01/05/2012 1:17PM

Thoroughbred Retirement Foundation sues Mellon Estate for slander

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The Thoroughbred Retirement Foundation filed a lawsuit on Thursday in New York Supreme Court alleging that the executors of an endowment provided by the late Thoroughbred owner and breeder Paul Mellon have “engaged in a campaign of vilification” of the organization over the past 12 months, costing it hundreds of thousands of dollars in damage to contributions and its reputation.

The lawsuit is the latest development in a long dispute between the TRF and the executors of the Mellon Estate, which initially provided $5 million to the TRF in 2001, two years after Mellon’s death, as part of his will. The lawsuit alleges that the defendant, Frederick A. Terry Jr., the executor of the Paul Mellon Estate, has slandered and libeled the organization and seeks punitive damages, legal costs, and at least $400,000 to replace a “reduction in charitable donations received by the TRF caused by defendant’s tortious conduct,” the suit contends.

John Moore, the chairman of the TRF, said Thursday that Terry’s decision to send a letter to the attorney general of New York in November citing an “incomplete and misleading” financial statement for the organization had damaged the organization’s reputation to a point that the TRF felt its only choice was to file the suit. At the time the letter was sent, the attorney general was conducting an inquiry into the organization because of accusations of mismanagement and neglect of horses spurred by several high-profile newspaper articles.

“If there is an allegation that our financial statements are false and misleading, we must deal with that,” Moore said. “The only option for us is to gain a retraction from Mr. Terry.”

Terry, an attorney at Sullivan and Cromwell in New York and one of several executors of the Mellon estate, did not respond to a request for comment by Thursday afternoon. An assistant to Terry said that he had not yet seen the suit.

Moore said that at least one Internet site evaluating charitable organizations had issued an alert to potential donors warning of the organization’s financial viability as a result of the letter distributed by Terry.

A central issue of the lawsuit is a decision by the TRF in 2011 to use annual disbursements from the Mellon endowment to secure a loan from a South Carolina bank. The 2011 loan was used, in part, to repay a portion of a $500,000 loan provided by the Mellon Estate in 2007, according to the suit.

The Mellon Estate raised objections to the TRF’s plan to secure the new loan, leading the TRF to obtain a legal opinion providing justification for the plan, the suit states. When the TRF did not agree to an amendment to an agreement governing the endowment that would have prohibited the TRF from using the endowment’s distributions as collateral for the loan, the executors began distributing “false and defamatory” documents and made “oral statements” to third parties that “impeached the honesty, integrity, and business conduct of the TRF and exposed the TRF to public hatred, contempt, and/or disgrace,” the suit states.

The dispute traces most prominently to an article in the New York Times published on March 17, 2011, with the headline “Ex-Racehorses Starve as Charity Fails in Mission to Care for Them.” Using documents prepared by a veterinarian hired by the Mellon Estate to examine the TRF’s herd and the TRF’s own financial disclosures, the article contended that the TRF was struggling financially – an assertion acknowledged by the TRF’s board of directors – and that many of the horses financially supported by the TRF at satellite farms were suffering from starvation or neglect.

The lawsuit states that before the publication of the article, Beverly Carter, an executor of Paul Mellon’s will, told the TRF’s board of directors in February that if the organization did not agree to the endowment’s proposed amendments that the TRF “could be faced with a public relations nightmare if any of the [alleged] problems related to finances and horse care would be reported to the media.” The New York Times article appeared a month later. (The bracketed text in the quote was added to the lawsuit by the TRF’s attorneys.)

The lawsuit states that the executors “began insisting on control over the TRF’s payables” in January 2011, and that the executors thereafter “were purporting to dictate staffing decisions, apparently based more on personality conflicts than an informed understanding about the operations of the TRF.” The lawsuit also alleges that the TRF’s board of directors was never provided with the reports prepared by the veterinarian who examined the herd and contends that the veterinarian “had little, if any, experience working with herd animals or with [T]horoughbred racehorses.”

The Mellon Endowment was the largest financial contribution made to the TRF. In addition to the $5 million initial donation, the endowment was bolstered by an additional $2 million donation from Mellon’s estate late in 2001. The lawsuit states that the endowment is currently valued at $7 million, equal to the total amount of the two donations.

Under the endowment agreement, the TRF is allowed to use up to 5 percent of the “annual fair-market value” of the endowment each year for its operating expenses. The lawsuit states that the endowment provides approximately 12 percent of the TRF’s annual budget.

Mellon, who bred and owned 1993 Kentucky Derby winner Sea Hero, was a co-heir of the Mellon Bank fortune and a leading Thoroughbred owner and breeder. In the year prior to his death in 1999, Forbes magazine estimated his fortune at $1.4 billion.