Zayats File Motion to Dismiss Against New York Firm

After months of legal skirmishes over the ownership of property associated with a breach of contract and fraud lawsuit brought by a New York investment firm, the Zayat family is seeking to have the entire case dismissed due to a lack of jurisdiction.

Three separate memorandums filed April 21 outline why claims made against Ahmed Zayat, his son Justin Zayat, and the entire Zayat family by MGG Investment Group, which loaned tens of millions of dollars to Zayat Stables, should not be settled by a Kentucky court.

These memorandums assert two other positions as well: that Zayat family members did not interfere with the terms of the loan agreements with MGG when they sold nine breeding rights to American Pharoah , and that separate allegations of fraud are not valid because the charges merely repeat what has been alleged as breaches of the contract.

The Zayats' latest filing first and foremost seeks to have the case dismissed for lack of jurisdiction.

"None of the actions that form the basis of the fraud claim are alleged to have occurred in Kentucky or to have arisen out of any action taken in Kentucky. Nor did any injury occur to MGG—in Kentucky," state all three memorandums filed by Lexington attorney Bennett Bayer with Landrum & Shouse.

MGG is a Delaware limited partnership based in New York. Ahmed Zayat and his wife, Joanne, live in New Jersey; Justin Zayat lives in New Jersey, where Zayat Stables is based; the Zayats' daughter Ashley lives and operates a jewelry company in Miami; son Benjamin goes to college in New York; and daughter Emma resides in New Jersey and will attend college in New York in the fall.

"Here, Kentucky has, at absolute best, only a tangential relationship to this action," the memorandum filed on behalf of Ahmed Zayat states. "The contracts at issue in this action were negotiated and executed in New York and New Jersey and provide for the application of New York law. Moreover, any purported harm as a result of the fraud alleged in the complaint will be suffered by plaintiff in New York. Consequently, Kentucky does not have 'any significant contacts' to this action, and Kentucky law should not apply."

While Zayat Stables has done business in Kentucky, such as attending public auctions about 25 times over the past 15 years, the Zayats' attorney contends this does not meet the legal threshold required for jurisdiction. The court filing noted the Zayats don't own any property in Kentucky and do not maintain a bank account in the state.

"The only link with the Commonwealth was the presence of American Pharoah being stabled in Kentucky. It is unimaginable to believe Kentucky has any more jurisdiction over the Zayat family members compared to any other state (not including New York or New Jersey) where the Plaintiff may have selected a forum for bringing its claims, inasmuch as the horse cannot vicariously extend jurisdiction to the Zayat family, that link is meaningless."

The memorandums also challenge MGG's allegations that Zayat family members committed breach of contract and fraud when they sold nine breeding rights to 2015 Triple Crown winner American Pharoah, whom the Zayats bred and raced and then sold for stud duty to Ashford Stud. MGG contends the breeding rights were included in collateral to secure its loans and is seeking $14 million in damages for alleged interference of its loan agreements.

The Zayats' attorney argues that all nine breeding rights had been transferred from individual family members to the ownership of Zayat Stables, so any claims regarding these transactions can no longer be extended to the individuals. Also, all the transactions were conducted outside Kentucky, so, again, the memorandum states, jurisdiction in Kentucky does not apply.

"The documents were executed in New Jersey … and the Zayat family did not travel to Kentucky to engage in any transaction related to the transfer of the AP breeding rights," the memorandums state. The status of these breeding rights as "general intangible" property by state law also has a bearing on the jurisdiction issue, according to the memorandum.

"The locus of a general intangible, including any of the AP breeding rights, is the owner's domicile. Here, the AP breeding rights were located in New Jersey (Zayat Stables), and were sold to entities in New York (LNJ Foxwoods) and Ireland (Orpendale)," according to the memorandum filed on behalf of the Zayat family.

Regarding the allegations of fraud in addition to breach of contract, the Zayats' attorney argues that all of MGG's allegations of fraud are actually purported misconduct related to the loan agreements. Previous cases in Kentucky have established that allegations of fraud have to be "extraneous" to a contract's terms.

"MGG's fraud allegations primarily concern the allegedly fraudulent scheme whereby defendants sold 'collateral pledged to secure the loans, including equine collateral, without obtaining MGG's consent or otherwise notifying MGG as required by loan documents or paying MGG the proceeds of these Collateral sales.' Such purported failure to notify MGG of the disposition of collateral is allegedly a breach of the loan documents," the memorandum filed on behalf of Ahmed Zayat states.

"Because each of the allegations underpinning MGG's fraud claim necessarily relies upon, and would not exist without, the loan documents, and there is no distinction provided whatsoever between the fraud and breach of contract claims, the fraud cause of action must be dismissed as duplicative," the memorandum continued.