Rose v. Aaron (In re Rose)

Decision Date25 August 2021
Docket NumberCivil Action 4:19-CV-98,Appeal of Adversary 17-04104,17-04131
PartiesIN RE CAROL ALISON RAMSEY ROSE v. LORI AARON, PHILLIP AARON, AARON RANCH, and JAY MCLAUGHLIN, Appellees. CAROL ROSE and CAROL ROSE, INC., Appellants, CAROL ALISON RAMSAY ROSE and CAROL ROSE, INC., Appellants/Cross-Appellees, v. EQUIS EQUINE, LLC, and ELIZABETH WESTON, Appellees/Cross-Appellants.
CourtU.S. District Court — Eastern District of Texas

IN RE CAROL ALISON RAMSEY ROSE

CAROL ROSE and CAROL ROSE, INC., Appellants,
v.

LORI AARON, PHILLIP AARON, AARON RANCH, and JAY MCLAUGHLIN, Appellees.

CAROL ALISON RAMSAY ROSE and CAROL ROSE, INC., Appellants/Cross-Appellees,
v.

EQUIS EQUINE, LLC, and ELIZABETH WESTON, Appellees/Cross-Appellants.

Civil Action No. 4:19-CV-98

Appeal of Adversary Nos. 17-04104, 17-04131

United States District Court, E.D. Texas

August 25, 2021


OPINION

MARCIA A. CRONE, UNITED STATES DISTRICT JUDGE.

“No hour of life is wasted that is spent in the saddle.”[1] Perhaps if the parties in this case had spent more time riding their horses than fighting over them, they would have wasted less hours of their lives. Nevertheless, after nearly a decade of squabbling both in and out of court, the parties continue their crusades before this court after extensive litigation in the court below. On September 27, 2019, the bankruptcy court entered its Amended Order and Amended Memorandum Opinion, from which this appeal is taken. Having reviewed the bankruptcy court's opinion and order, the record, the submissions of the parties, and the applicable law, the court is of the opinion that the bankruptcy court's decision should be affirmed in part and reversed in part.

I. Background

A. Factual History

Carol Rose (“Rose”), a well-known quarter horse breeder, has been in the equine industry for over fifty years, specializing in the breeding, training, and showing of performance quarter horses. Rose is the president and sole owner of Carol Rose, Inc., which owns a large ranch in Gainesville, Texas (“Gainesville Ranch”), where Rose based her operations. Amidst the economic crises of 2007-2008, Rose experienced cash flow and other financial problems. After years of financial hardship, by early April 2013, Rose had decided to exit the horse business, at which time, she began contacting prospective buyers of her business and ranch. Rose also advertised an upcoming auction of her stallions, broodmares, and prospects, as well as her tack and equipment, at a “complete dispersal sale” to be held at the Gainesville Ranch on August 15-17, 2013 (“Dispersal Sale”).

1. Rose's Agreement with the Aarons

Eventually, Rose found a potential buyer of her quarter horse business. Lori (“Lori”) and Phillip Aaron (“Phillip”) (collectively, the “Aarons”) owned a ranch in Commerce, Texas (“Commerce Ranch”) where they bred and raised non-performance horses.[2] After negotiations, Rose agreed to sell the Aarons a number of horses, lease the Gainesville Ranch to them for a five-year period, and provide her services as a consultant for five years. The new business would operate under the “Aaron Ranch” name. Rose and Carol Rose, Inc. (collectively, the “Rose Parties”), and the Aarons and Aaron Ranch (collectively, the “Aaron Parties”) executed a Confidential Term Sheet, Consulting Agreement, and Lease with Purchase Option (“Lease”) memorializing their agreement. Under the Lease, the Aaron Parties were to pay the Rose Parties $2.5 million in monthly increments over the five-year term.

The Confidential Term Sheet, executed on August 6, 2013, ten days before the Dispersal Sale, included two lists of horses, the Blue List and the Red List. The Blue List contained 39 horses for which the Aarons agreed to pay $3, 315, 000.00. Additionally, the Aarons were required to bid on the Blue List Horses at the Dispersal Sale. Specifically, the Confidential Term Sheet provided:

[The] Aaron[s] shall purchase the horses identified in [the Blue List] for the prices specified thereon. Rose and [the] Aaron[s] understand that these horses will pass through the Dispersal Sale Auction scheduled for August 16, 2013. The applicable American Quarter Horse Association (“AQHA”) registration certificate and transfer report will be provided to [the] Aaron[s] at the price identified on [the Blue List], if [the] Aaron[s] [are] the last bidder

Essentially, Rose required the Aarons to bid on the horses that they had “purchased” at the Dispersal Sale. If they were the highest bidders, they paid the originally agreed price for the horse, not the hammer price; if they were not the highest bidders, they received the proceeds for the horse, including the difference between the negotiated price and the hammer price. The Red List contained 15 additional horses that Rose recommended the Aarons purchase at the Dispersal Sale. At Rose's request, the Aarons kept the terms sheet that identified the Blue List Horses and their purchase price confidential. Rose's attorney, Lewis Stevens (“Stevens”), assured the Aarons that their agreement with Rose “was legal, ethical, and common in the horse industry.”

