It was a case that could have been a storyline for an episode of the short-lived HBO horseracing series “LUCK.” Trainer Julio Canani – on whom the fictional “LUCK” role of the cagey horse trainer Turo Escalante is said to have been modeled – and attorney Roger Licht, a former chairman of the California Horse Racing Board, were found by a jury to have conspired to defraud Minnesota businessman and horse owner Jeffrey Nielsen when he decided in 2008 to sell the California-based horses in his Everest Stables.
The jury in the federal lawsuit sent mixed signals, however, when it awarded Nielsen just $48,750 in actual damages and $50,000 in punitive damages – a fraction of the $1-million-plus Nielsen sought when he filed the civil complaint in December 2009. The awards are certainly less than the legal fees Nielsen compiled pursuing the matter over the last several years.
Trainer A.C. Avila and Dubai Sheikh Mohammed's Godolphin Racing originally were named as co-defendants in the case, but United States District Judge Dale S. Fischer of California's Central District ruled last year in favor of their individual motions to be dropped from the complaint. Avila had purchased the stakes-winning horse Two Step Salsa from Nielsen for $1.4 million, then sold him to Godolphin for considerably more. Nielsen's complaint said Avila defrauded him by not disclosing that he was acting on behalf of Godolphin, but the judge threw that portion of the case out.
The Paulick Report originally detailed the Everest Stables lawsuit in an April 2011 article, “Flipping Horses For Profit?” The suit alleged that Canani tricked Nielsen into selling a number of horses for less than they were worth, at times deceiving him that the buyers were third parties when in fact Canani's own company, Tarma Corp., purchased some of the horses and quickly re-sold them for a profit. It alleged that Licht was a willing participant in Canani's scheme to buy two of the horses, with Canani loaning Licht $350,000 for the purchase, and that the two men would split the profits on the re-sale – Canani getting 75% and Licht 25%.
The jury found that Canani, acting as agent for Everest Stables, breached his fiduciary and agency duties by misrepresenting details concerning the horses' physical condition and by misrepresenting and concealing his actual role with fraudulent intent in order to convince the owner to sell a number of horses for prices lower than their value. The jury also found that Canani did “unlawfully conceal and misrepresent his role and involvement with respect to Tarma Corp. or misrepresent with fraudulent intent the true physical condition” of six of the horses sold.
According to the complaint, Canani told Nielsen Tarma Corp was owned by David Milch, the creator of HBO's “LUCK.” A deposition from Milch, who has employed Canani as a trainer but is not a principal of Tarma Corp., was entered into evidence at the trial, which lasted eight days.
Licht was found by the jury to have conspired with Canani to fraudulently induce Everest Stables to sell two horses for lower prices, aiding and abetting Canani to breach his fiduciary and agency roles, and “unlawfully conceal or misrepresent with fraudulent intent the nature and extent of Canani's role and involvement in Licht's offer and purchase.”
For all of that, though, Licht may only be required to pay $1,562.50 in actual damages, representing 25% of the damages assigned to Silent Stalk (the jury found Nielsen sustained zero in damages on Lady Lumberjack, the other horse the complaint said Licht purchased in concert with Canani). Canani is responsible for the balance of the damages – $47,187.50.
Licht, who represented himself in the case, said he has filed a motion with Judge Fischer to have the punitive damages dropped because of a “United States Supreme Court decision that says punitive damages can be no more than equal to the actual damages.” His 25% portion of the $50,000 punitive damage assigned by the jury would be $12,500.
“I'll have my motion heard by the judge to have the punitive set aside,” Licht told the Paulick Report. “Assuming that will happen, then I'll pay (Everest) his one-thousand whatever dollars. I don't see how I could feel any way but happy” to go through a lengthy trial and be responsible for such a small amount in damages.
Before the trial, the judge ordered the parties into mediation, but attorneys for Nielsen would not accept anything less than $1 million in damages, Licht said.
Canani's attorney, John V. Gaule, did not reply to a phone message.
A member of the jury who contacted the Paulick Report and spoke about the trial on the condition of anonymity said the damages represented a compromise within the eight-member jury to avoid being hung after deliberating for more than two days.
“Two wanted to award zero damages,” the juror said. “A couple of them wanted it to be just a few thousand dollars, and four wanted to award between $200,000 and up to $371,000. We compromised big time. It was difficult for me and several others because we were convinced there was guilt. It was dumbfounding. (Canani) made $155,000 flipping those horses.
“A couple of the jury members didn't understand what fiduciary responsibility meant or the role of agents. We didn't really hear anything in the case regarding fiduciary obligation. There were 28 questions to come to a consensus on, and it wasn't done easily.”
