Professional Documents
Culture Documents
Defendants.
Before the Court is the Motion for Approval of Settlements filed by Alysson Mills, in her
capacity as the court-appointed receiver (the “Receiver”) for Arthur Lamar Adams and Madison
Timber Properties, LLC. No party has filed any objections to this motion.
The motion asks the Court to approve the Receiver’s Settlement Agreement with Drake
and Summer Adams (“Mr. and Mrs. Adams”). After consideration, the Court finds that settlement
with Mr. and Mrs. Adams on the proposed terms without litigation is in the Receivership Estate’s
BACKGROUND
The Receiver has a duty “to take custody, control, and possession of all Receivership
Property, Receivership Records, and any assets traceable to assets owned by the Receivership
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Estate” 1 and to investigate and “bring such legal actions based on law or equity in any state, federal
or foreign court as the Receiver deems necessary or appropriate in discharging her duties as
Receiver.” 2
Immediately following her appointment, the Receiver and her counsel began investigating
claims against potential defendants who may be in possession of assets of the Receivership Estate,
including against individuals and entities who received cash gifts from Lamar Adams or Madison
Timber
The Receiver represents that she determined that from January 1, 2010 to the present date,
Lamar Adams’s children and their spouses received cash gifts that she believes were proceeds of
the Madison Timber Ponzi scheme. These cash gifts were made with funds from bank accounts in
Lamar Adams’s name and from a bank account he shared with his wife, Vickie Adams. Of these
cash gifts, Drake Adams, Lamar Adams’s son, and his wife, Summer, received $56,000.
The Receiver notified Mr. and Mrs. Adams of her findings. They, along with Brandon
Kennedy, in turn voluntarily disclosed to the Receiver that Lamar Adams separately had given
Brandon Kennedy and Drake Adams an interest in a home in Indianola, Mississippi, in which his
The Receiver represents that she has no evidence that Mr. and Mrs. Adams were involved
in any wrongdoing associated with the Madison Timber Ponzi scheme. The Receiver and Mr. and
1
Docket No. 33, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss).
2
Docket No. 33, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss). By order
dated August 22, 2018, the Court eliminated the requirement that the Receiver obtain “prior approval of this Court
upon ex parte request” before bringing any legal action. Docket No. 38, Securities & Exchange Commission vs.
Adams, et al., No. 3:18-cv-00252 (S.D. Miss).
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Mrs. Adams undertook to resolve the Receivership Estate’s claims to gifts made to Mr. and Mrs.
The parties have now reached an agreement whereby Mr. and Mrs. Adams shall return to
the Receivership Estate $40,000 in settlement of the Receivership Estate’s claims for gifts made
to them by Lamar Adams. Separately, Mr. and Mrs. Adams shall contribute one-half of $25,000,
or $12,500, in settlement of the Receivership Estate’s claims to their interest in the Indianola
Property. The Receiver represents that the proposed settlement agreement follows meaningful,
informed, arm’s length negotiations between the Receiver and Mrs. and Mrs. Adams, all
The Receiver believes the proposed settlement agreement is in the Receivership Estate’s
best interests. The Receiver represents that she is satisfied that the total amount received pursuant
to the proposed settlement agreement exceeds the net amount the Receivership Estate would
actually receive if she litigated her potential claims against Mr. and Mrs. Adams to final judgment.
The time and money spent on litigation, which would be funded on an hourly basis, is time and
money the Receivership Estate would never recover and would almost certainly exceed any
discount given in consideration for the avoidance of litigation. The Receiver notes that she values,
too, that Mr. and Mrs. Adams have cooperated with her and have agreed to make their payment
ORDER
After consideration, the Court finds that the terms of the Settlement Agreement and the
terms are adequate, fair, reasonable, and equitable. The Settlement Agreement and should be and
is hereby APPROVED.
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1. The terms used in this Order Approving Settlement that are defined in the Settlement
Agreement, unless expressly otherwise defined herein, shall have the same meaning as in the
Settlement Agreement.
2. This Court has jurisdiction over the subject matter of this action, and the Receiver is
between the Receiver and Mr. and Mrs. Adams, all represented by highly capable counsel.
4. The parties and their counsel have at all times complied with the requirements of Rule
5. The Settlement Agreement is, in all respects, fair, reasonable, and adequate and is
hereby fully and finally approved. The parties are directed to implement and consummate the
Settlement Agreement in accordance with its terms and with this Order Approving Settlement.
admission or concession of any violation of any statute or law, of any fault, liability, or
wrongdoing, or of any infirmity in the claims or defenses of any party in any other proceeding.
7. Mr. and Mrs. Adams shall deliver or cause to be delivered the Settlement Payment in
8. Without in any way affecting the finality of this Order Approving Settlement, the
Court retains continuing and exclusive jurisdiction over the parties for the purposes of, among
other things, the administration, interpretation, consummation, and enforcement of the Settlement
Agreement.
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Defendants.
Before the Court is the Motion for Approval of Settlements filed by Alysson Mills, in her
capacity as the court-appointed receiver (the “Receiver”) for Arthur Lamar Adams and Madison
The motion asks the Court to approve the Receiver’s Settlement Agreement with Brandon
and Foster Kennedy (“Mr. and Mrs. Kennedy”). After consideration, the Court finds that
settlement with Mr. and Mrs. Kennedy on the proposed terms without litigation is in the
Receivership Estate’s best interests. The Court thus GRANTS the Receiver’s motion.
BACKGROUND
The Receiver has a duty “to take custody, control, and possession of all Receivership
Property, Receivership Records, and any assets traceable to assets owned by the Receivership
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Estate” 1 and to investigate and “bring such legal actions based on law or equity in any state, federal
or foreign court as the Receiver deems necessary or appropriate in discharging her duties as
Receiver.” 2
Immediately following her appointment, the Receiver and her counsel began investigating
claims against potential defendants who may be in possession of assets of the Receivership Estate,
including against individuals and entities who received cash gifts from Lamar Adams or Madison
Timber.
The Receiver represents that she determined that from January 1, 2010 to the present date,
Lamar Adams’s children and their spouses received cash gifts that she believes were proceeds of
the Madison Timber Ponzi scheme. These cash gifts were made with funds from bank accounts in
Lamar Adams’s name and from a bank account he shared with his wife, Vickie Adams. Of these
cash gifts, Brandon Kennedy, Lamar Adams’s daughter, and her husband, Foster, received
$152,470.60.
The Receiver notified Mr. and Mrs. Kennedy of her findings. They, along with Drake
Adams, in turn voluntarily disclosed to the Receiver that Lamar Adams separately had given
Brandon Kennedy and Drake Adams an interest in a home in Indianola, Mississippi, in which his
The Receiver represents that she has no evidence that Mr. and Mrs. Kennedy were involved
in any wrongdoing associated with the Madison Timber Ponzi scheme. The Receiver and Mr. and
1
Docket No. 33, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss).
2
Docket No. 33, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss). By order
dated August 22, 2018, the Court eliminated the requirement that the Receiver obtain “prior approval of this Court
upon ex parte request” before bringing any legal action. Docket No. 38, Securities & Exchange Commission vs.
Adams, et al., No. 3:18-cv-00252 (S.D. Miss).
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Mrs. Kennedy undertook to resolve the Receivership Estate’s claims to gifts made to Mr. and Mrs.
The parties have now reached an agreement whereby Mr. and Mrs. Kennedy shall return
to the Receivership Estate $105,000 in settlement of the Receivership Estate’s claims for gifts
made to them by Lamar Adams. Separately, Mr. and Mrs. Kennedy shall contribute one-half of
$25,000, or $12,500, in settlement of the Receivership Estate’s claims to their interest in the
Indianola Property. The Receiver represents that the proposed settlement agreement follows
meaningful, informed, arm’s length negotiations between the Receiver and Mrs. and Mrs.
The Receiver believes the proposed settlement agreement is in the Receivership Estate’s
best interests. The Receiver represents that she is satisfied that the total amount received pursuant
to the proposed settlement agreement exceeds the net amount the Receivership Estate would
actually receive if she litigated her potential claims against Mr. and Mrs. Kennedy to final
judgment. The time and money spent on litigation, which would be funded on an hourly basis, is
time and money the Receivership Estate would never recover and would almost certainly exceed
any discount given in consideration for the avoidance of litigation. The Receiver notes that she
values, too, that Mr. and Mrs. Kennedy have cooperated with her and have agreed to make their
ORDER
After consideration, the Court finds that the terms of the Settlement Agreement and the
terms are adequate, fair, reasonable, and equitable. The Settlement Agreement should be and is
hereby APPROVED.
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1. The terms used in this Order Approving Settlement that are defined in the Settlement
Agreement, unless expressly otherwise defined herein, shall have the same meaning as in the
Settlement Agreement.
2. This Court has jurisdiction over the subject matter of this action, and the Receiver is
between the Receiver and Mr. and Mrs. Kennedy, all represented by highly capable counsel.
4. The parties and their counsel have at all times complied with the requirements of Rule
5. The Settlement Agreement is, in all respects, fair, reasonable, and adequate and is
hereby fully and finally approved. The parties are directed to implement and consummate the
Settlement Agreement in accordance with its terms and with this Order Approving Settlement.
admission or concession of any violation of any statute or law, of any fault, liability, or
wrongdoing, or of any infirmity in the claims or defenses of any party in any other proceeding.
7. Mr. and Mrs. Kennedy shall deliver or cause to be delivered the Settlement Payment
8. Without in any way affecting the finality of this Order Approving Settlement, the
Court retains continuing and exclusive jurisdiction over the parties for the purposes of, among
other things, the administration, interpretation, consummation, and enforcement of the Settlement
Agreement.
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____________________
No. 3:18-cv-252-CWR-FKB
v.
2
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3
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4
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6
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3Other parties, when presented with this dilemma, have filed a motion
asking this Court to lift the stay as to their claims.
7
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8
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V
Conclusion
As with the other orders issued today, the Court reiterates its
broad authority to protect Receivership Property. See SEC v.
Safety Fin. Serv., Inc., 674 F.2d 368, 373 (5th Cir. 1982) (“wide
discretionary powers [are accorded] to a court of equity
charged with overseeing a receivership.”). Having found that
the Receiver has met her burden, it is ordered that Respond-
ents are in civil contempt. Further proceedings are necessary
to determine an appropriate remedy. Ideally, the parties will
be put back in the same position as they were prior to the set-
tlement, without the need for the Court to impose fees or
fines.
SO ORDERED, this the 13th day of March, 2019.
s/ CARLTON W. REEVES
United States District Judge
9
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v.
Defendants.
Alysson Mills, in her capacity as the court-appointed receiver (the “Receiver”) for Arthur
Lamar Adams (“Adams”) and Madison Timber Properties, LLC (“Madison Timber”), through
undersigned counsel, respectfully files this Motion for Contempt, and states as follows:
1.
This Court’s order dated June 22, 2018, instructed the Receiver “to determine the nature,
location, and value of all property interests” of the Receivership Estate “including but not limited
to … claims, rights, and other assets.” Doc. 33 at p. 6. These property interests are “Receivership
Property.” Id.
2.
The Court’s order separately “restrain[s] and enjoin[s]” any person receiving notice of the
order “from directly or indirectly taking any action or causing any action to be taken, without the
express written agreement of the Receiver” which would “dissipate or otherwise diminish the value
of any Receivership Property.” Doc. 33 at p. 11. “[S]uch prohibited actions include but are not
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3.
