Judge Jump-starts ClassicStar Litigation

More than two years after the first federal lawsuits were filed in connection to the former ClassicStar broodmare lease operation, efforts are being made to clear legal logjams that have impeded resolution of what are now multiple disputes.

A status conference attended by dozens of attorneys representing various interests was recently held in a Lexington courtroom, where 22 lawsuits involving ClassicStar and myriad other defendants are being argued under the guise of a federal case-consolidating measure known as Multi-District Litigation.

But based on pre-conference filings and courtroom discussion heard by presiding U.S. District Senior Judge Joe Hood, no one would claim things have been going smoothly -- particularly in the arduous arena of discovery, where key information is collected through document procurement and deposition interviews.

“I have been allowing this matter to proceed with benign neglect, thinking that with the quality of lawyers involved in this case, matters would be allowed to proceed,” said Hood with a chuckle in his opening remarks of the Dec. 2 conference. “(Some of the attorneys) said I probably needed to get together and get this matter on track. And I agree.”

Plaintiffs, most of whom were drawn as new players in Thoroughbred breeding and racing by ClassicStar’s marketing campaigns, claim fraud was performed by overselling interests in mare-lease packages that also failed to produce promised significant tax breaks to clients. Some defendants are also accused of swapping out price-inflated Quarter Horse matings for Thoroughbred matings, and for exchanging mare programs for energy company investments facilitated through ClassicStar’s parent company, GeoStar Corp., that never came to fruition.

A separate criminal investigation has been ongoing since the former ClassicStar Farm in Versailles was raided by federal officials in February 2006. The U.S. Attorney’s Office has never updated the status of that investigation, but mention of its ongoing nature is regularly referenced in documents filed in the civil case.

Pleading the Fifth?

With the apparent criminal investigation looming -- it is believed that a grand jury for months has been examining evidence in the state of Oregon -- certain defendants have either exerted, or plan to exert, Fifth Amendment privileges and not testify or otherwise provide information in the civil action.

“It cannot seriously be disputed that the central issue now driving this case -- and preventing the orderly progression of discovery (or of any semblance thereof) -- is a concern by the defendants over their possible criminal prosecution by the federal authorities and their desire to delay discovery as long as possible,” wrote one plaintiffs’ attorney in a Dec. 1 status report.

“At the same time, however, Plaintiffs as a group have been defrauded out of tens if not hundreds of millions of dollars they invested with ClassicStar, and they should be afforded the ability to take discovery and bring this matter to a conclusion.”

Hood agreed that Fifth Amendment issues were “the tail wagging the dog” in the litigation, claiming it was “slowing down or bringing to a halt” the discovery process, which could include the attempt at securing perhaps 100 depositions. So the judge set a Jan. 15, 2009, deadline for Fifth Amendment privileges to be declared.

“People are concerned about what is going to happen to them out in Portland,” the judge said. “But they are going to have to decide what they are going to do by Jan. 15.”

Shift of focus

ClassicStar, which made headlines by buying at auction about $45 million worth of broodmares from 2001-2004, has since declared bankruptcy amid allegations it liquidated the bulk of its assets -- including the Kentucky farm location and various horses -- prior to the protective court filing. With farm property and horses gone from the picture, the focus of many plaintiffs has since shifted to assets controlled by GeoStar, a privately-owned energy company.

GeoStar, which has denied allegations made in the case, such as fraud and racketeering, claims it is trying to cooperate with all the requests for documents. But the company argues it can’t keep up with the demands, despite the presence of MDL guidelines and scheduling intending to streamline performance.

“This litigation has proceeded not so much as an MDL, but as a number of separate lawsuits that happen to be taking place at the same time,” wrote a GeoStar-affiliated attorney in a Dec. 1 status report.

The report claims GeoStar has produced 350,000 pages of documents, as well as copies of computer servers containing “literally millions of pages of documents” related to ClassicStar, but is still getting more requests. Included are what the company claims are demands for documents, “regardless of whether they have anything to do with the business of ClassicStar or any related gas investments.”

Hood in the conference made rulings he trusts will solve some of the jam-ups in the process. He promised to make a new scheduling order that would extend the discovery period from March to September, and he appointed separate attorney steering committees to coordinate efforts of both the plaintiffs, which number close to 70, and the defendants, which total close to 40.

The judge also acknowledged it appeared more lawsuits possibly will be added to the docket, which could potentially skew attempts at efficient discovery. Seven lawsuits were active when the MDL was ordered in October 2007, but 15 have since been added, including three in the last three months. Hood said his next scheduling order, called “Track One,” would deal only with the current lawsuits. Any additional suits would be bound by an undetermined “Track Two” schedule.

“The parameters are that discovery will end in September (2009) for Track One,” he said, noting concerns with five-year statute of limitation on fraud and breach of contract cases (the first case was filed in 2006). “I don’t want this going into 2010 for the original filers.”

In addition to original ClassicStar principals Tony Ferguson, who is a GeoStar executive, and the father-and-son team of David and Spencer Plummer, other defendants include a finance company allegedly affiliated with the Plummers, as well as various individuals and entities involved in financial planning and accounting firms, among others, who allegedly advised various plaintiffs. There are different combinations of defendants in each lawsuit.

The Plummers founded a predecessor company called Classic Breeders in the late 1990s and later sold the operation to GeoStar while remaining on as executives. They exited ClassicStar just weeks ahead of the Feb. 23 raid by federal officials at the then farm location in Versailles, Ky., with a separate raid conducted at the Plummers’ Utah ClassicStar location. The Plummers, GeoStar and various alleged affiliates on each side are involved in a cross-claim dispute where various charges of blame and financial mismanagement are leveled against the other.