Thomas Gaines, Individually and Derivatively on Behalf of Gaines-Gentry Thoroughbreds, LLC v. Hal Price Headley, III, as Administrator of the Estate of Olin Gentry ( 2023 )

RENDERED: DECEMBER 22, 2023; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2023-CA-0421-MR
THOMAS GAINES, INDIVIDUALLY
AND DERIVATIVELY ON BEHALF
OF GAINES-GENTRY
THOROUGHBREDS, LLC APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE THOMAS L. TRAVIS, JUDGE
ACTION NO. 18-CI-00091
HAL PRICE HEADLEY, III, AS
ADMINISTRATOR OF THE ESTATE
OF OLIN GENTRY APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CETRULO, COMBS, AND EASTON, JUDGES.
CETRULO, JUDGE: Appellant Thomas Gaines (“Gaines”) appeals three orders
dismissing all of his claims against his former business partner for alleged breaches
of contractual fiduciary duties and statutory obligations of good faith and fair
dealing. Finding no error, we affirm the Fayette Circuit Court (“trial court”).
I. BACKGROUND
In 2018, Gaines filed a complaint against his co-manager, Olin Gentry
(“Gentry”), at Gaines-Gentry Thoroughbreds, LLC1 (“GGT”). The claims in the
complaint span 17 years, during which the company went through multiple
comprehensive changes in management. In his complaint, Gaines alleged Gentry2
breached his statutory and contractual duties, committed fraud by omission,
misappropriated GGT assets, and concealed “self-serving” transactions.
In 1994, Gaines’s father first incorporated John R. Gaines
Thoroughbreds, LLC to deal with a wide variety of equine-industry-related
business interests. For purposes of our discussion, after Gaines’s father left the
company, it evolved into GGT with Gaines and Gentry serving as co-managers.
Through the years, the parties signed various contractual agreements: (1) an
employment agreement signed in 1997; (2) a succession agreement signed in 2000;
(3) a settlement agreement signed in 2006; and (4) an operating agreement signed
in 2007. The interpretation of those contracts forms the foundation of this action.
1
Gaines Gentry Thoroughbreds, LLC, has evolved as a company through the years with various
leadership, ownership, member composition, and structural formation. The company names
have included Gaines-Gentry, LLC; Gaines-T-Breds, LLC; John R. Gaines Thoroughbred, LLC;
and Gaines-Gentry Thoroughbreds, LLC, but for clarity we shall use “GGT” throughout, unless
distinction is necessary.
2
Shortly after the filing, Gentry passed away and Gaines continued the action against his estate,
represented by Hal Price Headley, III, as administrator of Gentry’s estate.
-2-
In 1997, Gentry signed an Employment Agreement (“1997
Employment Agreement”) with GGT.3 The 1997 Employment Agreement
imposed upon Gentry fiduciary and reporting obligations. In relevant part, the
contract stated:
During the Term, [Gentry] shall not engage in any activity
which is (or has the potential to be) in conflict with the
interests of [GGT] or [GGT’s] Affiliates or which is
otherwise inconsistent with the highest fiduciary standards
and duties (including, but not limited to, the fiduciary duty
of loyalty generally imposed upon employees, officers,
and directors of business corporations). In this regard, but
not by way of limitation of [Gentry’s] general fiduciary
duties, [Gentry] shall not engage in any paid or unpaid
work activities which are not for the benefit of [GGT]. . . .
[Gentry] shall not engage in, invest in, purchase, acquire,
trade, exchange, sell, syndicate, breed or otherwise
possess, receive, or otherwise deal in or with respect to any
equity, creditor, profit, cash flow, distribution,
compensatory, or other interests in or with respect to any
equine interests, participations, investments, shares,
fractional interests, foal sharings, breeding rights,
commissions or other rights or benefits, whether direct or
indirect through any one or more corporations,
partnerships, limited liability companies, trusts, or other
entities, individuals (whether or not related), third party
arrangements, or otherwise, except [those equine interests
approved by the Board and/or currently owned and
reported]. . . . Furthermore, [Gentry] shall be obligated to
immediately present to [GGT], and permit [GGT] to take,
separately or with other, any and all rights, options, or
other business or investment opportunities with respect to
equine interests and activities of which [Gentry] has
knowledge or which are presented to or otherwise come to
[Gentry’s] attention at any time during the Term.
3
More specifically, with John R. Gaines Thoroughbreds, LLC.
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During the relevant timeframe – although the exact dates are unclear
from the record – Gentry solely owned Geneli Thoroughbreds, Inc. (“Geneli”).
The record reflects that Gaines was aware – he claimed “vaguely aware” – of
Gentry’s ownership of Geneli, and Gaines admitted he had received commission
checks from Geneli.
In 2000, as a condition of becoming President and CEO of GGT,
Gentry signed a Succession Agreement (“2000 Succession Agreement”) which
passed control of GGT to Gaines and Gentry from Gaines’s father. The 2000
Succession Agreement created a management board made up of Gentry, Gaines,
and Gloria (Gaines’s sister), and it repeated (as similarly detailed in the 1997
Employment Agreement), that the three board members must present any business
opportunities which become available to them by reason of their relationship with
the company to the other principals.