Finally, the Court’s order separately expressly stays “all civil legal proceedings of any
4.
Among the many “claims, rights, and other assets” of the Receivership Estate that the
Receiver has identified are claims against notaries who notarized the fake deeds and promissory
notes that Madison Timber recruiters gave to their investors. These claims are Receivership
Property and belong to the Receivership Estate. At a minimum, any actions involving the notaries
in question and their employers “involve” Receivership Property and the Receivership Estate.
5.
Nevertheless, on October 30, 2018, Alexander Seawright Timber Fund, LLC, acting under
the direction of Jon Seawright and Brent Alexander, purported to “release, acquit and forever
discharge” three notaries, the UPS store that employed them, the UPS store’s owners, and the UPS
store’s insurer from “any and all actions … in any way of [sic] growing out of … [specified] signed
6.
Understandably, many investors would like to independently pursue claims against third
parties such as notaries, law firms, and banks—but they have respected this Court’s stay, mindful
that the Receivership Estate must be permitted to do its work first. The Court’s stay is intended to
preserve assets that otherwise could be picked apart, to maximize funds available for equitable
2
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distribution to victims—but it is also intended to ensure that interested parties (here Jon Seawright
and Brent Alexander) cannot compromise valuable claims without the Receiver’s input.
7.
It is bold of Jon Seawright and Brent Alexander, themselves facing potential liability for
their roles in the Madison Timber Ponzi scheme, to purport to release for the sum of $100,000
valuable claims against a UPS store whose employees notarized the fake deeds and promissory
notes that Jon Seawright and Brent Alexander turned around and gave to their own investors.
8.
The Receiver wishes to advise the Court that Alexander Seawright Timber Fund, LLC, Jon
Seawright, and Brent Alexander violated the Court’s order by purporting to release claims that
unquestionably “involve” Receivership Property and the Receivership Estate. The Receiver
submits that the injury to the Receivership Estate can be cured by entry of an order that:
• commands Alexander Seawright Timber Fund, LLC, Jon Seawright, and Brent Alexander
to turnover to the Receivership Estate any money they received in exchange for their
purported release;
• commands Kim Breese to turnover to the Receivership Estate any money he retained for
his negotiation of the purported release;
• declares the release non-binding on the Receiver and the Receivership Estate; and
• commands Alexander Seawright Timber Fund, LLC, Jon Seawright, and Brent Alexander
to pay the Receivership Estate’s attorneys fees and costs in litigating this matter.
The Receiver takes no position on what other sanction would be appropriate to remedy their
disregard of the Court’s order.
WHEREFORE, the Receiver respectfully asks that the Court take such action as it deems
appropriate, including if necessary by holding a hearing at which Alexander Seawright Timber
Fund, LLC, Jon Seawright, and Brent Alexander might show cause why the relief requested should
not be granted.
3
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4
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CERTIFICATE OF SERVICE
I certify that I electronically filed the foregoing with the Clerk of Court using the ECF
Jon D. Seawright
Brent Alexander
Alexander Seawright LLC
One Eastover Center
100 Vision Drive, Suite 400
Jackson, Mississippi 39211
Jon D. Seawright
Brent Alexander
Baker Donelson
One Eastover Center
100 Vision Drive, Suite 400
Jackson, Mississippi 39211
jseawright@bakerdonelson.com
balexander@bakerdonelson.com
R. David Kaufman
The Brunini Firm
190 East Capitol Street
The Pinnacle Building, Suite 100
Jackson, Mississippi 39201
dkaufman@brunini.com
5
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Defendants.
Before the Court is the Motion for Approval of Settlement filed by Alysson Mills, in her
capacity as the court-appointed receiver (the “Receiver”) for Arthur Lamar Adams and Madison
The motion asks the Court to approve the Receiver’s Marital Property Settlement
Agreement with the Vickie Lynn Adams (“Mrs. Adams”). After consideration, the Court finds
that settlement with Mrs. Adams on the proposed terms without litigation is in the Receivership
Estate’s best interests. The Court thus GRANTS the Receiver’s motion.
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BACKGROUND
The Receiver has a duty “to take custody, control, and possession of all Receivership
Property, Receivership Records, and any assets traceable to assets owned by the Receivership
Estate” 1 Mrs. Adams has been married to Lamar Adams since August 3, 1978, and is the one-half
owner of certain Receivership Property acquired by Mr. and Mrs. Adams which constitutes marital
assets under the laws of the State of Mississippi. Mrs. Adams wishes to obtain a divorce from
Lamar Adams, and the Receiver wishes to allocate the subject marital assets in advance. The
Receiver and Mrs. Adams have agreed to allocate those marital assets as set forth in the Marital
1. Except as specifically set forth in the Agreement, the Receiver shall retain all property of
any type or description acquired by Mr. and Mrs. Adams from the date of their marriage
through the date the Agreement is executed, save assets separately acquired by Mr. Adams
or Mrs. Adams from other sources;
2. The Adams family home located at 134 St. Andrews Drive, Jackson, Mississippi 39211
(the “Jackson Property”) shall be sold, with the first $200,000 of net proceeds allocated
50% to the Receiver and 50% to Mrs. Adams, the next $20,000 of net proceeds allocated
100% to the Receiver, and any net proceeds in excess of $220,000 allocated 90% to the
Receiver and 10% to Mrs. Adams;
3. The Adams home at 2150 Anderson Road, Condo #504, Oxford, Mississippi 38655 (the
“Oxford Property”) shall be sold, with the first $145,000 of net proceeds allocated 90% to
the Receiver and 10% to Mrs. Adams, and any net proceeds in excess of $145,000 allocated
50% to the Receiver and 50% to Mrs. Adams;
4. The 2018 Lexus LX 570 titled in the name of Mrs. Adams shall be sold, with 65% of the
proceeds allocated to the Receiver and 35% of the sales proceeds allocated to Mrs. Adams;
5. The Hartford Life and Annuity Insurance Company Policy, No. IU3153772 shall be
liquidated, with 25% of the proceeds allocated to the Receiver and 75% of the proceeds
allocated to Mrs. Adams;
1
Docket No. 33, Securities & Exchange Commission vs. Adams, et al., No. 3:18-cv-00252 (S.D. Miss).
2
No objections to the Receiver’s motion have been filed by any party.
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6. Certain pieces of jewelry shall be separately allocated between the Receiver and Mrs.
Adams;
7. Furniture, fixtures, and equipment (“FFE”) located at the Jackson Property and the Oxford
Property shall be separately allocated between the Receiver and Mrs. Adams; and
8. Mrs. Adams will retain ownership of certain checking accounts at Community Bank, but
disclaims and releases to the Receiver any ownership or other interest she may have in any
other checking, savings, money market, or other banking or brokerage accounts now or
formerly maintained in the names of Mr. Adams, Madison Timber or the names of any
other limited liability company, partnership, corporation, or other entity in which the
Receivership Estate has an interest.
In the proposed Marital Property Settlement Agreement, Mrs. Adams represents and
warrants that:
1. She has disclosed to the Receiver all marital assets except the specific FFE at the Jackson
and Oxford Properties, assets with an individual value of less than $250 or a collective
value of less than $5000, or assets seized by the F.B.I. or the United States Attorney’s
Office for the Southern District of Mississippi;
2. She has disclosed to the Receiver all jewelry in which she has an interest regardless of
whether that jewelry is in her possession;
3. She is not aware of any marital asserts in possession of any other person or entity except
as has been disclosed in writing to the Receiver;
4. She has not transferred any marital assets during the past 24 months except as described in
writing to the Receiver;
5. She has provided to the Receiver all appraisals of marital assets known to her;
6. She has surrendered or terminated all credit cards and other credit accounts for which the
Receiver may be liable; and
7. She will cooperate with the Receiver to effectuate the agreements and other transactions
set forth in the Agreement.
Mrs. Adams further specifically warrants and represents that prior to Lamar Adams’
meeting with representatives of the F.B.I and the United States Attorney’s Office on April 19,
2018, she had no knowledge of the fraudulent and illegal activities of Mr. Adams and Madison
Timber.
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Mrs. Adams represents and warrants that she has not discussed with any person or
representative of any entity the prospect of investing in Madison Timber; that she was not aware
the timber deeds and cutting agreements executed by various purported owners and Madison
Timber and by Madison Timber in favor of investors were fabrications; that she believed and
understood that Madison Timber and Lamar Adams were engaged in legitimate transactions
involving timber holdings; and that she had no knowledge or suspicion of that Mr. Adams or
Madison Timber were engaged in fraudulent or illegal activities or of the Ponzi scheme detailed
in the Bill of Information filed in the United States District Court for the Southern District of
Mrs. Adams’s representations and warranties were a material inducement to the Receiver’s
entering the Marital Property Settlement Agreement, and Mrs. Adams represents to the Receiver
and this Court that they may rely upon the accuracy of those representations and warranties.
The Receiver and Mrs. Adams have also requested that this Court grant Mrs. Adams
limited relief from the stay of litigation currently in effect pursuant to the June 22, 2018 Order
Appointing Receiver, Docket No. 33, for the sole purpose of permitting Mrs. Adams to file and
After consideration, the Court finds that the terms of the Marital Property Settlement
Agreement are adequate, fair, reasonable, and equitable. The Marital Property Settlement
1. The terms used in this Order Approving Settlement that are defined in the Settlement
Agreement between the Receiver and Mrs. Adams, unless expressly otherwise defined herein, shall
2. This Court has jurisdiction over the subject matter of this action, and the Receiver is
length negotiations between the Receiver and Mrs. Adams, both represented by highly capable
counsel.
4. The parties and their counsel have at all times complied with the requirements of Rule
5. The Marital Property Settlement Agreement is, in all respects, fair, reasonable, and
adequate and is hereby fully and finally approved. The parties are directed to implement and
consummate the Marital Property Settlement Agreement in accordance with its terms and with this
Agreement and no aspect of the Marital Property Settlement Agreement or negotiation thereof is
any fault, liability, or wrongdoing, or of any infirmity in the claims or defenses of any party in any
other proceeding.
7. Mrs. Adams shall deliver or cause to be delivered to the Receiver the Marital Asserts
other than those Mrs. Adams specifically retains in the Marital Property Settlement Agreement in
8. Notwithstanding the June 22, 2018 Order of this Court staying litigation involving
Receivership Property and Receivership Defendants, Mrs. Adams may initiate, in a court of
competent jurisdiction and venue, divorce proceedings against Lamar Adams. Those proceedings
shall not affect Receivership Property except as is provided in the Marital Property Settlement
Agreement, and this Order in no way contemplates lifting the stay of litigation for any purpose
9. Without in any way affecting the finality of this Order Approving Settlement, the
Court retains continuing and exclusive jurisdiction over the parties for the purposes of, among
other things, the administration, interpretation, consummation, and enforcement of the Marital
Trust (the “Jeanne Trust”), and Pamela Lehan-Siegel (“Pamela”), on behalf of the
beneficiaries of the Pamela Lehan-Siegel Trust (the “Pamela Trust”) (sometimes collectively
referred to as the “Lehan Parties”), file this their Memorandum in Support of the Motion
(“Motion for Declaration”). In support of the same, the Lehan Parties would show the
Court as follows:
I. INTRODUCTION
of a lawsuit, not at the end of one. The question presented here is does the Receiver
appointed in this case have constitutional standing to intervene and assert claims in a
Mississippi state court case or institute her own case and assert claims therein that are
neither claims of the Receivership Defendants nor implicate the Receivership Estate?
