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

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

IN RE:

CALUMET FARM, INC. CASE NO. 91-51414

DEBTOR

PHOENIX CORPORATION

formerly known as Calumet Farm, Inc. PLAINTIFF

VS. ADVERSARY NO. 92-5049

D. WAYNE LUKAS, ET AL. DEFENDANTS

MEMORANDUM OPINION

This adversary proceeding was commenced by the debtor in possession, Phoenix Corporation, successor in interest to Calumet Farm, Inc., on June 1, 1992, to obtain a determination of the interest of numerous defendants in the undivided 50% interest of the debtor in the stallion CAPOTE. Pursuant to an order of the court entered on December 24, 1991, the debtor's 50% interest in the stallion was sold at auction for $4,000,000 free and clear of all liens and encumbrances, including breeding rights (nominations/seasons) for the year 1992 and all years thereafter. The $4,000,000 is in an interest bearing escrow account pending further orders of the court determining who is entitled thereto. Also at issue is the allocation of the debtor's share of monies in the CAPOTE stallion account representing earnings from breeding services performed by the stallion prior to the date of sale.

This matter is presently before the court on the motion of the debtor in possession for summary judgment determining that two of the defendants, Calumet-Gussin No. 1 and The Riggs National Bank of Washington, D.C., have no interest in or lien rights with respect to proceeds of sale of the stallion CAPOTE or monies in the CAPOTE stallion account.

The counterclaim and cross-claim of Calumet-Gussin No. 1 alleges that it purchased certain breeding rights from the debtor, Calumet Farm, Inc., pursuant to an Agreement of Purchase and Bill of Sale dated September 15, 1987, which may have included certain breeding rights to the stallion CAPOTE, that these breeding rights are the property of Calumet-Gussin No. 1 and that the rights of Calumet-Gussin therein are superior to the rights of the plaintiff, Phoenix Corporation, and to the rights of any of the other defendants in this adversary proceeding.

By its counterclaim against Phoenix Corporation and its cross-claim against its co-defendants, The Riggs National Bank alleges that all or nearly all of the purchase price for Calumet Farm's 50% interest in CAPOTE is attributable to the value of the stallion's breeding capabilities; that Calumet-Gussin No. 1 is the owner of $1.5 million in annual breeding rights to stallions in the Calumet Farm stud group, specifically including breeding nominations to the stallion CAPOTE, and to any and all cash and non-cash proceeds, products and progeny derived therefrom, specifically including Calumet Farm's portion of the proceeds of sale of CAPOTE (and interest earned thereon), and including Calumet Farm's portion of the CAPOTE stallion account (and interest earned thereon). Riggs further alleges that by virtue of the position of the debtor Calumet Farm, Inc. as a partner in the Calumet-Gussin No. 1 partnership, Calumet Farm, Inc. owes a fiduciary duty to the partnership, and to Riggs as assignee of Calumet-Gussin's rights under the partnership agreement, and that to the extent that Calumet Farm, Inc. has custody and control of CAPOTE and breeding rights to the stallion, and any products or proceeds therefrom, Calumet Farm, Inc. holds such breeding rights and products and proceeds as constructive trustee for the benefit of Calumet-Gussin to the extent of $1.5 million per year. Riggs asks for an accounting and imposition of a constructive trust in favor of Calumet-Gussin upon $1.5 million in annual breeding rights in and to stallions in the Calumet Farm stud group, specifically including breeding nominations to CAPOTE, specifically including Calumet Farm's portion of the proceeds of sale of CAPOTE and specifically including Calumet Farm's portion of the CAPOTE stallion account. Riggs further asks the court to declare that Riggs holds the only perfected security interest in these assets of Calumet-Gussin No. 1.

FINDINGS OF FACT

Both Calumet Farm, Inc. and Calumet-Gussin No. 1 filed petitions for relief under chapter 11 of the Bankruptcy Code in this court on July 11, 1991, and as debtors in possession commenced orderly liquidation of the assets of the debtors. After the sale of Calumet Farm and the sale or relocation of the thoroughbred horses owned by the corporation, the debtor, Calumet Farm, Inc., changed its name to Phoenix Corporation, and is operating as debtor in possession under that name.

The facts on which Calumet-Gussin bases its claim to $1.5 million in annual breeding nominations to stallions in the Calumet Farm stud group and on which Riggs bases its claim to a security interest therein are as follows.

On June 20, 1987, Calumet Farm, Inc., Renwar Corporation, a subsidiary of Calumet Farm, Inc., and Frederic and Paul Gussin formed a Kentucky limited partnership known as Calumet-Gussin No. 1. The partnership was formed in conjunction with an anticipated loan transaction with The Riggs National Bank of Washington, D.C.

