Equine Law Blog

Federal Lawsuit Alleges AQHA Cloned Horse Registration Policy Violates Antitrust Law

Alison Rowe — Fri, 27 Apr 2012 11:58:47 -0600

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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2012 National Conference on Equine Law to be Held Next Week

Alison Rowe — Thu, 26 Apr 2012 08:48:00 -0600

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.

If Your Horses Are Named in Your Will, Consider an Equine Trust

Alison Rowe — Thu, 19 Apr 2012 08:00:00 -0600

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.

Court Rules Damages Award Against Dog Breeder Not Dischargeable in Bankruptcy

Alison Rowe — Thu, 12 Apr 2012 07:47:00 -0600

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 155^th 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?).

Supreme Court of Texas Denies Petition for Review in Gaughan v. NCHA

Alison Rowe — Thu, 05 Apr 2012 16:19:02 -0600

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.

Property of Convict's Ex-Wife Not Subject to Execution on Andalusian Breeder's Judgment

Alison Rowe — Thu, 29 Mar 2012 07:35:00 -0600

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.

In Loving Memory

Alison Rowe — Mon, 26 Mar 2012 14:37:24 -0600

Happy Monday! This picture was posted on Facebook this morning by cutting horse trainer Uwe Roeschmann. I don't know whose truck is pictured here, but if you are the owner...thanks for the laugh!

Recap of the 2012 Animal Law Institute

Alison Rowe — Thu, 15 Mar 2012 15:30:00 -0600

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.

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

Alison Rowe — Thu, 08 Mar 2012 06:50:00 -0600

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.

Amarillo Court of Appeals Affirms $60k Sanctions Award in AQHA Case

Alison Rowe — Thu, 01 Mar 2012 13:39:33 -0600

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 40^th 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 108^th 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).

It Wasn't Me

Alison Rowe — Wed, 29 Feb 2012 15:07:11 -0600

Those of you who have a blog are probably aware that many bloggers have a “stats page” where the blogger can view the specific Internet search terms that land visitors on their blog.

Possibly due to the recent news reports about the arrest and conviction of another Texas lawyer named Allyson Rowe, several visitors have landed on the Equine Law Blog after entering search terms such as “allison rowe conviction 2012”.

Out of an abundance of caution, I would like to make clear that I am not the lawyer referenced in these recent news stories. My full name is Alison McCormack Rowe, and my practice is based in Fort Worth, Texas. I have never been arrested, and I have never been charged with any crime of any nature.

For more information, see my full biography.

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

Alison Rowe — Tue, 28 Feb 2012 04:13:00 -0600

By B. Paul Husband

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

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

Saved by The Yankee Doodle Dandy

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

Van Dusen successfully proved up the cost of kitty litter

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

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

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

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

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

©B. Paul Husband 2012

Reverse Image of Team Penning Logo Constituted Copyright Infringement

Alison Rowe — Thu, 23 Feb 2012 07:14:00 -0600

According to federal district judge Xavier Rodriguez of the Western District of Texas (San Antonio Division), the creation and sale of belt buckles featuring a mirror image of a copyright-protected team penning logo constituted copyright infringement.

William C. Spent d/b/a Spent Saddlery & Feeds created a logo of three riders penning three head of cattle. He registered this logo with the United States Copyright Office. Spent later contracted with Award Design Medals, Inc. (Award Design) to create a die and produce a motif featuring Spent’s team penning logo.

Spent gave Award Design limited rights to use this "team penning logo" to create belt buckles and other products exclusively for Spent. Award Design created the die and included a copyright notice.

"You copied my belt buckle, pardner!"

Unbeknownst to Spent, someone with Award Design created a “mirror image” of Spent’s logo, which also deleted the copyright notice.

Award Design went out of business. A predecessor company to Montana Silversmiths, Inc. purchased certain assets of Award Design, including the mirror image of Spent’s logo that did not include the copyright notice. Montana Silversmiths sold approximately 1,100 products featuring the mirror image of Spent's logo.

