The ongoing civil case between New York financial group MGG Investments and Triple Crown-winning owner Zayat Stables continued this week with a series of judgments on the myriad of motions before a Fayette County Circuit Court. A number of big names in the breeding industry who had been pulled into the case for purchasing horses or breeding rights from Zayat saw MGG's claims against them dismissed by Judge Kimberly Bunnell.
McMahon of Saratoga Thoroughbreds and Hill 'n' Dale Farm, which purchased Solomini and American Cleopatra respectively were dismissed from the case, as were LNJ Foxwoods and Orpendale Unlimited Company, which purchased breeding rights to American Pharoah from the Zayat family. MGG had brought suit against them as co-defendants because it claimed they knew or should have known MGG was entitled to proceeds from those sales, as Zayat still owed the group for a $30-million loan he had taken out in 2016. Judge Bunnell disagreed that the horses and breeding rights were subject to such a lien according to the Food Security Act, which states that purchasers of farm products are not subject to security interests created by the seller, whether they know about the existence of those interests or not.
Judge Bunnell also ruled on a series of motions traded in recent weeks between MGG and Zayat Stables, which brought counterclaims against the investment group. She granted an order for summary judgment against Zayat for $24,534,166.13, which represents the remainder of the loan and associated interest MGG claims Zayat still owes on the original $30 million.
When Zayat Stables was first sued for the loan alongside individual members of the Zayat family, it filed a counterclaim stating MGG did not understand the horse industry, “employed a pattern of deception to lock Zayat Stables into a loan written to fail,” and “crammed terms down Zayat Stables' throat that did not resemble the deal struck” at a time when the stable's debt was just about to mature.
The Zayat counterclaim included counts of fraudulent inducement, fraudulent concealment, breach of financing contract, breach of good faith and fair dealing, negligence/impairment of collateral, and tortious interference related to MGG's handling of the loan from before paperwork was signed to its seeking receivership just before the 2019 Eclipse Awards ceremony.
Judge Bunnell dismissed Zayat Stables' charges that MGG fraudulently induced it into a loan and concealed a lack of intent to fulfill its financial commitments to the equine operation. She did not dismiss a count of breach of implied covenant of good faith and fair dealing.
She also partially granted a complaint of fraud from MGG, ordering that it may only pursue claims against Zayat related to fraudulent inducement of pre-contract representations with regard to the American Pharoah breeding rights it sold, and any fraud possibly stemming from Zayat Stables' communication with MGG about its equine collateral.
It's unlikely the flurry of court motions being hurled back and forth in the case will stop any time soon. Documents filed by the receiver currently in charge of the Zayat Stable in early June indicated that conflict remains over Zayat horses whose bills have gone unpaid. The receiver describes a series of communications with trainer Robertino Diodoro, who has four Zayat horses in his shedrow which he has told the receiver he has claim to. The outcome of a hearing to determine whether the Kentucky court could compel Diodoro to give up the horses was not available at press time.
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