Mull Enterprises Limited D/B/A Yeomanstown Stud v. Mgg Investment Group Lp ( 2021 )

RENDERED: NOVEMBER 12, 2021; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2020-CA-0478-MR
MGG INVESTMENT GROUP LP APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE KIMBERLY N. BUNNELL, JUDGE
ACTION NO. 20-CI-00248
MULL ENTERPRISES LIMITED
D/B/A YEOMANSTOWN STUD APPELLEE
AND NO. 2020-CA-0434-MR
MULL ENTERPRISES LIMITED CROSS-APPELLANT
D/B/A YEOMANSTOWN STUD
CROSS-APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE KIMBERLY N. BUNNELL, JUDGE
ACTION NO. 20-CI-00248
MGG INVESTMENT GROUP LP CROSS-APPELLEE
AND NO. 2020-CA-0821-MR
MGG INVESTMENT GROUP LP APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE KIMBERLY N. BUNNELL, JUDGE
ACTION NO. 20-CI-00248
HILL ‘N’ DALE EQUINE HOLDINGS, INC.;
LNJ FOXWOODS, LLC; MCMAHON OF
SARATOGA THOROUGHBREDS, LLC; AND
ORPENDALE UNLIMITED COMPANY APPELLEES
AND NO. 2020-CA-0900-MR
MGG INVESTMENT GROUP LP APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE KIMBERLY N. BUNNELL, JUDGE
ACTION NO. 20-CI-00248
BEMAK N.V., LTD. APPELLEE
AND NO. 2020-CA-0960-MR
MGG INVESTMENT GROUP LP APPELLANT
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APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE KIMBERLY N. BUNNELL, JUDGE
ACTION NO. 20-CI-00248
FLINTSHIRE FARM, LLC AND THOMAS
B. SEARS A/K/A BRAD SEARS APPELLEES
OPINION
AFFIRMING IN PART, REVERSING IN PART,
AND REMANDING
** ** ** ** **
BEFORE: ACREE, GOODWINE, AND JONES, JUDGES.
GOODWINE, JUDGE: MGG Investment Group LP (“MGG”) appeals the
judgment of the Fayette Circuit Court dismissing its claims against Mull
Enterprises Limited d/b/a Yeomanstown Stud (“Yeomanstown”) based on KRS1
413.242. Yeomanstown cross-appeals the circuit court’s determination that MGG
may be entitled to equitable tolling in dismissing its claims without prejudice.
MGG also appeals judgments of the Fayette Circuit Court dismissing
its claims against Hill ‘N’ Dale Equine Holdings, Inc. (“Hill ‘N’ Dale”); LNJ
Foxwoods, LLC (“Foxwoods”); McMahon of Saratoga Thoroughbreds, LLC
(“McMahon”); Orpendale Unlimited Company (“Orpendale”); Flintshire Farm,
1
Kentucky Revised Statutes.
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LLC (“Flintshire”); and Thomas B. Sears a/k/a Brad Sears (“Sears”) under CR2
12.02(f) and granting summary judgment on behalf of Bemak N.V., Ltd.
(“Bemak”). After careful review of the record and applicable law, and
consideration of oral arguments by the parties, we affirm in part, reverse in part,
and remand for entry of a judgment dismissing MGG’s claims against
Yeomanstown with prejudice.
BACKGROUND
Zayat Stables, LLC (“Zayat Stables”) is in the business of “[o]wning,
raising, maintaining, buying, selling, racing, breeding and promoting horses.”
Record (“R.”) at 867. The most well-known of Zayat Stables’ thoroughbreds is
AMERICAN PHAROAH, winner of the 2015 Triple Crown.
In 2016, MGG loaned Zayat Stables $30 million secured by
all of the property and assets and all interests therein and
proceeds thereof now owned or hereafter acquired by any
Person upon which a Lien is granted or purported to be
granted by such Person as security for all or any part of
the Obligations, including, without limitation, all Equine
Collateral.
R. at 748. The financing agreement defines “Equine Collateral” as
all horses, stallions, mares, weanlings, foals,
thoroughbred bloodstock and/or stallion shares, breeding
rights, lifetime breeding rights and/or fractional interests
therein, their offspring and young, both born and unborn,
and/or fractional interests therein, stallion seasons and
2
Kentucky Rules of Civil Procedure.
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shares, and any other interests in any of the foregoing,
owned by [Zayat Stables] or any of its Subsidiaries,
howsoever classified, whether now owned or hereafter
acquired, and including all substitutions and
replacements thereof.
Id. at 752. Under the financing agreement, Zayat Stables was obligated to report to
MGG any sale of equine collateral. Id. at 809. Zayat Stables agreed not to sell any
equine collateral except as permitted by the agreement. Id. at 819. The agreement
allowed, in part, for sales which were for fair market value and in the ordinary
course of business. Id. at 765. Upon any sale, Zayat Stables was required to
prepay principal with a percentage of the proceeds. Id. at 784.