Spent sued Montana Silversmiths and Award Design for copyright infringement, and moved for summary judgment on his claims.

The court granted Spent’s motion for summary judgment against both defendants in part, holding that both engaged in copyright infringement. According to Judge Rodriguez,

Award Design does not contest that it engaged in copyright infringement. Although Montana Silversmiths, Inc. argues that it believed itself to be a valid owner of the Team Penning logo, this is not a defense to the copyright infringement claim, although this argument is relevant to the issue of willfulness.”

The court held that there was a genuine issue of material fact as to whether the copyright infringement was willful. Thus, the court held that to the extent Spent was alleging that the defendants “willfully” engaged in copyright infringement, Spent’s motion for summary judgment was denied.

Take aways:

1) You can be completely oblivious to the fact that you are engaging in copyright infringement, and still be held liable. Purchasers of equine gear for resale would be wise to consult an attorney who is knowledgeable in the area of patent and/or copyright law prior to the purchase; and

2) The creation of a “mirror image” of copyrighted work does not defeat copyright protection.

Case information: Spent v. Montana Silversmiths, 2012 WL 400964, Civil No. SA-11-CA-307-XR (W.D. Texas, Feb. 7, 2012)

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

Alison Rowe — Tue, 21 Feb 2012 08:24:00 -0600

By B. Paul Husband

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

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

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

Happy Mardi Gras: Laissez les bons temps rouler!

The significant holdings in Van Dusen are:

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

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

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

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

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

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

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

The Evidence

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

(1) Copies of checks;

(2) Bank account statements;

(3) Hospital account history;

(4) Credit card statements;

(5) Costco purchase history;

(6) Gas and electric invoices;

(7) Waste management payment list;

(8) Water billing history;

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

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

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

©B. Paul Husband 2012

The Equine Law Blog Celebrates its Fourth Anniversary

Alison Rowe — Fri, 17 Feb 2012 08:19:00 -0600

Four years ago this week, the Equine Law Blog was born. This blog has “grown up” and evolved a lot since February 2008. But if I did one thing consistently, I hope it was to provide Texas horse owners with useful insights on noteworthy legal issues and developments.

The Equine Law Blog won its first award last year (ABA Top 100 Blawgs). I was very pleased and surprised by this distinction, especially given the high quality of the other blogs on the ABA list. And (also surprisingly), this little ol’ blog has been viewed somewhere over 171,000 times since its inception.

But to be honest, what I like most about doing this blog is receiving comments from readers who find the blog interesting or helpful.

If you have not posted a comment in the past, I’d be very pleased it if you would send me an email to let me know one thing you like or dislike about this blog. Or let me know a topic you’d like for me to cover in the future. (But please don’t post a comment or send a message seeking legal advice or asking specific questions. I cannot answer due to ethics rules).

You can also join my Facebook group and provide some feedback there.

In case you were curious, the following were the top 5 posts of the past year, based on number of page visits (in no particular order):

1) Obama Lifts Horse Slaughter Ban--PETA Says It's A Good Idea

2) Can Jaci Rae Jackson Be Hanged for Horse Theft?

3) New Requirement for Texas Sales Tax Exemption Number May Affect Horse Businesses

4) DOT Says it Will Not Adopt Regulation Requiring CDL for Farmers & Ranchers

5) Time to Get New Warning Signs: Equine Activity Act Amended in 2011

Thank you for your loyal readership of this blog! I’m looking forward to an exciting fifth year.

Fort Worth Court of Appeals Affirms Dismissal of Trainer's Claims in APHA Case

Alison Rowe — Thu, 16 Feb 2012 08:00:00 -0600

The Fort Worth Court of Appeals has affirmed the 348^th District Court of Tarrant County’s dismissal of horse trainer Rebecca “Becky” George’s lawsuit against Adam Deardorff and Lana Wirsig, holding that the trial court lacked personal jurisdiction over Wirsig and Deardorff.

