Ownership and Control

The Court of Appeals of Kentucky recently handed down its opinion in Ramsey v. Lambert, 2009 W.L. 2408413 (Ky. Ct. App. 2009),  a breach of contract action that touches upon the unauthorized practice of veterinary medicine. The basic facts are as follows:

Kenneth Ramsey hired David Lambert to help him evaluate Thoroughbreds at auctions in Kentucky and Florida. Among other methods, Lambert used an ultrasound to conduct heart scans on potential horses – he would then compare the size and shape of the horse’s heart to previous race winners. This is not an uncommon practice.

The Ramsey-Lambert agreement was based on a letter, which set forth Lambert’s conditions, including:

1. A prearranged fee to cover heart scans and all physical exams
2. 2.5% of purchase price
3. A bonus in the event a purchase wins races as follows:

• A Grade I race: $50,000
• A race of $1m or more: $50,000
• For any stallion that goes to stud: 2 breeding rights

Ramsey testified that he only agreed to the first two points. Thus, when one of the horses Lambert ID’d, Roses in May, won the Grade I Whitney Handicap in August of 2004, and Lambert sent Ramsey an invoice for $50,000, Ramsey did not pay. [Ramsey did pay Lambert $50k after Roses in May won the Dubai World Cup, but he alleged that he paid all employees that amount after the win]. After Ramsey sold Roses in May to Japanese interests for $8m, Lambert claimed he was owed 2 breeding rights under the contract, which he valued at $100,000 each. Thus, the total amount Lambert claimed under the contract was $250,000.

When Lambert sued Ramsey in Fayette Circuit Court for breach of contract, Ramsey counterclaimed that the heart scanning conducted by Lambert constituted the practice of veterinary medicine. Because Lambert was not licensed as a vet in Kentucky or Florida, Ramsey concluded that Lambert was engaging in the unauthorized practice of veterinary medicine.

The trial court found that heart scanning constituted the practice of veterinary medicine and awarded Ramsey $17,966 in damages for the heart scans performed in Kentucky (although the court noted that Ramsey still hired non-vets to perform such scans). The trial court found for Lambert on the breach of contract claim. Both parties appealed.

The Court of Appeals reversed the trial court’s finding that the heart scans constituted the practice of veterinary medicine. It noted that KRS 321.181(5)(a) defines the practice of veterinary medicine as follows:

to diagnose, treat, correct, change, relieve, or prevent animal disease, deformity, defect, injury, or other physical or mental conditions, including the prescription or administration of any drug, medicine, biologic, apparatus, application, anesthetic, or other therapeutic or diagnostic substance or technique, and the use of any manual or mechanical procedure for testing for pregnancy, or for correcting sterility or infertility, or to render advice or recommendation with regard to any of the above.

The court agreed with Lambert that he did not do any of the above, but rather provided opinions regarding the identification and procurement of Thoroughbreds that he believed possessed the potential to race successfully. The court found similarly under the Florida statute. The Court of Appeals affirmed the verdict in favor of Lambert on the contract claim.

This case is interesting not because of the contract claim – those are commonplace in the horse industry – and not just because the court addressed the unauthorized practice of veterinary medicine, which has received a lot of attention lately with respect to practitioners of equine dentistry or chiropractics. I also found it interesting because it leads to an examination of the structure of the vet-client-patient relationship.

KRS 321.190 prohibits the practice of medicine without a valid veterinary license. There are several exceptions, including owners, owner’s employees, and trainers, provided there is a “vet-client-patient relationship.”

KRS 321.185 sets forth the requirements for a vet-client-patient relationship:

The vet has assumed responsibility for making judgments regarding the health of the animal and the need for veterinary treatment, and the client, whether the owner or other caretaker, has agreed to follow the instructions of the veterinarian. (emphasis added)

“Client” is not defined further in Chapter 321.

If you’ve been following racing news, that highlighted section might remind you of Joe Drape’s recent New York Times article, “Lawsuit Sheds Light on Use of Legal Medications in Horses.” More specifically, it might remind you of Dr. Foster Northrop’s testimony, as recounted by Drape, in the IEAH lawsuit against David Lanzman over the purchase of I Want Revenge. When Andre Regard, counsel for IEAH, asked him who he believed was his client – the owner or the trainer – he replied:

“The trainer …. The trainer is the agent of the owners is my understanding of it, but with that said, I welcome all owners to communicate directly with me.”

It may take the sting out of Drape’s use of Northrop’s testimony, but Kentucky statutes (and agency law) support the vet’s reasoning. Moreover, although owners who watch over their stables are certainly laudable, the structure of this relationship is essential to Thoroughbred ownership, and especially essential in encouraging new ownership.