On August 20, 1987, The Riggs National Bank of Washington, D.C. entered into a Revolving Credit and Term Loan Agreement with Calumet-Gussin No. 1 whereby the bank agreed to grant to the partnership a revolving line of credit in the maximum amount of $3,000,000 and a term loan in the amount of $20,000,000. Renwar Corporation and the Gussins signed the agreement as general partners of the partnership and as guarantors. Calumet Farm, Inc. signed the agreement as limited partner and as guarantor.

The loans by the bank to the partnership are evidenced by a revolving credit note in the principal amount of $3,000,000 and a term note in the principal amount of $20,000,000. Although possibly executed on August 20, 1987, the notes were by agreement dated as of September 15, 1987.

To secure payment of the indebtedness evidenced by the revolving credit note and term loan note Calumet-Gussin No. 1 executed a security agreement conveying to The Riggs National Bank a security interest in horse collateral, horse related collateral, and equine collateral. The security agreement, like the Revolving Credit and Term Loan Agreement, is dated August 20, 1987. Prior to August 20, 1987 the partnership did not possess an interest in the collateral pledged to the bank.

The purpose of the loan transaction between the partnership and the bank appears to have been to enable the partnership to acquire from Calumet Farm, Inc. the assets pledged to the bank. The partnership acquired its interest in the collateral pledged to the bank by a series of agreements between the partnership and Calumet Farm, Inc., dated August 20, 1987, and an Agreement of Purchase and Bill of Sale dated September 15, 1987, which coincides with the date of the notes executed by the partnership to the bank.

The agreements executed by the partnership and Calumet Farm, Inc. on August 20, 1987 were:

Alydar Seasons Agreement

Secreto Seasons Agreement

Alydar Foal Sharing Agreement

Secreto Foal Sharing Agreement

Sugar and Spice Lease Agreement

Maintenance and Training Agreement

Criminal Type Maintenance and Training Agreement

Also, on August 20, 1987 Calumet Farm, Inc. executed a Calumet Partnership Guarantee in favor of the partnership unconditionally guaranteeing payment of the debts of the partnership to The Riggs National Bank. The agreement recites that the partnership intends to assign all of its right, title and interest under the Guarantee to the bank as collateral pursuant to the security agreement of the same date. Further, on August 20, 1987, to induce The Riggs National Bank to make loans or otherwise extend credit to Calumet-Gussin No. 1 pursuant to the Revolving Credit and Term Loan Agreement, Calumet Farm, Inc. executed a Hypothecation Agreement granting to the bank a security interest in collateral described as the mare SUGAR AND SPICE, in foal to SEATTLE SLEW, the Criminal Type Maintenance and Training Agreement, the Sugar and Spice Lease Agreement, and all proceeds and products of any and all of the foregoing.

The Alydar Seasons Agreement provides as follows:

W I T N E S S E T H:

 

WHEREAS, Calumet and the Mare Owner [Calumet-Gussin] have entered into a certain agreement of Purchase and Sale dated the 15th day of September, 1987 ("Purchase Agreement"); and

 

WHEREAS, pursuant to an Agreement of Limited Partnership dated as of June 30, 1987, as amended ("Partnership Agreement"), Calumet is a limited partner of the Mare Owner; and

 

WHEREAS, in accordance with the Purchase Agreement, Calumet has agreed to provide the Mare Owner with certain annual breeding seasons to the Stallion ALYDAR described below with mares to be selected by the Mare Owner;

 

. . . .

 

[T]he parties agree as follows:

 

. . . .

 

3. Agreement to Breed. Mare Owner agrees to breed any five (5) of its Mares selected by Mare Owner, on an annual basis, to the Stallion [ALYDAR] in each breeding season of the Stallion during the term of this Agreement. Calumet agrees to furnish the Breeding Service as part of the consideration set forth in the Purchase Agreement, the receipt of all of which consideration Calumet hereby acknowledges. . . .

 

. . . .

 

7. Sale or Transfer of Breeding Service Upon Default.

 

A. In the event of the occurrence of an Event of

Default under the terms of a certain Revolving Credit and Term Loan Agreement among Calumet-Gussin No. 1 as Borrower, certain parties thereto as Guarantors, and The Riggs National Bank of Washington, D.C. ("Bank"), the Breeding Services may be transferred or sold by the Bank . . . .

 

. . . .

