06/27/2008 12:00AM

Legal web around Curlin


LEXINGTON, Ky. - The racing options for the 2007 Horse of the Year, Curlin, have become increasingly complex because of the legal problems surrounding the colt's minority owner, Midnight Cry Stable, jeopardizing Curlin's ability to enter races in Illinois, New York, and France.

Curlin's trainer, Steve Asmussen, has mentioned the July 12 Arlington Handicap at Arlington Park outside of Chicago as a possibility for the 4-year-old colt's next stop and first grass race, but Illinois racing rules may disqualify Midnight Cry from an owner's license there. Similar rules are in place in other states, such as New York, where the July 12 Man o' War, also on grass, would seem to be an option.

In addition, the resolution of the legal problems surrounding Midnight Cry's owners could affect the ability of Curlin to race anywhere in the United States or abroad, racing officials said. Curlin's owners have said they are considering a start this year in the Oct. 5 Prix de l'Arc de Triomphe on the grass at Longchamp in France.

Midnight Cry is owned by William Gallion and Shirley Cunningham Jr., two Lexington lawyers who are in jail awaiting a federal jury's verdict in a criminal trial that ended Monday in Covington, Ky. Midnight Cry holds a 20 percent share in Curlin, with the remainder held by Jess Jackson's Stonestreet Stables.

The jury is considering whether Gallion, Cunningham, and another Lexington lawyer, Melbourne Mills Jr., defrauded their clients in the 2002 settlement of a class-action lawsuit against the manufacturer of the diet-drug combination phen-fen.

Gallion, Cunningham, and Mills have already lost a civil court judgment that the three lawyers illegally retained tens of millions of dollars from the $200 million settlement that should have gone to their clients. Although the judge in that case, Roger Crittenden, has ruled that the former clients are entitled to take possession of certain assets held by the lawyers - including the share in Curlin - he has not yet issued an order that would transfer those assets to the clients.

"When he will, it's anyone's guess," said Angela Ford, the attorney for the former clients, on Friday.

Because of the civil judgment, Crittenden assigned a receiver to manage Midnight Cry's earnings, and that revenue has been placed in escrow.

Curlin's most recent start was a victory in the June 14 Stephen Foster Handicap at Churchill Downs in Kentucky. Though Midnight Cry is not licensed in the state, the Kentucky Horse Racing Authority granted a license to Midnight Cry's leaseholder: Shirley Cunningham's wife, Patricia. Unlike Kentucky, many states do not allow for the licensing of a leaseholder separate from the owner.

John Veitch, the chief state steward of Kentucky, said that Kentucky law allows for the licensing of a leaseholder without a license from the owner if the arrangement meets specific criteria. Veitch specifically referenced the receivership that has prevented Midnight Cry and Patricia Cunningham from receiving earnings from the horse.

"We don't have any reason under the law to deny her a license," Veitch said. Veitch said that if the jury returned a criminal verdict against Gallion and Cunningham, then the Kentucky Horse Racing Authority would likely review the license of Patricia Cunningham.

Marc Laino, the executive director of the Illinois Racing Board, said on Thursday that Midnight Cry does not have an owner's license in Illinois and that the group has yet to apply for a license. Patricia Cunningham is licensed as an owner in Illinois, but Shelley Kalita, the state racing board's legal counsel, said that license may not be adequate in Curlin's case because of the lease arrangement.

Laino and Kalita both said that they were unable to make a determination as to whether Curlin could race in Illinois until Midnight Cry applied for a license. Also, Kalita pointed out that it would be difficult to give an opinion one way or another while a criminal verdict had not yet been rendered. The jury in the criminal case is expected to reach a verdict within the next week, but it could take longer.

"The whole situation is kind of a mess," Kalita said.

Ed Martin, the executive director of the Association of Racing Commissioners International, an umbrella group for racing regulators, said that a criminal conviction would almost certainly disqualify Midnight Cry from a license in any state. As a result, Midnight Cry would be ineligible for a license in France as well.

"I've never seen a case like this," Martin said. "But if you look at it from a standpoint of an international owner who has been convicted of a felony seeking a license in the U.S., in 99 percent of the cases he would not be eligible for a license here."

However, a criminal conviction could set in motion the formal transfer of Midnight Cry's assets to the plaintiffs in the civil case. If that were to happen, then an executor would likely be appointed to manage the assets, and that executor could then be licensed in accordance with state rules, racing regulators said.

Already, Midnight Cry's legal difficulties have affected the career of another stakes-winning horse the company owns, Einstein. The horse was being pointed to the Grade 1, $400,000, Manhattan Handicap at Belmont Park on June 7, but the horse was never shipped from Kentucky to New York after Shirley Cunningham decided to withdraw his license application. Under New York rules, both an owner and a lessee must be licensed.

Veitch said that the Kentucky Horse Racing Authority is deliberating whether to change the rules regarding lessees to reflect New York's dual-requirement for licensing in lease arrangements.