Simply put, the answer is no. The Receiver does not have standing to pursue those claims.
The claims asserted by the Lehan Parties against Pinnacle Trust Company LLC
(“Pinnacle Trust”) in the case styled Jeanne Lehan, on behalf of the beneficiaries of the
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Jeanne M. Lehan Trust, and Pamela Lehan-Siegel, on behalf of the beneficiaries of the
Pamela Lehan-Siegel Trust v. Pinnacle Trust Company LLC and John Does 1-10, Cause
No. 2018-603B, in the Chancery Court of Madison County, Mississippi (the “Lehan Case”)
are, with the possibility of one exception, such claims that the Receiver lacks standing to
pursue.
In the Lehan Case, the Lehan Parties, as beneficiaries of the Jeanne Trust and the
Pamela Trust, asserted that Pinnacle Trust committed breaches of trust, fiduciary duties,
and loyalty, and acted with negligence/gross negligence. The claims stem from Pinnacle
Trust’s actions and/or inactions as Trustee of the Jeanne Trust and the Pamela Trust
that is solely owned by the Jeanne Trust and the Pamela Trust and managed by Pinnacle
Trust as the Trustee of such trusts. Pinnacle Trust directed, controlled, managed, and
oversaw the formation of Foxglove and the preparation of its LLC Agreement. The LLC
Agreement for Foxglove provides that its managers shall not make loans or advances to
anyone. Pinnacle Trust also directed, controlled, managed, and oversaw the impermissible
loans made by Foxglove to Madison Timber, which were part of a ponzi scheme perpetrated
by Lamar Adams (“Adams”) and others. The funds loaned by Foxglove to Madison Timber
were a majority of the assets owned by the Jeanne Trust and the Pamela Trust, and the loss
of such funds has resulted in damages to the Lehan Parties due to Pinnacle Trust's actions
In the Lehan Case, the Lehan Parties did not assert any claims against Adams,
Madison Timber, or any of their officers, directors, managers, agents, or partners. As such,
2
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their claims are not on behalf of or against any of the Receivership Defendants and do not
involve any Receivership Property. Rather, the Lehan Parties’ claims are predicated solely
on the actions and/or inactions taken by Pinnacle Trust as Trustee of the Jeanne Trust and
the Pamela Trust. Despite the nature of the Lehan Parties’ claims (i.e. Trust related claims)
and the parties involved (i.e. the beneficiaries and Trustee of such Trust), the Receiver
issued a letter to counsel in the Lehan Case stating that, in her opinion, she believed the
Lehan Case should be stayed. The Lehan Case, however, should not be stayed.
The 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 the constitutional standing to do so. Neither
the Receivership Defendants nor the Receivership Estate have suffered any injury caused
by Pinnacle Trust’s actions and/or inactions as Trustee of the Jeanne Trust and the Pamela
Trust that could be redressed by a Court of competent jurisdiction. The Lehan Parties’
claims against Pinnacle Trust are causes of action unique to them as beneficiaries of the
Jeanne Trust and the Pamela Trust, and such claims do not involve the Receivership
Defendants or any Receivership Property, which might confer standing on the Receiver to
stay or pursue those claims. In addition, neither the Order Appointing Receiver nor
applicable state or federal law gives standing to the Receiver so that she can stay or pursue
For these reasons, which are discussed in more detail below, this Court should find
that the Receiver lacks standing to stay or pursue any of the Lehan Parties’ claims against
Pinnacle Trust asserted in the Lehan Case, and the Lehan Case should not be stayed.
3
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On June 22, 2018, this Court entered the Order Appointing Receiver [ECF #33],1 and
appointed Alysson Mills as the Receiver. In the Order Appointing Receiver, this Court set
out the powers and duties of the Receiver. Such powers and duties included the Receiver’s
power to “assume and control the operation of the Receivership Defendants and shall
pursue and preserve all of their claims.” See Order Appointing Receiver, pg. 5. The Order
Appointing Receiver also stayed litigation in Ancillary Proceedings, which included claims
involving the Receiver in her capacity as Receiver, any Receivership Property, any of the
past or present officers, directors, managers, agents, or partners. Id. at pg. 13. The stay of
litigation did not extend to any claims that are not considered Ancillary Proceedings as
On June 28, 2018, the Lehan Parties filed their Complaint [MEC #3] against
Pinnacle Trust in the Lehan Case. See Ex. A.2 Their claims stem from Pinnacle Trust’s
actions and/or inactions as Trustee of the Jeanne Trust and the Pamela Trust including
Jeanne Trust and the Pamela Trust. Pinnacle Trust directed, controlled, managed, and
oversaw the formation of Foxglove and the preparation of its LLC Agreement, which
prohibits its managers from making loans to anyone, and the impermissible loans made by
1
Throughout this Memorandum, the citations to the docket entries from this case will be
cited as [ECF #X] and the citations to docket entries in the Lehan Case will be designated as [MEC
#Y] in order to distinguish the filings in the separate cases.
2
Unless otherwise noted, the Exhibits referred to herein are attached to the Lehan Parties’
Motion for Declaration.
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Foxglove to Madison Timber, which were part of a ponzi scheme perpetrated by Lamar
Adams ("Adams") and others. The funds loaned by Foxglove to Madison Timber were a
majority of the assets owned by the Jeanne Trust and the Pamela Trust, and the loss of such
funds has resulted in damages to the Lehan Parties due to Pinnacle Trust's actions and/or
On August 12, 2018, Pinnacle Trust filed its Motion to Dismiss or Stay Proceedings
and Compel Arbitration (“Motion to Compel Arbitration”) [MEC #10] and its Memorandum
in Support [MEC #11]. Pinnacle Trust requested that the Chancery Court compel all of the
Lehan Parties' claims to arbitration and dismiss or stay the proceedings based on an
limited liability company. On August 31, 2018, the Lehan Parties filed their Response in
Opposition to the Motion to Compel Arbitration (the “Response to the Motion to Compel
Arbitration”) [MEC #16] and Memorandum in Support [MEC #17] and asserted that the
disclosure agreement was inapplicable to the Lehan Parties’ claims. The Motion to Compel
Arbitration is currently pending before the Chancery Court and was previously set for a
hearing on December 4, 2018. The hearing, however, was postponed for the reasons set
forth below and it has not been reset as of the filing of the Motion for Declaration.
On November 30, 2018, the Receiver issued a letter to all counsel in the Lehan Case
and stated that she was in the process of evaluating the claims of the Receivership Estate,
that she had not ruled out any claims against Pinnacle Trust, and that the Lehan Case, in
her opinion, should be stayed. See Ex. B. On December 3, 2018, Pinnacle Trust filed a
Motion to Stay [MEC #27] arguing that the Lehan Case should be stayed based on the
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On December 13, 2018, the Lehan Parties filed their Request for Additional Time to
Respond and Partial Response to the Motion to Stay All Proceedings [MEC #28] asking the
Chancery Court to delay any ruling on the Motion to Stay until discussions between counsel
for the Lehan Parties and the Receiver, which were ongoing at the time, had concluded. See
Ex. D. The Lehan Parties, however, did not concede that the Lehan Case should be stayed
In order to fully respond to the Motion to Stay and to pursue their claims in the
Lehan Case, the Lehan Parties file this Motion for Declaration and request that this Court
determine whether the Receiver has standing to stay or pursue any of the claims asserted
by the Lehan Parties in the Lehan Case, and, if the Lehan Case must be stayed by the
litigation stay included in the Order Appointing Receiver [ECF #33], the Lehan Parties
request permission from this Court to proceed with the Lehan Case.
As a threshold question, the Court must determine whether the Constitution confers
standing on a party to pursue certain claims. “In its constitutional dimension, standing
imports justiciability: whether the plaintiff has made out a ‘case or controversy’ between
himself and the defendant[.]” Florida Dept. of Ins. v. Chase Bank of Texas Nat. Ass’n, 274
F.3d 924, 929 (5th Cir. 2001) (quoting Warth v. Seldin, 422 U.S. 490, 498-99 (1975)). “As
an aspect of justiciability, the standing question is whether the plaintiff has ‘alleged such
a personal stake in the outcome of the controversy’ as to warrant his invocation of federal-
court jurisdiction and to justify exercise of the court’s remedial powers on his behalf.” Id.
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which is (a) concrete and particularized, and (b) actual or imminent”; (2) that
there is “a causal connection between the injury and the conduct complained
of”; and (3) that the injury is likely to be redressed by a favorable decision.
Id. (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)).
“If the plaintiff is not the party who sustained the concrete and particularized injury
for which a remedy is sought, and is not the assignee or designated representative of the
injured party, then it does not have standing.” Id. In the context of receivers, “[a]n equity
receiver, like a bankruptcy trustee, has standing for all claims that would belong to the
entity in receivership, and which would thus benefit its creditors and investors, but no
standing to represent the creditors and investors in their individual claims.” Miller v.
Harding, 248 F.3d 1127, *2 (1st Cir. 2000) (unpublished disposition) (citing Scholes v.
The United States Supreme Court, as well as the Fifth Circuit, has made clear that
if a party does not suffer an injury, it does not have standing to pursue causes of action
based on an injury. While Courts and statutory law have imbued receivers, like the Receiver
in this case, with expanded powers over claims involving receivership defendants and
which the receiver lacks constitutional standing. This precedent is expansive and is
applicable to this case. In applying this precedent, the outcome is clear: the Receiver simply
lacks standing to stay or pursue the Lehan Parties’ claims in the Lehan Case. The Receiver
has suffered no injury due to the actions and/or inactions of Pinnacle Trust as Trustee of
the Jeanne Trust and the Pamela Trust as alleged by the Lehan Parties in the Lehan Case.