These appeals involve sales of ownership interests in EL KABEIR,
AMERICAN CLEOPATRA, and SOLOMINI, three horses owned by Zayat
Stables at the time the financing agreement was executed, as well as the sale of the
breeding rights to AMERICAN PHAROAH and LEMOONA. On September 20,
2017, Zayat Stables privately sold EL KABEIR to Yeomanstown for $500,000.
On November 15, 2017, Zayat Stables privately sold AMERICAN CLEOPATRA
to Hill ‘N’ Dale for $1.3 million. Between December 2018 and June 2019, Zayat
Stables sold nine shares of the breeding rights to AMERICAN PHAROAH to
Foxwoods and Orpendale for a total of $3.3 million. On March 6, 2019, Zayat
Stables privately sold the breeding rights to LEMOONA to Flintshire and Sears for
$150,000. On December 3, 2019, Zayat Stables privately sold its fifty percent
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ownership interest in SOLOMINI to McMahon.3 MGG claims none of these sales
were for fair market value and that Zayat Stables did not prepay principal upon
receiving the proceeds from the sales in violation of the financing agreement.
In September 2019, Zayat Stables defaulted on the loan.
Subsequently, MGG sent Zayat Stables a notice of default and reservation of
rights. On January 21, 2020, after failing to reach an agreement for liquidation,
MGG filed suit against Zayat Stables alleging breach of contract and fraud. R. at
1043-46. MGG’s claims against Zayat Stables remain pending before the circuit
court.
On February 11, 2020, MGG amended its complaint to include claims
against purchasers of equine collateral, including the appellees. In relevant part,
MGG claimed intentional interference with contract against Orpendale, replevin
and constructive trust against Yeomanstown, Hill ‘N’ Dale, Foxwoods, Orpendale,
and McMahon, as well as unjust enrichment against Flintshire and Sears.4 MGG
claimed Bemak tortiously interfered with its security interest when Bemak
facilitated Orpendale’s purchase of AMERICAN PHAROAH breeding rights.
3
Zayat Stables previously sold a fifty percent interest in SOLOMINI to Orpendale for $800,000.
Prior to the sale to Orpendale, Zayat Stables obtained a partial release from MGG and, after the
sale, transferred proceeds to MGG in accordance with the financing agreement. R. at 1031-37.
McMahon contemporaneously purchased Orpendale’s ownership interest.
4
MGG also amended its complaint to include claims against individual members of the Zayat
family. These individuals are not parties to these appeals.
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Yeomanstown moved to dismiss MGG’s claims based on the statutes
of limitations under KRS 413.242 and KRS 413.125. The circuit court granted the
motion, holding KRS 413.242 and KRS 413.125 are applicable and the discovery
rule is inapplicable herein. However, in dismissing MGG’s claims against
Yeomanstown without prejudice, the court also determined MGG may be entitled
to equitable tolling.
The remaining appellees moved for summary judgment and dismissal
of MGG’s claims. In granting the motions, the circuit court determined the Food
Security Act of 1985 (“FSA”) applied to these sales because horses and breeding
rights are “farm products” under 7 U.S.C.5 § 1631(c)(5). R. at 2560.6 The court
further determined, based upon MGG’s own description of Zayat’s business,
appellees were buyers “in the ordinary course of business” who took the horses or
breeding rights free of MGG’s security interest. R. at 2560-61.
These appeals and cross-appeal followed.
5
United States Code.
6
This citation is to the order dismissing MGG’s claims against McMahon. The court’s
reasoning in dismissing the claims against Foxwoods, Orpendale, Hill ‘N’ Dale, Flintshire, and
Sears, as well as granting summary judgment in favor of Bemak, is essentially identical to its
reasoning in the McMahon order.
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STANDARD OF REVIEW
A motion to dismiss under CR 12.02(f) for failure to state a claim
upon which relief may be granted is reviewed de novo. Carruthers v. Edwards,
395 S.W.3d 488, 491 (Ky. App. 2012) (citation omitted).
The court should not grant the motion unless it appears
the pleading party would not be entitled to relief under
any set of facts which could be proved in support of his
claim. In making this decision, the circuit court is not
required to make any factual determination; rather, the
question is purely a matter of law. Stated another way,
the court must ask if the facts alleged in the complaint
can be proved, would the plaintiff be entitled to relief?
James v. Wilson, 95 S.W.3d 875, 883-84 (Ky. App. 2002) (internal quotation
marks and footnotes omitted).
Summary judgment is also reviewed de novo. Isaacs v. Sentinal
Insurance Company Limited, 607 S.W.3d 678, 681 (Ky. 2020) (citation omitted).
