West Hills Farms, LLC v. ClassicStar, LLC et al

Filing 764

MEMORANDUM OPINION & ORDER: (1) Plts' (761 in 5:06-cv-00243-JMH -REW, 2324 in 5:07-cv-00353-JMH -REW) MOTION for Order Plaintiffs' Motion for Relief Pursuant to Fed.R.Civ.P. 60(a) GRANTED; (2) JGM entered 10/11/2011 is STRICKEN AND HELD FOR NAUGHT; (3) separate order of jgm shall issue. Signed by Judge Joseph M. Hood on 11/8/2011.Associated Cases: 5:07-cv-00353-JMH -REW, 5:06-cv-00243-JMH -REW(STB)cc: COR

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
CENTRAL DIVISION at LEXINGTON
IN RE CLASSICSTAR MARE LEASE
LITIGATION

)
)
)
and
)
)
WEST HILLS FARMS, LLC, et al., )
)
Plaintiffs,
)
)
v.
)
)
CLASSICSTAR, LLC, et al.,
)
)
Defendants.
)

MDL No. 1877
Master File:
Civil Action No. 07-353-JMH

Civil Action No. 06-243-JMH
MEMORANDUM OPINION AND ORDER

*** *** ***
This matter is before the Court upon Plaintiff’s Motion for
Relief Pursuant to Fed. R. Civ. P. 60(a) [DE 761], in which they
ask the Court to correct a clerical error in the Judgment [DE 760]
entered on October 11, 2011, to make the judgment consistent with
the Court’s Memorandum Opinion and Order of September 30, 2011 [DE
757].

The time for filing objections to Plaintiffs’ motion has

expired, and no objections have been heard.
the

Court,

as

well,

upon

its

own

This matter is before

motion

to

reconsider

its

Memorandum Opinion and Order of September 30, 2011, in order to
articulate the rationale for its decision with respect to the
matter of whether there is liability for common law fraud and the
amount of damages available to Plaintiffs from Defendant Strategic
Opportunity

Solutions,

LLC

d/b/a

Buffalo

Ranch

(“Strategic

Opportunity Solutions”) with respect to Count II of the Fourth

Amended Complaint.
As articulated in its decision of September 30, 2011, in the
Commonwealth of Kentucky, “[a] party claiming harm from fraud must
establish six elements of fraud by clear and convincing evidence as
follows: a) material representation b) which is false c) known to
be false or made recklessly d) made with inducement to be acted
upon e) acted in reliance thereon and f) causing injury.”

United

Parcel Service Co. v. Rickert, 996 S.W.2d 464, 468 (Ky. 1999)
(fraud through direct misrepresentation); Smith v. General Motors
Corp., 979 S.W.2d 128, 130 (Ky. Ct. App. 1998) (failure to disclose
may be actionable where one party to a contract has superior
information and is relied upon to disclose same when it fails to do
so or where reliance is based on only a partial disclosure);
Raymond-Elderedge Co., Inc. v. Security Realty Inv. Co., 91 F.2d
168, 173 (6th Cir. 1937) (one who clothes another with the power to
commit fraud and then remains silent may be liable); Lappas v.
Barker, 375 S.W.2d 248, 272 (Ky. 1963) (one who aids and abets
fraud by a fiduciary becomes jointly liable); Kirby v. Firth, 311
S.W.2d 799, 802 (1958) (one who accepts proceeds of agents’ fraud
with knowledge ratifies that fraud and becomes liable because,
“[t]hough innocent himself at the time of the misrepresentation,
one may not accept the fruits of a business deal and at the same
time disclaim responsibility for the measures by which they were
acquired.”).
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The

Court

has

already

determined

that

actionable

misrepresentations were made to Plaintiffs with respect to their
investments in the ClassicStar Mare Lease Program, attributable to
Defendants
Plummer,

Tony

Ferguson,

Spencer

Plummer,

Thom

Robinson,

ClassicStar

John

2004,

Parrott,

LLC,

David

ClassicStar

Farms, Inc., and GeoStar Corporation or their agents. The question
now is whether any of the material misrepresentations made and the
harm

that

flowed

from

them

can

be

attributed

to

Strategic

Opportunity Solutions, and the Court builds on its September 30,
2011, Memorandum Opinion and Order in concluding that they can be
so attributed.
Plaintiffs
liable for

the

argue
harm

that

Strategic

occasioned

by

Opportunity

Solutions

the fraudulent

scheme

is
and

misrepresentations because it, by and through its principal, David
Plummer, entered into quarter horse “leases” for 2002, 2003, and
2004, which were used to disguise the lack of thoroughbred mares in
the Mare Lease Programs. Ultimately, the undisputed evidence shows
that Plummer “loaned” quarter horses to ClassicStar and that the
quarter horses were never intended for breeding in the Mare Lease
Program. [See DE 757 at p. 7.] Rather, those “performance horses”,
i.e.,

not

thoroughbreds,

served

ClassicStar Mare Lease participants.

only

as

placeholders

for

It was only after the fact

that ClassicStar and Strategic Opportunity Solutions entered into

-3-

backdated “Mare Lease and Breeding Agreements.”1
Ultimately, Strategic Opportunity Solutions agreed to lease
the warm bodies of its performance horses to cover up the most
basic element of the fraud at bar in this case – the lack of
adequate breeding stock in the Mare Lease Programs to provide the
opportunity

upon

which

Plaintiffs’

investments

were

made.

