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R & R Capital LLC v. Merritt

June 24, 2009

R & R CAPITAL LLC
v.
LYN MERRITT, ET AL.



The opinion of the court was delivered by: McLaughlin, J.

MEMORANDUM

In this suit, plaintiff R&R Capital LLC ("R&R") seeks replevin of two pinhooking horses and rescission of the purchase of a third. Defendants Lyn Merritt ("Merritt") and Mer-Lyn Farms LLC ("Mer-Lyn Farms") have counterclaimed for their alleged expenses incurred in caring for the three horses. The Court held a bench trial in this matter on October 25 and 26, 2006, and issued findings of fact and a partial verdict in a Memorandum and Order of April 17, 2009. Defendant Merritt has now moved to set aside the Court's ruling as mooted by an earlier decision by a New York state court in related proceedings. For the reasons set out below, the Court will deny the motion.

In its findings of fact, set out in the April 17, 2009, Memorandum and Order, the Court found that R&R and Merritt entered into a series of business ventures beginning in 2003, in which they formed jointly-owned limited liability companies to invest in horses and real estate. Merritt was the managing partner of these limited liability companies and managed them through her wholly-owned company, Mer-Lyn Farms. The Court found that Merritt and Mer-Lyn Farms were authorized to make purchases and pay bills on behalf of the limited liability companies and then later allocate these expenses to the appropriate jointly-owned entity.

The Court found that the three pinhooking horses at issue in this action were originally bought at the auction house Fasig-Tipton in August 2004. Evidence at trial conflicted as to which entity purchased the horses. Merritt contended that the horses were purchased on behalf of one of the parties' jointly-owned companies, Pandora Farms LLC ("Pandora Farms").*fn1

In October 2004, R&R purchased these three pinhooking horses outright. The purchase of the pinhooking horses was originally to be part of a larger transaction in which R&R would be bought out of its interest in the parties' jointly-owned race horses, but the sale of the race horses was never completed. R&R paid for two of the three pinhooking horses by wiring money to Mer-Lyn Farms in the amount of the horses' purchase price from Fasig-Tipton. For the third horse, referred to in this litigation as "Lipstick/Pulpit," R&R paid by wiring the purchase price directly to Fasig-Tipton, in payment of the invoice for the original sale.

This third horse, Lipstick/Pulpit, is the subject of R&R's rescission claim. In its April 17, 2009, Memorandum and Order, the Court found that, in order to resolve the rescission claim, the Court had to determine who sold Lipstick/Pulpit to R&R and who owned it at the time it was sold. Merritt contended that both the owner and the seller was Pandora Farms. R&R contended that the seller was Merritt, acting through her wholly-owned company, Mer-Lyn Farms. Resolving the conflicting evidence on the issue, the Court found that Lipstick/Pulpit was sold to R&R by Merritt and was owned at the time of sale by Merritt's wholly-owned company, Mer-Lyn Farms. The Court found that Lipstick/ Pulpit was bought from Fasig-Tipton by Mer-Lyn Farms, with the intention that the horse and the responsibility for its purchase price would be later allocated to Pandora Farms, but that no such allocation was ever made. The Court made no finding of fact as to the ownership of the other two horses at the time of their sale to R&R.

On the basis of this finding, the Court entered a conditional verdict against Merritt on R&R's claim for rescission in the amount of Lipstick/Pulpit's purchase price of $150,000, conditioned on R&R's filing proof of tender of its ownership of the horse to Merritt. R&R filed proof of its tender of ownership with the Court on May 1, 2009.

With respect to the other two horses at issue in this litigation, referred to as "Splashing Wave" and "Mambo-Jambo," the Court found that Merritt and Mer-Lyn had conceded that R&R had purchased the two horses and was their owner, but that Merritt had a valid claim for unpaid expenses for those two horses. The Court therefore found that R&R was liable to Merritt and Mer-Lyn on their counterclaim for expenses in the amount of $28,432.76 and that this gave rise to a valid possessory lien to the horses. The Court found in favor of R&R on its claims for replevin of Splashing Wave and Mambo-Jambo, conditioned on R&R's payment of the counterclaim amount.

The Court, however, did not enter a verdict on R&R's replevin claim or the defendants' counterclaim in its April 17, 2009, Memorandum and Order. While a decision on the bench trial was pending, R&R moved to hold the defendants in contempt for leasing Splashing Wave to a third party in alleged violation of this Court's orders. Because the contempt motion suggested that R&R might no longer be seeking replevin of Splashing Wave, the Court only entered judgment in its April 17, 2009, Memorandum and Order on R&R's rescission claim, but not the replevin claim or counterclaim. After a hearing, the court denied the defendant's motion for contempt on June 9, 2009.

After the April 17, 2009, Memorandum and Order was issued, but before the motion for contempt was decided, defendant Merritt filed this motion, seeking to vacate the April 17, 2009, Memorandum and Order as moot.*fn2 The basis for Merritt's argument is a December 10, 2007, ruling in related litigation between R&R and Merritt in New York state court. Merritt contends that the New York ruling conclusively determined that Pandora Farms was and remains the owner of the three pinhooking horses at issue in this litigation, thereby deciding the central issue in this litigation and rendering these proceedings moot.*fn3

In November 2005, five months before this case was filed, R & R filed suit in the Supreme Court of New York against Merritt and Mer-Lyn Farms. The suit accused Merritt and her wholly-owned company, Mer-Lyn, of mismanaging R&R and Merritt's jointly-owned investments in real estate and horses. In addition to damages, the suit sought to conduct an accounting of Merritt and R&R's jointly-owned limited liability companies and to remove Merritt as the managing member of those companies.

Merritt was no longer relying on the Collier testimony as a basis for vacating the April 17, 2009, Memorandum and Order. See 6/4/09 Tr. at 99-100; Reply Br. at 3-4.

The suit in this Court, seeking replevin and rescission of the three pinhooking horses, was filed by R&R in April 2006. Prior to the bench trial, defendants Merritt and Mer-Lyn Farms moved unsuccessfully to stay this case pending the outcome of the New York litigation or, alternatively, to transfer this case to New York. The Court denied the defendants' motions, finding that the issues in this suit were separate from those in the New York litigation. See Docket No. 10 and 28. This case concerned only the possession, ownership, and liability for cost of care of the three pinhooking horses; the New York litigation concerned the operation of the jointly-owned companies generally and disposition of jointly-owned property other than the three pinhooking horses. Both this case and the New York litigation have gone forward separately, with the presiding judges in both cases aware of the other litigation.

The New York litigation has not yet concluded. At oral argument, Merritt's counsel set out the procedural history of the New York litigation. In 2007, Justice Ramos of the New York Supreme Court conducted a trial of R&R's claims and issued an oral ruling from the bench on December 10, 2007, finding that R&R had failed to present sufficient evidence to proceed on its claims against Merritt. Justice Ramos did not resolve Merritt's ...


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