The Five Commandments of Equine Sales Contracts

Horses sell every day, but when it comes right down to it, most people involved in a horse sale are not sure what facts the seller must disclose. Likewise, there are certain rules that govern a buyer’s conduct, most importantly being the buyer’s duty to ask relevant questions. The law creates a fine line between a seller’s duty to disclose versus right to remain silent, and a buyer’s duty to ask. The general rules are as follows:

Rule No. 1: Thou Shalt Not Lie or Mislead a Buyer.

A seller cannot lie or mislead a buyer. However, sellers do not have to disclose every known fact regarding a transaction. A seller generally does not commit fraud by remaining silent about most aspects of a horse sale. Most courts around the nation hold that, with some exceptions, silence will not amount to fraud, especially where the defect or problem could be readily discovered by the buyer through a routine inspection. However, failure to disclose information may amount to fraud in the following circumstances:

  1. If the seller agrees in the purchase agreement to disclose all relevant facts, then the seller must disclose such known facts to avoid fraud. Silence will not serve as protection to fraud in this situation.
  2. If the seller and buyer have a confidential or fiduciary relationship, the seller has a duty to disclose all relevant facts. Thus, a trainer has a duty to disclose to his or her customer all relevant facts regarding the transaction; otherwise the trainer could be liable for fraud.
  3. Where the seller knows the buyer is mistaken to certain facts, the seller must correct the mistaken belief. An example is when the potential buyer of a mare states that they intend to breed the mare next year but the seller knows that the mare is not able to carry a foal due to a problem not discernible from a normal veterinarian examination. Under these circumstances, the seller must clear up the mistaken belief of the buyer in order to avoid fraud.
  4. If a seller knows the buyer wishes to purchase a horse for a particular purpose, the buyer must disclose all facts relevant to whether the horse can meet that purpose. For example, take the family seeking a horse for their 8 year old daughter to ride at horse shows. If the seller knows that the horse is hard to control, and thus potentially dangerous at horse shows, they must disclose this fact in order to avoid fraud or other liability.
  5. When the buyer asks a seller a question, the seller has a duty to give a correct response. An incorrect or misleading response may constitute fraud. If the buyer asks the seller if the horse has had any illness in the past, the seller must give a truthful answer.

Rule #2: Thou Shalt Be Specific In Thy Contract.

Sellers can limit themselves, to a certain extent, by including an “as is” statement in the purchase agreement. This statement typically says that the buyer takes the horse as it is, without any warranties. 

The seller may protect themselves from certain statements made prior to the sale by including a merger clause in the purchase agreement. A merger clause says that anything intended to be in the agreement is contained in this agreement, and this agreement contains all provisions of the sale. Things not expressly included will not be considered part of the agreement. Take for example the instance where there is a merger clause in the purchase agreement, and the seller has represented to the buyer that the stallion purchased is breeding sound. If the buyer wishes this to be a warranty of breeding soundness, the buyer should have the warranty specifically included in the purchase agreement.

Rule #3: Thou Shalt Accept Responsibility for Thyself. 

Buyers should be aware that they too have duties. Buyers must conduct a reasonable inspection of the horse they purchase. A reasonable inspection varies depending on the value and the intended use of the horse. If you purchase a high dollar show horse, you arguably have a duty to secure a detailed veterinarian inspection of the horse, including x-rays. If you purchase an expensive mare for breeding purposes, you should secure a veterinarian examination which includes palpation and other fertility tests to ascertain the mare’s breeding capacity. However, if you purchase a pleasure riding horse intended only for recreational use, your duty to inspect will be much lower. The amount of inspection required will vary depending upon the custom in your breed or sport, and the intended use.

Rule #4: Thou Shalt Protect Thyself. 

Self-protection in horse sales is no different from other forms of self-protection. View the transaction as an educational experience — if you don’t consummate the deal, you’ve educated yourself and the negotiation partner, and you’ve employed good business practice. However, if you follow certain guidelines, you should be able to capably thread your way through the negotiations in flying colors: 

As the Buyer:

  1. Ask questions. Document the answers to these questions.
  2. Tell the seller what you intend to use the horse for and ask if the horse would be suitable for such use. 
  3. Specifically ask if there are any known physical conditions which would hamper the horse’s performance in this capacity.
  4. Always use a written purchase agreement.
  5. If there’s something that is vital to the sale, such as soundness, breeding capacity, etc., be sure to have it included in the contract. 
  6. If there is a “sold as is” clause or merger provision in the purchase agreement, make sure that all important statements or guarantees made by the seller are included in the purchase agreement.
  7. Properly inspect the horse. The level of inspection depends upon the intended use, breed and sport standards. If you are not sure what type of inspection is necessary contact a professional breeder, trainer or equine veterinarian in your area.
  8. Test the horse’s suitability for its intended use.

As the Seller: 

  1. Answer all questions truthfully.
  2. Inform the buyer, especially if the buyer is inexperienced, that they have the option to obtain a veterinarian exam of the horse if they desire.
  3. Always use a written purchase agreement.
  4. Include in the contract “sold as is” language and merger provisions. 
  5. If the buyer requests to have guarantees or statements included in the contract, determine if you want to be held to those guarantees or statements. If you are willing to be held to such guarantees, include them in the purchase agreement and complete the sale.

Rule #5: Thou Shalt (And Must) Use A Written Contract For Any Horse Sale Exceeding $500

In our contract negotations, we are all constrained by a legal policy called the “Statute of Frauds”. Part of each state’s Uniform Commercial Code, this policy requires any contract for sale of goods exceeding $500 to be in writing in order to be enforceable. What does that mean? If you sell a horse for $501 without a written contract, either party may rescind (that is, refuse to honor the contract, return the horse, and/or demand the return of either the horse or the money). In other words, a verbal contract enables the parties to return to the position they each occupied before the contract was entered.

CONCLUSIONS: FOLLOW THE RULES. Adhering to the above policies will not only keep you out of trouble, but maximize your ability to close the best deal for all concerned. 

