Judge Rules Stallion Shares Must be Offered
A federal judge has cleared the way for shares in Lane’s End stallions Kingmambo and Lemon Drop Kid to be submitted to syndicate members, who would have the right to match the offers or let the sales go through.
In a Jan. 28 ruling (read the ruling here), United States District Judge Karen Caldwell ruled that offers by an entity known as KNC Investments to purchase a Lemon Drop Kid share for $350,000 (including commission) and a Kingmambo share for $175,000 (including commission) are proper and should be submitted to other syndicate members, who have the right to match the offers under terms of the syndicate agreement. KNC Investments is represented by prominent owner-breeder Jerry Jamgotchian.
Lane’s End initially filed for and received a temporary restraining order holding up the sale of the Lemon Drop Kid share owned by Ashley Andrews and the Kingmambo share owned by Andrews and Robert Raphaelson.
Attorneys for Lane’s End contended the buyers had not complied with certain terms of the syndicate agreement, including meeting a deadline declaring their intent to purchase the shares and failure to disclose all terms under which the shares were being bought. They also questioned Jamgotchian’s role in the transactions, citing Kentucky law pertaining to dual agents in equine transactions.
Lane’s End’s attorneys also requested the commissions being paid Jamgotchian be reduced to an industry standard of 5% of the purchase price for each share should one or both be picked up by another shareholder. Under those terms, instead of getting $50,000 in commissions for each if purchased by KNC Investments, Jamgotchian would receive a $15,000 commission if the Lemon Drop Kid share is picked up by another shareholder and $6,250 if the Kingmambo share is picked up.
Jamgotchian said the commissions were structured to cover legal costs and other fees associated with the sale of the shares.
Caldwell, ruling on several motions in the case, determined a temporary restraining order granted by Lane’s End in September should be dissolved because the defendants had complied with the disclosures being sought by Lane’s End. Also, Caldwell ruled that the share offers should be submitted to shareholders with the full purchase price, including Jamgotchian’s commissions.
“...Under the agreements, the syndicate members have the right to purchase the syndicate shares on the same terms as the offer accepted by Andrews and Raphaelson,” Caldwell wrote. “This means the other syndicate members have a right to purchase the shares on the same terms as KNC has agreed to, including the purchase price and the payment of the commission to Jamgotchian. Syndicate members do not have a right to reject portions of the terms of the offer and accept other portions.”
“The court has no evidence that the $50,000 commission payment is unusually large,” Caldwell continued. “Andrews and Raphaelson have agreed to pay it and it is unclear to the court why they would agree to an unwarranted commission payment. Nor is there any evidence that the KNC offers are above the market value of the shares. But, even if the evidence showed that the $50,000 payment was outrageous and, as a result, the KNC offers were well above market, there is nothing that allows this court to order that the syndicate members can exercise their right of first refusal by offering less for the shares than KNC offered.
“...The syndicate agreements could have easily been drafted to prevent this situation. They could have specifically provided that the syndicate members validly exercise their first refusal rights when they match the third party’s price, excluding any commission payments owned by the seller to the broker. The agreements do not provide that.”
Caldwell directed that Lane’s End is to notify other syndicate members of the offers, including the terms of KNC’s offer and any commissions to Jamgotchian.
Since the case began, Kingmambo has been pensioned by Lane’s End Farm and taken out of stud duty. Jamgotchian said the stallion’s changed status would not affect the share purchase by KNC.
Bill Hoskins, an attorney representing Lane’s End, said his client filed the initial legal action because of the unique nature of the share offers and how they were being presented to the syndicates. He said Lane’s End would review and submit the shares to the syndicate in compliance with Caldwell’s ruling.
“We filed what is called a declaration of rights action,” Hoskins said, “seeking the courts advice on the language we should use in notices to members. We requested the court’s advice because of the unique factual circumstances presented by the offers in question.
“We felt like it was appropriate to ask the court under these circumstances to help with the (syndicate) notices,” Hoskins continued, citing the fact that a dual agent was involved and that there were commissions payable to the dual agent, which are now governed by a dual agent law in Kentucky. “We (Lane’s End) are responsible to the syndicate members to get as much information as possible. I appreciate the fact there is a process to follow...I think the judge’s opinion is important.”
As he has in the past, Jamgotchian contended that Lane’s End was seeking to block the purchase of the shares by his clients and questioned the farm’s actions in the case.
In a statement, Jamgotchian said: “Lane’s End refusal to submit my offers to all syndicate members for their review unquestionably violates their fiduciary obligations under both syndicate agreements. Lane’s End also wasted significant syndicate funds to litigate a case they could never win.”
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