April 2012

On April 23, 2012, AQHA member Jason Abraham and two related business entities sued the American Quarter Horse Association (AQHA) in the U.S. District Court for the Northern District of Texas, Amarillo Division.

The complaint asks the court to order the AQHA to revoke AQHA Rule 227(a), on the basis that an outright restriction on the registration of cloned horses and their offspring allegedly violates federal antitrust laws.

Rule 227(a) was approved in 2004 by the AQHA board of directors, which prohibits all cloned horses and their offspring from being included in the AQHA’s breed registry. 

Other breed registries, such as the Jockey Club and the Paso Fino Horse Association, have also ruled that cloned horses and their offspring are not eligible for registration.

As discussed in this prior post, Texas law (which may or may not be deemed applicable in this case) favors a policy of judicial non-intervention with respect to the internal affairs of voluntary associations, such as the AQHA. An exception to Texas’s policy of judicial non-intervention can apply in cases where a valuable right or property interest is at stake in a lawsuit, and cases where a voluntary association’s rules violate the law.

For more information, see the following articles:

Lawsuit Challenges AQHA Cloned Horse Registration Policy

Suit Filed: Claims AQHA Ban on Cloned Horses Violates Antitrust Law

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The National Conference on Equine Law will be held at the Embassy Suites in Lexington, Kentucky from Wednesday, May 2, 2012 to Thursday, May 3, 2012. 

The Kentucky Oaks and the Kentucky Derby will take place in Louisville, Kentucky on the following Friday and Saturday, respectively.

Topics to be covered at the 2012 Conference include:

  • Annual Case Law Update for the Equine Law Attorney
  • Current Employment Law Issues in the Equine Industry
  • Race-Day Medication Bans and the Legal Issues Surrounding Them
  • The Uncertain State of "Amateur Status in the Sport Horse Industry and Other Legal Issues in Representing and Advising Horse Associations
  • Choice of Entity Law for the Equine Industry
  • How to Develop, Maintain, and Grow an Equine Law Practice
  • Annual Federal Legislative Update for the Equine Law Attorney
  • Tax Law Update for the Equine Practitioner
  • The World of Cloning and Embryo Transfer Issues in the Equine Industry
  • Fiduciary Litigation in Equine Matters
  • Ethics for the Equine Lawyer
  • Equine Insurance Issues for First and Third Party Coverage
  • Legal Issues Surrounding the Role of Racing Stewards

Registration for the Conference is still open.  A registration form can be downloaded here.  

If you plan on attending the Conference, I hope to see you in Lexington! 

I will post highlights of the speaker presentations on the Equine Law Blog next week.  Stay tuned.

With the development of “pet trust” statutes in several states over the past 10 years, and the story of Leona Helmsley’s Maltese dog, “Trouble”, who inherited $12 million upon Helmsley’s death, stories about the establishment of trusts for the care of animals seem to have been increasingly covered in media stories. Most recently, Veronica Dagher of Wall Street Journal’s personal finance blog, Total Return, published this informative blog post about equine trusts in the United States.

Dagher’s post sets forth a number of reasons why establishing a trust for a horse, as opposed to naming a horse in a will, might be a good idea:

  • Wills can be contested if a family member is upset that horses are left a substantial sum of money (this happened in the case of Helmsley’s dog);
  • Even if a will is not contested, it must sometimes pass through probate, which could delay care of the horses;
  • If a client leaves a substantial sum of money to an heir that is intended to be used to care for horses, the heir might not use the money for the intended purposes;
  • The beneficiary receiving title to the horses under a will might not want the horses.

The above factors can indeed cause problems upon the death of a horse owner, and therefore a trust might be a prudent estate planning alternative for many Texas horse owners.

The Texas Legislature passed Texas’s animal trust statute in 2005, and it became effective on January 1, 2006. Our statute is found in Section 112.037 of the Texas Property Code, a link to which can be found here.

Texas’s statute allows a trust for the care of an animal to be established by a living person. The animal named in the trust must be alive during the settlor’s lifetime (i.e. a trust cannot provide for the care of the unborn offspring of a living horse, due to the rule against perpetuities). Under Texas law, an animal trust terminates upon the death of the animal or, if the trust is created to provide for the care of more than one animal alive during the settlor’s lifetime, on the death of the last surviving animal. 

In Texas, a settlor can appoint a guardian to care for the horse using the trust proceeds. This person should be one who is willing and able to properly care for the horse(s), and is familiar with costs associated with proper horse husbandry.

Texas law does have a provision that would allow property of an animal trust to be applied to a use other than the property’s intended use under the trust (i.e. care of the animals named in a trust) if a court determines that the value of the trust property exceeds the amount required for the intended use. 

If the value of trust property is judicially determined to exceed the amount required for the care of the horse(s), the funds are required under Texas law to be distributed to 1) the settler, if alive at the time the trust property is distributed; 2) the beneficiaries of a settlor’s will, if the settler has a will; or 3) to the settlor’s heirs, if the settler does not have a will or an effective provision in the settlor’s existing will. 

As such, horse owners who establish a trust for the care of their animals might use a “belt and suspenders” approach, whereby the horse owner’s will clearly sets forth their intentions for all property of the animal trust, should it for some reason not be used for the purposes set out in the trust instrument.