In determining whether summary judgment was proper, we must determine
“whether the circuit [court] correctly found that there were no issues as to any
material fact and that the moving party was entitled to a judgment as a matter of
law. Summary judgment is appropriate where the movant shows that the adverse
party could not prevail under any circumstances.” Id. (citation omitted).
ANALYSIS
On appeal, MGG argues: (1) the circuit court erred in granting
summary judgment and dismissing its claims based on the FSA; (2) KRS 413.242
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does not bar its claims against Yeomanstown; and (3) MGG is entitled to
application of the discovery rule and/or equitable tolling, making its claims against
Yeomanstown timely under KRS 413.125. On cross-appeal, Yeomanstown argues,
because MGG is not entitled to equitable tolling, its claims should have been
dismissed with prejudice.7
First, MGG alleges the circuit court erred in determining the FSA
allowed the appellees to take horses and breeding rights free of MGG’s security
interest. Within this argument, MGG claims: (1) thoroughbred race horses and
breeding rights thereto are not “farm products” under the FSA; (2) the appellees
are not “buyers in the ordinary course” under the statute; and (3) the AMERICAN
PHAROAH breeding rights were not sold by the same party which created the
security interest therein.
Prior to passage of the FSA in 1985, many states enacted “farm
products exceptions” under the Uniform Commercial Code (“UCC”) to protect
security interests in farm products. Kentucky’s farm products exception mirrors
those of other states and mandates
[e]xcept as otherwise provided in subsection (5) of this
section, a buyer in ordinary course of business, other
than a person buying farm products from a person
engaged in farming operations, takes free of a security
7
At oral arguments, Hill ‘N’ Dale joined Yeomanstown in this argument. Although Hill ‘N’
Dale argued MGG’s claims were time barred by KRS 413.125, the circuit court did not reach this
argument because it found application of the FSA dispositive of the claims against Hill ‘N’ Dale.
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interest created by the buyer’s seller, even if the security
interest is perfected and the buyer knows of its existence.
KRS 355.9-320(1) (emphasis added).
Congress adopted the FSA to eliminate these exceptions and protect
purchasers of farm products from “double payment.” 7 U.S.C. § 1631(a)(2). The
FSA requires
[e]xcept as provided in subsection (e) and
notwithstanding any other provision of Federal, State, or
local law, a buyer who in the ordinary course of business
buys a farm product from a seller engaged in farming
operations shall take free of a security interest created by
the seller, even though the security interest is perfected;
and the buyer knows of the existence of such interest.
7 U.S.C. § 1631(d).8
MGG argues Kentucky’s farm products exception is not entirely
preempted by the FSA because the General Assembly, by amending the UCC
definition of farm products, specifically included “[e]quine interests, including, but
not limited to, interests in horses, mares, yearlings, foals, weanlings, stallions,
syndicated stallions, and stallion shares (including seasons and other rights in
8
Subsection (e) delineates the manner by which a buyer takes the farm product subject to a
security interest created by the seller. For farm products to sell subject to a security interest, the
buyer must either receive direct notice or, where applicable, appropriate filings must be made
through a central filing system. Kentucky has not implemented a central filing system, making
direct notice to the buyer necessary to protect a security interest created by a seller.
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connection therewith), whether or not the debtor is engaged in farming operations
and without regard to the use thereof.” KRS 355.9-102(1)(ah)5.
“Pre-emption may be either expressed or implied, and is compelled
whether Congress’ command is explicitly stated in the statute’s language or
implicitly contained in its structure and purpose.” Gade v. National Solid Waste
Management Ass’n, 505 U.S. 88, 98, 112 S. Ct. 2374, 2383, 120 L. Ed. 2d 73(1992) (internal quotation marks and citations omitted). The FSA expressly
preempts state farm products exceptions through inclusion of “notwithstanding any
other provision of Federal, State, or local law” within the language of the statute.
Farm Credit Bank of St. Paul v. F & A Dairy, 477 N.W.2d 357, 360 (Wis. Ct. App.
1991). This is reinforced by Congress’ statements of intention in enacting the
FSA, as recorded in a House Committee Report.
The bill is intended to preempt state law (specifically the
so-called “farm products exception” of the Uniform
Commercial Code section 9-307) to the extent necessary
to achieve the goals of this legislation. Thus, this Act
would preempt state laws that set as conditions for buyer
protection of the type provided by the bill requirements
that the buyer check public records, obtain no-lien
certificates from the farm products sellers, or otherwise
seek out the lender and account to that lender for the sale
proceeds.