© Denise E. Farris, Esq. (January 25 2022) This article may not be reprinted or reproduced in any manner without the consent of the author. Contact: Denise Farris, Farris Legal Services LLC. Email: [email protected]. Telephone: (913) 220-6203

DISCLAIMER
This article provides general coverage of its subject area. It is provided free, with the understanding that the author, publisher and/or publication does not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

Shut Your Mouth – And Computer: Defamation in the Internet Age

You’ve heard the old adage – “Telegraph, Tell-a-Farrier”. While intended as a joke, the equine world is famous for rapid transmission of gossip. While much of this is harmless, occasionally gossip spreads damaging, unfounded rumors specifically aimed at individuals or their businesses. The rise of Facebook and the prevalence of negative postings is creating entirely new case law on what constitutes internet defamation.

The following article covers the general elements of internet defamation in the hopes that the equine business world will sit down, take note, and most importantly – “SHUT UP” – at least as to publishing non-investigated negative accusations against business figures in the equine world.

Terminology

First, understand the terminology. While governed by – and thus varied by – state law, the following general definitions and principals apply.

  1. Defamation: a false and unprivileged statement of fact that is harmful to someone’s reputation”, and published “with fault,” i.e. either negligently or maliciously.
  2. Libel: a written defamation;
  3. Slander: a spoken defamation.

In addition to the above, there is also “libel per se”, that is, a written defamation that is so obviously negative and false that it requires little additional evidentiary proof. The following are often found to be libelous per se, i.e. a statement that falsely:

  • Charges any person with crime, or with having been indicted, convicted, or punished for crime;
  • Imputes in him the present existence of an infectious, contagious, or loathsome disease;
  • Tends directly to injure him in respect to his office, profession, trade or business, either by imputing to him general disqualification in those respects that the office or other occupation peculiarly requires, or by imputing something with reference to his office, profession, trade, or business that has a natural tendency to lessen its profits;
  • Imputes to him impotence or a want of chastity.

Proving a Defamation Claim

To prove defamation, a claimant must establish each of the following elements: 

  1. A publication;
  2. Of a false statement of fact;
  3. Tending to harm the reputation of the claimant, and
  4. Proof of damages.

An individual need not be named “specifically” for this defamation to occur. A plaintiff only needs to be reasonably identifiable; i.e. if you post a statement about a “certain saddleseat trainer at XX facility”, and there’s only one such trainer at that facility, the person has been identified with sufficient specificity to have his or her reputation at stake.

Defenses: Truth, Opinion, Retractions and Intermediary Publications

  1. Truth
    Truth is an absolute defense to a defamation claim. However, proving “truth” after publication of a statement can be costly and also hard to prove. Better to avoid being sued in the first place by not publishing anything defamatory or potentially defamatory in the first place!
  2. Opinion
    Also there is a distinction between expressing an opinion, which can be negative without being defamatory, and asserting a “verifiable fact”. A verifiable fact is a fact which is capable of being proven true or false when viewed in light of the context of the statement. While some courts have held that statements made in the context of an Internet bulletin board or chat room are highly likely to be opinions or hyperbole, and thus NOT defamation, they can rise to slander when appearing to assert negative “verifiable facts” which are later proven untrue. For example, an internet posting might get away with accusing a trainer of not being very “good” with clients (ie poster’s opinion), but might not be able to get away with accusing the trainer of being charged with abuse of animals in his or her care (a verifiable fact capable of proof – or not).
  3. Retractions
    Oftentimes posters who later discover their statements were not true attempt to remedy the harm by a written retraction. Some states permit “retractions” as a partial defense or an element of damage reduction in defamation claims. While this may or may not be helpful in a particular case, this oftentimes is the “skunk in the jury box” scenario. You might remove the skunk (ie retracting the statement), but the scent – and the damage – linger long afterwards. This is particularly true on internet postings where a retraction may never be viewed by all persons negatively influenced by the statements posted.
  4. Intermediary Postings
    Generally, anyone who repeats someone else’s statements is typically held equally responsible for any defamatory content as the original speaker – if they knew, or had reason to know, of the defamation. However, developing case law related to internet defamation and and on-line postings resulted in Congress passing Section 230 of the Communications Decency Act, which provides some liability protection to Internet “intermediaries” who merely republish speech by others.

Conclusion

The status of these exposures, defenses and statutory protections are currently playing out in cases nationwide. This leads to a certain amount of legal uncertainty as to what is actionable, and what is not. Rather than taking a chance, the wiser course is to refrain from any negative publication unless reasonable due diligence reveals verification of the basis of the claims being raised in the publication.

© Denise E. Farris, Esq. (January 25 2022) This article may not be reprinted or reproduced in any manner without the consent of the author. Contact: Denise Farris, Farris Legal Services LLC. Email: [email protected]. Telephone: (913) 220-6203.

DISCLAIMER
This article provides general coverage of its subject area. It is provided free, with the understanding that the author, publisher and/or publication does not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

Disclosure Requirements in a Horse Sale

Horses sell every day, but when it comes right down to it, most people involved in a horse sale are not exactly sure what facts the seller must disclose. The law creates a fine line between a seller’s duty to disclose and a seller’s right to remain silent. The general rules are summarized as follows: 

