Equine Law Blog : Texas Horse Lawyer & Attorney : Alison Rowe Law Firm : Equine Legal Matters, Racing, Thoroughbreds : Dallas, Bryan, Texas

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.  

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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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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 boarding or grazing services; 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.
 

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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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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 writing. I 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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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.

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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.

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