Among the variety of reasons given for overruling a motion made by the unsecured creditors committee, U.S. District Judge David T. Stosberg said the presence of former Jockeys’ Guild general manager Wayne Gertmenian as chairman of the committee was a key factor.
“I do have concerns that the present makeup of the committee is chaired by someone who has a very significant claim and who was involved in the previous management of the company,” said Stosberg of Gertmenian, who is accused by the Guild of siphoning about $1 million from the organization before being ousted in November 2005.
“The court can’t help but consider that,” he told those in attendance at the Louisville courtroom, a group that included current Guild manager Terry Meyocks. “It’s not the compelling reason, but it is certainly one of the factors the court considered.”
A lawyer for the six-person committee, which also includes others with ties to Gertmenian’s rocky tenure and another former general manager, Dwight Manley, argued that the transfer to California was appropriate. In part, attorney Erika Barnes noted the Guild operated in California for several years leading up to the days the bankruptcy was filed in Kentucky, and just prior to the group’s move of its headquarters to Nicholasville, Ky.
“The debtor was not forced to move, the debtor was not required to move,” said Barnes, who also noted that two-thirds of the largest 20 creditors and all five of the original committee members were from California. (A sixth member of the committee added in December, retired Hall of Fame jockey and former Guild president, Jerry Bailey, is a Florida resident).
In arguing against the venue change, Guild-affiliated attorney Lea Goff also refuted the committee’s claim that most of the Guild’s assets had California ties. She noted one of the Guild’s top assets, a $1.2 million contribution agreement with Churchill Downs, was based in Kentucky, and other assets, such as jockey dues, came from around the country.
“The Guild’s sources of income are nationwide,” she said, noting informal agreements with other racetracks such as those owned by Magna Entertainment Corp., which has tracks in several states. “The Guild is really a national organization. Its members are national. Its sources of income are national.”
Attorneys representing Churchill Downs and the Office of the U.S. Trustee also argued against venue change. They said bankruptcy proceedings are already too far along to uproot and start over, and noted a plan for the Guild to emerge from bankruptcy may be submitted within a couple of weeks.
Scott Goldberg, an attorney representing the Office of the U.S. Trustee, also questioned the committee’s true reasoning for the request for venue change. The Guild sued Gertmenian in California federal court, a case that was dismissed last October but is on appeal pending the outcome of the bankruptcy. The Guild also has a lawsuit at the California superior court level against fellow committee member Lloyd Ownbey Jr., who was former legal counsel during Gertmenian’s tenure. Gertmenian and Ownbey have claims against the Guild for $915,000 and $19,680, respectively.
“We agree that the case is properly venued here,” Goldberg told Stosberg. “We also think the court needs to look behind this motion and what motivated the committee to request that this case be transferred to California at this late point. We think it is reasonable to conclude that this was brought at the request of Mr. Gertmenian and Mr. Ownbey to make it more convenient for them should the debtor decide to pursue litigation against them.”
In making his decision, Stosberg also said he feared what a change to another court could mean to the overall outcome of the case.
“This court has familiarity with the case and familiarity with racing,” he said. “I don’t hold myself out as expert, but I do have some expertise.”
In setting an April 22 status conference that will review in part the emergence plan scheduled to be filed by the Guild Feb. 11, Stosberg jokingly noted the industry’s high interest in the case.
“We can have the whole horse racing world here,” he said of the hearing. “We could put it on TVG if we allowed cameras – or HRTV; I don’t want to be prejudicial against Churchill Downs (which owns half of the racing network).”
While discussing other motions presented in the two-hour hearing, Stosberg said the jockeys needed to be protected in the matter, and the Guild needed latitude in getting its financial situation back in order.
“The tracks could do something real easy -- they could all increase donations and put up more money and this would all go away,” he said.
Churchill Downs Inc. is the only racing entity with a formal agreement to contribute to the Guild. CDI recently filed a motion asking the court to help facilitate its contributions to the Guild, including a $150,000 payment that was due in mid-January.
CDI asked Stosberg to make certain aspects of its agreement confidential, claiming full public disclosure would give an unfair advantage to other racetracks that may be negotiating with the Guild. The judge at first balked at the request, saying financial transparency is a foundation of bankruptcy reorganization, but finally agreed to make full disclosure of the CDI agreement available only to parties in the case.