Kelly Hart to Host Free Equine Law Webinar

On December 6, 2012, we will be putting on a free equine law webinar for clients and potential clients involved in the horse industry. Details are below.

Title: Top Three Things That Cause Equine Litigation & How to Avoid Them

Date: Thursday, December 6, 2012

Time: 12:00PM to 1:00PM CST

Those who wish to participate should click on this link to pre-register: Pre-Register for Webinar

 

Photo:  My husband Rick and I at Santa Anita for Breeders' Cup 2012

Horse Business Found Liable for Unpaid Employment Taxes

Do you withhold payroll taxes from your farm help’s wages? A recent tax case illustrates the bad things than can happen when a horse business incorrectly calls its farm workers “independent contractors”, and fails to withhold payroll taxes from their wages.

Are your farm workers really independent contractors?

Case Background:

Twin Rivers Farm, Inc., a Tennessee S Corporation, was engaged in the business of raising, training, and showing horses for anticipated sale or lease.

Twin Rivers hired Adam Lopez Morales and Nallhelyo Ruiz (workers) to work on the property where it ran its horse business. Morales and Ruiz lived in a trailer on the property and did not pay rent during the three years at issue in the case.

Morales and Ruiz’s primary job duties included: cleaning stalls, the barn area, the barn offices, the restroom, and the tack room; grooming horses; watering the horses; and moving the horses between pastures. The workers also occasionally fixed fence and mowed.  The equipment Morales and Ruiz used to perform their job duties was owned by Twin Rivers.

Twin Rivers paid both workers by check, with Morales receiving $300 per week, and Ruiz receiving $150 per week. With respect to the years at issue, Twin Rivers did not make deposits of employment tax, nor did it file Forms 1099 with respect to the workers.

Holding:

Over farm owner Diana Militana’s objections, the court found that Morales and Ruiz were employees of the farm and not independent contractors. As a result of the farm's misclassification of the employees, the court found Militana liable for approximately $30,000 in unpaid employment taxes and penalties for a three year period.

Case Info

Twin Rivers Farm, Inc. v. Commissioner; T.C. Memo 2012-184; Docket No. 14074-10 (July 2, 2012)

Related Posts:

Employee v. Independent Contractor: Pitfalls of Misclassification (Part 1)

Employee v. Independent Contractor: Pitfalls of Misclassification (Part 2)

Are Employers Immune from Liability for Employees' Horse-Related Injuries in Texas?

In general, a defendant can only be immune from suit in a Texas horse-related injury case if the plaintiff was a “participant in a farm animal activity or livestock show” when the injuries occurred.

Chapter 87 of the Texas Civil Practice & Remedies Code (the “Act”) was amended in 2011 to, among other things, include farm animals other than equines. However, the “participant” requirement did not change in 2011.  Neither the former nor the current version of the Act specifically states whether or not employees of equine activity sponsors are considered “participants in a farm animal activity or livestock show” under the Act.

The 1st Court of Appeals in Houston is the only Texas court to have taken up this issue (Dodge v. Durdin, 2005).  In that case, Deborah Dodge sued her employers, Magestic Moments Stables, et al, after a horse kicked her in the abdomen as she was administering paste-wormer at the direction of her employer. Dodge claimed that she incurred $4,000 in medical bills as a result of her injuries, and that her employers’ negligence was the proximate cause of her damages. 

Majestic Moments claimed that Dodge's suit was barred by the Act.  The trial court agreed, and dismissed the case.  On appeal, the 1st Court of Appeals disagreed that the Act applied to an employer / employee relationship.

This warning sign should not be a "news flash" to anyone.

Citing its review of legislative intent, together with the duties assigned to Texas employers under the Texas Labor Code, the 1st Court of Appeals held that, “the Equine Act applies to consumers and not to employees and that Dodge is therefore not a ‘participant’ under the Equine Act.” 

Workers’ compensation did not cover Dodge’s alleged injures. Unlike employers in many states, Texas employers are able to opt out of the workers’ compensation system. For more information, see this post.

In Dodge, the 1st Court of Appeals noted that the only other Texas court to have addressed the definition of “participant” was the Corpus Christi Court of Appeals in Johnson v. Smith (2002). In that case, the Corpus Christi court acknowledged that an independent contractor—not an employee—in charge of breeding and handling stallions was a participant under the Act.  The 1st Court of Appeals distinguished the Johnson case from the Dodge case on its facts.

Neither the Dodge nor the Johnson case were appealed to the Supreme Court. 

The Texas Supreme Court has not yet addressed whether or not an employee or independent contractor who is injured while working with horses on their employer’s premises is a “participant” for purposes of the Act.  Until the Supreme Court takes up this issue or the Legislature clarifies it, this issue continues to be somewhat unsettled in Texas. Texas equine businesses should therefore not rely upon the Act to provide immunity from suits brought by employees or independent contractors. 

Businesses can take several steps to minimize liability risk in this area, including 1) procuring insurance to cover employee or independent contractor injuries; 2) having employees or independent contractors sign liability releases; and 3) forming limited liability entities through which employees and independent contractors are retained.

A special thank you to reader Lois Mermelstein, Esq. of Austin, Texas for submitting this topic suggestion.

Guest Post: I Got Dem Ol' Cathouse Blues Again Mama! (Part 3)

By B. Paul Husband

            One of the significant holdings in Van Dusen was that indirect supervision of the work by the 501(c)(3) charity can suffice to support deductibility of unreimbursed out of pocket expenses from volunteers. The Court stated:   “Nothing in Section 170 or [relevant] regulations suggests that, as a condition to the deductibility of unreimbursed service-related expenses, the services must be performed under the control or supervision of a charitable organization. . . .” 

            One of the keys to winning as much as she did was that some of the receipts were itemized. The itemized receipts were given substantial deference by the Court. 