 

11. Termination. This Agreement shall terminate upon the later to occur of (a) the termination of the 1992 breeding season (June 15, 1992), or (b) payment in full of the Initial and Additional Financing [provided by The Riggs National Bank of Washington, D.C.] (as those terms are defined in the Partnership Agreement).

 

12. Substitution of Stallions. Nothing in this Agreement shall be in derogation of Paragraph 25 of Exhibit A to the Agreement of Purchase and Bill of Sale, including, without limitation, Mare Owner's right to deal in or with any Breeding Service not utilized for a Mare, provided, however, that the value of the total live foal season value described in Paragraph 25 thereof shall be determined by the Appraiser referred to in the Revolving Credit and Term Loan Agreement, dated as of August 20, 1987, among the Mare Owner, as Borrower, certain parties as Guarantors (including Calumet) and The Riggs National Bank of Washington, D.C. and not by A.T.P.S.I.

 

. . . .

 

15. Sale of Stallion. Any sale of the Stallion, or fractional interest therein, by Calumet after the date hereof, (a) shall not defeat the Breeding Service herein acquired by the Mare Owner, and (b) shall be subject to the terms and provisions of this Agreement.

The Alydar Seasons Agreement also provides that in the event of default of Calumet-Gussin under the financing agreement with Riggs, the breeding service may be transferred or sold by Riggs subject to both a right of first refusal in favor of Calumet Farm and the right of Calumet Farm to sell the seasons on the same terms as any offer received by Riggs. Alydar Seasons Agreement, 7, at 4-5.

The Secreto Seasons Agreement is virtually identical to the Alydar Seasons Agreement except as to paragraph 3 wherein Calumet-Gussin ("Mare Owner") agrees to breed any four (4) of its mares on an annual basis to the stallion SECRETO in each breeding season of the stallion during the term of the agreement.

A document referred to in the Alydar and Secreto Seasons Agreements as "Schedule A" contains a list of the thoroughbred mares of Calumet-Gussin. On the list are eight broodmares identified by name.

Pursuant to the Sugar and Spice Lease Agreement Calumet Farm leased to Calumet-Gussin the breeding qualities of the thoroughbred mare SUGAR AND SPICE until the indebtedness of the partnership to The Riggs National Bank is paid in full. Any foal resulting from breeding the mare during the term of the lease is to be the absolute property of the partnership.

The eight broodmares of the partnership and the mare under lease resulted in the partnership having nine mares to breed to Calumet stallions. This number coincides with the number of seasons assigned to the partnership by Calumet Farm pursuant to the Alydar and Secreto Seasons Agreements.

The Alydar Foal Sharing Agreement and the Secreto Foal Sharing Agreement between Calumet Farm and Calumet-Gussin obligate Calumet Farm to annually transfer and assign to the partnership free and clear of liens and encumbrances and adverse claims all of Calumet Farm's right, title and interest in one live foal of each of the stallions produced as a result of a foal sharing agreement between Calumet and a mare owner. Under the agreements the partnership is to receive one-half of the net sale proceeds when the foal is sold by the mare owner.

Pursuant to the Maintenance and Training Agreement between Calumet-Gussin (owner) and Calumet Farm (manager) the partnership obligated itself to pay Calumet Farm the current daily board rate for boarding the horses of the partnership and all other expenses incurred in the care and maintenance of each horse, including ordinary veterinary, blacksmith, transportation and advertising expenses. The agreement also obligates the partnership to reimburse Calumet Farm for maintenance and training and other expenses of horses in training.

The Criminal Type Maintenance and Training Agreement obligates the partnership to pay Calumet Farm one-fourth of the daily board rate and other expenses incurred in the care and maintenance of the thoroughbred CRIMINAL TYPE. This horse was then in training or racing in France and later became one of the stallions standing at Calumet Farm.

On September 15, 1987, Calumet Farm and Calumet-Gussin executed an Agreement of Purchase and Bill of Sale whereby in consideration of a purchase price of $20,000,000, receipt of which was acknowledged, Calumet Farm sold and transferred to Calumet-Gussin thoroughbred horses and rights identified on Exhibit A to the agreement. Twenty-two thoroughbred horses are identified on Exhibit A, including the eight broodmares identified on Annex A to the Alydar and Secreto Seasons Agreements and the mare SUGAR AND SPICE. The sale agreement makes clear that it is only the right to receive ownership of the progeny of SUGAR AND SPICE and not the ownership of the mare that is being conveyed. Other horses conveyed were nine 1987 foals of the broodmares, and three horses engaged in racing, plus a one-fourth interest in the colt CRIMINAL TYPE, then racing in France.

