Lemon Drop Kid Shareholder Files Lawsuit

Suit is the second filed against stallion manager by entity managed by Jamgotchian.

KNC Investments, an entity managed by California owner Jerry Jamgotchian, has filed another lawsuit against Lane’s End Stallions in connection with the management of the stallion Lemon Drop Kid .

Filed by Frost Brown Todd LLC on behalf of KNC, the suit contends 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.

According to the suit, Lane’s End Stallions has improperly comingled 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.

In its suit, KNC requests that Lane’s End Stallions be required to execute all LDK stallion contracts in the name of the LDK Syndicate and to deposit KDK syndicate funds in a non-commingled and interest bearing checking account.

KINC also requests the court to require Lane’s End to allocate excess nominations to the syndicate members and, if it should sell any book or excess nominations for any syndicate members, that Lane’s End should be required to give all LDK syndicate members first priority and consideration in the purchase of the nominations.

“The fiduciary duties of Lane’s End to the LDK syndicate members do not all 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 complaint states.

According to the suit, the syndicate agreement “must be read to require the direct allocation of bonus nominations to the individual syndicate members—rather than a pooling of the sales proceeds of the syndicate manager’s sale of bonus nominations—at least in instances where the sales proceeds exceed the costs of maintaining the stallion.”

The suit states that pooling of the proceeds from the excess nominations would result in the LDK syndicate becoming subject to federal and state securities laws whereas, upon information and belief, Lane’s End has never operated the LDK syndicate within the purview of these laws.”

KNC said in the suit that rather an effort to breed mares to Lemon Drop Kid during this breeding season on excess nominations failed. Lane’s End Stallions, however, had entered into binding contracts with third parties, non-LDK syndicate members, to breed mares on the excess nominations at terms les favorable to the LDK syndicate than those offered by plaintiff; that is, at a lower than advertised stud fee and/or with the payment of commissions.”

In a release sent to news media along with a copy of the suit, Jamgotchian said KNC believes Lane’s End Stallions is “not operating the LDK syndicate as a stand-alone business entity pursuant to LDK syndicate agreement provisions and generally accepted accounting rules and practices.”

“The bulk of this complaint is the same as the first case, which was dismissed in our favor,” Bill Hoskins, an attorney representing Lane’s End Stallions, said in a statement in response to a request for comment on the litigation. “Mr. Jamgotchian has been to Lane’s End on two different occasions to review records. Both times he came late, he left early, and he canceled subsequent days that he originally scheduled. The LDK accounting records are in order, available to him, and show that all monies have been paid.  We have suggested that if he wants to have the records reviewed by an independent accountant, he should do so, and he has declined.

“The issue regarding the excess book arises from Mr. Jamgotchian’s request to breed a number of mares to Lemon Drop Kid. In its simplest terms, his problem is that he waited until after the horse’s book was full to make the request.  He knows that, and now he attempts to create a contractual construction question.”
KNC previously filed suit against Lane’s End over its refusal to turn over names and addresses of all LDK shareholders to KNC. That issue was resolved when a judge ruled that Lane’s End was within its rights to withhold the information after 39 of the 40 shareholders (with KNC the only exception) voted not to release their information.