Navarro, Rodriguez Seek Payments from Zayat Stables

Who gets paid first and when is the focus of a slew of court filings associated with an ongoing fraud and breach of contract lawsuit between Zayat Stables and a New York investment firm.

Zayat Stables is under the supervision of court-appoint receiver Elizabeth Woodward, who is seeking approval from the Fayette (Ky.) Circuit Court to pay indicted trainer Jorge Navarro $37,603 to cover the feeding and care of three horses previously owned by Zayat.

MGG Investment Group, who is suing Zayat Stables for defaulting on $30 million in loans, and trainer Rudy Rodriguez, who has claimed he is owed $400,000 by Zayat, have strongly objected and asked Circuit Court Judge Kim Bunnell to block this payment. Both MGG and Rodriguez said in court filings that their claims should take priority and Navarro needs to wait.

Meanwhile, Rodriguez' attorney Robert Heleringer filed a separate motion July 21 calling for a hearing to determine the priority of payments on what Zayat Stables owes Rudy Rodriguez Racing. MGG opposes this proposal, too, stating in a response that Rodriguez' request is "premature at best."

"In short, there are a litany of claims which must be resolved before any party can even start to think about priority and collection," wrote MGG's attorney, W. Craig Robertson III, in a July 27 response.

Rodriguez did succeed last month in having his claims against Zayat consolidated with the MGG lawsuit, but the June 22 order from Bunnell said Rodriguez Racing "is herein ordered not to attempt to execute upon its domesticated judgment until further order from the court," according to court documents.

MGG successfully won a summary judgment last month when Bunnell ruled Zayat Stables had breached their agreement and was liable for $24,534,166, but that order noted the investment firm could not take action to collect and the judgment is not enforceable because it is not a final ruling in this case and, therefore, cannot be appealed.

"The receiver's work is ongoing, the amount of available funds is in a constant state of flux, and the foregoing claims will all necessarily impact whether there is anything for Rodriguez Racing to even fight about," MGG stated in its response to Rodriguez's hearing request. "The court made it clear that although Rodriguez Racing was allowed to join this action, it was not to make any collection efforts until the merits of the case were resolved. Here, just one month later, Rodriguez Racing is taking the first step in doing just that, only serving to distract the court and the parties from the matters of more immediate importance. This is why MGG objected to the joinder of Rodriguez Racing in the first place: it is now being forced to spend legal fees to address a motion that is both untimely and without merit."

Having been told repeatedly by the court to wait on payments to satisfy any part of their own debts from Zayat Stables, MGG, and Rodriguez are now united in blocking any money going to Navarro.

Woodward, the director of forensic accounting and litigation support at the Lexington accounting firm Dean Dorton, was appointed Zayat Stables' receiver Jan. 22 as part of an emergency motion when MGG filed its lawsuit against Zayat Stables. A key issue with the lawsuit was multiple claims by MGG that Zayat Stables had sold assets used as collateral for its loans without notifying the firm. As the receiver, Woodward has the duty "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 … and all other property, real or personal," according to court documents.

At the time Woodward was appointed, Navarro had three of Zayat Stable's horses in his care: Paynted (a 4-year-old homebred by Paynter ), Mony (a 4-year-old Scat Daddy colt), and Perlman (a 4-year-old son of Distorted Humor ). On March 6, Woodward got correspondence from Navarro's attorney Brad Beilly regarding the money owed by Zayat Stables. Three days later, the FBI raided Navarro's barn and the trainer was arrested on federal charges along with trainer Jason Servis and others for the manufacturing, distribution, and mislabeling of performance-enhancing drugs.

After Navarro's arrest, Woodward and consultant Gatewood Bell began arranging a way to assess the condition of the Zayat Stables horses to determine if they needed to be removed from Navarro's care. On March 19, Beilly notified Woodward that Navarro intended to sell the horses to satisfy Zayat Stables' debt. Navarro also said he had moved the horses to an undisclosed location and would not reveal their location until he'd received $51,903, according to court documents.

Woodward disputed the amount Navarro said he was owed, so the trainer said he intended to auction the horses April 17. To stop the proposed sale, Woodward applied for and posted a bond with the Clerk of the Fifth Judicial Circuit for Marion County (Fla.) for $51,903 April 14 and took possession of the horses April 16. The horses were shipped to Kentucky where they went through the Fasig-

Tipton July Horses of Racing Age sale and sold for a combined $112,000.

Florida law, as in most states, includes provisions for an agister lien, which entitles any person put in charge of caring for a horse or other animals to recover the cost of caring for the animals. This lien, however, does not allow training expenses. Woodward recalculated the Zayat Stables' debt and determined $37,603 to be how much Zayat Stables owed to Navarro. In her request to Bunnell, Woodward said that despite Navarro's actions she is required to pay for the horses' care but at the recalculated amount.

Attorneys for MGG and Rodriguez, however, have argued that Woodward has no obligation to pay Navarro and any payment should be prohibited by the court.

"The court modified its order on March 9, 2020, to make clear that 'to the extent parties claim competing or conflicting liens, the receiver is not charged with determining validity, priority, or payment of and for these liens, rather disputes shall be resolved by this court,'" said MGG in its response to Woodward's request to pay Navarro.

Also, MGG claims that $20,168 of the amount Woodward intends to pay Navarro was incurred by Zayat Stables before Woodward was appointed as receiver.

"Even if Navarro has an agister's lien related thereto, said lien does not take priority over MGG's perfected security interest," MGG argued in its response. "This is because MGG's perfected security interest was in place prior to Navarro ever taking possession of any of the equine collateral. … the first perfected lien takes priority. Thus, the court should accordingly decline to certify that part of the payment to Navarro that represents any expenses incurred before appointment of the receiver."

Heleringer went even further in his opposition to seeing Navarro paid, claiming the trainer had "unclean hands" in the matter.

"Rather than comply with the receiver's general and explicit directions at the outset of her appointment advising all Zayat trainers to comply with the orders of this court, Mr. Navarro brazenly defied the court by willfully concealing his string of Zayat horses at an undisclosed (to the receiver) location, effectively holding such horses hostage to his claims, some of which (perhaps most of which) pre-date the receiver's appointment," Heleringer wrote in Rodriguez's response.

"To pay the disreputable Mr. Navarro right now, ahead of either MGG or Mr. Rodriguez who have fairly and lawfully litigated their respective claims at substantial time and expense and thereby complied with all court orders would reward Mr. Navarro's unlawful (to the extreme) tactics," Heleringer wrote, adding that paying Navarro might encourage similar action from other creditors "if they don't think there will be enough money left when all is said and done."

A hearing on both the Navarro and Rodriguez matters has been rescheduled twice already and is expected to be held within the first two weeks of August.

Other recent action related to the MGG/Zayat lawsuit includes a dismissal of all claims by MGG against Flintshire Farm and Thomas "Brad" Sears regarding the racemare Lemoona.

MGG sought earlier this year to repossess Zayat Stables assets that included stallions, racemares, and breeding rights to American Pharoah . These claims have been systematically dismissed.

As with most of the previous claims, Flintshire and Sears' were dismissed due to a provision of the U.S. Food Security Act that states a security interest in an agricultural product can be enforced only if certain direct notice requirements have been met. Bunnell has ruled on previous claims that these requirements had not been met by MGG.