I took this picture at the Secretariat Festival Big Red 5k last Saturday. It was a beautiful course with some challenging hills.

Not law-related; just playing around with wordpress on my phone.

At any rate, here are a few of the phrases I’ve come across, some more unique than others:

1. “putting the cart before the horse” [often used by the dissent to describe the majority opinion]

2. “this is a horse soon curried” [attributed to Justice Frankfurter]

3. “They are not unlike a multiple team of horses drawing a vehicle under the control of a single driver.”

4. “changing/swapping horses midstream.”

5. “raising the specter of horse trading”

6. “acting as a stalking horse” [usually referring to a bidder]

7. “You can lead a horse to water, but you can’t make him drink.”

8. “Nonetheless, ATT’s attempt to resurrect the dismissed claims via the proposed supplementation is somewhat akin to engrafting a horse onto a horsefly-if it doesn’t smother the fly it will certainly ensure that it never flies.” [from a Southern District of Florida court]

9. “However, the court feels the proverbial ‘horse’ is ‘dead’”

10. “This inconsistency is as nonsensical as one attempting to ride two horses going in opposite directions at the same time.”

11. “It is like painting lines on a horse to make it “look” like a zebra; it does not make it so.”

On another equine note, if you are anywhere in or near Kentucky, do yourself a favor and get to the World Equestrian Games in Lexington. Even if you don’t go to an event, just getting a grounds pass and viewing all the exhibits is a must-do for horse lovers. I highly recommend it.

“This committee will provide a forum where racing regulatory legal issues can be discussed among the various attorneys who support the work of the commissions,” Hartman said in a release. “In the coming months we anticipate this committee will assist in creating a library of racing regulatory case decisions which would be available to commission legal staff.”

I think this is an important step in the uniform enforcement of state rules and regulations, and not just because I have a keen interest in the regulatory law governing horse racing. Hopefully this committee will lead not only to consistent enforcement of penalties, but also to a greater understanding of the principles of administrative law (and due process rights) that underlie the appeals process and other aspects of racing regulation.

I also note that the following case is unpublished and not yet final – the parties may petition the Court of Appeals for a rehearing or appeal to the Kentucky Supreme Court; if they choose not to do so, the case will become final.

On July 9, the Court of Appeals of Kentucky handed down a decision in Stonestreet Farm, LLC v. Buckram Oak Holdings, N.V., Nos. 2008-CA-002389-MR and 2009-CA-000026-MR. This case centers around Jess Jackson’s 2004 purchase of a farm in Fayette County, Kentucky, then owned by Buckram, now Stonestreet Farm. The bare facts are that Jackson first offered $15 million for the property, which Buckram declined, making a counter-offer of $17.5 million. A “Memo of Agreement of Sale” was signed, and Jackson had the property appraised at $16.5 million. The parties entered into a revised purchase agreement for $17.5 million, and the transaction ultimately closed for $17.4 million.

Stonestreet later sued Buckram, alleging that it had conspired with Stonestreet’s agents to fraudulently induce Stonestreet to pay an inflated price for Buckram’s property. The Fayette County Circuit Court granted Buckram’s Motion to Dismiss Stonestreet’s claims of breach of contract, fraud by misrepresentation, fraud by omission, civil conspiracy, and equitable claims.

With respect to Stonestreet’s fraud by misrepresentation claim, the Court of Appeals pointed to the fact that Stonestreet’s attorneys had knowledge of the $16.5 million appraisal, and the fact that gamesmanship, between a buyer and seller of property, does not on its face constitute evidence of fraud. The Court also noted that Stonestreet did not cite to any substantial evidence that it had relied upon Buckram’s representation that it would not pay a commission to its agents. Finally, the Court noted that a party claiming to be defrauded cannot maintain an action for fraud where it actually conducted an investigation that revealed the misrepresentation.

