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

Calumet Farm, Inc. filed a petition for relief under chapter 11 of the Bankruptcy Code in this court on July 11, 1991. The farm and the right to use the name Calumet Farm were sold at public auction on March 19, 1992. Thereafter, the debtor in possession changed its name to Phoenix Corporation and commenced this action in that name.

The complaint of the plaintiff debtor in possession in this adversary proceeding seeks a declaration of the rights of the plaintiff and numerous defendants, including the rights of the defendants D. Wayne Lukas, Estate of L. R. French, Jr., Barry Beal, Eugene Klein and Morven Stud, Ltd., in proceeds of the sale of the debtor's undivided one-half interest in the stallion CAPOTE and in the debtor's interest in monies in the CAPOTE stallion account. An agreed order entered on July 7, 1993 identifies the defendant D. Wayne Lukas as a former co-owner of CAPOTE and former owner of a lifetime breeding right to the stallion. By that order Lukas agrees to be bound by the determination of the claims of the remaining co-owners, French, Beal and Klein in this adversary proceeding.

Pursuant to an order entered by this court on December 24, 1991, following a hearing and an auction held on December 23, 1991, the court approved the sale of the debtor's undivided one-half interest in CAPOTE at public 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 co-owners French, Beal and Klein, exercising a right of first refusal accorded to them by the court, purchased the debtor's one-half interest in the stallion by matching the high bid of $4,000,000. The $4,000,000 which the co-owners paid to the estate was placed in an interest bearing escrow account pending further orders of the court determining the rights of the debtor in possession and the defendants therein. The court is also asked to determine the interests of the debtor in possession and the defendants in monies in the CAPOTE stallion account, representing earnings from breeding services performed by the stallion prior to the sale.

This matter is presently before the court on motions of the plaintiff debtor in possession, Phoenix Corporation, for summary judgment dismissing (1) the counterclaims of the defendants L.R. French, Jr., Barry Beal, and the estate of Eugene Klein ("French, Beal and Klein") and (2) the counterclaims of the defendant Morven Stud, Ltd. ("Morven").

FINDINGS OF FACT:

Prior to August 10, 1987, D. Wayne Lukas, L.R. French, Jr., Barry Beal and Eugene Klein were the owners of CAPOTE, a three-year old colt then engaged in racing in the United States. On August 10 1987, the foregoing owners, parties of the first part (collectively the "Seller"), and the debtor, Calumet Farm, Inc., party of the second part (the "Buyer"), and J. T. Lundy, party of the third part (the "Thoroughbred Manager"), entered into the CAPOTE Agreement of Purchase and Sale.

Pursuant to the terms of the agreement the Seller sold to the Buyer an undivided one-half interest in the breeding qualities of the thoroughbred colt for a purchase price of $6,400,000. The purchase price, which was subject to escalation if the colt won a Grade I stakes race or an additional Eclipse award, was to be paid in full on or before June 30 of the fifth year of the thoroughbred standing at stud. Until the purchase price was paid the income from breeding services performed by the colt upon becoming a stallion, less expenses customary to the business, was to be paid to the Seller and credited on the purchase price. Once the purchase price was paid, and the Buyer was reimbursed for insurance premiums paid during the purchase period, such income was to be split 50-50 by the Seller and the Buyer.

Under the heading Purchase Price and Payment the agreement provides that "[u]ntil the purchase price has been paid in full, Seller shall receive ten (10) seasons a year to the Thoroughbred and Buyer shall receive six (6) seasons a year to the Thoroughbred, which nominations shall be non-cumulative from one breeding season to another. In the event less than sixteen (16) seasons to the Thoroughbred are available in a year, Seller shall receive ten (10) seasons to the Thoroughbred prior to Buyer receiving its six (6) seasons to the Thoroughbred. After the Purchase Price is paid in full, Buyer and Seller shall receive an equal number of seasons to the Thoroughbred."