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Food Services of America v. Royal Heights, Inc., 871 P.2d 590, 595 (Wash. 1994)
(en banc) (citing H. R. REP.9 No. 271, pt. 1, 99th Cong., 1st Sess. 110 (1985),
reprinted in U.S.C.C.A.N.10 1103, 1214). Based upon this reasoning, Kentucky’s
farm products exception is preempted by the FSA.
MGG further argues neither thoroughbred race horses nor breeding
rights qualify as “farm products” under the FSA. The FSA defines a “farm
product” as
an agricultural commodity such as wheat, corn, soybeans,
or a species of livestock such as cattle, hogs, sheep,
horses, or poultry used or produced in farming
operations, or a product of such crop or livestock in its
unmanufactured state (such as ginned cotton, wool-clip,
maple syrup, milk, and eggs), that is in the possession of
a person engaged in farming operations.
7 U.S.C. § 1631(c)(5).
When interpreting a statute, we must first consider the plain language
of the law and, where there is no ambiguity, we will look no further. Seeger v.
Lanham, 542 S.W.3d 286, 291 (Ky. 2018) (citation omitted). Where no ambiguity
exists, “there is no need to resort to the rules of statutory construction in
interpreting it. The words of the statute are simply accorded their commonly
understood meaning.” Id. at 293 (citation omitted).
9
House of Representative Reports.
10
United States Code Congressional and Administrative News.
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Herein, farm products are plainly defined to include horses. MGG
attempts to distinguish thoroughbreds from workhorses, claiming only the latter
can be considered farm products. However, Congress did not provide such a
distinction. Although addressing another clause of the FSA, a United States
District Court accurately described the place of statutory construction when it
stated,
[i]t is apparent that Congress intended by the FSA to shift
the potential burden of loss in cases of the sale of farm
products to the lenders who finance farm operations,
rather than have that burden imposed upon buyers, thus
inhibiting interstate commerce. If Congress has cast its
net too broadly in the FSA, at least in some
circumstances, the proper remedy is in legislative
amendment, not strained construction by the judiciary.
Lisco State Bank v. McCombs Ranches, Inc., 752 F.Supp. 329, 334 (D. Neb. 1990).
In defining farm products, Congress only qualified that the horse must
be “used or produced in farming operations[.]” 7 U.S.C. § 1631(c)(5). “Farming
operations” are not defined by the FSA. However, Kentucky’s UCC defines
“farming operation[s]” to include “raising, cultivating, propagating, fattening,
grazing, or any other farming, livestock, or agricultural operation[.]” KRS 355.9-
102(1)(ai). Additionally, BLACK’S LAW DICTIONARY (11th ed. 2019), borrows
from the federal bankruptcy statute in defining “farming operation[s]” as “[a]
business engaged in farming, tillage of soil, dairy farming, ranching, raising of
crops, poultry, or livestock, or production of poultry or livestock products in an
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unmanufactured state.” See also 11 U.S.C. § 101(21). MGG cites to no alternative
definition for farming operations which does not include raising livestock,
including horses.
Certainly, there are owners of thoroughbred race horses who are not
engaged in farming operations. However, Zayat Stables is not such an owner. In
fact, in its amended complaint and the financing agreement, MGG defines the
nature of Zayat Stables’ business as “[o]wning, raising, maintaining, buying,
selling, racing, breeding and promoting horses.” R. at 867. Because Zayat Stables
raises horses, it is engaged in farming operations. Furthermore, because the horses
in question were sold by a business engaged in such operations, they are farm
products.
Following similar reasoning, the AMERICAN PHAROAH breeding
rights are also farm products. Again, MGG attempts to narrow the definition of
farm products in a manner which Congress did not in enacting the FSA. This
Court, in a decision which predates enactment of the FSA, determined a stallion
syndicate granting one free nomination per breeding season of a mare to be bred to
the stallion for its lifetime is properly classified as a farm product. North Ridge
Farms, Inc. v. Trimble, 1983 WL 160534, 37 UCC Rep. Serv. 1280, 1288 (Ky.
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App. Dec. 2, 1983).11 Similarly, we are persuaded that lifetime breeding rights in
AMERICAN PHAROAH are farm products under the FSA.
MGG next argues the FSA does not apply to the subject sales because
the appellees are not buyers in the ordinary course of business. 7 U.S.C. §
1631(d). A buyer in the ordinary course of business is defined as “a person who,
in the ordinary course of business, buys farm products from a person engaged in
farming operations who is in the business of selling farm products.” 7 U.S.C. §
1631(c)(1). MGG’s argument must fail because, as discussed previously, within
the amended complaint and security agreement, MGG defines Zayat Stables’
business to include the selling of horses. R. at 867. We cannot overlook this
admission.
With regard to the AMERICAN PHAROAH breeding rights, MGG
further argues the security interest in the rights was not created by the seller of the
rights, making the FSA inapplicable. MGG claims Justin Zayat, individually and
separately from Zayat Stables, sold the breeding rights. Much like its prior
argument, MGG ignores its own amended complaint in making this assertion.