This lack of standing precludes the application of the stay of litigation to the Lehan Case as
it is not an Ancillary Proceeding within the meaning of the Order Appointing Receiver and
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precludes the Receiver from asserting such claims. Therefore, this Court should determine
that the Receiver cannot pursue the trust related claims belonging to the Lehan Parties and
As an initial point, the Lehan Parties concede that the Receiver may have standing
to pursue claims that arise from or relate to one of the factual allegations asserted by the
Lehan Parties in their Complaint. The Lehan Parties, however, do not concede that the
Receiver has standing to pursue any of the causes of action asserted by the Lehan Parties
in the Lehan Case. The Lehan Parties made allegations in their Complaint concerning
recruitment fees and/or kickbacks received by Pinnacle Trust or its owners, directors,
officers, managers, employees, and/or agents tied to the loans it made to Madison Timber
as Trustee of the Jeanne Trust and the Pamela Trust. See Ex. A generally. The Lehan
Parties asserted that Pinnacle Trust failed to inform them of such recruitment fees and/or
kickbacks in violation of the Trust Agreement. Id. at pg. 7. This assertion is made in the
Lehan Parties’ cause of action for breach of trust, but is not the only factual allegation relied
on by the Lehan Parties to support that claim. Id. at pg. 10. In the request for damages, the
Lehan Parties requested that the Court order Pinnacle Trust to reimburse or be disgorged
of any recruitment fees and/or kickbacks it received in connection with the loans
and/or involve Receivership Property, those are the only potential claims involved in the
Lehan Case that the Receiver may have standing to pursue. The remaining causes of action
and damages stem from Pinnacle Trust’s actions and/or inactions as Trustee of the Jeanne
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Trust and the Pamela Trust, which, for the reasons detailed below, do not implicate the
Receivership Defendants and/or the Receivership Estate such that the Receiver lacks
standing to pursue those claims. Though, as stated above, the Lehan Parties made factual
allegations and requests for damages in their Complaint based on recruitment fees and/or
kickbacks, none of the Lehan Parties’ causes of action or claims for damages are solely
based on injuries stemming from recruitment fees and/or kickbacks. Therefore, if this
Court does find that the Receiver has standing to pursue any claims and/or damages based
on recruitment fees and/or kickbacks received by Pinnacle Trust, if any, from the
Receivership Defendants, this Court should also find that the Lehan Parties should be
allowed to continue to pursue their other claims and attempt to recover their other damages
at issue in the Lehan Case as the Receiver lacks standing to pursue those separate and
distinct claims.
standing is whether that party has suffered an injury, or, more particularly, whether a party
has suffered an injury in fact that is “(a) concrete and particularized, and (b) actual or
imminent[.]” Florida Dept. of Ins., 274 F.3d at 929 (quoting Lujan, 504 U.S. at 560-61).
To have standing, therefore, the Receiver must prove that Pinnacle Trust caused an injury
to the Receivership Defendants and/or the Receivership Estate similar to that of the Lehan
In their Complaint, the Lehan Parties alleged that Pinnacle Trust, as Trustee, caused
the Lehan Parties to suffer damages by taking actions and/or inactions concerning the
loaning of funds from the Jeanne Trust and the Pamela Trust, through Foxglove, to
Madison Timber. Pinnacle Trust, in violation of the terms of the Trust Agreement creating
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the Jeanne Trust and the Pamela Trust and in violation of the LLC Agreement for Foxglove,
which was agreed to and executed by Pinnacle Trust as Trustee of the Jeanne Trust and the
Pamela Trust, made impermissible loans to Madison Timber that were unsecured and for
consideration that was less than the amount loaned. See Ex. A generally. Further, Pinnacle
Trust, in its role as Trustee, did not do sufficient, if any, due diligence concerning the loans
made to Madison Timber that it directed, controlled, managed, and oversaw as Trustee.
Id. On May 1, 2018, Pinnacle Trust sent an email to all Pinnacle Trust clients, which stated
that Pinnacle Trust deemed Madison Timber to be unsuitable for investment in 2011, and
since that time, Pinnacle Trust had not managed or directed any loans or investments in
Madison Timber or its affiliates. See Ex. D attached to the Complaint in Ex. A. This
statement contradicts the fact that subsequent to 2011, Pinnacle Trust directed and/or
controlled the lending of trust funds from the Jeanne Trust and the Pamela Trust to
Madison Timber. See Ex. A at pg. 8. As a result of these actions and/or inactions by
Pinnacle Trust, the Lehan Parties suffered the damages described in their Complaint.
The actions and/or inactions by Pinnacle Trust described above caused a concrete
and actual injury to the Lehan Parties. Further, there is “a causal connection between the
injury and the conduct complained of” as Pinnacle Trust’s actions and/or inactions caused
funds in the Jeanne Trust and the Pamela Trust to be lost. Florida Dept. of Ins., 274 F.3d
at 929 (quoting Lujan, 504 U.S. at 560-61). Also, the injury is “likely to be redressed by a
favorable decision” against Pinnacle Trust in that Pinnacle Trust, as Trustee, clearly
violated the terms of the Trust Agreement and the LLC Agreement, and clearly failed to
meet the standard of care of a Trustee in compliance with applicable Mississippi law. Id.
Therefore, the Lehan Parties have standing to pursue the claims in the Lehan Case.
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In comparison, under the framework set forth in Lujan, the Receiver lacks standing
recruitment fees and/or kickbacks, concern the Receivership Defendants and/or the
Receivership Estate. As previously stated, “[a]n equity receiver, like a bankruptcy trustee,
has standing for all claims that would belong to the entity in receivership, and which would
thus benefit its creditors and investors, but no standing to represent the creditors and
investors in their individual claims.” Miller, 248 F.3d at *2 (citing Scholes, 56 F.3d at 753).
None of the Lehan Parties’ claims, however, belong to the Receivership Defendants or
would benefit all of the creditors and investors through the Receivership Estate. Therefore,
First, none of the claims by the Lehan Parties belong to the Receivership Defendants.
Pinnacle Trust was not acting as Trustee for the Receivership Defendants or the
Receivership Estate, Pinnacle Trust does not owe any fiduciary duty or duty of loyalty to
Receivership Defendants or the Receivership Estate, and Pinnacle Trust did not breach any
duty or standard of care owed to the Receivership Defendants of the Receivership Estate
by loaning funds from the Jeanne Trust or the Pamela Trust to Madison Timber. Also, none
of the Lehan Parties have assigned their claims to the Receiver or the Receivership
Ins., 274 F.3d at 929 (quoting Lujan, 504 U.S. at 560-61). As such, the Receiver lacks
standing because the Receivership Defendants do not have causes of action that are the
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Further, none of the Lehan Parties’ claims involve the Receivership Estate. As stated
above, the Lehan Parties admit that the Receiver may have certain limited claims against
Pinnacle Trust, however, none of those claims, other than the previously conceded
allegations concerning recruitment fees and/or kickbacks, are present in the Lehan Case.
All of the damages sought by the Lehan Parties are from Pinnacle Trust and/or its liability
insurance carrier, and are not from any of the Receivership Defendants or the Receivership
Estate. Based on the above, the Receiver lacks constitutional standing as dictated under
Lujan to maintain the claims by the Lehan Parties against Pinnacle Trust in its capacity as
Since the Receiver lacks standing to pursue the Lehan Parties’ claims and damages,
the Lehan Case should not be stayed and the Lehan Parties should be able to pursue their
claims against Pinnacle Trust. In her November 30, 2018 letter, the Receiver stated that
in her opinion the Lehan Case, in its entirety, should be stayed. See Ex. B. The Lehan Case,
however, should not be stayed as the Order Appointing Receiver does not require the same.
The Order Appointing Receiver dictates the categories of cases that qualify as Ancillary
Proceedings, in which the Receiver could pursue claims and the stay of litigation would
apply. None of those categories would include the Lehan Parties’ claims in the Lehan Case.
The Order Appointing Receiver states that the stay of litigation applies to cases involving:
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See Order Appointing Receiver, pgs. 12-13. As none of the claims or parties in the Lehan
Case, other than what has been previously conceded, fall into the categories listed above,
the Lehan Case should not be stayed and the Lehan Parties should be able to continue their
It is anticipated that the Receiver may argue that whether litigation should be stayed
is not a question of the Receiver’s standing, but rather a question of the administration and
equity of this Court and its litigation stay in the Order Appointing Receiver.3 The Receiver
has previously argued that the Court’s authority to stay litigation extends to all claims
concerning claims by or against the Receiver and claims that could “diminish the value of
the Receivership Estate's claims[,]” and does not involve the question of the Receiver’s
standing. See Reply Memorandum, pg. 2. This argument by the Receiver, however, is
without merit.
The Receiver’s standing is directly related to the stay of litigation. If standing were
not an issue, then the Court’s stay of litigation could in theory apply to any claim in any
court concerning any issue and any party regardless of its connection to the Receivership
Defendants and the Receivership Estate. That simply cannot be the case. The purpose of
3
The issue of the Receiver’s standing and this Courts authority to stay certain claims has
previously been argued before this Court in the Motion for Contempt [ECF #56] filed by the
Receiver against Brent Alexander (“Alexander”) and Jon Seawright (“Seawright”), Alexander and
Seawright’s Response to the Motion for Contempt [ECF #62] (“Response to Motion for Contempt”),
and the Receiver’s Reply Memorandum in Further Support of Motion for Contempt [ECF #66]
(“Reply Memorandum”). A hearing on the above Motion for Contempt proceedings was held on
December 19, 2018. At the time of the filing of the Motion for Declaration, this Court has not ruled
on the Motion for Contempt.
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the stay is to either preserve and/or pursue claims belonging to or made against the
Receivership Defendants, and/or to preserve the Receivership Estate for the benefit of all
victims. If the Receiver lacks standing, the underlying purpose of the stay cannot be
fulfilled as standing is an absolute requirement for a party, in this case the Receiver, to
pursue or defend against claims. This standing requirement would apply whether the
claims involved the Receivership Defendants or the Receivership Estate. If the Receiver
cannot prove standing, the stay has no effect as the Receiver could not assert or defend any
claims or recover or preserve any property in the Receivership Estate. As such, the stay
cannot extend to claims in which the Receiver lacks standing, and would not extend to the
The Receiver may argue that any payment to the Lehan Parties in connection with
the Lehan Case could affect the overall amount available to victims of wrongdoing by
Pinnacle Trust in connection with the actions of the Receivership Defendants. In her Reply
Memorandum in the Alexander Seawright matter, the Receiver argued that the collection
of money from UPS would deplete the funds available for other victims who may also have
claims against UPS. Alexander and Seawright sued the UPS Store in Madison, Mississippi,
the store owners, and three notaries employed there based on their involvement in
notarized fake timber deeds used as part of Adams’ ponzi scheme. Alexander and
Seawright negotiated a settlement with UPS’s insurance carrier for $100,000 to be paid to
Alexander and Seawright’s clients, all of whom were victims of Adams’ ponzi scheme.
Under the Receiver’s argument, if Alexander and Seawright’s clients received the $100,000
settlement, which would result in fewer, if any, funds available for other victims from UPS’s
insurance carrier after the payout. The Lehan Case, however, is clearly distinguishable.
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First, unlike the UPS scenario in which there could be additional victims who have
claims against UPS stemming from the notarized fake timber deeds, which Alexander and
Seawright admitted could have been used to defraud others in addition to their clients, the
Lehan Parties are the only parties who have claims against Pinnacle Trust stemming from
Pinnacle Trust's action and/or inactions as Trustee of the Jeanne Trust and the Pamela
Trust regarding impermissible loans made by such trusts to Madison Timber. Second, even
if the Receiver had claims against Pinnacle Trust, those claims would be based on the
recruitment fees and/or kickbacks received by Pinnacle Trust, if any, and not based on acts
by Pinnacle Trust as Trustee of the Jeanne Trust and the Pamela Trust. Based upon
information available to the Lehan Parties to date, it does not appear that Pinnacle Trust
received any recruitment fees and/or kickbacks, which, if correct, would mean that the
Receiver would not have any claims to assert against Pinnacle Trust. Regardless, the Lehan
Parties would be the only parties who could collect from Pinnacle Trust based on the Lehan
Parties’ separate and distinct claims as the Lehan Parties know of no other person who has
claim relating to Pinnacle Trust in its position as a Trustee of a trust. Therefore, even under
the Receiver’s anticipated argument, the litigation stay would not apply to the Lehan
In addition, the Lehan Parties claims against Pinnacle Trust are covered, or at least
malfeasance in its duties as a Trustee. The Lehan Parties do not know of any liability
insurance polices insuring Pinnacle Trust that would provide coverage for any claim that
could be asserted by the Receiver against Pinnacle Trust. Certainly, any claim by the
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Receiver against Pinnacle Trust for receipt of recruitment fees and/or kickbacks would not
IV. CONCLUSION
Based on the above, the Receiver lacks constitutional standing to pursue the claims
asserted by the Lehan Parties in the Lehan Case. Though the Lehan Parties concede that
the Receiver may have claims that arise from or relate to the allegations in their Complaint
concerning recruitment fees and/or kickbacks received by Pinnacle Trust, if any, or its
officers, directors, managers, employees, representatives, and/or agents, none of the Lehan
Parties’ causes of action or requests for damages solely rely on those allegations and can be
severed or removed from their Complaint and not pursued by the Lehan Parties. Aside
from the potential claims concerning recruitment fees and/or kickbacks, the Receiver lacks
standing to pursue any of the Lehan Parties other claims as none of those claims belong to
cannot pursue any of those claims. Further, the stay of litigation in the Order Appointing
Receiver does not apply to the Lehan Parties’ claims as standing is a threshold requirement
and the Court’s powers of administration and equity cannot supercede this requirement.