Strategic Opportunity Solutions’ principal, David Plummer, knew
that the Mare Lease Programs were underpopulated with thoroughbred
breeding pairings when he decided to commit Strategic Opportunity
Solutions to its agreement with ClassicStar. He also knew that, in
his role with ClassicStar, he would use those performance horses as
nothing more than “placeholders” on breeding schedules for Mare
Lease Program Investors until those investors could be moved on to
other investments.
Here, there is no doubt that Strategic Opportunity Solutions
aided and abetted fraud by ClassicStar and the others.

1

Strategic

While the three agreements were ostensibly entered into in
September 2003, December 2003, and November 2004, respectively, it
appears that they were actually drafted some time later, in
December 2004, since David Plummer, Spencer Plummer, Tony Ferguson,
and Terry Green were exchanging emails about the drafts as late as
December 1, 2004, in which it was explained that everyone
understood that the mares and foals were to be returned to
Strategic Opportunity Solutions in lieu of any payment from
ClassicStar — any agreement to the contrary notwithstanding. It
would be only another year before GeoStar would void those leases,
when they and the ClassicStar entities parted ways with the
Plummers, meaning that no Mare Lease Program investor could ever
hope to benefit from those leased performance horse breeding
opportunities under the terms of the written agreement.
-4-

Opportunity Solutions knew, by and through David Plummer, what
fraud was afoot and gave its blessing and its horses to that cause
without telling anyone, least of all Plaintiffs, about the ruse.
It intended for Plaintiffs to rely upon the misrepresentations
about

the

breeding

pairings

available

to

Mare

Lease

Program

participants to their detriment, and they did – investing enormous
sums of money in the program and trading out those opportunities
for others when encouraged to do so, under the mistaken belief that
their investment in the Mare Lease Programs was worth what they had
invested.
Although the Court declined to address the measure of damages
for Plaintiffs’ common law fraud claims further in its earlier
order,

it

must

reach

this

issue

with

respect

to

Strategic

Opportunity Solutions’ liability to Plaintiffs solely with respect
to common law fraud.

In the Commonwealth of Kentucky, “[t]he

measure of damages for fraud is, as a general rule, the actual
pecuniary

loss

sustained.”

Sanford

Const.

Co.

v.

S

&

H

Contractors, Inc., 443 S.W.2d 227, 239 (Ky. 1969) (quoting 37
Am.Jur.2d 458, Fraud and Deceit, section 342; citing Campbell v.
Hillman,
“entitled

15
to

B.Mon.(Ky.)
recover

508

such

(1854)).

damages

in

Thus,
a

tort

a

plaintiff

action

as

is

will

compensate him for the loss or injury actually sustained and place
him in the same position that he would have occupied had he not
been defrauded.”

Id.

-5-

This mirrors the amount of damages available to Plaintiffs for
the harm occasioned by the predicate acts of the defendants liable
under RICO. Fleischhauer v. Feltner, 879 F.2d 1290, 1299 (6th Cir.
1989) (defining damages in context of civil RICO claim) (citing
Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 497 (1985)); see also
Waters v. Int’l Precious Metals Corp., 172 F.R.D. 479, 506 (S.D.
Fla. 1996) (holding that, with respect to the calculation of
damages caused by RICO violations where an investment scheme is the
source of the harm, the “appropriate measure is the total amount of
Plaintiff’s out of pocket capital invested which they would not
have invested but for the Alleged Scheme”).

Had Plaintiffs not

been defrauded by these defendants, including Strategic Opportunity
Solutions, they would not have experienced the harm occasioned as
a result of the fraud – the money invested in the Mare Lease
Programs. As articulated in the Court’s earlier Memorandum Opinion
and Order, the out-of-pocket losses for Plaintiffs as a result of
their investment in the Mare Lease Program total $16,468,603.87.
This amount also represents the damage done to Plaintiffs by virtue
of Strategic Opportunity Solutions’ fraud.
Accordingly, IT IS ORDERED:
(1)

that Plaintiff’s Motion for Relief Pursuant to Fed. R.

Civ. P. 60(a) is GRANTED;
(2)

that

the

judgment

entered

STRICKEN AND HELD FOR NAUGHT;
-6-

on

October

11,

2011,

is

(3)

that a separate order of judgment shall issue.

This the 8th day of November, 2011.

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