A March 20 court hearing in Kentucky will determine if Hill 'n' Dale Farms can have a claim dismissed that involves a New York lending firm wanting to take possession of equine assets that were allegedly sold in 2017 at under-market value by financially troubled Zayat Stables, LLC, which is the chief defendant in the same $23 million lawsuit alleging loan default and fraud.
The equine asset in question in this case is the broodmare American Cleopatra, a full sister to 2015 Triple Crown winner American Pharoah.
The Blood-Horse first reported this story Tuesday.
“In Hill 'n' Dale's motion to dismiss, attorneys David Royse and John Roach argued that MGG could not claim a security interest in American Cleopatra because the firm is outside a two-year statute of limitations to do so,” The Blood-Horse reported.
The Blood Horse wrote that the motion for dismissal “also cited a provision in the U.S. Food Security Act that states: 'a buyer who in the ordinary course of business buys a farm product from a seller engaged in farming operations shall take free of a security interest created by the seller, even though…the buyer knows of the existence of such interest.'”
Two other defendants in the amended civil complaint filed Feb. 11 by MGG Investment Group, LP, in Fayette Circuit Court–Thomas Clark Bloodstock and Yeomanstown Stud–have already had similar claims dismissed.
The original defendants in the Jan. 22 lawsuit were Ahmed Zayat, his racing stable, and family members. But 10 prominent bloodstock individuals and entities that the plaintiff is alleging played a role in the Zayats' “fraudulent scheme” were later added.
In targeting the bloodstock defendants who had bought either horses or interests in breeding shares from Zayat Stable, MGG is arguing that because it had filed Uniform Commercial Code statements designed to give a lender publicly secured rights to loan collateral, it should be able to recoup those equine assets (based on the reasoning that buyers should have known to check whether those equine assets were publicly disclosed as the Zayats' loan collateral).
Frank Becker, a Lexington, Kentucky, attorney specializing in equine law, told TDN Feb. 14 that “I believe that MGG's claims, which are based on state law, have been pre-empted by federal law and I don't see how they can prevail on this. If the state courts of Kentucky agree with MGG, some bankers might be happy, but it would wreak havoc in the horse industry in Kentucky.”
In “replevin” and “constructive trust” counts against Hill 'N' Dale, the MGG suit seeks the return of American Cleopatra, who allegedly sold for $1.3 million, “far below Zayat Stables' appraised value.” In addition, the suit seeks the placement in trust of any offspring and/or proceeds therefrom, “including the American Cleopatra/Tapit foal.”
Replevin–which is sometimes used in lieu of repossession by vehicle dealers going after people who default on auto loans–involves an action to recover personal property that was wrongfully taken or detained.
Constructive trust–which is sometimes cited when a party breaches a fiduciary duty– is something imposed by a court in order to prevent unjust enrichment by someone who has wrongfully obtained an interest in another person's property.
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