in the united states district court for the southern ... … · 24/1/2020 · case no....

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF MISSISSIPPI

NORTHERN DIVISION

ALYSSON MILLS, IN HER CAPACITY

AS RECEIVER FOR ARTHUR LAMAR

ADAMS AND MADISON TIMBER

PROPERTIES, LLC,

Plaintiff,

v.

BUTLER SNOW LLP; BUTLER SNOW

ADVISORY SERVICES, LLC; MATT

THORNTON; BAKER, DONELSON,

BEARMAN, CALDWELL & BERKOWITZ

PC; ALEXANDER SEAWRIGHT, LLC;

BRENT ALEXANDER; and JON

SEAWRIGHT,

Defendants.

Case No. 3:18-cv-00866-CWR-FKB

Hon. Carlton W. Reeves

ORAL ARGUMENT REQUESTED

REPLY BRIEF IN SUPPORT OF BAKER, DONELSON, BEARMAN, CALDWELL &

BERKOWITZ PC’S MOTION TO DISMISS THE AMENDED COMPLAINT

Michael W. Ulmer (MSB #5760)

James J. Crongeyer, Jr. (MSB #10536)

WATKINS & EAGER PLLC

400 East Capitol Street, Suite 300 (39201)

Post Office Box 650

Jackson, MS 39205

Tel.: (601) 965-1900

Fax: (601) 965-1901

Email: [email protected]

Craig D. Singer (pro hac vice)

Benjamin W. Graham (pro hac vice)

WILLIAMS & CONNOLLY LLP

725 Twelfth Street, N.W.

Washington, DC 20005

Tel.: (202) 434-5000

Fax: (202) 434-5029


Counsel for Defendant Baker, Donelson,

Bearman, Caldwell & Berkowitz PC

Case 3:18-cv-00866-CWR-FKB Document 67 Filed 01/24/20 of 31

TABLE OF CONTENTS

I. The Receiver Lacks Standing. .............................................................................................3

A. Under Now-Settled Fifth Circuit Law, the Receiver Lacks Standing to Sue for

an Increase in Unpaid Liabilities. ............................................................................3

B. The Receiver Does Not Allege Standing, nor State a Claim on the Merits, as

an Assignee of Unspecified Claims. ........................................................................6

II. Baker Donelson Is Not Responsible for the Actions of Alexander and Seawright. ............8

A. The Amended Complaint Does Not State an “Actual Authority” Claim. ...............8

B. The Amended Complaint Does Not State an “Apparent Authority” Claim. .........10

1. The Amended Complaint does not allege that Adams or any

assignor was misled about the scope of Alexander’s and

Seawright’s authority. ................................................................................10

2. Baker Donelson did not give Adams (or any assignor) a misleading

impression that Alexander and Seawright had authority to manage

timber investments in the firm’s name.......................................................11

3. The Receiver’s cited authority supports dismissal.....................................13

C. The Amended Complaint Does Not State a Claim for Negligent Supervision

and Retention (Count VIII). ...................................................................................15

III. The Amended Complaint’s Other Causes of Action Do Not State a Claim. .....................16

A. The Civil Conspiracy Claim (Count I)...................................................................16

B. The Aiding and Abetting Claim (Count II)............................................................19

C. The “Recklessness,” “Gross Negligence,” or “Negligence” Claim (Count III). ...19

IV. In Pari Delicto Bars the Claims on Behalf of Madison Timber and Adams. ....................20

V. The Amended Complaint Should Be Dismissed with Prejudice. ......................................22


ii

TABLE OF AUTHORITIES

Federal Cases: Page(s)

Ashcroft v. Iqbal,

556 U.S. 662 (2009) .............................................................................................................7, 17

Belmont v. MB Inv. Partners, Inc.,

708 F.3d 470 (3d Cir. 2013).....................................................................................................15

Boyd v. Puckett,

905 F.2d 895 (5th Cir. 1990) .....................................................................................................5

Cornerstone Christian Sch. v. Univ. Interscholastic League,

563 F.3d 127 (5th Cir. 2009) .....................................................................................................6

Chemtex, LLC v. St. Anthony Enters., Inc.,

490 F. Supp. 2d 536 (S.D.N.Y. 2007)......................................................................................17

CSX Transp., Inc. v. Recovery Express, Inc.,

415 F. Supp. 2d 6 (D. Mass. 2006) ..........................................................................................12

Cuyler v. United States,

362 F.3d 949 (7th Cir. 2004) ...................................................................................................20

Doe v. Compact Info. Sys., Inc.,

2015 WL 11022761 (N.D. Tex. Jan. 26, 2015) .........................................................................8

Doe v. Hallock,

119 F.R.D. 640 (S.D. Miss. 1987) .............................................................................................8

Doe v. Merten,

219 F.R.D. 387 (E.D. Va. 2004) ................................................................................................8

Doe I v. Four Bros. Pizza,

2013 WL 6083414 (S.D.N.Y. Nov. 19, 2013) ...........................................................................8

Hays v. Pearlman,

2010 WL 4510956 (D.S.C. Nov. 2, 2010) ...............................................................................22

Heinert v. Bank of Am., N.A.,

410 F. Supp. 3d 544, (W.D.N.Y. 2019) ...................................................................................17

Honig v. Kornfeld,

339 F. Supp. 3d 1323 (S.D. Fla. 2018) ....................................................................................17

In re Agape Litig.,

773 F. Supp. 2d 298 (E.D.N.Y. 2011) .....................................................................................17


iii

In re Grand Jury Subpoena No. 11116275,

846 F. Supp. 2d 1 (D.D.C. 2012) ...............................................................................................8

In re TFT-LCD (Flat Panel) Antitrust Litig.,

2009 WL 4874872 (N.D. Cal. Oct. 6, 2009)..............................................................................7

Jacquez v. Compass Bank,

2016 WL 3017418 (W.D. Tex. May 24, 2016) .................................................................12, 15

Janvey v. Adams & Reese, LLP,

2013 WL 12320921 (N.D. Tex. Sept. 11, 2013)......................................................................21

Janvey v. Democratic Senatorial Campaign Comm., Inc.,

712 F.3d 185 (5th Cir. 2013) ...................................................................................................22

Janvey v. Proskauer Rose LLP,

2015 WL 11121540 (N.D. Tex. June 23, 2015) ................................................................16, 18

Jones v. Wells Fargo Bank, N.A.,

666 F.3d 955 (5th Cir. 2012) .......................................................................................20, 21, 22

Latitude Sols., Inc. v. DeJoria,

922 F.3d 690 (5th Cir. 2019), cert. denied,

Case No. 19-340, 2019 WL 6107784 (U.S. Nov. 18, 2019) ..............................................3, 4, 5

Lerner v. Fleet Bank, N.A.,

459 F.3d 273 (2d Cir. 2006).....................................................................................................17

Letizia v. Facebook Inc.,

267 F. Supp. 3d 1235 (N.D. Cal. 2017) ...................................................................................11

Litson-Gruenber v. JPMorgan Chase & Co.,

2009 WL 4884426 (N.D. Tex. Dec. 16, 2009) ........................................................................17

Lujan v. Defs. of Wildlife,

504 U.S. 555 (1992) ...................................................................................................................6

MAO-MSO Recovery II, LLC v. Farmers Ins. Exch.,

2018 WL 2106467 (C.D. Cal. May 7, 2018) .............................................................................6

MSP Recovery Claims, Series LLC v. Tech. Ins. Co.,

2020 WL 91540 (S.D.N.Y. Jan. 8, 2020) ..................................................................................7