Saved by The Yankee Doodle Dandy

            The Van Dusen Court utilized the Cohan Rule in a fair manner.   The Cohan Rule is named for the great American composer/lyricist, George M. Cohan, who wrote songs like “Give My Regards to Broadway,” “Over There,” “You’re a Grand Old Flag” and “The Yankee Doodle Boy.”   In addition to his contributions to American musical comedy and patriotism, he made his mark in American tax law in Cohan v. Commissioner, 39 F.2d 540 (2d. Cir. 1930). He challenged the stringent IRS substantiation requirements. Judge Learned Hand wrote the just and enduring opinion. The Cohan Rule provides that, even if the substantiation is incomplete, if some factual basis is provided for the Court to base a finding, a Court may make inferences to support granting of deductions. Ms. Van Dusen may not have kept the records exactly as she should have kept them, and she did not have everything she should have had, but she did prove what a bag of kitty litter cost, and she showed by receipts that she typically bought eight bags at a time. The Tax Court found that was enough to invoke the Cohan rule.

                Van Dusen successfully proved up the cost of kitty litter 

           The Court expressly found Van Dusen to be credible witness. The evidence reflected that Van Dusen had about seven pet cats and about 70 to 80 feral “foster” cats in 2004. She argued that the foster cats consumed a greater percentage of the veterinary care than her pet cats, on a pro rata basis. However, she did not have specific proof and therefore the Court only allowed a pro-rata portion of the veterinary expenses as deductions -- 90% with respect to the veterinary, pet food and pet supply expenses. Specific testimony would have helped.

            It is fair to infer that unreimbursed expenses incurred in volunteer work for qualified 501(c)(3) charities which benefit horses, dogs and other animals would be treated the same way by the Tax Court.

            The bottom line is: keep records, keep records, keep records, and for amounts in excess of $250 be sure you get a written acknowledgment from the charity before you file your tax return.

Related Posts:

Guest Post: I Got Dem Ol' Cathoues Blues Again Mama! (Part 1)

Guest Post: I Got Dem Ol' Cathouse Blues Again Mama! (Part 2)

©B. Paul Husband 2012

Guest Post: I Got Dem Ol' Cathouse Blues Again Mama! (Part 2)

By B. Paul Husband

            In June of 2011, the United States Tax Court decided Van Dusen v. Commissioner, which addresses the rules for deductions of unreimbursed out of pocket expenses incurred in charity work. 

            In Van Dusen, a cat-loving attorney worked on a volunteer basis in association with a Section 501(c)(3) charity called “Fix Our Ferals” with dozens of feral cats, for which Attorney Van Dusen provided food, shelter, veterinary care and pet supplies, including kitty litter.

            Ms. Van Dusen deducted a broad range of expenses which she associated with her volunteer work for Fix Our Ferals. The expenses deducted included cat food, kitty litter, veterinary care for cats, funeral expense for one cat, her bar association dues, Costco membership dues, Department of Motor Vehicle fees, electric bills, water bills, garbage collection charges, vacuum cleaner repair, and the costs of a custom air filtration system for her residence.

          Happy Mardi Gras:  Laissez les bons temps rouler!

  The significant holdings in Van Dusen are: 

            (1) Out of pocket expenses incurred in connection with providing services to a charity are considered under the set of rules applied to gifts of “money” (Tr. Reg. Section 1.170A-13(a)) rather than the rules applied to gifts of “property” (Tr. Reg. Section 1.170A-13(b). The “money” rules are simpler than the rules applied to gifts of property.

            (2) The Tax Court will allow some flexibility in accepting alternatives to “adequate records” as substitutes for the records required by the Treasury Regulations to substantiate expenses incurred in connection with gifts to charity, of less than $250. However, the flexibility only works for gifts which are less than $250; not the gifts greater than $250.

            (3) For amounts above $250, the Tax Court will enforce the technicalities of Treasury Regulations Section 1.170A-13.

            (4) The test of “relatedness” between the charitable purpose of the donee and the expenses which were sought to be deducted was applied in Van Dusen and as a result of the “relatedness rules” the bar association dues , the Costco membership dues, the Department of Motor Vehicles expenses, and the vacuum cleaner repair expenses were disallowed. Concerning the connection between the expenses deducted to the work done, the Van Dusen Court stated: “To be deductible, unreimbursed expenses must be directly connected with and solely attributable to the rendition of services to a charitable organization.”

            The Costco membership and vacuum cleaner repair deductions were rejected by the Court on the grounds that they were not exclusively for charitable purposes. 

            (5) Percentage deductions were allowed for the electric bill, the water bill, cat food, cat supplies and the air filtration system, based on the ratio of the taxpayers own pet cats (7) to the “foster” cats (70-80). Thus, deduction of 90% of the pet supplies and cat food were allowed, but only 50% of the cleaning supplies and utility expenses were allowed. 

            For the veterinary expenses, the pet supplies, the cleaning supplies, and the utilities, the Court showed some flexibility and allowed a percentage of the expenses, on the grounds that the taxpayer would have had fewer veterinary service expenses, purchased fewer pet supplies and fewer cleaning supplies if she had not been doing volunteer work for the charity. Similarly, her utility bills would have been significantly lower if she had not had to run a special ventilation system, due to the numbers of cats involved.

The Evidence

            At trial the donor, Ms. Van Dusen, introduced evidence:

            (1) Copies of checks;

            (2) Bank account statements;

            (3) Hospital account history;

            (4) Credit card statements;

            (5) Costco purchase history;

            (6) Gas and electric invoices;

            (7) Waste management payment list;

            (8) Water billing history;

            But all of the records were compiled for trial, well after the expenditures were made in 2004. No written statement from Fix Our Ferals, the donee charity, was obtained prior to the filing of Ms. Van Dusen’s tax return. She would have had better success if she had obtained the “contemporaneous” statement from Fix Our Ferals. For contributions of $250 or more, the Court held a taxpayer must satisfy not only the record keeping requirements, but also the requirements of Treasury Regulation § 1.170A-13(f)(1).

Related posts:

Guest Post:  I Got Dem Ol' Cathouse Blues Again Mama! (Part 1)

Guest Post:  I Got Dem Ol' Cathouse Blues Again Mama! (Part 3)

©B. Paul Husband 2012

Guest Post: I Got Dem Ol' Cathouse Blues Again Mama! (Part 1)

            Paul Husband, an equine tax attorney based in California, will be contributing a series of guest posts over the next few weeks on the 2011 tax opinion, Van Dusen v. Commissioner. There are many valuable lessons contained in this opinion from which equine charities might benefit. Enjoy!