  • A seller cannot lie or mislead a buyer. However, sellers do not have to disclose every known fact regarding a transaction. A seller generally does not commit fraud by failing to disclose, or remaining silent, about most aspects of a horse sale. Most courts around the nation hold that, with some exceptions, silence will not amount to fraud, especially where the defect could be readily discovered by the buyer or through a routine inspection. However, failure to disclose information may amount to fraud in the following circumstances: 
  • If the seller agrees in the purchase agreement to disclose all relevant facts, then the seller must disclose such facts to avoid fraud. Silence will not serve as protection to fraud in this situation. 
  • If the seller and buyer have a confidential or fiduciary relationship, the seller has a duty to disclose all relevant facts. Thus, a trainer has a duty to disclose to his or her customer all relevant facts regarding the transaction, otherwise the trainer could be liable for fraud. 
  • Where the seller knows the buyer is mistaken to certain facts, the seller must correct the mistaken belief. An example is when the potential buyer of a mare states that they intended to breed the mare next year but the seller knows that the mare was not able to carry a foal due to a problem not discernible from a normal veterinarian examination. Under these circumstances, the seller must clear up the mistaken belief of the buyer in order to avoid fraud. 
  • If a seller knows the buyer is purchasing a horse for a particular purpose, the buyer must disclose all facts relevant to whether the horse can meet that purpose. Take for example where a family is considering buying a horse for their 8 year old daughter to ride at shows. If the seller knows the horse acts up and is dangerous at shows, they must disclose this fact in order to avoid fraud. 
  • When the buyer asks a seller a question, the seller has a duty to give a correct response. An incorrect or misleading response constitutes fraud. If the buyer asks the seller if the horse has had any illness in the past, the seller must give a truthful answer. 

Sellers can limit themselves, to a certain extent, by including an “as is” statement in the purchaseagreement. This statement says that the buyer takes the horse as it is, without any warranties. 

The seller may protect themselves from certain statements made prior to the sale by including a merger clause in the purchase agreement. A merger clause says that anything intended to be in the agreement is contained in this agreement, and this agreement contains all provisions of the sale. Things not expressly included will not be considered part of the agreement. Take for example the instance where there is a merger clause in the purchase agreement, and the seller has represented to the buyer that the stallion purchased is breeding sound. If the buyer wishes this to be a warranty of breeding soundness, the buyer should have the warranty specifically included in the purchase agreement.

Buyers should be aware that they too have duties, and must conduct a reasonable inspection of the horse they purchase. A reasonable inspection varies depending on the value and the intended use of the horse. If you purchase a high dollar show horse, you will probably have a duty to have a detailed veterinarian inspection of the horse, possibly including x-rays. If you purchase an expensive mare for breeding purposes, you should have a veterinarian examine the mare for her breeding capacity. However, if you purchase a pleasure riding horse intended only for recreation use, your duty to inspect will be much lower. The amount of inspection required will vary depending upon the custom in your breed or sport, and the intended use.

How Buyers Can Protect Themselves: 

  • Ask questions. Document the answers to questions. 
  • Tell the seller what you intend to use the horse for and ask if the horse is suitable for such use. Ask if there are any known conditions which would hamper the horse’s performance in this capacity. 
  • Use a written purchase agreement. 
  • If there’s something that is vital to the sale, such as soundness, breeding capacity, etc., be sure to have it included in the purchase agreement. 
  • Properly inspect the horse. The level of inspection depends upon the intended use, breed and sport standards. If you are not sure what type of inspection is necessary contact a professional breeder, trainer or equine veterinarian. 
  • Test the horse’s suitability for its intended use. 

How Sellers Can Protect Themselves: 

  • Answer questions truthfully. 
  • Inform the buyer, especially if the buyer is inexperienced, that they have the option to obtain a veterinarian exam of the horse if they desire. 
  • Always use a written purchase agreement. 
  • Include “as is” and merger provisions in the contract. If the buyer requests to have guarantees or warranties included in the contract, determine if you want to be held to those guarantees or warranties. 

© Denise E. Farris, Esq. (January 25 2022) This article may not be reprinted or reproduced in any manner without the consent of the author. Contact: Denise Farris, Farris Legal Services LLC. Email: [email protected]. Telephone: (913) 220-6203

DISCLAIMER
This article provides general coverage of its subject area. It is provided free, with the understanding that the author, publisher and/or publication does not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

Equine Business Questionnaire

The following questions are designed to identify the details of your equine business concept, permitting us to most efficiently identify the legal and practical steps necessary for formation, day to day management, and risk management.

  1. Name of Equine Business Owners: (List all). If you operate as a separate business entity (i.e. Limited Liability Company or S or C Corporation), list the name of your business as it appears on your Articles of Operation or Incorporation!
  2. Address, Phone, Fax and Email addresses for all owners:
  3. Address (including county) where equine business is to be located:
  4. Land is ____ Developed _____ Undeveloped
    • Have you cleared any zoning or other land development issues?
    • Existing Buildings include:
    • Planned new buildings will include:
    • Will property be developed as an equine-specific community residential development and if so, do you want restrictive covenants on the equine activities (i.e. covenants that attach to the land regarding equine use of the property)?
  5. Is land for equine business owned by a separate entity or parties and if so, will you require a lease-back agreement between equine business and property owner? (Example: Land owned by husband and wife but used by Equine Business LLC, also owned by husband and wife).
  6. Have you advised your equine liability carrier of all of the above intended activities or of your plans to add activities to ensure they are fully covered under your Equine Commercial General Liability Policy?
  7. Have you priced out the required insurance coverages you should consider carrying?
    ___ Equine Commercial General Liability (CGL) (not covered by your homeowners if you are operating as a business; ie receiving value for your services through cash or barter).
    ___ Care, Custody and Control (separate from CGL)
    ___ Premises Liability (separate from CGL)
    ___ Fire and Casualty (separate from CGL)
    ___ Other:________________________________________________
  8. Horse breeds or disciplines you are wanting to attract?
  9. Which of the following services will you provide? Estimated charges for each?
    • Pasture board – and when supplemental hay and feed will be given
    • Stall board with daily turnout; stall cleaning services
    • Dry lot board; food water and cleaning services
    • Exercise and grooming – details and costs
    • Arena usage – for boarders only or available to trainers and clinicians?
      • How will this interfere with your boarders usage and limitations?
      • What insurance requirements will you demand from independent contractors and clinicians?
      • What special arena rules will be required
      • Can boarders use indoor arenas for turnout in winter or inclement weather?
    • Special feeds, supplements and medical care administration costs
    • Winter blanketing, heated buckets, summer fans and costs
    • Trail riding (owner and horses only) or (public using Stable horses?)
    • Training: Stable trainer or independent contractor and costs
      • Will trainer by your employee or an independent contractor?
      • Will you allow various independent contractors to teach on your premises
    • Lessons: Stable instructor or independent contractor and costs
    • Competitions on site and off site
    • Transportation services: Medical emergencies, competitions, other & costs
    • Clinics
    • Summer day camps for children
    • Girl / Boy Scout clinics
    • Metropolitan Community College classes – equine
    • Stable parties? Details and costs.
    • Hay rides? Horse or tractor drawn, details and costs. 
    • Breeding Services. Will you provide short term mare care or long term mare care with foaling services?
    • On site or AI?
      • Who will be handling the AI (collection or insemination or both?)
      • What are the AI terms and conditions?
      • What are the Live Foal Guarantee conditions?
      • Will you be standing studs owned by others?
  10. Other? ___________________________________________________
  11. What is your short and long term vision for the business on a 1 year, 5 year, 10 year and 20 year plan?
  12. Do you envision using your horses or leased horses in the lesson programs? 
  13. Will you be willing to lease client’s horses for lessons? How much per lesson? How do you envision keeping accurate usage and accounting records? Who will insure the horse (ie CGL, Major Medical and Mortality). What if a client’s horse is injured in a lesson? What if a student is injured on a client’s horse during a lesson?
  14. What farm equipment will be owned? Purchase or Lease?
  15. What Insurance coverages do you need?
    • Landowners Liability Protection or Umbrella Coverage
    • Vehicle and/or Farm Equipment
    • Fire and Casualty
    • Care Custody and Control
    • Equine Commercial General Liability
    • Equine Mortality; Major Medical on horses you ow
    • Equine mortality, major medical on horses you lease
    • Other:
  16. What forms do you envision requiring based on the activities you have listed above?
  17. Will Stable activities be limited to state of Stable’s location or multiple states? Is there a need for a multi-state waiver compliant with various states EALA statutes?
  18. Will you be allowing the premises to be used by independent contractors (ie to provide training or lessons) and if so, what are the terms and conditions related to their use of those premises? What are you charging them for same? How are records kept and who is responsible for keeping those records? Is the trainer/ instructor going to be required to carry separate liability insurance naming you as an additional insured or are you carrying the coverage? 
  19. List all other information relevant to your business plan. Attach a copy of your business plan (if available). 