With respect to Stonestreet’s fraud by omission claim, the Court held that there was no evidence that when Stonestreet’s agents failed to disclose the previous offer of $15 million, that failure induced Stonestreet to purchase the property at a price of $17.5 million, rather than $15 million.

On the civil conspiracy claim, the Court of Appeals held that, because a civil conspiracy claim must be based on an underlying tort, and neither of Stonestreet’s two asserted underlying torts were valid, the claim was without a basis.

The appellate court did, however, reverse the trial court on the breach of contract claim. There was language in one of the purchase agreements that stated the seller would not pay any commission to any employee, agent, or representative of the purchaser for procuring or assisting in procuring the sale. Stonestreet claimed that Buckram breached this contract by paying commissions of over $500,000 to several of Stonestreet’s agents after the sale. Buckram argued that, even if the payments did occur, a violation of this provision could not constitute a breach of contract, because the provision did not survive the closing due to the doctrine of merger. Under the merger doctrine, certain provisions in an underlying contract that are inconsistent with a deed are effectively extinguished upon delivery and acceptance of the deed.

The Court of Appeals, however, held that the provision at issue here dealt with the issue of payment, which is normally not repeated in the deed, and therefore not merged with the deed. Additionally, the deed here did not address the issue of payments at all. Thus, the Court held, because the provision cannot be inconsistent with the deed, the merger doctrine did not operate to extinguish it. The Court also held that the term was not merged into the deed because it contained a stipulation for the performance of an act in the future.

The Court of Appeals remanded the case to the trial court for a determination of whether the commission provision was breached or not. This may be a hollow victory for Stonestreet, however. As the Court of Appeals noted, there may not be any damages at issue on the breach of contract claim. The damages for breach of contract typically put the plaintiff in the position he would have been in if the contract had not been breached. Since the Court found that Stonestreet did not have any valid claims for fraud, it would be difficult for Stonestreet to show that the purchase price would have been different had Buckram not paid any commissions. This is an issue for the trial court to decide when the case is remanded.

By the way, in regard to the public’s interest in full disclosure, wasn’t there a time when the results of medical findings and proceedings of KHRC were routinely made public? And perhaps that changed in the 1970s when “therapeutic medications” were legalized for use on racing days?

My answer, initially, was “I don’t know.” So I turned once again to Ned Bonnie’s law review article on the Corrupt Horse Racing Practices Act of 1980, which provides a time capsule of sorts as to the state of horse racing regulation in the 70’s and 80’s.

Bonnie’s article details the federal and industry responses to the public and media scrutiny of the horse racing industry in the late 70’s that led to ultimately unsuccessful proposed legislation that would have created a central governing body of racing, with uniform drug rules. The article also contains several insights from which we can formulate at least a partial answer to Frank’s question.

From what I can discern, there did not seem to be a universal standard of transparency pre-1980. Indeed, Bonnie stated that “the controversy over the 1968 Kentucky Derby [in which Dancer’s Image placed 1^st, but was disqualified due to a phenylbutazone positive] made the chemist’s ‘positive’ identification of forbidden substances a matter of public record for the first time (through a highly publicized series of hearings and court confrontations).” In the decade following the Dancer’s Image controversy, however, “state racing commissions generally [did not step up] their research efforts to identify even the hard narcotics, tranquilizers, stimulants and depressants being used on racehorses to affect their performance.” This seems to indicate that not only was disclosure/transparency limited at best, but also that there may not have been much to disclose. It is clear that severe funding shortages resulted in, at best, minimal drug testing and research efforts by state racing commissions.