Therefore, the Lehan Parties request that this Court enter an Order declaring that the
Receiver does not have standing to pursue the claims asserted by the Lehan Parties in the
Lehan Case, and that the stay of litigation does not apply to the Lehan Case and the Lehan
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OF COUNSEL:
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CERTIFICATE OF SERVICE
I, G. Todd Burwell, one of the attorneys for the Lehan Parties, do hereby certify that
on this the14th day of January, 2019, I electronically filed the foregoing with the Clerk of
Court using the CM/ECF system. I certify that I have this day forwarded via the ECF
system, a true and correct copy of the foregoing to all counsel of record who have registered
with that system in this case. In addition, a true and correct copy of the foregoing has been
Luke Dove
Dove and Chill
1020 Highland Col Pkwy Ste 412
Ridgeland, MS 39157-8719
lukedove@dovechill.com
Attorney for Pinnacle Trust Company, LLC
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Trust (the “Jeanne Trust”), and Pamela Lehan-Siegel (“Pamela”), on behalf of the
beneficiaries of the Pamela Lehan-Siegel Trust (the “Pamela Trust”) (sometimes collectively
referred to as the “Lehan Parties”), file this their Motion for Declaration of Rights regarding
Authority of Receiver to Pursue Certain Claims (the “Motion for Declaration”). In support
of the same, the Lehan Parties would show the Court as follows:
1. On June 22, 2018, this Court entered the Order Appointing Receiver [ECF
#33], and appointed Alysson Mills as the Receiver. On June 28, 2018, the Lehan Parties
filed their Complaint [MEC #3]1 in the case styled 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 v. Pinnacle Trust Company LLC and John
Does 1-10, Cause No. 2018-603B, in the Chancery Court of Madison County, Mississippi
1
Throughout this Motion, the citations to the docket entries from this case will be
cited as [ECF #X] and the citations to docket entries in the Lehan Case will be designated
as [MEC #Y] in order to distinguish the filings in the separate cases.
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2. In the Lehan Case, the Lehan Parties, as beneficiaries of the Jeanne Trust and
the Pamela Trust, asserted that Pinnacle Trust Company LLC (“Pinnacle Trust”) committed
breaches of trust, fiduciary duties, and loyalty, and acted with negligence/gross negligence.
The claims stem from Pinnacle Trust’s actions and/or inactions as Trustee of the Jeanne
Trust and the Pamela Trust including impermissible loans made to Madison Timber
Mississippi limited liability company that is solely owned by the Jeanne Trust and the
Pamela Trust and managed by Pinnacle Trust as the Trustee of such trusts. Pinnacle Trust
directed, controlled, managed, and oversaw the formation of Foxglove and the preparation
of its LLC Agreement. The LLC Agreement for Foxglove provides that its manager shall not
make any loans or advances to anyone. Pinnacle Trust also directed, controlled, managed,
and oversaw the impermissible loans made by Foxglove to Madison Timber, which were
part of a ponzi scheme perpetrated by Lamar Adams (“Adams”) and others. The funds
loaned by Foxglove to Madison Timber were a majority of the assets owned by the Jeanne
Trust and the Pamela Trust, and the loss of such funds has resulted in damages to the
Lehan Parties due to Pinnacle Trust’s actions and/or inactions as Trustee of such trusts.
In the Lehan Case, the Lehan Parties did not assert any claims against Adams, Madison
3. On August 12, 2018, Pinnacle Trust filed its Motion to Dismiss or Stay
Proceedings and Compel Arbitration (“Motion to Compel Arbitration”) [MEC #10] and its
Memorandum in Support [MEC #11] in the Lehan Case. Pinnacle Trust requested that the
Chancery Court compel all of the Lehan Parties’ claims to arbitration and dismiss or stay
2
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Pamela on behalf of an unrelated limited liability company. On August 31, 2018, the Lehan
Parties filed their Response in Opposition to the Motion to Compel Arbitration (the
“Response to the Motion to Compel Arbitration”) [MEC #16] and Memorandum in Support
[MEC #17] and asserted that the disclosure agreement was inapplicable to the Lehan
Parties’ claims. The Motion to Compel Arbitration is currently pending before the Chancery
Court and was previously set for a hearing on December 4, 2018. The hearing, however,
was postponed for the reasons set forth below and it has not been reset.
4. On November 30, 2018, the Receiver issued a letter to all counsel in the Lehan
Case and stated that she was in the process of evaluating the claims of the Receivership
Estate, that she had not ruled out any claims against Pinnacle Trust, and that the Lehan
Case, in her opinion, should be stayed. On December 3, 2018, Pinnacle Trust filed a Motion
to Stay [MEC #27] arguing that the Lehan Case should be stayed based on the November
30, 2018 letter from the Receiver. On December 13, 2018, the Lehan Parties filed their
Request for Additional Time to Respond and Partial Response to the Motion to Stay All
Proceedings [MEC #28] asking the Chancery Court to delay any ruling on the Motion to
Stay until discussions between counsel for the Lehan Parties and the Receiver, which were
ongoing at the time, had concluded. The Lehan Parties, however, did not concede that the
5. In order to fully respond to the Motion to Stay and to pursue their claims in
the Lehan Case, the Lehan Parties file this Motion for Declaration and request that this
Court determine whether the Receiver has standing to pursue any claims in the Lehan Case,
and, if the Lehan Case must be stayed pursuant to the Order Appointing Receiver [ECF
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#33], the Lehan Parties request permission from this Court to proceed with the Lehan Case.
The Lehan Case should not be stayed because the Receiver does not have constitutional
standing to pursue any claims asserted by the Lehan Parties in the Lehan Case, other than
those concerning Pinnacle Trust’s receipt of recruitments fees and/or kickbacks, if any.
Further, neither the Order Appointing Receiver nor applicable state or federal law gives the
Receiver the authority to stay or pursue any claims in which the Receiver lacks standing,
or in which no Receivership Property is involved, which is the case here. Therefore, this
Court should find that the Receiver lacks standing to pursue the Lehan Parties’ claims
against Pinnacle Trust, the Lehan Case should not be stayed, and the Lehan Parties should
be allowed to pursue their claims against Pinnacle Trust in the Lehan Case.
6. As an initial point, the Complaint [MEC #3] in the Lehan Case asserted claims
for breaches of trust, fiduciary duty, and duty of loyalty, and for negligence/gross
negligence. As part of the factual allegations, the Lehan Parties asserted that owners,
recruitment fees and/or kickbacks for getting clients to loan money to or invest in Madison
Timber. In their request for damages, the Lehan Parties requested a disgorgement and/or
repayment of the recruitment fees and/or kickbacks. The Lehan Parties did not assert a
claim or seek damages solely based on any recruitment fees and/or kickbacks, but do
concede that the Receiver may have standing to pursue claims based on the recruitment
fees and/or kickbacks paid to Pinnacle Trust. However, based upon information available
to the Lehan Parties to date, it does not appear that Pinnacle Trust received any
recruitment fees and/or kickbacks, which, if correct, would mean that the Receiver would
not have any claims to assert against Pinnacle Trust. Even so, the Lehan Parties do not
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intend to pursue any claims or damages based on the same, and this should not prevent the
Lehan Parties from pursuing their other claims in the Lehan Case.
kickbacks, the Receiver lacks constitutional standing to assert any of the Lehan Parties’
claims on behalf of the Receivership Defendants or the Receivership Estate. Neither the
Receivership Defendants nor the Receivership Estate was injured by the actions and/or
inactions of Pinnacle Trust as the Trustee of the Jeanne Trust and the Pamela Trust or as
the manager of Foxglove, which is owned by such trusts, concerning funds loaned by
Foxglove to Madison Timber. Without an injury caused by the actions and/or inactions of
Pinnacle Trust described above that can be redressed by a Court of competent jurisdiction,
the Receiver lacks constitutional standing to stay or bring the claims asserted by the Lehan
8. The claims asserted in the Lehan Case are unique to the Lehan Parties and are
not claims that could be asserted by the Receiver on behalf of the Receivership Defendants.
The Receivership Defendants are not beneficiaries under the Trust Agreement establishing
the Jeanne Trust and the Pamela Trust, Pinnacle Trust did not act as the Trustee for the
Receivership Defendants in relation to the Jeanne Trust and the Pamela Trust, and
Pinnacle Trust did not commit any breaches of trust, fiduciary duties, or loyalty or commit
any acts of negligence/gross negligence in connection with the funds of the Jeanne Trust
and the Pamela Trust loaned to Madison Timber that could have caused any injury to the
Receivership Defendants. As such, the Receivership Defendants have not suffered any
injury that would place them in the same position as the Lehan Parties, which precludes the
Receiver from pursuing any of the claims of the Lehan Parties in the Lehan Case. If
5
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Pinnacle Trust did somehow injure the Receivership Defendants to the extent that the
Receiver would have standing to pursue claims against Pinnacle Trust, those claims would
be completely separate and distinguishable from the claims asserted by the Lehan Parties
federal law gives the Receiver the authority to stay or pursue any claims in which the
Appointing Receiver [ECF #33] permits the Receiver to pursue claims belonging to the
issued in the Order Appointing Receiver [ECF #33] applies only to Ancillary Proceedings,
which include actions by the Receiver in her capacity as Receiver, and any actions involving
10. The claims in the Lehan Case, however, do not fall into any of the categories
#33]. The claims in the Lehan Case are causes of action unique to the Lehan Parties (i.e.
beneficiaries of trusts asserting claims against the Trustee of such trusts for breach of trust
and other related claims), they do not involve any claim by or against the Receivership
Defendants (i.e. Adams, Madison Timber, or any of their officers, directors, managers,
agents, or partners), and they do not involve any Receivership Property (i.e. all property
interest of Receivership Defendants). Any recovery by the Lehan Parties in the Lehan Case
would not involve Receivership Property or the Receivership Estate as the Lehan Parties
would receive any award of damages from Pinnacle Trust and/or its liability insurer, which
6
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would not implicate any Receivership Property. Therefore, the Lehan Case is not an
Ancillary Proceeding and the Receiver lacks standing to stay or to pursue any of the claims
11. In the alternative, if this Court finds that the stay of litigation does apply to
any of their claims, then the Lehan Parties request that this Court enter an Order granting
them relief from the stay, and allowing them to proceed with their claims in the Lehan Case,
other than those claims that the Receiver may have standing to pursue against Pinnacle
Trust on behalf of the Receivership Defendants and/or the Receivership Estate, if any.
