Case Information
*1 Before C ARLTON W. R EEVES District Judge .
Defendants LLP, LLC, Matt Thornton moved send case ar bitration. For reasons follow, motion denied.
I. Factual Procedural History From least until April Lamar operated timber investment companies called Madison Timber Com pany LLC Madison Timber Properties LLC. He told vestors they purchasing shares timber tracts *2 would be harvested and sold to lumber mills a significant profit. demand lumber was so great, he said, he could guarantee investors fixed rate of return in excess of 10%. In vestors believed him. They collectively gave him hundreds of millions of dollars.
Adams was lying. He had, help others, faked eve rything about scheme. There no timber deeds, tracts land, lumber mills. He actually using new investors’ money to pay old investors—a classic Ponzi scheme. It worked long as Adams and his associates could continue to bring in new money. scheme collapsed April Adams turned himself in United States Attorney’s Office Jackson,
and quickly pleaded guilty wire fraud. He now serving 19.5 year sentence prison. sentence reflects significance fraud; criminal proceeding estab lished Adams’ victims lost approximately $85 million. When Ponzi scheme collapsed, U.S. Securities Ex change Commission asked this Court appoint receiver take charge Adams’ companies provide some measure financial relief his victims. appointed Alysson Mills receiver. To date, she sold Adams’ assets, negotiated settlements Adams’ enablers, filed law suits against persons entities contributed fraud.
This those lawsuits. action, receiver alleges
Baker Donelson firms aided abetted *3 carrying out Ponzi scheme. These firms “lent their influ ‐ ence, professional expertise, and even their clients to Ad ‐ ams,” complaint alleges. “They made a fraudulent enter prise a fraternity. Defendants contributed to success Madison Timber Ponzi scheme, and therefore to debts Receivership Estate to investors. By this complaint Re ceiver seeks hold Defendants accountable.” What follows will focus on receiver’s allegations against Butler Snow and its affiliates. These allegations are disputed, but must be taken as true stage case. Adams hired Butler Snow draft a private place
ment memorandum (PPM) for Madison Timber Fund LLC. PPM explained potential investors that Adams used his “network contacts cultivated over years” broker deals between landowners “various timber mills.” It claimed that Adams had a “competitive advantage” “highly competitive pricing strategy.” PPM also warned investors timber prices “experience significant variation been historically volatile,” cautioned suc cess would “substantially dependent” on Adams. It is clear whether Butler Snow knew in Adams running a Ponzi scheme. firm did know, however, people who helped might need register broker. That year, according note in firm’s Madison Timber file, senior partner Don Cannada researched Missis sippi law learn various penalties could face *4 profiting an unlicensed real estate broker. See Miss. Code Ann. § ‐ 31. He observed law set forth a “very broad definition of what a broker is.” He somehow concluded “[s]ays you can’t pay an unlicensed bro ‐ ker, but doesn’t provide any penalty if you do so.” The PPM did attract any formal investors. It succeeded a different way. In lieu of buying into fund, receptive ‐ vestors simply entered into “joint ventures” Madison Timber. The scheme otherwise worked same—$100,000 and $200,000 investments came in, while “consistent, uniform returns of 12% 14%” went out. fraudulent enterprise continued grow. next phase of Butler Snow’s work Adams kicked off That year, Adams hired Butler Snow’s new subsidi
ary, Butler Snow Advisory Services, expand his “business” raise $30–50 million. complaint says Matt Thornton, CEO Butler Snow Advisory Services, “alerted Don Cannada Barry Cannada, a senior partner Vice Chair Butler Snow, respectively, pro spects new business.” Meetings were held; contracts negotiated. ultimately agreed Advisory Ser vices would pitch Adams’ timber investments wealthy peo ple institutions. exchange, would pay $3,500 monthly retainer, commis sions each completed transaction, fund success fee (com prised half fund’s management fees quarter fund’s carried interest), expenses, administrative fee.
The legal side Butler Snow began update PPM while “strategic advisors” at Butler Snow Advisory Services went work. advisors made a list more than poten ‐ tial investors refined pitch. Their emails reveal simple strategy: they knew that Adams had “a seemingly satiable appetite cash,” they would find investors give him that cash—profiting from ensuing commissions fees—until Adams “says ‘uncle.’” receiver some Butler Snow Advisory Services’ sales pitches. They are illuminating.
