Timber tussle.

Byline: JOE HARWOOD The Register-Guard

IN THE MID- and late 1990s, Veneta businessman Greg Demers was flying high.

Demers made one big deal after another: Buying, selling and managing private timberlands in the Pacific Northwest, buying two sawmills in Eastern Oregon and a plywood mill in Eugene, and trying his hand at industrial park development.

Demers and his partners, prominent Lorane winemaker Ed King among them, built a diversified business that now includes an aviation concern and commercial and industrial real estate holdings, as well as timberland.

But a huge 1998 transaction continues to haunt Demers, King and their partners. The deal, in which they sold 360,000 acres of Pacific Northwest timberland to a New Hampshire concern, has drawn the Demers group into a sticky web of financial litigation. The lawsuits are replete with charges and counter-charges of fraud, conspiracy, and slander, plus an allegation that Demers promised an appraiser a $500,000 "kickback" for a favorable timberland appraisal. Demers and the appraiser deny the kickback accusation.

In the latest twist, the Demers group late last year sued its former lawyer and the New Hampshire timberland holding company for $285 million. Meanwhile, Demers and his partners are targets of a $10 million lawsuit filed by two investors in Georgia. The Demers group is involved in two other lawsuits, one as the plaintiff and the other as the defendant, both tied to the 1998 land transaction.

At the heart of the dispute is the dream of Demers and the New Hampshire company to turn the timberland holdings into a publicly traded entity and reap big profits in the process.

Their public stock offering attempt in 1999 fizzled, however, just as the nation's investment market was overheating and crumbling after a decade-long bull run.

Now, all the sides in the grandiose timberland deal are squabbling over who was to blame and who is entitled to compensation.

Court records from Oregon and Georgia, along with interviews plus filings with the U.S. Securities and Exchange Commission, paint a complex picture.

Doing business as Pioneer Resources LLC, Demers, King and a few other investors went on a buying binge in the 1990s, snapping up timberland in Washington, Oregon and Northern California.

By 1998, Pioneer had acquired more than 360,000 forested acres in the three states. To buy the land, the company took on more than $260 million in debt. Court records don't spell out how much equity the investors put into the purchases.

At the time, Pioneer's principals were considering forming a master limited partnership to control the lands. The plan was to have the partnership assume Pioneer's debt. In return for handing the partnership their equity in Pioneer, the members would receive shares in the partnership with a market value of $140 million, according to court filings by Demers' attorneys. Under the partnership format, the members would be able to market their shares to a wide range of outside investors.

Demers did not return calls from The Register-Guard seeking comment. His Portland attorney declined comment.

Trying to go public

Enter attorney William Bradley, a partner in the Georgia-based law firm of Sutherland, Asbill & Brennan. In 1997 and 1998, Bradley served as an attorney to Pioneer and to Demers personally, setting up trusts for Demers' children.

Bradley, a timber law expert, had represented Pioneer in several of its timberland acquisitions in western Washington and northern California. The work included negotiating bank loans to finance the purchases.

Before the members of Pioneer launched the master limited partnership, Bradley introduced them to Edward Broom and his two sons, Thomas and Christopher Broom. The Brooms operate Strategic Timber Trust Inc., a timberland holding company in New London, New Hampshire.

Edward Broom did not return calls from The Register-Guard. Thomas Broom declined comment. Christopher Broom could not be reached for comment.

The Brooms, clients of the Sutherland law firm, had recently acquired about 82,000 acres of timberland in Louisiana, and were looking to increase their holdings. The 360,000-plus acres owned by Pioneer looked attractive, so the Brooms proposed combining the companies and registering the new entity as a real estate investment trust, or REIT, and then selling shares of the REIT to the public.

The deal, if successful, promised to provide tax benefits, liquidity and handsome profits to all involved. At the time, the idea of reaping big gains by going public was burning like a wildfire across the U.S. investment landscape. Small private companies of every sort were selling shares to the public in initial public offerings, or IPOs. Company founders were walking away with millions in overnight profits.

After months of negotiations, Demers and the Brooms struck a deal in October 1998. A newly created holding company, Strategic Timber Partners II, would buy the timberlands from Pioneer in a $360 million cash-and-debt transaction.

Demers, majority owner of Pioneer, and his partners, were to split $40 million cash that STP II paid them at closing, plus they received STP II stock that they would be able to redeem for $65 million once the REIT went public. Also, the holding company assumed $260 million in Pioneer debt.

In its lawsuit, Pioneer claims it received only $35 million in cash at closing. Documents STP II filed with the SEC in preparation for the initial public share offering state that members of Pioneer received $40 million at closing.

