Court Dismisses Lemon Drop Kid Lawsuit

Kentucky judge rules Lane's End Stallions acted appropriately as syndicate manager.

A Kentucky Eastern District Court judge dismissed a lawsuit May 17 filed by KNC Investments, an entity managed by California owner Jerry Jamgotchian, against Lane’s End Stallions as syndicate manager of the stallion Lemon Drop Kid .

Filed by Frost Brown Todd LLC on behalf of KNC, the suit contended that Lane’s End Stallions has not lived up to its fiduciary duties to shareholders in its record-keeping and accountability of LDK syndicate funds totaling in excess of $3 million annually. The suit also alleged the farm, as syndicate manager, mismanaged excess breeding rights to the detriment of the syndicate members.

According to the suit, Lane’s End Stallions improperly commingled LDK syndicate funds with other stallion syndicate accounts managed by the entity. Lemon Drop Kid stands at William S. Farish’s Lane’s End Farm near Versailles, Ky. Jamgotchian is primary agent for the California entity KNC Investments, which purchased its Lemon Drop Kid share earlier this year for $350,000 after a legal battle.

Judge Jennifer B. Coffman, however, dismissed all allegations that Lane’s End breached its fiduciary duties because these issues had already been addressed in a previous suit between KNC Investments and the farm. A judgment on the previous suit had been issued by the same court last November.

"These claims, which did not arise out of conduct that began after the previous suit...could have been brought up in the previous action," Coffman stated in her court order. "KNC may not now supplement its prior claims by filing such claims in a new action."

KNC also alleged that Lane’s End had violated the terms of the syndication agreement regarding the allocation of excess breeding nominations. KNC wanted to purchase five breeding rights to Lemon Drop Kid and was denied on the grounds that all bonus nominations had been sold. Lane’s End Stallions, the KNC lawsuit stated, had entered into binding contracts with third parties, non-Lemon Drop Kid syndicate members, to breed mares on the excess nominations at terms less favorable to the Lemon Drop Kid syndicate than those offered by plaintiff; that is, at a lower than advertised stud fee and/or with the payment of commissions.

"The fiduciary duties of Lane’s End to the LDK syndicate members do not allow it to deprive any syndicate member who, like plaintiff, wishes to breed its mares to Lemon Drop Kid, of both the right to a direct allocation of a bonus nominations as well as the right to buy a stallion service contract for such purpose from the syndicate manager," the KNC complaint stated.

Coffman disagreed. In her order, she said the syndicate agreement clearly spelled out the responsibilities of the syndicate manager and that those responsibilities were honored.

"While Lane’s End is an agent for the owners, its obligations under that agency relationship are defined and limited by the syndication agreement," Coffman wrote. "Particularly in this arrangement, where Lane’s End serves as agent to multiple principals, and where the syndicate agreement specifically provides that Lane’s End must act against the interests of individual principals in certain situations."

"The assertions...require the court to read ambiguities into the syndicate agreement that are not present on its face, to interpret the syndicate agreement in a manner that is directly contrary to its language, and to impose extra-contractual duties upon Lane’s End," Coffman continued.