Specifically, within the amended complaint, MGG asserts “Zayat Stables and the
11
We cite this unpublished opinion as persuasive, not binding, authority. See CR 76.28(4)(c).
Because North Ridge Farms was decided before Congress enacted the FSA, this Court reached
its decision using the then-enacted UCC definition of farm products which included “crops or
livestock used or produced in farming operations or if they are products of crops or livestock in
their unmanufactured states . . . and if they are in the possession of a debtor engaged in raising,
fattening, grazing or other farming operations.” North Ridge Farms, 37 UCC Rep. Serv. at 1288.
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Zayat Family purported to sell [AMERICAN PHAROAH] breeding rights Nos. 3-
9 to Defendant Orpendale[.]” R. at 692.12 Furthermore, the amended complaint
describes Justin Zayat as the President of Zayat Stables who is “in charge of the
day-to-day operations of Zayat Stables.” Id. at 643. In light of these declarations,
we are unconvinced by MGG’s argument.
As determined by the circuit court, MGG could have provided the
purchasers direct notice under 7 U.S.C. § 1631(e)(1) to protect its security
interests. MGG acknowledges the notice provisions of the FSA within the
financing agreement. Therein, Zayat Stables was required to:
Provide to [MGG] a list of the buyers, commission
merchants, selling agents and auctioneers to or through
whom the Borrower may sell any of the Equine
Collateral pursuant to the provisions of Section 1324 of
the Food Security Act of 1985, 7 U.S.C. 1631, in order
that [MGG] may give notices required by, and enjoy
protection afforded by, such Section. Schedule 7.01(q)
attached hereto and made a part hereof sets forth the
name and address of all such buyers, commission
merchants, selling agents and auctioneers. Borrower
agrees to provide [MGG] with any additions or deletions
from such Schedule immediately upon becoming aware
of the same, and, in any event, to update such Schedule at
least quarterly, and further agrees to notify the Collateral
Agent, in writing, of the identity and address of any other
buyer, commission merchant, or selling agent not
included on such Schedule 7.01(q) at least seven (7) days
prior to any sale of the Equine Collateral. BORROWER
ACKNOWLEDGES THAT PURSUANT TO 7 U.S.C.
12
With regard to the sale of AMERICAN PHAROAH breeding rights Nos. 1 and 2, MGG
asserts “Zayat Stables and Justin Zayat” purported to sell the shares to Foxwoods. R. at 689.
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1631(h)(3), BORROWER’S FAILURE TO COMPLY
WITH THE PROVISIONS OF THIS SECTION 7.01(q)
MAY SUBJECT BORROWER TO A FINE IN THE
AMOUNT OF $5,000,000 OR 15% OF THE VALUE
OF THE BENEFIT RECEIVED FROM SUCH
COLLATERAL, WHICHEVER IS GREATER.
R. at 818 (emphasis added).13
This provision of the financing agreement shows MGG was aware of
the requirement of direct notice to a purchaser of equine collateral to protect a
security interest. Furthermore, we are unconvinced by MGG’s claim that this
reference to the FSA “does not indicate that the parties intended the FSA to govern
the sales[.]” Reply Brief at 14. In fact, citation to the FSA in the financing
agreement is evidence of acknowledgment by the parties of the applicability of the
statute to any potential sale of equine collateral. To find otherwise would be
illogical. MGG would not have required Zayat Stables to provide names and
addresses of purchasers in order to provide notice under 7 U.S.C. § 1631(e) to
protect its security interests if the parties did not believe 7 U.S.C. § 1631(d)
applied to the relevant sales herein.
MGG next argues the circuit court erred in finding KRS 413.242 bars
its claims against Yeomanstown.
Before a party possessing a security interest or lien
against an equine interest that has been sold without the
13
Schedule 7.01(q) includes Keeneland Association, Inc., Fasig-Tipton Company, Inc., and
Ocala Breeders’ Sales Company. R. at 879. No appellee is named therein.
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debt to the party being discharged may bring an action
against the purchaser or selling agent of the equine
interest, the secured party shall pursue a remedy against
the debtor to the point where a judgment is rendered on
the merits or the suit is dismissed with prejudice.
KRS 413.242. Within its argument, MGG first claims it complied with the
requirements of the statute by attempting to distinguish the “claims” it brought
against Yeomanstown within its action against Zayat Stables from a separate
“action” it could have brought against Yeomanstown. Essentially, MGG argues its
claims are not barred by KRS 413.242 because they were brought within the action
against the debtor, Zayat Stables, rather than as a separate action against the
purchaser, Yeomanstown.