12. In support of the Motion for Declaration, the Lehan Parties attach hereto, and
Ex. “B” The November 30, 2018 Letter from the Receiver
Ex. “D” The Lehan Parties’ Response to the Motion to Stay filed in the
Lehan Case
13. In further support of the Motion for Declaration, the Lehan Parties adopt and
incorporate herein by reference, their Memorandum Brief in Support of the Motion for
Declaration of Rights.
that this Court enter an Order declaring that the Receiver lacks standing to pursue the
Lehan Parties’ claims in the Lehan Case and the stay of litigation does not apply to the
Lehan Case or, in the alternative, enter an Order declaring that the Receiver has standing
to pursue only certain claims in the Lehan Case, and allowing the Lehan Parties to proceed
with the remainder of their claims in the Lehan Case. The Lehan Parties also respectfully
7
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request any further relief they may be entitled to under the circumstances.
OF COUNSEL:
8
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CERTIFICATE OF SERVICE
I, G. Todd Burwell, one of the attorneys for the Lehan Parties, do hereby certify that
on this the 14th day of January, 2019, I electronically filed the foregoing with the Clerk of
Court using the CM/ECF system. I certify that I have this day forwarded via the ECF
system, a true and correct copy of the foregoing to all counsel of record who have registered
with that system in this case. In addition, a true and correct copy of the foregoing has been
Luke Dove
Dove and Chill
1020 Highland Col Pkwy Ste 412
Ridgeland, MS 39157-8719
lukedove@dovechill.com
Attorney for Pinnacle Trust Company, LLC
9
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This Court, having determined that certain interim relief is appropriate to preserve the
assets of the Defendants pending the selection of a Temporary Receiver, orders as follows:
A. The Defendants and all persons receiving notice of this Order by personal service,
facsimile or otherwise, are hereby restrained and enjoined from directly or indirectly taking any
action or causing any action to be taken, without the prior order from this Court, which would:
3. Interfere in any manner with the exclusive jurisdiction of this Court over
the Receivership Estate.
f. To continue to market for sale the Subject Property, provided that the
approval of the final terms of any sale of the Subject Property will be reserved
to this Court or the receiver, as appropriate.
DFLI shall maintain a list of payments and agreements necessary to effectuate the actions
listed above to be provided to this Court and the Temporary Receiver upon appointment.
The Temporary Receiver may challenge any of the actions taken pursuant to this
paragraph only on the basis of (1) not being in the ordinary course of business; (2)
pursuant to any contractual right that Arthur Lamar Adams may have under the DFLI
operating agreements; or (3) pursuant to any rights provided by Mississippi law to
minority members of limited liability companies.
B. As set forth in detail below, the following proceedings, excluding the instant
proceeding and all police or regulatory actions and actions of the Commission related to the
above-captioned enforcement action, are stayed until further Order of this Court:
All civil legal proceedings of any nature, including, but not limited to, bankruptcy
proceedings, arbitration proceedings, foreclosure actions, default proceedings, or other
actions of any nature involving: (a) any Receivership Property, wherever located; (b) any
of the Defendants, including but not limited to its subsidiaries and partnerships; or, (c)
any of the Defendants’ past or present officers, directors, managers, agents, or general or
limited partners sued for, or in connection with, any action taken by them while acting in
such capacity of any nature, whether as plaintiff, defendant, third-party plaintiff, third-
party defendant, or otherwise (such proceedings are hereinafter referred to as “Ancillary
Proceedings”).
C. The parties to any and all Ancillary Proceedings are enjoined from commencing
or continuing any such legal proceeding, or from taking any action, in connection with any such
proceeding, including, but not limited to, the issuance or employment of process.
D. All Ancillary Proceedings are stayed in their entirety, and all Courts having any
jurisdiction thereof are enjoined from taking or permitting any action until further Order of this
Court. Further, as to a cause of action accrued or accruing in favor of one or more of the
Defendants against a third person or party, any applicable statute of limitation is tolled during the
period in which this injunction against commencement of legal proceedings is in effect as to that
cause of action.
Case 3:18-cv-00252-CWR-FKB Document 29 Filed 06/06/18 Page 4 of 4
E. The provisions of Paragraphs B – D above bar any person or entity from placing
s/ Carlton W. Reeves
UNITED STATES DISTRICT JUDGE
Case 3:18-cv-00252-CWR-FKB Document 33 Filed 06/22/18 Page 1 of 15
____________________
No. 3:18-CV-00252-CWR-FKB
v.
2
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3
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4
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I
General Powers & Duties of Receiver
The Receiver shall have all powers, authorities, rights, and
privileges now possessed by the officers, managers, and in-
terest holders of and relating to the Receivership Defendants,
in addition to all powers and authority of a receiver at equity
under all applicable state and federal law in accordance the
provisions of 28 U.S.C. §§ 754, 959, and 1692, and Fed. R. Civ.
P. 66, and shall assume and control the operation of the Re-
ceivership Defendants and shall pursue and preserve all of
their claims.
No person holding or claiming any position of any sort with
the Receivership Defendants shall possess any authority to act
by or on behalf of the Receivership Defendants, with the ex-
ception that attorneys representing Defendant Adams in U.S.
v. Adams, Case No. 3:18-CR-0088-CWR-LRA (S.D. Miss) may
continue their representation.
The Receiver and her agents, acting within the scope of such
agency as Retained Personnel, are entitled to rely on all out-
standing rules of law and Orders of this Court and shall not
be liable to anyone for their own good faith compliance with
any order, rule, law, judgment, or decree. In no event shall the
Receiver or Retained Personnel be liable to anyone for their
good faith compliance with their duties and responsibilities
as Receiver or Retained Personnel, nor shall the Receiver or
Retained Personnel be liable to anyone for any actions taken
or omitted by them except upon a finding by this Court that
they acted or failed to act as a result of malfeasance, bad faith,
gross negligence, or in reckless disregard of their duties.
5
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6
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7
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8
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9
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10
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III
Injunction Against Interference with Receiver
The Receivership Defendants and all persons receiving notice
of this Order by personal service, facsimile, or otherwise, are
hereby restrained and enjoined from directly or indirectly tak-
ing any action or causing any action to be taken, without the
express written agreement of the Receiver, which would:
(1) interfere with the Receiver’s efforts to take control,
possession, or management of any Receivership Prop-
erty; such prohibited actions include but are not lim-
ited to, using self-help or executing or issuing or caus-
ing the execution or issuance of any court attachment,
subpoena, replevin, execution, or other process for the
purpose of impounding or taking possession of or in-
terfering with or creating or enforcing a lien upon any
Receivership Property;
(2) hinder, obstruct, or otherwise interfere with the Re-
ceiver in the performance of her duties; such prohib-
ited actions include but are not limited to concealing,
destroying, or altering records or information;
(3) dissipate or otherwise diminish the value of any Re-
ceivership Property; such prohibited actions include
but are not limited to releasing claims or disposing,
transferring, exchanging, assigning, or in any way con-
veying any Receivership Property, enforcing judg-
ments, assessments or claims against any Receivership
Property or any Receivership Defendant, attempting to
modify, cancel, terminate, call, extinguish, revoke, or
accelerate the due date of any lease, loan, mortgage, in-
debtedness, security agreement, or other agreement
11
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12
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13
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These provisions bar any person or entity, other than the Re-
ceiver, from placing either of the Receivership Defendants in
bankruptcy proceedings.
V
Receiver Compensation
The Receiver is to be paid her reasonable compensation and
expense reimbursement from the Receivership Estate. Such
compensation and expense reimbursement shall require the
prior approval of this Court.
Within 30 days after the end of each full month while the Re-
ceivership is in effect, the Receiver shall apply to this Court
for compensation and expense reimbursement from the Re-
ceivership Estate through Monthly Fee Applications.
Monthly Fee Applications shall contain representations that:
(i) the fees and expenses included therein were incurred in the
best interests of the Receivership Estate; and (ii) with the ex-
ception of her Receivership application, the Receiver has not
entered into any agreement, written or oral, express or im-
plied, with any person or entity concerning the amount of
compensation paid or to be paid from the Receivership Estate,
or any sharing thereof.
Monthly Fee Applications will be interim and will be subject
to cost-benefit and final reviews at the close of the receiver-
ship. At the close of the receivership, the Receiver will file a
final fee application, describing in detail the costs and benefits
associated with all litigation and other actions pursued by the
Receiver during the course of the receivership.
Monthly Fee Applications may, in the Court’s discretion, be
subject to a holdback in the amount of 25% of the amount of
14
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fees and expenses for each application filed with the Court.
The total amounts held back during the course of the receiv-
ership will be paid out at the discretion of the Court as part of
the final fee application submitted at the close of the receiver-
ship.
At the close of the receivership, the Receiver shall submit a
Final Accounting, in a format to be provided by Commission
staff, as well as the Receiver’s final application for compensa-
tion and expense reimbursement.
This Order supersedes prior orders of this Court only to the
extent they conflict.
SO ORDERED, this the 22nd day of June, 2018.
s/ CARLTON W. REEVES
United States District Judge
15
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This Court, having determined that certain interim relief is appropriate to preserve the
assets of the Defendants pending the selection of a Temporary Receiver, orders as follows:
A. The Defendants and all persons receiving notice of this Order by personal service,
facsimile or otherwise, are hereby restrained and enjoined from directly or indirectly taking any
action or causing any action to be taken, without the prior order from this Court, which would:
3. Interfere in any manner with the exclusive jurisdiction of this Court over
the Receivership Estate.
f. To continue to market for sale the Subject Property, provided that the
approval of the final terms of any sale of the Subject Property will be reserved
to this Court or the receiver, as appropriate.
DFLI shall maintain a list of payments and agreements necessary to effectuate the actions
listed above to be provided to this Court and the Temporary Receiver upon appointment.
The Temporary Receiver may challenge any of the actions taken pursuant to this
paragraph only on the basis of (1) not being in the ordinary course of business; (2)
pursuant to any contractual right that Arthur Lamar Adams may have under the DFLI
operating agreements; or (3) pursuant to any rights provided by Mississippi law to
minority members of limited liability companies.
B. As set forth in detail below, the following proceedings, excluding the instant
proceeding and all police or regulatory actions and actions of the Commission related to the
above-captioned enforcement action, are stayed until further Order of this Court:
All civil legal proceedings of any nature, including, but not limited to, bankruptcy
proceedings, arbitration proceedings, foreclosure actions, default proceedings, or other
actions of any nature involving: (a) any Receivership Property, wherever located; (b) any
of the Defendants, including but not limited to its subsidiaries and partnerships; or, (c)
any of the Defendants’ past or present officers, directors, managers, agents, or general or
limited partners sued for, or in connection with, any action taken by them while acting in
such capacity of any nature, whether as plaintiff, defendant, third-party plaintiff, third-
party defendant, or otherwise (such proceedings are hereinafter referred to as “Ancillary
Proceedings”).
C. The parties to any and all Ancillary Proceedings are enjoined from commencing
or continuing any such legal proceeding, or from taking any action, in connection with any such
proceeding, including, but not limited to, the issuance or employment of process.