MultiPlan, Inc. v. Holland,

937 F.3d 487 (5th Cir. 2019) ...................................................................................................16

Neilson v. Union Bank of Cal., N.A.,

2003 WL 27374137 (C.D. Cal. Feb. 20, 2003)........................................................................17


iv

Plaintiffs # 1-21 v. Cty. Of Suffolk,

138 F. Supp. 3d 264 (E.D.N.Y. 2015) .......................................................................................8

Reneker v. Offill,

2009 WL 804134 (N.D. Tex. Mar. 26, 2009) ............................................................................4

Reneker v. Offill,

2012 WL 2158733 (N.D. Tex. June 14, 2012) ......................................................................3, 4

Rosner v. Bank of China,

2008 WL 5416380 (S.D.N.Y. Dec. 18, 2008) .........................................................................17

S. Methodist Univ. Ass’n of Women Law Students v. Wynne & Jaffe,

599 F.2d 707 (5th Cir. 1979) .....................................................................................................8

Sheinkopf v. Stone,

927 F.2d 1259 (1st Cir. 1991) ............................................................................................12, 15

Soc’y of Separationists, Inc. v. Herman,

939 F.2d 1207 (5th Cir. 1991) ...................................................................................................5

Tichenor v. Roman Catholic Church of Archdiocese of New Orleans,

32 F.3d 953 (5th Cir. 1994) .....................................................................................................15

Zacarias v. Stanford Int’l Bank, Ltd.,

931 F.3d 382 (5th Cir. 2019), opinion withdrawn and superseded on reh’g,

945 F.3d 883 (Dec. 19, 2019) ................................................................................................4, 5

State Cases:

Aetna Ins. Co. v. Robertson,

94 So. 7 (Miss. 1922) ...............................................................................................................18

Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. E–Court, Inc.,

2003 WL 21025030 (Tex. App. May 8, 2003) ........................................................................20

Akins v. Golden Triangle Planning & Dev. Dist., Inc.,

34 So. 3d 575 (Miss. 2010) ........................................................................................................9

Andrew Jackson Life Ins. Co. v. Williams,

566 So. 2d 1172 (Miss. 1990) ..................................................................................................14

Baker Donelson Bearman Caldwell & Berkowitz, P.C. v. Seay,

42 So. 3d 474 (Miss. 2010) ..................................................................................................8, 15

Bell v. W. Harrison Cty. Dist.,

523 So. 2d 1031 (Miss. 1988) ..................................................................................................19


v

Bradley v. Kelley Bros. Contractors,

117 So. 3d 331 (Miss. Ct. App. 2013) .....................................................................................16

Cashin v. Murphy,

96 So. 747 (Miss. 1923) ...........................................................................................................21

Christian Methodist Episcopal Church v. S & S Construction Co., Inc.,

615 So. 2d 568 (Miss. 1993) ....................................................................................................11

Commercial Bank v. Hearn,

923 So. 2d 202 (Miss. 2006) ......................................................................................................9

Eaton v. Porter,

645 So. 2d 1323 (Miss. 1994) ......................................................................................10, 13, 14

Guardian Consumer Fin. Corp. v. Langdeau,

329 S.W.2d 926 (Tex. Civ. App. 1959) .............................................................................20, 21

Gulledge v. Shaw,

880 So. 2d 288 (Miss. 2004) ......................................................................................................9

Harris v. Town of Woodville,

196 So. 3d 1121 (Miss. Ct. App. 2016) ...................................................................................18

Holliday v. Pizza Inn, Inc.,

659 So. 2d 860 (Miss. 1995) ......................................................................................................9

Holmes v. Campbell Props., Inc.,

47 So. 3d 721 (Miss. Ct. App. 2010) .......................................................................................16

Orzel by Orzel v. Scott Drug Co.,

537 N.W.2d 208 (Mich. 1995) .................................................................................................20

Parmenter v. J & B Enters., Inc.,

99 So. 3d 207 (Miss. Ct. App. 2012) .......................................................................................16

Patriot Commercial Leasing Co. v. Jerry Enis Motors, Inc.,

928 So. 2d 856 (Miss. 2006) ....................................................................................................11

Raclaw v. Fay, Conmy & Co.,

668 N.E.2d 114 (Ill. App. Ct. 1996) ........................................................................................12

Rex Distrib. Co., Inc. v. Anheuser-Busch, LLC,

271 So. 3d 445 (Miss. 2019) ....................................................................................................18

United Residential Props., L.P. v. Theis,

378 S.W.3d 552 (Tex. App. 2012) ...........................................................................................12


vi

Other Authorities:

Federal Rule of Civil Procedure 5.2 ...............................................................................................8

High on Receivers § 205 (2d ed.) ..................................................................................................21

Miss. Code § 79-10-67 .....................................................................................................................8

Restatement (Second) of Torts § 876(b) ........................................................................................19


The Receiver concedes that the Amended Complaint (“AC”), ECF No. 57, offers no new

factual allegations concerning Baker Donelson. The Receiver’s response is to blame Baker

Donelson for her Complaint’s deficiencies. She speculates that the firm has “compiled records

showing numerous of its employees” had dealings with Adams and Madison Timber, Opp’n 6

(citing AC ¶ 91), and charges that the firm “did not produce these records in response to the

Receiver’s request[,]” id. The Receiver’s insinuations are factually untrue and legally improper.

First, the Receiver was required to allege facts sufficient to state a claim. She cannot

defeat a motion to dismiss by speculating that facts may exist that the complaint does not allege.

Second, the Receiver’s “request” for documents was served on Baker Donelson in direct

violation of the discovery stay imposed by the Magistrate Judge’s Order of Feb. 4, 2019 and

Local Rule 16(b)(3)(B). After receiving the improper discovery request, Baker Donelson

politely informed the Receiver’s counsel of their evident error, and that was the last we heard.

Third, the Receiver has not been deprived of documents to plead her case. She has all of

Adams’s and Madison Timber’s records – along with information from the U.S. Attorney’s

Office, the FBI, and the SEC, in addition to her own eighteen-month investigation. Receiver’s

Rep., SEC v. Adams, Case No. 3:18-cv-252, ECF No. 36 at 6–7 (Aug. 21, 2018). If “numerous

employees” of Baker Donelson had dealt with Adams, those materials would show it. But the

Amended Complaint does not allege this – because it did not happen.

Addressing the Amended Complaint’s actual allegations of fact, as opposed to its

conclusions and wishful thinking, the Receiver has not established standing to bring her claims,

nor facts sufficient to state a claim for relief.

First, businesses are not automatically responsible for everything their employees do

when they are not working, and law firms are no exception. That principle disposes of the

Receiver’s claims because the Amended Complaint’s allegations show that Alexander and


2

Seawright ran their personal LLC separately from the law firm. Baker Donelson did not

authorize, endorse, or in any way benefit from the LLC. Incidental use of firm facilities, as

happens in every business, does not transform an individual act into an act of the law firm.

Second, the Receiver persistently writes as though her claims are on behalf of investors.

To be sure, the Receiver claims to have received assignments from some unspecified investors,

but the Amended Complaint does not allege their claims. It offers no facts about the investor-

assignors, not even their names. It does not allege that they had any contact with Alexander,

Seawright, or Baker Donelson, much less the details of any such contacts. It does not even

allege that the assignors lent money to Alexander Seawright Timber Find I, LLC, as opposed to

investing in Madison Timber in another manner. Nor does the Receiver allege anything about

the content of the assignment agreements. Because the Amended Complaint answers none of the

pertinent questions, it is patently insufficient to allege any claims based on assignments.

