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 Eastern Oregon is a geographical term that is generally taken to mean the area of the state of Oregon east of the Cascade Range, save the region around The Dalles and sometimes Klamath County. The area around Bend is considered to be Central Oregon rather than Eastern Oregon. and a plywood plywood, manufactured board composed of an odd number of thin sheets of wood glued together under pressure with grains of the successive layers at right angles. Laminated wood differs from plywood in that the grains of its sheets are parallel. 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 haunt
v. haunt·ed, haunt·ing, haunts
1. To inhabit, visit, or appear to in the form of a ghost or other supernatural being.
2. Demers, King and their partners. The deal, in which they sold 360,000 acres of Pacific Northwest timberland to a New Hampshire New Hampshire, one of the New England states of the NE United States. It is bordered by Massachusetts (S), Vermont, with the Connecticut R. forming the boundary (W), the Canadian province of Quebec (NW), and Maine and a short strip of the Atlantic Ocean (E). concern, has drawn the Demers group into a sticky web of financial litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.
When a person begins a civil lawsuit, the person enters into a process called litigation. . The lawsuits are replete re·plete
1. Abundantly supplied; abounding: a stream replete with trout; an apartment replete with Empire furniture.
2. Filled to satiation; gorged.
3. with charges and counter-charges of fraud, conspiracy, and slander slander: see libel and slander.
See also Gossip.
Slaughter (See MASSACRE.)
calumniating, niggardly bigot. [Fr. Lit. , plus an allegation The assertion, claim, declaration, or statement of a party to an action, setting out what he or she expects to prove.
If the allegations in a plaintiff's complaint are insufficient to establish that the person's legal rights have been violated, the defendant can make a that Demers promised an appraiser A person selected or appointed by a competent authority or an interested party to evaluate the financial worth of property.
Appraisers are frequently appointed in probate and condemnation proceedings and are also used by banks and real estate concerns to determine the market a $500,000 "kickback The seller's return of part of the purchase price of an item to a buyer or buyer's representative for the purpose of inducing a purchase or improperly influencing future purchases. " for a favorable fa·vor·a·ble
1. Advantageous; helpful: favorable winds.
2. Encouraging; propitious: a favorable diagnosis.
3. timberland appraisal. Demers and the appraiser deny the kickback accusation A formal criminal charge against a person alleged to have committed an offense punishable by law, which is presented before a court or a magistrate having jurisdiction to inquire into the alleged crime. .
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 Overheating
An economy that is growing very quickly, with the risk of high inflation. and crumbling after a decade-long bull run.
Now, all the sides in the grandiose grandiose /gran·di·ose/ (gran´de-os?) in psychiatry, pertaining to exaggerated belief or claims of one's importance or identity, often manifested by delusions of great wealth, power, or fame. timberland deal are squabbling over who was to blame and who is entitled en·ti·tle
tr.v. en·ti·tled, en·ti·tling, en·ti·tles
1. To give a name or title to.
2. To furnish with a right or claim to something: 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 (Logical Link Control) See "LANs" under data link protocol.
LLC - Logical Link Control , Demers, King and a few other investors went on a buying binge in the 1990s, snapping up timberland in Washington, Oregon and Northern California Northern California, sometimes referred to as NorCal, is the northern portion of the U.S. state of California. The region contains the San Francisco Bay Area, the state capital, Sacramento; as well as the substantial natural beauty of the redwood forests, the northern .
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 according to
1. As stated or indicated by; on the authority of: according to historians.
2. In keeping with: according to instructions.
3. 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 William Bradley may refer to:
Bradley, a timber law expert, had represented Pioneer in several of its timberland acquisitions in western Washington
Western Washington is a region of the United States defined as that part of Washington west of the Cascade Mountains. 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 broom, common name for plants of two closely related and similar Old World genera, Cytisus and Genista, of the family Leguminosae (pulse family). and his two sons, Thomas and Christopher Broom. The Brooms operate Strategic Timber Trust Inc., a timberland holding company in New London, New Hampshire New London is a town in Merrimack County, New Hampshire, United States. The population was 4,116 at the 2000 census. History
The town went through a number of names - Heidelberg (1753), Alexandria Addition (1773), New Londonderry (1779) - before shortening the latter to .
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 REIT
See: Real Estate Investment Trust
See real estate investment trust (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 STP or standard temperature and pressure, standard conditions for measurement of the properties of matter. The standard temperature is the freezing point of pure water, 0°C; or 273.15°K;. 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 Redding, city (1990 pop. 66,462), seat of Shasta co., N central Calif., on the Sacramento River; inc. 1872. A principal tourist center for a mountain and lake region, it also has lumbering, food-processing, and diverse manufacturing. , 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 mis·rep·re·sent
tr.v. mis·rep·re·sent·ed, mis·rep·re·sent·ing, mis·rep·re·sents
1. To give an incorrect or misleading representation of.
2. 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 STT State Street Corporation (stock symbol)
STT Suomen Tietotoimisto (Finnish National News Agency)
STT Secure Transaction Technology
STT Surface Tension Transfer (welding) employee, chief of forestry Nicholas Brunet, also questioned the timberlands' value.
"Future is not rosy ros·y
adj. ros·i·er, ros·i·est
a. Having the characteristic pink or red color of a rose.
b. Flushed with a healthy glow: rosy cheeks.
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 Salable; of quality and type ordinarily acceptable among vendors and buyers.
An item is deemed merchantable if it is reasonably fit for the ordinary purposes for which such products are manufactured and sold. For example, soap is merchantable if it cleans. 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.
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 (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of STT, and Demers, signed a waiver The voluntary surrender of a known right; conduct supporting an inference that a particular right has been relinquished.
The term waiver is used in many legal contexts. 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 A lawyer is obligated to comply with a code of ethics that is adopted by the state in which the lawyer practices. These rules, typically known as the Model Rules of Ethics, or Ethical Rules, address a lawyer's conduct in various situations. 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 (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. ," 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 def·a·ma·tion
The act of defaming; calumny.
de·fama·tory adj. 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 firstname.lastname@example.org.
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 o·ver·state
tr.v. o·ver·stat·ed, o·ver·stat·ing, o·ver·states
To state in exaggerated terms. See Synonyms at exaggerate.
o 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.
Greg Demers: Veneta timber dealer, real estate speculator Speculator
A person who trades (i.e. derivatives, commodities, bonds, equities or currencies) with a higher-than-average risk, in return for a higher-than-average profit potential. ; 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
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 long·time
Having existed or persisted for a long time: a longtime friend; a longtime resident of Detroit.
Adjective client of Sutherland, Asbill & Brennan), Hans Pielenz: Invested $10 million in Brooms' bid to turn Pioneer timberlands into a publicly traded entity.