D. All Ancillary Proceedings are stayed in their entirety, and all Courts having any
jurisdiction thereof are enjoined from taking or permitting any action until further Order of this
Court. Further, as to a cause of action accrued or accruing in favor of one or more of the
Defendants against a third person or party, any applicable statute of limitation is tolled during the
period in which this injunction against commencement of legal proceedings is in effect as to that
cause of action.
Case 3:18-cv-00252-CWR-FKB Document 29 Filed 06/06/18 Page 4 of 4
E. The provisions of Paragraphs B – D above bar any person or entity from placing
s/ Carlton W. Reeves
UNITED STATES DISTRICT JUDGE
Case 3:18-cv-00252-CWR-FKB Document 25 Filed 05/25/18 Page 1 of 3
____________________
No. 3:18-CV-252-CWR-FKB
v.
ORDER ON RECEIVERSHIP
____________________
1 Emergency Motion, Docket No. 11; Emergency Motion, Docket No. 21.
2 Sec. & Exch. Comm'n v. First Fin. Grp. of Texas, 645 F.2d 429, 438 (5th Cir.
1981) (quoting Sec. & Exch. Comm'n v. Keller Corp., 323 F.2d 397, 403 (7th
Cir. 1963)).
3 See Plea Agreement, Docket No. 11 in United States v. Arthur Lamar Adams,
2
Case 3:18-cv-00252-CWR-FKB Document 25 Filed 05/25/18 Page 3 of 3
3
Case 3:18-cv-00252-CWR-FKB Document 25 Filed 05/25/18 Page 1 of 3
____________________
No. 3:18-CV-252-CWR-FKB
v.
ORDER ON RECEIVERSHIP
____________________
1 Emergency Motion, Docket No. 11; Emergency Motion, Docket No. 21.
2 Sec. & Exch. Comm'n v. First Fin. Grp. of Texas, 645 F.2d 429, 438 (5th Cir.
1981) (quoting Sec. & Exch. Comm'n v. Keller Corp., 323 F.2d 397, 403 (7th
Cir. 1963)).
3 See Plea Agreement, Docket No. 11 in United States v. Arthur Lamar Adams,
2
Case 3:18-cv-00252-CWR-FKB Document 25 Filed 05/25/18 Page 3 of 3
3
Case 3:18-cv-00252-CWR-FKB Document 26-1 Filed 06/01/18 Page 1 of 6
Case 3:18-cv-00252-CWR-FKB Document 26-1 Filed 06/01/18 Page 2 of 6
1. What professional experience and skills qualify you to be receiver in this case?
C. RECEIVERSHIP STAFFING
1. What steps will you take to guarantee that your hiring pracices are as inclusive as possible, and what – if
any – billable hour targets do you aim to achieve?
2. Describe the law firms or other entities you hire to assist you, their qualifications, proposed rates, and
whether those rates reflect a discount from their standard rates.
3. Describe and justify the hourly rates for yourself and whether your rates reflect any discount from your
standard rate.
2
Case 3:18-cv-00252-CWR-FKB Document 26-1 Filed 06/01/18 Page 3 of 6
4. How will you and your staff take steps to minimize the expenses of the receivership?
5. How will you and your staff communicate with investors and keep them informed of proceedings?
D. CONFLICTS OF INTEREST
1. What potential conflicts of interest may arise during your receivership, including those of yourself and
any accounting firms, legal firms, or other support staff that you plan to hire?
2. Before your appointment, what steps will you take to check for (and eliminate) any of the above conflicts?
3
Case 3:18-cv-00252-CWR-FKB Document 26-1 Filed 06/01/18 Page 4 of 6
3. After your appointment, how will you guard against (and respond to) any conflicts that arise?
E. ADDITIONAL INFORMATION
Provide any further information you believe relevant to your candidacy for receivership.
F. SIGNATURE
By signing the below, you affirm that you have truthfully answered the above questions as an officer of the
court.
Signature of Applicant
Date
4
Case 3:18-cv-00252-CWR-FKB Document 26-1 Filed 06/01/18 Page 5 of 6
Please complete a document that responds to all prompts listed below. Attach that document to this form
and sign the declaration below.
Except where otherwise noted, for purposes of the information request below, “you” means you as an
individual, as well as any spouse or dependents, and separately, any firm, partnership, joint venture, or
other business in which you are an officer or director, or in which you have a substantial financial interest.
Except where otherwise noted, this information is requested for any responsive matters existing during the last five
years. Also, if during the course of your duties you become aware of responsive information concerning a
potential claimant in the matter listed above, you must promptly supplement your response to disclose that
information.
1. List all contracts, consulting engagements, employment, service as an officer or director, or other work of
any kind you have performed for any defendant/respondent in this matter, or any of its parents, subsidiaries, or
other affiliates, or any claimant in this matter. Include any responsive matters existing during the last ten years.
2. List any financial interests in or with the defendant/respondent, its parents, subsidiaries, or other affiliates,
or any claimant in this matter (e.g., stocks, bonds, options, other debt or equity interests, partnerships, retirement
plans).
3. List all other personal or professional relationships or interests in or with the defendant/respondent, its
parents, subsidiaries, or other affiliates, or with any of their officers or directors, or any claimant in this matter, not
listed above.
4. List all matters in which you have been retained as a Receiver, Distribution Fund Administrator,
Distribution Consultant, or as a subcontractor, agent or other service provider, in connection with any civil action
or administrative proceeding by the Commission.
5. List all other prior or existing cases, matters, or proceedings in which the Commission or the Mississippi
Secretary of State has an interest, in which you have been retained or served as a witness, consultant, or other
expert.
6. Identify any disciplinary proceedings, felony criminal indictment or information (or equivalent formal
charge) or a misdemeanor criminal information (or equivalent formal charge), civil proceedings or actions against
you personally by any Federal, state, local, or foreign entities and the results of those proceedings. Include any
responsive matters regardless of when they arose.
7. Identify any actual or potential conflicts of which you are aware, regardless of when they arose, that are not
identified or addressed in paragraphs 1 through 5 above, but that may affect the performance of your duties under
this appointment.
5
Case 3:18-cv-00252-CWR-FKB Document 26-1 Filed 06/01/18 Page 6 of 6
DECLARATION
I am providing the United States District Court for the Southern District of Mississippi with the following conflict
of interest and background information concerning the receivership created in the civil litigation styled Securities
& Exchange Commission, et al. v. Arthur Lamar Adams, et al., Case Number 3:18-cv-00252-CWR-FKB, in the
U.S. District Court for the Southern District of Mississippi, Northern Division. I agree to supplement this
information if any of the information herein changes, within thirty days of such change. I agree to provide such
other Conflict of Interest information as requested by the Court or its staff.
I have examined the information given in this statement, and attached hereto, and, to the best of my
knowledge and belief, it is true, correct, and complete. I understand that I am submitting this
information to the Court as an officer of the Court.
By: _______________________________________
Signature
Name: _______________________________________
Date: _______________________________________
6
Case 3:18-cv-00252-CWR-FKB Document 25 Filed 05/25/18 Page 1 of 3
____________________
No. 3:18-CV-252-CWR-FKB
v.
ORDER ON RECEIVERSHIP
____________________
1 Emergency Motion, Docket No. 11; Emergency Motion, Docket No. 21.
2 Sec. & Exch. Comm'n v. First Fin. Grp. of Texas, 645 F.2d 429, 438 (5th Cir.
1981) (quoting Sec. & Exch. Comm'n v. Keller Corp., 323 F.2d 397, 403 (7th
Cir. 1963)).
3 See Plea Agreement, Docket No. 11 in United States v. Arthur Lamar Adams,
2
Case 3:18-cv-00252-CWR-FKB Document 25 Filed 05/25/18 Page 3 of 3
3
Case 3:18-cv-00252-CWR-FKB Document 13 Filed 05/11/18 Page 1 of 4
Plaintiff,
Defendants,
The Mississippi Secretary of State (the “Secretary”) respectfully moves this Court, pursuant to
Fed. R. Civ. P. 24, for an order permitting the Secretary to intervene in the above-captioned action (the
“Madison Timber Action”) for the limited purpose of opposing the Securities and Exchange
Commission’s (“SEC”) Expedited Motion to Appoint Temporary Receiver and making his own
recommendation for the candidate to be chosen as the receiver in the above-styled action. In support of
1. The Madison Timber Action was filed on April 20, 2018. The SEC filed its
complaint based on information and belief that Defendants committed securities fraud by operating a
Ponzi scheme, and it alleged that Defendants defrauded more than 150 investors out of at least $85
million.
Case 3:18-cv-00252-CWR-FKB Document 13 Filed 05/11/18 Page 2 of 4
2. The SEC requested injunctive relief that included freezing the assets of Defendants, relief
3. Defendant Adams, on April 20, 2018, entered a Consent Order, consenting to the
freezing of Defendants’ assets, to the appointment of a receiver, and to the transfer of all seized assets to
4. On May 9, 2018, Defendant Adams pled guilty to a criminal charge of wire fraud.
5. On May 10, 2018, the SEC notified the Secretary of its intention to file its Expedited
Motion to Appoint Temporary Receiver with this Court, and it notified the Secretary that it was proposing
6. Defendants are Mississippi citizens. Upon information and believe, a large majority of
7. Upon information and belief, most of the assets are situated in Mississippi.
8. The securities law violations alleged against Defendants, if proven, also constitute
violations of the Mississippi Security Act, under which the Secretary can assess fines, penalties, and other
9. The Secretary has a significant interest in the appointment of receiver in this action, given
the number of Mississippi investors involved, significant assets being located in the State, the Secretary’s
own interest in the assets with respect to fines, penalties, and restitution to Mississippi investors, and the
receiver’s obligations and abilities to administer the recovery and restitution of investors’ funds. The
Secretary does not believe the SEC’s recommended appointment can protect those interests adequately
and effectively.
2
Case 3:18-cv-00252-CWR-FKB Document 13 Filed 05/11/18 Page 3 of 4
recommend to this Court, as to avoid any undue delay or prejudice. A copy of the Secretary’s alternative
11. Because the Secretary is not a party to the Madison Timber action, the Secretary has no
avenue to oppose the SEC’s recommendation for appointment of receiver in this action, or recommend
an alternative candidate. But the Secretary is charged with enforcing the Mississippi Securities Act and
protecting Mississippi investors and has significant interests in the property that is the subject of the action
12. The Secretary therefore respectfully submits that he is entitled to intervene as of right
pursuant to Fed. R. Civ. P. Rule 24(a)(2) because the Court’s appointment of receiver may impair the
Secretary’s ability to protect the interests of Mississippi investors harmed by this scheme and may impair
the Secretary’s ability to discharge his duties under the Mississippi Securities Act.
13. In accordance with Local Rule 7(b)(10), the Secretary has conferred with counsel for
Defendants and counsel for the SEC. The Motion is unopposed by both counsel for the Defendants and
Respectfully Submitted,
C. DELBERT HOSEMANN, JR., in his Official
Capacity as MISSISSIPPI SECRETARY OF
STATE
3
Case 3:18-cv-00252-CWR-FKB Document 13 Filed 05/11/18 Page 4 of 4
OF COUNSEL
Jessica Leigh Long
Assistant Secretary of State
MSB #103316
Jeffrey L. Lee
Senior Attorney
MSB # 103180
CERTIFICATE OF SERVICE
I, Douglas T. Miracle, Special Assistant Attorney General for the State of Mississippi, do
hereby certify that on this date I electronically filed the foregoing document with the Clerk of
this Court using the ECF system, which sent notification of this filing to all counsel of record.