The heightened scrutiny of horse racing at the start of the 80’s ultimately led to legislatures allocating more funds to testing and research, but the controversy didn’t end there. Shortly after the publication of Bonnie’s article, the question of funding laboratory and testing services costs arose in the Kentucky Court of Appeals case of Smith v. Kentucky State Racing Commission, 697 S.W.2d 153 (Ky. App. 1985). As the Court neatly put it, “the ‘bottom line’ of this appeal is who is going to pay for the detection and prevention of the use of drugs, stimulants and improper devices in horse races – the industry or the public? The lower court determined the public should, hence, their representative, taxpayer Smith, appeals.” Looking at the language of Kentucky’s statute, the appellate court held that the statute meant that the licensed associations – the tracks – “shall” bear the expenses and the commission “may by rule” allocate the proportions each association must pay (rather than, as the Commission argued, allocating that certain proportions of the costs were to be paid by public funds.).

As a side note, the Smith case contains the kind of  sentence you can only find in Kentucky cases:

From the time of her admission to the Union, citizens of this great Commonwealth have regarded, not from a lack of national patriotism, the call to the colors as meaning an abiding interest in horse racing as now symbolized by the Bluegrass Stakes, the Jim Beam Spiral Stakes, the twin spires of Churchill Downs, and that greatest of all sporting events, The Kentucky Derby.” (“The” is capitalized in the original)

To return to Frank’s question regarding whether there was more disclosure/transparency before the legalization of some therapeutic medications, my answer has evolved from “I don’t know” to “not that I know of,” at least in Kentucky. Certainly, any public records not falling under certain enumerated exceptions are subject to Kentucky’s Open Records Act, which was originally enacted by the General Assembly in 1976. And perhaps before the advent of the Open Records Act, there was generally a standard policy of disclosure, which then moved to a general policy of nondisclosure unless the records were requested. That, however, is just speculation.

I’ll continue to look into the matter, and if anyone has any additional insight on the matter, I’d love to hear it.

In November 2009, Thomas D. Callahan, trainer of the Thoroughbred “Gold Medal Girl,” who tested positive for a Flunixin overage in June 2009, wrote to the KHRC requesting copies of pages of the freezer log for the freezer containing Gold Medal Girl’s split sample (Callahan had not, by the way, requested that the split sample be tested), from the time the split sample was placed in the freezer until August 10, 2009. The Commission responded with a heavily redacted page from the freezer log, claiming that the redacted information was exempt from disclosure by a section of the Open Records Act that protects information “of a personal nature that would constitute a clearly unwarranted invasion of personal privacy.” There was only one visible entry on the page provided to Callahan, showing that the freezer had been opened at 12:25 PM for the purpose of adding 22 samples, and closed at 12:28 PM.

Callahan appealed to the Attorney General’s Office, and the KHRC responded with a letter from General Counsel Susan Bryson Speckert, who claimed that the one log page was the only one that related to Gold Medal Girl, and that the KHRC only supplies information on the relevant horse and relevant date. The other information, she argued, was exempt under the act and not relevant. Ms. Speckert also opined that:

Upon information and belief, Mr. Callahan is under the misapprehension that there was a power outage that affected the split sample freezer. He is incorrect. Had there been a power outage or any other malfunction of the split sample freezer, it would have been entered in the log.

In its April 21, 2010 Open Records Decision, the AG’s Office first dispelled the KHRC’s notion that it only had to release information it deemed to be relevant:

The fundamental policy embodied in the ORA is that “free and open examination of public records is in the public interest.” Pursuant to KRS 61.872(2), “[a]ny person shall have the right to inspect public records.” There is no condition that the records be “relevant” to the person requesting them. On the contrary, an applicant’s identity or purpose for seeking records is, generally speaking, immaterial to the disposition of an open records request. Absent a specific statute limiting access to such records, Mr. Callahan is just as entitled to view freezer log entries for other horses as he is for the horse he trained.

With regards to the “personal privacy” exception claimed by the Commission, the AG’s Office stated that an agency bears the burden to prove that the privacy interests of a particular individual are superior to the public’s interest in disclosure, and further stated that the Office could find no information of a personal nature. There is no statute or decision in which the concept of “personal privacy” has been extended to horses, the Decision reads. Moreover, “the freezer log entries contain no identifying information about either horses or persons, nor do they contain any test results.” Rather, each entry contains the amount of samples and the date. All testing is done anonymously.