The subordination of the Buyer's six seasons to the Seller's ten seasons to the stallion during a breeding season during the period while the purchase price was being paid was to occur only if the breeding capabilities of the stallion were impaired. There is no evidence of such impairment in this case. The fact that the defendant co-owners paid $4,000,000 for the debtor's one-half interest in the stallion indicates the stallion's breeding capabilities are not impaired.

Other provisions of the agreement under the heading Purchase Price and Payment authorize the Seller to purchase product (race horses, yearlings, weanlings, breeding rights, stallion seasons and shares) of the Buyer, the value of which would be credited against the balance due on the purchase price. Under the terms of the agreement the Seller could use up to 25% of the purchase price to purchase product in 1987 and up to 37.5% of the purchase price to purchase product in 1988 and 1989. The value of the product was to be agreed to by the Buyer and the Seller. In the event product was purchased at public auction the assigned value was to be the net amount credited by the Seller to the Buyer after deduction of all sales expenses, including commissions.

There is no indication in the record as to the value of product purchased by the Seller from the Buyer during 1987 and 1988, before CAPOTE was retired to stud, or for that matter, thereafter. We do know from the pleadings that the balance due on the purchase price under the Agreement of Purchase and Sale when bankruptcy intervened is $2,186,582.09.

The Seller agreed that on or before December 1, 1988, CAPOTE would be retired from racing and delivered to Calumet Farm near Lexington, Kentucky to stand at stud. Under the terms of the agreement, upon delivery of the colt to Calumet Farm and upon Calumet's obtaining mortality insurance on the thoroughbred, including accident, sickness, and disease coverage, in the amount of the total purchase price, with a loss payable clause in favor of the Seller, title and risk of loss to one-half interest in the thoroughbred passed from the Seller to the Buyer.

The Buyer obligated itself to maintain insurance coverage in the amount of the outstanding balance owed to the Seller until the purchase price was paid. The initial annual premium for the insurance was to be paid by the Buyer. Thereafter, the Buyer was obligated to pay the premiums attributable to the remaining outstanding balance of the purchase price. Any proceeds of insurance not required to satisfy Buyer's remaining obligations to Seller were to belong solely to the Buyer. Upon payment of the purchase price in full all net income from the thoroughbred was to belong to the Buyer until such time as the Buyer was reimbursed for all insurance premiums paid by the Buyer.

There is no contention that the Buyer did not obtain the required insurance coverage at the time the thoroughbred was delivered to Calumet Farm to stand at stud. Under the plain language of the agreement, title to a one-half interest in CAPOTE passed to the debtor, Calumet Farm, Inc., at that time.

The Seller did not retain a security interest to secure payment of the purchase price for the one-half interest in CAPOTE acquired by Calumet Farm, Inc. The Seller did not have a perfected security interest in Calumet's interest in the stallion or in monies in the CAPOTE Stallion Account when 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 CAPOTE had been standing at stud for three breeding seasons. There were funds in the CAPOTE Stallion Account that had not been forwarded to the Seller when bankruptcy intervened.

The CAPOTE Agreement of Purchase and Sale provides that J.T. Lundy shall be the Thoroughbred Manager upon delivery of the thoroughbred to Calumet Farm, Inc. Lundy was president of Calumet Farm, Inc. He signed the agreement of purchase and sale as president of the Buyer, Calumet Farm, Inc., and individually as . The agreement recites that it is the intention of both Buyer and Seller that during its life the stallion shall remain at stud at Buyer's farm. The agreement further recites that in the event of the death or incapacity of the Thoroughbred Manager or his resignation or discharge as the principal officer of Buyer, the thoroughbred shall nevertheless remain in the possession of Buyer for the purpose of continuing its breeding activities with the duties of Thoroughbred Manager to be assumed by J. T. Lundy's successor, as designated by Buyer. J. T. Lundy resigned or was removed as principal officer of the debtor in March 1991 prior to the commencement of this chapter 11 case.