Becky George of Tomball, Texas alleged that statements by Deardorff and Wirsig were submitted to the American Paint Horse Association (APHA), which caused the APHA to revoke George’s status as an official APHA judge and suspend her from APHA competitions for six months. George alleged that the suspension caused her to lose more than half of her clients.

All parties agreed that Deardorff was a resident of Pennsylvania, and Wirsig was a resident of Missouri. The trial court dismissed George's claims against Deardorff and Wirsig on jurisdictional grounds. According to the Court of Appeals, George did not meet her burden to allege facts sufficient to give the trial court personal jurisdiction over Deardorff and Wirsig, because:

1) George asserted in her pleadings that another defendant named Harlan Hall (and not Deardorff or Wirsig) submitted Deardorff and Wirsig’s statement to the APHA (which is based in Fort Worth).

2) George alleged that Deardorff had engaged in negotiations with Hall regarding the possibility of Hall hiring Deardorff to become the Hall family’s horse trainer in Texas. But George did not allege where these negotiations occurred or allege any other facts about these negotiations.

3) Even if Deardorff and/or Wirsig had submitted their statements to the APHA, this allegation is not sufficient to establish personal jurisdiction because it “was too is too random or isolated to constitute purposeful availment and does not show that Deardorff or Wirsig sought some benefit, advantage, or profit by availing themselves of Texas.”

4) George’s claim asserting a civil conspiracy among Deardorff, Wirsig, and Hall (a Texas resident) did not impute Hall’s acts to Deardorff and Wirsig. The court held that George had to establish jurisdiction over Deardorff and Wirsig individually and not based on the acts of another person as part of a conspiracy.

5) George argued that Deardorff and Wirsig attended APHA events and that Wirsig competed in APHA-sponsored events, and because the APHA is headquartered in Texas, these acts constitute doing business in Texas. The Court of Appeals overruled this argument because George did not allege that Deardorff and Wirsig attended any of these events in Texas, much less that their contacts with Texas in connection with these events constituted purposeful availment of the laws of Texas.

6) George claimed that Wirsig was a customer of George, and George’s business is located in Texas. But George never alleged that Wirsig ever did business with George in Texas or other facts showing that Wirsig purposefully invoked the benefits of Texas laws by using George’s services.

As you can see, a defendant's isolated or indirect contacts with Texas do not always give rise to jurisdition in Texas. The defendant must usually be shown to have committed a tort in Texas, to have done busniess in Texas, or to have otherwise purposefully availed himself of the protections of Texas law to in order to submit to the jurisdiction of Texas courts. Plaintiffs should always plead jurisdictional facts against out-of-state defendants in a detailed manner to demonstrate the defendant's specific acts undertaken in Texas.

Plaintiffs to litigation against defendants who reside in other states should carefully consider jurisdictional factors before deciding where to bring suit. Filing suit in the correct forum to begin with can expedite the litigation process and save attorneys’ fees and court costs. Typically, jurisdiction is proper in the state and county were the defendant resides. If a defendant has a possible “quick way out” of a lawsuit by challenging personal jurisdiction, a defendant will usually take advantage of this. If a defendant's suit is dismissed on jurisdictional grounds, the plaintiff must then sue them again in a proper forum. But the plaintiff must act expediently in doing so to ensure that the statute of limitations does not expire before the new suit is filed.

Case information: George v. Deardorff, No. 02-11-00173-CV, 2012 WL 335854, (Tex. App.—Fort Worth, Feb. 2, 2012).

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

Alison Rowe — Tue, 14 Feb 2012 07:26:00 -0600

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

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

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

Happy Valentine's Day!

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

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

Less Than $250

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

(a) a bank record; or

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

(1) The name of the donee organization;

(2) The date of the contribution; and

(3) The amount of the contribution.

