What is an appropriate penalty for an honest mistake? Should there be a penalty at all?

When Marble Cliff went through the 2005 Keeneland Fall Breeding Stock Sale, the weanling attracted some attention because of his status as a Thoroughbred foaled in Ohio, one of two designations making him eligible to run in races limited to Ohio-bred horses. Ohio, like many other states, offers supplemented purses in some restricted races where the competition might not be as stiff as that in events open to all comers. Marble Cliff drew a final bid of $40,000.

Racing for Foxwood Stables, Marble Cliff developed into one of Ohio’s best runners. The gelding won the Cleveland Gold Cup for Ohio-breds and by summer of his 3-year-old year had amassed more than $100,000 in earnings.

Just about the time Marble Cliff was starting to look like a really good investment, troublesome questions about exactly where he had been foaled started to come up. The Ohio State Racing Commission certified Marble Cliff as an Ohio-foaled horse based on an application received from the gelding’s breeders in 2005, but in June 2008 the commission started an investigation to determine whether the information in the application was accurate. The commission ultimately ruled that Marble Cliff had not been foaled in Ohio as claimed, and his Ohio-foaled certificate was revoked. The gelding was disqualified from all his victories and $110,140 in earnings was forfeited.

Almost overnight, Marble Cliff went from being an Ohio-bred stakes winner of more than $100,000 to a Kentucky-bred maiden.

Not unexpectedly, a lawsuit followed. Charles Ruma, one of Marble Cliff’s owners, claimed in federal district court that breeders David and Diane Shashura were guilty of fraud, conspiracy to commit fraud, aiding and abetting fraud, and negligent misrepresentation in the sale of Marble Cliff. Then things got complicated. The Shashuras, defendants in Ruma’s lawsuit, filed a claim of their own against Joseph Sugar Jr., a partner in Foxwood Stables and the listed co-breeder of Marble Cliff.

The court never got to decide the merits of Ruma’s claims, or the question of whether Sugar was at least partly at fault because he should have known that Marble Cliff had not been foaled in Ohio. Instead, the court entered a default judgment against the Shashuras in Ruma’s lawsuit and dismissed their third-party claim against Sugar because they "willfully disobeyed court orders, failed to appear as directed, and otherwise ignored the authority of this Court." Ignoring the authority of a court never is a good idea.

Ruma’s damages totaled $427,045.28: $310,140 in compensatory damages, $66,905.28 in attorney fees and costs, and $50,000 in punitive damages. Most interesting was the breakdown of compensatory damages.

Of the total, $110,140 was for the purse money forfeited when Marble Cliff lost his Ohio-foaled certification. The remaining $200,000 was supposed to compensate Ruma for the decrease in Marble Cliff’s value as a Kentucky-bred rather than as an Ohio-bred. Ruma testified that Marble Court’s decrease in value was because "the level of competition is lower in Ohio races and because he is forced to race Marble Cliff in Kentucky where horse racing is famously more popular. Accordingly, because Marble Cliff is no longer eligible for such Ohio races, his future earnings potential, and sale value, is significantly less."

Marble Cliff now is a small fish in a big pond, rather than a big fish in a small one.

Ruma’s lawsuit did not address the basic question of whether he should have been penalized by the racing commission for a mistake over which he had no control—the erroneous certification of Marble Cliff as an Ohio-foaled horse. Should a horse owner who profits from an honest mistake get a free pass?