Thornton told potential mark he could share spe cific information about timber mills because Adams “has extremely stringent NDA with his mill partners.” But lie. There no NDAs with mill partners; there were no mill partners all. Thornton also engaged obfuscation. He told another mark had “been vetted by several $1.5 billion family office(s) Texas, encompassing 75+ day due diligence period [and] you would imagine, Lamar passed with flying colors!” That conveniently omitted billion dollar family offices had declined invest Ad ams.
Thornton kept legal side Butler Snow apprised his progress. complaint says he “often” copied Barry Can nada on emails. Thornton also sent emails pressuring Butler Snow lawyers work faster on Adams’ legal needs. yers did so finished updated PPM As de scribed earlier, investors continued sign up through joint ventures instead fund. still received its commissions. Neither Thornton nor ever registered S.E.C. *6 According the complaint, Butler Snow’s lawyers sales ‐ men “recklessly ignored numerous red flags.” They didn’t call a landowner check a title. They didn’t call a mill. They told potential in the event of default, the investor could “simply file the [timber] deed,” but never questioned why investors were told record deed at outset investment. professionals at Butler Snow also ig nored red flag return: Adams promised “a con sistent, uniform return 12% 14%,” rate return una vailable in broader market at odds PPM’s express warning timber prices were volatile.
No one acted on these glaring red flags. Adams got new in vestors pay off old investors, salesmen at Butler Snow Advisory Services got their commissions, yers at Butler Snow were paid for legal work. Adams Butler Snow Advisory Services parted ways December 2013. By then, Adams had realized he could make more money if he hired Advisory Services’ key salesmen, Mike Billings, without framework fees itself. So Adams directly hired Billings help him defraud investors. also turned lawyers “regulatory” “compliance” help real estate development company he setting up.
*7 The complaint says by spring Butler Snow found itself in an unusual position. firm still sending in voices to Adams—even after he turned himself to United States Attorney’s Office. firm simultaneously “purported to represent investors their demands Madi son Timber,” receiver alleges. And firm “purported to represent Billings—whose interests clearly adverse investors,” according complaint. receiver filed this action December She claims Butler Snow, Butler Snow Advisory Services, and
Thornton are liable receivership estate for civil conspir acy, aiding and abetting, negligence, gross negligence, and recklessness. She alleges Butler Snow Advisory Thornton violated Mississippi’s fraudulent transfer act Mississippi’s prohibition on organized fraud enterprises (civil RICO). She adds Butler law firm liable estate legal malpractice, negligent retention, negligent supervision. receiver seeks monetary, declara tory, equitable relief. Snow, Services, Thornton
subsequently moved compel arbitration.
II. Legal Standards
Today’s motion requires application both federal state law. Federal determines procedure by which courts consider motions compel arbitration. State law, which case law, governs whether actually agreed arbitrate dispute. *8 A. Arbitration Law Federal Arbitration Act “makes written arbitration agree
ments valid, irrevocable, and enforceable, save upon such grounds as exist or equity revocation contract.” Crawford Prof’l Drugs, Inc. v. CVS Caremark Corp. , 748 F.3d 249, 257 (5th Cir. 2014) (quotation marks citation omitted). other words, “courts must place arbitration agreements on equal footing other contracts, en force them according terms.” AT&T Mobility LLC v. Concepcion , 563 U.S. 333, 339 (2011) (citations omitted). Like any other contract, agreements arbitrate may “be invali dated by generally applicable defenses, such fraud, duress, or unconscionability.” Id. (quotation marks citations omitted). [4]
To determine whether dispute belongs arbitration, considers “(1) whether there valid agreement ar bitrate between parties; (2) whether dispute question falls within scope arbitration agreement.” Carey v. 24 Hour Fitness, USA, Inc. , 669 F.3d 202, 205 (5th Cir. 2012) (quotation marks citation omitted). If answers these questions are “yes,” next question “whether any statute policy renders claims nonarbitrable.” Will Drill Res., Inc. v. Samson Res. Co. F.3d 211, 214 (5th Cir. 2003) (quotation citation omitted).
“The FAA . . . does not require arbitrate when they agreed do so.” E.E.O.C. v. Waffle House, *9 U.S. 279, 293 (2002) (quotation marks citation omitted). [5] That is because arbitration “is a matter of consent, not coer ‐ cion.” Id. at 294 (quotation marks citation omitted). FAA reflects a liberal federal policy favor ‐
ing arbitration. However, policy fa ‐ voring arbitration does not apply to deter mination of whether there is valid agreement to arbitrate between parties. Given fun damental principle arbitration is matter of contract, determine whether agreement to arbitrate is valid, courts apply ordinary state law principles govern formation of con tracts.