More Than $250

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

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

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

Contemporaneous

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

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

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

Acknowledgment

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

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

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

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

Multiple Gifts Under $250 Do Not Trigger Higher Standard

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

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

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

Kelly Hart's Equine Law and Ag Law Practices Featured in Sale of Champions Guide

Alison Rowe — Fri, 10 Feb 2012 12:01:51 -0600

Kelly Hart & Hallman LLP's Agricultural Law and Equine Law practices were featured in Fort Worth Stock Show Syndicate's 2012 Sale of Champions Guide.

Several Kelly Hart attorneys attended the Sale of Champions on February 4, 2012, where the Grand Champion Steer sold to Dick Wallwrath for a record $230,000.

Ross Perot, Jr. bought the Reserve Grand Champion steer for $155,000.

For the photo shoot, Stephanie Kaiser and I were standing in the Coliseum arena at Will Rogers Memorial Center near the bucking chutes. This photo was taken before the rodeo started, and you can see that new footing was about to be put into the arena.

Happy Friday to all!

Judge Judy Awards Zero Damages in Horse Injury Case

Alison Rowe — Thu, 09 Feb 2012 07:55:00 -0600

On Friday, February 3, 2012, CBS aired the trial of horse owner Deborah Dobbs vs. horse trainer Sharon Jeffco on the show Judge Judy, in a case involving alleged injury to a horse at the hands of a trainer. This case has caused quite a stir in the horse community, possibly because of the unique nature of the alleged injuries to the horse.

Dobbs sued Jeffco for $5,000 (the jurisdictional limit on Judge Judy), alleging that her 5-year-old mare, “Misty”, sustained severe tongue lacerations due to Jeffco’s training methods. Dobbs specifically complained that Jeffco used an “ill-fitting bit”. Dobbs posted this photo of the alleged injuries on Facebook [CAUTION: photo is graphic]. Dobbs admitted that she was present during the entire training session in question.

During the trial on Judge Judy, Jeffco alleged that Misty had the cuts on her tongue before Jeffco started training her, but Jeffco was unaware of the wounds until they were reopened and started bleeding during the course of Jeffco’s final training session. Jeffco brought a counterclaim against Dobbs for defamation and business disparagement. Jeffco did not get to put on her full case during the trial on Judge Judy, but she posted this statement with supporting documents on her website.

The bit was not shown during the trial. As far as I know, Jeffco has not posted a photo anywhere of the bit she used on Misty during the incident in question. But a vet report included in Jeffco’s statement about what happened indicated that it was a “solid shank bit.”

This case left me wondering, “can any bit really cause this much damage during a short period of time?” I asked professional horseman Liz Payne of Unity Equestrian Arts, LLC what she thought about the evidence revealed in the trial itself. According to Payne,

There is no excuse for a tongue to be cut, ever. The amount of damage to this tongue is hard to believe. In over 40 years of training horses I have never seen anything like this, in fact I have never seen a cut tongue. I have unanswered questions. Someone is responsible for the damage to the horse. The sorting out who caused this horrific damage seems to be the difficult challenge. There is never an excuse for damaging a horse, physically or mentally.”

Without opining on who was liable for the horse's injuries, the judge awarded zero damages to both parties on their claims. Below are some of the reasons (potential litigants, take note!):

1) Neither party brought a veterinarian with them to the trial. Only Dobbs had a report from a veterinarian who actually treated the horse. The judge seemed to lend little credence to the reports from Jeffco's vets who had not seen or treated the injuries. Parties to horse injury suits should always bring a vet with them to testify, and preferably one who saw the horse as opposed to someone who drew conclusions from documents, photographs, radiographs, etc.

2) Dobbs witnessed the incident in question, but she did not leave the premises with her horse as soon as she allegedly believed that Jeffco was using abusive methods. This admission detracted from Ms. Dobbs’s credibility with the judge, especially with respect to Dobbs's allegations that Jeffco tied the mare's head down and used a longe whip on the horse.

