Judge Favors Lane's End in Shareholder Suit
A federal judge in Kentucky has ruled in favor of Lane’s End Stallions in a dispute with a Lemon Drop Kid shareholder over access to syndicate/shareholder records.
In a Nov. 10 ruling, U.S. District Judge Jennifer Coffman said Lane’s End Stallions, as syndicate manager for the stallion Lemon Drop Kid, had acted within its fiduciary duty to other shareholders and within its rights under the syndicate agreement in its handling of records requests from shareholder KNC Investments.
Lemon Drop Kid stands at William S. Farish’s Lane’s End Farm near Versailles, Ky. California horse owner Jerry Jamgotchian is primary agent for the California entity KNC Investments, which purchased its Lemon Drop Kid share earlier this year for $350,000.
Immediately after the share purchase cleared the syndicate, Jamgotchian began bombarding the syndicate manager with a flurry of e-mail requests for various records. Included in the records requested was a list of all syndicate members (by name, address, and pertinent information) and a general ledger of the syndicate’s books.
The court records show Lane’s End provided Jamgotchian with copies of the documentation for 2009 and 2010, including estimated statements or receipts and disbursements for the 2010 breeding season.
Jamgotchian eventually filed suit, claiming Lane’s End acted improperly by redacting some information in the records he received or inspected; that he was entitled to a list of all other shareholders in Lemon Drop Kid, including names and addresses; that Lane’s End did not have the right to recommend that shareholders vote in its favor when it polled them on whether they wanted their information provided to KNC; and that Lane’s End erred in how it handled disbursement of funds to a shareholder. He requested a complete accounting of the books, records, and financial information of the syndicate.
During an Oct. 12 hearing, Lane’s End’s attorneys conceded there was no specific clause in the syndicate agreement specifying confidentiality of the names and addresses of the shareholders. However, they cited a 39-1 vote, with KNC being the only “no” vote, of shareholders not to disclose their information as being an official vote of the syndicate.
Coffman agreed, stating that “because the owners ratified Lane’s End’s conduct, the issues of whether the syndicate agreement contemplates confidentiality of owners’ identities, whether Lane’s End had authority to poll the owners as to whether they wanted their contact information released, and whether Lane’s End had authority to recommend a ‘no’ vote are immaterial to determining the rights and obligations of the parties.
“Likewise, ratification removes the question of whether Lane’s End violated duties to KNC by withholding the other owners’ identities, because its doing so has been expressly approved by a majority vote of the fractional interest as provided in the syndicate agreement.”
Coffman concluded that Lane’s End “has therefore complied with the syndicate agreement in the materials it has furnished to KNC, even though it redacted the documents to exclude identities of the owners in those materials.”
In rejecting KNC’s request for a full accounting of the syndicate’s books, Coffman said the syndicate agreement specifically provides “that each owner is entitled to be furnished with periodic statements and annual statements showing the results of the breeding season. It also provides that if an owner wishes to inspect other books and records of the syndicate, it may do so by appointment at the offices of Lane’s End or the premises where the stallion is kept.
“The syndicate agreement does not provide that an owner is entitled to be furnished with a general accounting upon request.”
The judge also ruled in favor of Lane’s End on KNC’s contention that an early disbursement of syndicate funds had been made to a shareholder.
Richard Getty, Jamgotchian’s attorney, said he would file motions under “Rule 59” asking Coffman to amend and/or clarify certain aspects of her ruling. “I was really surprised by the ruling, and will ask her to clarify it,” Getty said.
For example, Getty said he believes Coffman’s determination that the 39-1 vote against release of the shareholder information was inconsistent with language in the syndicate agreement pertaining to how the syndicate agreement can be amended.
If he is unable to persuade Coffman to amend the ruling, Getty said Jamgotchian he would file an appeal with the Sixth Circuit Court of Appeals.
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