By Bill Finley
Ahmed Zayat has filed a motion asking the same court that appointed a receiver to oversee the assets of his Zayat Stables to dissolve that order and instead allow the stable to resolve its dispute with MGG Investment Group in some other matter.
The filing came five days after a Fayette County (Ky) Circuit Court judge ordered Zayat's assets into receivership, a response to a $23-million civil lawsuit lodged by the investment firm, MGG Investment Group, LP. MGG had alleged that Zayat had defaulted on his loans and had improperly sold shares in American Pharoah that were being used as collateral against his loans. Lexington-based Elizabeth Woodward, the director of forensic accounting and litigation support for Dean Dorton, was appointed as the receiver and was authorized to “take charge of, operate, preserve, maintain and care for all of the assets of the defendant, Zayat Stables, including, but not limited to, all horses, breeding rights, files, papers, records, documents, insurance policies, monies, securities, bank accounts, books of account, and all other property, real or personal.”
Zayat's motion does not deny that he owes money to MGG or that he missed a scheduled payment Sept. 30, 2019, but contends that MGG and its lawyers “ran into court without so much as providing notice to Zayat Stables in an effort to unlawfully seize control of the Stables…” The motion asks that Zayat Stables, instead of having its assets under the control of a receiver, be allowed to liquidate its assets as it sees fit.
Zayat's lawyers contend that a fairer solution would be for the assets to be sold through a dispersal sale that would be part of Fasig-Tipton's sales in July or April. That, Zayat's lawyers argue, would allow their client to pay back MGG in full.
“At the conclusion of the dispersal, it is very possible, if not likely, that more than $23 million in proceeds will have been generated, meaning that MGG can be satisfied in full,” the motion reads.
The motion also contends that MGG's lawsuit was improper because the parties, at the time, were working toward an amicable agreement whereby Zayat would pay off his debt. Instead, it claims the MGG ceased negotiation and “rushed to court to file a Complaint carefully drafted to gain media attention.”
“This lawsuit should never have been filed, as lenders and borrowers regularly work out issues related to collateral without the need for a receiver or any judicial oversight at all,” the motion reads “That is exactly what could and should have happened here, as the parties were in negotiations that would bring maximum value out of MGG's collateral and likely make it whole.” Another passage reads: “…MGG filed a one-sided Complaint and obtained an overreaching and unwarranted order appointing a receiver on faulty grounds and faulty process.”
The motion attempts to shift the focus to MGG and ways that company “didn't tell the whole story.” It claims that MGG failed to disclose the following: Zayat had been making regular payments in a timely manner and had already paid MGG $16 million; MGG breached its loan agreement by overcharging Zayat $900,000 in 2017; that Zayat made over $3.5 million in interest and other payments after selling American Pharoah breeding rights.
The sale of the American Pharoah breeding rights was a central theme of MGG's complaint against Zayat with the investment firm alleging Zayat “pocketed” the money. Zayat admits selling nine shares for $3.3 million, but argues in the motion that the money was used to “generate cash for its operations and loan obligations.”
The motion also maintains that Zayat Stables was denied the opportunity to defend itself at the original hearing because the surprise filing by MGG did not give it time to find counsel in Kentucky. Zayat's attorneys are not a “Kentucky admitted counsel.” Because of that, his lawyers argue, Zayat Stables was not able to defend itself.
The motion also states that MGG turned a “common breach of contract action into a soap opera.”
“…MGG could have filed a simple breach of contract claim alleging a legal obligation, breach, and the amount due under the note. That would have been sufficient under notice pleading requirements.”
The motion even references a story in the Thoroughbred Daily News entitled “Zayat Stables in Receivership: What Exactly Does That Mean?” as an example of how publicity from MGG's tactics added “to confusion about the Equine Collateral” which could “greatly reduce its value in any liquidation sale…”