The duties of the Thoroughbred Manager included approving and determining the number of mares to be bred to the stallion, determining by mutual agreement with the Seller the amount of the stud fee, supervision and management of all breeding activities, accounting, billing of expenses and collection of stud fees or other revenues of the thoroughbred, and maintenance of public liability insurance, at the expense of the co-owners, to protect against loss or liability to third parties by reason of the negligence of the Thoroughbred Manager or his agents, servants or employees in keeping the thoroughbred. The Seller and the Buyer were each responsible for payment of one-half of expenses for maintenance, care and promotion of the thoroughbred during its career as a stallion.

The agreement accords the Seller or the Buyer a right of first refusal, that is the right to purchase the selling party's interest in the event either party desires to sell and receives an acceptable offer for their interest. The nonselling party could acquire the selling party's interest by matching the agreed upon selling price.

At the conclusion of the lengthy hearing held December 23, 1991, immediately preceding the auction of the estate's one-half interest in CAPOTE, after considering the arguments of counsel, the court ruled that the successful purchaser of the debtor's 50% interest in CAPOTE would be allowed to designate the Thoroughbred Manager for CAPOTE and dictate where the stallion would stand at stud. The court also ruled that the co-owners of the other one-half interest in the stallion, the defendants French, Beal and Klein, should be permitted to exercise a right of first refusal upon matching the highest and best auction bid price, subject to the right of all bidders to continue bidding thereafter until all of them bowed out of the bidding process. These rulings were incorporated in the order of the court entered on December 24, 1991, as a final and appealable order approving the sale. No appeal was taken from the order.

The order also provided that any alleged claims, liens, encumbrances, or interest of any nature would attach to the proceeds of the sale in the same order and to the same extent as to the thoroughbred and any equine rights thereto. The sale of the estate's undivided one-half interest in CAPOTE was "free and clear of any interest in [the estate's interest in CAPOTE] of an entity other than the estate." 11 U.S.C. 363(f).

The counterclaim of French, Beal and Klein alleges that the CAPOTE Agreement of Purchase and Sale is an executory contract which the debtor in possession was obligated to assume prior to any sale of the bankruptcy estate's interest in the stallion; the court order approving the sale to the co-owners constituted an implied assumption of the CAPOTE Agreement of Purchase and Sale thereby entitling them to payment of $2,186,582.09, the balance owed to them under the agreement and the amount necessary to cure the default, and that the claim of French, Beal and Klein to this amount from the proceeds of the sale of the estate's interest in the stallion is senior and prior to all lien claims, including tax lien claims, against the estate's interest in the proceeds of sale.

French, Beal and Klein further allege that the money in the CAPOTE stallion account is their property and not property of the estate and that all CAPOTE offspring resulting from foal shares on CAPOTE seasons and the proceeds thereof are the property of French, Beal and Klein and are not property of the bankruptcy estate.

Morven Stud, Ltd. alleges that pursuant to a letter agreement dated December 20, 1991 among L. R. French, Jr. on behalf of the co-owners, French, Beal and Klein, and Three Chimneys Farm as agent for Morven Stud, Ltd., the co-owners assigned to Morven and agreed to act on Morven's behalf in exercising the co-owners' right of first refusal under the CAPOTE agreement and the co-owners' rights under the Thoroughbred Manager contract provisions of the CAPOTE agreement.

The assignment on December 20, 1991 of these alleged rights of the co-owners occurred shortly prior to the auction of the estate's one-half interest in CAPOTE on December 23, 1991.

As its counterclaim against the plaintiff debtor in possession and cross-claim against the remaining defendants, Morven Stud, Ltd. alleges that by the CAPOTE Agreement of Purchase and Sale dated August 10, 1987 among L. R. French, Jr., Eugene Klein, Barry Beal, and D. Wayne Lukas (collectively the "co-owners"); and J. T. Lundy ("Lundy") in his capacity as Calumet's chief executive officer, the parties provided for (i) the transfer to Calumet of a subordinated, limited, fractional co-ownership interest in CAPOTE and (ii) the employment of Calumet (through its chief executive officer) as Thoroughbred Manager.