All potential equine transactions and equine-industry-
related investment or business opportunities which are
developed by, or become available to, [Gentry], Gloria or
[Gaines], and any other potential investment or business
opportunities which become available to [Gentry], Gloria
or [Gaines], directly or indirectly by reason of his or her
relationship with [GGT] and its activities, shall be
presented to [GGT] and the other [members], and [GGT]
or all three of [Gentry], Gloria or [Gaines], as the cause
may be, shall have the right and privilege to elect to take
and pursue such transaction or opportunity, with all
economic benefits therefrom inuring to the benefit of
[GGT] . . . . None of [Gentry], Gloria or [Gaines], will be
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permitted to individually invest or pursue equine
transactions or equine-industry-related investment or
business opportunities if [GGT] or the other two
[members] refuse or fail to take or pursue such transaction
or opportunity, unless agreed to by all three of them.
However, Gaines, Gentry, and Gloria were unable to manage GGT as
a cohesive unit, and in 2003 Gaines filed a lawsuit against Gloria seeking to
remove her from GGT. In 2006, Gaines and Gloria reached a settlement (“2006
Settlement Agreement”) that removed Gloria from the company but was silent as
to any management issues.
In 2007, Gaines, Gentry, and Gaines’s mother, Joan Gaines (“Joan”),
signed a Second Amended Operating Agreement that was backdated to January
2006 (“2006 Operating Agreement”). While both Gaines and Gentry were
designated as “Managers,” Gentry handled the active management of GGT as
operating manager. The 2006 Operating Agreement did not contain language
requiring the members to share equine interests with each other or GGT. In fact,
the 2006 Operating Agreement waived many fiduciary duties and superseded prior
contracts.
5.7 Fiduciary Duties of Members. To the fullest extent
permitted by Law, each Member (the “Waiving Member”)
hereby agrees to (a) waive any fiduciary duties or personal
liability that any other Member may have to the Company
or such Waiving Member, whether such duties or liability
would otherwise arise in such other Member’s capacity as
a Member, Manager or officer, and (b) eliminate any
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personal liability any other Member may have to the
Company or such Waiving Member.
...
19.6 Entire Agreements. This Agreement constitutes the
entire agreement among the parties hereto with respect to
the subject matter hereof and supersedes any prior or
contemporaneous oral or written agreement or
understanding among the parties hereto with respect to the
subject matter hereof.
In his appellant brief, Gaines argues that before filing this complaint,
he requested and received a copy of the 2006 Operating Agreement from GGT’s
legal counsel, Frost Brown Todd, LLC. The copy he received was missing pages
nine and 11; the above fiduciary language of Section 5.7 was on page nine. Other
fully executed copies of this 2006 Operating Agreement – possessed by Gentry and
other GGT business associates4 – contained all the pages.
In 2014,5 Gaines gained access to GGT’s storage unit and sought to
inventory GGT records in order to prepare for unrelated litigation. As Gaines
4
In his appellant brief, Gaines states that he “asked [GGT’s] counsel, Frost Brown Todd, LLC,
for a copy of the [2006 Operating Agreement].” However, in his appellee brief, Gentry points
out that Gaines received his copy of this contract from his mother’s trust attorney, not GGT’s
corporate attorney; both the trust attorney and corporate attorney were members of Frost Brown
Todd, LLC, but were not the same individual. Additionally, Gentry states that complete copies
of the contract, without any missing pages, were available to Gaines upon request from the GGT
office manager, GGT’s corporate legal counsel, GGT’s corporate accountant, and/or located in
the GGT storage facility and Gaines’s email.
5
Gaines cites 2014, 2015, and 2016 throughout this litigation, but for clarity we shall use 2014
consistently. The record suggests Gaines first attained access to the GGT storage unit in 2014,
began organizing in 2015, and found records of various concerning transactions through 2016.
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organized the documents in the storage unit, he discovered multiple payments to
Gentry (and/or Gentry’s company, Geneli) that he claimed were proof of Gentry’s
“self-dealing transactions.” Gentry kept records from his personal company,
Geneli, on the GGT computer system, and apparently in the GGT storage unit.
Although not explicitly stated in the appellate briefs, it appears that Gaines
received access to both GGT and Geneli records at that time. This litigation
resulted from Gaines’s review of those records.
In January 2018, Gaines filed suit against Gentry alleging nine
improper transactions, requesting both compensatory and punitive damages. The
trial court dismissed all nine transactions through three separate orders: a 2019
order granting summary judgment, in part (“2019 Summary Judgment”); a 2022
order granting summary judgment, in part (“2022 Summary Judgment”); and a
2023 order entered after a bench trial (“2023 Order”). Gaines appeals all three
orders.
II. ANALYSIS
On appeal, Gaines argues the trial court erred in dismissing four of the
nine alleged improper transactions.6 Gaines argues these transactions were “self-
6
Gaines also listed a fifth improper transaction for appellate review as “[n]umerous payments
made to Gentry’s sister, Kathleen [a GGT employee from 2001-2007], labeled ‘bonus.’” Gaines
implies the bonus checks were inappropriate but ends his argument there, as he also did before
the circuit court. The circuit court, in the 2022 Summary Judgment, stated that “[Gentry] [did]
not assert how these checks [to Kathleen] were wrongful besides the fact that they were written.”