The topic of this week’s post is not a true “horse case”, per se, but horse dealers and those who purchase horses from dealers can certainly glean some valuable lessons from it. 

David and Lisa Moore were breeders and sellers of horses and dogs. Originally operating as “Kanes Lake Horse & Kennel” in Minnesota, they relocated to Magnolia, Texas, where they purchased about 25 acres of land and began “Brushy Creek Kennel”, where they also lived. 

The Moores sold at least 163 dogs to Lisa Bushman, who herself was a breeder and seller of rare dogs, including Cavalier King Charles Spaniels, West Highland White Terriers, and Jack Russell Terriers. 


Cavalier King Charles Spaniels

At some point after Bushman bought dogs from the Moores for a sum of $132,000, Bushman sued the Moores in the 155th District Court of Waller County, Texas alleging violation of the Texas Deceptive Trade Practices-Consumer Protection Act (“DTPA”), fraud, and breach of contract. 

In her lawsuit, Moore alleged that some of the dogs she purchased were sick, and that she had difficulty obtaining registration papers on the dogs. Moore claimed that she had been sued by some of her customers, that she to refund money on some of the sales to customers, and that she had to pay more than $10,000 in veterinary expenses to nurse the sick dogs back to health.

The court opinion makes no reference to any written agreement between the parties as to the terms of the dog sale. 

In his defense, David Moore alleged that the business arrangement with Bushman consisted of the Moores shipping dogs to Bushman via third-party breeders or brokers, without registration paperwork unless a higher price was paid.

Before the suit went to trial, Lisa Moore conveyed 18 of their 25 acres of land to Dalvis Enterprises, Ltd. (“Dalvis”), an entity owned almost entirely by the Moores. 

A side note that will prove relevant as you read on: in Texas, a husband and wife can claim up to 200 acres of rural land as their homestead, thereby shielding the land from creditors’ claims.

After a trial, the court found in Bushman’s favor, awarding her damages of approximately $350,000 against the Moores.

After Bushman attempted to levy execution of her judgment upon the 18 acres of land that had been partitioned from the 25-acre homestead and conveyed to Dalvis, Dalvis purported to convey the 18 acres back to Lisa Moore. Shortly thereafter, the Moores filed a Chapter 7 bankruptcy proceeding.

The bankruptcy court, and later the United States District Court for the Southern District of Texas on appeal, held that:

1) Bushman’s state court judgment was non-dischargeable in bankruptcy because the debt was incurred by fraud; and

2) the 18 acres of land was subject to execution on Bushman’s judgment, because the homestead exemption was lost when Lisa Moore transferred the property to Dalvis.

Surprisingly, the Moores claimed that the conveyance of land to Dalvis was a “pretend sale”, because it was allegedly made without consideration, in an attempt to hide the eighteen-acre tract from Bushman. The Moores made this seemingly self-defeating allegation in favor of their position that they never lost their homestead exemption on the 18 acres. Both the the bankruptcy court and federal district court on appeal found this argument unconvincing.

Take aways: Many or most of these issues could have been avoided, had the parties put the express terms of their purchase and sale agreement in writing. Further, an inspection of both the dogs and their registration paperwork before the dogs were accepted and paid for might have alleviated the situation. 

Case InformationBushman v. Moore, 2011 WL 7655696, Civil Action No. H-10-3045 (S.D. Texas, Sept. 14, 2011).  Hot off the presses from Westlaw this week (not sure why it took Westlaw so long to publish this opinion?).

On March 30, 2012, the Supreme Court of Texas denied review of Paula Gaughan’s lawsuit against the National Cutting Horse Association (“NCHA”). 

We first covered the Gaughan case in a post back in August of 2011, shortly after the Fort Worth Court of Appeals affirmed the trial court’s judgment in favor of the NCHA. The trial court’s now completely final judgment awards the NCHA $75,000 in attorneys’ fees and denies Gaughan’s request that certain NCHA financial records be judicially declared available for inspection by all NCHA members. For more information, see this article.

The Justices of the Supreme Court of Texas

The NCHA is a Texas nonprofit corporation. The Gaughan case dealt primarily with a company’s duties under the Texas Non-Profit Corporation Act to maintain and, in some cases, allow members to inspect the nonprofit’s books and records. The trial and appellate courts held that the NCHA complied with the portions of the Act that were at issue in the lawsuit.

While we’re on the topic of a member’s suit against a horse association, it is a convenient time to point out that the NCHA would likely be deemed a “voluntary association” under Texas law. Here are some “fun facts” about voluntary associations:

  • It is the right of a voluntary association to manage, within legal limits, its own affairs without interference from the courts. This is what they call the “policy of judicial nonintervention.”
  • Review of a voluntary association’s actions is severely limited under Texas law. Courts will not interfere with the internal management of a voluntary association so long as the governing bodies of such association do not act totally unreasonably, contravene public policy, break the law, or violate the association’s own rules and procedures.
  • An individual, by becoming a member of a voluntary association, subjects himself or herself, within legal limits, to the association’s power to administer its rules as well as its power to make its rules.
  • An exception to the policy of judicial nonintervention can be made where a valuable right or property interest is at stake in a lawsuit.

Although the policy of judicial nonintervention did not directly come up in the Gaughan case, these issues often preclude or limit the ability of a court to interfere in disputes between members and horse industry associations. 

Related Post:  NCHA Litigation Update:  NCHA Wins Again