2. The Dispersal Sale

Before her deal with the Aarons was finalized, Rose began to advertise and plan the Dispersal Sale, including the creation of a Dispersal Sale catalog (“Sale Catalog”). The Sale Catalog included advertisements for the 144 horses that were to be sold during the Dispersal Sale. Rose characterized the Dispersal Sale as a “complete dispersal sale” in many of the advertisements, as well as the Sale Catalog, which was published online. Elizabeth Weston (“Weston”) noticed the advertisements for the Dispersal Sale online and decided to attend the auction.[3] She sent the Sale Catalog to Victor Froeschl (“Froeschl”) who was described as “professional and knowledgeable” with respect to quarter horses. Froeschl attended the Dispersal Sale with Weston. The Sale Catalog included as a condition of sale: “The right to bid is reserved for all consignors unless otherwise announced.” Prior to the Dispersal Sale, Weston signed the Registration Agreement, which incorporated the condition of sale referenced above.

On the morning of the Dispersal Sale, Rose met with the auctioneers and provided them three-ring binders that she had prepared for them. The binders contained copies of the pages of the Sale Catalog that described each horse. On the pages that corresponded to the Blue List Horses, Rose placed the letter “A” and wrote the price that the Aarons had paid for each of the horses. Rose explained to the auctioneers that she had a deal with the Aarons to sell them the horses marked with “A” for the agreed prices. Despite the Aarons' prior purchase of the horses for approximately $3.3 million, Rose did not withdraw the Blue List Horses from the Sale Catalog or reveal that they had already been sold, thus making it appear to the Dispersal Sale attendees that the Aarons purchased the thirty-nine horses at the sale.

The Aarons arrived just before the Dispersal Sale started. When they arrived, Rose's lawyer, Stevens, handed them a prepared three-ring binder that included instructions for bidding on the Blue and Red Lists Horses. The Aarons, along with Stevens, sat on the front row at the Dispersal Sale. Due to the agreement regarding the Blue List Horses, the Aarons appeared to the rest of the attendees at the Dispersal Sale to be competing vigorously for the horses that they hoped to purchase and submitting bids that would ultimately set the purchase price. Thus, the arrangement gave the auction a false appearance of competitive bidding. Even though the Aarons submitted higher bids on some of the Blue List Horses that they won, they paid only the pre-arranged prices set forth in the Confidential Term Sheet.

The Aarons were the highest bidders on every Blue List Horse except for SHINERS LENA DOC. SHINERS LENA DOC was the full-blood brother of A SHINER NAMED SIOUX, another Blue List Horse that the Aarons won with a hammer price of $850, 000.00. During the auction, the auctioneers reminded the crowd of the relationship between the horses as well as A SHINER NAMED SIOUX's sales price. Given the relationship, Weston bid on SHINERS LENA DOC and, eventually, was the highest bidder at $190, 000.00.[4] In addition to SHINERS LENA DOC, Weston purchased four other horses at the Dispersal Sale.

After the Dispersal Sale, Rose and Weston agreed to keep Weston's horses at the Gainesville Ranch. Rose sent monthly invoices to Weston for the boarding and care of the horses. Shortly after the Dispersal Sale, Weston formed Equis Equine, LLC (“Equis Equine”), to pay the boarding fees and other charges billed to Weston by Rose. In February 2016, Equis Equine sold all of the horses Weston had purchased at the Dispersal Sale, aside from SHINERS LENA DOC, at a public auction in San Antonio, Texas.

3. Rose's Relationship With the Aarons Turns Hostile

After the Dispersal Sale, Rose's relationship with the Aarons began to deteriorate. The court will not recount much of Rose's misbehavior, as discussed in detail by the bankruptcy court, because the particulars are not germane to this appeal.[5] Important here, Rose permanently locked the Aarons out of the Gainesville Ranch after hiring armed security. Because they no longer had access to the Gainesville Ranch, the Aarons had to find another place to board, train, and breed the quarter horses they had purchased from Rose. The Aarons ultimately decided to improve their Commerce Ranch to accommodate their quarter horse business. Accordingly, they replaced five miles of fencing and constructed new stalls, run-in sheds and paddocks, a breeding facility and laboratory, and two lighted paddock areas.[6]

At the time Rose locked the Aarons out of the Gainesville Ranch, she had possession of most of the horses and equipment that the Aarons had purchased from her. Rose asserted a “stableman's lien[7]” and demanded that the Aarons pay her $101, 948.50 in order to regain possession of their horses and equipment. Rose directed Stevens to send a demand letter with an attached spreadsheet detailing her claimed unpaid charges, such as the cost of utilities for the entire Gainesville Ranch, feed for all the horses in the Gainesville Ranch's care, as well as other expenses. The stableman's lien included valid charges for the horses' care, as well as...

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