On appeal, Gaines does not – in any way – show how the bonus checks to Kathleen were a “self-
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dealing” payments by Gentry and a breach of his fiduciary duties, and/or breaches
of implied covenants of good faith and fair dealing. Conversely, Gentry asserts
that Gaines’s legal approach in this litigation was to find payments to Gentry (or
Geneli) in the GGT records, claim – without supporting evidence – that the
payments alone proved impropriety, and then attempt to shift the burden to Gentry
to prove the transactions were legitimate.7 Gentry asserts that all the transactions
were properly recorded in the GGT records; all parties had equal access to the
GGT records; and Gaines chose not to review the records until 2014 then assumed,
without proof, that payments to Gentry and/or Geneli were improper. We shall
address each transaction in turn.
A. Two September 2007 Payments: Commission from Winstar Farm
and Thoroughbred Crystal Current Interest
The 2019 Summary Judgment dismissed these claims.
In February 2018, Gentry filed a motion to dismiss for failure to state
a claim, but the court considered matters outside the pleadings, thereby treating the
dealing” transaction by Gentry. The mere existence of bonus checks paid to an employee does
not create a standalone argument of impropriety. In fact, Gaines does not discuss – in either his
appellant or reply brief – how the trial court erred by dismissing these bonus-check-inferences
and, therefore, neither shall we.
7
The trial court appears to share this impression. In the third order in this appeal, the 2023
Order, the trial court stated, “It was apparent from [Gaines’s] testimony that many of the claims
he has raised in this action were based simply on finding evidence of any payment to Gentry and
asserting that such payments were wrongful.”
-8-
motion as one for summary judgment. The appellate standard of review when a
trial court has granted a motion for summary judgment is whether the record, when
examined in its entirety, shows there is “no genuine issue as to any material fact
and that the moving party is entitled to a judgment as a matter of law.” Kentucky
Rule of Civil Procedure (“CR”) 56.03. “The record must be viewed in a light most
favorable to the party opposing the motion for summary judgment and all doubts
are to be resolved in his favor.” Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807
S.W.2d 476, 480 (Ky. 1991) (citation omitted). As “[a]ppellate review of a
summary judgment involves only legal questions and a determination of whether a
disputed material issue of fact exists[,]” our review is de novo. Shelton v. Ky.
Easter Seals Soc’y, Inc., 413 S.W.3d 901, 905 (Ky. 2013) (citation omitted).
Gaines states in his appellate brief:
In 2007, [GGT] was involved in negotiating the purchase
of numerous syndicated stallion shares from various farms
for a stallion share venture. Shares were acquired from
Winstar in the Fall of 2007. In September 2007, Gentry
received a check payable to him, individually, from
Winstar in the amount of $150,000. The check was
deposited into Geneli’s account, and referenced in
Geneli’s records as “miscellaneous.” Gaines was not
aware of this payment until the check and related
documents were discovered by him in [GGT’s] records in
[2014]. [“Winstar Commission”]
...
On September 30, 2007, Gentry wrote a check on his
Geneli account for $75,000, completed the date, amount
-9-
and signature in blue ink. In black ink, “Hill ‘n’ Dale
Farms” was printed as payee, and “CRYSTAL
CURRENT” was printed on the “For” line. CRYSTAL
CURRENT was sold less than a year later at auction for
$3,000,000.00. Gaines’s Verified Complaint alleged his
belief that the September 30, 2007, check was used by
Gentry to acquire an ownership interest in CRYSTAL
CURRENT from Hill ‘n’ Dale Farm. This business
opportunity belonged solely to [GGT].” [“Crystal Current
Interest”]
Gaines argues that Gentry’s failure to adequately report and/or share
the Winstar Commission and Crystal Current Interest with GGT and the other
principals were improper acts of “self-dealing.” However, the trial court
disagreed, finding that the complete version of the 2006 Operating Agreement was
controlling; Paragraph 5.7 of that contract waived fiduciary duties; Gentry did not
act beyond the scope of the controlling contract, and therefore Gentry was entitled
to summary judgment on those claims.
On appeal, Gaines argues that the 1997 Employment Agreement and
the 2000 Succession Agreement were still binding in 2007 and required Gentry to
present any business opportunities (which become available to him by reason of
his relationship with the company) to the other principals. Further, he asserts that
his copy of the 2006 Operating Agreement – missing Paragraph 5.7 that waived
fiduciary duties – should be controlling, at least for purposes of averting summary
judgment. Conversely, Gentry argues that the trial court was correct to find his
version of the 2006 Operating Agreement – containing Paragraph 5.7 – was
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controlling. Gentry argues that because Paragraph 5.7 waived fiduciary and
reporting duties, Gentry did not act improperly by accepting the Winstar
Commission nor the Crystal Current Interest.
First, we must consider the pertinent factual findings of the trial court.
“Findings of fact, shall not be set aside unless clearly erroneous, and due regard
shall be given to the opportunity of the trial court to judge the credibility of the
witnesses.” CR 52.01. Findings are not clearly erroneous if they are supported by
substantial evidence. Moore v. Asente, 110 S.W.3d 336, 354 (Ky. 2003) (citation
omitted).
The 2019 Summary Judgment stated, “Gaines’ assertion that these
[fiduciary and statutory duties of loyalty] were not waived because the version
provided to him by the company’s counsel did not contain the relevant page is
without merit.” In essence, the trial court made the factual finding that the version
of the 2006 Operating Agreement – with all the pages included – is the authentic,
controlling document.