The juror continued: “Some people believed Canani, who I think was destroyed on the (witness) stand. A few of the people felt the owner's testimony (Nielsen) was rehearsed and sided against him because he was a wealthy businessman. We all agreed he should have done more due diligence because of the conflict of interest. Selling these horses was going to take $30,000 a month out of Canani's pockets he would have made training them. There were plenty of red flags the owner should have seen.
“I've been to the track here and there, but didn't know much,” the juror added. “I know more now than I ever wanted to know. People need to be aware that everybody is out to line their own pockets.
“There ought to be more regulations, more contracts, especially if trainers are going to act as agents, as they obviously do – despite Canani saying over and over, ‘I'm not an agent, I'm not an agent.' There are a lot of unspoken, unsaid things that ought to be more concrete to protect an owner. It's owner beware as far as I'm concerned.
“The winners in this case were the lawbreakers, the shady shysters who were out to make a buck,” the juror said. “They saw an opportunity and they got away with it. As a juror it wasn't my responsibility to state the clear and convincing case. We tried, but it was the lawyer's responsibility to do that.
“What surprised me the most was the lack of written contracts between the owner and trainer and the lack of due diligence on the owner's part. He's got a lot of money and now he's upset that he was taken to the cleaners here, but he knew the business was shady. Why wouldn't he get that?”
Thomas W. Pahl, attorney for plaintiff Everest Stables, declined to comment on specific questions about the case but issued the following statement:
“In the past several months, we have received several inquiries from reporters inquiring about our claims against Roger Licht and Julio Canani. As is my policy on litigation, we have not responded pending certain milestones. Those milestones are now present. Last week, on June 28, 2012, in the United States District Court for the Central District of California in Los Angeles, California, a jury of 8 persons found attorney and former chairman of the California Horse Racing Board, Roger Licht, and California horse trainer Julio Canani, to have engaged in fraud, concealment, conspiracy, and breaches of fiduciary and agency duties as well as breaches of the duties of good faith and fair dealing.
“Both Canani and Licht were also found to have been unjustly enriched by their actions and conduct. In addition, Roger Licht was found to have aided and abetted Canani to breach his fiduciary and agency duties to Everest Stables by unlawfully concealing Canani's role and involvement, or assisting in misrepresenting the horses' physical condition in order to convince Everest Stables to sell certain horses to Licht at lower prices. The plaintiff in the case against Licht and Canani was Everest Stables, Inc.
“Over the span of less than two weeks' time, Canani, a trainer and agent of Everest Stables for 18 years, obtained title to eight horses and forged a secret pact or arrangement with Licht in purchasing two other horses owned by Everest Stables, by first lying about certain of the horses' physical condition to Everest, and then concealing the true identity of the buyer and source of funds in an effort to drive down the prices and gain control of the Everest horses for himself.
“The jury also found that Licht conspired with Canani to purchase two of the horses in Licht's name, lying about and keeping Canani's role and involvement silent, even while Canani loaned him $350,000 in a undocumented transaction and transfer of funds made to allow Licht to complete the purchase of the horses. Canani flipped several of the horses very quickly, some even on the same day as the purchases from Everest, to other of his long-term clients. Canani made substantial profits on these flips without disclosing to his other clients, the purchase price or the circumstances by which he obtained title to these horses.
“Everest Stables was only able to learn of and expose Licht and Canani's illicit conduct through the legal process of filing claims and conducting discovery.
“Licht and Canani were not only found liable for the offenses as noted above, but the jury awarded money damages to Everest. Equally, and perhaps even more important for the public's interest, the jury found the two defendants' conduct to warrant the imposition of punitive damages, finding that Licht and Canani acted with malice, oppression or fraud against Everest, or in reckless disregard of Everest's rights.
“Everest Stables Inc. is also pursuing claims against Crestwood Farm in Lexington, Kentucky, and Pope McLean, Sr., Everest Stables' farm manager and agent for over fifteen years. Everest Stables' claims against Crestwood Farm and Pope McLean, Sr. are awaiting final judgment from the United States District Court for the Eastern District of Kentucky and certain appeals are forthcoming.
“Interestingly, both actions and the defenses raised by Crestwood Farm, Pope McLean, Sr., and Canani are similar in that they each claim, in the case of Canani's relationship
with Everest for eighteen years, and Pope McLean Sr.'s representation of Everest for fifteen years, neither party owed Everest Stables any agency or fiduciary duties, duties of loyalty, duties of candor and full disclosure, and that they could freely compete with their long-time client, whether Everest knew about their competing postures or denial of fiduciary duties, or not. For its part, Everest Stables claims it had no idea that these equine assets were at risk in this way with its long-time representatives and agents.”
To read the official jury verdict, click here.
New to the Paulick Report? Click here to sign up for our daily email newsletter to keep up on this and other stories happening in the Thoroughbred industry.
Copyright © 2016 Paulick Report.