            In the context of deductions claimed by a woman who kept 70 to 80 “foster” cats, in addition to her own seven pet cats, the U.S. Tax Court addressed the deductibility of out of pocket expenses incurred as a volunteer for a properly qualified IRC Section 501(c)(3) charity in Van Dusen v. Commissioner, (2011) 136 T.C. 515.

            There is no deduction whatsoever available for the value of labor or services provided when an individual volunteers to do work for a charity, even though a gift of money to the same organization would be deductible. Nonetheless, out of pocket expenses incurred during the course of performing services for a qualified charity may be deductible if the expenses are sufficiently related to the charitable purpose of the organization, and substantiation and record keeping requirements are met.

          Happy Valentine's Day!

            There are lengthy and complex Treasury Regulations concerning the deductibility of gifts to charity, with separate rules for gifts of property versus gifts of money. 

            Before getting deeper into Van Dusen, lets take a quick look at the requirements and limitations provided by the Treasury Regulations concerning the deductibility of out of pocket expenses incurred in the course of volunteer work for a § 501(c)(3) charity.

Less Than $250

            Generally, for expenses of less than $250, to justify a tax deduction for out of pocket expenses for a charitable work, the donor must maintain, as a record of the contribution, either:

            (a) a bank record; or

            (b) a written communication from the donee (the charity) showing:

                        (1) The name of the donee organization;

                        (2) The date of the contribution; and

                        (3) The amount of the contribution.

More Than $250

            For expenses which are incurred in the course of doing volunteer work for a charity which are more than $250, in addition to meeting the requirements for expenses less than $250, the donor must have a contemporaneous written acknowledgment from the donee, which must include:

            (a) The amount of cash and a description (but not the value) of any property other than cash which was contributed;

            (b) Whether the donee provided any goods or services in consideration for any part of the contribution; and

            (c) A description and a good faith estimate (by the donee) of the value of those goods or services.

Contemporaneous

            The term “contemporaneous” as used in the Treasury Regulations concerning a written acknowledgment of contributions of out of pocket expenses related to charitable work means a written acknowledgment prepared on or before the earlier of:

            (a) The due date of the donor’s tax return, including extensions; or

            (b) The date that the donor files his/her/its tax return.

Acknowledgment

            The acknowledgment requirement for unreimbursed out of pocket expenses can be met if:

            (a) The taxpayer has “adequate records” to substantiate the amount of the expenditures; and

            (b) The taxpayer obtains a statement prepared by the donee that, in addition to the required information listed above for contributions of less than $250, the statement must describe the services and expenses performed, incurred and/or received. See Treasury Regulation § 1.170A-13(f)(10). 

            The $250 level is an important line of demarcation. Above it, the contemporaneous written acknowledge from the donee must be obtained.

Multiple Gifts Under $250 Do Not Trigger Higher Standard

            On the bright side, if a particular donor makes several gifts of unreimbursed expenses incurred doing volunteer work for a charity in amounts less than $250 each, even if they add up to more than $250, they need not be aggregated for the purpose of triggering the contemporaneous written requirements set forth in Treasury Regulation 1.170A-13(f) for contributions of more than $250.

Related posts:  

Guest Post:  I Got Dem Ol' Cathouse Blues Again Mama! (Part 2)

Guest Post:  I Got Dem Ol' Cathouse Blues Again Mama! (Part 3)

©B. Paul Husband 2012

Top 5 Considerations for a Horse Sale Agreement with a Trial Period

If you are thinking about buying or selling a horse on a “trial basis”, or if you are entering into a horse sale agreement with a trial period, here are five of the most important things you should consider:

1)      The Timing of the Pre-Purchase Exam.  The most important consideration in horse sales is usually, “is the horse sound”?  If the horse is not sound enough to perform the intended tasks of the prospective buyer, the prospective buyer shouldn’t be taking it “on trial” anyway.  It doesn’t happen often, but a horse can sustain an injury or get sick during even a short trial period.  Therefore, the pre-purchase exam should be conducted before the horse is ever taken by a prospective buyer to “try out.”  If a question is ever raised as to whose possession the horse was in when the horse was injured or got sick, both parties will be informed of the horse’s condition when it left the seller’s property if the pre-purchase exam is conducted before the horse leaves.  See the following posts for more information on the types of tests that should be conducted in a pre-purchase exam.

Guest Post:  Top 10 Pre-Purchase Exam Considerations

Tips for Equine Pre-Purchase Exams

2)      Insurance.  If the horse is nice / expensive, the seller should insure it for mortality and major medical before the prospective buyer leaves with the horse.  Note:  Sellers should speak with their insurance agent to make sure the seller’s insurance will cover incidents that occur during the trial period.  If the seller’s insurance will not cover the trial period, good equine insurance agents can often sell the prospective buyer a short-term insurance “binder” that will cover incidents that occur during the trial period.  These short-term "binders" may be extended by a formal policy if the prospective purchaser decides to keep the horse.  If the prospective buyer purchases an insurance “binder”, the seller should be named as additional insured.

3)      Written Purchase & Sale Agreement.  All terms of a purchase agreement “on trial” should be reduced to writing.  Among other things, the specific term of the trial period should be set out, as well as who will bear the risk if the horse is injured or dies during the trial period.  A “security deposit” can also be provided for in the agreement, along with specifics on when the seller can keep the deposit and in which instances the deposit will be refunded to the prospective buyer.  The bill of sale (which transfers title to the horse) and the registration papers should not be signed over until after the trial period has expired. 

4)      Liability Release.  The seller should consider having the prospective buyer sign a release of liability should the prospective buyer or its property be damaged during the trial period.  This will not cover injury to third parties in most instances.  A seller can procure a liability insurance policy to cover accidents involving the horse and third parties.

5)      Location of Horse During Trial Period.  A seller should have a prospective buyer agree in writing as to a single location where the horse will be kept during the trial period.  The seller can deliver the horse to said location or make other arrangements to either approve or disapprove the living conditions of the horse before the horse is released to the prospective buyer.  If the prospective buyer intends to board the horse with a third-party, it is wise for sellers to make sure that the prospective buyer pre-pays board for the trial period in advance.  This is to guard against stableman’s or agister’s liens being placed on the horse if the prospective buyer does not pay board during the trial period.