© Denise E. Farris, Esq. (January 25 2022) This article may not be reprinted or reproduced in any manner without the consent of the author. Contact: Denise Farris, Farris Legal Services LLC. Email: [email protected]. Telephone: (913) 220-6203

DISCLAIMER
This article provides general coverage of its subject area. It is provided free, with the understanding that the author, publisher and/or publication does not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

Equine Business Health Check-up

Am I Using Appropriate Contracts?

A written contract can maximize your legal protection. The wrong right contract could expose you to needless and potentially devastating liability. Use of professionally drafted contracts may result in insurance premium savings. Not only is it important to use such contracts, they must be executed and used properly. 

If you are not currently using written contracts, you may worry about how your customers will react. If contracts are presented in the proper manner and with a positive approach, most people will respond in kind. A contract creates the opportunity to clarify each party’s understanding of the terms and conditions. Use of contracts will often assure the customer that the stable is a well-managed and professional business. 

Practical Example: An equine client implemented a new boarding contract which required the owner to specifically authorize and establish the parameters of acceptable emergency medical care for the horse in the owner’s absence. The boarder was thus forced to consider, before an accident occurred, exactly what her instructions would be with respect to this previously unanticipated but extremely common situation.

Does my contract language track my state’s Equine Activity Liability Act?

Most states, which have passed some form of the Equine Activity Liability Act, require special warning language in all contracts used by the equine business. The language must track the language of the statute. It warns participants of the inherent risks of equine activities. If your state requires this contractual warning, and you do not include it, you will most likely be unable to take advantage of the special liability protections provided by the statute.

Practical Example: An equine boarding stable included a participant warning which did not exactly track the language of the statute. A participant was injured and sued. The stable’s attempts to dismiss the suit under the Equine Activity Limited Liability Act failed, because there existed an issue as to whether the contract warning language strictly complied with the statutory warning requirements.

Have I trained my employees to properly execute contracts?

Contracts must be signed by every customer or participant. If anyone is under the age of 21, their parent or legal guardian must also sign. Make sure that your customers understand the terms of the contract. Honestly answer any questions they may have. Be sure all blanks are filled in. Never hand a contract to a customer and ask them to immediately sign. Sufficient time should be allowed to give them time to thoroughly read and understand the agreement. When the signed contract is returned, ask if they read and understood the contract. DO NOT DOWNPLAY THE CONTRACT FORMALITIES. Your contracts are there to protect you. 

Review the signed contract to ensure that it is completed fully. Areas that require special attention should immediately be noted and resolved. Return a copy of the executed agreement to the customer and retain the original for a minimum of five years. 

Practical Example: An equine business owner permitted the trainer to handle execution of all contracts. The trainer reviewed only the last page signature line, but did not review all pages of the contract. Following a serious accident, the owner discovered that the contract forms had all been turned in without signatures next to the liability waiver, rendering the waiver useless.

Do I regularly update my contracts?

All contracts should be reviewed annually. An updated contract should be executed each year to account for changed circumstances, language update to comply with statutory changes, stable procedure changes, and/or new fee schedules.

Practical Example: An equine business owner required execution of an original boarding contract that granted a security interest in the horse for unpaid board. The horse was subsequently traded for a new horse, but the Stable did not require the owner to execute a new contract. When the owner fell behind in board payments, the Stable subsequently found it had no contractual grounds for perfecting and foreclosing on its security interest where the old contract was inapplicable to the new horse.

Do I include a security interest clause in my contracts?

When a horse’s board remains unpaid, you remain obligated to pay ongoing maintenance costs until the payment dispute is resolved. A good contract will notify your clients of your intent to claim an agister’s lien and perfected security interest in the horse, permitting you to sell the horse to collect unpaid board and training fees. Even if never intend to sell the animal, a well worded letter, enclosing the contract language which permits you to do so, is generally sufficient to compel payment of the debt.