To help finance the purchase of Pioneer's timber tracts, the Brooms persuaded two investors, Larry Woodard and Hans Pielenz, to provide $10 million cash in return for shares in the new entity. Woodard and Pielenz had previously invested in STT's Louisiana timberland purchase.

STP II started filing documents with the SEC in 1999, intending to offer 16 million shares of the company at an initial price of $20. The offering sought to raise $320 million from investors.

But the investment community - perhaps soured by the sudden financial shakiness of so many once-promising high-tech companies - rejected the public offering. In July 1999, Thomas Broom, STT's executive vice president, withdrew the bid to go public.

The once-cordial relationships between the Demers group, the Brooms, Bradley, Woodard and Pielenz then apparently soured, and the lawsuits began.

The lawsuits fly

It's unclear who now controls the 360,000 acres of timberland Pioneer sold to STP II. In court documents, Pioneer asks for the return of all of its timberlands.

Also unclear is who is responsible for making payments on the $260 million in Pioneer debt that STP II took on when it bought the land. It is also unclear what the timberlands were worth then, or are worth now.

In a lawsuit filed two years ago in federal court in Georgia, Woodard and Pielenz alleged that members of STP II and Pioneer engaged in fraud by vastly overstating the worth of the timberlands that STP II bought.

The lawsuit claimed that a timberland appraisal firm with offices in Portland and Redding, Calif., Mason, Bruce & Girard Inc., which was hired by Pioneer, greatly inflated the value of the standing timber and the land. Woodard and Pielenz also charged that Demers promised MB&G a $500,000 kickback for a positive report. In court filings, Demers, Pioneer and MB&G deny the accusations.

MB&G officials did not return a call to The Register-Guard seeking comment.

MB&G appraised the timber and the land in Washington, Oregon and California at $485.4 million, according to the lawsuit by Woodard and Pielenz.

The lawsuit also alleged that Demers and two partners, T. Yates Exley and Darrick Salyers, told Woodard and Pielenz that the timber and land appraisal was reliable.

During a September 1998 meeting in Eugene, about a month before the deal closed, "Demers, Exley and Salyers continued to misrepresent that the MB&G appraisals were accurate and that the properties contained at least the amount of timber indicated in the appraisals," according to the lawsuit.

"They reiterated that the price that STP II had agreed to pay was a 'bargain'," according to the lawsuit.

"The amount and value of timber on the properties sold by Pioneer (and appraised by MB&G) in the closing appraisal were so inaccurate that they could only have been the result of fraud or gross recklessness amounting to fraud," the lawsuit said.

In court documents, Demers and Pioneer's members deny the accusations.

An STT employee, chief of forestry Nicholas Brunet, also questioned the timberlands' value.

"Future is not rosy"

In a Dec. 16, 1998 memo - two months after STP II bought the land - Brunet wrote that the company's prospects were "grim" and that "our future is not rosy," according to court documents.

Brunet told STP II managers that the Pioneer land was not worth what STP II had paid, and the timber inventories represented in the appraisal weren't accurate. Brunet wrote that logging the timberland could not generate sufficient cash flow to cover the interest payments on the loans the company had assumed to buy the parcels, according to court documents.

Brunet also wrote that the model used by appraiser MB&G to value the Pioneer lands proposed an aggressive, unsustainable harvest rate that would harm the long-term value of the timberlands.

Brunet in January 1999 wrote another memo to his bosses, this time saying Pioneer had ignored "what it knew to be the true merchantable volume (of some of the California timberland) and instead simply passed on the false volumes that had been represented to Pioneer when it bought the property."

In court filings, Pioneer members deny those accusations.

Pioneer in 2000 filed a lawsuit against the former owners of the California timber tract. MB&G in 2000 filed a lawsuit against Pioneer, and last year, First Union Bank, one of the lenders that provided financing for the deal, sued MB&G. All the lawsuits are in Mendocino County, Calif.

The lawsuit filed in Georgia by Woodard and Pielenz against Pioneer, MB&G and STP II is now in arbitration.

Late last year, Demers and his partners went on the offensive in a big way, filing a lawsuit in U.S. District Court in Eugene against the Brooms, attorney Bradley and Bradley's law firm seeking more than $285 million.

More charges

The lawsuit contends that Bradley convinced the Pioneer group to abandon their master limited partnership plan and steered them toward the risky REIT deal.

Bradley, a paid member of Pioneer's advisory board, "advised and strongly encouraged the members of Pioneer" to pursue the REIT, according to the lawsuit.

