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James T. Scatuorchio Racing Stable, LLC v. Walmac Stud Management, LLC

United States District Court, E.D. Kentucky, Central Division, Lexington

April 17, 2014

JAMES T. SCATUORCHIO RACING STABLE, LLC, et al., Plaintiffs,
v.
WALMAC STUD MANAGEMENT, LLC, et al., Defendants.

MEMORANDUM OPINION AND ORDER

DANNY C. REEVES, District Judge.

This matter is pending for consideration of Defendant Saybrook Advertising, LLC's ("Saybrook") motion for summary judgment regarding the plaintiffs' fraud claims as set out in Count Ten of the Second Verified Amended Complaint (the "Complaint"). [Record No. 165] After Saybrook filed this motion, the Court granted its motion to compel arbitration, ordering Plaintiffs James T. Scatuorchio, LLC ("Scatuorchio, LLC"), James T. Scatuorchio ("JTS"), Kevin Scatuorchio, and Courtney Sullivan's fraud claims against Saybrook to be arbitration. [Record No. 268] Thus, the sole remaining claim against Saybrook is Plaintiff Bryan Sullivan's ("Sullivan") fraud claim. For the reasons discussed below, the Court will grant Saybrook's motion for summary judgment.

I.

The factual and procedural history of this matter is lengthy; however, in relevant part, this action arises from a series of contracts regarding the ownership and stud career of the thoroughbred stallion Ready's Image. These contracts include the Purchase Agreement, Stallion Co-Ownership Agreement ("COA"), Installment Agreement (a/k/a Southern Hemisphere Sale Agreement), Southern Hemisphere Co-Ownership Agreement ("SHCOA"), Southern Hemisphere Lease Agreement ("SHLA"), and Mare Agreement. The plaintiffs claim wrongful conduct by the defendants during the transfer of ownership and management rights of Ready's Image. They allege that the defendants fraudulently transferred ownership interests in Ready's Image to other parties and that after the ownership and management interests were transferred, the defendants violated the relevant agreements, resulting in breach of contract, good faith and fair dealing, and fiduciary duties. The plaintiffs also assert claims of fraud and conspiracy.

A. The Parties' Agreements

On October 2, 2008, Plaintiffs Scatuorchio, LLC, and JTS' children, Kevin Scatuorchio and Courtney Sullivan, sold a two-thirds undivided interest in Ready's Image to Defendant Walmac Stud Management ("Walmac Stud"). This agreement was memorialized in the Sale Agreement. These parties also entered into the COA which established the terms and conditions of the parties' relationship as co-owners of Ready's Image. Pursuant to the COA, Walmac Stud was named as the "Stallion Manager" and was responsible for the day-to-day management of Ready's Image, as well as procuring mares to breed with Ready's Image. The COA provides that the "Stallion Manager's affiliate, or the Stallion Manager" is entitled to receive "commercially reasonable fees" for expenses related to the boarding, transportation, advertising and promotion, veterinary care and maintenance of Ready's Image, along with other expenses incurred regarding reasonable postage, printing, banking, legal, accounting and bookkeeping expenses. [Record No. 72-1, p. 26 ¶ 2.12; Id., pp. 30-31 ¶ 6] Each co-owner is responsible for their pro rata share of these expenses. Sullivan is not a signatory to the COA and does not have any ownership interest in Ready's Image. [Record No. 216-6, p. 79-80]

Walmac Stud has a management agreement with Defendant Walmac Farm, LLC ("Walmac Farm") where Ready's Image stood at stud in Lexington, Kentucky. As part of this management agreement, Walmac Farm handled a majority of the daily operations of managing Ready's Image, as well as other thoroughbred stallions. [ See Record No. 205.] Defendant John T.L. Jones, III ("Jones") is the Managing Director of both Walmac Farm and Walmac Stud. [ Id., p. 1 ¶¶ 3-4.]

On April 23, 2009, the parties entered into three additional agreements vesting other entities with ownership interest and responsibilities regarding the management of Ready's Image in the Southern Hemisphere. These agreements included the: (i) Southern Hemisphere Sale Agreement; (ii) SHCOA; and (iii) SHLA, (collectively, the "Southern Hemisphere Agreements"). Under these agreements, Defendant Lincoln-Walmac Associated Farms Pty., Ltd. ("Lincoln-Walmac") became a co-owner of Ready's Image in the Southern Hemisphere, and the SHCOA designated Walmac Stud as the Stallion Manager for all Southern Hemisphere operations.[1] Sullivan is not a party to the Southern Hemisphere Agreements.

By early 2010, after a somewhat disappointing first year at stud, the parties became concerned that not enough was being done to promote Ready's Image to potential mare-owners. As a result, on January 20, 2010, Plaintiffs JTS, Kevin Scatuorchio, and Bryan Sullivan (collectively, the "Mare Plaintiffs") entered into the Mare Agreement with Defendant Jones, who signed as the Managing Director of Walmac Farm. Notably, the Mare Plaintiffs were represented by their attorney Richard Schibell when they entered into the Mare Agreement. [ See id. (noting that Schibell is "cc'd" on the Mare Agreement); see also Deposition of Plaintiff Sullivan, Record No. 216-6, p. 56 (stating that Schibell represented the Mare Plaintiffs in connection with the Mare Agreement).] Saybrook is not a party to the Mare Agreement.

Under the Mare Agreement, the Mare Plaintiffs would receive the proceeds of any contracts associated with mares delivered by the Mare Plaintiffs to Walmac Farm for breeding with Ready's Image, up to a limit of twenty mares during the 2010 season. [ See Record No. 72-1, pp. 80-81.] More specifically, the Mare Agreement states, in part, that it is agreed that if:

1) The "Original Ready's Image Owners" pay shipping costs from another state to and from Kentucky for a mare (hereinafter "Mare") shipped in 2010 to breed to Ready's Image and pay the board and routine veterinary charges for the Mare while boarded in Kentucky for the 2010 breeding and
2) Have a third party owner sign a breeding contract to breed the Mare, the same mare for which they paid the shipping, board, and veterinary expenses noted above, to Ready's Image, and said breeding contract shall be standard Walmac Farm breeding contract form and shall be for the full advertised stud fee payable when the foal stands and nurses or earlier,
Then the Ready's Image Syndiate shall remit all proceeds from the sale of each contract executed for such mare to the Original Ready's Image Owners.

[Record No. 72-1, p. 80]

According to the Mare Agreement, the Mare Plaintiffs delivered fourteen mares to Ready's Image for breeding. [Record No. 209-3, p. 20] However, they contend that they have not received any distribution of the proceeds generated for eleven of the fourteen mares delivered from either Walmac Stud or Walmac Farm in breach of the Mare Agreement. [ Id. ] Sullivan has alleged claims of breach of the Mare Agreement, and breach of the covenant of good ...


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