Practical Example: An equine client provided training to a green hunter/jumper. That particular state’s agister lien permitted liens based upon “stipulated fees.” Following extensive training, the horse began to successfully compete at the Grand Prix level, but the owners were seriously delinquent in payment of board and training fees. Where the training was provided under a verbal contract, and where there was no express agreement as to “stipulated fees” for the training, the trainer was unable to establish a lien against the horse. The owner was able to remove it from the Stable and sell it at a greatly appreciated value without first compensating the trainer for the time and expense invested.

Do I maintain the appropriate detailed business records?

All businesses should keep detailed records. It is recommended that you keep copies of all executed contracts and liability waivers FOR AT LEAST 5 YEARS. This includes any old contracts, even if they have been updated by new contracts. 

In addition, implementation of certain additional forms may assist in speedily resolving a lawsuit under your particular state’s Equine Activity Liability Act. These forms should include:

  1. Horse Evaluation Forms. Should be completed for every lesson horse. Forms should be updated at least twice a year, or as required by circumstances. The form serves as evidence as to a horse’s character and or known propensities. 
  2. Rider Evaluation Forms. This form should be filled out before the rider’s first lesson. It should include information provided by the rider as to their experience and include the instructor’s evaluation of the rider’s ability following their first ride. It should be updated at least twice a year, or as required by additional lessons or an incident. Such records should be kept confidential.
  3. Tack Identification and Maintenance Forms. All tack used by a stable should be inventoried with maintenance and cleaning dates documented. This is to limit the stable’s liability for injuries resulting from broken or defective tack. Many states liability statutes provide that a stable WILL BE LIABLE for injuries resulting from faulty tack which the stable “knew or should have known about.” Keeping adequate records of your tack, showing that you check and clean the tack on a regular basis and make repairs as needed, can show that you did not know and could not have known of any faulty tack. Tack should be checked, cleaned, evaluated and repaired on a regular basis. A separate Tack Identification and Maintenance Record should be used for each piece of tack.

Practical Example: A green rider represents on the Rider Evaluation Form a much higher experience level than is warranted. The rider is accordingly given a more advanced horse. The rider fails to adequately fasten the girth and is injured when the saddle slips. The stable avoids a lawsuit by: 1) showing the stable’s reasonable assignment of the horse based upon the rider’s own representations as to skill, and 2) showing that the saddle slip could not have occurred due to faulty tack, where the girth had been cleaned and checked the prior week.

6. Have I recently inspected and safeguarded the premises?

Approximately every six months, a comprehensive review of the farm should be made. A “Premises Inspection Report” should be filled out in order to document such inspections. The inspection should examine and record inspection results for the following: 

  1. Fire Extinguishers. Fire extinguishers should be placed in several places throughout the barn and all outbuildings. The fire extinguishers should be checked frequently to ensure they are in proper working condition.
  2. Stalls. All horse stalls should be closely scrutinized to ensure safety for all people and horses. Stalls should be lined with wood in order to prevent exposure to metal surfaces. Make sure all boards are secure and no nails or screws are protruding. All feed troughs/bins and water buckets should be checked for safety. Light fixtures should be high enough so that the horse cannot reach or otherwise interfere with them. Stall latches should be adjusted in order to prevent injuries to horse or tack damage when moving through doorway. If a horse presents any danger to people, the stall should be properly reinforced to prevent such exposure to the public. Any stalls occupied by problem horses (biting, kicking, charging) should have a warning sign clearly identifying the dangers presented.
  3. Aisle/Alley Ways. All aisle or alleyways should be kept clear of obstructions at all times. Make sure there are no protrusions that could potentially injure a passing horse or rider. All ties and cross-ties should be checked for safety and replaced as needed. Any dangerous areas or areas where people and/or horses are not permitted should be clearly marked. Alleyway surfaces should be appropriate, with no slick surfaces.
  4. Tack Rooms. Ensure that tack rooms are in good condition. All tack rooms should have a fire extinguisher near the door. All special instructions should be noted by posting signs.
  5. Feed/Hay Areas. Such areas should be well ventilated. Feed and hay areas should be secured, so as to prevent entry of horse if horse becomes free. Obviously, all feed and hay areas should be designed “NO SMOKING” areas. In fact, the stable, as a whole, should be designated a “NO SMOKING” area.
  6. Arenas. All arenas should have a fence or barrier high enough to accommodate the use intended. It is recommended that all arena partitions be AT LEAST 3’ 6” high, and constructed out of materials suitable to create an adequate barrier. All fences and barriers should be checked for protruding nails. Arenas should be of an adequate size to accommodate the number of horses, riders, and riding styles utilizing the premises. Arenas should be clear and free of obstructions and hazards. Footing should be appropriate for the use intended. Check for any rocks and holes in arena and repair as necessary.
  7. Trails. If applicable, check all riding trails to ensure they are properly cleared and safe to ride through. Footing should be checked, and any dangerous conditions remedied. Any areas which present hidden or concealed hazards should be identified by posting a warning sign or marking with yellow caution ribbons.
  8. Fences. Where applicable, fences should be of an appropriate height and material for the intended use. All fences should be checked for safety, sturdiness and protruding nails, and repaired or replaced as necessary.
  9. Driveways. Driveways should be kept clear of all obstructions. Parking areas should be clearly marked and enforced. Trailer parking areas should also be clearly marked and enforced.
  10. Electrical Wiring. Routinely check all wiring for safety. Any areas which present a potential danger should be tended to and repaired immediately.
  11. Emergency Procedures. Make sure that emergency numbers are clearly posted near all telephones. The stable staff should also be trained in emergency procedures, including emergency evacuation procedures and standard procedures for handling accidents and injuries.
  12. Dogs and Pets. Vicious or noisy dogs or other pets must not be allowed to roam freely when visitors are on premises. Dogs and lesson horses are not a good mix.
  13. “Attractive Nuisances.” Vicious or unpredictable horses should not be housed or turned out into pens that are highly visible or accessible to the public, where innocent children who cannot read warning signs may be attracted to them. This includes stallions, mares with foals and horses with known dangerous tendencies.
  14. Dangerous Horses. Do not keep dangerous horses in a public section of a stable. Harboring a known dangerous or vicious horse can make you liable for damages if the horse harms someone. If such a horse is kept on the premises, be sure that the horse is properly enclosed and that adequate warning signs are posted.

