Lennox Heir Mines $68M Foreclosure


Lennox Heir Mines $68M Foreclosure
MS Industries II LLC of Russellville, Alabama, a mining research and development company, was formed in 2012. (MS Industries)

Everyone can agree that Steven Booth lent an Alabama mining research and development company $54 million that hasn’t been repaid.

But past that, agreement breaks down.

Booth, who lives in Fayetteville, alleges in a civil lawsuit that his former local lawyers, Joseph Reece and Lee Moore of the RPM LLP law firm in Johnson, encouraged the loans to their client, MS Industries II LLC, when they should have been warning him about the company’s majority owner, Steven Dale Smith.

Booth said in court filings that some of the proceeds from the loans went to Smith to support his “personal and extravagant lifestyle and other personal business interests.”

Booth also has a separate foreclosure lawsuit pending in Alabama against MS Industries and Smith, seeking the $54 million plus another $14 million in interest.

That case also alleges that MSI intentionally misrepresented facts to convince Booth to make a series of loans.

MSI, Smith and the RPM attorneys all vehemently denied any wrongdoing and described the lawsuits as a frivolous exercise in “revisionist history.”

Smith told Arkansas Business last week that MSI is considering filing a counterclaim against Booth.

He said Booth, an heir to the Lennox heating and air-conditioning fortune, guaranteed up to $30 million more to finish a plant project in 2018, but he didn’t supply the money.

“The company would have actually had a substantial profit were it not for the fact that he didn’t fulfill his obligations,” Smith said. “But we didn’t, because we were out of money.”

In the meantime, Smith said the company is trying to repay the loans to Booth “to get him out of our hair.”

One of Booth’s attorneys, Charles Darwin “Skip” Davidson of the Davidson Law Firm of Little Rock, told Arkansas Business last week that he couldn’t comment on the allegation involving Booth’s guarantee of another $30 million.

Smith also said that Booth is trying to take MSI through force with the foreclosure lawsuit.

“That’s a typical debtor response,” said Davidson, who is representing Booth and his company, S3B LLLP, in the lawsuit against MSI and Smith in Alabama. If MSI wants to avoid foreclosure, he said, “pay the note.”

Negligence Alleged

In the lawsuit filed earlier this month in Washington County Circuit Court, Booth accused Reece, Moore and RMP of professional negligence and breach of fiduciary duty. He is seeking at least $54 million.

The attorneys and the firm said they will defend themselves against the allegations and are confident the allegations will be proven false.

“Joe Reece, Lee Moore and RMP understand that a reputation that spent a lifetime to build can be damaged with just a few false and misleading words,” Moore said in an email to Arkansas Business.

Booth’s lawsuit described Reece as his personal attorney and business adviser.

A lawyer representing RMP and its attorneys told Arkansas Business that the firm was not Booth’s business adviser or financial planner.

“Mr. Booth, whose stated education includes being a scientist specializing in metals, conducted his own due diligence, including a personal trip to the project site in Alabama, and he retained separate counsel to advise him on potential transactions with MSI,” Robert George, an attorney in the Rogers office of Friday Eldredge & Clark who is representing RMP, said in a statement to Arkansas Business.

“RMP has substantial information about Mr. Booth’s day-to-day involvement in the operations of MSI, including his control over and approval of many of the financial disbursements about which he now complains.”

George added that Booth acted on MSI’s behalf in capacities other than that of a lender from 2016 through mid-2018. “We will detail those facts soon in our court filings on behalf of RMP, and those facts will expose as revisionist history the complaint’s suggestion that Mr. Booth was a distant third-party actor who was either misled by RMP or misinformed about MSI,” George said.

Booth became a client of RMP in 2010, according to the lawsuit filed against the firm by Patrick James of James House Downing & Lueken of Little Rock.

A Lennox Heir

Booth, an heir of the founder of HVAC manufacturer Lennox International Inc. of Dallas, inherited substantial wealth.

In November 2009, Booth directly held about 115,000 shares of Lennox International stock and indirectly owned 2.56 million shares for various family trusts, according to a Securities & Exchange Commission filing. At that time, the stock was trading around $32 a share.

According to Booth’s lawsuit, Reece asked Booth in 2015 to lend $10 million to MS Industries, which was formed in 2012.

Booth’s version is that Reece told him that MSI had discovered valuable precious metals in connection with its silica mining activities, had developed a way to extract the precious minerals and was completing the process.

The company has property in several counties in Alabama and a mining pit in Lawrence County, Alabama.