That leaves the Receiver standing where she always has stood: in the shoes of Adams and

the fraudulent entity he controlled, Madison Timber. At the jurisdictional level, this means she

lacks standing to sue for increased liabilities to the Receivership Estate, under clear Fifth Circuit

law. On the merits, this means there can be no “apparent authority” claim unless Adams

reasonably relied on a misleading impression that Alexander and Seawright were acting for the

firm – which is neither alleged nor plausible.

These central issues are sufficient to warrant dismissal, but the Receiver also makes other

claim-specific errors. For example, a claim of conspiracy or aiding and abetting (if it exists in

Mississippi at all) requires an allegation of actual knowledge, not negligence in missing “red

flags.” And a professional firm has no duty in “negligence,” or “recklessness” (however

allegedly “gross” it may be), for failing to detect another’s wrongdoing in the absence of a client

relationship. The Amended Complaint should be dismissed with prejudice.


3

I. The Receiver Lacks Standing.

A. Under Now-Settled Fifth Circuit Law, the Receiver Lacks Standing to Sue

for an Increase in Unpaid Liabilities.

In Latitude Sols., Inc. v. DeJoria, the Fifth Circuit held that a trustee lacks standing to sue

for outstanding debts to investors because “liabilities [that] are still owed and have not yet been

paid . . . represent [the investor’s] injury, not [the company’s].” 922 F.3d 690, 696 (5th Cir. Apr.

30, 2019), cert. denied, Case No. 19-340, 2019 WL 6107784 (Nov. 18, 2019). The Receiver

argues that DeJoria addressed “a single contract that injured a single creditor” rather than an

extensive fraud. Opp’n 9 (“LSI was not a Ponzi scheme”). That is an argument of degree, not

substance; it does nothing to distinguish DeJoria’s holding that an unpaid liability to a creditor is

not an injury to the estate but to the creditor. The Receiver’s characterization of the claims in

DeJoria is also wrong: The trustee in DeJoria argued both “that LSI was a fraud formed for an

illegitimate purpose” – i.e., that it was a fraud from its inception – and that the defendants also

committed fraud upon “entering into the Jabil contract[.]” 922 F.3d at 694–95.

The question squarely presented to the Fifth Circuit in DeJoria was whether debts to

investors arising from a fraudulent contract are an injury to the estate that owes them. The

Court’s unanimous answer was “no.” In this case, Adams caused Madison Timber to enter into

many fraudulent agreements with investors. DeJoria holds that liabilities arising from such

fraudulent contracts do not amount to an injury-in-fact to the estate. That there were hundreds of

such arrangements is immaterial. A hundred times zero is still zero.

The Receiver’s “single contract” theory is also inconsistent with DeJoria’s endorsement

of Reneker. The receiver in that case sought to recover for liabilities owed to all investors who

purchased securities from the receivership entities. See Reneker v. Offill (Reneker III), 2012 WL

2158733, at *6 (N.D. Tex. June 14, 2012) (identifying the group of investors as those whose


4

debts are “equivalent to the dollar of investment liabilities that appear on [the company’s]

books”). The court dismissed the complaint, holding that “the receiver lacked Article III

standing because ‘the only harm alleged is the Receivership Estate’s inability to satisfy its

liabilities.’” 922 F.3d at 696 (quoting Reneker v. Offill (Reneker I), 2009 WL 804134 at *6

(N.D. Tex. Mar. 26, 2009)). Under DeJoria, debts to investors – whether from a single

investment or from hundreds – do not confer standing on a receiver.1

The DeJoria trustee sought rehearing en banc and certiorari, arguing that the Fifth Circuit

erred in denying standing and that its “holding threatens to preclude bankruptcy trustees from

recovering damages from tortfeasors whose conduct causes direct injury to the bankrupt Debtor

in the form of corporate debt.” Pet. for Cert. at 8 (No. 19-340).2 Both petitions were denied.

The Receiver now asks the Court to disregard DeJoria in favor of a more recent opinion

in Zacarias v. Stanford Int’l Bank, Ltd. (which the Receiver’s brief refers to as “Willis”), where

the majority of a divided panel accepted that a receiver could sue third parties for an “increase in

. . . unsustainable liabilities resulting from [a] Ponzi scheme.” 931 F.3d 382, 396–97 (5th Cir.

July 22, 2019), opinion withdrawn and superseded on reh’g, 945 F.3d 883 (5th Cir. Dec. 19,

2019). The Court should reject the Receiver’s invitation for three reasons:

First, the language the Receiver quotes from Zacarias is dicta. The question presented in

Zacarias was whether the district court had jurisdiction “to bar claims not before the court” by

1 The Receiver observes that another opinion in Reneker found standing to sue for certain estate

“liabilities.” 2009 WL 3365616 at *2. But those claims were of a different character: “the costs

of car purchases, insurance, premiums on real estate, utility bills, property taxes, and vendors

who repossessed vehicles” and fees to “the attorneys, [and] . . . accounting firm[.]” Reneker III,

2012 WL 2158733, at *6. The Receiver alleges no such ordinary debts; she brings the type of

tort claims for increasing the estate’s liabilities to investors that Reneker (and DeJoria) rejected.

2 The trustee’s cert petition framed the “question presented” as, “Whether a bankruptcy trustee

who proved at trial, without objection, that defendants’ tortious conduct (breach of fiduciary duty

and aiding and abetting claims) caused the debtor corporation to incur unpaid debt, has Article

III standing to assert those claims.” Id. at i.


5

enjoining future third-party claims as part of a receiver’s settlement agreement. Zacarias, 931

F.3d at 392–93. Such settlement bar orders are often controversial, and the Zacarias parties

joined issue on whether the court could impose the bar order, but they did not dispute that the

receiver could sue for increased liabilities to the estate. The passage on which the Receiver

relies makes this clear at the outset: “There is no dispute that the receiver and Investors’

Committee had standing to bring their claims against the Willis Defendants and BMB.” Id. at

396 (emphasis added). The Receiver argues that “[s]tanding is not something parties can simply

agree not to dispute.” Opp’n 16. But the fact remains that the parties did not dispute it, and the

Zacarias opinion shows no sign that the Fifth Circuit considered the question.

Second, Zacarias’ dicta is in direct conflict with DeJoria, which was controlling

precedent at the time Zacarias was issued. The panel in Zacarias does not distinguish, discuss,

or even cite DeJoria.3 A later panel opinion cannot displace an earlier panel’s holding. See

Soc’y of Separationists, Inc. v. Herman, 939 F.2d 1207, 1211 (5th Cir. 1991) (quoting Boyd v.

Puckett, 905 F.2d 895, 897 (5th Cir. 1990) (“the earlier opinion controls and is the binding

precedent in the circuit”)).

Third, the Fifth Circuit had an opportunity to overrule DeJoria when the losing party in

Zacarias filed a petition for rehearing en banc. See Appellants’ Joint Pet. for Reh’g En Banc,

Case No. 17-11073 (Aug. 5, 2019). Instead, the Fifth Circuit treated the petition as one for panel

rehearing and issued a revised opinion, which also does not mention DeJoria and again clarifies

that it “address[es] only the effect of . . . bar orders enjoining third-party investors’ claims.”

Zacarias, 945 F.3d at 902.

3 This illustrates why dicta is not binding: An issue discussed in dicta typically does not receive

the same level of consideration by the parties or the court as does the opinion’s holding.


