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 Information:  Bushman 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

Are you thinking about buying a ranch through an informal seller finance deal? If so, beware.  Andalusian breeder Rancho Mi Hacienda and owner Gilda Arana learned the hard way the pitfalls of doing this type of deal “on the fly”.

Rancho thought it had an enforceable written agreement whereby Coy Lynn Owens and his wife Linda agreed to sell Rancho 126 acres of land in Hopkins County, Texas. After all, Rancho did have a letter signed by Coy Lynn memorializing the parties’ verbal agreement concerning the ranch sale. 

In reliance, Rancho transported its seventy-three Andalusian horses from California to Texas and moved them onto the property. Further, Rancho paid Coy Lynn $25,000 and gave the Owenses’ daughter an Andalusian horse of her choosing. Rancho also expended substantial sums on a log cabin, shelter for the horses, and utilities for the premises. It was Rancho’s understanding that the $25k and the horse constituted the down payment, and that an additional $200,000 was to be paid to the Owenses at the end of a five year term.

Photo:  a very majestic Andalusian mare

Around the time Rancho took possession of the property, Coy Lynn Owens went to federal prison for mail fraud. Linda filed for divorce soon after Coy Lynn was incarcerated. In an agreed divorce decree entered by the divorce court, Linda was awarded the realty in question and Coy Lynn was divested of any title to it. 

Shortly after the divorce decree was entered, Rancho sued Coy Lynn, Linda, and L&L Investments (a holding company) seeking, among other things, specific performance of the ranch sale agreement, and damages related to the horses such as vet bills, the cost of five horses who died, and lost earnings for one year’s breeding season.

Rancho had Coy Lynn served with the lawsuit at the prison. When Coy Lynn did not file an answer, Rancho took a default judgment against Coy Lynn and nonsuited Linda and L&L Investments.  After the jump, you’ll see why this was a costly mistake.

Rancho (apparently still in possession of the property) later tried to levy execution on the 126-acre tract to satisfy its judgment against Coy Lynn. In response, Linda obtained a judgment from a JP Court ordering Rancho evicted from the property.

Linda also filed suit in district court against Rancho seeking a declaratory judgment that, among other things, Linda was the sole owner of the property and that it was not subject to execution. The trial court and the Texarkana Court of Appeals agreed with Linda on these points.  The Court of Appeals held that because Rancho’s suit was filed after the divorce decree divested Coy Lynn of all interest in the property, it was no longer community property subject to execution on a judgment against Coy Lynn alone. 

In hindsight, Rancho probably realized that nonsuiting Linda was a terrible idea.  According to the Court:

Although Rancho’s suit originally included [Linda] as a defendant, it made the choice not to pursue an action against [Linda] and filed a nonsuit as it pertained to her, electing to pursue judgment only against [Coy Lynn], who was apparently perceived to be the low-hanging fruit.

Case information: Rancho Mi Hacienda v. Bryant, 2012 WL 952853, No. 06-11-00080-CV (Tex. App.—Texarkana, Mar. 22, 2012). The full text of the opinion can be found here.

Last Friday, for the fourth or fifth time, I attended the annual Animal Law Institute.  The Institute is a CLE program put on by Animal Law Section of the State Bar of Texas.  It moves around each year, but this year it was at Texas Wesleyan School of Law here in Fort Worth.

You may be wondering, “what is animal law, and is equine law a part of animal law?” I have been practicing equine law for years, and I still don’t really know the answer. According to Wikipedia,

animal law is a combination of statutory and case law in which the nature—legal, social or biological—of nonhuman animals is an important factor. Animal law encompasses companion animals, wildlife, animals used in entertainment and animals raised for food and research. The emerging field of animal law is often analogized to the environmental law movement 30 years ago.

Most of the speakers at the Institutes I have attended in the past have seemed to generally focus on 1) animal rights/welfare issues; and 2) issues related to animal rescues and public shelters. 

My equine law practice, by way of contrast, is primarily focused on business issues. That said, I have advised several equine-related 501(c)(3) nonprofit organizations.

Rick and I at Will Rogers Equestrian Center with two of our animals. 

