ClassicStar Bankruptcy Filing Presents New Issues to Complex Legal Battle
Updated: Friday, September 21, 2007 6:31 PM
Posted: Thursday, September 20, 2007 3:02 PM
The recent filing for bankruptcy protection by ClassicStar LLC will streamline claims against the one-time broodmare lease operator, an attorney for the embattled entity says, but its effect on multiple legal actions already in the pipeline isn’t exactly clear.
ClassicStar -- which filed for Chapter 11 protection in Kentucky federal court Sept. 14 -- and related entities and individuals are involved in more than 30 civil lawsuits filed at various court levels in at least six states.
“We believe that the bankruptcy process is the most efficient, fairest, and most equitable way to resolve all of these claims out of the ClassicStar mare lease program,” said James W. Gardner, a Lexington attorney representing ClassicStar. “We think that the bankruptcy process will allow the best way to resolve all these claims so that all of the creditors are treated equally -- as opposed to the first one in gets something while the others don’t.”
According to allegations made in various court filings, ClassicStar and other defendants, which include now adversarial former employees David Plummer and Spencer Plummer, oversold interests in mare lease packages that also promised significant tax breaks to investors who were largely new to the racing and breeding game.
Some lawsuits, such as a recent one
filed by former professional basketball player Greg Minor, claim its clients often lost millions of dollars in investments and paid stiff penalties resulting from federal tax audits.
The bankruptcy petition lists nearly 500 creditors, many of them former lease clients, with claims totals stopping just short of $70 million. That figure doesn’t include damages sought in various lawsuits, in some of which estimated alleged fraudulent gain exceeds $600 million.
Seven federal lawsuits in California, Florida, Kentucky, Pennsylvania, and Utah are under consideration for transfer to a single court. The Judicial Panel on Multidistrict Litigation will hear oral arguments Sept. 27 in New York on the petition and will possibly announce its decision on the consolidation request by the end of October.
Gardner said he couldn’t comment on the impact of the bankruptcy on the panel’s decision, but South Carolina attorney Timothy E. Eble, who is also a consultant on multidistrict litigation, said the introduction of such reorganization plans into related lawsuits can be muddling and confusing.
“It’s not unlike someone asking you what the meaning of life is,” said Eble, whose practice also includes complex class-action lawsuits. “When you start talking bankruptcy law, you are talking about a whole other world than just litigating a civil case in federal district court.”
But Eble, who is not familiar with the details of the ClassicStar saga, speculated that while the judicial panel will likely consider the bankruptcy in its decision to consolidate or not, its ultimate judgment will rest on the similarities of the respective civil cases.
“They will probably be aware (of the bankruptcy), and people will argue that they shouldn’t transfer it now because the bankruptcy has thrown a monkey wrench into things,” he said. “But the panel will probably totally disregard the bankruptcy in making the decision on what to do with the remaining defendants.”
Only ClassicStar LLC filed for bankruptcy protection; other related entities and individuals have not. In the most recent federal case filed in Kentucky, the roster of defendants features several ClassicStar-related entities and individuals, including ClassicStar Farms, ClassicStar Thoroughbreds, ClassicStar 2005 Powerfoal Stables, ClassicStar 2004, Geostar Corp., Geostar Equine Energy, Geostar Financial Services Corp., and First Equine Energy Partners, as well as executives involved in some or all of those endeavors: Tony Ferguson, Thom Robinson, and John Parrot.
David and Spencer Plummer, who exited
the ClassicStar fold with termination agreements just prior to a raids by federal agents in Kentucky
and Utah in February 2006, are also named in multiple lawsuits, including disputes where the operation’s principals lay blame on each other.
Spencer Plummer has outlined his side of the broodmare lease operator’s alleged misadventures in a lawsuit against ClassicStar, its parent company Geostar, three Geostar executives, and related publicly-traded energy company Gastar.
Plummer, who is suing for compensation he allegedly never received during his tenure with ClassicStar, claims in a reply brief that Geostar “looted” upwards to $135 million from the Thoroughbred operation and “upstreamed” it to the coffers of the Florida-based energy business. During his employment, Plummer claims he had no “authority over or control of (ClassicStar) funds, financial records, or tax returns.”
He further paints a picture of opulent living by executives Ferguson, Parrott, and Robinson, claiming the trio enjoyed “vast resources, which included their multiple private jet airplanes, country club memberships, and private homes in the Virgin Islands,” where Plummer says Geostar was allegedly developing hotels and casinos.
ClassicStar management has long directed blame for the company’s woes at the Plummers. ClassicStar in June filed a cross-claim
against the Plummers and others in which it alleges the father-son team manipulated company finances and investor funds for their own enrichment, among other charges.
A criminal investigation resulting from the IRS raids is believed to be ongoing in the U.S. Attorney’s Office in Oregon, as is a separate investigation by the Securities and Exchange Commission.
FREE! E-Newsletters from The Blood-Horse!...
Follow the top stories of major racing events, racing previews and results with FREE e-newsletters from bloodhorse.com. As news develops, we'll deliver updates to your inbox. Follow important events moment by moment, step by step!