The controversy before the court centers on the provisions of paragraphs 1 and 3 of the Agreement of Purchase and Bill of Sale and Item 25 on Exhibit "A" to the agreement, identifying annual breeding nominations (seasons) to Calumet stallions committed by Calumet Farm to Calumet-Gussin pursuant to the terms of the agreement. The language of paragraph 1 is qualified by the language of paragraph 3 and Item 25 on Exhibit "A" with respect to the finality of the transfer of seasons to Calumet stallions accomplished by the agreement.

Paragraph 1 of the Agreement of Purchase and Bill of Sale provides:

1. For and in consideration of the Purchase Price hereinafter set forth and upon the terms, conditions and considerations herein contained, Seller hereby bargains, sells and transfers all of the right, title and interest, and Buyer hereby purchases from Seller the thoroughbred horses and rights identified on Exhibit "A" attached hereto and made a part hereof (the "Horses").

 

TO HAVE AND TO HOLD the Horses as bargained, sold and transferred unto said Buyer, its successors and assigns.

Paragraph 3 of the Agreement of Purchase and Bill of Sale provides:

3. As part of the consideration for which the Purchase Price is being paid, Seller shall provide seasons to the thoroughbred stallions identified in Item No. 25 on Exhibit "A" in 1987, 1988, 1989, 1990, 1991 and 1992. For these purposes, and because of the immediate payment of the Purchase Price in full, seasons to these stallions shall be assigned the values set forth opposite their names for each of the subject years:

 

 

 

1987

 

1988

 

1989

1990/1991

1992

 

ALYDAR$180,000

$120,000

 

SECRETO

100,000

80,000

60,000

40,000

 

WILD AGAIN

40,000

32,000

24,000

16,000

 

HIGHLAND BLADE

 

25,000

 

20,000

 

15,000

10,000

 

SAGACE

50,000

40,000

30,000

20,000

 

SEATTLE SLEW

 

300,000

 

240,000

 

180,000

 

120,000

 

         

Seasons to ALYDAR are being sold and conveyed hereunder without any guarantee. Seasons to the other stallions being sold and conveyed hereunder are with a guarantee of a live foal.[]

 

Item 25 on Exhibit "A" to the Agreement of Purchase and Bill of Sale provides:

Until the Initial Financing and Additional Financing [provided by The Riggs National Bank of Washington, D.C.] have been paid in full, but not earlier than the conclusion of the 1992 breeding season if any event described in Section 9.9 of the Partnership Agreement of the Partnership[] shall occur, [seller shall provide] annual breeding nominations (seasons) to the thoroughbred stallions, HIGHLAND BLADE, SECRETO, WILD AGAIN, SAGACE, ALYDAR, and any other stallions added to the Calumet stud group, or nominations otherwise provided by Calumet which are acceptable to Calumet-Gussin No. 1, a Kentucky limited partnership (herein the "Partnership"), and having an annual total live foal season value based on 1987 prices or comparables of not less than $1,500,000 as demonstrated by A.T.P.S.I.[] Notwithstanding the foregoing, unless the Partnership otherwise determines, until the Initial Financing and Additional Financing have been paid in full, each year the Partnership shall have five (5) breeding nominations to ALYDAR, assuming he is then breeding sound, and four (4) breeding nominations to SECRETO, assuming he is then breeding sound, to use or otherwise deal in or with as the Partnership may determine.

 

The security agreement dated August 20, 1987 executed by Calumet-Gussin to The Riggs National Bank to secure payment of the indebtedness represented by the Revolving Credit loan and the Term loan, the proceeds of which were used by the partnership to acquire from Calumet Farm the assets described in the Agreement of Purchase and Bill of Sale dated September 15, 1987, grants to the bank a security interest in collateral, described in paragraph 1.01 of the security agreement, as follows:

(a) All thoroughbred horses of any sex or age and wherever located and whether now owned or hereafter acquired including, but without limitation, those described in Annex A hereto ("Horse Collateral");

 

(b) All thoroughbred stallion shares and breeding rights, and all interests (whether tangible or intangible) and all fractional interests and seasons pertaining thereto, all stallion syndication agreements and all foal sharing agreements, wherever located and whether now owned or hereafter acquired including, but without limitation, those described in Annex B hereto ("Horse Related Collateral");

 

(c) All certificates of title, certificates of registration and other evidences of ownership, relating to, or in any way connected with, the Horse Collateral and Horse Related Collateral, including, but without limitation, all Jockey Club registration papers, all stallion service certificates, all import documents relating to Horse Collateral located outside of the continental United States, all stallion share certificates, all live foal certificates;

 

(d) All products and proceeds of the Collateral described in (a), (b), and (c) above, including, but without limitation, all seasons, semen, stallion shares, ova of broodmares, embryos, delivered offspring of all broodmares and stallions, delivered offspring under all foal sharing agreements (including, but without limitation, the ALYDAR Foal Sharing Agreement and the SECRETO Foal Sharing Agreement). . . .

