Cohen v. North Ridge Farms, Inc.

• Decision Date: 29 March 1989
• Docket Number: Civ. A. No. 88-318.
• Citation: 712 F. Supp. 1265
• Parties: Israel COHEN, Plaintiff, v. NORTH RIDGE FARMS, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

712 F. Supp. 1265

Israel COHEN, Plaintiff, v. NORTH RIDGE FARMS, INC., et al., Defendants.

Civ. A. No. 88-318.

United States District Court, E.D. Kentucky, at Lexington.

March 29, 1989.

William C. Boone, Culver V. Halliday, Greenebaum, Boone, Treitz Maggiolo, Reisz & Brown, Louisville, Ky., for plaintiff.

Michael D. Meuser, Miller, Griffin & Marks, Harvie B. Wilkinson, Stoll, Keenon & Park, Lexington, Ky., for defendants.

MEMORANDUM OPINION

WILHOIT, District Judge.

I. INTRODUCTION

Plaintiff brings this action, pursuant to Title 28 U.S.C. § 1332, seeking to rescind the sale of a yearling bay colt by IN REALITY out of LADY B. GAY (identifed as Hip No. 151), which he purchased on July 18, 1988, at the 1988 Keeneland Select Summer Yearling Sale. This yearling was owned by defendant North Ridge Farms, Inc. ("North Ridge"), and was consigned to defendant Keeneland Association, Inc. ("Keeneland"), for the purpose of being sold at this auction. Plaintiff purchased this yearling at the auction for $575,000.00.

Plaintiff's complaint urges that this sale should be rescinded on the following grounds: Count 1 — lack of consideration; Count 2 — mutual mistake; Count 3 — unilateral mistake; Count 4 — this sale violated the Kentucky Consumer Protection Act (K.R.S. 367.110 et seq.); Count 5 — misrepresentation; Count 6 — fraud on the part of defendant North Ridge Farms; and Count 7 — breach of fiduciary duty on the part of defendant Keeneland.

This matter is before the court on the following motions, listed in chronological order by date of filing in the record:

1. Defendant North Ridge has moved to dismiss the complaint for the following reasons: (1) Counts 1 through 5 should be dismissed because they fail to state a claim upon which relief can be granted, and (2) Counts 5 and 6 should be dismissed because they are not pled with the requisite particularity as required by FRCP 9(b).

2. Defendant Keeneland has moved to dismiss the complaint under FRCP 12 on the grounds that the complaint fails to state a claim against it for which relief can be granted.

3. Defendant Keeneland has moved to dismiss or for summary judgment.

4. Plaintiff has moved for oral argument and a hearing in open court on all pending motions.

The foregoing motions have been fully briefed, are ripe for consideration, and shall be addressed herein.

II. OPERATIVE FACTS

A. THE SALE.

On July 18, 1988, plaintiff, through his agents, purchased a bay yearling colt by IN REALITY out of LADY B. GAY (hereinafter "yearling") at auction (the 1988 Keeneland Summer Select Yearling Sale) for $575,000.00. Prior to this sale, the yearling was owned by defendant North Ridge, which consigned the yearling to defendant for the purpose of sale at auction.

Although no pre-sale veterinary examination was requested or performed by plaintiff or his agents, subsequent to the sale, plaintiff, through his agent Ms. Dean Gaudet, had this yearling examined by three veterinarians. On July 19, 1988, the yearling was x-rayed and endoscopically examined by Dr. Craig Franks, with Dr. Thomas D. Brokken observing. They diagnosed a condition known as a flaccid epiglottis, resulting in a displaced soft palate, which may or may not affect the yearling's respiratory functioning and training, which, in turn, may or may not affect the yearling's racing ability. Two other veterinarians, Dr. Merritt W. Marrs and Dr. Dewitt Owen, also examined the yearling and confirmed the original diagnosis of Drs. Franks and Brokken.

Upon learning of these diagnoses, plaintiff promptly attempted to rescind the sale of this yearling. On July 19, 1988, his agent Gaudet addressed the following handwritten note to defendant Keeneland:

I Dean Gaudet, representative for Israel Cohen wish to notify Keeneland that upon veterinary exam of the colt # 151 by IN REALITY out of LADY B. GAY, there is a wind problem and therefore Mr. Cohen does not wish to pay for this colt and wishes to return him to the consignor.

By a letter dated July 20, 1988, counsel for North Ridge Farms responded to the foregoing note of Ms. Gaudet by addressing a letter to plaintiff and Ms. Gaudet, which stated, in pertinent part, as follows:

... I am in receipt of Ms. Gaudet's handwritten note of July 19, 1988, addressed to "Keeneland" wherein Ms. Gaudet purports to notify Keeneland of Mr. Cohen's desire not to pay for this colt and to return him to my client upon the grounds of a claimed "wind problem." Please be advised that under the conditions of the sale at which this colt was purchased and specifically Condition Fifth thereof, the claimed defect does not give rise to a right of rejection or revocation of acceptance. Therefore, please consider this letter a formal demand for payment in full for the colt and that you immediately take possession of him.