Congratulations! You have just completed a much needed health check of your equine business. Now measure your results and determine what additional treatment is necessary!

RESULTS:

  1. If you answered “Yes” to 5 or more of the above questions, you receive: AN EXCELLENT BUSINESS HEALTH RATING. Prescription: Keep up the good work!
  2. If you answered “Yes” to between 3 to 4 of the above, you receive: AN AVERAGE BUSINESS HEALTH RATING. Prescription: Better spend some time fine tuning some of your business practices to avoid future illness.
  3. If you answered “Yes” to 2 or less of the above, you receive: A SERIOUSLY ILL HEALTH RATING. Prescription: Time to: (1) take some drastic remedial action, (2) get out of the business, or (3) begin saving for your own self-funded insurance to cover that lawsuit lurking just around the corner.

© Denise E. Farris, Esq. (January 25 2022) This article may not be reprinted or reproduced in any manner without the consent of the author. Contact: Denise Farris, Farris Legal Services LLC. Email: [email protected]. Telephone: (913) 220-6203

DISCLAIMER
This article provides general coverage of its subject area. It is provided free, with the understanding that the author, publisher and/or publication does not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

Cases Clarify Compounding Liability

As an equine veterinarian, you need to manage your risks and exposure if you use compounded products in your veterinary practice.

Veterinary compounding – preparing a multi-ingredient drug from generic or tradename pharmaceuticals – is a time-honored practice. Veterinary patients run the gamut from carnivores to reptiles to food-producing animals. With different systems and different end purposes, there are no FDA-approved animal drugs available to treat all conditions in all animals.

Because of this, many veterinarians demonstrate a blasé attitude toward legal compliance with federal and state compounding regulations. The relative “newness” of the regulations, coupled with the complexity of jurisdictional issues between federal and state regulations, doesn’t help.

Finally, the law is not self-enforcing. It can be “on the books” but is evident only when educated plaintiffs’ lawyers begin suing under it. Prior to 2014, there was no case law incentive demanding accountability for improper compounding practices.

That’s no longer the case.

The public is now more educated, thanks to highly visible cases such as the 2009 deaths of the polo ponies in Florida, or the 2010 human deaths from spinal meningitis arising from contaminated vials of joint injections. Recent cases and disciplinary actions alert veterinarians that a better-educated public is now holding practitioners accountable for compounds gone bad. The savvy practitioner must know applicable rules and regulations and employ a more mindful attitude toward the use of compounded products.

General Rules and Regulations

What is “compounding”? Compounding is defined broadly by the AVMA as: “Any drug that is manipulated based on a licensed practitioner’s prescription, but not in accord with an FDA-approved label, to meet the medical needs of a specific patient.” (Go to AVMA.org and search for “compounding definitions” on the website.)

By contrast, the AVMA defines “FDA-Approved Drug” as: “A drug whose manufacturer has demonstrated safety, efficacy and product quality to the U.S. Food and Drug Administration for the labeled indication. Both ‘pioneer brand-name’ drugs and generic drugs are FDA-approved.”

When is compounding justified? According to the International Academy of Compounding Pharmacists, justifiable instances include:

Discontinued products – when commercial medications have been discontinued for reasons other than safety or effectiveness and are unavailable.

Product integrity – where using a commercially available, finished product as the compounding ingredient source adds unnecessary expense, increases the risk of contamination or yields a product with insufficient concentration.

No alternative therapy – where there’s no commercial alternative to treat the disease or condition, or an FDA-approved drug is temporarily unavailable.

Patient compliance – where a medication must be altered to enable a patient to take it, such as adding flavoring or changing the dosage form.

Other examples are more subtle, such as combining two injectable medicines into one syringe.

In recent developments, you might see a Veterinary Medical Device (VMD) – such as an equine surgical lavage – improperly used off-label as a joint injection treatment. (For more information on this topic visit AAEP.org, log in, and search for “medical devices.”)

Legal compliance is based on two primary factors:

  1. scale of the “production” and “use” of the compounded product
  2. documentation of the justified use of the compounded product

Compounding sanctions rarely apply when a unique alteration is employed under a documented VCPR (vet/client/patient relationship) for a single patient with unique needs not met by an existing FDA-approved drug. This is the essence of “traditional compounding,” and by statute, is not regulated by the Food and Drug Administration. Where compounded products are not tested for potency, purity, efficacy, sterility and shelf life compliance, this limited production is key.

But when a product is mass manufactured without oversight, issues arise. Many mass produced compounded products

  1. arrive in contaminated containers;
  2. contain too little active ingredient – i.e., they do not reach the therapeutic threshold for treatment;
  3. contain too much active ingredient – i.e., they may present a toxicity issue;
  4. contain active ingredients prohibited for therapeutic use in particular animals;
  5. contain active ingredients harmful to human handlers;
  6. contain active ingredients prohibited in food-producing animals;
  7. contain active ingredients contraindicated in breeding animals; or
  8. are not accurately or appropriately labeled.

Thus, the production and sale of one large batch of bad product can be catastrophic, as evidenced in the deaths of the polo ponies and the humans who developed meningitis.

Federal Regulations

Federal standards require all “new animal drugs” intended for interstate sale to pass FDA testing and approval. Under the 1938 Food, Drug and Cosmetic Act (FDCA), an “animal drug” is defined as a drug “intended for use in the mitigation, treatment or prevention of disease in animals” (Section 201(g) (1)(B) Federal Food, Drug and Cosmetic Act (the FDCA) [21 U.S.C. § 321(g)(1)(B)].)

