Law Firm Representing American Pharoah’s Owner Wants Out Of Bankruptcy Case

Ahmed Zayat is fighting against a $24M claim in bankruptcy court, but he likely will need a new firm
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The law firm representing Ahmed Zayat in a $24 million bankruptcy case informed a federal court on Monday that it wished to withdraw from the case due to alleged non-payment of legal fees.

According to Jay Lubetkin, a partner in the firm of Rabinowitz, Lubetkin & Tully of Livingston, N.J., Zayat owes $368,273.33 as of the end of June but has made no payments in almost three months. Zayat’s racehorse American Pharoah won the thoroughbred racing Triple Crown in 2015 as well as The Haskell Stakes at Monmouth Park.

“The representation of the Debtor has consumed an extremely significant amount of the available resources of our firm,” Lubetkin wrote in a filing to the U.S. Bankruptcy District Court of New Jersey.

“The Debtor has been consistently advised that absent satisfactory arrangements for the payment of the outstanding fees and expenses due to our firm and newly incurred billings, the firm would have no alternative but to seek to withdraw from representation of the Debtor,” Lubetkin added, further saying that he attempted “at least nine times” recently to get in touch with Zayat, with no satisfactory response.

But on Wednesday, attorneys for the bankruptcy plaintiff — MGG Investment Group LP, which alleges that Zayat fraudulently took on a $24 million loan with no intention to repay it — asked Judge Vincent F. Papali to schedule a status conference to address the matter.

“The Motion to Withdraw, in our view, is motivated in large part by a desire to delay or interfere with the present proceedings,” wrote attorney Paul S. Hollander of the Okin Hollander law firm in Teaneck, N.J., the Bergen County town where Zayat resides.

“It seems especially troubling that the Motion to Withdraw is premised upon the Debtor’s supposed failure to pay his counsel, when the parties plan to hold a mediation in just a few weeks [on Aug. 12] at which the Debtor’s goodfaith participation would require him to make a very significant payment to resolve these matters. This means that either the Debtor’s refusal to pay his counsel is strategic, or the mediation will be, contrary to the Debtor’s representations and commitments, a pointless endeavor.

In light of the Motion to Withdraw, MGG now finds itself a party to a mediation in which it appears that the Debtor will be unrepresented by counsel, a development that was never contemplated at the time the parties were urged to further consider mediation.

The claims against Zayat

Zayat filed for Chapter 7 bankruptcy last fall, and MGG is seeking a denial of Zayat’s request to be relieved from owing the $24 million loaned to him.

“This Complaint objects to the dischargeability of the debts owed by Ahmed Zayat to MGG arising out of the Loan Documents, on the basis of a fraudulent scheme,” according to a 56-page MGG filing. 

Zayat, according to MGG, decided to “intentionally conceal numerous improper and fraudulent sales of Zayat Stables’ assets, all of which had been pledged as Collateral to secure the Loans made to Zayat Stables by MGG.”

The allegations also claim Zayat submitted “false financial statements that concealed and/or distorted Zayat Stables’ sales revenue and manipulated its accounts payable, which Ahmed Zayat caused Zayat Stables to submit to MGG with the intent to deceive and cheat MGG.”

In an email dated Jan. 12, 2020, and which Zayat later confirmed in a court filing, Zayat wrote to an MGG representative: “It kills me and tore me apart, not being transparent with you. … I did not disclose to you why we had to sell some assets in order for us to fund and continue to operate Zayat Stables. … As an example, we sold our 9 American Pharoah Breeding Rights, 1 or 2 at a time over a period of seven (7) months in December 2018 – June 2019 for a total of 9 breeding rights …

“If I failed to inform you of sales … I did not want you to panic knowing that I still have a chance to save the day. ... [T]here is still a glimpse of light that a miracle can happen.”

Zayat’s defense

But in February, attorneys for Zayat pointed to what they described as two favorable rulings in the case by a Kentucky state court.

“MGG is unable to explain how Zayat could have committed fraud in connection with the loan under the Agreement when Zayat Stables was current on the loan for years before it defaulted,” added an attorney for Zayat. “Also, in its own Brief, MGG concedes that Zayat Stables disposed of assets not to enrich himself and others, but rather, ‘in order to fund its ongoing losses’ and ‘because of severe financial troubles.'”

The attorneys listed two dozen “affirmative defenses,” including a claim of “unclean hands” of MGG and another alleging that “there is no debt owed by the Debtor to MGG.”

Photo: Shutterstock

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