Annex B to the security agreement describes "horse related collateral" as follows:

1. All of Grantor's breeding rights in thoroughbred stallions, including, but not limited to, the following:

 

a. Five seasons in ALYDAR for 1988 and all subsequent years, conveyed to Grantor pursuant to the ALYDAR Seasons Agreement, dated as of August 20, 1987, between Calumet Farm, Inc. and the Grantor.

 

b. Four seasons in SECRETO, for 1988 and all subsequent years, conveyed to the Grantor pursuant to the SECRETO Seasons Agreement, dated as of August 20, 1987, between Calumet Farm, Inc. and the Grantor.

 

2. All of the Grantor's right, title and interest in foals of ALYDAR . . . and foals of SECRETO . . . and in the foal-sharing agreements, including, but not limited to, the following:

 

a. The ALYDAR Foal Sharing Agreement . . . and the Grantor's right, title and interest in the in utero and live foals produced or to be produced pursuant to such Agreement.

 

b. The SECRETO Foal Sharing Agreement . . . and the in utero and live foals (and the two additional foals) produced or to be produced pursuant to such Agreement.

It should be noted that on August 20, 1987, the Grantor (Calumet-Gussin) owned no breeding seasons to thoroughbred stallions except such seasons as were on that day or thereafter conveyed to it by Calumet Farm, Inc. or others. It is only upon the acquisition of seasons by Calumet-Gussin that the security interest of Riggs would attach to such seasons.

Riggs perfected its security interest in the collateral proffered by Calumet-Gussin by filing financing statements in the offices of the County Clerk of Fayette County, Kentucky; the Secretary of State of the Commonwealth of Kentucky; the Department of State, New York; the Clerk of the County of Nassau County, New York; the Secretary of State, New Jersey; the Clerk of Bergen County, New Jersey; the Secretary of State, Illinois; and the Recorder of Cook County, Illinois, on September 2-4, 1987. Each financing statement incorporates by reference "Schedule A" thereto, which mirrors the description and adopts the definitions of "horse collateral" and "horse related collateral" as set forth above.

Calumet Farm, Inc. purchased an undivided 1/2 interest in the thoroughbred colt CAPOTE for $6,400,000 on August 10, 1987. This was prior to the transactions between Calumet-Gussin No. 1 and The Riggs National Bank of August 20, 1987 and the Agreement of Purchase and Bill of Sale between Calumet-Gussin No. 1 and Calumet Farm, Inc. dated September 15, 1987. At that time CAPOTE was a three year old colt racing in the United States. Calumet Farm, Inc. and the other co-owners of the colt continued to race CAPOTE until December 1, 1988, at which time he was retired to stand at stud at Calumet Farm. Thus, CAPOTE was added to the Calumet Farm stud group at the commencement of the 1989 breeding season. Although Calumet Farm, Inc. owned an interest in CAPOTE at the time of execution of the Agreement of Purchase and Bill of Sale dated September 15, 1987, the fact the colt was still engaged in racing at the time may explain why he is not mentioned by name in the agreement.

Calumet-Gussin and Riggs contend that when CAPOTE was "added to the Calumet Farm stud group," Calumet-Gussin acquired annual nominations to the stallion under the terms of Item 25 on Exhibit "A" to the September 15, 1987 Agreement of Purchase and Bill of Sale, and that upon acquisition of such nominations by Calumet-Gussin the security interest of Riggs attached to Calumet-Gussin's interest in the nominations.

As previously noted, the Calumet-Gussin No. 1 partnership filed a petition for relief under chapter 11 of the Bankruptcy Code in this court on July 11, 1991, concurrently with the chapter 11 petition of Calumet Farm, Inc. The broodmares owned by Calumet-Gussin were sold, and the proceeds of sale have been disbursed to The Riggs National Bank. The partnership no longer owns any mares which can be bred to stallions in the Calumet Farm stud group. The stallion ALYDAR died prior to the commencement of these bankruptcy proceedings. The court has previously ruled with respect to Calumet-Gussin's ownership of seasons to SECRETO and the enforceability of the security interest of Riggs therein.