In conclusion the AG’s Office stated:

The split sample freezer logs show only the working condition of the freezer and what was done with it, when, by whom. In short, the information reveals precisely what [the Kentucky Court of Appeals has] viewed as central to the public interest – whether the agency is properly executing its function. Since the Commission has failed to articulate any privacy interest competing with this public interest, the balance is decisively in favor of disclosure. We therefore conclude that the Commission violated the Open Records Act by partially denying access to the freezer log entries requested by Mr. Callahan.

The Decision is limited in scope, and it remains to be seen whether it would apply to records that did contain results, or horse or trainer names. While a horse may not have any privacy interests, a horse’s name reveals the trainer and owner, implicating the privacy interests of both, although I would argue that the public interest in the integrity of racing regulation would outweigh any such asserted privacy interests.

I would imagine that, unless the KHRC challenged the AG Decision in Circuit Court, it has turned over the requested records to Callahan, although it remains to be seen what, exactly, he intends to do with them.

On an unrelated note, if you’re a runner in the Bluegrass area, the Young Friends of the Bluegrass Conservancy’s Farmland 5k is tomorrow morning in Midway. It’ll be a gorgeous (albeit hot and humid) run through horse country in support of farmland conservation, and I’ll be there, likely bringing up the rear (I’m not really a hot weather runner, but I’ll always run for a good cause).

Any gambling device or gambling record possessed or used in violation of this chapter is forfeited to the state, and shall be disposed of in accordance with KRS 500.090 …

Various internet gaming associations and lawyers for the domain names challenged the seizure in the Kentucky Court of Appeals and sought a writ of prohibition against the Franklin Circuit Court to enjoin the forfeiture. The Court of Appeals issued the writ, holding that KRS 528.100 did not give the Circuit Court jurisdiction to seize domain names. The Commonwealth then appealed to the Kentucky Supreme Court.

Today, the Kentucky Supreme Court handed down an opinion in Commonwealth ex rel Michael Brown v. Interactive Media Entertainment and Gaming Association, Inc., et al., No. 2009-SC-000043-MR (March 18, 2010) holding that:

Due to the incapacity of domain names to contest their own seizure and the inability of iMEGA and IGC to litigate on behalf of anonymous registrants, the Court of Appeals is reversed and its writ is vacated. This case is hereby remanded to the Court of Appeals with instructions to dismiss the Appellee’s writ petition.

Once the writ petition is dismissed, litigation over the forfeiture will continue in Franklin Circuit Court, although the Kentucky Supreme Court did give the petitioners a way to remedy the lack of standing, allowing either appellate court to reach the merits of the underlying case:

Writs are to be granted only as an extraordinary remedy, and certainly only when parties who have demonstrated a concrete interest are before the court . This is not to say, however, that the failure to establish standing in this writ action completely forecloses relief by way of a writ in the future. If a party that can properly establish standing comes forward, the writ petition giving rise to these proceedings could be re-filed with the Court of Appeals. The Court of Appeals could then properly proceed to the merits of the issues raised, or upon a proper motion, this Court could accept transfer of the case, as the merits of the argument have already been briefed and argued before this Court. Until then, however, consideration of the merits of this matter is improper for lack of standing.

It will be interesting to see how the parties choose to proceed.

The Plaintiff in Danvers v. Bilach, 2009 WL 5084947, is an equine veterinarian in New Jersey who treated a standardbred race horse, River Runs Red, owned by Darryl Thomas and trained by Rich Bilach (who was not a party to the appeal). That Danvers treated the horse, and that the treatments were necessary, was not contested.