6

B. The Receiver Does Not Allege Standing, nor State a Claim on the Merits,

as an Assignee of Unspecified Claims.

The Receiver contends that she has standing because the Amended Complaint alleges, in

the vaguest possible terms, that some unspecified number of unidentified “investors” have

assigned their undescribed “claims” to the Receivership Estate. AC ¶ 8. That is the sum total of

the Amended Complaint’s allegations about the assignors, their assignments, and their claims.

The Receiver argues that she is not required to allege facts about the investor-assignors or

the assigned claims, Opp’n 16–18, but she cites no authority in support of this argument. The

law is otherwise: At the pleading stage, a plaintiff must allege sufficient facts to establish a

plausible claim both for standing and on the merits. See Cornerstone Christian Sch. v. Univ.

Interscholastic League, 563 F.3d 127, 134 (5th Cir. 2009) (“[O]n a motion to dismiss, plaintiffs

must allege facts that give rise to a plausible claim of [the plaintiff’s] standing.”).4

Regarding standing, Article III requires that the plaintiff’s alleged injury be “fairly

traceable to the challenged action of the defendant.” Lujan v. Defs. of Wildlife, 504 U.S. 555,

560–61 (1992) (emphasis added); see also MAO-MSO Recovery II, LLC v. Farmers Ins. Exch.,

2018 WL 2106467, at *9 (C.D. Cal. May 7, 2018) (dismissing complaint for lack of standing

“because there is nothing in the pleadings tying any claim by one or more of the [] assignors to

any specific named defendant”). Most investors in Madison Timber cannot “trace” their losses

to any action by Baker Donelson because they never had any contact with Alexander or

Seawright, much less with the law firm, and most investors did not lend their funds through

Alexander Seawright Timber Fund I, LLC. Far from alleging facts to show traceability, the

Amended Complaint confirms that it is lacking: Adams allegedly defrauded “hundreds of

4 The Receiver notes that she “is ‘empowered’ to accept assignments,” Opp’n 17, n.31, but that

does not relieve her of the burden to plead facts supporting a claim based on such assignments.


7

investors,” AC at 2, and used several so-called “bird dogs,” AC ¶ 107; see also id. ¶¶ 46, 51

(discussing Thornton’s and Billings’s efforts to raise funds for Madison Timber). The Receiver

further alleges that Alexander and Seawright began working with Adams in 2011, id. ¶ 72, by

which time, “the Madison Timber Ponzi scheme had been perfected,” and Adams had already

“attracted dozens of investors[.]” AC ¶¶ 38–39.

For similar reasons, the Amended Complaint does not sufficiently plead the merits of any

allegedly assigned claim. Under ordinary pleading requirements, the Receiver was obliged to

allege sufficient factual matter to “state a claim to relief that is plausible on its face.” Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009). The Amended Complaint recites no facts about the assignors –

not even who they are, when they invested, how much they invested or lost, whether they had

any contact with any of these defendants (let alone which defendants), or the nature of such

contacts. Without such allegations, it is impossible for the defendants to understand how the

assignors purport to satisfy the elements of their legal claims or to formulate a pleading in

response. See In re TFT-LCD (Flat Panel) Antitrust Litig., 2009 WL 4874872, at *4 (N.D. Cal.

Oct. 6, 2009) (ordering plaintiff to identify assignor because “case law [ ] require[s] that the

complaint ‘allege facts showing that the assignor would be entitled to relief’”) (citations

omitted); MSP Recovery Claims, Series LLC v. Tech. Ins. Co., Inc., 2020 WL 91540, at *4

(S.D.N.Y. Jan. 8, 2020) (finding plaintiffs lacked standing where they “not only fail to state

when [the assignor] paid for the services, they fail to specify when an accident giving rise to the

conditional payments even occurred”); Mem., ECF No. 60, at 10–11 & n.6 (collecting cases).

The Receiver protests that alleging facts about the assignors’ claims would invade their

privacy. Opp’n 18. The Receiver did not hesitate to allege in detail verbatim communications

between prospective investors and the Alexander Seawright Defendants when it suited her

purposes. AC ¶¶ 112–19. In any event, there is no “privacy exception” to the federal pleading


8

requirements, or the Due Process Clause, both of which entitle Baker Donelson to know who the

claimants are and the nature of the claims they are asserting against the firm. See Doe v. Merten,

219 F.R.D. 387, 394 (E.D. Va. 2004) (“Defendants, of course, must in fairness be allowed to

explore whether plaintiffs have standing, which they can do only if plaintiffs are identified.”);

Doe I v. Four Bros. Pizza, 2013 WL 6083414, at *10 (S.D.N.Y. Nov. 19, 2013) (defendants

would be “hard-pressed” to prepare a defense “[w]ithout knowing who has brought suit against

them”); Doe v. Hallock, 119 F.R.D. 640, 644 (S.D. Miss. 1987) (“[plaintiff] must reveal her true

identity as a matter of basic fairness”).5 The rules provide ample means for the Court to protect

legitimate privacy interests in litigation while still providing adequate notice to defendants of the

claims against them. See, e.g., Fed. R. Civ. P. 5.2.

II. Baker Donelson Is Not Responsible for the Actions of Alexander and Seawright.

A. The Amended Complaint Does Not State an “Actual Authority” Claim.

An employer is not responsible for the conduct of an employee who “deviates or departs

from his work to accomplish some purpose of his own not connected with his employment[.]”

Baker Donelson Bearman Caldwell & Berkowitz, P.C. v. Seay, 42 So. 3d 474, 489 (Miss. 2010)

(quotation omitted). The Receiver suggests a crabbed reading of this rule that would cover only

“romantic affairs at the[] workplace,” Opp’n 24, but that is only an example of the general

principle that vicarious liability does not extend to employees’ acts outside “the scope of their

employment or of their apparent authority to act for the corporation,” Miss. Code § 79-10-67.

5 See also S. Methodist Univ. Ass’n of Women Law Students v. Wynne & Jaffe, 599 F.2d 707, 713

(5th Cir. 1979) (“[b]asic fairness” requires “accusers . . . [to] do so under their real names”); Doe

v. Compact Info. Sys., Inc., 2015 WL 11022761, at *7 (N.D. Tex. Jan. 26, 2015) (“fairness

requires that [plaintiffs] . . . stand publicly behind the accusations and charges they bring”);

Plaintiffs # 1-21 v. Cty. of Suffolk, 138 F. Supp. 3d 264, 276 (E.D.N.Y. 2015) (“without

disclosing the Plaintiffs’ identities, . . . Defendants will clearly be prejudiced because they will

not be able to engage in meaningful discovery”); In re Grand Jury Subpoena No. 11116275, 846

F. Supp. 2d 1, 4 n.6 (D.D.C. 2012) (“an anonymous plaintiff . . . raises due process concerns”).


9

Of particular importance here, employees are routinely held to be acting outside the scope

of their employment where the employer received “no benefit” from the employees’ conduct.

See, e.g., Akins v. Golden Triangle Planning & Dev. Dist., Inc., 34 So. 3d 575, 580 (Miss. 2010)

(citing Commercial Bank v. Hearn, 923 So. 2d 202 (Miss. 2006)). That is true even if the

employees were performing the precise type of activities for which they were hired. Gulledge v.