Almost 80 years ago, Adolf Berle detailed the separation of ownership and management in The Modern Corporation and Private Property. In it, he wrote:

Under the corporate system, the second function, that of having power over an enterprise, has become separated from the first. The position of the owner has been reduced to that of having a set of legal and factual interests in the enterprise while the group which we have called control, are in the position of having legal and factual powers over it. (emphasis added)

Just like executives can run amok in corporations, the separation of ownership and control of Thoroughbreds can leave the door open to over-medication or other worrisome behavior. This explains Dr. Northrop’s statement, as related by Drape, that he supports transparency and disclosure of treatments to the owners. Think of it as an anti-fraud provision in corporate law. While I understand Drape’s motives, I think it was unfair of him to juxtapose this comment with the statement that Northrop’s interest in transparency doesn’t surround disclosure to bettors, because that’s not really Northrop’s concern – he’s a vet, not a steward or a racing commissioner. He’s interested in reining in misbehavior by creating an informed owner – bridging the gap between ownership and control.

I’m not saying I have the answers; as usual, I’m just making observations.

Human Racing

For racing fans who are also runners:

There are two Thoroughbred-related foot races coming up that you might be interested in if you live in the Bluegrass area, or if you will be in Lexington for the Keeneland meet.

This Saturday, September 26, is the Big Red Run/Walk 5K, a/k/a the Secretariat 5k. It’s part of the second annual Secretariat Festival in Bourbon County, and this is the first year the race has been held. According to the race info, the course “will begin and end at the Bourbon County Fairgrounds,” and “will travel along Main Street through scenic downtown Paris and pass by some of the loveliest historic homes and pastoral settings in the heart of horse country.”

The festival itself features a Secretariat look-alike contest, tours of Claiborne Farm, and other fun stuff. As an added bonus, rumor has it that Ms. Chennery will be in attendance, along with several of the stars from the Secretariat movie that just started filming around here.

Coming up on October 10 (during the Keeneland meet) is the seventh annual Race for Education 5k/10k. This is by far one of my favorite races. It starts in charming downtown Midway (a locomotive starts the race with a whistle) and runs out past horse farms and back again. The race is followed up with live bluegrass and the awesomest breakfast burritos ever. As you probably know, Race for Education provides scholarships and educational support to children of horse farm workers, as well as students interested in pursuing equine-related degrees. It’s a terrific organization, and the race is always first class.

Happy running!

Regulation Re-Hash

While I was tacking up my horse today, I had a conversation with a vet who keeps her horse at the same barn. I mentioned that Rick Dutrow’s appeal is coming through the court at which I clerk, and explained that it was an appeal of KHRC’s suspension of Dutrow based on a Clenbuterol overage.

“I think it’s so odd that that stuff is even regulated by the government,” she said. She, as a participant in the sport horse world as both a vet and a competitor, is well-familiar with the United States Equestrian Federation, which regulates “that stuff” at horse shows across the country. And USEF regulates it quite effectively. It has a zero tolerance policy, its penalties are quick and emotionless, and all suspensions are published monthly for all the world to see (yes, even little Susie’s name gets published if her pony tests positive for reserpine, regardless of whether she even knew about it).

“Gambling,” I replied. “Because gambling on the races is legalized, the states have a right to regulate pretty much all aspects of racing.”

The sports page of the Wall Street Journal publishes the “odds” for various college and professional sports games, but the states don’t regulate those sports because gambling isn’t legal. Right.

Everyone bemoans the regulation situation. It’s sort of tres chic right now to launch diatribes at the racing commissions, the Jockey Club, the NTRA. I’m going to clear things up, though.

1. The industry will never, voluntarily, completely “fix” itself. Moreover, it does not want to.

2. The only entity that can organize the states is the federal government, which can step in using the power that stems from the commerce clause and the supremacy clause.

3. The feds need to create a federally-chartered corporation that will operate basically like USEF. Look at Britain.

4. Regulation of wagering should be left to one branch of the federally-chartered corporation. The states should have a piece of what is wagered on their races, of course, but they should not have the right to regulate the mechanisms of wagering. The police power argument holds no sway with me. Federal supremacy trumps disingenuous interests in “public morals” arising from gambling.

All other methods will simply patch-up holes and create a veneer of cooperation and efficacy.

Will the above-detailed plan happen? Don’t bet on it.

Meanwhile, I’ll be watching the International Hunter Derby Finals at the Kentucky Horse Park this weekend. Todd’s brother Peter Pletcher has quite a few horses, and if I’m lucky I might even spot the Boss – his daughter Jessica’s competing.

If you want in on my books, holla.

Fresh Air

The Thoroughbred Bloggers Alliance has a new website, which makes it easy to follow 123 people on Twitter, 132 blogs, and 38 horse racing news feeds. The site also features video, a free past performances search, and, as always, a way to give back to the industry, and the horses we love, through various charities. So what are you waiting for, check it out – there’s clearly nothing to see here!