Carey , 669 F.3d at 205 (quotation marks citations omitted). In this case, Mississippi contract controls whether par ties agreed arbitrate dispute. See Crawford 748 F.3d at B. Contract Law Mississippi, elsewhere, “[t]he primary purpose all
contract construction principles methods determine record intent contracting parties.” Royer Homes Miss., Chandeleur Homes, Inc. So. 2d (Miss. 2003) (citation omitted). “A cardinal rule construc tion ascertain mutual intentions *10 parties.” Union Planters Bank, Nat’l Ass’n v. Rogers , 912 So. 2d 116, 120 (Miss. 2005) (citation omitted). analysis begins (and usually ends) with the plain lan
guage contract, since words the selected “are by far best resource ascertaining intent and assign ing meaning fairness and accuracy.” Royer Homes 857 So. 2d (citation omitted). contract is read “as whole, so as give effect all its clauses.” Id. (citation omitted). “[I]f is unclear or ambiguous, court should attempt harmonize provisions accord parties’ apparent intent.” Id. (quotation marks citation omitted). “An instrument is clear, definite, explicit, har monious all its provisions, is free from ambiguity will enforced.” Epperson v. SOUTHBank So. 3d 10, (Miss. 2012) (quotation marks citation omitted). Supreme defines “ambiguity” as “a
susceptibility two reasonable interpretations.” Dalton Cellular S., So. 3d (Miss. 2009) (quotation citations omitted).
An “ambiguous” word or phrase one capable more than meaning when viewed objec tively by reasonably intelligent person who examined context entire inte grated agreement who cognizant customs, practices, usages terminology generally understood particular trade or business.
Id. (citation omitted). “[I]nternal conflict uncertainty can provide necessary condition precedent find *11 ambiguity.” Mississippi Farm Bureau Mut. Ins. Co. v. Walters , 908 So. 2d 765, 769 (Miss. 2005) (citation omitted).
In Dalton , the Supreme Court looked at business contract with contradictory terms. “Clause 3.5 allows either party terminate at will,” the Court found, while “Clause 3.4 the unnumbered paragraph following clause 3.5 allow [the plaintiff] terminate cause under certain circum stances.” So. 3d at Because “reasonable minds could reach different conclusions after reading the whole contract, discerning the intent the parties, while giving effect each separate clause,” the contract ambiguous. Id. these situations— i.e. where “the is unable ascer tain meaning contract intent the parties within four corners contract”—it must “apply canons contract construction.” Epperson So. 3d (quotation marks citation omitted). “Where language an otherwise enforceable is subject more than one fair reading, reading applied will one most fa vorable non drafting party.” Id. (quotation citation omitted). “The reason rule protect party who did choose language from unintended unfair result.” Mastrobuono Shearson Lehman Hutton, U.S. (1995).
III. Discussion
A. Contract
Among Adams’ various relationships Snow’s lawyers advisors, identified only contract. It seven pages long.
The first three pages are on Advisory Services’ letterhead. These pages comprise “Engagement Letter.” Martin Willoughby signed Engagement Letter on behalf on August Lamar signed it four days later on behalf Madison Timber Company,
The final four pages are “Standard Terms Condi tions.” They are referenced in incorporated by En gagement Letter—so we know they belong Engage ment Letter—but are not otherwise dated or signed. dilemma can stated simply. In Engagement Letter, parties agreed to following: state courts shall
have exclusive jurisdiction relation to any claim, dispute or difference concerning this En gagement Contract any matter arising from it. parties hereto irrevocably waive any right they may have object to any action being brought Court, claim action been brought inconvenient forum or claim does jurisdic tion.
