Stonewall Farm sued Fifth Third Bank, JPMorgan Chase Bank and Bluewater Sales on Wednesday in bankruptcy court in Lexington, in a move to block Fifth Third's efforts to force Stonewall to turn over stallion certificates.
The stallion certificate is proof of a foal's lineage. The certificate is necessary to register a foal as a Thoroughbred with The Jockey Club so the horse can be raced or bred.
Stonewall attorney John Hamilton said the bankruptcy is setting up as "a battle of the banks" between Fifth Third, which lent money on the broodmares, and JPMorgan Chase, which lent money on the stallions.
The banks typically do not comment on pending litigation.
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A hearing is scheduled Thursday in U.S. Bankruptcy Court on a request by Fifth Third to lift an automatic stay imposed on the bank's civil case in Fayette Circuit Court so Fifth Third can pursue a court order for the certificates.
But with Stonewall challenging the validity of the bank's claim with the adversarial motion, that request probably will not be heard.
Fifth Third Bank is seeking to force Stonewall to produce stallion service certificates so yearlings and pregnant mares, now in the hands of receiver Bluewater, can be entered in the September and November sales at Keeneland.
According to court documents, auction houses typically won't allow horses through the ring without the certificates, so the certificates are crucial in getting stud fees paid off.
Hamilton said Fifth Third is trying to skirt that issue.
"They want to sell the foals without paying the stud fees," Hamilton said. "The problem with that is, all those stud fees have been pledged to Chase Bank."
Both banks have sued Stonewall and related entities over bad loans. Fifth Third is owed $14.85 million; Chase is owed more than $7 million.
"The court is going to have to decide if Fifth Third can sell the horses and not pay the stud fees," Hamilton said. "It would be a shock wave in the Thoroughbred industry if a bank could sell horses and not pay stud-fee liens."
The horses include the offspring of the late Lawyer Ron, A.P. Warrior and Leroidesanimaux.
Fifth Third, in its earlier filing, said timing is essential.
"If the horses cannot be sold this fall at the appropriate sale for their ages, their value will decline to the detriment of the Fifth Third obligors, and consequently, to the detriment of Fifth Third," the bank stated.
Fifth Third sued Stonewall, owners Audrey Haisfield and Marc Haisfield and related entities in May; the bank foreclosed on about 180 horses, which have been turned over to the bank, according to court documents.
Some of the horses were sent to an auction in June in Ocala, Fla., and proceeds were placed in escrow.
Also at Thursday's hearing, the judge is scheduled to consider a motion by JPMorgan Chase to block Stonewall from using collateral from its loans, and to direct Stonewall to put proceeds from that collateral in a separate account.
JPMorgan Chase filed suit against the farm in July, alleging that the Haisfields owed more than $7 million in bad debts. As Chase moved to seize the horses and stallion shares that were backing up those loans, five Stonewall entities entered Chapter 11 bankruptcy in Kentucky. Then three more Stonewall entities, including NeverTell Farm, Stonewall's Midway farm, entered bankruptcy in Florida.
Chase wanted a receiver appointed to take over the stallions A.P. Warrior and Leroidesanimaux, but the Kentucky bankruptcy filing blocked that, and the Haisfields said the stallions would be moved to their Florida breeding operation.