The Thoroughbred Brief will remain on hiatus until after the bar exam.

Hiatus

The Thoroughbred Brief is on hiatus due to my law school workload.

Women & Horses Seminar

The Kentucky Horse Park is offering what looks to be a great seminar on Febrary 21st – Women & Horses: Dreams to Profit

The keynote speaker will be Maggie Moss, Thoroughbred owner and attorney, and Laura D’Angelo, a pre-eminent equine law attorney in Lexington, will also be speaking. Needless to say, I will be in attendance.

The full press release is below, and a link to the registration form is here:

A number of successful business women will offer great advice on making your equine business or organization more profitable. Let’s face it – in this economy, we’re all looking for ways to keep our horses fed and our businesses going, so the KHP is pleased to make this seminar available to assist.

An entire list of presenters will be announced shortly, but will include keynote speaker Maggie Moss (the Thoroughbred Owners and Breeders “2006 Owner of the Year,” successful attorney in Des Moines, Iowa, and notable equine advocate who launched the Midwest Retirement Foundation for retired racehorses), Laura D’Angelo (attorney with Wyatt, Tarrant & Combs – specializes in equine law, pari-mutuel & gaming laws, stallion syndications), Sandy Hatfield (stallion manager at Three Chimneys – home of Kentucky Derby winners Silver Charm, Smarty Jones and Big Brown), Sarah Lane (Senior Director Creative Communications for the United States Equestrian Federation), Becky McManus (Executive Director of Leg Up Therapeutic Riding Center, and 40 years of experience in organized equestrian activities)and Colleen Pace (President of the American Association of Riding Schools, a national business support program for novice level riding schools, and the owner of Riverbank Farm in Michigan)

The cost is $75 (including lunch) if registered before Feb 11 (after Feb 11, the cost is still $75 but no lunch included). Group rate (5 or more) $67.50. Vendor tables $25. Sponsorship opportunities are also available.

9:00 am – 4:00 pm
Location: South Theater
For more information, contact Nicole Rivera at 859-259-4219.

Skate Boards and Freeway Ramps

I’ve written before about Ned Bonnie’s excellent article on the ill-fated Corrupt Horse Racing Practices Act, and mentioned it again in my last post, but I just found a copy of it online and thought I’d provide a link:

Edward S. Bonnie, Corrupt Horse Racing Practices Act of 1980: A Threat to State Control of Racing, 70 KY.L.J. 1159 (1982).

I recommend reading it if you have any interest in racing regulation, because the depth of research is superb, and an understanding of the history of federal intervention is essential to structuring regulation prospectively.

An interesting thing to note is that bute and lasix were both legalized with a view to enabling horses to race more often and keep them in racing longer. Regardless of whether or not these two substances serve therapeutic purposes that are ultimately for the good of racing, perhaps focusing on whether they have achieved the purpose that initially justified their use should be the major factor in determining whether they should have a place in a more regulated industry.

Also, don’t forget to vote on the Thoroughbred Bloggers Alliance photo contest entries. First round voting is open until January 11th, so go vote on your favorites!

Thoroughbred Bloggers Alliance

Thank you to the Thoroughbred Blogger’s Alliance, the members of which were kind enough to invite me to join their ranks. The members of the TBA cover racing from just about every angle, from the elegant entries on horse racing history at Colin’s Ghost, to the informative coverage of hoofcare and horse health at the Hoof Blog and the Jurga Report, to Maryjean Wall’s articles on the famous farms of Kentucky, the new residents at the Horse Park, and various other anecdotes about the goings-on in the industry.

TBA members also cover racing action, as fans, horseplayers, and owners. No matter what you’re looking for, TBA has it covered. Check out the blog roll on the right (to get you started, some of my favorites are Brooklyn Backstretch, Gathering the Wind, Green but Game, Handride, Pull the Pocket, and The Business of Racing). Additionally, the TBA homepage has the master feed, TBA tweets (covering everything from live racing to industry symposiums), links to free PP’s, the TBA standings, and probably more things I’m not aware of. Lastly, every Christmas, TBA members make a donation to Old Friends Equine in Kentucky, in the tradition of the truest, best racing fans, who remember their Thoroughbred friends even after they’ve left the track.

In other words, not a bad crew to hang around with.

In other news, the Thoroughbred Brief is experiencing a little downtime as I make my way through two weeks of exams (2 down, 3 to go). Hopefully I can return to posting more regularly after the 20th.

By the Wayside

(ETA: I think there needs to be a Gainesway Thoroughbred Hunter class at the next AA show at the Horse Park … )

I dug up something interesting while searching Bloodhorse for an article on the new endeavor by Bloodhorse and its sister publication The Horse to provide a listing for Thoroughbreds available for adoption. The listing is hosted by The Horse and sponsored by Gainesway.

