CINCINNATI (CN) - A Kentucky thoroughbred farm did not breach its boarding agreement with a Minnesota breeder and is entitled to keep the $200,000 that sales brought in, the 6th Circuit ruled.
The Friday opinion deals with two separate lawsuits, one filed by Crestwood Farms Bloodstock against Everest Stables, and the other filed by Everest and its owner, Jeffrey Nielsen, against Crestwood and other parties in response to the original suit.
Crestwood Farms Bloodstock - located in Lexington, Ky. - has boarded horses for Everest since 1996 and has had an agreement in place since 2008 to sell more than a hundred of Everest's horses.
The arrangement prohibited Crestwood from setting a "reserve" or minimum selling price on the horses in exchange for 25 percent to 50 percent of the proceeds from each sale.
Crestwood's lawsuit claimed that Everest planted an agent at a horse auction to arbitrarily raise the price of one of its fillies, effectively setting a reserve price, which resulted in a failed sale.
After finding out about the allegedly illegitimate bidder, Crestwood kept more than $219,000 from the sale of other horses at the auction to account for the money lost in the failed sale and filed suit.
Everest and Nielsen responded by suing Crestwood and claiming the company had violated contractual obligations relating to the stabling and sale of the horses, as well as the company's management of the stud career of a retired champion, Petionville.
A federal judge in Lexington granted Crestwood summary judgment on all claims and awarded it more than $272,000 in attorneys' fees.
The Cincinnati-based federal appeals court affirmed, with a two-judge majority finding that the agreement to stable Petionville did not require Crestwood to manage the breeding career of the stallion.
"Under the protocol, Everest retained final authority over Petionville's breeding partners, and Crestwood lacked authority to accept any breeding contract without Everest's approval," Judge Jeffrey Sutton wrote for the court. "So far as the written record shows, Crestwood's only job was to forward breeding requests for Petionville to Nielsen for his review - hardly a management task."
Judge David McKeague joined the opinion in full, but Judge Helen White argued in a partial dissent that Crestwood did not deserve summary judgment on Everest's implied contract claim.
"The majority's determination that Nielsen's 'protocol' letter to Crestwood
shows that 'Crestwood never agreed to manage Petionville's stud career' is a factual finding inappropriate at the summary-judgment stage," White wrote. "The letter does not establish that Crestwood did not manage Petionville's stud career. The letter states, in sum, that Nielsen will have the right to 'approve' any stud contract for Petionville, implying that Crestwood was involved in managing Petionville's breeding contracts."
The court found that Everest's contract claim against the Kentucky horse farm relating to the sale of its horses - specifically a lot of 20 sold for $20,000 - holds no merit, as the company failed to prove damages.
"Nielsen wanted these twenty horses to be 'immediately disposed of' ... [and] given that context, $20,000 for a score of horses that might have gone for nothing or, worse, been euthanized does not establish damages," Sutton wrote. "The record indeed includes testimony that Nielsen was 'pleased' with this price at the time."
But White countered that "the agreement is silent
on whether Everest could set a reserve on the Island Fashion filly ... [and] the majority's determination that Everest has not shown damages is premature." (Emphasis in original).
The panel also rejected Everest's argument that Crestwood failed to use "commercially reasonable efforts" to sell all of the horses, using Everest's own contractual language to defeat its argument.
Everest's reliance on an exhibit that displayed a suggested reserve price for each horse flies in the face of its agreement with Crestwood, according to the ruling.
"The whole premise of the argument is that Everest was damaged by Crestwood's failure to set reserves on each horse's sale, yet the contract expressly prohibited Crestwood from setting any such reserves," Sutton wrote.
Everest and Nielsen's breach of fiduciary claim likewise failed because the court found that the relationship between the parties did not meet the required threshold.
Even though Nielsen and Crestwood owner Lewis McLean Sr. were friends for well over a decade, "that does not establish a fiduciary relationship - that Crestwood was charged with putting Everest's interests above its own," Sutton wrote.
"Many friends do business together," he continued. "But not all friends are fiduciaries, and in the world of arms-length commercial negotiations few are."
As for the District Court's finding that Everest breached its contract with Crestwood by sabotaging the auction process, Sutton found little merit in Everest's argument that the contract prevented only Crestwood from placing a reserve price on the filly.
"True, while the agreement prevented Crestwood
from setting a reserve, the writing says nothing about Everest's obligations on this or any other score," he wrote. "But the point makes no difference. The agreement may not have been explicit
about what Everest had to do under the contract, but an implied
covenant of good faith and fair dealing never is."