The Court notes that, if page 11, which contains Paragraph
5.7, were removed from the contract, the language and
ordering of the provisions would be nonsensical. First, the
pages are numbered, so it would be immediately apparent
to a reasonable person, particularly an experienced
businessman such as Gaines, that there are contractual
provisions missing. Further, at the bottom of page 10 is
Paragraph 5.4, and at the top of page 12 is Paragraph 8.3.
Even assuming that page 11 of Gaines’ contract were
missing, no reasonable person would conclude that the
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contract was intentionally drafted that way or that the
provisions on the missing page somehow would be
inapplicable or irrelevant. Thus, in the Court’s view, there
is only one reasonable conclusion that can be reached: that
the version of the [2006 Operating Agreement] as tendered
by Gentry [with all the pages included] is the authentic and
controlling document, and Gaines’ assertion to the
contrary cannot stand. The fiduciary duty of loyalty is
waived in that [2006 Operating Agreement.]
On appeal, Gaines argues that due to the standard of review on
summary judgment – viewing the record in a light most favorable to the party
opposing the motion for summary judgment and all doubts being resolved in his
favor, Steelvest, 807 S.W.2d at 480 (citation omitted) – the trial court erred by not
accepting his version of the 2006 Operating Agreement as controlling. However,
we do not agree. The standard of review described in Steelvest does not remove
the trial court’s ability to make a factual finding when only one reasonable
conclusion exists. “If reasonable minds cannot differ or . . . when only one
reasonable conclusion can be reached, the litigation may still be terminated.”
Dishman v. C & R Asphalt, LLC, 460 S.W.3d 341, 347-48 (Ky. App. 2014)
(quoting Shelton, 413 S.W.3d at 916). Moreover, the summary judgment standard
is to be applied in a practical sense, not absolute.
Summary judgment is appropriate when “‘as a matter of
law, it appears that it would be impossible for the
respondent to produce evidence at the trial warranting a
judgment in his favor and against the movant.’” [Steelvest,
807 S.W.2d at 483)] (quoting Paintsville Hospital Co. v.
Rose, 683 S.W.2d 255, 256 (Ky. 1985)). In using the word
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“impossible” in Steelvest, we have acknowledged that it
“is used in a practical sense, not in an absolute sense.”
Perkins v. Hausladen, 828 S.W.2d 652, 654 (Ky. 1992).
O’Bryan v. Cave, 202 S.W.3d 585, 587 (Ky. 2006).
As such, the summary judgment standard of review does not mandate
that Gaines’s version of the 2006 Operating Agreement be accepted as controlling,
when to do so – as determined by the trial court – is unreasonable. Dishman, 460
S.W.3d at 347-48. The trial court’s factual finding – that the complete version of
the 2006 Operating Agreement, including Paragraph 5.7, was the proper, legal
version of the contract – was based on substantial evidence and therefore was not
clearly erroneous. As such, we are bound by that finding. However, Gaines
argues – even accepting that factual finding – Gentry still acted improperly based
on other contractual8 and statutory grounds.
Gaines argues Paragraph 5.7 did not supersede or rescind the fiduciary
duties imposed on Gentry in the 1997 Employment Agreement and 2000
Succession Agreement because the boilerplate integration provision in the 2006
8
In part, Gaines argues Paragraph 5.7 is ambiguous because it is inconsistent with Paragraph
14.3 and 18.2 of the same document. The 2019 Summary Judgment did not discuss this issue
factually or legally. The court speaks through its orders, see Kindred Nursing Centers Limited
Partnership v. Sloan, 329 S.W.3d 347, 349 (Ky. App. 2010), and our appellate review is limited
to those matters which were addressed by the lower trial, Fischer v. Fischer, 197 S.W.3d 98, 102
(Ky. 2006) (citing Combs v. Knott County Fiscal Court, 141 S.W.2d 859, 860 (Ky. 1940)). If
Gaines wished additional findings as to ambiguity or inconsistency, he was required to motion
for additional findings before the trial court. See Eiland v. Ferrell, 937 S.W.2d 713, 716 (Ky.
1997) (citing CR 52.04). Therefore, we need not analyze this ambiguity argument regarding
Paragraph 14.3 and 18.2.
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Operating Agreement only supersedes those agreements “with respect to the
[same] subject matter.” Gaines argues that since the 2006 Operating Agreement
deals with different subject matters than the 1997 Employment Agreement and
2000 Succession Agreement, those prior contracts were still binding at the time
Gentry received the Winstar Commission and Crystal Current Interest. Yet, we
find this argument to be without merit.
As stated, we are bound by the finding that the complete 2006
Operation Agreement is the applicable version of the contract; therefore, we
include Paragraph 5.7 in our analysis. Paragraph 5.7 clearly, explicitly waives
fiduciary duties. “Where the contract’s language is clear and unambiguous, the
agreement is to be given effect according to its terms, and ‘a court will interpret the
contract’s terms by assigning language its ordinary meaning and without resort to
extrinsic evidence.’” Vorherr v. Coldiron, 525 S.W.3d 532, 543 (Ky. App. 2017)
(quoting Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99, 106 (Ky. 2003)).