4
Case 3:18-cv-00252-CWR-FKB Document 12 Filed 05/10/18 Page 1 of 10
Plaintiff,
v. Case No.
Defendants,
Defendants’ assets to preserve them for the benefit of investors. Due to the continued
risk of dissipation of those assets, the Commission asks that the motion be heard as
fraud by operating a Ponzi scheme. [Dkt. 3, Compl., ¶ 1]. The Commission alleges
that Adams and MT Properties have raised at least $85 million from over 150
Ponzi scheme. At Adams’ change of plea hearing on May 9, 2018 in United States v.
Adams, No. 3:18-CR-88-CWR-LRA (S.D. Miss.), Adams pled guilty to the Bill of
Information filed against him for bank and wire fraud based on the same conduct.
Defendants and their agents still have control and possession of investor funds
as well as certain assets purchased with investor funds. Counsel for Defendant
Adams has identified interests owned by Adams in at least four real estate ventures.
See Exhibit A (May 8, 2018, Letter from John M. Colette). Upon information and
belief, Adams acquired at least some of these interests while the scheme alleged in
the Complaint was on-going. It is, thus, highly likely that such interests were
acquired, in whole or in part, with investor funds. Counsel for Adams has also
advised that several payments are coming due this month to maintain Adams’
and Madison Timber related to this scheme. See, e.g., Exhibit B. Absent a receiver
and the associated stay of third party litigation that would accompany his or her
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appointment, there will be a “race to the courthouse” and the attendant possibility for
enforcing the federal securities laws. In light of the estimated size of the fraud –
nearly $100 million – and the number of investors, a receiver is necessary in this case
to preserve and analyze Defendants’ and third parties’ documents and financial
records to determine the full extent of investor losses, to discover if there are viable
claims against third parties, and to establish a claims process to facilitate a fair and
and preserve Defendants’ assets and identify other possible assets for the benefit of
the defrauded investors, the Commission asks the Court to use its equitable powers to
will, within 60 days, file a report that includes a preliminary plan for the
efficient means for marshalling, liquidating and distributing assets within that estate.
The Court, with input from the Commission, can then better determine whether the
3
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The Fifth Circuit and other courts have repeatedly emphasized the broad
purposes of the federal securities laws, to preserve a defendant’s assets, and to ensure
that wrongdoers do not profit from their unlawful conduct. SEC v. Wencke, 622 F.2d
1393, 1371 (9th Cir. 1980); SEC v. Safety Fin. Serv., Inc., 674 F.2d 368, 372-73 (5th
Cir.1982) (“the district court has broad powers and wide discretion to determine . . .
relief in an equity receivership”); SEC v. Blatt, 583 F.2d 1325, 1335-1336 (5th Cir.
1978).
court officer who collects and possesses all property subject to the receivership,
known as the receivership “estate.” See, e.g., Atlantic Trust Co. v. Chapman, 208
U.S. 360, 370-71 (1908). The court holds custody of the receivership estate and
administers it through the receiver. Id.; see also Chicago Deposit Vault Co. v.
McNulta, 153 U.S. 554 (1894). The receiver’s possession, therefore, is the court’s
possession. Id. When a district court creates a receivership, the receiver’s focus is
“to safeguard the assets, administer the property as suitable, and to assist the district
Capital Group, LLC v. Capwill, 462 F.3d 543, 551 (6th Cir. 2006).
4
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First Nat. Mortg. & Discount Co., Inc., 514 F.2d 757, 758 (5th Cir. 1975).
proceedings for injunctive relief.” SEC v. First Fin. Group of Texas, 645 F.2d 429,
438 (5th Cir. 1981); see also Netsphere, Inc. v. Baron, 703 F.3d 296, 306 (5th Cir.
appointed to prevent the corporation from dissipating corporate assets and to pay
defrauded investors.”). This discretion derives from the inherent powers of an equity
The Fifth Circuit has also recognized that an evidentiary hearing is not
Corp., 395 F. Supp. 1338, 1342 (N.D. Ga. 1974), aff’d, 514 F.2d 757 (5th Cir. 1975).
The Court may appoint a receiver on a prima facie showing of fraud and
mismanagement. See First Fin. Group, 645 F.2d at 438. Factors courts have
considered that indicate the need for a receivership include the following: “a valid
claim by the party seeking the appointment; the probability that fraudulent conduct
has occurred or will occur to frustrate that claim; imminent danger that property will
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less drastic equitable remedy; and likelihood that appointing the receiver will do
more good than harm.” Santibanez v. Wier McMahon & Co., 105 F.3d 234, 242 (5th
Cir. 1997), quoting Aviation Supply Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314,
Defendants do not dispute that they operated a Ponzi scheme that involved
hundreds of investors and close to a $100 million dollars. Indeed, Defendant Adams
has pled guilty to criminal charges of wire fraud and bank fraud based on the same
receiver to oversee the process of returning the remaining funds in as fair and
individual lawsuits.
number of illiquid assets at stake. Mr. Adams has invested in various real estate
projects. See Exhibit A (Letter from John M. Colette). These investments will likely
presumably purchased or maintained some or all of those real estate projects with
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investor funds. Indeed, Adams’ counsel has advised that almost $200,000 in
payments to various real estate investments are coming due, and that such payments
defrauded investors, particularly because the potential estate has minimal liquid
marshal Defendants’ assets, and preserve and maximize their value for the benefit of
Anticipating that the Court may ask the Commission to recommend a potential
receiver here, the Commission sought three proposals from individuals who have
served as receivers in other SEC cases. If the Court prefers to rely on the
Commission’s recommendation rather than select its own receiver, the Commission
Damian & Valori, LLP, in Miami, Florida, as the receiver in this matter. See Exhibit
C (Murena’s résumé and list of receivership cases). Mr. Murena has extensive
experience serving as a receiver, both in SEC matters and other civil contexts, and in
particular he is very familiar with this sort of fraud and the types of assets that the
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Commission believes will compose the estate. While Mr. Murena is located in
Miami, he has committed that, if appointed, he will not bill the estate for expenses
The Commission respectfully requests that this Court enter the proposed order
VI. Conclusion
Based on the foregoing, the Commission respectfully requests that the Court
grant its motion and enter the proposed order appointing Kenneth D. Murena, Esq.,
Respectfully submitted,
s/ W. Shawn Murnahan
W. Shawn Murnahan
Senior Trial Counsel
Georgia Bar No. 529940
Tel: (404) 842-7669
Email: murnahanw@sec.gov
M. Graham Loomis
Regional Trial Counsel
Georgia Bar No. 457868
Tel: (404) 842-7622
Email: loomism@sec.gov
Justin Delfino
Senior Counsel
Georgia Bar No. 570206
Tel: (404) 942-0698
8
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Email: delfinoj@sec.gov
OF COUNSEL
s/Kristi H. Johnson
Kristi H. Johnson
Assistant United States Attorney
MS Bar No. 102891
Marc Perez
Assistant United States Attorney
WA Bar No. 33907
Civil Division
United States Attorney's Office
Southern District of Mississippi
501 East Court Street, Suite 4-430
Jackson, MS 39201
Tel: (601) 973-2887
Fax: (601) 965-4409
9
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Plaintiff,
Defendants,
CERTIFICATE OF SERVICE
I hereby certify that on this day, I served a true and correct copy of the
Receiver on John M. Colette, Esq., as counsel for Defendants, via email and by
s/Kristi H. Johnson
Kristi H. Johnson
Case 3:18-cv-00252-CWR-FKB Document 11 Filed 05/10/18 Page 1 of 6
Plaintiff,
v. Case No.
Defendants,
this matter. Due to the continued risk of dissipation of those assets, the Commission
asks that the motion be heard as expeditiously as the Court’s schedule permits.
defrauded numerous investors via a Ponzi scheme. While Defendants have not yet
not contest the core allegation that they conducted a Ponzi scheme. Indeed, during
the change of plea hearing on May 9, 2018 in United States v. Adams, No. 3:18-CR-
filed against him for bank and wire fraud based on the same conduct.
Defendants’ assets for the benefit of investors in order to marshal and preserve those
orderly and efficient administration of the estate by the district court for the benefit of
investors. SEC v. Hardy, 803 F.2d 1034, 1038 (9th Cir. 1986). “The appointment of
enforcement proceedings for injunctive relief.” SEC v. First Fin. Group of Texas,
645 F.2d 429, 438 (5th Cir. 1981). Moreover, because the Commission remains
concerned about the potential for dissipation of investor funds and assets, the
court officer who collects and possesses all property subject to the receivership,
known as the receivership “estate.” See, e.g., Atlantic Trust Co. v. Chapman, 208
2
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U.S. 360, 370-71 (1908). The court holds custody of the receivership estate and
administers it through the receiver. Id.; see also Chicago Deposit Vault Co. v.
McNulta, 153 U.S. 554 (1894). The receiver’s possession, therefore, is the court’s
possession. Id. In this case, the Commission anticipates the receiver ultimately
enforcing the federal securities laws. In light of the estimated size of the fraud –
nearly $100 million – and the number of investors, a receiver is necessary in this case
to preserve and analyze Defendants’ and third parties’ documents and financial
records to determine the full extent of investor losses, to discover if there are viable
claims against third parties, and to establish a claims process to facilitate a fair and
within 60 days, file a report that includes a preliminary plan for the administration of
the receivership estate, including recommendations as to the most efficient means for
marshalling, liquidating and distributing assets within that estate. The Court, with
input from the Commission, can then better determine whether the receivership
should be continued.
The Commission, therefore, respectfully asks that the Court enter an order in
the form filed concurrently herewith appointing a temporary receiver in this case.
3
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Respectfully submitted,
s/ W. Shawn Murnahan
W. Shawn Murnahan
Senior Trial Counsel
Georgia Bar No. 529940
Tel: (404) 842-7669
Email: murnahanw@sec.gov
M. Graham Loomis
Regional Trial Counsel
Georgia Bar No. 457868
Tel: (404) 842-7622
Email: loomism@sec.gov
Justin Delfino
Senior Counsel
Georgia Bar No. 570206
Tel: (404) 942-0698
Email: delfinoj@sec.gov
4
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OF COUNSEL
s/Kristi H. Johnson
Kristi H. Johnson
Assistant United States Attorney
MS Bar No. 102891
Marc Perez
Assistant United States Attorney
WA Bar No. 33907
Civil Division
United States Attorney's Office
Southern District of Mississippi
501 East Court Street, Suite 4-430
Jackson, MS 39201
Tel: (601) 973-2887
Fax: (601) 965-4409
5
Case 3:18-cv-00252-CWR-FKB Document 11 Filed 05/10/18 Page 6 of 6
Plaintiff,
Defendants,
CERTIFICATE OF SERVICE
I hereby certify that on this day, I served a true and correct copy of the
Esq., as counsel for Defendants, via email and by United Parcel Service.
Respectfully submitted,
s/Kristi H. Johnson
Kristi H. Johnson
Case 3:18-cv-00252-CWR-FKB Document 11-1 Filed 05/10/18 Page 1 of 1
EXHIBIT
A