Gulf Coast Farms and partners claim representatives of Fifth Third Bank engaged in fraudulent and deceptive banking practices in its dealings with the prominent Thoroughbred breeding entity.
The legal documents, filed Feb. 24 in Fayette County, Ky., Circuit Court by attorney Richard Getty on behalf of Gulf Coast and its principals Jerry Bailey and Lance Robinson, and partners, is a counterclaim in a suit filed in January by Fifth Third. The bank, which has been involved in similar high-profile litigation against other prominent Thoroughbred operations within the past year, alleges Gulf Coast has defaulted on loans totaling $15 million.
In its counterclaim, Gulf Coast contends it is not in default on the notes.
Gulf Coast ranked fourth among North American breeders for 2010 based on earnings of horse they bred. Among the most prominent horses bred by the entity in recent years is two-time champion and Preakness Stakes (gr. I) winner Lookin at Lucky.
In its counterclaim, Gulf Coast contends it had a good business relationship with Fifth Third, with the bank being paid more than $4.8 million in interest, fees, and related expenses from the breeder since 2005. However, that relationship began to sour in recent years as Fifth Third took steps to withdraw from the equine lending sector.
As a result, “senior management of Fifth Third and those in charge of the equine lending division of Fifth Third have consciously chosen to renege on promises, including those made in loan agreements, as part of an effort to extricate Fifth Third from the equine lending area,” the Gulf Coast filing states. “Despite having made the decision to extricate itself from lending activities in the Thoroughbred industry, Fifth Third failed to disclose such material facts to Gulf Coast or to others with whom it had an existing lending relationship.”
Specifically, the documents outline a sequence of events in which Gulf Coast and Fifth Third bankers worked out a timetable through which the breeder would continue to draw on a line of credit from the bank while embarking on a business plan to dispose of horses and make payments to the bank.
The filing states “the statements made to representatives of Gulf Coast as to Fifth Third’s intent to continue to support Gulf Coast with loans and its lines of credit were false and that Fifth Third, in reality, had made a decision to ultimately, and at the earliest possible time, terminate its lending relationship with Gulf Coast.”
Eventually, Gulf Coast dispersed most of its horses at Keeneland auctions in September and November 2010 and January of this year, with the horses bringing less than appraised values due to the depressed nature of the equine market. Also, Gulf Coast contends it was damaged financially by the bank’s insistence that horses be sold without reserves, thus also diminishing their sale value.
In its counterclaim, Gulf Coast is seeking at least $4 million in compensatory damages and at least $12 million in punitive damages, the exact amounts to be determined by the court.
Tom Miller, an attorney representing Fifth Third, said Feb. 25 he was waiting from approval from his client to respond to the counterclaim.
Gulf Coast is at least the third prominent equine operation sued by Fifth Third in recent years. In a highly publicized case, Fifth Third sued Ahmed Zayat’s Zayat Stables for more than $34 million after it declined to renew a line of credit held by the stable. The two parties settled the litigation after Zayat filed for Chapter 11 bankruptcy protection and filed a reorganization plan that was accepted by the bank and bankruptcy court.
During the protracted legal proceedings, Zayat contended that equine lenders in Fifth Third’s Lexington offices agreed that Zayat’s loans would be continued, but that executives at the bank’s headquarters in Cincinnati, Ohio, demanded that the loans be called in and settled. Zayat said if he had known the bank was demanding payment on the loans, he could have sold enough horses to satisfy the obligations.
Fifth Third won a $15.4 million judgment against Stonewall Stallions and various entities owned by Richard and Audrey Haisfield. The Haisfields eventually filed for bankruptcy protection, with most of their horses sold. Stonewall also placed its Kentucky property for sale and relocated operations to Florida.