Due to all of these concerns (and others), I do not typically recommend that prospective buyers or sellers enter into "trial period" sale agreements.  In the best case scenario, a seller would allow a prospective buyer to inspect the horse as much as needed prior to the sale, either 1) on the seller's premises;  or 2) at some other venue to which the seller would transport the horse for purposes of inspection.

This post was in response to a special request I received from a reader for a blog post on horse sales with trial periods.  I’m kind of like one of those music groups that takes requests as long as the song is in their repertoire, and I don’t even ask for tips in return!  So please contact me if you have any special requests for a blog topic.  I’m always looking for good content that will be helpful to my readers.

Follow me on Twitter @alisonmrowe 

2011 Equine Law Year in Review

Happy New Year, Equine Law Blog readers!  Here's to the hope that you and yours find all opportunities for joy and happiness, as well as prosperity in abundance in 2012.

2011 brought a number of significant legal events / changes that will affect many people involved in the Texas horse industry.  The "Top Seven of 2011" (it rhymes!), are as follows:

1.  The Texas Supreme Court decided a case involving the Texas Equine Limitation of Liability Act.

  • Loftin vs. Lee was the case.  The opinion was handed down on on April 29, 2011.
  • The Supreme Court upheld the defendant's immunity pursuant to the Act.
  • This was the first time the Texas Supreme Court has taken up a case concerning the scope of the Act.
  • Related blog post

2.  The Texas Legislature expanded the immunities provided under the Texas Equine Limitation of Liability Act to cover all farm animals and expanded immunity to cover veterinarians.

  • Governor Perry singned the bill into law on June 17, 2011, and it became effective immediately upon signing.
  • Warning signs should be updated to reflect the new law.
  • The new law is called the Texas Farm Animal Limitation of Liability Act.
  • Related blog posts can be found here and here.
     

3.  The Texas Legislature passed a new sales tax exemption certificate requirement for the purchase of tax-exempt agricultural goods.

  • The bill was passed during 2011 legislative session, but first became effective on January 1, 2012.
  • All persons purchasing tax-exempt ag supplies must now apply for a registration number with the Texas Comptroller.
  • Horse and feed sales are still exempt without a number, but some training and boarding businesses may not qualify for a registration number that is now required to purchase other goods.
  • Related blog post.

4.  The Texas Legislature passed a bill affecting equine dentistry.

  • There is (as of September 1, 2011) a licensing requirement for lay dentists in Texas.
  • Related blog posts can be found here and here.
     

5.  Congress and President Obama passed a budget bill that removed ban on federal funding of horse slaughter inspectors.

  • Bill was signed by the President on November 18, 2011.
  • Horse slaughter is, by virtue of this bill, again a possibility in some U.S. states.
  • Related blog post.
     

6.  100% Bonus Depreciation ended on December 31, 2011

  • Some believe this tax benefit caused a surge in sales for yearling markets last year.
  • For new goods or qualified horses purchased on January 1, 2012 and after, 50% bonus depreciation will be available instead of the 100% rate that was available in 2011.
  • Related blog post.

7.  New medication rules were adopted by a number of horse organizations

  • Performance and race horse medications were a hot topic in 2011.  Among other organizations, the Breeders' Cup decided to phase out the use of Lasix, and NRHA initiated random testing protocols and adopted a new medications rule in 2011.
  • Related blog posts can be found here and here.

 Follow me on Twitter @alisonmrowe

American Horse Council Opposes Changes to Federal Child Labor Regulations

On December 15, 2011, the American Horse Council (AHC) issued a news release publicizing its opposition to the Department of Labor's (DOL) proposed child labor regulations concerning children working on farms because of its potential negative impacts on the horse community. 

The AHC was organized in 1969 to represent the horse industry in Washington before Congress and the federal regulatory agencies.  It is a non-profit corporation that represents all segments of the equine industry.

According to the AHC, the proposed rule would effectively bar minors under the age of 16 from working in most capacities in agriculture, especially around horses and other livestock.

On November 30, 2011, the AHC filed comments with the DOL expressing its concerns with the proposed rule.  A link to the AHC’s full comments can be found here

According to the AHC:

The proposed rule would expand the number and scope of Hazardous Occupation Orders (HOs) to such an extent that young people not working on a farm or ranch owned by their parents would be precluded from working in agriculture.  The proposed rule would prohibit herding livestock on horseback or foot in confined spaces such as pens and corrals.  Furthermore, the DOL would prohibited youth from engaging or assisting in almost all common animal husbandry practices, such as branding, breeding, dehorning, vaccinating, castrating livestock, or treating sick or injured animals including horses.  All these activities combined represent a great deal of the work performed in association with livestock.”  

The proposed DOL rule does include an exemption for children working on farms and ranches owned by their parents, but the AHC believes this exemption is too narrow in scope:

The AHC does not believe the proposed rule recognizes the reality that many family farms and ranches are held as LLCs or partnerships with other family members.  We believe there is no reason to believe it has ever been the intent of Congress to excluded farms owned by two siblings or multiple generations of a family from the parental exemption.  Doing so would impact thousands of family farms and ranches and unnecessarily deprive young people of the opportunity to work on a family farm or ranch and all the benefits associated with such work…”

Texas Farm Bureau has also recently published these blog posts featuring the concerns of family farmers who believe the proposed rule would rob many children of the valuable lessons that they could learn working in agriculture and around livestock:

DOL Could Change the Value of Hard Work

New Rules Robbing Our Kids?

In an age where most kids in the United States spend most of their free time in front of a TV set, an I-Pad or a computer, it is hard for me to imagine that so many kids are getting hurt working on farms that a new federal law is required to protect them from “exploitation”.  Do any of you readers know what the real motivation behind this proposed rule really is?  Please feel free to leave your ideas in the comments section.

In next week’s post, I’ll cover the most significant legal developments of 2011 that affect Texas horse owners.  I wish all of you a very Merry Christmas and safe travels this weekend!

