Franklin County Senior Judge Roger Crittenden suddenly announced his intentions April 16 during a hearing in the civil lawsuit that includes as defendants Cunningham and Gallion, and some of their former clients from the class-action lawsuit over the diet drug fen-phen, who are now plaintiffs in the legal battle over settlement funds.
Responding to comments from plaintiffs’ attorney Angela M. Ford, who has repeatedly voiced frustration in trying to recover from the defendants their part of a $42 million judgment awarded last August, Crittenden said he would sign necessary orders “to be made effective some time in the next two to three weeks.”
Attorney Andre Regard, who represents Tandy LLC, the entity that controls the defendants’ racing operation, Midnight Cry Stable, then queried the judge on how he should advise his clients on the potential sale of the assets.
“Should I recommend to my clients that they start winding up their business?” Regard asked. “There are a lot of guys out there training horses … there are 26 horses, employees -- at this rate, there needs to be some good way to wrap this up.”
Crittenden replied, “I think you probably need to advise your clients that at some point in time in the next couple of weeks, I intend to enter an order that allows the plaintiffs to execute on the wholly-owned (limited liability companies).”
Gallion and Cunningham, who along with fellow attorney Melbourne Mills Jr., are accused of skimming about $126 million from the $200 million settlement awarded in the fen-phen action. Curlin, who recently won the $6 million Dubai World Cup (UAE-I), is owned 20% by the Tandy company affiliated with the attorneys, who purchased the son of Smart Strike for $57,000 at the 2005 Keeneland September yearling sale. The remaining 80% is owned by Stonestreet Stables.
In a post-hearing interview, Ford said she considered the judge’s decision a victory for her clients, particularly since several previous foreclosure-styled motions had been denied. The latest motion, which was filed in early March, asked the court to execute on, or seize property, from the defendants' “alter egos” – 10 limited liability companies including Tandy that were allegedly set up by the attorneys after the fen-phen settlement.
“I think Judge Crittenden recognized, as in other cases with such circumstances … that you can’t take ill-gotten gains and park them in LLCs in hopes of retaining them,” Ford said.
It’s not clear at this point how the assets will be sold, or if they will be offered as a single lot or individually. It is believed that the limited liability companies feature a variety of holdings, including real estate, among other assets.
Ford believes selling the assets individually would “maximize their value,” noting it would be difficult to find a single buyer for the various holdings.
It is believed that Stonestreet Stables has a first right of refusal on any sale of Tandy’s minority interest in Curlin, which if true, means the majority owner could possibly match any successful bid for the champion colt.
Attorney Richard Getty, who represents Stonestreet, declined to confirm the first right of refusal scenario, but said owners Jess Jackson and his wife, Barbara Banke, would “exercise any and all rights included in the terms of the agreement.”
Stonestreet Stables in the hearing also asked Crittenden for help in obtaining about $10,000 it claims Tandy owes for providing security for Curlin. In a pleading, Stonestreet Stables said “around the clock” protection had to be provided for Curlin, due, in part, to the publicity surrounding the lawsuit.
Tandy, in an objection to the motion filed April 15, said, in part, that the security expenses were "unnecessary, unreasonable, and not in the ordinary course of business for a training stable."
“We were stunned, given the circumstances of $720,000 coming into Tandy, that there would be any objection to this,” Getty said to Crittenden, noting the company’s prorated share of the Dubai World Cup purse winnings. “These decisions that have been made consistently in failing to be reasonable, failing to agree to the simplest things … are just not logical. And it’s unfortunate that I have to come to this court in order to get it approved when it is clearly covered by the (ownership) agreement.”
Regard argued that a court-appointed receiver previously assigned to oversee Tandy’s operations “has been given no management authority. We have other bills that need to be paid, and this (expense) is not a priority at this time.”
Crittenden declined to rule on the Stonestreet Stables motion at the hearing, saying he would make a decision on it at a later time. He also ruled against a previous motion filed by the plaintiffs asking that Cunningham and Gallion be held in contempt for failing to provide information about their assets.
“They’re already in jail. What am I going to do?” Crittenden said, noting the attorneys are incarcerated for actions related to a federal criminal action being heard in Covington, Ky.
In addition to the Curlin interest, Midnight Cry Stable also owns horses such as multiple grade-I winner Einstein -- who most-recently finished second to Kip Deville in the April 11 Maker’s Mark Mile (gr. IT) at Keeneland -- and stakes winner Stormin Baghdad.