At issue in the case was whether Thomas had authorized Danvers to perform certain vet services on the horse. Thomas claimed that he hadn’t authorized Danvers to treat the horse – and thus that he didn’t have to pay the $1866 bill. Danvers, on the other hand, claimed both that Thomas, the owner, had orally authorized him to treat the horse, and that the Bilach, thetrainer, had authorized the specific services.

The trial court actually found that there was no contract between the vet and owner, and dismissed Danvers’s case, leading to the appeal. In fact, the trial court, inexplicably, ruled that questions about the agency relationship between owner-trainer-vet were not relevant in a “basic contract case.” To whit (as related by the appellate court):

During the course of the hearing, plaintiff’s counsel attempted to question his client about the practice in the horse racing business of veterinarians dealing with trainers rather than horse owners in providing veterinary services. Defendants objected to the relevance of such questions, and the trial court asked plaintiff’s counsel the purpose of this line of questioning. In response, plaintiff’s counsel stated: “I just wanted to clarify that if the Court decided that the conversation never took place, that … an alternate theory of recovery is that the veterinarian worked with the trainer, the trainer ordered the services, he’s an agent, he has no liability, the liability falls on the owner.”

Regardless, as noted, the trial court ruled that the questions were not relevant.

The appellate court reversed, but not on the basis of the agency relationship between owner, trainer, and vet, or the fact that the agency relationship can bind a principle in contract where the agent had actual or apparent authority to contract. Instead, the appellate court found for Danvers, the vet, based on quantum meruit. Such a claim exists when one party has conferred a benefit on another party, and it would be unjust or inequitable to deny recovery to the conferring party. Here, the court found that Danvers conferred a benefit upon Thomas with a reasonable expectation of payment. Because it was uncontested that the services were necessary, Danvers was entitled to bring a claim. As such, the appellate court reversed the trial court’s judgment and remanded the case for a new trial on a quantum meruit basis. I don’t believe the new trial has been scheduled yet.

I think this case is interesting on a couple of levels.

First, I find it odd that even the appellate court didn’t focus on the agency relationship at issue here. As this issue has been in the news of late with the I Want Revenge / IEAH litigation, as detailed in a previous post. I would have loved to have seen an exploration of the extent of a trainer’s actual or apparent authority to order vet services.

Second, I’m interested in the fact that the court stressed that the vet services were necessary. What if they hadn’t been necessary? The case states that they included flu/rhino and rabies vaccines, but what if they included corticosteroid injections? What if they had included a dose of a prohibited, performance-enhancing substance?

I think if a claim were brought strictly under a quantum meruit basis, despite the fact that the court places a lot of emphasis on the fact that the services were necessary, the vet still could prevail as long as he had a reasonable expectation of payment. The case may come down to a fight over what services were “necessary.” Possibly, because quantum meruit is an equitable doctrine, a court or jury may find it was “unjust” to award payment to a vet if the treatment were illegal, like a prohibited substance. But a therapeutic treatment like a corticosteroid injection may be a closer call.

At any rate, the Danvers case is a good reminder of the scope  of the owner/vet/trainer relationship and the issues that can develop when an owner delegates responsibility to a trainer.

The race benefits the Kentucky Horse Park and is held on the night that the Horse Park’s Southern Lights display is opened to the public. This will be my fourth year in a row running this race. My first year, by the grace of God, I suppose, I somehow won the 20-29 year old women age group, but have finished off the board the last two years. I’m hoping for a decent finish this year.

Regardless of how I do, it’s a pretty lovely way to start the holiday season. Last year, it even snowed. Perhaps November 19 seems early to start the holidays, but when I was in law school, it provided a nice little taste of hope and joy.

If you aren’t inspired by the thought of holiday lights, they also have a great light display of horses breaking from the gate at Keeneland, and I swear there’s a Star Wars light display in there, too.

It’s a fun race, though. It’s at the horse park, and it’s followed by cider and cookies and all kinds of fun stuff. If you are in the Lexington area and are a runner, I strongly encourage you to participate.

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.