“[I]t is axiomatic that, when interpreting a provision of a statute, a
court should not, if possible, adopt a construction that renders a provision
meaningless or ineffectual or interpret a provision in a manner that brings about an
absurd or unreasonable result.” Schoenbachler v. Minyard, 110 S.W.3d 776, 783
(Ky. 2003) (footnotes omitted). The statute plainly states the legislature intended
for creditors to pursue actions against sellers “to the point where a judgment is
rendered on the merits or the suit is dismissed with prejudice” prior to pursuing
any action against a purchaser. KRS 413.242. The intention of the legislature for
suits against debtors to first reach finality is unambiguous. Were we to adopt
MGG’s theory differentiating between a “claim” and an “action,” security interest
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holders would be empowered to entirely circumvent KRS 413.242 by filing an
action which includes claims against both the debtor and purchaser at once. This
would effectively render KRS 413.242 meaningless, an outcome strongly
disfavored by our jurisprudence. Brooks v. Commonwealth, 217 S.W.3d 219, 223
(Ky. 2007); Commonwealth v. Phon, 17 S.W.3d 106 (Ky. 2000); DeStock No. 14,
Inc. v. Logsdon, 993 S.W.2d 952 (Ky. 1999). Therefore, MGG’s amendment of
the complaint against Zayat Stables to include claims against Yoemanstown is not
sufficient for compliance with KRS 413.242.
MGG further argues, regardless of its noncompliance with KRS
413.242, the statute is unconstitutional under Section 2 of the Kentucky
Constitution.14 Section 2 of the Kentucky Constitution states, “[a]bsolute and
arbitrary power over the lives, liberty and property of freemen exists nowhere in a
republic, not even in the largest majority.” The Supreme Court of Kentucky has
held “whatever is essentially unjust and unequal or exceeds the reasonable and
legitimate interests of the people is arbitrary.” Commonwealth Natural Resources
and Environmental Protection Cabinet v. Kentec Coal Co., Inc., 177 S.W.3d 718,
726 (Ky. 2005) (citation omitted). Where economic rights are involved, the
14
MGG provided notice to the Attorney General of its constitutional challenge to KRS 413.242
as required by KRS 418.075. The Attorney General declined to intervene in this action.
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purpose of the statute must be rationally related to a legitimate state objective.
Beshear v. Acree, 615 S.W.3d 780, 816 (Ky. 2020) (citation omitted).
MGG contends there is no rational basis for such a distinction and
attempts to place the burden of identifying such a rationale on both Yeomanstown
and the circuit court.15 However, MGG solely bears the burden of dispelling any
conceivable basis which might justify the statute. Buford v. Commonwealth, 942
S.W.2d 909, 911 (Ky. App. 1997). “A strong presumption exists in favor of the
constitutionality of a statute. Furthermore, one who seeks to have a statute
declared unconstitutional bears the burden of dispelling any conceivable basis
which might justify the legislation.” Id. (citation omitted).
A rational basis may be any reasonable basis or
substantial and justifiable reason. A person challenging a
law upon equal protection grounds under the rational
basis test has a very difficult task because a law must be
upheld if there is any reasonably conceivable state of
facts that could provide a rational basis for the
classification. Furthermore, the General Assembly need
not articulate its reasons for enacting the statute, and . . .
has great latitude to enact legislation that may appear to
affect similarly situated people differently.
Teco/Perry County Coal v. Feltner, 582 S.W.3d 42, 47 (Ky. 2019) (citations
omitted). Furthermore, we need not agree with the wisdom or expediency of the
15
Although the circuit court did not directly address the constitutionality of KRS 413.242 in its
judgment, in granting Yeomanstown’s motion to dismiss the court implicitly found the statute
constitutional. The parties did not file post-judgment motions under CR 52.02 or CR 59.05.
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General Assembly’s purpose for a statute for it to be constitutional. Buford, 942
S.W.2d at 911.
MGG argues KRS 413.242 unconstitutionally creates an arbitrary
classification favoring purchasers of equine interests over all other purchasers.
“We will accept at face value contemporaneous declarations of governmental
purposes, or in the absence thereof, rationales construed after the fact, unless our
examination of circumstances forces us to conclude that they could not have been a
goal of the classification.” Commonwealth ex rel. Stumbo v. Crutchfield, 157
S.W.3d 621, 624 (Ky. 2005) (citation omitted).
The General Assembly unquestionably has the power to enact such
statutes. Munday v. Mayfair Diagnostic Laboratory, 831 S.W.2d 912, 914 (Ky.
1992) (citation omitted). Kentucky’s appellate courts have repeatedly upheld the
constitutionality of statutes of limitation even where they arguably conflict with
sections of the Kentucky Constitution. Id. “[P]rovisions of statutes of limitations
should not be lightly evaded.” Id. (citation omitted). Acceptance of MGG’s
argument regarding the constitutionality of KRS 413.242 would violate these
settled principles and would call into question the constitutionality of many
provisions of KRS Chapter 413.
