751 F.3d 434
6th Cir.2014Background
- Everest Stables (Minn.) and Crestwood Farm (Ky.) had a 15-year commercial relationship involving boarding, breeding and selling thoroughbreds; dispute arose from multiple arrangements.
- A 1996 “protocol” letter required Crestwood to forward breeding requests for the stallion Petionville to Everest (Nielsen) and required Crestwood to obtain Everest’s approval before signing breeding contracts.
- A November 2008 Purchase and Sale Agreement transferred >100 Everest horses to Crestwood for sale; Crestwood would pay day-to-day costs, sell the horses (no reserves permitted), and keep 25–50% of sale proceeds; Island Fashion and her filly remained Everest’s property but were boarded and to be sold by Crestwood.
- At auction Crestwood obtained high bids of $850k and $875k for the Island Fashion filly; Everest secretly bid $900k through its agent, creating a de facto reserve and causing the sale to fail (RNA). Crestwood withheld $219,513.89 (25% of the failed high bid plus fees) from other proceeds.
- Everest sued for breach of various contracts, fiduciary duty, fraud, unjust enrichment, and sought leave to amend; Crestwood counterclaimed for breach of the 2008 agreement and attorney’s fees. The district court granted summary judgment to Crestwood and awarded fees; the Sixth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Nielsen/Everest) | Defendant's Argument (Crestwood) | Held |
|---|---|---|---|
| Existence of a management agreement for Petionville | Crestwood agreed (expressly or implicitly) to manage and aggressively market Petionville’s stud career | No definite, certain terms; protocol shows Everest retained veto/approval and Crestwood only provided animal husbandry and paperwork | No enforceable management contract (affirmed) |
| Breach of November 2008 sales agreement by Crestwood/Everest | Everest: Crestwood sold horses to an affiliated buyer and failed to use commercially reasonable efforts; also alleged Crestwood breached duties | Crestwood: sales complied with contract (no reserves), bulk sale to Ackel was commercially reasonable; any alleged breach caused no proven damages | Everest failed to prove damages or breach; summary judgment for Crestwood affirmed |
| Everest’s conduct re: Island Fashion filly (Crestwood’s counterclaim) | Everest: retained title to filly and contract silent on Everest setting reserves; hence no breach by secretly bidding | Crestwood: Everest’s secret bid prevented Crestwood from completing the contracted sale and collecting its commission; implied covenant of good faith forbids such conduct | Everest breached implied covenant by blocking sale; Crestwood entitled to commission/relief (affirmed) |
| Fiduciary duty / unjust enrichment / fraud claims | Everest: Crestwood owed fiduciary duties based on long relationship, advice, trust, and handling of stud seasons; sought constructive trust/accounting | Crestwood: relationship was arm’s-length commercial; no special fiduciary obligations; alleged representations were forward-looking/promises, not actionable fraud | No fiduciary duty, unjust enrichment or actionable fraud shown (affirmed) |
| Leave to amend complaint | Everest: late amendment should be allowed under Rule 15 | Crestwood: amendment was unduly delayed and prejudicial; district court found undue delay/futility | Denial of leave to file fourth amended complaint affirmed (no abuse of discretion) |
| Attorney’s fees under contract | Everest: reduction of Crestwood’s lodestar by 20% was arbitrary | Crestwood: fees recoverable under prevailing-party clause; district court carefully adjusted lodestar for claims outside contract | Fee award of $272,486.30 (lodestar reduced 20%) affirmed as reasonable |
Key Cases Cited
- Kovacs v. Freeman, 957 S.W.2d 251 (Ky. 1997) (contracts must contain definite and certain terms to be enforceable)
- Quadrille Bus. Sys. v. Kentucky Cattlemen’s Assoc., 242 S.W.3d 359 (Ky. Ct. App. 2007) (oral contracts require clear, definite terms)
- Moore v. Philip Morris Cos., 8 F.3d 335 (6th Cir. 1993) (plaintiff must show breach and damages in contract claims)
- Ranier v. Mount Sterling Nat. Bank, 812 S.W.2d 154 (Ky. 1991) (implied covenant of good faith and fair dealing in contracts)
- Odem Realty Co. v. Dyer, 45 S.W.2d 838 (Ky. 1932) (party cannot act to prevent creation of conditions for payment under a contract)
- Fox v. Vice, 131 S. Ct. 2205 (U.S. 2011) (fee-shifting courts should strive for rough justice, not auditing perfection)
- Vandertoll v. Kentucky, 110 S.W.3d 789 (Ky. 2003) (plain meaning of “shall” in contracts)