Morven further alleges that Calumet's rights and obligations as Thoroughbred Manager under the CAPOTE agreement constituted an executory contract between the co-owners and Calumet as an independent contractor, pursuant to which Calumet was to be paid for its services as Thoroughbred Manager four nominations per year to CAPOTE. Morven alleges the Thoroughbred Manager's contract could not be assumed or assigned by Calumet as debtor in possession by virtue of 11 U.S.C. 365(c)(1), because applicable law would have excused the co-owners from accepting performance as Thoroughbred Manager from any person other than Calumet, and the co-owners did not consent to such assumption and assignment.

Morven alleges that at the CAPOTE auction the debtor in possession sold not only Calumet's undivided one-half interest in the stallion, but also Calumet's interest under the Thoroughbred Manager contract, and that at least $700,000 of the $4,000,000 purchase price paid by Morven is attributable to the sale of Calumet's interest in the Thoroughbred Manager contract, which caused Morven to overpay by at least $700,000 for an interest which Morven (as assignee) and the co-owners already owned, namely the right to select, employ, and compensate a Thoroughbred Manager other than Calumet. Accordingly, Morven requests an order directing the plaintiff debtor in possession to return to Morven $700,000 of the CAPOTE sale proceeds, plus interest, as representing payment for an interest in an executory contract that could not legally be sold or assigned by Calumet. Morven alleges that its entitlement to a return of this sum is prior in right to any other interest in the CAPOTE sale proceeds.

Pursuant to an order of the court entered on August 5, 1992, the counterclaims of the defendants French, Beal and Klein and of Morven Stud, Ltd. are deemed denied unless expressly admitted.

Insofar as the court can determine the existence of the letter agreement of December 20, 1991, is not established in the record in this matter.

There is evidence in the record that Cardiff Stud Farms, the high bidder at the auction for the estate's interest in CAPOTE, attributed value to the right to possession of the stallion and the right to designate the Thoroughbred Manager. However, there is no evidence of any specific value attributable to these rights.

The plaintiff debtor in possession takes the position that the counterclaims of the defendants French, Beal and Klein and of the defendant Morven Stud, Ltd. are an attempt to relitigate issues determined by the court prior to the sale of the estate's interest in CAPOTE. Plaintiff relies on the order of December 24, 1991, by which it contends the defendants, not having appealed therefrom, are bound. The debtor in possession contends the counterclaims of the defendants are barred by the doctrines of judicial estoppel, res judicata, and collateral estoppel.

The defendants assert that the interests which they now claim in the estate's interest in the CAPOTE sale proceeds were not required to be determined and were not determined prior to the sale pursuant to 11 U.S.C. 363(f) of the estate's undivided one-half interest in the stallion.

CONCLUSIONS OF LAW:

Factually, when this chapter 11 proceeding was commenced on July 11, 1991, Calumet Farm, Inc. owned a one-half interest in and had possession of the stallion CAPOTE and the right to name J. T. Lundy's successor as Thoroughbred Manager. At the hearing on December 23, 1991, on the proposed sale of Calumet's interest in the stallion, it was evident the stallion could not continue to stand at Calumet Farm as contemplated by the parties to the CAPOTE Agreement of Purchase and Sale. Creditors were insisting that the farm be sold to satisfy their claims. To facilitate the sale of the farm all stallions standing there needed to be relocated before the commencement of the next breeding season in February 1992. As previously indicated, the farm was sold March 19, 1992.

It was against this background that the court ruled from the bench at the hearing on December 23, 1991, that the purchaser of Calumet's one-half interest in the stallion would succeed to Calumet's right to possession of the stallion, including the right to determine where the stallion would stand at stud, and the right to name the Thoroughbred Manager. These rulings are memorialized in the order of the court entered on December 24, 1991.

The counterclaims of the defendants French, Beal and Klein and of the defendant Morven Stud, Ltd. are barred by the doctrine of judicial estoppel unless they were preserved by the order of December 24, 1991, as claims, liens, encumbrances, or interests that attached to the proceeds of sale of the debtor's interest in CAPOTE.

The question of whether the CAPOTE Agreement of Purchase and Sale is an executory contract was considered at the hearing on December 23, 1991.

