Resolute Racing’s Stewart And His Private Equity Firm Sued for Alleged `Bad Faith’ Refusal to Pay $22 Million

[Wandering Eyes]

The Kentucky-based private-equity firm founder and manager John Stewart, whose aggressive spending and outspoken attitude have made a big splash in the global bloodstock and racing worlds since he entered the Thoroughbred business from scratch a little more than a year ago, is being sued in a New York court by an investment firm that provided initial funding for Stewart's MiddleGround Capital. That plaintiff, Archean Capital Partners, is now alleging that Stewart and other MiddleGround defendants are acting in “bad faith” for purportedly falling behind and refusing to pay $22 million in contractually due revenue shares.

The lawsuit, which was filed Dec. 23, 2024 in New York Supreme Court but had been under seal until a judge ordered it made public Jan. 9, 2025, alleged that the MiddleGround defendants have been “diverting funds that should have been paid to Archean as its share of Defendants' revenue to satisfy Defendants' other obligations or business pursuits.”

The suit stated that Archean was “surprised” during an October 2024 meeting when Stewart, via written report, “revealed that one of the ways MiddleGround Management had used the cash it received through the MiddleGround Funds was to satisfy numerous other personal financial obligations, including taxes, various unapproved capital expenditures, and his required funding obligations” as the general partner in a subsequent MiddleGround fund.

Although the civil complaint did not make a specific claim that the allegedly diverted money went to fund Stewart's horse racing ventures at Resolute Racing, the lawsuit did state that Stewart's immersion into the sport has detracted from the time and attention Archean expected him to spend running MiddleGround.

The lawsuit stated that, “Stewart has also pursued other outside ventures in a manner that runs afoul” of an Apr. 2, 2018, agreement between Archean and MiddleGround in which Archean provided an initial $75 million capital commitment in exchange for a certain agreed-upon share of the revenue received by MiddleGround.

That agreement, according to the lawsuit, also stipulated that Stewart and other MiddleGround principals were supposed to “devote the substantial majority” of their working time to managing the funds. Archean's suit stated that Steward instead focused on his Thoroughbred endeavors.

“Without Archean's approval, Stewart directed his time and attention away from management of the MiddleGround Funds to support his outside ventures,” the lawsuit stated. “By way of example, Stewart began to heavily invest in '[horse] racing and bloodstock,' including spending over $25 million at a public auction in 2023 and eventually acquiring Shadayid Stud from Shadwell Farm, [now] renamed Resolute Farm.

“Stewart's newfound interest in buying, selling, and raising Thoroughbred horses has diverted his attention from growing and managing the MiddleGround Funds and, on information and belief, has caused him to spend less than the 'substantial' amount of time he is required to devote to the management of the Funds,” the lawsuit stated.

“Stewart was contractually required to obtain Archean's written approval before making this type of investment (i.e., purchasing 'all or a substantial portion' of the 'assets or business…of any third party') and to provide notice when devoting less than the required 'substantial majority' of time to working on the MiddleGround Fund, but he failed to obtain such approval or provide such notice,” the lawsuit stated.

Reached Thursday evening by TDN, Stewart issued the following statement when asked for his side of the story:

“We can't comment on ongoing litigation. Unfortunately in private equity this happens from time to time. This is the first time MiddleGround has ever been involved in any litigation and we are confident that our position is justified. We trust the legal process and we look forward to our opportunity to tell our side of the story. ”

About an hour later on Jan. 16, Stewart posted a longer statement to his social media account on X. It read, in part:

“With my recent rise in the racing community, my name has attracted considerable media attention.

“The private equity industry is fiercely competitive, and disputes can occasionally emerge. I take great pride in my professional reputation, and I have successfully avoided litigation throughout my 30 years in business-until now.

“Unfortunately, that record has been compromised. Late last year, we faced a disagreement with an organization we believed was attempting to leverage litigation to pressure us into an unfair agreement.

“I am not easily intimidated, and I firmly believe in confronting bullies…

“I recognize that the racing industry can be filled with speculation, and my critics will seize this opportunity to undermine my integrity. This is regrettable, and in times like these, we discover who our true friends are.”

Archean described itself in the suit as “a private market investment platform” that often serves as a lead investor by providing funding ahead of other investors. As part of its return for taking that initial risk, Archean receives a share of the revenue generated by private equity fund managers.

“Archean's initial infusion of capital in private equity funds provides these burgeoning funds with the critical early capital that these private equity funds need to make initial investments and raise additional capital from third-party investors,” is how the lawsuit described a typical arrangement, like the one it purportedly entered into with MiddleGround.

In serving as the “anchor investor,” Archean “has no input on, and no advance transparency into, how the MiddleGround Principals invest the capital they received from Archean [and] that is by design,” the lawsuit stated. “Archean sought to provide Defendants with the autonomy necessary to carry out their business while providing the initial capital investment to allow the initial MiddleGround Fund (and hence subsequent MiddleGround Funds) to raise additional investor capital, execute its investment program, and flourish.”

The suit continued: “Archean expected Defendants to exercise that autonomy in accordance with their fiduciary responsibilities. However [the defendants] improperly exercised that autonomy and breached the duties that Archean entrusted to them.

“Pursuant to the revenue sharing provision in the Letter Agreement, Defendants owed Archean a percentage of certain fees they earned from the MiddleGround Funds. Though Defendants have made sporadic payments over time since the inception of the initial MiddleGround Fund in 2018, the outstanding amount of revenue sharing that Defendants owe Archean has dramatically grown over time, with the amount due currently sitting at more than $22 million (and growing).”

“Until very recently, Defendants did not dispute that they owed Archean this amount,” the suit stated. “Defendants confirmed the current amount of revenue sharing fees owed to Archean as recently as Oct. 31, 2024, and had, during the prior year, provided Archean with accounting information that contained the same amount of fees…”

The suit stated that, “Stewart, in particular, was adamant that these amounts would be paid. In October 2024, Stewart emailed employees of Archean promising to 'bring [their] obligations to [Archean] current' and assured Archean of his 'commitment to honoring [his] financial obligations,' including 'liquidat[ing] personal assets if necessary to ensure [Archean] [is] compensated.'”

The lawsuit alleged that on Dec. 4, 2024, “after Archean raised the specter of legal action if Defendants did not make substantial progress in paying Archean the October 2024 Outstanding Amount, Stewart did an about face, claiming for the first time that the Revenue Share had been miscalculated and, contrary to the parties' years-long agreement of the meaning of the contract,
took the position that Archean was not owed the October 2024 Outstanding Amount after all, and that it was Archean that owed MiddleGround Management money.”

The suit concluded by asking for the court to award Archean the “October 2024 Outstanding Amount and any additional amounts that are accrued and unpaid” as of the date of judgment; declaring that any future revenue share payments are due immediately, and declaring that Defendants will “fully and completely indemnify Archean as contemplated by the contracts between the parties.”

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