B. THE CONDITIONS OF SALE.

The conditions of sale governing the auction at which plaintiff purchased this yearling are set out at pages 17-22 of the catalog entitled 1988 July Selected and July Yearling Sales. Particularly relevant to this action are the First, Fifth and Fifteenth Conditions of Sale, which provide, in pertinent part, as follows:

1. First Condition: Following the paragraph stating that the horses included in this sale are offered for sale according to K.R.S. 355.2-328(4), etc., is the concluding paragraph, in bold-face type:

THERE IS NO WARRANTY IMPLIED BY AUCTIONEER OR CONSIGNOR, EXCEPT AS SET FORTH HEREIN, AS TO THE MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY ANIMAL OFFERED IN THIS SALE, ALL SALES ARE MADE ON AN AS IS BASIS, WITH ALL FAULTS. (Emphasis in original).

2. Fifth Condition: This condition begins as follows:

UNLESS OTHERWISE EXPRESSLY ANNOUNCED AT TIME OF SALE, THERE IS NO GUARANTEE OF ANY KIND EXPRESS OR IMPLIED AS TO THE SOUNDNESS, CONDITION, WIND OR OTHER QUALITY OF ANY ANIMAL SOLD IN THIS SALE except ... (Emphasis in original).

This condition then provides that in certain instances where horses are sold with certain conditions without these conditions being announced at the time of sale, these horses are subject to return to the consignor with a refund of the purchase price, if the purchaser follows certain procedures within certain time frames. This condition pertains only to horses that are "cribbers" and "bleeders" and provides (1) that horses that are "cribbers" must be so announced at the time of sale, and (2) that any horse of racing age which is nerved, is a "bleeder," or is currently on the Starter's, Stewards' or Veterinarian's list must also be announced at the time of sale. Furthermore, this condition also gives the buyer a right of rejection concerning ridgelings and geldings. Additionally, this condition states in bold-face type:

... OTHER THAN FAILURE TO SATISFY THE AFOREMENTIONED EXPRESSLY WARRANTED CONDITIONS, NO OTHER DEFECTS SHALL CONSTITUTE A SUBSTANTIAL NON-

CONFORMITY WITH THE TERMS OF THE CONTRACT.

3. Fifteenth Condition: This condition states that Keeneland's obligations to both the consignor and the purchaser are limited to the ones expressly imposed by the Conditions of Sale. This condition concludes in bold-face type, as follows:

... ALL OTHER DUTIES AND OBLIGATIONS, INCLUDING FIDUCIARY AND OTHER DUTIES WHICH MIGHT OTHERWISE BE IMPOSED UPON KEENELAND BY OPERATION OF LAW, ARE HEREBY EXPRESSLY DISCLAIMED, EXCEPT THAT KEENELAND SHALL BE REQUIRED TO EXERCISE THAT STANDARD OF CARE GENERALLY EXERCISED BY OTHER COMPARABLE HORSE AUCTION COMPANIES.

III. THE COMPLAINT

Plaintiff's complaint advances seven claims for relief, as follows:

Count 1 — Failure of consideration.

Plaintiff alleges that by virtue of his agreement to pay $575,000.00 for this yearling, the defendants were obligated to provide him with a thoroughbred horse that was fit for racing. Plaintiff states that due to the alleged internal defects in the yearling, it was abnormal, unsound and not fit for racing. By reason thereof, plaintiff claims that defendants have failed to provide him with consideration in exchange for the auction price of $575,000.00. Therefore, plaintiff contends that the contract for sale (1) is void ab initio, (2) should be rescinded and cancelled, and (3) that he is entitled to damages.

Count 2 — Mutual mistake.

Plaintiff states that the sale contract should be rescinded because of the parties' alleged mutual mistake, viz., that he intended to purchase and the defendants intended to sell a thoroughbred horse fit for racing; however, plaintiff claims that because of the alleged internal defects of this yearling it is not fit for racing; therefore, the alleged mutual mistake of the parties should operate to rescind the sale contract.

Count 3 — Unilateral mistake.

Plaintiff claims that due to his mistaken belief that he was allegedly purchasing a thoroughbred horse fit for racing, when in fact, this yearling is allegedly not fit for racing, the sale contract should be rescinded.

Count 4 — Violation of the Kentucky Consumer Protection Act.

Plaintiff alleges that the sale contract should be rescinded because the sale of this yearling was in violation of the Kentucky Consumer Protection Act, K.R.S. 367.110, et seq.

Count 5 — Misrepresentation. (This claim is against North Ridge only).

Plaintiff claims that the sale contract should be rescinded due to the alleged reckless and intentional omission of North Ridge to inform him of the yearling's abnormality, unsoundness and internal defects.

Count 6 — Fraud. (This claim is against North Ridge only).

Plaintiff states that due to the alleged intentional and false representation by North Ridge that the yearling was sound and free of physical abnormality, he was induced to purchase this yearling. Plaintiff claims that by reason of this alleged fraud, this sale contract should be rescinded.

Count 7 — Breach of fiduciary duty. (This claim is against Keeneland only).

Plaintiff states that Keeneland had a fiduciary duty to ensure that its catalog and other announcements...