Shaw, 880 So. 2d 288, 296 (Miss. 2004) (no liability where notary public employed by the bank

“notariz[ed] a forged document” because it “was not in the furtherance of the Bank’s business—

rather, it was a personal act”). The rule extends to tortious conduct performed on the employer’s

premises. Holliday v. Pizza Inn, Inc., 659 So. 2d 860, 865 (Miss. 1995) (employee’s party at her

office “in no way furthered or was meant to further the business of [her] employers”). An act is

outside the scope of employment if it is not within the employee’s formal mandate, even where

the employer “encouraged [the employee’s] participation in [those new] activities and benefitted

therefrom[.]” Hearn, 923 So. 2d at 208–09 (no liability where bank employee was soliciting

charitable donations for an entity other than the bank).

Here, it is undisputed that Baker Donelson received no benefit from Alexander’s and

Seawright’s lending activities. Certainly there is no allegation that the firm sent bills to anyone,

or received anything, for Alexander’s and Seawright’s work on the Timber Fund. Yet the

Receiver persists in arguing that managing the Timber Fund was within the scope of Alexander’s

and Seawright’s law-firm employment. This argument is based solely on a continued misreading

of their firm biographies. The Receiver asserts that Alexander is employed as a professional

“Broker-Dealer/Investment Adviser.” Opp’n 21, 24 (citing ECF No. 61-1). In fact, the website

shows that Alexander is a Senior Public Policy Advisor, ECF No. 61-1 at 1, and at the bottom of

the profile, it identifies him as part of the firm’s “Broker-Dealer/Investment Advisor” practice

area. Id. at 4. That is because some of Baker Donelson’s clients are brokers – not because


10

Alexander is one. The Receiver similarly argues that Seawright is part of the firm’s “Securities”

practice. Opp’n 21, 24 (citing ECF No. 61-2). Again, that means Seawright does legal work for

clients in the securities industry, not that he is employed as a securities dealer. Seawright is also

affiliated with the “Health Systems/Hospitals” practice, but that does not mean that Baker

Donelson employs him as a medical doctor.

B. The Amended Complaint Does Not State an “Apparent Authority” Claim.

1. The Amended Complaint does not allege that Adams or any assignor

was misled about the scope of Alexander’s and Seawright’s authority.

The Receiver agrees that “the key” to a claim of apparent authority “is how particular

third parties perceived the actions of the agents.” Opp’n 19 (quotation and modification

omitted). Those “particular third parties” are Adams and Madison Timber, in whose shoes the

Receiver stands. For purposes of their claims, no one else’s “perception” of Alexander’s and

Seawright’s authority matters. See Eaton v. Porter, 645 So. 2d 1323, 1326 (Miss. 1994) (courts

look to “particular group of [plaintiffs] and how those third parties perceived that authority”).

The Receiver’s discussion of apparent authority never mentions the Receiver’s claim to

stand in the shoes of particular investors who assigned their claims to the Receivership Estate.

The apparent authority analysis only highlights why this claim fails: because any apparent

authority would depend on the reasonable perceptions of the particular investor-assignors, about

which the Amended Complaint alleges nothing. While the Receiver speaks of “investors” in

general terms, she alleges no facts about what these particular investors (whoever they are)

perceived concerning Alexander’s and Seawright’s authority to act for Baker Donelson.

With respect to Adams and Madison Timber, the Receiver’s repeated allegations about

investors, e.g., that Alexander and Seawright conducted their timber business with firm clients,

see Opp’n 21 (citing AC ¶ 81), are beside the point. What matters is that the Amended


11

Complaint does not allege that Adams perceived that Alexander or Seawright were acting on

behalf of Baker Donelson, much less that he relied on any such misperception.

It is not enough for the Receiver to suggest that Adams could have formed a mistaken

belief in Alexander’s and Seawright’s agency. See Opp’n 21–23. Even if this hypothesis were

in the Amended Complaint (it is not), such speculation is a long way from alleging that Adams

actually did form such a belief. See Letizia v. Facebook Inc., 267 F. Supp. 3d 1235, 1243 (N.D.

Cal. 2017) (where reliance is an element, plaintiffs must plead they “actually relied”). The

Receiver evidently has no basis to make such an allegation, to say nothing of the even more

outlandish (but requisite) allegation that Adams did something in reliance on that misperception.

Adams ran a Ponzi scheme and stole the money Alexander Seawright Timber Fund I, LLC lent

to him. The Receiver cannot seriously allege that Adams accepted and stole that money because

he thought it came with the blessing of Baker Donelson.

2. Baker Donelson did not give Adams (or any assignor) a misleading

impression that Alexander and Seawright had authority to manage

timber investments in the firm’s name.

Even if the Receiver somehow could allege that Adams or an unnamed assignor

developed a mistaken impression, she would have to show that Baker Donelson (as opposed to

Alexander and Seawright) did something to create that impression. Patriot Commercial Leasing

Co. v. Jerry Enis Motors, Inc., 928 So. 2d 856, 864 (Miss. 2006) (agent’s apparent authority

extends only to that “authority that the principal has by words or conduct held the alleged agent

out as having”); Christian Methodist Episcopal Church v. S & S Construction Co., Inc., 615 So.

2d 568, 573 (Miss. 1993) (apparent authority requires a “showing of . . . acts or conduct of the

principal indicating the agent’s authority”). The Receiver makes four unavailing arguments in

support of her claim that Baker Donelson fostered an impression that Alexander and Seawright

were authorized to operate the Timber Fund on behalf of the law firm.


12

First, the Receiver argues that the firm advertised that it “employed” Alexander as an

“Investment Advisor” and Seawright as a “Securities” practitioner. Opp’n 21. As discussed

above, that is not a fair reading of the firm website. Besides, there is no allegation that Adams

(or any assignor) read it, or interpreted it in that unreasonable fashion.

Second, the Receiver argues that Alexander and Seawright used Baker Donelson’s office

space and facilities, for example by holding “closings” and other meetings there, Opp’n 20

(citing AC ¶ 87); and sending emails from Seawright’s Baker Donelson email address, id. at 21

(citing AC ¶ 77; Opp’n Ex. A).6 But courts routinely reject claims of apparent authority based

on such superficial trappings. See, e.g., Sheinkopf v. Stone, 927 F.2d 1259, 1267 (1st Cir. 1991)

(law firm not liable for partner’s acts when partner used law-firm office, secretary, telephone,

and stationery in transaction for real estate development business); Jacquez v. Compass Bank,

2016 WL 3017418, at *10 (W.D. Tex. May 24, 2016) (“authorizing someone to share office

space to conduct their independent business or authorizing someone to use an email account”

insufficient to create apparent authority); Raclaw v. Fay, Conmy & Co., 668 N.E.2d 114, 117 (Ill.

App. Ct. 1996) (use of office space, telephones, mailing address, receptionist, and stationery

insufficient to create apparent authority); CSX Transp., Inc. v. Recovery Express, Inc., 415 F.

Supp. 2d 6, 12 (D. Mass. 2006) (“no reasonable person could conclude that apparent authority

was present” on the basis of an email address alone); United Residential Props., L.P. v. Theis,

378 S.W.3d 552, 564–65 (Tex. App. 2012) (collecting authority for the same). And the

Receiver’s halfhearted effort to connect this conduct to Baker Donelson by alleging that the firm

“allowed” it is unsupported by any facts in the Amended Complaint. See, e.g., AC ¶¶ 87, 90.

6 The referenced email actually makes clear that Alexander and Seawright were dealing at arm’s

length with what they believed was a legitimate timber business, and not a co-conspirator in a

Ponzi scheme. See Opp’n Ex. A, ECF No. 65-1. Seawright even states he is “no timber expert,”

suggesting that he is relying on Adams, not the other way around. Id. at 1.