Furthermore, as identified by Yeomanstown, numerous Kentucky
statutes treat the equine industry in a manner different from the way in which other
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industries within the Commonwealth are treated. See KRS 139.531 (exempting
certain equine sales from application of taxes); see also KRS 330.210 (regulating
the sale of horses by auction); KRS 525.130 (exempting killing of animals at
organized horse races or shows from cruelty to animals and imposing additional
penalties for offenses arising from a person’s treatment of an equine). In fact, the
entirety of KRS Chapter 230 separately regulates the horse racing and showing
industries.16 Furthermore, in enacting KRS Chapter 230, “the intent of the
Commonwealth [was] to foster and to encourage the horse breeding industry
within the Commonwealth and to encourage the improvement of the breeds of
horses[,]” as well as “to foster and to encourage the business of legitimate horse
racing with pari-mutuel wagering thereon in the Commonwealth on the highest
possible plane.” KRS 230.215(1). Although not part of Chapter 230, KRS
413.242 can undoubtedly be rationally related to the same government interests.
Therefore, as MGG is unable to dispel all conceivable rationales for the General
Assembly’s enactment of KRS 413.242, the statute is not unconstitutional.
Next, MGG argues its claims against Yeomanstown were timely. “An
action for the taking, detaining or injuring of personal property, including an action
16
See KRS 230.225 (establishing the Kentucky Horse Racing Commission); KRS 230.280 to
KRS 230.310 (regulating licensure for horse racing); KRS 230.357 (regulating sales, purchases,
and transfers of horses); KRS 230.781 (exempting international racing hubs from fees and taxes);
KRS 230.804 (establishing the Kentucky horse breeders’ incentive fund and regulating the
disbursement of monies from the fund); and KRS 230.990 (establishing penalties for violations
of statutes).
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for specific recovery shall be commenced within two (2) years from the time the
cause of action accrued.” KRS 413.125. Yoemanstown purchased EL KABEIR
from Zayat Stables on September 20, 2017. MGG amended its complaint to bring
claims against Yeomanstown on February 11, 2020, more than four months after
the expiration of the statute of limitations. MGG concedes to these facts but argues
its claims are timely with application of the discovery rule.
Under the discovery rule, a cause of action does not accrue “until the
plaintiff discovers or[,] in the exercise of reasonable diligence[,] should have
discovered not only that he has been injured but also that his injury may have been
caused by the defendant’s conduct.” R.T. Vanderbilt Co., Inc. v. Franklin, 290
S.W.3d 654, 659 (Ky. App. 2009) (citation omitted). “Reasonable diligence means
that a plaintiff must be as diligent as the great majority of persons would [be] in the
same or similar circumstances[.]” Id. (citations omitted). This rule is available
only in the limited circumstances in which an injury is not readily discoverable or
ascertainable. Wiseman v. Alliant Hospitals, Inc., 37 S.W.3d 709, 712 (Ky. 2000)
(citations omitted). The discovery rule is most often applied to cases involving
latent injuries or illnesses. Mark D. Dean, P.S.C. v. Commonwealth Bank & Trust
Co., 434 S.W.3d 489, 502 (Ky. 2014) (citation omitted). Kentucky courts have
generally been reluctant to extend the discovery rule where they are without the
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statutory authority to do so. Roman Catholic Diocese of Covington v. Secter, 966
S.W.2d 286, 288 (Ky. App. 1998) (citations omitted).
No statutory authority exists for applying the discovery rule to the
circumstances herein. Furthermore, this case is easily distinguishable from those
where the rule has been applied, namely those involving latent injuries or illnesses.
Here, MGG suffered no latent injury attributable to Yeomanstown’s actions.17
Had MGG exercised reasonable diligence, it would have discovered
Zayat Stables’ sale of EL KABEIR to Yeomanstown. While Zayat Stables may
have failed to comply with its obligation to notify MGG of the sale, MGG had
other means of discovering it. Primarily, it is uncontroverted that MGG had, under
the financing agreement, inspection rights which allowed agents of MGG to, with
written notice to Zayat Stables, “visit, inspect and conduct such examinations as
they may elect in their sole and absolute discretion[.]” R. at 814. As part of its
inspection rights, MGG was empowered
(A) to examine and make copies of and abstracts from
[Zayat Stables’] records and books of account, (B) to
visit, inspect and examine [Zayat Stables’] Equine
Collateral and other properties, (C) to permit Equine
Appraisers to visit, inspect and examine [Zayat Stables’]
Equine Collateral in connection with Equine Appraisals
permitted hereunder, (D) to verify materials, leases,
notes, accounts receivable, deposit accounts and [Zayat
Stables’] other assets, (E) to conduct audits, physical
17
In fact, MGG does not allege any wrongdoing attributable to Yeomanstown. Instead, MGG
alleges only wrongdoing by Zayat Stables in concealing the sale of EL KABEIR.