Here, Paragraph 5.7 of the controlling 2006 Operating Agreement
“waive[d] any fiduciary duties or personal liability that any other Member may
have to [GGT.]” Prior contracts created fiduciary duties among the parties; the
controlling 2006 Operation Agreement eliminated those duties; thus, the subject
matters are overlapping as to fiduciary duties. Just because the 1997 Employment
Agreement, 2000 Succession Agreement, and 2006 Operating Agreement might
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not overlap 100% on other subject matter, does not somehow create an assumption
that these contracts are unenforceable or inconsistent as a whole. The Paragraph
5.7 waiver language is clear, concise, and controlling on the fiduciary subject.
We additionally note, the 2006 Operating Agreement supersedes prior
contracts because the plain language of the contract clearly states such an intent.
19.6 Entire Agreements. This Agreement constitutes the
entire agreement among the parties hereto with respect to
the subject matter hereof and supersedes any prior or
contemporaneous oral or written agreement or
understanding among the parties hereto with respect to the
subject matter hereof.
Again, when a contract is clear, we are bound to interpret the contract
using its ordinary meaning. Id.Next, Gaines argues the 2006 Operating Agreement is invalid because
it was induced by fraudulent omission. Gaines asserts he “did not and could not
learn of [the Winstar Commission and Crystal Current Interest] transactions until
December [2014], when he began to review [GGT] documents previously kept in
the storage unit.” Gaines argues Gentry had a duty to disclose these “prior
instances of self-dealing to Gentry” before signing the 2006 Operating Agreement,
and because Gentry did not properly and adequately disclose those dealings, the
2006 Operating Agreement is not valid. However, he leaves this argument
unsupported.
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In order for a plaintiff to succeed on a claim of fraudulent omission,
he must prove “a) that the defendants had a duty to disclose [a material] fact; b)
that defendants failed to disclose that fact; c) that the defendants’ failure to disclose
the material fact induced the plaintiff to act; and d) that the plaintiff suffered actual
damages.” Rivermont Inn, Inc. v. Bass Hotels & Resorts, Inc., 113 S.W.3d 636,
641 (Ky. App. 2003) (citing Smith v. Gen. Motors Corp., 979 S.W.2d 127 (Ky.
App. 1998)). According to Gaines, both the Winstar Commission and Crystal
Current Interest transactions occurred in September 2007. Although the 2006
Operating Agreement was backdated to January 2006, it was signed by the parties
in October 2007. Even if – assuming for purposes of this limited discussion –
Gentry had a duty to disclose, Gaines does not show, in any way, how Gentry
“failed to disclose” the Winstar Commission and Crystal Current Interest. He does
not explain how Gentry recording the transactions in the Geneli and/or GGT books
was not “disclosure.” Gaines admits that his review of the GGT records revealed
these payments; it is unclear why he “could not learn” about the transactions until
December 2014.
Simply, Gaines, as a manager, had access to the GGT records at all
times,9 and when he finally looked at the books, he saw the transactions.
9
Gaines asserts that he did not have a key to the GGT storage unit, but rather, had to convince an
employee of the storage facility to allow him access. However, he does not argue that he
requested access and/or a key but was denied by Gentry or any other employee of GGT.
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Moreover, it is unclear why Gaines did not check the company books prior to
signing a new operating agreement. Gaines does not explain how Gentry’s alleged
failure to disclose the transactions induced him to act. If the new operating
agreement was signing away fiduciary duties, it is unclear how business
transactions – occurring almost simultaneously in time to the contract signing –
would convince Gaines not to sign a contract that did away with fiduciary duties.
Asked another way, if he was signing away fiduciary duties in October 2007,
would transactions occurring (possibly without recognition of fiduciary duties) in
September 2007, have swayed him from signing? Gaines fails to address these
elements or concerns on appeal. In short, Gaines fails to establish fraud by
omission.
Next, Gaines argues Gentry breached his statutory10 good faith and
fair dealing obligations by usurping GGT’s business opportunities. Although our
review is de novo, the trial court’s conclusions concisely addressed the matter.
“In every contract, there is an implied covenant of good
faith and fair dealing.” [Ballard v. 1400 Willow Council
of Co-Owners, Inc., 430 S.W.3d 229, 241 (Ky. 2013)
(quoting Ranier v. Mt. Sterling Nat’l Bank, 812 S.W.2d
154, 156 (Ky. 1991)).] This is a “separate concept” to that
of a fiduciary duty; the covenant “merely requires the
10
Kentucky Revised Statute (“KRS”) 275.003(7) states, “[e]ach member and manager and any
other party to an operating agreement shall discharge all duties and exercise all rights
consistently with the obligation of good faith and fair dealing. The obligation of good faith and
fair dealing may not be eliminated in the operating agreement, but it may prescribe the standards
by which the performance of the obligation is to be measured provided the standards are not
manifestly unreasonable.”
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parties to ‘deal fairly’ with one another and does not
encompass the often more onerous burden that requires a
party to place the interest of the other party before his own,
often attributed to a fiduciary duty.” [Id. at 241-42
(quoting In re Sallee, 286 F.2d 878, 891-92 (6th Cir.
2002))].
Gaines alleges that Gentry engaged in self-dealing and/or
other business ventures in violation of the terms of the
[2006 Operating Agreement] that harmed both him and
GGT. However, since the fiduciary duty of loyalty was
waived in that Agreement, Gentry was not required to
“place the interest of [Gaines] before his own,” and there
[were] no allegations that Gentry otherwise failed to “deal
fairly” with Gaines. In the Court’s view, Gaines’[s] claims
that Gentry took GGT opportunities for himself and
derived benefits therefrom are not applicable under the
implied covenant of good faith and fair dealing.
