Dear Trainers, A MUST read about CA laws regarding Horse sales and Commissions

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These are not NEW laws but I have found that they are widely unknown or intentionally over-looked laws regarding Horse Sales and Commissions.

Dear Trainers,

      Being an old and wise Appy, with extra large ears, I hear an awful lot of Barn gossip and drama. One topic that has come to my attention recently was the wide variety of practices amongst trainers when buying or selling horse’s for their clients. I might not be the most popular Appy for bringing this sensitive subject to my Blog but I’ve never claimed to be terribly PC in the first place.

      We all know that helping a client to purchase or sell a horse can sometimes lead to treading on uneven footing. Whether it is a matter of simply not understanding the California Laws or having to work with a less than ethical agent on the other end, things can get stickier than my favorite Molasses treats. Furthermore, with a Trainer’s labor intensive job that tends to be underpaid I realize it can be very tempting to accept incentives that may be offered to entice you towards a certain horse for your clients over another. This causes a “Conflict of interest” and believe it or not, IT IS ILLEGAL. (unless you fully disclose these amounts to both parties ahead of time, more about that later)

Here are some Quick Spot points for starters that Trainers and Agents NEED to know when buying, selling, and representing:

SPOT # 1. You MUST disclose your commission, IN WRITING, to your client.
This includes ANY monetary gain that you will be making from the sale or purchase of the horse.

SPOT #2. Be careful when accepting a payment that will be going directly through you because again, you need to remember that ANY monetary gain that results from that horse’s sale or purchase MUST be disclosed in writing to your client.

SPOT #3. Double dipping is ILLEGAL.
This is when a trainer or agent accepts a commission from the seller as well as the buyer. It is an obvious conflict of interest and the only way this is allowed is if both parties, the seller AND the buyer, show their consent and knowledge of the arrangement IN WRITING.

SPOT #4. Standard commission for the horse industry is 10% – 25%.
Though, any monetary compensation can be arranged so long as all parties are aware and consent to the arrangement, IN WRITING.

SPOT #5. Next, if you’ve ever been wrangled up by the law (or even watched a TV show) then you are familiar with the phrase “What you say can and may be used against you in a court of law.” This means you should be careful about intentionally misrepresenting or even being overly flamboyant about your claims of said horse. “It’s a perfect beginners child-safe horse. I’d trust it anytime” Yet the whole barn down the street from yours knows how many times it has left your arena at a bolt and come running into their property with a screaming child attached to its back. Hey, maybe it IS a wonderful child’s horse when it is in a small enclosed space, under supervision, after a 1 hour lunge and with the gate shut. I have known some great horsey friends of mine that just need to come with a few pointers from their previous humans to be successful. Just please remember, the truth is always best.

SPOT #6. Failing to obtain written consent from your client for your monetary gain off the sale or purchase of their horse can be punishable as a FELONY. (see the court cases [2] and [3] below as examples)

SPOT #7. Be smart. Protect yourself, your reputation and your client. Create a transparent contract and relationship with them. Include the sale price on the Bill Of Sale and have the Buyer and the Seller sign it themselves.
I know, I know, I feel like this may be a touchy spot and unpopular point that I am making. But if you really do not like this point perhaps you should re-read Items 1-6.

Current CA Laws:
For general purposes I will outline 3 important statutes that exist in California, Florida, and Kentucky. These are the 3 states that currently have laws specific to the sales of horses. But of course, I am not a lawyer, just an Appy Pony. So if you want up-to-date laws please search your own states laws carefully and if you want legal advice, please consult an Equine Lawyer.
Required:
1. A written Bill Of Sale signed by both parties that specifies the purchase price of the horse.
2. Written disclosure to both purchaser and seller of sales commissions (if the amount or value will be $500 or more; and
3. Written consent by both purchaser and seller if someone is acting as a dual agent.