The defendant co-owners, French, Beal and Klein, contended then and now that the agreement in its entirety is an executory contract. In their view the debtor in possession impliedly assumed the contract by selling the bankruptcy estate's interest in CAPOTE and must now cure any default under the contract by paying them the balance due on the purchase price from the proceeds of sale.

The defendant Morven Stud, Ltd. apparently views the CAPOTE Agreement of Purchase and Sale as two separate agreements, a non-executory agreement between the Seller and the Buyer covering the sale and purchase of the stallion and an executory agreement between the interest holders in the stallion and the Thoroughbred Manager for the maintenance and breeding of the stallion.

It is true that the agreement within the agreement, that is the agreement between the Seller and the Buyer, on the one hand, and J. T. Lundy, as Thoroughbred Manager, on the other hand, for the maintenance and supervision of the breeding activities of the stallion, was to continue in effect after payment by Calumet of the purchase price for its one-half interest in the stallion.

The defendant Morven Stud contends this aspect of the agreement is an executory contract in the nature of a personal service contract which under applicable law the debtor in possession is precluded from assuming and assigning without the consent of the co-owners. 11 U.S.C. 365(e)(2).

Morven Stud, Ltd. alleges that the CAPOTE Agreement of Purchase and Sale provided for employment of Calumet Farm, Inc. (through its chief executive officer) as Thoroughbred Manager and that the agreement constituted an executory contract between the co-owners and Calumet as an independent contractor, pursuant to which Calumet was to be paid for its services as Thoroughbred Manager four nominations per year to the stallion. Morven alleges that the Thoroughbred Manager's contract could not be assumed and assigned by Calumet as debtor in possession by virtue of 11 U.S.C. 365(c)(1) because applicable law would have excused the co-owners from accepting performance as Thoroughbred Manager from any person other than Calumet and the co-owners did not consent to such assumption and assignment.

These allegations are inconsistent with the terms of the contract. J. T. Lundy, individually, and not Calumet Farm, Inc., is named as the Thoroughbred Manager, and the right to name the successor to Lundy as Thoroughbred Manager is conferred on Calumet Farm, Inc. The contract does not give the co-owners any right of veto over Calumet's selection of the successor to Lundy as Thoroughbred Manager. Consequently, there is no occasion to hear evidence as to industry practice or to examine state law to determine the rights of the parties with respect to that matter.

The court was persuaded that the CAPOTE Agreement of Purchase and Sale was not an executory contract which the debtor in possession was required to assume as a condition of selling the estate's interest in the stallion.

As a matter of fact, at the hearing on December 23, 1991, the defendant co-owners appeared to concede that their failure to retain and perfect a security interest to secure payment by Calumet of the purchase price for a one-half interest in CAPOTE rendered their claim for the balance due under the Agreement of Purchase and Sale an unsecured claim against the estate.

Under present law there can be no implied assumption of an executory contract. Assumption can occur only after a hearing on notice to the other party to the contract and only with court approval. 11 U.S.C. 365(a); Rule 6006, Federal Rules of Bankruptcy Procedure. It appeared to the court that the Seller/Buyer were the contracting parties vis-a-vis the Thoroughbred Manager, who was in effect their employee when the position was filled. The court was not persuaded that the Seller should be able to assert the rights of the nonexistent third party Thoroughbred Manager and insist on assumption of the Agreement of Purchase and Sale as a condition of the transfer of the rights of the debtor in possession under the agreement.

Certainly these were novel issues that were decided by the court from the bench prior to the sale of the bankruptcy estate's interest in CAPOTE. These rulings were embodied in the order of the court entered December 24, 1991. The court agrees these issues may not now be relitigated insofar as the counterclaims of the defendants seek a determination that the CAPOTE Agreement of Purchase and Sale is executory in whole or in part.

Moreover, while there are requirements with respect to curing default as a condition of assumption of an executory contract, there is no requirement that the default be cured from a particular fund. Consequently, the counterclaims of French, Beal and Klein and Morven Stud asserting that the CAPOTE Agreement of Purchase and Sale is an executory contract do not state claims which survived as an interest in the estate's interest in the CAPOTE sale proceeds which is the subject of this adversary proceeding.