Multiple Agendas Revealed in Legal Battle over New York Carriage Horse Industry

Most of you have already read about the heated legal battle over the horse-drawn carriage industry in New York City, where some groups have been pushing for decades to outlaw carriage rides. On its face, the battle seems to be about whether or not the industry is inherently cruel or dangerous for the horses. But more recently, some facts have surfaced pointing to other interests and agendas that may be fueling the push to banish the carriage industry from New York.

Emily B. Hager authored a story published last week in the New York Times that delves into underlying interests of some who are attempting to ban carriage rides in New York City. A link to the article can be found here.

One issue raised in the Times article are allegations of foul play related to the ASPCA’s involvement in the efforts to outlaw the horse-drawn carriage industry. According to Ms. Hager’s article, Dr. Pamela Corey (chief equine veterinarian for the ASPCA), said her supervisors pressured her to distort her findings about the death of a carriage horse in order to turn public opinion against the carriage industry. After Dr. Corey spoke out, the ASPCA suspended her. Dr. Corey has since filed a complaint with the state attorney general’s office, in which she states that she had been pressured on several occasions to slant her professional opinion to help achieve a ban.

Ms. Hager also points out that while the ASPCA is one of the groups leading the effort to ban horse-drawn carriages, it is also one of three entities that regulate the carriage industry in New York. 

The ASPCA’s president, Ed Sayres, is also reported in the Times to have teamed up with Stephen Nislick, chief executive of the development company Edison Properties, to develop a plan to replace carriage rides with electric-powered replicas of antique cars. Sayres and Nislick are reported to have started a nonprofit organization, known as NY-Class, that has collected more than 55,000 signatures backing city ordinances that would end the carriage horse industry in New York. NY-Class was allegedly started up through a $400,000 donation from the ASPCA and a contribution from Mr. Nislick.

With respect to these potential conflicts of interest, Ed Sayres is quoted in the Times as saying, “I don’t see it as a conflict. If we don’t bring forward the risk factor that we are observing, then it would be negligent.”

Real estate developers (including Mr. Nislick) are alleged to be involved in the movement to outlaw the carriage industry because they covet the land on the Far West Side where the horses have long been stabled.  

According to Ms. Hager’s article, some carriage owners acknowledge carrying out a campaign to infiltrate the activist groups and secretly record their strategy sessions. In one recording, Mr. Nislick is said to describe efforts to gain the support of city politicians by giving them campaign contributions. 

The carriage industry is reported to have filed its own complaints with the city and state agencies against the ASPCA and NY-Class.

The Times article includes some stats on drivers’ earnings, which reportedly range from $40,000 to $100,000 annually, depending primarily on whether they own their horses, whether they work the day or night shift, and how bad the weather and economy are.  If you know how much it costs to live in Manhattan, you know that even $100,000 per year before taxes can be hard to live on there. One would think that the last thing the carriage drivers would want to do is abuse or mistreat their horses if their livelihood depended upon them.

These latest allegations are definitely thought-provoking.  One must wonder whether those who donate money to the ASPCA hoping to fund food, medicine, and shelter for unwanted animals know that the Society has spent at least $400,000 on this political campaign.

Also, should the ASPCA still be one of the regulatory bodies governing the NY carriage industry, given the conflicts and allegations that have now arisen?

Finally, what would happen to the horses if those pushing for a ban were successful? According to Dr. Nena Winand, an equine veterinarian from upstate New York who is a member of the American Association of Equine Practitioners, “If we banned the carriage horse industry tomorrow, they would go straight to slaughter. There is no big field out there, there is no one to pay the bills.”

As discussed in this prior post, mistreatment of or cruelty to horses is already illegal in State of New York. Given these latest allegations, this fact does cause one to ponder whether animal welfare is the real impetus behind the movement to outlaw the carriage industry in New York City.

Increase Your 2012 Bottom Line Through Forage Management Now

It’s finally raining in Texas!  And grass is beginning to grow in pastures following the crippling drought brought on by Texas’s “Nuclear Summer of 2011”.  Horse businesses in many parts of the country have only relatively recently begun to purchase round bales and make other preparations for winter.  But most operators in Texas have been forced to feed horses practically every bite they’ve had to eat since summer, and they will have to continue feeding through winter and early spring along with everyone else. 

 

To manage this unfortunate scenario, and to make sure your pastures are restored to pre-drought conditions in 2012, there are a couple of proactive steps you can take:

1)      Raise board / maintenance rates to cover your increased costs for hay.  If you need to increase fees to cover your hay costs, be sure to send each of your customers a notice of the rate increase well in advance of the month you actually increase rates for feeding.  Your written agreements with customers should contain language indicating that boarding / maintenance rates are subject to change.  If this is not already in your agreements, it would be a good idea to include this in your 2012 agreements.

2)       Share hay delivery costs.  For delivered hay, it is typically less expensive to buy it by the stacker load (about 5 tons) or an entire semi-load (about 17 to 20 tons). If you can’t use this much hay, you might save freight costs by finding another farm that is interested in splitting a load.

3)      Take immediate action to speed pasture recovery. According to an article by Dr. Daren Redfearn, Oklahoma State University Cooperative Extension forage and pasture management specialist, this can be done by a combination of restricted grazing, fertilizer, and weed control. Dr. Redfearn's full article can be found here.  Oklahoma’s pasture conditions in the wake of the 2011 drought and current moisture levels are comparable to those in most parts of Texas.

Speaking of Oklahoma State University and Oklahoma, a recap of last weekend’s fan riot at Boone Pickens Stadium in Stillwater that injured 13 people can be found here.  One emergency medical technician described the mayhem resulting from the riot as “much worse” than the magnitude 5.6 earthquake that hit Stillwater in November.

Caveat Emptor: $123k Horse Trailer Purchase Goes Very, Very Wrong

Thinking about borrowing over $123,000 to buy a living quarters horse trailer? The case of John Michael Blake and Keith Blake v. GE Money Bank is an illustration of all the reasons you should do due diligence before you drop that kind of cash on a horse trailer.

John Michael and Keith Blake borrowed $123,173.16 from GE Money Bank to buy a horse trailer from a dealer called Southwestern Conversions. According to court filings, the dealer prepared a lien and application for title, but never actually applied for the title or license plate on the trailer.  John Michael and Keith allege they found out their title had not been properly secured, and advised GE Money Bank of this fact.  According to the Blakes, GE Money Bank said they were working out those issues with the dealer and not to worry.

