Florida Breeders Pushing for Change at FTBOA

Fifty-seven members of the Florida Thoroughbred Breeders' and Owners' Association have turned to a circuit judge for help in pursuing changes in how the organization manages its finances, particularly the state's breeder awards program.

The group submitted eight proposed changes to the FTBOA's bylaws and articles of incorporation that it had hoped would be included in a mailing with ballots for an upcoming board election and be discussed during an annual members meeting Oct. 20. 

The FTBOA bylaws allow members to petition for questions to be "put to a vote of the membership" at the annual meeting. The proposed "questions," however, all began with "to amend the bylaws" or "to amend the articles (of incorporation)," which caused FTBOA officers to balk at the request.

"After consulting with legal counsel, it is clear that there are a number of significant problems with the petition," wrote FTBOA president George Russell in a Sept. 20 memorandum. "Chief among them is that the provision [referring to the petition process] simply does not empower a small group of members to propose and place articles or bylaw amendments before the FTBOA membership, because this power is expressly reserved elsewhere in Florida law and in the FTBOA articles and bylaws to the board of directors."

The association's bylaws state that they may be "altered, amended, or repealed and new bylaws may be passed by a majority of the board of directors."

Petitioners, believing they still have a right to put their concerns in front of members at the annual meeting, have requested from Fifth Judicial Circuit Court Judge Lisa Herndon a writ of mandamus, which would compel the association to add the group's proposed changes to the meeting agenda.

Three of the eight changes are related to how the FTBOA administers the breeder awards trust fund, which pays for the incentive awards given to the breeder of a registered Florida-bred that finishes first, second, or third in any race at a licensed Florida Thoroughbred track. Under the current plan, the awards are 10% of the purse with a $10,500 cap for first, 3%/$3,000 cap for second, and 2%/$1,500 cap for third. 

Most concerning to the petitioners is that the FTBOA has regularly paid out the minimum percentage required by state law for breeder awards—15% instead of the maximum of 20%—while the association has consistently withdrawn the maximum 10% that it has been allowed under state law.

"People are upset about how they are managing things," said Belinda Kitos, an owner/breeder who lives in Marion County and one of the petitioners. "There is no education. There is no discussion about how the board has been arriving at its decisions. Board secrecy has been crucial to these board members. This is not how a nonprofit breeders' organization should be run, which is partially at the root of the increasing member dissatisfaction that has been occurring over the years. You can imagine the frustration."

FTBOA CEO Lonny Powell is on a business trip to South Korea and was unavailable for comment. The association referred questions about the petition to attorney Amanda Simmons Luby with Shutts & Bowen LLP.

Luby said Oct. 4 she could not comment on the writ of mandamus request because the association had not been served with documentation at that time. According to attorneys, nothing will be served until the judge decides there is a legitimate case and no decision had been released by the end of the business day Oct. 5.

"That they are trying to circumvent proper procedures is our understanding," Luby said about the petitioners. "At this time, we feel these attempts are in bad faith."

Luby also noted that the FTBOA board in August had already approved raising breeder and stallion awards to the maximum 20% beginning in 2017, pending state approval.

Russell did acknowledge in his Sept. 20 memorandum that there has been confusion about what the petition provision, otherwise known at Article XIII, Section 8 in the bylaws, actually allows.

"In fact, you may have been a signatory to a petition back in 2012 that likewise cited Article XIII, Section 8 and requested a special membership meeting for the purpose of voting on the adoption of a wholesale re-write of the FTBOA's bylaws," Russell wrote. "After the board of directors convened to consider the matter at its next scheduled meeting, the board responded to the petition signers on Oct. 23, 2012, pointing out that bylaw amendments could not be legitimately put forward in this manner.

"Evidently, confusion still lingers over the appropriate use of Article XIII, Section 8," he wrote.

Russell added that, though the petitioners proposed changes will not be put before the membership at the annual meeting, the board of directors will discuss the proposed amendments during a board meeting that follows the annual meeting.

"At that time, the board may determine that additional dialogue with the membership is warranted," Russell wrote.

Kitos, who is also a certified fraud examiner and certified internal controls auditor, is involved with a separate lawsuit challenging the provisions of a breeder awards program administration plan the FTBOA submits annually to the state Division of Pari-Mutuel Wagering. The lawsuit also raises questions about a lack of rigorous oversight during the division's previous reviews and approvals of this plan.

Administrative Law Judge Bruce McKibben issued an order June 14 on this lawsuit that granted both the FTBOA and the Division of Pari-Mutuel Wagering their motions to dismiss, concluding that Kitos' SCF Inc. (the name of her Thoroughbred breeding business) lacked standing to challenge the division's approval of the annual plan. Kitos has appealed the decision.

"They are voting on a plan every year that affects every breeder, and we don't have any input," Kitos said. "These are restricted funds, restricted by statute. We have documents on two incidences of where these funds are being removed from the Gulfstream slot fund inappropriately, on top of the 10% (FTBOA) is already getting. They don't have the right to change the use of the funds. They are doing this instead of paying the breeders."

While this lawsuit plays out in court, petitioners proposed the following changes to how the FTBOA conducts business. These are the eight "questions" submitted to the board:

•    To amend the bylaws to reduce FTBOA's takeout from the breeder awards from 10% to 3% and require that any change in this takeout from the breeder awards must be approved by the majority vote of the membership.

•    To amend the bylaws to reduce the annual salaries of the CEO and the FTBOA employees combined to no more than $500,000 annually and that any changes must be approved by a majority vote of the membership. Board members are elected but serve without compensation.

•    To amend the bylaws to insure that breeder awards are consistently paid at the maximum amount provided by statute (20%) and that any changes must be approved by a majority vote of the membership.

•    To amend the bylaws to limit the amount of the reserve in the breeders awards fund to $100,000 and to annually distribute the excesses as bonus awards; any changes in this bylaw is by a majority vote of the membership.

•    To amend the bylaws to limit the time a CPA firm is retained by FTBOA to five years and that that firm cannot be retained again for a period of 10 years; any change in the bylaw must be by a majority vote of the membership.

•    To amend the articles to allow the membership to remove any board member from their three-year term by a majority vote of the membership

•    To amend the articles, the governing documents of the association and to prevent the board from secretly amending them. To provide the exclusive method to amend the Articles only by a majority vote of the membership.

•    To amend the bylaws, the governing documents of the association and to prevent the board from secretly amending them. To provide the exclusive method to amend the bylaws only by a majority vote of the membership.