3) Jeffco paid Dobbs $953.50 in restitution in a related criminal animal cruelty proceeding. Judge Judy ruled that Jeffco waived her defamation claim when she paid the restitution to the plaintiff. The judge further ruled that Dobbs had been fully compensated by the restitution check in the criminal case, and therefore awarded her $0 damages. The effects on a civil case of actions taken in a related criminal case is something clients should discuss with their counsel before taking action.

4) Jeffco and Dobbs repeatedly make comments to one-another during the trial. This agitated the judge (as it is considered unacceptable behavior in any courtroom). As such, the parties' conduct at trial may have made the judge more inclined to give both parties nothing.

I in no way condone the use of training methods that might cause these types of injuries to a horse. But it should be noted that trainers might protect themselves from unfounded claims of horse injury or abuse by having all training clients sign a written training agreement, whereby the client releases the trainer of liability should the horse be injured in training and/or if the training does not achieve the desired results.

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U.S. Supreme Court says States Cannot Regulate Activities at Slaughter Plants

Alison Rowe — Thu, 02 Feb 2012 16:47:00 -0600

On January 23, 2012, the U.S. Supreme Court ruled that while states may be able to enact laws banning the slaughter of horses, states cannot impose their own laws governing how animals are handled and processed at federally-regulated slaughterhouses. A link to the U.S. Supreme Court’s opinion can be found here.

This opinion was handed down in National Meat Association v. Harris, the “pig case” I discussed back in November 2011 when the case was in the oral arguments phase. This prior post discussed that case’s possible indirect effects on the horse slaughter debate:

Could the U.S. Supreme Court Unwittingly Decide the Fate of Horse Slaughter?

Photo: Punxsutawney Phil declared today that winter is far from over.

In a nutshell, the Court held in Harris that a state law in California requiring all slaughterhouses to “immediately euthanize” any nonambulatory animal on its premises is preempted by the Federal Meat Inspection Act (FMIA) because the FMIA regulates slaughterhouses’ handling and treatment of animals upon their arrival at a slaughterhouse.

The Court was not persuaded by the argument that the treatment of nonambulatory pigs could be regulated by states because the Fifth and Ninth Circuits have upheld state laws banning the slaughter of horses. The court made clear that the FMIA applies to a broad range of activities at slaughterhouses, but it does not address the specific species of animals that are allowed to be processed in the first place. With respect to the federal circuit cases upholding state bans on horse slaughter, Justice Kagan, speaking for the Court, stated:

We express no view on those decisions, except to say that the laws sustained there differ from [the California law requiring the immediate euthanization of nonambulatory animals] in a significant respect…Unlike a horse slaughtering ban, the statute thus reaches into the slaughterhouse’s facilities and affects its daily activities. And in so doing, the California law runs smack into the FMIA’s regulations. So whatever might be said of other bans on slaughter, [the challenged California law] imposes requirements within—and indeed at the very heart of—the FMIA’s scope.”

The question I posed in my prior post about Harris was:

“What if one or more states were to enact laws that made illegal the so-called 'evils' of slaughter that opponents of horse processing find so unsavory? Would the opponents of horse slaughter be opposed to the humane processing of horses in those states?"

The answer to this question, per the Court’s ultimate opinion in Harris, is “it doesn’t matter now, because it is now clear that states cannot make their own laws governing how animals are handled at slaughterhouses that are governed by the FMIA.”

Also, we can now assume that if the processing of horse meat for human consumption is to be resumed in any state where it is still legal under state law, FMIA regulations (and not any regulations that the states may attempt to promulgate) will govern how horses are handled and processed in those states.

For another take on the Harris case and its possible effects on horse slaughter, see the following post by Milt Toby on Horses and the Law:

Horses and Cattle and Pigs, Oh My

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