IN RE: CALUMET FARM, INC. CASE NO. 91-51414

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

CALUMET FARM, INC. CASE NO. 91-51414

DEBTOR

ORDER

The United States Trustee has asked the court to reconsider its order of September 2, 1994, holding that disbursements made by the debtor in possession to co-owners of the stallion CRIMINAL TYPE during the third quarter of 1993 (July 1, to September 30, 1993) should be excluded in computing the amount of the quarterly fee payable to the United States Trustee on disbursements made during that period. The formula for computing the amount of U.S. Trustee fees is set out in 28 U.S.C. 1930(a)(6). The United States Trustee takes the position that under the language of that section the fee payable to it is assessable against all "disbursements" from stallion accounts maintained by the debtor in possession. Such accounts are maintained under the terms of an agreement among co-owners of a stallion whereby earnings from breeding a stallion are segregated and, after deduction of expenses for upkeep of the stallion, are disbursed periodically to the co-owners in proportion to their ownership interest in the stallion.

Calumet Farm, Inc. filed a petition for relief under chapter 11 of the Bankruptcy Code in this court on July 11, 1991. At that time Calumet Farm, Inc. owned an interest in nine stallions which were standing at stud at the farm. The farm, through its employees, was acting as manager of the stallions under terms of agreements that required the earnings of each of the stallions to be maintained in segregated bank accounts for the benefit of the co-owners of the stallions.

The debtor, as stallion manager, maintained stallion accounts for each of the stallions as follows:

AFFIRMED Stallion Account

SECRETO Stallion Account

HIGHLAND BLADE Stallion Account

WILD AGAIN Stallion Account

CRIMINAL TYPE Stallion Account

BADGER LAND Stallion Account

TALINUM Stallion Account

MOGAMBO Stallion Account

CAPOTE Stallion Account

 

The Debtor also maintained separate foal share accounts for some of the stallions.

The monies deposited into the stallion accounts and foal share accounts by the stallion manager represent earnings of the stallion in the form of breeding fees paid by owners of mares bred to the stallion. In some instances the fees are paid in advance by mare owners who purchase stallion service agreements reserving the right to breed a mare to the stallion during a breeding season. Otherwise the fees may be paid at the time of the breeding or subsequently upon the sale of the foal resulting from the breeding. In some instances the fees are refundable to the mare owner if the breeding does not result in a live foal.

We are here concerned ostensibly with disbursement of monies from escrow accounts maintained by the debtor in possession to segregate the earnings of the stallion CRIMINAL TYPE. The accounts are as follows:

CRIMINAL TYPE Stallion Account

CRIMINAL TYPE Foal Share Account

 

The debtor originally owned a 100% interest in the stallion CRIMINAL TYPE but on the date of bankruptcy owned only a 50% interest in the stallion. The debtor had sold a 25% interest in the stallion to Calumet-Gussin No. 1, a partnership of which the debtor was a general partner. Calumet-Gussin filed a petition for relief under chapter 11 of the Bankruptcy Code in this court on July 11, 1991, concurrently with the petition of Calumet Farm, Inc. The debtor had also sold a 25% interest in CRIMINAL TYPE to an individual by the name of Jurgen Arnemann. Pursuant to an Agreement of Purchase and Sale dated February 8, 1990, Arnemann paid $500,000 for his 25% interest in the stallion.

The agreement provided that J.T. Lundy, who was then president of the debtor Calumet Farm, Inc., shall be Thoroughbred Manager from and after delivery of CRIMINAL TYPE to Calumet, or to any other farm at which CRIMINAL TYPE shall stand at stud. however, the agreement further provided that in the event of the death or incapacity of the Thoroughbred Manager or his resignation or discharge as a principal officer of Calumet, CRIMINAL TYPE shall nonetheless remain in the possession of Calumet for the purpose of continuing his breeding activities with the duties of Thoroughbred Manager to be assumed by J.T. Lundy's successor, as designated by Calumet.

J.T. Lundy resigned or was dismissed as president of Calumet Farm, Inc. in March or April of 1991, and John T. Ward was chosen as his successor. Ward assumed the responsibilities as Thoroughbred Manager of CRIMINAL TYPE and other stallions standing at stud at the farm.

The briefs of the paraties indicate the decision with respect to this matter may be controlling as well with respect to disbursements from the other stallion accounts maintained by the debtor.

The Agreement of Purchase and Sale between Calumet Farm, Inc. and Arnemann specifies that the Thoroughbred Manager is required to keep separate books records and bank accounts to reflect all income and disbursements and to furnish Calumet and Arnemann quarterly statements showing the results of the breeding season income and expenditures. Accumulated income from stud fees is to be paid to the co-owners of the stallion periodically.

The court is reasonably certain that the fees payable to the United States Trustee pursuant to 28 U.S.C. 1930(a)(6) should not be assessed against disbursements to co-owners of the stallion CRIMINAL TYPE from the CRIMINAL TYPE Stallion Account or the CRIMINAL TYPE Foal Share Account. However, despite being given ample opportunity to establish for the record that the disbursement of $220,256.61 to Calumet-Gussin No. 1/Riggs National Bank and $93,651.75 to Jurgen Arnemann on July 13, 1993, came from either of these accounts or is traceable in some manner to either of these accounts, the debtor in possession has not done so.

Consequently, the motion of the United States Trustee to reconsider the order of September 2, 1994 is sustained. The court finds the debtor in possession is obligated to pay the fees of the United States Trustee for the third quarter of 1993 computed on disbursements which include the aforementioned disbursements to Calumet-Gussin No. 1/Riggs National Bank and Jurgen Arnemann.

Dated: September 25, 1995.

 

By the court -

 

 

 

JOE LEE, CHIEF JUDGE

 

Copies to:

 

U.S. Trustee

Philip Hanrahan, Esq.

Will Shier, Esq.