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counts, valuations, appraisals, or examinations and (F) to
discuss [Zayat Stables’] affairs, finances and accounts
with any of its directors, officers, managerial employees,
independent accountants or any of its other
representatives[.]
Id. MGG was also entitled to equine appraisals at Zayat Stables’ expense. Id.MGG’s failure to exercise these inspection rights is fatal to any claim that the
injury it suffered was “inherently unknowable” within the statutory period. Wilson
v. Paine, 288 S.W.3d 284, 287 (Ky. 2009) (citation omitted).
In the alternative, MGG argues it is entitled to equitable tolling as to
its claims against Yeomanstown. “Equitable tolling pauses the running of, or tolls,
a statute of limitations when a litigant has pursued his rights diligently, but some
extraordinary circumstance prevents him from bringing a timely action.” Williams
v. Hawkins, 594 S.W.3d 189, 193 (Ky. 2020) (citing Lozano v. Montoya Alvarez,
472 U.S. 1, 10, 134 S. Ct. 1224, 1231-32, 188 L. Ed. 2d 200 (2014)). “[T]o be
entitled to equitable tolling, a litigant must establish: (1) that he has been pursuing
his rights diligently, and (2) that some extraordinary circumstance stood in his way
and prevented timely filing, with those circumstances being beyond the litigant’s
control.” Id. at 194 (internal quotation marks and citation omitted). It is
incumbent on plaintiffs to locate and name the proper party defendant. Id. at 195(citation omitted).
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The circuit court, in dismissing MGG’s claims against Yeomanstown
without prejudice, held “[e]quitable [t]olling could or may apply to the case at bar,
but the [c]ourt does not currently have sufficient evidence before it to make this
determination.” R. at 1357. Again, MGG argues only that Zayat’s actions in
failing to comply with the security agreement in reporting the sale entitles it to
equitable tolling of its claims against Yeomanstown. This claim must fail on the
same grounds as MGG’s argument for application of the discovery rule. Had
MGG exercised its inspection rights and practiced reasonable diligence, it would
have discovered the sale. MGG fails to identify any extraordinary circumstance
beyond its control which entitles it to equitable tolling.
CONCLUSION
Accordingly, the judgments of the Fayette Circuit Court on MGG’s
claims against Hill ‘N’ Dale, Foxwoods, McMahon, Orpendale, Flintshire, Sears,
and Bemak are affirmed. The judgment on MGG’s claims against Yeomanstown
is affirmed in part, reversed in part, and remanded with direction for the circuit
court to enter a judgment dismissing the claims with prejudice.
ALL CONCUR.
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BRIEFS FOR APPELLANT/CROSS- BRIEF FOR APPELLEE/CROSS-
APPELLEE: APPELLANT, MULL
ENTERPRISES LIMITED D/B/A
W. Craig Robertson III YEOMANSTOWN STUD:
Daniel E. Hitchcock
Thomas E. Travis Thomas D. Bullock
Lexington, Kentucky Rachele T. Yohe
Lexington, Kentucky
Kannon K. Shanmugam
Stacie M. Fahsel BRIEF FOR APPELLEE, HILL ‘N’
Tanya S. Manno DALE EQUINE HOLDINGS, INC.:
Brian M. Lipshutz
Washington, D.C. David T. Royse
John C. Roach
ORAL ARGUMENT FOR Lexington, Kentucky
APPELLANT/CROSS-APPELLEE:
BRIEF FOR APPELLEE,
Kannon K. Shanmugam MCMAHON OF SARATOGA
Washington, D.C. THOROUGHBREDS, LLC:
Gregory P. Parsons
Marshall R. Hixson
Megan K. George
Lexington, Kentucky
BRIEF FOR APPELLEE, LNJ
FOXWOODS, LLC:
W. Chapman Hopkins
Andrew J. Donovan
Lexington, Kentucky
BRIEF FOR APPELLEES, BEMAK
N.V., LTD. & ORPENDALE
UNLIMITED COMPANY:
Barry D. Hunter
Medrith Lee Norman
Lexington, Kentucky
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BRIEF FOR APPELLEES,
FLINTSHIRE FARM, LLC &
THOMAS B. SEARS:
J. Mel Camenisch, Jr.
Megan R. Holt
Lexington, Kentucky
ORAL ARGUMENTS FOR
APPELLEES/CROSS-APPELLANT
David T. Royse
Lexington, Kentucky
Thomas D. Bullock
Lexington, Kentucky
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