Under the terms of the CAPOTE Agreement of Purchase and Sale all of the income from breeding the stallion was to be paid to the Seller until the purchase price was paid in full. Accordingly, French, Beal and Klein contend that all of the monies in the CAPOTE stallion account when bankruptcy intervened is their property and not property of the estate and that all CAPOTE offspring resulting from foal shares on CAPOTE seasons and the proceeds thereof are the property of French, Beal and Klein and not property of the bankruptcy estate.

The court agrees that the funds deposited and segregated in the CAPOTE stallion account under the control of the Thoroughbred Manager were not property of the debtor or in the possession of the debtor when bankruptcy intervened. The lien of the trustee (debtor in possession) as a judgment creditor of the debtor under 11 U.S.C. 544(a) attached only to the debtor's interest in these funds, which interest would be limited to the debtor's right to reimbursement for services provided for the upkeep of CAPOTE.

On the present record the court cannot adjudicate the claim of French, Beal and Klein to proceeds from foal shares on CAPOTE seasons. The mare owners are not before the court. Some foals may have resulted from foal sharing on one of the six seasons of Calumet Farm, Inc., in which event, French, Beal and Klein would have no perfected security interest in and no prior claim to proceeds of such foal shares.

The ruling of the court from the bench at the hearing on December 23, 1991, that the defendant co-owners should be permitted to purchase the estate's one-half interest in the stallion CAPOTE for the amount at which the sale of that interest to the high bidder at the auction conducted on that date was to be consummated was grounded in equity and was not in recognition of any statutory or contractual right of first refusal of the defendants. The court permitted the co-owners to obtain full ownership of the stallion by matching the high bid in order that they would not be forced to share ownership of the stallion with third parties not to their liking and to forestall future disputes over the location at which the stallion would stand at stud. The court believed it had the authority under 11 U.S.C. 363(e) to so condition the sale so long as the co-owners were not permitted to exercise the right of first refusal in a manner that would depress the sale price of the estate's one-half interest in the stallion. The court emphasizes that it did not permit the co-owners to exercise a right of first refusal because the court was compelled by law to recognize the right.

Only the estate's one-half interest in the stallion was sold at the auction. The one-half interest of the co-owners was not offered for sale. Thus, this was not a sale to which 11 U.S.C. 363(h) applies. Consequently, 11 U.S.C. 363(i) did not accord the co-owners the right to purchase the estate's interest in the stallion by matching the high bid.

This court has previously ruled that under Kentucky law a right of first refusal to purchase the estate's one-half interest in a stallion is a mere contractual right that does not rise to the level of an interest in the estate's interest in a stallion. In re Calumet Farm, Inc., Case No. 91-51414, Memorandum Opinion May 28, 1993, on the motion of the debtor in possession to sell the estate's undivided one-half interest in the stallion JUDGE SMELLS; City of Ashland v. Kittle, Ky., 347 S.W.2d 522 (1961).

It follows that the defendant Morven Stud did not acquire any rights to or interest in the estate's undivided one-half interest in the stallion CAPOTE as assignee of the defendant co-owners' contractual right of first refusal under the CAPOTE Agreement of Purchase and Sale. This was not a right of the assignors or assignee that the court was required to honor at a judicial sale. City of Ashland v. Kittle, supra.

The court rejects the contention of the co-owners French, Beal and Klein that prior to payment in full of the purchase price for its one-half undivided interest in CAPOTE the debtor owned only a subordinated, limited interest in the stallion. This contention is based on the following language of the CAPOTE Agreement of Purchase and Sale appearing under the heading "Purchase and Payments" --

D. Until the purchase price has been paid in full, Seller shall receive ten (10) seasons a year to the Thoroughbred and Buyer shall receive six (6) seasons a year to the Thoroughbred, which nominations shall be non-cumulative from one breeding season to another. In the event less than sixteen (16) seasons to the Thoroughbred are available in a year, Seller shall receive ten (10) seasons to the Thoroughbred prior to Buyer receiving its six (6) seasons to the Thoroughbred. After the purchase price is paid in full, Buyer and Seller shall receive an equal number of seasons to the Thoroughbred.