Gaines argues that “subterfuge and evasions” act as a breach of the
statutory requirement of good faith and fair dealing, but he does not then point to
any acts of “subterfuge” or “evasion” by Gentry. In fact, the trial court specifically
stated that there were “no allegations that Gentry otherwise failed to ‘deal fairly’
with Gaines.” On appeal, Gaines alleges that Gentry “concealed” the Winstar
Commission and/or the Crystal Current Interest transactions, but as already
discussed, it is unclear how (or if) Gentry “concealed” the transactions. Gentry
recorded the transactions and placed record of the transactions in the company
books. Gaines does not contest those facts. In short, Gaines does not support this
argument and we are not at liberty, nor of the inclination, to create an argument
where none exists.
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Lastly, Gaines argues Paragraph 5.7 did not bar equitable remedies
requested by Gaines. Gaines argues he was due the equitable remedy of
disgorgement for “amounts received by Gentry from [GGT] while he was
breaching his contractual and fiduciary duties to [GGT], and of proceeds Gentry
received through any entity or partnership (including Geneli) in any way related to
the equine industry.” However, Gaines does not support these overarching
requests; he argues that such remedies are not legally barred, but he does not
support the argument that such remedies are appropriate. Fundamentally, Gaines
seeks equitable relief for breaches of duty, yet he proved no such breach;
accordingly, we need not discuss the requested relief.
Therefore, Gentry was entitled to summary judgment on both the
Winstar Commission and Crystal Current Interest transaction claims.
B. 2001 Consulting Payment
The 2022 Summary Judgment dismissed this claim.
Again, the appellate standard of review when a trial court has granted
a motion for summary judgment is whether there is “genuine issue as to any
material fact and that the moving party is entitled to a judgment as a matter of
law.” CR 56.03. The record must be viewed in a light most favorable to Gaines,
see Steelvest, 807 S.W.2d at 480 (citation omitted), and our review is de novo,
Shelton, 413 S.W.3d at 905 (citation omitted).
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Gaines argues that Gentry’s failure to report and/or share a March
2001 Consulting Payment with GGT and the other principals was another improper
act of “self-dealing.”11 Gaines states in his appellate brief:
A $150,000 handwritten check was written from [GGT’s]
account to Gentry’s wholly-owned company, Geneli. The
check was signed by Gentry and stamped with a signature
stamp for Gaines’s signature that was kept in [GGT’s]
office and under Gentry’s control. A Geneli deposit slip
was created with “Consulting G-G” handwritten on the
slip. The check was then deposited into Geneli’s bank
account. [GGT] did not owe this money to Geneli or to
Gentry, and Gaines was unaware of this payment until he
discovered the relevant documents in [GGT’s] records in
[2014]. [“Consulting Payment”]
KRS 413.090(2) limits breach of contract claims to a 15-year statute
of limitations. This action was filed in 2018, 17 years after Gentry received and
recorded the payment in the GGT books. KRS 413.190(2) allows limitations to be
tolled if the defendant “obstructs the prosecution of the action[.]” However, the
11
Gaines’s appellant brief states no discovery took place on the Winstar Commission and Crystal
Current Interest transactions (“[N]o discovery ever took place on Gentry’s secret commission
from WINSTAR or the secret interest in CRYSTAL CURRENT”), but that discovery did occur
for the Consulting Payment and Marino Marini Commission (“Following discovery, both parties
moved for summary judgment.”). And yet, in his reply brief, Gaines seems to argue that he was
not allowed sufficient time for discovery. “The Circuit Court dismissed the bulk of Gaines’s
claims before any discovery could be conducted. Gaines did not have the opportunity to identify
material issues of fact as to those claims, or as to the applicability of KRS 413.190(2) to them.”
However, it is unclear what/which of the transaction(s) on appeal he is referring to in his reply
brief. It appears – due to his reference to the statute of limitations – that he is referring to the
Consulting Payment in his reply brief, but that would be inconsistent with his appellant brief that
both parties moved for summary judgment after discovery was conducted. Also, Gaines does not
state that he moved for additional time for discovery before the trial court. As a result,
discovery, or the lack thereof, was not effectively argued before this Court and will not be
addressed further.
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limitations period begins when a plaintiff “should have discovered his cause of
action by reasonable diligence.” Emberton v. GMRI, Inc., 299 S.W.3d 565, 575
(Ky. 2009) (citation omitted).
Gaines argues the trial court erred because, “[a]lthough the
concealment contemplated by the statute [KRS 413.190(2)] usually constitutes
some ‘affirmative act,’ an important exception to that requirement exists where a
party remains silent when the duty to speak or disclose is imposed by law upon that
person[,]” citing Emberton, 299 S.W.3d at 573. However, accepting that
supposition as true, Gaines does not show how Gentry failed in his duty to speak or
disclose the Consulting Payment. Gaines does not show that Gentry “remained
silent”; to the contrary, his actions spoke volumes. The Consulting Payment was
recorded in multiple places in GGT’s general ledger as payment for consulting fees
to Geneli, a business which was known to Gaines and from which Gaines had
received commission checks. Gaines does not show how “reasonable diligence”
could not have discovered the transaction in 2001.
