Both Sides Aired in Lemon Drop Kid Case

Sides are at odds over what information should be disclosed to shareholders.

Whether the stallion syndicate managing Lemon Drop Kid  is required to release the names of all its shareholders and their contact information was the center issue debated Oct. 12 in federal court in Lexington.

At odds are shareholder Jerry Jamgotchian, primary agent for the California entity KNC Investments, who wants the information disclosed, and Lane's End Stallions, which is managing the syndicate. Lemon Drop Kid stands at Lane's End Farm near Versailles, Ky.

U.S. District Judge Jennifer B. Coffman heard the arguments but delayed issuing a ruling until she receives more information from attorneys for both parties. Coffman also urged both sides to continue working toward a resolution.

The hearing was held after Lane’s End filed a motion to dismiss a lawsuit filed by KNC Investments.

Jamgotchian, who became an owner in Lemon Drop Kid earlier this year, filed the lawsuit after the syndicate manager had produced only some of the records he requested. Not fulfilling his request is a failure of the syndicate to honor its fiduciary duty to its members, the lawsuit claims.

Immediately after purchasing a share in Lemon Drop Kid for $350,000, Jamgotchian began bombarding the syndicate manager with a flurry of e-mail requests for various records. Included in the records requested were a list of all syndicate members (by name, address, and pertinent information) and a general ledger of the syndicate’s books.

The suit also contends the syndicate manager had incorrectly given an early distribution of funds to a shareholder, in violation of the syndicate agreement, and had not lived up to its fiduciary duties when it advised other shareholders not to agree to Jamgotchian’s request for their names and contact information.

Lane’s End’s attorneys countered that Jamgotchian had been provided the information he was entitled to see under the syndicate agreement and that KNC had also received an early distribution of funds.

John Hays, representing Lane’s End, said the agreement permitted the shareholders, as owners of the stallion, to view records and accounts of the syndicate but not to make copies of the information, as Jamgotchian requested. Also, Lane’s End contended it was proper for the syndicate manager to redact the names of shareholders and/or their agents for any records made available to other shareholders.

After Coffman indicated she did not believe the syndicate agreement included a confidentiality clause that would support Lane’s End’s argument for non-disclosure of the names, Hays cited a poll taken of shareholders in which they voted 39-1 against releasing their information to Jamgotchian. The poll, in essence, constituted a vote to amend the syndicate agreement, Hays argued.

Richard Getty, representing Jamgotchian, said all his client wanted was the opportunity to identify the other owners so there could be “open discourse with how the syndicate is to be run. This is a syndicate where co-owners of a stallion are involved. That’s a business, not a secret society.”

Getty also challenged whether the polling of shareholders with regard to Jamgotchian’s request for their names constituted an amendment to the syndicate agreement. “We have never seen documentation of this vote,” Getty said. “If they want to keep this information confidential, they have the right to write that into the syndicate agreement.”

When Lane’s End sent Jamgotchian’s request for names to other shareholders, the syndicate manager “stepped over the line and breached their fiduciary duty to all shareholders…they did not have a right to take a position,” Getty said.

Finally, Getty said, Lane’s End’s position on non-disclosure of shareholders’ names was inconsistent with the position taken earlier in another legal case between Jamgotchian and the syndicate manager.

In the end, Coffman cited a hypothetical case in which an offer was made to purchase all shares in Lemon Drop Kid. In compliance with the earlier court’s ruling, the Lemon Drop Kid syndicate would be required to disclose the names of all parties, including buyers and sellers.

Also, Coffman said, there is a provision in the syndicate agreement stating that a meeting of shareholders could be called (although that has not happened during the 11 years Lemon Drop Kid has been at stud), with shareholders able to attend by proxy or in person.

“That ‘in person’ provision goes against your confidentiality” argument, Coffman said, adding that if any or all shareholders attended, they would then know each other’s identities.

“Even if we were wrong in handling this situation the way we handled it, once we presented it for a vote and received a 39 to 1 vote, there was ratification by the owners,” Hays said. “I concede that on the face of the agreement those names would be available for inspection, but not to be copied.”

Hays also said there were concerns that if Jamgotchian had copies of the information, a proflic e-mailer, he would be tempted to send that information to others, as he has with many of the documents relating to the legal case before Coffman.

“Lane’s End has been concerned about the plaintiff’s penchant for distributing private information to others," Hays said. “Had this plaintiff not shared with the world, those names would have been there,” Hays said.