About nine months later, the Blakes decided to sell the trailer through Southwestern Conversions, the same dealer they had bought the trailer from (and the same one who seemed to have botched the title application...). The trailer sold for $60,000 (a considerable loss, so it seems), but Southwetern Conversions apparently kept the $60,000 it received for the Blakes' trailer, then filed for bankruptcy. 

Today there are some ads for trailers for sale on HorseClicks.com from Southwestern Conversions, but all of them say "Status: Unavailable".  I did find a good customer review of Southwestern Coversions from 2008 online.

The Blakes never got title to the trailer and it was now gone and they still owed payments on it to GE Money Bank.  And they had been making all their payments on time before they sold the trailer.  What a mess.  The Blakes sued GE Money Bank after the bank failed to credit their loan for the $60,000, alleging that the bank didn’t properly assist them in securing title. 

Without doing a lot of research, I can't report the current status of this case.  I can say that it was pending in the Western District of Texas (federal court in Texas) under Cause No. AS-10-CV-860-XR, but my review of the docket on PACER indicates that United States District Judge Xavier Rodriguez ordered the case remanded to the 38th District Court of Medina County, Texas on June 27, 2011. 

Hat tip to Krysia Nelson at Equine Law & Business Letter for noticing this case first.

Follow me on Twitter @alisonmrowe

Special Stallion Promotions Were Popular in 2011

The 2011 breeding season in North America has officially drawn to a close. The BloodHorse.com posted an article on Tuesday with commentary from several major Thoroughbred stud farms about how they fared during the 2011 breeding season. Some stallion farms did better in 2011 than in 2010 (primarily those where proven sires stood in 2011). Overall, stallion farms found that breeders were strapped for cash in 2011, reducing the overall number of mares kept for breeding and the budgets for stud fees. Breeders were also more selective in 2011. They chose proven sires over young stallions, and fled with their mares when veteran stallions’ progeny did not perform as expected. 

Many stallion farms ran promotions in 2011 to attract mare owners. Promotions were especially popular for new, unproven sires. Promotions ranged in type and complexity, for example:

  • Reduced stud fees across the board
  • Free breedings to freshman sires
  • Multiple mare discounts
  • Special individualized packages for long-time customers; and
  • Lifetime breeding rights programs

Lifetime Breeding RightsSpendthrift Farm near Lexington is one example of a stallion farm that offered lifetime breeding rights in its 2011 breeding packages. Spendthrift calls their lifetime breeding rights package the “Share the Upside Program.” These packages are designed to promote new studs and provide them with larger books of mares early in their careers. 

How the Spendthrift program works: The breeder puts down a deposit on a young stud, and agrees to breed a mare to the stallion during his first and second years at stud. The mare owner pays a stud fee when each resulting foal stands and nurses. After the two foals are born and the mare owner pays both stud fees, the stud farm grants the breeder a lifetime breeding right in the stallion. Usually, the number of contracts is limited so that the stallion owner can maintain a 50% interest in each young stallion.

Tips for Stallion Farms: Make sure the terms of all special stallion promotions are in writing and signed by the breeders. If the stud fees are not due until the foal stands and nurses, be sure to retain a security interest (in writing) in the mare, the foal, and/or the breeder’s certificate. Be mindful of the fact that granting lifetime breeding rights may hinder your ability to later sell the stallion as a whole. The issue of what happens if you want to sell the stallion as a whole needs to be addressed in a contract between you and those who purchase lifetime breeding rights. 

How did your 2011 breeding season go? Please post comments and share what worked for you, and what didn’t.

Follow me on Twitter @alisonmrowe

Horse-Related Partnership Disputes

A lot of horse owners call in complaining of disputes with their partner in a horse.  Most disputes arise when a partner quits paying his or her share of the expenses on the horse, or when one partner wants to sell the horse and the other does not. Most predicaments arise when there is no written partnership agreement concerning the partners' rights and duties with respect to the horse.

I advise all of my clients who co-own a horse with another party to put their agreement in writing.  The agreement should include:

  • the partners' respective rights and responsibilities,
  • designate who is allowed to take possession of the horse and when,
  • a provision about what happens when one partner stops paying her share of the expenses,
  • who gets to decide the horse will be sold, and
  • how sales proceeds will be allocated between the partners.

Absent a written agreement, multiple owners of one horse will likely be viewed as a "general partnership" from a legal perspective if the parties intended to make a profit on the horse and share in the profit and expenses.  The rules governing all partnerships in Texas (including those with no written partnership agreement) are found in Chapter 152 of the Texas Business Organizations Code.

In order for a Texas partnership to sell 100% of a horse, the "majority-in-interest" must agree if the sale is in the "ordinary course of business," and all partners must agree if the sale is "outside the ordinary course of business."  Tex. Bus. Org. Code Sect. 152.209.  In the case of 50/50 owners, this default rule can result in a stalemate if the partners disagree on a horse sales transaction.  This highlights the necessity of a written partnership agreement.

In the case of a complete stalemate, a partner can bring a lawsuit against another partner under the Remedies Section (152.211) of the Texas Business Organizations Code for breach of fiduciary duty to the partnership (refusal to enter into a sales transaction to the detriment of the partnership) or breach of the partnership agreement (failure to pay their share of expenses).  A partner can also ask the court to dissolve the partnership and order the assets of the partnership sold or distributed to the partners.

In some cases, one partner will buy a horse with his/her own money before the commencement of a partnership relationship.  Later, the original owner might add partners by having them pay the original owner some portion of the purchase price and/or agree to pay a percentage of the expenses related to the horse.   In those cases, the bill of sale and registration papers will initially be in the name of the partner who originally bought the horse.  

It is important to note that horses acquired in the name of a partner will be presumed to be property of that partner, regardless of whether the property is used for partnership purposes, if the instrument transferring title to the horse (the bill of sale) does not indicate the owner's capacity as partner or the existence of the partnership, and if the horse is not acquired with partnership funds.  Tex. Bus. Org. Code Sec. 152.102(c).

The legal presumption cited above causes many problems in an unwritten partnership scenario.  If a horse is intended to be partnership property, partners should create a new bill of sale transferring the horse from the original owner to the partnership or the names of all partners, and transfer the horse's registration papers (if any) to the partnership. 