13

Employees in businesses everywhere use their employers’ offices and facilities –

including their work email accounts – from time to time for personal endeavors. As the above

authorities show, that is not sufficient to create apparent authority. A different rule would

encourage employers to forbid these ordinary activities for fear of liability; and life in the

workplace could be profoundly different.

Third, the Receiver contends that Seawright “drafted subscription agreements” for

investments in Madison Timber. Opp’n 21. But this was obviously for the benefit of

Alexander’s and Seawright’s Timber Fund LLC and its investors, not Baker Donelson. In the

email chain attached to the Receiver’s Opposition, Adams refers to “your LLC” – showing that

he knew Seawright was acting for Alexander Seawright Timber Fund I, LLC. Opp’n Ex. A at 2

(emphasis added). Baker Donelson is not mentioned, and Adams cannot reasonably have formed

the impression from this exchange that the law firm was behind the Timber Fund.

Fourth, the Receiver alleges that members of Alexander’s and Seawright’s LLC included

Baker Donelson clients and that “[o]ther Baker Donelson shareholders . . . referred potential

investors to Alexander and Seawright.” Opp’n 20–21. This allegation cuts against the

Receiver’s claim. The “referrals” were allegedly made to Alexander and Seawright for their

Timber Fund, not to Baker Donelson – and, again, there is no allegation that Baker Donelson

performed any legal work, billed anyone for the Timber Fund’s work, or received any benefit.

At bottom, the Receiver’s claim is that Alexander’s and Seawright’s professional

affiliation with Baker Donelson was beneficial to their investment business because of Baker

Donelson’s good reputation. But affiliation and reputation do not create liability. Any other rule

would effectively punish Baker Donelson for having a good reputation.

3. The Receiver’s cited authority supports dismissal.

The Opposition relies heavily on Eaton v. Porter, 645 So. 2d 1323 (Miss. 1994), which


14

itself demonstrates why the Receiver’s apparent authority claim lacks merit. The plaintiffs came

to Eaton Motors seeking repairs for their car. They met with Eaton, Sr. to negotiate the repair

services and saw Eaton Motors’ automotive repair equipment on site. Id. at 1327. Eaton, Sr.

signed the work authorization on behalf of Eaton Motors; the plaintiff addressed her payment to

Eaton Motors; and Eaton, Sr. cashed the check on behalf of Eaton Motors. Id. at 1324. Eaton

Motors later claimed that it was not in the business of repairing vehicles, and that Eaton, Sr. was

acting outside the scope of his authority in accepting the work. Id. at 1326. The court observed

that the plaintiffs were “not residents of the area and could not be expected to be familiar” with

limitations on the scope of “Eaton Motors’ . . . business operations.” Id. at 1327.

In this case, Adams was not a victim of misleading conduct. He was running a massive

Ponzi scheme and concealing his fraud. He did business with “Alexander Seawright Timber

Fund I, LLC” not “Baker Donelson” (or “Baker, Sr.”). The Amended Complaint does not allege

that Adams sought to engage Baker Donelson’s professional services. Adams was seeking

funding, which he received through loans from Alexander’s and Seawright’s independent LLC.

He signed no agreement with Baker Donelson, nor made any payment to the firm.

The Amended Complaint also does not allege that Alexander and Seawright told Adams

they were acting on behalf of Baker Donelson. Cf. Andrew Jackson Life Ins. Co. v. Williams,

566 So. 2d 1172, 1182 (Miss. 1990) (agent for the defendant insurance company “believed he

was authorized to form [the] binding contract” at issue and that he “expected” the purchasers

would “one hundred percent rely” on his represented authority). A plaintiff claiming apparent

authority is presumed to have “knowledge of the nature and usages of the business involved” and

must then have “reasonabl[y] reli[ed]” on a belief that the agent was empowered to act for the

principal. Id. at 1181. Providing funding for timber investments is not among the services that

lawyers or policy advisors ordinarily perform on behalf of law firms, and there is no basis to


15

infer – much less a well-pleaded allegation – that Adams was misled to think otherwise. See

Sheinkopf, 927 F.2d at 1269 (law firm partner was not acting with apparent authority when he

solicited investments for a real estate venture because “[the firm] was not in the business of

soliciting investments” and “there is no suggestion that [the partner’s] acts in regard to [the real

estate venture] could have benefitted the law firm in any significant way”).

C. The Amended Complaint Does Not State a Claim for Negligent Supervision

and Retention (Count VIII).

The Receiver’s arguments with respect to negligent supervision fail for many of the same

reasons. A negligent supervision claim does not apply to an employee’s acts outside the scope of

employment. Seay, 42 So. 3d at 490. The above discussion disposes of the Receiver’s

contentions that Alexander and Seawright were acting within the scope of their employment, and

that only an employee’s “romantic affairs” can be outside the scope. Opp’n 38. The Receiver

does not address the cases dismissing claims for negligent supervision when employees allegedly

engaged in Ponzi schemes and criminal conduct outside the scope of employment. See Mem. 17

(citing Belmont v. MB Inv. Partners, Inc., 708 F.3d 470 (3d Cir. 2013); Tichenor v. Roman

Catholic Church of Archdiocese of New Orleans, 32 F.3d 953 (5th Cir. 1994)).

The Receiver cites no authority for her suggestion that an employer is generally liable for

an employee’s conduct while on the employer’s premises. Opp’n 38. The law is to the contrary:

“[E]mployers do not have a duty to supervise their employees when the employees are off-duty

or not working,” Seay, 42 So. 3d at 489, and an employee may engage in personal acts while on

the employer’s premises without exposing the employer to liability, see Jacquez, 2016 WL

3017418, at *10; other cases cited supra p. 9.

Nor does the Receiver explain how the Amended Complaint satisfies the requirement that

Baker Donelson “had either actual or constructive knowledge of an employee’s incompetence or


16

unfitness” to conduct the work for which they were employed. Parmenter v. J & B Enters., Inc.,

99 So. 3d 207, 217 (Miss. Ct. App. 2012). The Receiver suggests generally that it is “‘not

unreasonable to infer’ that employers ‘were aware to some degree’” of an employee’s material

assistance to a Ponzi scheme. Opp’n 39 (quoting Janvey v. Proskauer Rose LLP, 2015 WL

11121540, at *8 (N.D. Tex. June 23, 2015)). It is indeed “unreasonable to infer” a law firm’s

knowledge of a Ponzi scheme without some allegation of fact that would support such an

inference. See Holmes v. Campbell Props., Inc., 47 So. 3d 721, 729 (Miss. Ct. App. 2010)

(misconduct itself is insufficient; plaintiff must show “specific evidence” to support employer’s

knowledge that misconduct was likely). The receiver in Proskauer brought a different claim,

alleging that the defendant law firm failed to supervise its attorneys’ provision of legal services

to the firm’s clients within the scope of their employment.

III. The Amended Complaint’s Other Causes of Action Do Not State a Claim.

A. The Civil Conspiracy Claim (Count I).

The Receiver argues that she satisfies the “overt act” element of civil conspiracy by

showing an overt act by Adams and other defendants’ participation in the “course of action.”

Opp’n 26. Assuming arguendo this accurately states the law, it does nothing to cure the core

defect in the Receiver’s claim: The Amended Complaint does not allege that anyone at Baker

Donelson, including Alexander and Seawright, knew Madison Timber was a Ponzi scheme.

