Heinz v. Phoenix Corp., 94-6394

Decision Date20 March 1996
Docket NumberNo. 94-6394,94-6394
Citation81 F.3d 160
PartiesNOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. Janice HEINZ and Susan McGee, Plaintiffs-Appellants, v. PHOENIX CORPORATION, Defendant-Appellee.
CourtU.S. Court of Appeals — Sixth Circuit

Before: NELSON and BATCHELDER, Circuit Judges, and KATZ, District Judge. 1

DAVID A. NELSON, Circuit Judge.

A contract under which Calumet Farm, Inc., purchased a certain thoroughbred stallion in 1988 contained a provision entitling each of the appellants to make one free "nomination" per breeding season for as long as the horse lived. Without having to pay a stud fee, the contract provided, each appellant could annually designate a qualified mare to be bred to the stallion.

Calumet (the name of which was later changed to Phoenix Corporation) filed a petition for relief under chapter 11 of the Bankruptcy Code in 1991. As debtor-in-possession, Calumet/Phoenix then commenced an adversary proceeding seeking a declaration that the stallion could be sold free and clear of the appellants' breeding rights.

The bankruptcy court (Lee, C.J.) granted the relief sought, concluding that the breeding rights did not rise to the level of ownership interests in the stallion itself. The bankruptcy court viewed the appellants as beneficiaries of a service contract, so to speak. As such the appellants were entitled to assert unsecured claims against the debtor's estate for breach of performance, but were held not to be entitled to share as owners in the value realized when the debtor-in-possession sold the horse.

The decision of the bankruptcy court was affirmed by the district court (Wilhoit, J.) on appeal. An appeal to this court followed. We find no error in the district court's affirmance of the bankruptcy court's resolution of the ownership issue, and we shall affirm the order appealed from.

I

Calumet's vendor--a Canadian corporation called Northern Equine Thoroughbred Production, Ltd.--represented in the contract that it was "the present owner of the entire interest in and to the thoroughbred colt TALINUM...." The contract set the purchase price at $3.6 million, payable over a period of time. Northern Equine was to deliver Talinum to Calumet Farm on or before December 24, 1988, to stand at stud under the terms of the contract. The contract further specified that title and risk of loss would pass to Calumet upon delivery, provided that certain insurance was in effect. Calumet granted Northern Equine a lien to secure payment of the purchase price, but the lien was not perfected by the filing of the necessary financing statement.

Calumet and Northern Equine agreed in the contract that certain third parties would receive "transferable free breeding rights," each such breeding right to consist of "one (1) nomination per breeding season 2 during the lifetime of the Thoroughbred without cost...." Among the recipients of these breeding rights were the appellants, both former Calumet employees, who received one such right apiece. Although the appellants were not parties to the contract, it is undisputed that but for the bankruptcy they could have maintained a suit for specific performance in the event of a wrongful failure to honor nominations submitted in accordance with the contract.

II

On its face, the contract appears to provide that Northern Equine's 100 percent ownership interest was to be purchased by Calumet. The ownership interest was not split into fractional interests or "shares," as that term is customarily used in Kentucky equine law. Calumet undertook to let the appellants breed mares to the stallion without cost, but the contract, as we read it, does not reflect an understanding that ownership of the stallion would be divided among Calumet and the persons to whom breeding rights were given. The appellants tell us, indeed, that they "do not and have not claimed to own TALINUM the animal."

Citing North Ridge Farms, Inc. v. Trimble, 37 U.C.C.Rep.Serv. 1280, 1983 WL 160534 (Ky.App.1983), aff'd, 700 S.W.2d 396 (Ky.1985), and First City, Texas-Houston, N.A. v. Due Process Stables, No. 92-268 (E.D.Ky., March 31, 1993) (Wilhoit, J.), the appellants argue that equine breeding rights are property, just as the horse itself is. The debtor-in-possession does not dispute this proposition--a proposition with which the district court had no difficulty either--but the debtor argues that the property is a contract right against the owner of the horse, not a lien upon the horse or an ownership interest in it. We find the debtor's argument persuasive.

In Calumet Farm, Inc. v. Revenue Cabinet, Commonwealth of Kentucky, 793 S.W.2d 830, 831 ...

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