CONCLUSIONS OF LAW

At issue is the extent to which the Agreement of Purchase and Bill of Sale of September 15, 1987 operated as an assignment by Calumet Farm, Inc. to the Calumet-Gussin No. 1 partnership of breeding nominations (seasons) to CAPOTE when he was retired from racing in 1988 and thereafter commenced standing at stud at Calumet Farm during the 1989 breeding season. Obviously, there was no assignment of breeding rights to this stallion until he joined the Calumet Farm stud group.

Calumet-Gussin and Riggs argue that the conveyance from Calumet Farm to Calumet-Gussin on September 15, 1987, of breeding rights to stallions in the Calumet Farm stud group exercisable by Calumet-Gussin in the years 1987, 1988, 1989, 1990, 1991 and 1992, and thereafter until the indebtedness to Riggs is satisfied, divested Calumet Farm of any interest in those seasons; that these seasons are property of Calumet-Gussin's bankruptcy estate in which Riggs and only Riggs has a security interest.

If, as contended by Riggs, the September 15, 1987 Agreement of Purchase and Bill of Sale operated as a completed assignment to the partnership of seasons in Calumet stallions to which the security interest of Riggs in property of the partnership then attached, the security interest of Riggs in seasons to Calumet stallions would thereby preempt subsequent consensual, statutory or judicial liens in seasons to the stallions or in rights to breed mares to or to participate in income from breeding mares to the stallions.

The language of paragraph 1 of the Agreement of Purchase and Bill of Sale dated September 15, 1987 provides that the "Seller [Calumet Farm, Inc.] hereby bargains, sells and transfers all of the right, title, and interest, and Buyer [Calumet-Gussin No. 1] hereby purchases from Seller the thoroughbred horses and rights identified on Exhibit "A" attached hereto and made a part hereof (the "Horses")" (underscoring added).

The "rights" so transferred include at least breeding nominations (seasons) to thoroughbred stallions ALYDAR and SECRETO identified in Item 25 on Exhibit "A" to the agreement.

The seemingly unequivocal transfer of other breeding nominations pursuant to paragraph 1 of the Agreement of Purchase and Bill of Sale is qualified by the language of both paragraph 3 of the agreement and Item 25 on Exhibit "A" to the agreement.

Paragraph 3 states: "Seller shall provide seasons to the thoroughbred stallions identified in Item 25 on Exhibit "A" in 1987, 1988, 1989, 1990, 1991 and 1992" (underscoring added).

It should be noted that all the broodmares listed on Exhibit "A" are shown as in foal and further that the 1987 thoroughbred breeding season had concluded before the Agreement of Purchase and Bill of Sale between Calumet and Calumet-Gussin was executed. Consequently, it is obvious there was no transfer of seasons in Calumet stallions to Calumet-Gussin for the initial year of the agreement. The year 1987 apparently was included as a year of reference for determining the value of seasons.

It should also be noted that neither the language of paragraph 1 nor of paragraph 3 of the Agreement of Purchase and Bill of Sale conveys to the Buyer, Calumet-Gussin, any specific number of seasons in any specific stallion or stallions for the years enumerated. Both paragraphs rely on Item 25 on Exhibit "A" to provide specificity as to the seasons conveyed. Unfortunately, Item 25 on Exhibit "A" does not provide any such specificity, except with respect to seasons to the stallions ALYDAR and SECRETO.

Item 25 provides, in effect, that until the indebtedness of Calumet-Gussin to Riggs is paid in full, Calumet Farm, Inc. shall provide to Calumet-Gussin "annual breeding nominations (seasons) to the thoroughbred stallions HIGHLAND BLADE, SECRETO, WILD AGAIN, SAGACE, ALYDAR, and any other stallions added to the Calumet stud group, or nominations otherwise provided by Calumet which are acceptable to Calumet-Gussin No. 1, . . . and having an annual total live foal season value based on 1987 prices or comparables of not less than $1,500,000. . . ."

This language obligates Calumet Farm to provide annual seasons to stallions in the Calumet stud group or alternatively to other stallions acceptable to Calumet-Gussin, in all having an annual total live foal season value of not less than $1,500,000. Such language does not operate as an assignment to the partnership of any particular number of seasons to any particular stallion during any particular year. Obviously further action on the part of Calumet and the partnership was required for designation of seasons to be transferred to the partnership.