Civil conspiracy requires that the alleged conspirators were “aware of the fraud or

wrongful conduct at the beginning of the agreement.” MultiPlan, Inc. v. Holland, 937 F.3d 487,

495 (5th Cir. Aug. 28, 2019) (quoting Bradley v. Kelley Bros. Contractors, 117 So. 3d 331, 339

(Miss. Ct. App. 2013)). The Amended Complaint alleges “red flags,” from which the Receiver

infers that Baker Donelson “knew or should have known” that Madison Timber was a Ponzi

scheme. AC ¶ 131 (emphasis added). That the Receiver felt obliged to hedge her claim (“or


17

should have known”) underscores that she cannot in good faith allege the required actual

knowledge. Litson-Gruenber v. JPMorgan Chase & Co., 2009 WL 4884426, at *2 (N.D. Tex.

Dec. 16, 2009) (dismissing claims in a Ponzi-scheme case because “[p]leading based on an

allegation the defendant ‘knew or should have known’ is insufficient” for actual knowledge);

Neilson v. Union Bank of Cal., N.A., 2003 WL 27374137, at *10 (C.D. Cal. Feb. 20, 2003)

(collecting authorities). Even if she had alleged it, a bare assertion of knowledge is a legal

conclusion, which does not state a claim. Iqbal, 556 U.S. at 678.

The Amended Complaint’s allegations of fact are equally insufficient: “Red flags” do

not support an allegation of actual knowledge. See, e.g., Lerner v. Fleet Bank, N.A., 459 F.3d

273, 294 (2d Cir. 2006) (“although [red flags] may have put the banks on notice that some

impropriety may have been taking place, those alleged facts do not create a strong inference of

actual knowledge of . . . outright theft of client funds”); Heinert v. Bank of Am., N.A., 410 F.

Supp. 3d 544, 549–50 (W.D.N.Y. 2019) (“bank’s negligent failure to identify warning signs of

fraudulent activity . . . [that] form a veritable ‘forest of red flags’ [ ] is insufficient to impute

actual knowledge of ongoing fraud”); Biobest U.S.A., Inc. v. LN Assure Trades Inc., 2019 WL

1325971, at *2–3 (E.D. Mich. Mar. 25, 2019) (“numerous red flags” do not allege that bank had

actual knowledge of fraud); In re Agape Litig., 773 F. Supp. 2d 298, 318–19 (E.D.N.Y. 2011)

(“allegations of ‘red flags’ and suspicious circumstances, which in hindsight may appear to

indicate the obviousness of the fraud” are insufficient); Rosner v. Bank of China, 2008 WL

5416380, at *6 (S.D.N.Y. Dec. 18, 2008) (same), aff’d, 349 F. App’x 637 (2d Cir. 2009); Honig

v. Kornfeld, 339 F. Supp. 3d 1323, 1344 (S.D. Fla. 2018) (same); Chemtex, LLC v. St. Anthony

Enters., Inc., 490 F. Supp. 2d 536, 547 (S.D.N.Y. 2007) (same). And, in any event, no well-

pleaded allegation connects any “red flag” to Baker Donelson.

The Receiver points to two allegations to support her argument that “this is not simply a


18

‘missed red flags’ case”: that Alexander and Seawright sold unregistered securities without a

license out of Baker Donelson’s office in violation of federal and state law; and that “Alexander

and Seawright falsely represented that they personally inspected the timber and ‘mill contracts’

underlying each investment.” Opp’n 28–29 (citing AC ¶¶ 93–95). Neither allegation advances

the Receiver’s position. Failing to obtain a license and registration for the sale of securities does

not mean one knows that the transaction is a Ponzi scheme. Likewise, failing to read a document

does not mean one knows the document does not exist or that the transaction is a Ponzi scheme.

The Receiver cites Proskauer, but in that case an attorney representing a Ponzi scheme

operator in an SEC investigation gained “knowledge of [the] scheme” through his “substantial

due diligence.” 2015 WL 11121540, at *5. The attorney then used that actual knowledge to

“obstruct[] the investigation,” including by hiding from the SEC that the rates of return were too

high and that the scheme’s investments in Antigua likely involved corruption. Id. at *1; see also

Compl. ¶ 112, ECF No. 1, Proskauer, 3:13-cv-477 (N.D. Tex.) (alleging that attorney “knew [his

client] was actively misleading the SEC”). The Amended Complaint alleges no such conduct by

Alexander and Seawright.

Finally, the Receiver asserts that a conspiracy arises from a “‘mere tacit understanding

between the conspirators to work to a common purpose.’” Opp’n 27 (quoting Aetna Ins. Co. v.

Robertson, 94 So. 7, 22 (Miss. 1922)). True, but the object of the understanding must be to

accomplish an unlawful purpose or a lawful purpose unlawfully. See Rex Distrib. Co., Inc. v.

Anheuser-Busch, LLC, 271 So. 3d 445, 455 (Miss. 2019); Harris v. Town of Woodville, 196 So.

3d 1121, 1131 (Miss. Ct. App. 2016). “[P]ool[ing] other people’s money to invest” in timber

tracts, Opp’n 28, is not unlawful; and an agreement to do that, tacit or otherwise, is not a

conspiracy.


19

B. The Aiding and Abetting Claim (Count II).

The Receiver concedes that no Mississippi court has ever recognized a cause of action for

civil aiding and abetting. Opp’n 31. And even in jurisdictions that do, a plaintiff must prove the

defendant had “‘know[ledge] that the other’s conduct constitutes a breach of duty[.]’” Id. at 32

(quoting Restatement (Second) of Torts § 876(b)). That Baker Donelson supposedly “knew that

Adams owed Madison Timber fiduciary duties[,]” Opp’n 33, does not establish actual knowledge

that Adams had breached such duties by operating a Ponzi scheme. That would be so even if the

conclusory argument about Baker Donelson’s knowledge were well-pleaded – which it is not.

C. The “Recklessness,” “Gross Negligence,” or “Negligence” Claim (Count III).

It is undisputed that Adams and Madison Timber were not clients of Baker Donelson.

The Receiver does not allege that any investor who assigned claims was a client of the firm

either. Seeking to skirt the rule that only a client may sue a law firm for professional negligence,

the Receiver contends that she is suing for “ordinary” rather than “professional” negligence. See

Opp’n 35. But the Amended Complaint makes clear that Alexander and Seawright, allegedly

acting for Baker Donelson, were negligent in their professional capacities. Even the Opposition

touts the particular “education, experience, and judgment” of Baker Donelson’s professionals.

Id. at 25. The Opposition cannot have it both ways, arguing (1) that Baker Donelson is

responsible because it authorized Alexander and Seawright to act as professionals for the firm

and (2) that Alexander and Seawright were acting in some non-professional capacity so that a

non-client can sue them. The Receiver cannot evade the limitations on a claim for professional

negligence, see Mem. 21–22, merely by labeling it “ordinary negligence.” See, e.g., Bell v. W.

Harrison Cty. Dist., 523 So. 2d 1031, 1033 (Miss. 1988) (recasting claim involving the exercise

of “professional skill” as “‘ordinary negligence’ . . . is without merit”).

In any event, a claim of “ordinary” negligence would also fail because Baker Donelson


20

owed Adams and Madison Timber no duty of “ordinary” care to prevent their Ponzi scheme.

