A Springdale law firm is facing a multimillion-dollar malpractice lawsuit brought by a former client whose allegations include ethics violations, fraud and professional negligence.
Little Rock attorneys representing Steven Booth filed the 55-page complaint July 16 in Washington County Circuit Court in Fayetteville. It names Joseph Reece, Lee Moore and law firm RMP LLP as defendants.
Among the allegations are that Reece and Moore, managing partners of the law firm, convinced Booth to give millions to a separate law firm client in Alabama, then received payments from that client for arranging the loans. Also alleged is a violation of the Arkansas Rules of Professional Conduct.
A PDF of the lawsuit is available here. Pat James, managing partner of Little Rock law firm James, House, Downing & Lueken is the plaintiff’s attorney.
Booth, who lives in Washington County, is seeking $54 million, plus punitive damages, and a jury trial.
According to the complaint, RMP provided legal, business, tax and estate planning services to Booth from 2010 to 2019. The filing describes Booth as having “substantial net worth, as a result of inheritance and gifts.”
In 2015, the filing says, Reece solicited Booth to loan $10 million to MS Industries (MSI), a silica and precious metals mining company in north Alabama. MSI and its founder/CEO Steve Smith were RMP clients since 2012, according to the filing. The money would be used to pay off $3.7 million in existing debt, with the remainder used to buy equipment and machinery and provide working capital to MSI.
“Reece falsely represented to Booth that S. Smith was a successful businessman who was the majority owner of MSI….and that S. Smith and [his wife] M. Smith would guarantee the loan and pledge their personal assets to secure payment of the loan,” the filing said. “In fact, as of 2012, S. Smith had a history of failed businesses and questionable business practices.
“Reece also knew that S. Smith had no prior mining experience. In meetings with Booth and his counsel in December of 2019, Reece stated that S. Smith was just a car salesman. This is different than what Reece told Booth in 2015.
“Reece either negligently or intentionally misrepresented S. Smith to have been a successful businessman. Defendants knew or should have known that S. Smith had been subjected to numerous allegations of fraud and deceit prior to 2015.
“Reece told Booth that MSI had discovered valuable precious metals in connection with its silica mining activities, had developed a methodology or process to extract the precious minerals and was completing the process. Reece represented to Booth that MSI stood to reap enormous profits from mineral extraction and recommended that Booth make the loan to MSI and that it was a safe business opportunity.”
The plaintiff claims Smith used the money he got from Booth to support a “personal and extravagant lifestyle,” including a $2 million home in Atlanta maintained with money withdrawn from MSI and with money that Booth loaned to MSI.
“Reece and RMP were aware of S. Smith’s actual intended use of the Booth loan and company assets for S. Smith’s personal use,” the filing states.
From the initial $10 million line of credit in November 2015 until June 2018, Booth forwarded a combined $54 million to MSI, according to the filing, all for the purposes of equipment purchases and working capital. The transactions were through entities formed by Reece for Booth.
In June 2018, Booth became aware that Smith had borrowed or withdrawn millions from MSI in 2017 and 2018, primarily through various limited liability companies or fictitious names.
“Reece was aware of S. Smith’s misuse of loan proceeds and failed to disclose this to Booth,” the lawsuit says.
The Booth loans to Smith are all in default. Smith told Booth in an email this past February he was the subject of a criminal investigation directed by the Internal Revenue Service. MSI has ceased operations due to creditor lawsuits and lack of money. The shortage, the filing claims, is because Smith withdrew $10.95 million from MSI from Jan. 1, 2016, and Dec. 31, 2019 for his personal use.
For tax years 2015 through 2018, MSI reported a combined $19.89 million in losses and never had annual gross revenues of more than $66,019.
RMP has hired Robert George with the Rogers office of Friday, Eldredge & Clark as counsel. George provided the following statement to the Northwest Arkansas Business Journal on Tuesday (July 21).
“RMP flatly denies the narrative and claims in the Complaint. As will become apparent through RMP’s filings and defense of the case, Booth or his lawyers are engaging in extreme revisionist history of the facts and circumstances leading to Booth’s participation in the project, the robust disclosures that were made to him in connection with his initial and continuing participation in the project, his stated education as a scientist specializing in metals, and the significant control he exercised in the day-to-day financial management of the project.
“Booth, himself, controlled and approved many of the financial disbursements about which he now complains. This lawsuit is an outgrowth of a larger dispute pending in Alabama courts in which Booth personally has been sued by his business partners for refusing to honor his continuing capitalization obligations.
“Booth’s frivolous lawsuit here in Arkansas appears calculated to divert attention from his own issues and perhaps attempt to influence the testimony RMP will be called upon to give in Alabama — strategies that will fail. RMP will not succumb to these pressures and will vigorously defend itself against Booth’s false claims.”