 

The disparity between the number of seasons allocated to the Seller and the Buyer and the priority accorded to the seasons of the Seller during the period of payment by the debtor of the purchase price for its undivided one-half interest in the stallion do not qualify or impair or have any bearing on the degree of the ownership interest of the debtor in the stallion during this period.

Elsewhere, under the heading "Title," the CAPOTE Agreement of Purchase and Sale clearly provides that upon delivery of the thoroughbred to Calumet Farm and the obtaining by Calumet of insurance coverage as required by the agreement "title and risk of loss to one-half () interest in the Thoroughbred shall pass from Seller to Buyer...." Delivery of the thoroughbred to the Buyer and the obtaining of mortality insurance coverage by the Buyer in the amount of the purchase price with a loss payable clause to the Seller were the only conditions precedent to passage of title to one-half interest in the stallion to the debtor.

Morven alleges that at least $700,000 of the $4,000,000 which it paid for the debtor's interest in CAPOTE by matching the high bid of Cardiff Stud Farm is attributable to the value of the right to name the Thoroughbred Manager, a right which Morven alleges it already owned as assignee of the co-owners. Morven's counterclaim demands return or refund of this $700,000 and alleges that its right thereto is prior and superior to any other interest in the CAPOTE sale proceeds.

Assuming the letter agreement of December 20, 1991 exists, Morven's rights thereunder are derivative of the rights of the co-owners and are no greater than the rights of the co-owners. As previously indicated the court permitted the co-owners to match the highest and best bid at the auction as a matter of equity and not as a matter of right. Morven did not acquire a right of first refusal under the letter agreement of December 20, 1991.

The decision of the co-owners as agents of Morven Stud to match the high bid was a voluntary economic choice which obviated the question of who would be entitled to select the Thoroughbred Manager or determine where the stallion would stand at stud. Once the co-owners regained full ownership of the stallion these questions became moot.

If the co-owners had declined to match the high bid and Cardiff Stud Farm had acquired the debtor's rights in CAPOTE, the co-owners and Morven would be bound by the rulings of the court in the order of December 24, 1991. The court does not believe the decision of the co-owners to match the high bid changes the law of the case or gives them greater rights than they would have had otherwise.

Permitting the co-owners to match the high bid and regain full ownership of CAPOTE is the maximum equity to which they are entitled on the facts of this case.

Accordingly, the motion of the debtor in possession for summary judgment dismissing the counterclaims of the defendants, French, Beal and Klein and Morven Stud, Ltd. should be sustained.

Dated:

By the court -

 

_____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

 

Will T. Shier, Esq.

C. Christopher Trower, Esq.

Thomas H. Burnett, Esq.

Merritt S. Deitz, Jr., Esq.

Paula G. Burrage, Esq.

Robert L. Treadway, Esq.

Michael Broderick, Esq.

Joseph M. Scott, Esq.

Daniel M. Litt, Esq.

Thomas W. Miller, Esq.

Tracey N. Wise, Esq.

Montjoy Trimble, Esq.

James W. Gardner, Esq.

 

92-5049a.cal

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, the counterclaims of the defendants L. R. French, Jr., Barry Beal, and the estate of Eugene Klein, and the defendant Morven Stud, Ltd. should be and hereby are dismissed.

Dated:

By the court -

 

____________________________

JOE LEE, CHIEF JUDGE

 

Copies to:

Will T. Shier, Esq.

C. Christopher Trower, Esq.

Thomas H. Burnett, Esq.

Merritt S. Deitz, Jr., Esq.

Paula G. Burrage, Esq.

Robert L. Treadway, Esq.

Michael Broderick, Esq.

Joseph M. Scott, Esq.

Daniel M. Litt, Esq.

Thomas W. Miller, Esq.

Tracey N. Wise, Esq.

Montjoy Trimble, Esq.

James W. Gardner, Esq.