The law does not impose duties on citizens to stop tortious conduct. See, e.g., Cuyler v. United

States, 362 F.3d 949, 954 (7th Cir. 2004) (“no common law duty to warn or rescue”). The

Receiver cites no authority that suggests otherwise. And as the perpetrators of the conduct,

Adams and Madison Timber cannot claim a duty owed to them. See, e.g., Orzel by Orzel v. Scott

Drug Co., 537 N.W.2d 208, 214, 217–18 (Mich. 1995) (plaintiff cannot recover from pharmacy

for its alleged negligent supply of drugs where plaintiff fraudulently obtained the drugs).

IV. In Pari Delicto Bars the Claims on Behalf of Madison Timber and Adams.

The Receiver does not dispute that if Adams and Madison Timber were suing in their

own right, their claims would be barred by in pari delicto. Because she stands in their shoes, the

Receiver’s claims are likewise barred.

In the face of that straightforward conclusion, the Receiver argues that it is “well

established [in the Fifth Circuit] that when the receiver acts to protect innocent creditors,” she

may do so “even though the corporation would not be permitted to do so.” Opp’n 40 (quoting

Jones v. Wells Fargo Bank, N.A., 666 F.3d 955, 966 (5th Cir. 2012)) (Receiver’s modification).

Jones does not hold that the “innocent-successor” exception applies throughout the Fifth Circuit

– that is the Receiver’s addition. The Fifth Circuit was actually quoting from a series of Texas

state cases. See Jones, 666 F.3d at 966 (quoting Akin, Gump, Strauss, Hauer & Feld, L.L.P. v.

E–Court, Inc., 2003 WL 21025030, at *5 (Tex. App. May 8, 2003); Guardian Consumer Fin.

Corp. v. Langdeau, 329 S.W.2d 926, 934 (Tex. Civ. App. 1959)). The Fifth Circuit did so

because “[t]he rights of a receiver are determined by state law.” Jones, 666 F.3d at 966 n.11.

In Texas, a receiver appointed “in a dual capacity, as a trustee for both the stockholder

and the creditors,” can act “as trustee for the creditors” without facing the defenses to which the


21

corporation would be subject. Langdeau, 329 S.W.2d at 934 (emphasis added).7 In Jones, the

district court specifically authorized the Receiver to pursue actions for the benefit of “‘all

investors who may be the victims of the fraudulent conduct[.]’” 666 F.3d at 966 (emphasis

added); see also Ex. C at 9, Order, ECF No. 131, SEC v. W. Fin. Grp. et al., Case No. 3:08-cv-

00499-N (N.D. Tex.) (appointing Jones receiver “as the representative of such investors”).

This case is different. The Court furnished the Receiver with “all powers, authorities,

rights, and privileges now possessed by the officers, managers, and interest holders of and

relating to the Receivership Defendants” and ordered her to “pursue . . . their claims.” ECF No.

33 at 5, SEC v. Adams, 3:18-cv-252 (S.D. Miss.) (emphasis added).8 When a receiver sues on an

estate’s claims, she “occup[ies] substantially the same relation which was occupied by the

original parties” and “[a]ny defense . . . which a defendant might have made to an action brought

by the original party is equally available” against the receiver. High on Receivers § 205 (2d ed.);

see Cashin v. Murphy, 96 So. 747, 749 (Miss. 1923) (citing High). The Receiver is thus

similarly situated to the plaintiffs in the many recent cases rejecting innocent-successor claims

brought by trustees and receivers who claimed that their appointment cleansed the wrongdoer’s

estate of in pari delicto. See Mem. 25–27. The Receiver has identified no Mississippi case that

exempts a receiver from defenses against the corporation in whose shoes she stands.

Jones is also distinguishable because it concerned a different kind of claim. In its usual

articulation, the innocent-successor exception allows the Receiver in pari delicto immunity

“against third-party recipients of the entity’s assets that have been fraudulently transferred[.]”

7 Thus, “[t]he Fifth Circuit, when applying Texas law, seems to hold the view that when a

receiver is protecting innocent creditors or recovering assets for investors and creditors, the

defense of in pari delicto should be rejected generally.” Janvey v. Adams & Reese, LLP, 2013

WL 12320921, at *3 (N.D. Tex. Sept. 11, 2013) (emphases added).

8 The Court subsequently authorized the Receiver to accept assignments from investors, but the

Receiver does not adequately allege any such claims. See supra pp. 6–8.


22

Janvey v. Democratic Senatorial Campaign Comm., Inc., 712 F.3d 185, 191 (5th Cir. 2013). But

the exception typically does not apply to tort claims against those who allegedly conspired with

the entity in receivership to perpetrate a fraud. See, e.g., Hays v. Pearlman, 2010 WL 4510956,

at *5 (D.S.C. Nov. 2, 2010) (holding that, “in the absence of a fraudulent conveyance case, the

receiver of a corporation used to perpetuate a fraud may not seek recovery against an alleged

third‐party co‐conspirator in the fraud”). In Jones, the receiver brought a cause of action for

conversion against a bank that had issued and then deposited a fraudulent cashier’s check. 666

F.3d at 961. While “conversion” is technically a tort, the claim in Jones was analogous to a

fraudulent transfer, as it sought to reclaim misappropriated monies belonging to the estate. The

Receiver’s claims against Baker Donelson do not pursue Madison Timber’s assets – Baker

Donelson is not alleged to have received anything from Adams’s scheme. Even under a

permissive, Texas-like standard, therefore, the torts the Receiver alleges are far afield from the

fraudulent transfer or conversion claims that the Fifth Circuit has addressed.

V. The Amended Complaint Should Be Dismissed with Prejudice.

The Receiver concedes that the Amended Complaint states her “best case.” Opp’n 2.

That “case” rests on the same conclusory allegations and legal theories as the original Complaint,

and it does not state a claim. Wherefore, premises considered, Baker Donelson respectfully

requests that this honorable Court dismiss the Amended Complaint with prejudice and requests

all further relief, both general and special, as mandated by the premises and as justice requires.

Dated this 24th day of January, 2020 Respectfully submitted,

BAKER, DONELSON, BEARMAN,

CALDWELL & BERKOWITZ PC

/s/ Michael W. Ulmer


23

Michael W. Ulmer (MSB #5760)

James J. Crongeyer, Jr. (MSB #10536)

WATKINS & EAGER PLLC

400 East Capitol Street, Suite 300 (39201)

Post Office Box 650

Jackson, MS 39205

Tel.: (601) 965-1900

Fax: (601) 965-1901


Craig D. Singer (pro hac vice)

Benjamin W. Graham (pro hac vice)

WILLIAMS & CONNOLLY LLP

725 Twelfth Street, N.W.

Washington, DC 20005

Tel.: (e202) 434-5000

Fax: (202) 434-5029


Counsel for Defendant Baker, Donelson,

Bearman, Caldwell & Berkowitz PC


24

CERTIFICATE OF SERVICE

I hereby certify that on January 24, 2020, I caused the foregoing to be electronically filed

with the Clerk of the Court using CM/ECF, which will send notification of such filing to all

registered participants.

/s/ Benjamin W. Graham Benjamin W. Graham


Exhibit C

Case 3:18-cv-00866-CWR-FKB Document 67-1 Filed 01/24/20 Page 1 of 15

Case 3:08-cv-00499-N Document 131 Filed 11/14/08 Page 1 of 14 PageID 1232Case 3:08-cv-00499-N Document 131 Filed 11/14/08 Page 1 of 14 PageID 1232Case 3:18-cv-00866-CWR-FKB Document 67-1 Filed 01/24/20 Page 2 of 15

in the united states district court for the southern ... … · 24/1/2020 · case no....

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