During his deposition, GGT accountant Louis Fister (“Fister”) stated
that the 2001 GGT general ledger contained check 7863 paid to Geneli and
recorded as a consulting payment. Fister also identified the Consulting Payment
on an audited financial statement his company prepared for GGT. Fister testified
that the related party payable identified on the financial statement was the same
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transaction identified in the general ledger. In his deposition, Gaines concedes that
the 2001 audited financial statements, which were prepared primarily for his
benefit, showed the Consulting Payment.
Nevertheless, Gaines argues that the statute of limitations was tolled
by Gentry’s “concealment” of the Consulting Payment. The trial court disagreed,
finding “no evidence of concealment”:
The record shows that the payment was duly documented
in the general ledger, and [GGT’s] record keeper knew of
the transaction and recorded it. Therefore, there is no
evidence of concealment of this payment. The Court finds
the tolling argument put forth by [Gaines] invalid because
[Gaines] had full access to the books, records, and
accounts and did a full financial audit of the company in
2007, where he had unrestricted access to all relevant
financial information. Any impropriety could have been
discovered during that financial audit. Further, Gentry
met his duty of disclosure by accurately reporting each of
the transactions and ensuring they were logged.
Here, the trial court concluded that, assuming he had a duty to
disclose, Gentry accurately documented the payment and included it in the
financial statements – prepared for Gaines – for 2001. The trial court’s factual
finding of no concealment was not clear error as it was supported by substantial
evidence. Additionally, Gaines does not substantiate his claim that Gentry’s
actions, or inaction, tolled the statute of limitations applicable here. As such, this
claim is barred by the statute of limitations and was properly dismissed by the trial
court.
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C. 2003 Commission Payment from Sale of Marino Marini
After a bench trial, the 2023 Order dismissed this claim.
Similarly, to our standard of review above, our appellate review on
this issue follows CR 52.01 for factual findings and de novo for legal arguments.
Under CR 52.01, the trial court is required to make
specific findings of fact and state separately its
conclusions of law relied upon to render the court’s
judgment. Further, those findings of fact, shall not be set
aside unless clearly erroneous, and due regard shall be
given to the opportunity of the trial court to judge the
credibility of the witnesses. CR 52.01. In fact, judging
the credibility of witnesses and weighing evidence are
tasks within the exclusive province of the trial court.
If the trial judge’s findings of fact in the underlying action
are not clearly erroneous, i.e., are supported by substantial
evidence, then the appellate court’s role is confined to
determining whether those facts support the trial judge’s
legal conclusion. However, while deferential to the lower
court’s factual findings, appellate review of legal
determinations and conclusions from a bench trial is de
novo.
Barber v. Bradley, 505 S.W.3d 749, 754 (Ky. 2016) (internal quotation marks and
citations omitted).
Gaines states in his appellant brief:
In July 2003, Gentry became involved in the sale of
MARINO MARINI by an agent in Ireland to a California
farm for $1,000,000. In August 2003, Gentry received a
check for $50,000, drawn on an Irish bank, payable to him
personally. [O]n September 16, 2003, he completed a
Geneli deposit slip and wrote “Marino Marini
Commission,” then deposited it into Geneli’s account.
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Gaines was not aware of this payment until the check and
related documents were discovered by him in [2014].
[“Marino Marini Commission”]
Gaines argues that Gentry’s failure to report and/or share his Marino
Marini Commission with GGT and the other principals was a fourth improper act
of “self-dealing.” Unlike the other alleged “improper” transactions, this took place
– in August 2003 – before fiduciary duties were waived in the 2006 Operation
Agreement, and within the judiciable window (i.e., less than the applicable 15-
years required to initiate the statute of limitations). Also, unlike the other claims,
the trial court did not dismiss this transaction controversy through summary
judgment.
Instead, in January 2023 the trial court held a bench trial. Shortly
thereafter, the court entered its 2023 Order dismissing Gaines’s fourth and final
claim. Key to this dismissal is the trial court’s fact-finding and again, Gaines’s
failure to support his claim. The court stated,
At the bench trial, [Gaines] introduced exhibits
documenting the MARINO MARINI sale and the
commission payment of $50,000 to Geneli and testified on
direct that he did not receive any commission payment
from the sale of MARINO MARINI. However, on cross-
examination and consistent with [] Gaines’s deposition on
September 22, 2021, he testified that he simply “did not
recall” whether he received compensation for the sale of
MARINO MARINI. Furthermore, in a separate lawsuit in
2015, [] Gaines likewise testified that he did not recall
whether he received a commission payment for the sale of
MARINO MARINI.
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[Gaines] offered no other affirmative evidence or
testimony at the trial of this matter to prove that, nearly 20
years ago, GGT or its members did not receive the
commission payment from [] Gentry for the [Marino
Marini Commission].
It was apparent from [Gaines’s] testimony that many of
the claims he has raised in this action were based simply
on finding evidence of any payment to Gentry and
asserting that such payments were wrongful. An example
is the $50,000 payment to a trust for the benefit of Gentry,
which [Gaines] avowed was not owed to Gentry and was
misappropriated. As testified by Mr. Fister and reflected
on [Gentry’s] exhibit 1, the payment was a profit
distribution from [GGT] and identical checks were written
to the other members, including [] Gaines, on the same
date. When shown the distribution check payable to him,
Gaines conceded his error and testified that he “was not
aware he received the check.” Yes he had received it, and
a simple investigation of the company’s records or a brief
consultation [with] the company’s CPA could have
confirmed that.
