Dispute over commission fee for Daddys Lil Darling sale heard by Kentucky Supreme Court

A Kentucky Supreme Court case about a trainer commission puts at stake a long-time tradition of doing business with a handshake in the horse business. 

The dispute revolves around a sale of multiple Graded stakes winner Daddys Lil Darling. According to oral arguments held on Thursday and briefs filed by attorneys, following the death of Normandy Farm's Nancy Polk, who campaigned Daddys Lil Darling using trainer Ken McPeek's services, Polk's daughters immediately arranged for the filly to be sold at the 2018 Fasig-Tipton Kentucky Fall Mixed Sale. 

After Coolmore's MV Magnier purchased Daddys Lil Darling for $3.5 million, McPeek sent an invoice for $175,000, or five per cent of the sale price, for developing Daddys Lil Darling while in his care. Polk's heirs rejected the invoice.

McPeek eventually filed suit in Lexington. Fayette Circuit Court dismissed his claim, ruling it was unenforceable because there was no written agreement for his fee. The Kentucky Court of Appeals reversed that decision and held McPeek was entitled to try to prove his claim in court. The state Supreme Court granted discretionary review of the latter decision, which led to Thursday's oral arguments.

Daddys Lil Darling, a homebred, was by far the highest-achieving horse campaigned by Normandy Farm. While McPeek trained Daddys Lil Darling she won four stakes – most notably the Grade 1 American Oaks – and was stakes-placed eight times while compiling a record of five wins from 20 starts with six second-place finishes and two thirds and earnings of $1,335,305 from mid-2016 through to August 2018, the month of Polk's death.

According to McPeek's brief, "Following the sale, Normandy Farm refused to pay McPeek its five per cent commission on the sale in accordance with its Training Fees set forth in the Rate Schedule."

Kenny McPeek: trainer of Daddys Lil DarlingCredit: Edward Whitaker

The entire case revolves around how the horse business is conducted and a section of a Kentucky statute, KRS 230.357(11). The statute as whole deals with the business of horse sales, procedures that must be followed, how they are conducted, and under what circumstances people and companies are entitled to be paid.

Section 11 of the statute triggered the trial court's ruling adverse to McPeek. Polk's heirs, who hold ownership of Normandy Farm, argue the trial court's ruling should be reinstated based on its application to the facts of this case and the portion of section 11, that says, "No contract or agreement for payment of a commission, fee, gratuity, or any other form of compensation in connection with any sale, purchase, or transfer of an equine shall be enforceable by way of an action or defense unless: (a) The contract or agreement is in writing and is signed by the party against whom enforcement is sought;" Section 11 also says, "The recipient of the compensation provides a written bill of sale for the transaction in accordance with subsections (2)(a) and (3) of this section." Those subsections describe the legal requirements for a valid bill of sale, including auction receipts.

The Court of Appeals, reversing the trial court ruling, found that the statute must be read as a whole. It wrote that auction receipts referred to in the statute would be held only by parties directly involved with the “sale, purchase, or transfer of an equine,” not by parties such as McPeek who were uninvolved with the transaction. Cited by the Court of Appeals is the only similar case previously decided in Kentucky,  Thoro-Graph Inc v. Lauffer, a case that is "unpublished" and therefore may be argued as persuasive but not as precedent.

In short, the appellate court ruled the statute is inapplicable to McPeek's claim in that his commission was related to his development of Daddys Lil Darling and was not earned, in the words of section 11, "in connection with any sale." The court said such a claim can be pursued via an oral agreement claim or based on quantum meruit, a legal term meaning "value of services" that is recognised in Kentucky.

Two of the Supreme Court Justices, Kelly Thompson Jr. and Robert Conley, appeared sceptical of McPeek's position in their questioning. Justice Angela McCormick Bisig asked if the statute was an anomaly, or a departure from normal or common practice. The court was told oral agreements in the horseracing business are "extremely normal." Justice Michelle Keller expressed concern that a ruling requiring a written agreement in this case "would have a significant impact on the industry" assuming handshake agreements are standard practice.

The court took the matter under advisement and will probably issue a ruling within 90 days. Chief Justice Laurance VanMeter recused himself from the case, leaving a panel of six justices to make a decision.

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