04/12/2010 11:00PM

Bank claims that Zayat violated order


LEXINGTON, Ky. - In the latest development in Ahmed Zayat's legal battle with Fifth Third Bank, the Kentucky Derby-bound Thoroughbred owner on Tuesday refuted the bank's contention that he has violated a key order that has helped him operate his stable while it's in bankruptcy.

In court filings Monday, Fifth Third alleged that Zayat, who owns Derby favorite Eskendereya, violated a cash collateral order by withdrawing four of nine horses he had entered to sell in Keeneland's April 5 juvenile auction in Lexington. The bank contends that the cash collateral order, which allows Zayat to use cash collateral to operate the stable through May 1, "does not provide for the Debtor to remove any horse" from a list of 2-year-olds and racing-age horses "to be sold in the ordinary course at a commercially reasonable time during the spring of 2010."

Fifth Third alleges that "the Debtor's unilateral decision not to sell four of the nine listed horses at the Keeneland sale as agreed and as required by the Cash Collateral Order without the consent of Fifth Third is a breach of the Cash Collateral Order warranting termination of the Debtor's further use of cash collateral."

But in a court filing Tuesday, Zayat countered that he committed only to enter the horses and "never committed absolutely to sell those [or any other] horses should circumstances dictate that such sales would be imprudent in the Debtor's business judgment."

Zayat's filing included copies of e-mail correspondence in which Zayat's attorney notes that the stable has entered the horses in the sale but is "not committing to sell them."

Zayat contends that the decision to scratch the four juveniles from Keeneland's auction was "based on a combination of recent results in races, advice from trainers and consignors, and the Debtor's business decision to hold those horses to a later time when they could achieve maximum value."

A hearing on the issue was to take place Wednesday in the New Jersey bankruptcy court.

Zayat Stables filed for Chapter 11 bankruptcy protection in February after Fifth Third sued the stable for allegedly defaulting on a series of loans totaling $34 million. Zayat has countersued Fifth Third, alleging deceptive and fraudulent lending practices.