess of 10%. In-
vestors believed him. They collectively gave him hundreds of
millions of dollars.
was lying. He had, with the help of others, faked eve-
rything about the scheme. There were no timber deeds, tracts
of land, or lumber mills. He was actually using new
investors' money to pay old investors-a classic Ponzi
scheme. It worked as long as Adams and his associates could
continue to bring in new money.
scheme collapsed in April 2018. Adams turned himself in to
the United States Attorney's Office in Jackson,
Mississippi and quickly pleaded guilty to wire fraud. He is
now serving a 19.5-year sentence in federal prison. The
sentence reflects the significance of the fraud; the criminal
proceeding estab- lished that Adams' victims lost
approximately $85 million.
the Ponzi scheme collapsed, the U.S. Securities and Ex-
change Commission asked this Court to appoint a receiver to
take charge of Adams' companies and provide some measure
of financial relief to his victims. The Court appointed
Alysson Mills to be that receiver. To date, she has sold
Adams' assets, negotiated settlements with Adams'
enablers, and filed law- suits against persons and entities
that contributed to the fraud.
one of those lawsuits.
action, the receiver alleges that the Butler Snow and Baker
Donelson law firms aided and abetted Adams in carrying out
the Ponzi scheme. These firms “lent their influ- ence,
their professional expertise, and even their clients to Ad-
ams, ” the complaint alleges. “They made a
fraudulent enter- prise a fraternity. Defendants contributed
to the success of the Madison Timber Ponzi scheme, and
therefore to the debts of the Receivership Estate to
investors. By this complaint the Re- ceiver seeks to hold
Defendants accountable.” What follows will focus on the
receiver's allegations against Butler Snow and its
affiliates. These allegations are disputed, but must be taken
as true at this stage of the case.
2009, Adams hired Butler Snow to draft a private place- ment
memorandum (PPM) for Madison Timber Fund LLC. The PPM
explained to potential investors that Adams used his
“network of contacts cultivated over 20 years” to
broker deals between landowners and “various timber
mills.” It claimed that Adams had a “competitive
advantage” and “highly competitive pricing
strategy.” The PPM also warned investors that timber
prices “experience significant variation and have been
historically volatile, ” and cautioned that suc- cess
would be “substantially dependent” on Adams.
not clear whether Butler Snow knew in 2009 that Adams was
running a Ponzi scheme. The firm did know, however, that
people who helped Adams might need to register as a broker.
That year, according to a note in the firm's Madison
Timber file, senior partner Don Cannada researched Missis-
sippi law to learn the various penalties one could face for
profiting as an unlicensed real estate broker. See
Miss. Code Ann. § 73-35-31. He observed that the law set
forth a “very broad definition of what a broker
is.” He somehow concluded that Mississippi law
“[s]ays you can't pay an unlicensed bro- ker, but
doesn't provide any penalty if you do so.” The PPM
did not attract any formal investors. It succeeded in a
different way. In lieu of buying into the fund, receptive in-
vestors simply entered into “joint ventures” with
Madison Timber. The scheme otherwise worked the same-$100,
000 and $200, 000 investments came in, while
“consistent, uniform returns of 12% to 14%” went
out. The fraudulent enterprise continued to grow.
next phase of Butler Snow's work with Adams kicked off in
2012. That year, Adams hired Butler Snow's new subsidi-
ary, Butler Snow Advisory Services, to expand his
“business” and raise $30-50 million. The
complaint says that Matt Thornton, the CEO of Butler Snow
Advisory Services, “alerted Don Cannada and Barry
Cannada, a senior partner and the Vice Chair of Butler Snow,
respectively, to the pro- spects of this new business.”
Meetings were held; contracts were negotiated.
parties ultimately agreed that Butler Snow Advisory Ser-
vices would pitch Adams' timber investments to wealthy
peo- ple and institutions. In exchange, Adams would pay
Butler Snow Advisory Services a $3, 500 monthly retainer,
commis- sions for each completed transaction, a fund success
fee (com- prised of half of the fund's management fees
and a quarter of the fund's carried interest), expenses,
and an administrative fee.
legal side of Butler Snow began to update the PPM while the
“strategic advisors” at Butler Snow Advisory
Services went to work. The advisors made a list of more than
30 poten- tial investors and refined their pitch. Their
emails reveal a simple strategy: they knew that Adams had
“a seemingly in- satiable appetite for cash, ”
and they would find investors to give him that cash-profiting
from the ensuing commissions and fees-until Adams “says
receiver has some of Butler Snow Advisory Services' sales
pitches. They are illuminating.
told one potential mark that he could not share spe- cific
information about the timber mills because Adams “has
an extremely stringent NDA with his mill partners.” But
that was a lie. There were no NDAs with mill partners; there
were no mill partners at all. Thornton also engaged in
obfuscation. He told another mark that Adams had “been
vetted by several $1.5 billion family office(s) in Texas,
encompassing a 75 day due diligence period [and] as you
would imagine, Lamar passed with flying colors!” That
conveniently omitted that the billion-dollar family offices
had declined to invest with Ad- ams.
kept the legal side of Butler Snow apprised of his progress.
The complaint says he “often” copied Barry Can-
nada on emails. Thornton also sent emails pressuring Butler
Snow lawyers to work faster on Adams' legal needs. The
law- yers did so and finished the updated PPM in 2013. As de-
scribed earlier, investors continued to sign up through joint
ventures instead of the fund. Butler Snow Advisory Services
still received its commissions. Neither Thornton nor Butler
Snow ever registered with the S.E.C.
to the complaint, Butler Snow's lawyers and sales- men
“recklessly ignored numerous red flags.” They
didn't call a landowner or check a title. They didn't
call a mill. They told potential marks that in the event of a
default, the investor could “simply file the [timber]
deed, ” but never questioned why investors were told
not to record the deed at the outset of the investment. The
professionals at Butler Snow also ig- nored the red flag of
the return: Adams promised “a con- sistent, uniform
return of 12% to 14%, ” a rate of return una- vailable
in the broader market and at odds with the PPM's express
warning that timber prices were volatile.
acted on these glaring red flags. Adams got new in- vestors
to pay off the old investors, the salesmen at Butler Snow
Advisory Services got their commissions, and the law- yers at
Butler Snow were paid for their legal work.
and Butler Snow Advisory Services parted ways in December
2013. By then, Adams had realized that he could make more
money if he hired one of Butler Snow Advisory Services'
key salesmen, Mike Billings, without the framework and fees
of the Advisory Services itself. So Adams directly hired
Billings to help him defraud investors. Adams also turned
to the lawyers at Butler Snow for “regulatory”
and “compliance” help with a real estate
development company he was setting up.
complaint says that by spring 2018, Butler Snow found itself
in an unusual position. The firm was still sending in- voices
to Adams-even after he turned himself in to the United States
Attorney's Office. The firm simultaneously
“purported to represent investors in their demands of
Madi- son Timber, ” the receiver alleges. And the firm
“purported to represent Billings-whose interests
clearly were adverse to investors, ” according to the
receiver filed this action in December 2018. She claims that
Butler Snow, Butler Snow Advisory Services, and Thornton are
liable to the receivership estate for civil conspir- acy,
aiding and abetting, negligence, gross negligence, and
recklessness. She alleges that Butler Snow Advisory Services
and Thornton violated Mississippi's fraudulent transfer
act and Mississippi's prohibition on organized fraud
enterprises (civil RICO). She adds that the Butler Snow law
firm is liable to the ...