The article I was looking for, by Dierdre Biles, has far too much substance for me to summarize adequately, but I recommend it. I will only pull a couple of sections.

With the economy struggling and the buy-back/no bid rates at Thoroughbred auctions rising, the issue of unwanted horses is a growing concern. Antony Beck, president of Gainesway Farm in Lexington, decided to try to do something about it, by sponsoring an adoption service on the Web site of The Blood-Horse’s sister publication, The Horse.

The site will allow Thoroughbred owners to list information about horses they are willing to give away free to good homes in the United States.

“It’s a sad, but a very definite situation that we’re facing,” Beck said. “A large number of Thoroughbreds are going to be taken out of the breed one way or another, and it would be wonderful if they could go out of the racing orbit into the show horse or pleasure horse worlds. This is a way we can save a lot of lives.”

Beck and Gainesway, I will note, are among those in the industry who have taken an anti-slaughter position. And he deserves to be lauded for stepping up to the plate with this new endeavor.

I have repeatedly mentioned my belief that the Thoroughbred industry needs to work more closely with the sport horse world; I cannot imagine it would do anything but good if attempts were made on both sides.

Here is one of my favorite of Beck’s ideas:

Beck also would like to see auction companies advertise in equine publications outside of the Thoroughbred industry because “there is going to be a tremendous opportunity to get some really good Thoroughbred blood for very reasonable prices” in the coming months or even years.

Yes! All I can do is agree.

There is much more in the article, including opinions from those on the sales/consigning side of the industry. I don’t wholly agree with John Stuart – I think any program that will channel Thoroughbreds to the sport horse side of the industry is a good thing, and that the free horses that end up in his inbox a few weeks from now could be the ones not selling right now, and the better the infrastructure that’s set up to find them a new home, the better chance they’ll have. I’d be perfectly willing to meet up with Mr. Stuart to talk horses, but I’ll need an invitation seeing as how I’d be a guest (of course, I’d pay my own capping fee).

But to return to my original point, I did find something very interesting when I was searching Bloodhorse for that article. This one’s short enough that I’ll just quote the whole thing:

The Jockey Club, Horse Adoption Group Discuss Registry

Bettina Cohen, November 12, 2001

The Jockey Club is working with the Thoroughbred Adoption and Retirement Association to establish and maintain a separate registry that would recognize Thoroughbreds suited for careers as sport or show horses.

Just days after TARA held its second annual convention in Lexington, its executive director, Shon Wylie, met with The Jockey Club’s executive director, Gary Carpenter, Nov. 8 to discuss the plan.

“It went well,” Wylie said. “(Carpenter) asked that the TARA groups put in writing in what capacity The Jockey Club could be of service regarding registry, foal papers, et cetera. Of course, we’ll get right on that.”

By creating the registry, and implementing an All-Thoroughbred show circuit, TARA hopes to increase the marketability of Thoroughbreds by raising public awareness of the breed as an all-around athlete. TARA believes it can raise the value of horses in training and provide horsemen with an incentive to retire horses that are sound and suitable for a second career.

The registry would also serve to create a general fund to pay expenses of racehorses placed into accredited adoption programs.

Ah. The things that fall by the wayside.

This one needs resurrecting.

An anecdote, in lieu of substance

In Securities Regulation class today, our Distinguished Professor* passed around a hand-out that detailed the legal problems of the defendant in a notable securities law case.

Distinguished Professor: O’Neill’s going to tell you all why crime does pay, right O’Neill?

O’Neill (that’s me): Uh, yes?

Distinguished Professor: Now, this guy’s one of only a handful of people to actually go to jail for a violation of the (Securities Act of 1933) Section 5 registration provisions, mainly because he perjured himself in front of the Commission. Alright, O’Neill, why does crime pay?

O’Neill (now looking at the name of the defendant): Because this guy ended up owning 1978 Triple Crown winner Affirmed.

…

I love law school.

* This professor is also the preeminent scholar on securities regulation issues regarding ownership interests in horses, a fascinating topic, although it’s been covered so well there isn’t much to add, absent a move away from unincorporated entities to more IEAH-like businesses.

Edited to add: A belated thanks to Race for Education, Elizabeth Jensen, and the Casners for putting on yet another great 5K in Midway this year. I managed to fend off Tom Loftus at the wire (although I didn’t realize it was Tom Loftus until I looked at the results, and I think he might have let me win our little race-within-the-race, anyway), and ran fast enough to win my age division (the beauty of races like this is that you don’t have to win to be a winner…). Race for Education is a first-class organization and a great cause, and add to that some live bluegrass music, Midway scenery, a train engine to start the race, and the famous breakfast burritos, and it’s pretty much the best race around. Outside of Keeneland, of course.