This year’s Institute covered a lot of animal welfare/rights issues, but it also added an overview of equine law by Dawn Reveley, and another presentation on vet malpractice defense into the mix.   Below is a recap:

  • Will Potter, a journalist from Washington, DC, discussed the Animal Enterprise Terrorism Act. This is a 2006 federal law with which I was not previously familiar. According to Potter, the law was pushed by animal industry groups and corporations to target animal rights protestors by labeling their activities as "terrorism".  Read more about it on Will Potter’s blog, Green is the New Red. To loosely quote Potter’s [very sound] advice to would-be animal rights protestors: “Come up with a plan and get organized before you stage your protest, so people won’t think you’re crazy!” 
  • Don Feare, an attorney from Arlington, Texas, shared some excellent information for attorneys who represent animal rescue groups. Some main points include (equine nonprofits, listen up!) 1) animal welfare groups should incorporate as a nonprofit corporation to limit liability; 2) liability insurance is a necessity, especially if the organization is doing public adoption events; and 3) adoption contracts should make clear when title to the animal passes to the new owner and should be signed by all adult members of the household at which the animal is being placed.
  • Scott Heiser, a Portland-based attorney with the Animal Legal Defense Fund, talked about how his nonprofit organization helps local prosecutors win animal cruelty cases (both through financing and by helping try cases). Heiser discussed the “business records” exception to the hearsay rule, as it applies to veterinary reports in criminal animal abuse cases. In general, vet reports are not admissible in lieu of testimony under the business records exception if the vet report was “prepared specifically for use at trial.”
  • Nicole Paquette, Texas Senior State Director with the Humane Society of the United States (HSUS) in Washington, DC, covered the new laws from 2011 Texas Legislature that the HSUS believes benefit animals. These bills include 1) HB 1451, the “Puppy Mill Bill”–requiring licensing and inspection of dog and cat breeders who maintain 11 or more female breeding animals; 2) HB 1103–“Responsible Pet Owner Classes” required for convicted animal abusers; and 3) HB 2471–the “Good Animal Samaritan Bill”, which limits civil liability of people who render aid to an injured or distressed animal.
  • Dr. Don Ferrill (remember him from this post?) talked about how to successfully defend veterinarians in malpractice and negligence cases. His advice to plaintiffs: “Always pay your vet bill before you sue your vet.”

Watch this website for information on next year’s Animal Law Institute.

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.

Here’s another case that demonstrates the importance of filing suit in the correct jurisdiction.

Remember Becky George’s APHA defamation case that was dismissed due to lack of personal jurisdiction? George was represented by Thomas Corea of the Corea Law Firm, PLLC in that matter. 

Thomas Corea represented John Anthony “Tony” Burris in another lawsuit involving an allegedly defamatory letter that defendants Pamela J. Bilek, the Bilek Family Trust, and Bilek Quarter Horses, LLC sent to the American Quarter Horse Association (“AQHA”).  The letter at issue complained of Burris’s activity as a judge for the AQHA.

Burris’s suit was originally filed in the 40th District Court of Ellis County, Texas. The Ellis County court dismissed Burris’s suit after determining that the State of Texas lacked personal jurisdiction over the Bilek defendants. Unlike in the Becky George suit, Corea did not appeal this dismissal.

The Ellis County Courthouse, in my hometown of Waxahachie, Texas

Seven days after Burris’s Ellis County case was dismissed, Corea filed (on behalf of Burris) three new lawsuits in Potter, Victoria, and Medina Counties of Texas. All of the new lawsuits alleged the same conduct against Bilek towards Burris that was the subject of the Ellis County lawsuit.

On the same day that the multiple lawsuits were filed, Corea sent an email to Bilek’s counsel advising that,

This is NEVER going away. Pam needs to get that through her drunk head that I will chase her to the end of the earth and she needs to get this settled now.

In response, Bilek’s counsel advised Corea that sanctions would be sought if Corea served any of the three new lawsuits. The Potter County lawsuit (which was identical to the Ellis County suit) was subsequently served on Bilek.

Bilek filed a special appearance (again alleging lack of personal jurisdiction) and motion for sanctions against Corea, the Corea Law Firm, PLLC, and Burris in the Potter County suit. Corea subsequently non-suited the Potter County case.

The 108th District Court of Potter County held a hearing on the motion for sanctions a couple of days after Corea non-suited the case. Corea appeared at the sanctions hearing by telephone, and did not object to any of the exhibits offered by Bilek’s counsel (who personally appeared).

The court found that all of the same jurisdictional facts alleged in Potter County had already been fully litigated and resolved in Ellis County, and determined that the Potter County suit was brought in bad faith and for purposes of harassment. 

The Potter County court ordered Thomas Corea, the Corea Law Firm, PLLC, and Tony Burris to pay Bilek $50,000 for costs and attorney’s fees, $10,000 to compensate Bilek for the deliberate and intentional harassment and inconvenience, and additional attorney’s fees in the event of unsuccessful appeal. 

Corea appealed the sanctions award. The Amarillo Court of Appeals upheld the sanctions awarded by the trial court, in their entirety.

Case information: Corea v. Bilek, 2012 WL 602898, No. 07-11-00114-CV (Tex. App.—Amarillo, Feb. 24, 2012).