Partnership lawsuits are notoriously messy...especially when there is no written agreement.  Be very wary of entering into any kind of partnership on a horse unless you have an agreement in writing and you completely trust the other person.  Also be aware that if your partner is in possession of the horse, your partner may deny you access to it or even sell it and pocket the proceeds in the event of a dispute.  

Advice for Lawyers: How to Develop an Equine Law Practice

I get a lot of inquiries from lawyers and law students about how they can develop a niche practice in equine law.  Below are the most common FAQs and my responses.  

1.  Is there enough business in equine law to make a living?  

The answer to this is a resounding "yes"!  I honestly do not believe the state in which you live will dictate this, either.  I left a big firm 3 years ago and have been exclusively handling equine matters since then.  I now have more business than I know what to do with.  And I *only* take equine cases. I truly believe that the smaller your niche is, the bigger your market becomes.  I also believe there is enough work for a lawyer to have a niche practice *within* equine law!

 2.  Do your clients pay you?

Yes.  I do handle some pro-bono cases by choice but my clients do pay and I have a competitive hourly rate. Getting paid for your work has nothing to do with the industry your client is involved in.  This comes down to running your firm like a business.  

3.  What kinds of stuff does an equine lawyer do?

I think it depends on what kinds of matters you're drawn to.  While I can handle most types of equine-related matters,  I do a lot of  trial work.  I was a litigator at the big firm so I was trained at the big firm for 6 years to try civil lawsuits.  I represent horse owners in several main types of lawsuits, including 1) possessory disputes / recovery of horses being wrongfully held by someone; 2) enforcement of liens on horses; and 3) sales disputes (where the buyer is suing the seller for fraud, DTPA, breach of warranty).  I represent individuals almost exclusively.  I don't do any criminal (i.e. cruelty cases) because they are not civil matters.  If you're interested in criminal, you can get a job with the county prosecuting those cases (think "Animal Cops").  Equine lawyer Julie Fershtman(Michigan) often represents the horse owner's liability insurance company when someone sues a boarding facility or trainer, for example, in a personal injury matter.  She has written a lot of books and you need to buy those and read them if you have not already done so.  Joel Turner, an exceptional lawyer and person, often represents huge Thoroughbred farms in Kentucky in stallion syndications, racing syndications, and major business transactions.

 

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Protecting Your Horse During a Dispute

Texas law provides liens for two specific types of services provided to horse owners: 1) the stable keeper’s lien, (Tex. Prop. Code §70.003) which secures payment for charges related to the care of horses; and 2) the stock breeder’s lien, which secures payment for breeding services. The stable keeper’s lien also applies to an animal fed in confinement for slaughter, and thus can also be asserted by feedlot operators. See Tex. Prop. Code §70.005(c).

Unlike many other states, Texas does not provide veterinarians or farriers with a lien on a horse to secure payment for professional services rendered. However, the stableman’s lien in Texas does provide a farrier or vet who had a horse in his or her care a lien on the animal for costs of boarding the animal.

Two things to be considered are that 1) a service provider may attempt to hold your horses for nonpayment, even though no statutory lien exists. This may result in the necessity to get a writ of sequestration to regain possession; and 2) horse owners need to be aware of the lien laws in other states when shipping their horses across state lines in the possession of a service provider.
When a service provider refuses to turn over the horses until the full amount of the bill is paid, the local sheriff’s department and the Texas & Southwestern Cattle Raisers will rarely assist the horse owner in regaining possession of his horses due to the civil nature of the dispute. Without the aid of law enforcement, a horse owner may decide to pursue a lawsuit for conversion asking for the return of the animals that includes an application for a writ of sequestration to regain possession of the horses and to seek damages.

A writ of sequestration will enable the owner to regain possession of the horses within a short time, without a trial on the merits, and maintain possession until the lawsuit is disposed.

In the context of horses, a writ of sequestration is available to a plaintiff in a suit if the suit is for possession of horses or for foreclosure or enforcement of a lien or security interest in horses, and a reasonable conclusion may be drawn that there is immediate danger that the party in possession of the livestock will conceal, dispose of, ill-treat, waste, or destroy the livestock or remove it from the county during suit. Tex. Civ. Prac. & Rem. Code §62.001 (Vernon 1997). The defendant’s use of the livestock while the suit is pending is not enough for a writ to be granted. The plaintiff must fear that the livestock will be sold, mistreated, killed, or concealed. Mere depreciation in the value of the livestock during the pendency of the suit probably will not constitute injury that would warrant the issuance of a writ of sequestration. Commercial Acceptance Trust v. Parmer, 241 S.W.586 (Tex.Civ.App.—Fort Worth 1922, writ ref.)(involving depreciation of motor vehicle).

“Sequestration” is not a cause of action, but rather, a remedy available after suit has been filed, but before a judgment has been obtained. Its purpose is to prevent the destruction or disposal of property until the court can reach a final judgment.

To avoid these situations, horse owners and service providers should put all terms of the service agreement in writing. The contract needs to specify what the service provider has been hired to do with the horses, where they will keep the horses, and the expected payment for the care and services provided. Horse owners should ask all service providers to send a detailed bill at least once per month and be sure to pay bills timely.

Owners should not entrust their horses to anyone in whom they do not have full faith and confidence, and should keep in close contact with the person or company in possession of the horses. Similarly, a service provider needs to check references to make sure they are not accepting a client who will not end up paying for the services.
 

 

How to Successfully Manage Credit in a Tough Economy

In these economic times, horse industry businesses need to make sure they are effectively managing their credit, as well as their client relationships.

Many equine-related businesses owners have occasion to extend credit to their customers or clients. First of all, it is important to get everyone on the same page with respect to billing. “Everyone” includes you, others in your office who have client contact, and the client. For example, everyone who deals with your accounts should know when statements are mailed, when payment is due, and when or if the client may spread out payment over a number of installments. Similarly, your customer or client needs to clearly understand your expectations regarding payment. 