Under the FDCA, made applicable to animal drugs under the 1994 Animal Medicinal Drug Use Clarification Act (AMDUCA), drugs intended for use in animals require an approved new animal drug application (NADA) unless they are generally recognized as safe and effective. This requires extensive research and testing to ensure consistent potency, purity, efficacy, sterility and stable shelf life before FDA approval is granted.

If a drug is mass produced and sold without this testing, it is by federal regulations deemed “unsafe” under section 512(a) (1)of the FD&C Act [21 U.S.C.§ 360b(a)], and “adulterated” under section 501(a)(5) of the FD&C Act [21 U.S.C.§351(a)(5) and (c)]. Sale of such products is a violation of sections 512(a) (1) of the FD&C Act [21 U.S.C.§ 360b(a)], Section 501(a)(5) of the FD&C Act [21 U.S.C.§ 351(a)(5)], and is expressly prohibited under section 301(a) of the FD&C Act [21 U.S.C. § 331(a)].

FDA sanctioning is typically focused on the compounding manufacturer and not on the veterinarians. However, recent rule-making actions by the FDA indicate discretionary authority toward players in the stream of commerce when warranted. This, in turn, can lead to more civil actions.

In a “negligence per se” context, a plaintiff need only prove the existence of a federal or state statute – and a defendant’s violation of that statute, plus harm – to win his or her case.

A veterinarian’s provision of illegally compounded product could also constitute a violation of the federal Lanham Act, 15 U.S. Code § 1125, which prohibits misrepresentations in a commercial context. A veterinarian’s representation that a compounded drug is as efficient as an FDA-approved product would be a violation under the Lanham Act, possibly subject to injunctive relief (i.e., an order to cease and desist) coupled with treble damages (i.e., three times the actual damages).

State Applications

State violations, which run on top of federal violations, can include veterinary and pharmaceutical board sanctions plus common law actions for misrepresentation, ordinary and professional negligence, or fraud.

Many state veterinary or pharmaceutical board regulations prohibit the use of a compounded product where an FDAapproved drug exists. Nearly all state boards require evidence that “informed consent” guidelines have been met, yet very few veterinarians document informed consent compliance relative to compounded drugs.

Where poor recordkeeping is rampant, veterinarians using compounded product without documentation of the reasons and proof of informed consent from clients are legally vulnerable. Violations can include administrative sanctions (i.e., fines, reprimands, temporary suspensions and permanent license loss), as well as civil actions (i.e., court actions awarding monetary damages).

Recent Cases

Until 2014, there were no reported cases involving veterinary liability related to improper use of a compounded product. However, in 2014 a number of valuable Thoroughbred racehorses in Florida and Kentucky were improperly treated with a compounded EPM product manufactured by Wickliffe Pharmacy, even though an FDA-approved EPM product, Marquis, was available.

The horses either died or were permanently disabled. Testing revealed that death resulted from toxic levels of pyrimethamine.

The FDA imposed sanctions against Wickliffe, and the owners filed suit, cross-suits and counter-suits against Wickliffe, the stables, the trainers and the administering veterinarians under theories of general and professional negligence. While the Florida cases were confidentially settled, the Kentucky cases remain active, including claims for actual and punitive damages.

In 2016, the Florida Veterinary Board administered sanctions against a Florida equine veterinarian for, among other acts, compounding and record-keeping violations. The practitioner treated several horses for lameness issues, with deteriorating conditions that resulted in euthanasia. Records revealed the horses were given a “cocktail injection” with no other detail provided.

They were treated with Previcox, an unjustified, off-label use of an FDA-approved drug labelled for osteoarthritis treatment in dogs, as well as given compounded omeprazole versus GastroGard, with no written documentation as to why the compound was used. Sanctions included a monetary fine, a one-year probation and ongoing educational requirements.

Practice Suggestions

  1. Understand and apply the rules. Review the federal and state regulations at your regular practice group meetings. Contact your state Veterinary and Pharmaceutical Boards to request a presentation on state regulations and their basic application. Watch for state-specific “special labeling” requirements. Understand the basic protocols expounded by both the AVMA and AAEP on the use of compounded products, which can be found on the AVMA website (avma.org and search for “compounding FAQs”) and the AAEP website (AAEP.org and search for “compounding guidelines”).
  2. Review and implement practice protocols on written “informed consent.” Print client handouts explaining the difference between FDA-approved, generic and compounded drugs, and when and why you use the compounds. If you deviate from using an FDA-approved product in favor of a compound, document why. Remember, cost savings is not a justification under applicable law.
  3. Keep Detailed Records!
  4. Check with your insurance carrier to verify whether compounding exposures are “covered” under your professional liability policy.
  5. Work with your state and national veterinary associations for educational articles and seminars relative to developments in this complex arena.

Your attention to these simple protocols will put you way ahead of the game in managing your compounding exposures and risks.

Denise E. Farris practices equine, insurance and veterinary law in the Kansas City, Kansas, area. “AV” rated in Martindale- Hubbell, she has been named in “Best of the Bar,” “SuperLawyers,” Preeminent Women Lawyers, Top 100 Lawyers Kansas, Top 50 Female Lawyers Kansas and EQUUS magazine’s “Leaders in Equine Law.” In addition to writing numerous articles, Denise has been a featured speaker at local, state and national symposiums, including the National Equine Law Practitioner’s Conference, the AAEP Hambletonian Conference, the National Farrier’s Convention, the National Multiple Trail Users Conflict Symposium and the North American Trail Ride Conference. She is an avid equestrian who competes in endurance and competitive trail riding events.

DISCLAIMER: his article provides general coverage of its subject area. It is provided free, with the understanding that the author, publisher and/or publication do not intend this article to be viewed as rendering legal advice or service. If legal advice is needed or required, the services of a competent professional should be sought. The author and publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication. For more information about the author, contact the Farris Law Firm, LLC, 20355 Nall Avenue, Stilwell, KS 66085; 913-766- 1262; [email protected] 

COVID-19: A Business Law Update

In October the Firm published an article addressing various business implications resulting from the Covid 19 pandemic, including a “heads up” warning that most business interruption policies would NOT cover losses related to a biological pandemic due to an exclusionary clause now found in most ISO standard form insurance contracts.  Since that time, there have been several legal updates impacting this and other business aspects.