The Demers group asserts that had not Bradley been so persistent, Pioneer members would instead have completed the master limited partnership and would have received shares with a market value of $140 million.

Instead, the lawsuit alleges, the members of Pioneer now own worthless STP II stock.

The lawsuit also contends that Bradley and his law firm did not disclose their interest in STT, which was also a client of Bradley's. The law firm was an original shareholder in STT and owned more than 100,000 shares in STT and STP II.

However, a letter in the court file from Bradley to Demers dated July 20, 1998 - roughly three months before the timberland deal closed - clearly outlines the conflict of interest Bradley had in representing both Pioneer and STT in the pending deal. Both Edward Broom, CEO of STT, and Demers, signed a waiver allowing Bradley to represent STT. Pioneer apparently hired a Portland firm to represent its interests in the transaction.

The lawsuit by Demers alleges that Bradley and the law firm committed legal malpractice and fraud, and interfered with Pioneer's business. Bradley, who declined comment for this article, denies the allegations in court documents.

"The Sutherland law firm had nothing to do with the failure of the IPO," said Peter Richter, a Portland attorney representing Bradley.

"It's somewhat ironic that the seller of timberland which is alleged to have not been worth what it (was) claimed to be worth is now suing lawyers who ... never did participate in valuation of any timberlands," Richter said.

The lawsuit also alleges that Bradley, Brunet and the Brooms made defamatory statements against Demers and the members of Pioneer to lenders and others in the timber industry.

Bradley and the Brooms either deny they committed slander or assert that their statements were privileged and true, according to court documents.

In the lawsuit, Demers charges that the Brooms and Brunet, by the time the public REIT offering had failed, had cut and sold $50 million worth of timber from the former Pioneer lands without paying down the venture's substantial bank debt.

As part of the acquisition agreement, Pioneer's members had the right to buy back the 360,000 acres of timberland if the public offering failed.

By logging so much of the timber, the lawsuit alleges, the Brooms rendered the buy-back rights worthless.

The lawsuit is set to go to trial early next year. Attorneys for the Brooms are attempting to force the dispute into arbitration.

Joe Harwood can be reached at 338-2364 or [e-mail].

Litigation

THE UNMAKING OF THE DEAL

1990s: Taking out hundreds of millions of dollars in loans, Veneta-based Pioneer Resources LLC buys more than 360,000 acres of timberland in Washington, Oregon and California.

1998: Georgia attorney William Bradley introduces Pioneer Resources to the Broom family of New Hampshire, who were assembling timberland parcels and seeking to register them as a real estate investment trust, or REIT. The Brooms wanted to buy most of Pioneer's timberlands and convert them into a REIT, with shares sold to the public in a process overseen by the federal Securities & Exchange Commission.

October 1998: Pioneer sells 360,000 acres of timberlands for $360 million to Strategic Timber Partners II, a holding company set up by the Brooms. Investing $10 million in cash in the deal were Georgia businessman Larry Woodard and Hans Pielenz, CEO of a Germany-based textile maker.

1999: The attempt at the REIT initial public offering fails.

2000: Woodard and Pielenz sue the Brooms, Pioneer founder Greg Demers and other Pioneer principals, alleging the appraisal of the timberlands vastly overstated their value and that the STP II shares Woodard and Pielenz bought for $10 million are worthless.

2000-2001: Mason, Bruce & Girard Inc., which authored the controversial appraisal, sues Pioneer. Pioneer sues the entity it bought the California timberlands from. And one of the banks that financed the deal sues Mason, Bruce & Girard.

Late 2001: Demers and his partners sue Bradley and the Brooms in U.S. District Court in Eugene, seeking $285 million.

THE LANE

COUNTY TEAM

Greg Demers: Veneta timber dealer, real estate speculator; founder of Pioneer Resources LLC

Ed King: Lorane wine magnate; investor in Pioneer Resources and other Demers ventures

Darrick Salyers, T. Yates Exley: Officers/investors in Pioneer Resources

THE OPPOSITION

Edward, Thomas, Christopher Broom: Principals of New Hampshire-based Strategic Timber Trust Inc. (STT), a timberland holding company

Nicholas Brunet: Chief of forestry for STT

William Bradley: Partner at Sutherland, Asbill & Brennan, a Georgia-based law firm that brought Pioneer Resources and the Brooms together. Bradley was Demers' personal attorney and a member of Pioneer's advisory board. Bradley's firm was an early investor in STT.

Larry Woodard (a longtime client of Sutherland, Asbill & Brennan), Hans Pielenz: Invested $10 million in Brooms' bid to turn Pioneer timberlands into a publicly traded entity.