The lack of specificity of the foregoing language is illustrated by the more specific language of the second and final sentence of Item 25 and the interrelationship of the two sentences. The second sentence provides that notwithstanding the provisions of the preceding sentence, "unless the Partnership otherwise determines, [until the indebtedness to Riggs is paid in full], each year the Partnership shall have five (5) breeding nominations to ALYDAR, assuming he is then breeding sound, and four (4) breeding nominations to SECRETO, assuming he is then breeding sound, to use or otherwise deal in or with as the Partnership may determine."

Although this language purports to permit the partnership to deal in or with the ALYDAR and SECRETO seasons as it may determine, the ALYDAR and SECRETO seasons agreements provide that the Mare Owner (the Partnership) agrees to breed five of its mares to ALYDAR and four of its mares to SECRETO in each breeding season during the term of the agreements. Because the partnership had only nine mares to breed (eight owned and one leased), there were no mares available to breed to other stallions in the Calumet stud group until such time as the partnership acquired more mares. Accordingly, it may have been the intention of the parties that the partnership could traffic in extra seasons, that is, sell them to third parties, but in order for the partnership to do so, Calumet Farm would have had to deliver to the partnership assignments of the seasons in the form of breeding contracts. There is no evidence that any such assignments to other stallions were made.

The Agreement of Purchase and Bill of Sale obligated Calumet Farm to assign seasons to Calumet-Gussin but did not operate as an actual assignment of seasons to stallions in the Calumet stud group. This is born out by the fact the parties did not rely on the far more specific language of the last sentence of Item 25 on Exhibit "A" to the agreement to effectuate a transfer to the partnership of five annual seasons to ALYDAR and four annual seasons to SECRETO. They chose to solidify the transfer by execution of the separate ALYDAR and SECRETO seasons agreements.

It is not at all clear from the language of Item 25 on Exhibit "A" whether the five annual seasons to ALYDAR and four annual seasons to SECRETO which the partnership is to have under the second sentence of Item 25 are included in or are in addition to the $1,500,000 in annual seasons to be provided to the partnership pursuant to the first sentence of Item 25. Under either interpretation the partnership had access to seasons which it could not utilize other than by sale of seasons to third parties. The fact the partnership did not exercise control over such seasons or attempt to sell the seasons to third parties indicates an understanding that further action on the part of both parties was required for the partnership to acquire ownership of the seasons to the thoroughbred stallions identified in Item 25 on Exhibit "A" to the Agreement of Purchase and Bill of Sale.

To effect a legal assignment "there must be evidence of intent to assign or transfer the whole or part of a specific thing, debt, or chose in action, and the subject matter should be sufficiently described to make it capable of being identified." 6 Am. Jur. 2d "Assignments" 1 (1963; 1993 Supp.) (footnotes omitted).

In Kentucky a valid assignment is achieved not by use of any prescribed form or wording but by evidencing the parties' intentions to effect an assignment. Roberts v. Powers, 198 S.W.2d 58, 60 (Ky. 1946). However, "the intention of the parties . . . must be gathered from what they said 'and not by what they may have intended to say but did not.'" Id.

Here, there was an agreement to assign seasons, but there was no present effective assignment of or transfer of seasons to stallions in the Calumet stud group other than to the stallions ALYDAR and SECRETO. ALYDAR is deceased. In a separate opinion in adversary proceeding No. 92-5003 the court determined the rights of the parties with respect to the SECRETO seasons.

The court agrees that the nature and extent of Calumet-Gussin's property rights in seasons to stallions in the Calumet Farm stud group must be determined by reference to applicable state law. The court disagrees with the assertion that the decision of the Kentucky Supreme Court in North Ridge Farms v. Trimble, 700 S.W.2d 396 (Ky. 1985) begins and ends the debate in this case. In that case there was an unequivocal assignment by the owner of a share in the stallion AFFIRMED of a future breeding season associated with the share. In this case there was no definite assignment of any particular number of future breeding seasons to CAPOTE for any particular year. This is best illustrated by the fact that no knowledgeable third party would broker or purchase the future breeding rights claimed by Calumet-Gussin without first requiring Calumet-Gussin to obtain from Calumet Farm, Inc. a more definite assignment agreement comparable to the ALYDAR and SECRETO season agreements. The question of the effect of an assignment of future breeding seasons arises only when there has been an effective assignment of, rather than a mere agreement to assign, such seasons.