This typical forum selection clause. Standard Terms, however, parties agreed “to sub
mit dispute binding under authority Federal Arbitration Act. . . . [T]he parties hereby waive trial court by jury.” disagree which term applies case. *13 B. The Textual Analysis
The main question is whether the above conflict renders the contract ambiguous. the forum selection clause, the parties agreed to resolve
“any claim, dispute or difference” they might have “the state courts Mississippi.” parties agreed those courts would have “exclusive jurisdiction” over “any” such claims. All objections forum jurisdiction explicitly waived. arbitration provision, however, directly contradicts the forum selection clause. It sends dis putes “to binding arbitration” instead “a court law.” It is possible reconcile the arbitration provision the forum selection clause. Reasonable minds cannot, after read ing entire contract, determine which these clauses parties intended control. “Both provisions are all inclusive, both are mandatory, neither admits possibility other.” Sharpe AmeriPlan Corp. F.3d (5th Cir. 2014) (quotation citation omitted). competing terms render part ambiguous. parties endeavor mightily harmonize provisions. A close reading, they say, “leads inescapa ble result forum selection clause fully consistent arbitration provision.” Their strongest argument intended arbitrate dispute and, subse quently, any arbitration award confirmed (or vacated) court. *14 The parties certainly could have written that in their contract. [7] Different contracts have been interpreted that way. E.g. , id. at 916 (harmonizing dispute resolution provision with arbi tration provision one of the plaintiffs). But these parties did not. plain language the contract contains no such two step process. [8] Butler Snow parties then assert that “this very case”
proves the contract needed both provisions, because “the arbitration provision’s validity must be decided by some court.” But brings us back the central problem. This cannot adjudicate validity the arbitration provi sion, because it cannot determine which provision parties intended dispositive. not pointed single case
where identical conflict was ordered arbitration. closest case they identify—which they raised first time reply brief—is Personal Security & Safety Systems Inc. Motorola F.3d (5th Cir. 2002). Motorola though, parties’ forum selection clause much narrower than ours; it did not cover all “disputes” all “claims.” Id. at And Fifth Circuit been careful distinguish Motorola when interpreting contracts with more expansive language. See Sharpe F.3d 917–18 (finding “expansive dis pute resolution provisions” three plaintiffs’ contracts *15 “cannot be harmonized the similarly expansive arbitra ‐ tion provision”). After all, “different contractual language should be read differently.” Id. at 919.
Because the forum selection clause the arbitration provi ‐ sion conflict, this part the contract must be read favorably the non ‐ drafting party. See Miss. Transp. Com’n v. Ronald Contractor, , 753 So. 2d 1077, 1085 (Miss. 2000). But ‐ ler drafted this contract. In this case, therefore, the conflict terms must read favorably the receiver. See Mastrobuono , U.S. at receiver prefers litigate court rather than submit dispute arbitration. Accordingly, forum selection clause, not arbitration provision, shall apply re ceiver’s claims against parties.
C. Other Arguments alternative, receiver presents another textual argu
ment—that special terms control boilerplate provisions. See, e.g. Travelers Prop. Cas. Co. Am. v. Federated Rural Elec. Ins. Exch. No. 3:08 ‐ CV ‐ ‐ DPJ ‐ JC, WL 2900027, at *3 (S.D. Miss. Sept. 2009) (“As matter general construction, spe cial provisions supersede generic. Furthermore, clear ‘special provisions inserted contract gov ern over boilerplate provisions.’”). also briefed whether receiver rejected arbitration clause “whether any federal statute or pol
icy renders claims nonarbitrable.” Will Drill F.3d (quotation citation omitted). receiver con tends if ambiguous, either she may reject provision inconsistent purpose equity receivership. See Janvey *16 Alguire No. 3:09 CV ‐ ‐ N, WL 12654910, *21–22 (N.D. Tex. July 2014). parties disagree. Given applicable law, need reach either these arguments today.
IV. Conclusion motion compel denied. receiver’s
claims against shall remain stayed pending movants’ interlocutory appeal.
SO ORDERED 12th day September, s/ C ARLTON W. R EEVES United States District Judge
[1] Baker Donelson are firms in southeastern United States. registered Delaware but headquartered Mississippi. Baker Donelson incorporated Tennessee satel lite office Mississippi.
[2] receiver’s claims against Billings resolved Cause No. 3:18 CV ‐ 679.
[3] receiver’s interest real estate development company being adjudicated Cause No. 3:18 CV ‐
[4] courts approach agreements similarly. See Driver Pipeline Co. Williams Transport, LLC So. 3d (Miss. 2012).
[5] Mississippi’s highest court agrees “a party cannot required submit any dispute which he agreed so submit.” Driver Pipeline So. 3d (quotation citations omitted).
[6] Where conflict provisions exists, Supreme declined enforce agreement. See Driver Pipeline So. 3d 849–50.
[7] undoubtedly sophisticated firm many talented attorneys.
[8] Although location terms controlling, reader en tire will observe rather than dovetailing another, forum selection clause provision contradict each other from distant fact distinct parts parties’ contract.