I. Business Interruption Insurance

August 2020 witnessed the first known legal decision permitting a Plaintiff’s insurance claim for Covid 19 related business interruption damages to proceed to trial.  In K.C. Hopps vs The Cincinnati Insurance Company, Judge Stephen Bough, federal judge for the Western District of Missouri, ruled against the insurer’s Motion to Dismiss by concluding sufficient allegations existed that COVID 19 had deprived K.C. Hopps of its property by making it unsafe and unsuitable for customers to use, allowing the dispute to proceed to trial for a final decision.  While policy and fact specific, this case represents one of the first cases in the nation to open a chink in insurers’ policy defenses against COVID 19 related claims and should be watched carefully for final resolution.

II. COVID 19 Impact on Standard Form Construction Contracts

The Firm’s August 2020 article additionally addressed the legal doctrine of “force majeure” under the pandemic factors.  As a reminder, “force majeure” contract clauses typically excuses a party’s performance where the event is :  (i) unforeseeable, and (2) outside a party’s control. As such, these clauses allocate risk of natural and unavoidable catastrophes that affect contract performance. In the commercial construction world, the term “force majeure” may not appear in standard AIA or Consensus Docs but instead appears through remedial clauses such as modification for delay and time extension relief. 

As always, the parties must start with review of their existing contract language.  If their force majeure or related remedial clause identifies “epidemic”, “pandemic”, “outbreak of disease”, or other similar terms, then the COVID 19 delays would be covered under that clause.  However, other contracts may limit relief to more generalized triggers such as nature (e.g. severe floods or earthquakes). Often the courts will strictly construe such remedial clauses to exclude events not specifically named in the contract, making COVID 19 delays less likely to be covered.  Also state by state case law may govern, where some states strictly identify “acts of nature” to exclude pandemics, while others permit it.  And even if the clause permits a remedy, most often that remedy is limited to a time extension versus both time and damage recovery.

A. AIA A201-2017 General Conditions

This document, used by many contractors in the industry, does not specifically address “force majeure” delays but in Section 8.3.1 Delays and Extensions of Time includes a broad catch-all terminology that permits excusable time extensions for various events “outside the Contractor’s control”. This standard contract form also permits a contractor to terminate a contract if that contractor is prevented from performance for a period of 30 consecutive days “through no fault of the Contractor for “an act of government, such as declaration of national emergency, that requires all Work to be stopped”. 

B. ConsensusDocs

ConsensusDocs is less ambiguous on COVID 19 delays, where Form 200-2017 Standard Agreement, Article 6.3 between a Contractor and Owner specifically identifies “epidemics” as an excusable delay and permits the contractor right to an equitable extension of time. 

C. DBIA

DBIA form which incorporates the Standard Form of General Conditions (DBIA 535, 2010 Version) specifically mentions force majeure and defines it as events beyond the contractor’s control, “including epidemics”.  Section 8.2 of the DBIA form (delays to work) carves out force majeure events, prohibiting price adjustments for these events but allowing a back door approach to time and cost recovery by characterizing the claim event as related to “differing site conditions” and “hazardous conditions”.

D. Federal, State, Local Construction Contracts

While federal contracts do not address “force majeure” claims, FAR 52.249-14 (Excusable Delays) lists specific examples of recoverable delays including:  “epidemics” and/or “quarantine restrictions”.  However, the contractor is not excused from meeting their burden of proof related to accuracy of delay impact documentation. 

State and local public contracts should be carefully reviewed to identify either force majeure clauses or treatment of other “excusable” delays.

III. Other Doctrines

Finally, if you discover your contract is silent as to either “force majeure” or the other related delay clauses above, the common law doctrine of “commercial impracticability” may apply to offer relief. While not recognized by all states, it is a concept included in the Uniform Commercial Code adopted by most states, as well as the Restatement  (Second) of Contracts which outlines various contract construction standards utilized by both courts and attorneys.

IV. Suggested Strategies 

As a review to the prior article, suggested strategies include the following:

1. Review your Forms

If you have not already done so, now is the time to review both your insurance policy for business interruption coverage (i.e. does it specifically exclude coverage for pandemics or related terms); and your standard form construction contracts (i.e. how does it address either “force majeure” or delays beyond a contractor’s control).

2. Record Impacts and Mitigate Damages 

If you’re experienced delays or interruptions related to COVID 19 events, it is important to immediately review your cost accounting mechanisms to isolate and track COVID 19 specific impacts, delays and extra costs.  The contractor then has a duty to identify modifications to means and methods sufficient to reduce or eliminate factors under the Contractor’s control.  This might include work at home orders, changes in scope sequence to permit certain safer scopes of work to be performed while completing other, more high risk exposure scopes at a later date. The contractor should also start an open communication line with all players to coordinate the response, while additionally watching and recording any governmental actions, orders or legislation and their applicable dates and impact on the project and the contractor’s performance. 

3. Submit timely written notices of delay

Again, as driven by the specific contract language, be sure to submit timely and accurate notices of delay as specified within the contract document.When drafting these notices, be mindful of whether it is precise and fact based versus emotional.  Consider how the wording will be received and how it might appear to a third party judge or jury at a later time.  The more fact specific and documented, the stronger its basis for a claim.

In summary, we are living in a brave new world where many standard clauses and methods of addressing business interruption have been flipped on their head.  Case law remains unsettled, but utilizing common sense in conjunction with the above principles and suggestions should pave the way for working through the COVID 19 pandemic. 

Link to Prior Article:  Contract Obligations And Defenses under Covid-19

© Denise E. Farris. (December 3, 2020). This article may not be reprinted or reproduced in any manner without the consent of the author. This article is not intended to be the provision of legal advice. For fact-specific questions, refer to an attorney licensed in your state. Contact: Denise Farris, Farris Legal Services, LLC. [email protected].