Your spoken words and your actions must match your paperwork and billing terms. This is one of the weakest areas for many horse businesses in debt management. I have seen, for example, many people who believe someone is boarding or training their horse for free in exchange for a commission when the horse is sold, only to receive a bill in the mail months later for thousands of dollars of boarding and training services. When this occurs, there is a much higher potential to really upset a client who believes your rules have changed between what was verbally offered and how they were actually billed. 

The following are some things you can do to avoid having to collect a debt in the first place:

1. Have clear, written terms from the outset.  You need to give your client a written confirmation of the product or service you will be providing before you provide the product or service.   The initial agreement should be signed by both you and the client.  

2. Publish your terms frequently.  Your terms should be published frequently after the original agreement. For example, the payment due date should be printed on each statement.

3. Send out detailed statements.  You should bill your clients at least once per month, and the bill needs to be as detailed as possible. People are more likely to pay a bill and pay it on time when they fully understand all the services that were performed. When a client sees a general entry such as “vet services” on a bill, for instance, when the client had no idea a veterinarian had treated their horse, the client may become suspicious that you are divvying up your vet expenses equally among all clients, whether that particular client received the vet service or not. 

4. Invoice clients on a consistent billing cycle.  Once a product or service has been delivered, invoice the client as soon as possible. Whichever date you choose to send out bills, send one out at least once per month on that same schedule as long as you are providing services or waiting for payment.

5. Encourage prompt payment.  To encourage the prompt settlement of bills, offer an incentive such as discounts for early payments (while always balancing the extent of the price cut with the benefits of an improved cash flow).

For more debt collection tips, continue reading.

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Legal Documentation for Owner / Trainer Profit Sharing Deals

Profit-sharing arrangements between a horse owner and his or her trainer are commonplace in the horse industry. They are often referred to as “partnerships,” but a written contract is seldom used. I strongly advise my clients against doing any kind of profit-sharing or partnership arrangement without putting the terms in writingI have seen countless relationships between owners and trainers break down over a profit-sharing deal, and it generally happens because the parties had a different idea about what the agreement was supposed to entail. These disputes can get ugly, and sometimes law enforcement even becomes involved in disputes over possession of the horse. 

Usual Scenario. The typical profit-sharing arrangement usually arises when the owner and trainer agree that the trainer will train, board, and promote the horse free of charge or at a very discounted rate to the owner in exchange for an increased percentage of the horse’s racing proceeds or a percentage of the proceeds from selling or breeding the horse.

 

Essential Documents. The following documents should be drafted to fit your specific terms and executed by the appropriated parties:

 

* A purchase and sale agreement between the owner and seller;

* A bill of sale transferring title of the horse from the seller to the owner; and

* A profit-sharing agreement between the trainer and owner.

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Equine Business Plans

Every horse business should have a written business plan.  There are a couple of reasons for this.  First, if your business is a start-up, the business plan will help you reduce financial risk by realistically assessing anticipated income and expenses before the business is launched.  Second, a written and regularly-updated business plan will help you in the case of an audit by the IRS, especially if the IRS suspects that your horse business may actually be a "hobby" or that you did not actively participate in the management of the business.  Finally, a written business plan, especially if attractively packaged, can help foster good business relationships with banks, creditors, and others in the horse industry who can either send you business or help you in some other way.

Since there is really no downside to have a written business plan, I suggest that every horse business (including businesses that have been operating for a while without a written business plan) keep an electronic and hard copy of a business plan that addresses the following items:

1)  A summary of the business goals and objectives of the business;

2)  An outline of how you will attain your business goals; 

3)  A list of the types of advisers you will consult (such as horse industry mentors, accountants, and attorneys);

4)  How the business will be owned (i.e. through and entity such as an LLC, who all owns an interest in the business, the percentage interest each owner holds, etc.);

5)  How the business will be financed (i.e. where you will obtain the initial capital needed to start up the business, and the amount needed);

6)  Projected income and expenses for the next 6 months and year (be conservative...most business plans underestimate expenses and necessary capital;  also, you should avoid projecting income and expenses further out than one year as these often become meaningless due to changing conditions and strategies);

7)  The method(s) you will use to find and secure good clients (advertising, networking, shows, etc.).

There really is no "magic formula" for a good business plan, nor should it be set in stone.  Your business is your dream, and your plan needs to set out your unique and individual vision and talents.  Your business plan will act as a "road map" for your business to help you stay on course with your goals and avoid foreseeable hazards.  It should be updated and revised at least once per year, if not more often.

To help you get started, see the attached Sample Equine Business Plan, to which you can add information to fit the needs of your particular horse business.  As you can see, my sample is fairly basic.  There are a lot of sample business plans you can pull up online, and most of those are pretty complex.  One site that provides sample business plans is BPlans.com.  Do not let the complexity of others' business plans intimidate you into not doing one at all.  While more detail is better in some instances, do not put off doing a business plan just because you don't know your exact numbers or you see others putting pie graphs in their business plans.  The key here is to have something in writing that you can add to and enhance as your business grows.

 

Bonus Depreciation in Economic Stimulus Act

Bonus Depreciation

The second incentive of the Economic Stimulus Act of 2008 brings back 50% first-year “bonus depreciation” for horses and most other depreciable property purchased and placed in service during 2008. “Bonus depreciation” was first passed in 2002 but had phased out at the end of 2004. Bonus depreciation helps horse businesses by allowing them to depreciate 50% of horses or property in the first year the horse or property is purchased or placed in service instead of depreciating smaller percentages of the property year after year.

Eligible property. Bonus depreciation applies to horses or any other property with a useful life of 20 years or less. Also, the property must be “new”, meaning the original use of the horse or other property must begin with the taxpayer to be eligible.

No limit. There is no limit on the amount of bonus depreciation that can be taken in any one year.

How Bonus Depreciation Works. Assume that in 2008, a horse business pays $500,000 for a colt to be used for racing and $50,000 for other depreciable property, bringing total purchases to $550,000. The young colt had never been raced or used for any other purpose before the purchase. The business would be able to expense $250,000 as a Section 179 deduction, deduct another $150,000 of bonus depreciation (50% of the remaining balance), and take regular depreciation on the $150,000 balance.

These tax incentives help horse businesses increase income by providing a tax relief for activities they are currently conducting. They should also provide an incentive for new or existing businesses to buy more horses and other related property.