The suit said that Reece told Booth that MSI “stood to reap enormous profits” from mineral extraction and urged Booth to make the loan to MSI.

In addition, Reece allegedly told Booth that the loans were safe and secured by a first-priority lien on MSI’s assets.

Booth claims that he was also told that Smith and his wife would personally guarantee the loan.

The RMP attorneys also “either negligently or intentionally misrepresented” that Smith was a successful businessman, the suit said.

They knew or should have known that Smith “had been subjected to numerous allegations of fraud and deceit prior to 2015,” the suit said.

Smith denied the allegations, calling them “hogwash.”

Booth said in the suit that he later learned that Reece and his firm failed to disclose that there were other royalty holders that were entitled to payments before Booth’s loans.

Booth said he depended on Reece and RMP.

They “were aware of Booth’s limited business experience,” the lawsuit said. “Booth had no experience, knowledge or training as a commercial lender. Booth relied entirely on the advice of the Defendants.”

In the lawsuit Booth filed in March against MS Industries in Lawrence County Circuit Court in Alabama, however, Booth said Smith was the one who urged him to lend money to the company. On Nov. 12, 2015, Booth lent $10 million to MSI.

During the next three years, Booth would lend millions more to the company which, according to Booth’s suit against the attorneys, had 2015 sales of $57,000 and a loss of $6.6 million. Soon after Booth’s initial loan was made, MSI said it needed more money for equipment and working capital, according to the lawsuit against MSI.

Between May and September 2016, Booth agreed to advance the company another $15 million. The company continued to lose money.

At the end of 2016, MSI’s sales had fallen to $46,000 from the previous year, and its loss widened to $7.6 million.

As the company needed more money, it turned to Booth.

“Smith represented to Booth that MSI was progressing in developing a methodology to extract precious metals” and that the loan from Booth would be used to purchase necessary processing equipment and machinery and to provide necessary working capital, the MSI suit said.

Booth agreed and loaned the company more money. The money came through Booth’s company, S3B, which is also a plaintiff in the lawsuits.

Davidson declined to comment on why Booth continued to lend money to MSI, saying it was the subject of the lawsuit involving Reece and RMP, which Davidson is not a part of.

‘Never Made a Profit’

At the end of 2017, MSI had sales of $21,600 and a loss of $2.2 million, according to the lawsuit against the attorneys.

At that time Booth or S3B had lent MSI $49 million, but the company still needed more.

On June 1, 2018, Booth lent MSI another $5 million.

Smith had “constantly represented” that the company’s most valuable asset was the potential to extract precious minerals from its silica mining operations, the suit said.

MSI made a payment on the $54 million on June 15, 2018, but it has been in default since July 2, 2018, Booth’s lawsuit against MSI said.

Booth said in the MSI lawsuit that he later learned that Smith didn’t disclose that between 2016 and 2018 MSI had transferred a total of $10 million to Smith or to related companies for his benefit.

“Smith’s withdrawals from MSI are particularly egregious considering that since MSI’s formation in 2012, that it has never made a profit and first achieved annual gross revenue in excess of” $100,000 in 2019, according to the lawsuit against the company.

Smith told Arkansas Business that as CEO he took the company from zero to $1.7 billion in assets. “I was never compensated one penny,” Smith said. “The funds that were advanced to me were approved by Booth, and they were interest-bearing loans.”

MS Industries said in its pleading that Booth’s role with MSI “was not just as a lender. In fact, Booth became both a member and director of MSI,” facts that were left out of Booth’s lawsuit against the company.

Booth’s attorney, Davidson, told Arkansas Business last week that MSI had no board of directors.

MSI also said in its pleading that the amount of loans to Smith personally were overstated and don’t account for his “substantial infusions of funds into MSI for the last several years.”

MSI said that Booth knew of — and signed off on — the loans made to Smith by MSI that he’s now suing over.

“The Complaint’s premise is that Booth, a man obviously worth hundred of millions of dollars, played the unwitting dupe, loaning $54 million to MSI because he was vaguely told the money was needed for operations, all the while unaware of loans to Smith made by MSI,” the MSI filing said.

MSI also said Booth asked RMP to draft documents to assure that he signed off on all use of funds for each loan advance.

“Did Booth then ignore his explicit rights to approve every expenditure made just because somebody patted him on the head and said it was all going to operations?” MSI said. “Of course not!”

MSI’s motion to dismiss is pending. Davidson said the MSI lawsuit is in the discovery phase and he will file a motion for summary judgment.

The trial is set for April.