Moreover, even if the Agreement of Purchase and Bill of Sale of September 15, 1987 and Exhibit "A" thereto as incorporated by reference therein were viewed as operating as a present assignment of future seasons to stallions in the Calumet Farm stud group, including CAPOTE, the mere ownership of breeding rights to such stallions does not confer on Calumet-Gussin an ownership interest in any stallion such as would entitle Calumet-Gussin to all or a portion of Phoenix's share of the proceeds of the sale of the stallion CAPOTE. In a prior opinion in an adversary proceeding this court concluded that --

[u]nder Kentucky law a breeding right as distinguished from a share in a stallion is a contract right for timely access to the breeding capabilities of the stallion, an intangible property right. The assignment of such right, whether accomplished, as in this instance, by inclusion of the assignment in an agreement of purchase and sale of the stallion or by a more traditional instrument of assignment does not transfer to the assignee an ownership interest in the stallion itself. Calumet Farm v. Revenue Cabinet, Ky.App., 793 S.W.2d 830 (1990). The fact that the assignment may transfer breeding rights exercisable in one or more future years or annually during the life of the stallion whenever such rights would otherwise accrue or be available to the assignor does not elevate the rights assigned to an ownership interest in the stallion. Ownership of the interest in the stallion on which an original assignment is predicated continues in the assignor. The assigned rights are contracts for access to the breeding capabilities of the stallion, which in a nonbankruptcy forum may be enforceable in an action for specific performance, but which in a bankruptcy forum are enforceable only as general monetary claims against the estate. 11 U.S.C. 101(5), 502(b), 502(c)(2).

 

Phoenix Corporation v. Hill 'N Dale Farm of Gormley, Ontario, Canada, Adv. No. 92-5048, memorandum opinion at 13-14 (September 16, 1993).

The Agreement of Purchase and Bill of Sale and Exhibit "A" thereto as incorporated by reference therein do not restrict the right of Calumet Farm, Inc. to sell its interest in the named stallions nor in any stallions subsequently added to the Calumet Farm stud group. Nor do these documents provide that the sale of Calumet's interest in any of the stallions shall not defeat the breeding nominations for which Calumet-Gussin prepaid, as does for example paragraph 15 of the ALYDAR and SECRETO season agreements. This court has previously held that the inclusion of such a provision in an assignment of breeding rights does not elevate the assigned breeding rights to an ownership interest in the stallion. See In re Calumet Farm, Inc., Case No. 91-51414, memorandum opinion at 4-6 (May 28, 1993) (concerning the sale of the stallion JUDGE SMELLS). Thus, in no event does the security interest of Riggs extend to Phoenix's share of the proceeds of sale of CAPOTE.

Further, because Calumet-Gussin does not hold an assignment of seasons to CAPOTE, it follows that Calumet-Gussin does not have an ownership interest in and Riggs does not have a security interest in Phoenix's share of monies in the CAPOTE stallion account. Phoenix's share of these monies does not represent proceeds of collateral in which Riggs has a security interest.

In view of the conclusion of the court that Calumet-Gussin does not hold an assignment of seasons to CAPOTE and for that reason never acquired ownership of the CAPOTE seasons in which Riggs claims a security interest, there is no occasion to require an accounting or for the imposition of a constructive trust.

Accordingly, the motion of Phoenix Corporation for summary judgment dismissing the counterclaims of Calumet-Gussin and The Riggs National Bank against the debtor in possession shall be sustained.

Dated:

By the court -

 

____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Kimberly J. Davis

Daniel M. Litt

Paul Bennett Bran

Thomas W. Miller

Frank T. Becker

James W. Gardner

Philip L. Hanrahan

Russell A. Tolley

Joseph M. Scott

UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

LEXINGTON

 

 

IN RE:

 

CALUMET FARM, INC. CASE NO. 91-51414

 

DEBTOR

 

 

PHOENIX CORPORATION

formerly known as Calumet Farm, Inc. PLAINTIFF

 

VS. ADVERSARY NO. 92-5049

 

D. WAYNE LUKAS, ET AL. DEFENDANTS

 

 

 

ORDER

 

 

In conformity with the memorandum opinion of the court this day entered, IT IS ORDERED that the motion of the plaintiff debtor in possession, Phoenix Corporation, formerly known as Calumet Farm, Inc., for summary judgment dismissing the counterclaims of defendants Calumet-Gussin No. 1 and The Riggs National Bank of Washington, D.C., against the debtor in possession be and the same is hereby sustained. There being no just reason for delay, SUMMARY JUDGMENT is hereby entered for the plaintiff. This is a final and appealable order.

Dated:

By the court -

 

 

 

____________________________

JOE LEE, CHIEF JUDGE

 

 

Copies to:

 

Kimberly J. Davis

Daniel M. Litt

Paul Bennett Bran

Thomas W. Miller

Frank T. Becker

James W. Gardner

Philip L. Hanrahan

Russell A. Tolley

Joseph M. Scott