Immediately after this testimony, [] Gaines conceded that
this same failure to recall receiving a check was the basis
for his claim regarding MARINO MARINI. [Gentry]
presented testimony by Louis Fister, CPA, an accountant
who had performed services for both GGT and Geneli and
who authenticated records from 2004 to 2005 indicating
payments for commission and other equine-related
services from Geneli to [] Gaines. Fister testified that he
did not provide accounting services to Geneli in 2003 and
did not have documents or knowledge proving or
disproving the payment of a commission-related
MARINO MARINI to [Gaines].
Again, “due regard shall be given to the opportunity of the trial court
to judge the credibility of the witnesses.” CR 52.01. “In fact, judging the
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credibility of witnesses and weighing evidence are tasks within the exclusive
province of the trial court.” Barber, 505 S.W.3d at 754.
Gaines did not provide any accounting records for 2003, the year of
the Marino Marini Commission, nor did he present any evidence to establish
payment or the absence thereof. After making similar accusations that proved to
be inaccurate guesses, it was reasonable for the court to (1) make note of an
absence of accounting evidence and (2) call into question Gaines’s testimonial
credibility. The trial court’s factual findings were deliberate and well-reasoned.
Based on Gaines’s own admissions on the stand and failure to produce any other
witness or evidence supporting his allegation, there is no basis to conclude that the
trial court’s findings of fact are clearly erroneous, and therefore we accept these
facts.
Under Kentucky law, to prevail on a breach of contract claim, Gaines
needed to prove “(1) the existence of a contract; (2) breach of the contract; and (3)
damages flowing from the breach of contract.” See Brown & Brown of Ky., Inc. v.
Walker, 652 S.W.3d 624, 631 (Ky. App. 2022) (citation omitted). Here, element
one was met; element two was not met; and, subsequently, element three need not
be discussed.
The parties agree that the 2000 Succession Agreement – with its duty
to report and share equine business opportunities with each other – was
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contractually binding in 2003, but Gaines was unable to establish breach of the
2000 Succession Agreement. Essentially, Gaines did not show he was not paid.
Gaines attempts to shift the burden to Gentry to prove Gentry shared the Marino
Marini Commission,12 but such a burden shift is not consistent with Kentucky law.
CR 43.01 requires “[t]he party holding the affirmative of an issue must produce the
evidence to prove it.” See CertainTeed Corp. v. Dexter, 330 S.W.3d 64, 73 (Ky.
2010) (stating the party bringing the breach of contract claim bears the burden of
proving the elements) and Morrison v. Trailmobile Trailers, Inc., 526 S.W.2d 822,
824 (Ky. 1975) (“CR 43.01 place[s] the burden and risk of non-persuasion on the
appellant as to the issues upon which the trial court made findings.”).
While we owe no deference to the trial court’s legal conclusions in
this de novo review, we appreciate the trial court’s clarity in explaining the issue.
Kentucky Courts have recognized the rule of equal
probabilities. [Texaco, Inc. v. Standard, 536 S.W.2d 136,
138 (Ky. 1975).] Further, the kind of speculation that is
not allowable occurs when the probabilities of an event’s
having happened in one or two or more ways are equal,
12
The trial court stated that “[Gaines] offered no accounting records of either his own or GGT in
support of this [Marino Marini Commission] claim.” On appeal, Gaines seems to argue in his
reply brief that his exhibits during the bench trial were such accounting records, but they are not.
These exhibits are examples of individual transactions (that were reported around the time of the
Marino Marini Commission receipt) and fall quite short of a full accounting for the time frame in
question. Exhibit 1 is illegible. Exhibit 2 was a bill of sale for Marino Marini signed only by the
“purchaser,” Rancho San Miguel (not signed by Gentry). Exhibit 3 is a copy of a check to Randy
Gullatt for $50,000 on August 1, 2003. Exhibit 4 is a copy of a check to Gentry for $50,000 on
August 1, 2003. Exhibit 5 is a Geneli bank statement dated September 13, 2003, to October 15,
2003, showing a deposit of $50,000 on September 16 and a wire transfer credit of $100,000 on
October 3.
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and there is no evidence as to which way it happened.”
[Schuster v. Steedley, 406 S.W.2d 387, 390 (Ky.
1966) . . . .] This is how the Court views this case and the
issue subject to the bench trial. Mr. Gaines’ claim could
be or might be true, i.e., that he did not receive his share
of the commission. The opposite is equally true. The
evidence presented by Gaines at trial does not compel a
conclusion that more likely than not, he did not get his
share of the commission.
Gaines failed to show that Gentry breached the terms of the 2000
Succession Agreement by not bringing the Marino Marini opportunity to GGT or
providing GGT (or Gaines) with a share of the commission. As such, he did not
establish an essential element of his claim, and therefore, the trial court properly
dismissed the claim.
III. CONCLUSION
The trial court did not err when it granted Gentry’s two motions for
summary judgment and dismissed Gaines’s fourth and final claim after a bench
trial. As such, the orders of the Fayette Circuit Court are AFFIRMED.
ALL CONCUR.
BRIEFS FOR APPELLANT: BRIEF FOR APPELLEE:
Michael D. Meuser John H. Dwyer, Jr.
Elizabeth C. Woodford Louisville, Kentucky
Lexington, Kentucky
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