To give a few easy examples of encounters I’ve witnessed:
“PADDING”
I do not mean the type of padding that get’s stuffed under my neighbors shoe every 6 weeks.
You know what I am referring to….
Let’s say a trainer’s client, Lady NoLuck, asks him to sell her horse, Breakneck Bert. She tells her trainer that she wants to get $50,000 for Bert because of all the wonderful things he can do. The trainer has a friend that has a client that was searching for a horse exactly like old faithful BreakNeck Bert and has $75,000 to spend on this new horse of her dreams. The two trainers decide that it is a good match and that they will sell the horse for $75,000 but only give Lady NoLuck her asking price of $50,000, splitting the difference between them. Neither Lady NoLuck nor the daydreamy buyer are aware of this. THIS IS A NO-GO and is against the law

“DUAL AGENT”
I recently had a common case of Dual agent in my own barn. There is a wonderfully fancy, yet entirely too egotistical pampered show pony that lives a few stalls down from me. Always prancing about and flaunting his many show ribbons up on the tack room wall. We will call him “Mighty Might” for this discussion. Anyways, Mighty Mights young child rider was sadly outgrowing him and facing the inevitable possibility of having to sell him. Being so impressive he quickly attracted the attention of other children in the barn and was purchased right away by another client of the same trainer.
No surprise there, sometimes I feel like he is all they can talk about. <rolling my eyes>.
The point is that the trainer acted wisely. She made sure that both parties understood that Dual Agent was unavoidable and that she was obviously representing both sides. She chose to act with complete transparency, discussing the merits of the pony, the pro’s and the con’s and made sure that all vet records were open for the sharing. She also let them know that there would only be ONE commission in total. This would be a 10% commission to be paid to the trainer, which would be split between both parties. After the buyer was satisfied and sure that they indeed needed to have the famous “Mighty Might” for their child rider then all parties consented to the arrangement in writing and the transaction was completed.
Now, you do not have to only accept one single commission of 10%. In fact, the law doesn’t even care if you charge BOTH your clients 110% each BUT it will need to be in writing and consented to by BOTH parties prior to the transaction.

The “LESSER REALIZED MISTAKE”
Okay, last example but a very common mistake. Desperate Duey cannot pay for his horse, Two Buck Chuck, anymore and sends it to a trainer to take “on the cuff” to sell for him. “On the cuff” means that the trainer will incur some or all of the expenses for a time while selling the horse. They make an arrangement that Duey expects to get $15,000 for the horse even though the horse is worth more. He tells the trainer to sell it for whatever more he can get and that he is welcome to keep the rest. Sounds like an amicable arrangement given the risk and burden that the trainer must take to keep the horse while for sale. Also, so long as it is in writing, the Trainer is on the up and up with Duey and all is fine. However, here comes the sticky Molasses part. You see, Silly Sally rides at this same ranch and falls in love with Two Buck Chuck. She is a client of the same trainer and has just started looking for a horse of her own. She has $25,000 to spend. Silly Sally is relying on her trainers expert opinion and knowledge as to whether to buy this horse but the trainer stands to gain additional monetary value from representing the seller, Duey. So this is also a conflict of interest and falls under Duel Agent. It is a common and likely scenario, after all, the trainer must have liked and believed enough in the horse to be willing to take him “on the cuff” in the first place. Probably even more so than a monthly paying sales horse. Ultimately the trainer sells Sally the horse for $25,000 and pockets the $10,000 difference. Maybe the trainer is even feeling that the moral thing to do is not to charge Sally a commission at all, since he was technically making one from the seller.
But without disclosing the profit to Sally this is still ILLEGAL.
WHY? Because as Silly Sally’s trainer, the trainer owes the client something called “fiduciary duties.” Duties described as Loyalty, Good Faith, and Fair dealing. The trainer should not profit from the transaction without full disclosure of the profit to Sally.
You are probably thinking “WHAT? How am I suppose to make money in this business legitimately?”
Never fear, Appy Pony is here.
A solution to this would be to disclose your arrangement that you have with Duey to Sally. Add up the training, board, extra feed, advertising, transportation, grooming etc etc that you have put into Two Buck Chuck and that Duey now owes you out of the sale. Count that as reimbursement for services owed by Owner. Make sure this is carefully documented and true. Then let Sally know that Duey will be paying you a ___% commission for taking the horse on the cuff and selling the horse and this is why you do not feel the need to charge her an additional commission. It is not necessary to disclaim the low ball amount that Desperate Duey was willing to take for his homeless horse in his time of need, that is completely between you and Duey. Your discount for being in the right place at the right time and for being trusted by Duey does not need to apply to Sally. BUT it is necessary that Sally understands the profit, if any, that you are making from Duey to represent a horse that you are now selling to her.
Just like any other Duel Agent circumstance.
If we worked thru this it would look something like this:
Fair market Value of horse is estimated at $25,000 (and please be sure that this is the true approximate fair market value, after all you are negotiated a deal that is a conflict of interests. It is smartest to be fair to all parties involved) Maybe Duey owes you $5,000 in back expenses on Two Buck Chuck and is paying you a 20% commission on the sale price.
20% of $25,000 is $5000.
(20% – 25% or even higher is a common arrangement for a horse taken “on the cuff” because it can be risky for the trainer and is essentially a favor to the Owner as well)
The Trainers calculated “Profit” would be $5,000, that is the commission. 
This is what needs to be disclosed to Sally.
Sally is likely getting a great deal. She is buying a horse that she loves, for the right price, a horse that her trainer believes in, and she is saving a big commission off of it because it was in-house. Duey is getting a great deal because he couldn’t pay for the horse any longer and so would not have been capable of promoting it for sale himself. He would never have found Sally if not for you being willing to take the horse on the cuff. $15,000 is better than giving it away due to hardship at the end of the month.
Finally, the trainer has made a fair amount of money to reimburse for expenses and the leap of faith he took in the horse.
A win win for everyone and completely legal.

