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

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

April 29, 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.

Defendant Lincoln-Walmac Associated Farms, Pty Ltd.'s ("Lincoln-Walmac") has moved the Court to compel arbitration and reconsider and amend an earlier Amended Memorandum Opinion and Order. [Record No. 270] It contends that information obtained during discovery require that all remaining claims against it - as well as its counterclaim - be submitted to arbitration. [ Id. ] Having reviewed the motion, the Court concludes that a response is not needed. The motion will be denied.

I.

The thoroughbred stallion Ready's Image is currently co-owned by Plaintiffs James T. Scatuorchio, LLC ("Scatuorchio, LLC"), Kevin Scatuorchio, and Courtney Sullivan and a number of the defendants, including Defendant Lincoln-Walmac. The plaintiffs' Second Amended Complaint ("Complaint") is based upon the alleged "dishonest and fraudulent" manner in which Defendants Walmac Stud Management, LLC ("Walmac Stud"), Walmac Farm, LLC ("Walmac Farm"), John T.L. Jones III ("Jones"); Saybrook Advertising, LLC ("Saybrook"), and Lincoln-Walmac managed the stud career of Ready's Image. The plaintiffs also allege that the defendants breach of a number of written contracts. One of the contracts in issue is the Stallion Co-Ownership Agreement ("COA"). The COA is signed by Defendant Walmac Stud and Plaintiffs Kevin Scatuorchio, Courtney Sullivan, and Scatuorchio, LLC, by its member Co-Plaintiff James T. Scatuorchio. [Record No. 72-1, pp. 22-35] Lincoln-Walmac is not a signatory to the COA.

One purpose of the COA was to establish the terms and conditions of the parties' relationship as co-owners of Ready's Image. The COA contains an arbitration provision that states, in part:

7.16 Arbitration. If a disagreement exists among the Co-Owners or between one or more of the Co-Owners and the Stallion Manager concerning READY'S IMAGE or relating to the relationships, rights, duties, or obligations hereunder (a "Dispute"), any one of the disputants may require the other parties to submit the Dispute to arbitration if good faith negotiations among the parties do not resolve the Dispute.

[Record No. 72-1, p. 33] The scope of this provision has been a point of contention throughout this litigation.

After the COA was executed, the parties entered into three additional agreements vesting other entities with ownership interest and responsibilities concerning the management of Ready's Image in the Southern Hemisphere. These agreements included the: (i) Installment Agreement (a/k/a Southern Hemisphere Sale Agreement); (ii) Southern Hemisphere Co-Ownership Agreement ("SHCOA"); and (iii) Southern Hemisphere Lease Agreement ("SHLA"), (collectively, the "Southern Hemisphere Agreements"). Under these agreements, 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.

The underlying purpose of the SHCOA was to govern the rights and obligations of the parties having an ownership interest in Ready's Image in the Southern Hemisphere during the stallion's breeding time in Australia. Additionally, under the SHLA, Lincoln-Walmac was also designated as a lessee of the "use, purpose and attributes" for the purpose of Ready's Image's breeding in the Southern Hemisphere for the 2009-2012 Southern Hemisphere breeding seasons. [Record No. 72-1, p. 67] In accordance with the SHLA, Lincoln-Walmac also assumed responsibility for the care, upkeep, and marketing of Ready's Image in the Southern Hemisphere, and thus arguably became the de facto Stallion Manager of Ready's Image in the Southern Hemisphere for the duration of the lease. Lincoln-Walmac was responsible for remitting to the co-owners any revenue generated by Ready's Image in the Southern Hemisphere in the form of "Stallion Rent." [ See Record No. 72-1, p. 68 (defining "Stallion Rent" and the fee and payment structure and formula under the SHLA).]

The procedural posture of this matter in its entirety, as well as the issues specifically relating to the parties' disagreements over the scope of the COA's arbitration provision, have been previously detailed in several orders. [ See Record No. 263; see also Record No. 103] In pertinent part, the defendants previously filed a motion to dismiss, arguing that all of the plaintiffs' claims are subject to the arbitration provision of the COA, as well as other alternative dispute resolution provisions outlined in a number of the parties' other contracts. [Record Nos. 19, 31]

Following oral arguments and briefing, United States District Judge Jennifer Coffman (now retired) concluded that the COA contains a legally binding arbitration provision. [ See Record Nos. 86, 103.] Judge Coffman next addressed the scope of the COA's arbitration provision finding that, given the "expansive arbitration provision as well as the policy favoring arbitration as to doubts regarding the scope of an arbitration provision, all of the plaintiffs' claims except counts 3, 6, and parts of 8 and 14 will be submitted to arbitration." [Record No. 86, p. 10] However, she further concluded that the defendants failed to demonstrate that the non-signatory parties, including, in part, Co-Plaintiff Bryan Sullivan, Saybrook, Walmac Farm, and Lincoln-Walmac are bound by the arbitration provision of the COA. [ Id., p. 15 (noting that although non-signatories may be bound to an arbitration provision of a contract, it must be demonstrated that the non-signatories were "third party direct beneficiaries" to the contract) (citing Olshan Found. Repair & Waterproofing v. Otto, 276 S.W.3d 827, 831 (Ky. Ct. App. 2009)] Thus, Judge Coffman determined that only Scatuorchio, LLC, Walmac Stud, Jones, James Scatuorchio, Kevin Scatuorchio, and Courtney Sullivan "are bound to arbitrate the claims brought against them which fall under the scope of the COA arbitration provision." [ Id., p. 16]

Notwithstanding this determination, the parties disagreed regarding the extent to which claims remained before the Court and over those which were sent to arbitration. [Record No. 96; see also Record Nos. 98, 99, 102.] On January 2, 2013, the Court issued an Amended Memorandum Opinion and Order clarifying that, although the certain claims against Jones and Walmac Stud were subject to arbitration, the same claims against Walmac Farm, Saybrook, and Lincoln-Walmac were not arbitrable because they were not a signatory to the COA. [Record No. 103] Thus, with respect to Lincoln-Walmac, it was determined that all of the plaintiffs' claims against it, as well as its counterclaim, remained before the Court. Specifically, this includes[1]:

(1) Count 2 for Breach of the Southern Hemisphere Agreements, by the plaintiffs against Lincoln-Walmac;
(2) Count 5 for breach of the Covenants of Good Faith and Fair dealing as to the Southern Hemisphere Agreements, by the ...

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