Courtesy of my Owner and the internet, here are some Example court cases for you to look at that show the gravity of ignoring these laws:

[1] Neal v. Janssen, 270 F.3d 328 (2001) In 1997, internationally known dressage trainer Sjef Janssen was commissioned to sell the Neal family’s horse, “Aristocrat”. In their agreement to one another the Neals were to pay Janssen a 10% commission on the sale price. A typical commission for the Horse industry. Once finding a buyer, Janssen told the family that he could only get $312,000 for Aristocrat. Janssen actually ended up selling the horse for $480,000 but did not disclose to the Neals the difference in price. Jansseen profited $168,000 plus his 10% agreed upon commission for $31,200. Later, the Neal Family learned the true sale price and sued Janssen for breach of fiduciary duty and fraud.  A jury awarded the Neal family $250,000 in compensatory damages AND $250,000 in punitive damages. This was not only unethical but ended up being a $500,000 mistake by Janssen.

[2] United States of America v. Kenneth Berlin, U.S. District Court, Richmond Virginia, Case #3:03CR0042-001 (2004) and
[3] United States of America v. Joshua Cardine, U.S. District Court, Richmond Virginia, Case #3:03CR00424-001 (2004)
The federal government successfully prosecuted criminal cases against Kenneth Berlin [2] and Joshua Cardine [3] in 2004. Both were Hunter/Jumper trainers located in Virginia.  Mr. Cardine and Mr. Berlin were alleged to be involved in numerous horse sales schemes in which they sold horses on behalf of their clients and then remitted only a portion of the proceeds to the clients, and in some cases remitted none of the proceeds. Both trainers pleaded guilty to conspiracy to commit fraud and swindle of livestock in interstate commerce.
This is a felony.
Josh and Kenneth were sentenced to 18 and 21 months in federal prison, followed by three years of probation. The court also ordered the trainers to make restitution to their clients, or victims, in the amount of $94,300.

I hope my Trainer friends found this helpful!!

Love and Carrots,

Appy Pony

I would like to give credit to the following websites which helped me in my thirst for more knowledge.
– Equine Legal Solutions: BTW, they have some great contracts that you can purchase, if needed.
– Alison Rowe: Equine Law Blog
– HG Legal Sources http://www.HG.org

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