This Should be Required Reading for Every Trainer and Owner

by Andrew J. Mollica, Esq
and Len Green, CPA

What an industry!

The recent, well-publicized ongoing legal sagas of both Ahmed Zayat and Ken Ramsey have brought issues surrounding owner-trainer financial relationships into clear focus. Yet, the truth is that no-pay or slow-paying owners probably have been a small, but existing part of racing since the game was invented.

Despite its topical nature, the problem is not going away anytime soon, and the reason is simple: horse racing is a 21st-century industry that is based on an 18th-century business model. At this late date, virtually all owner-trainer relationships are still based upon oral contracts.

While established contract law renders verbalized agreements legally binding, the pragmatic reality is that oral contracts are not easy to enforce and are even more difficult to litigate. In this regard, the words of the late, great movie producer Samuel Goldwyn ring true: “Oral contracts are not worth the paper they are written on.”

Consider that for any contract to be enforceable in court there must be a “mirror image” displayed between the offer of one participant and the acceptance of the other. Agreement terms reflect one another very well when they are written down and subscribed by each party. The establishment of an oral contract almost always degenerates into a he-said/she-said scenario and eventually turns on the credibility (or lack thereof) of the respective parties.

It's for this reason that judges and juries look askance at purported contracts not memorialized in writing and often refuse to find for the litigant (in this case the trainer) who is seeking contract enforcement.

Coady

Suggested Solutions

Clearly, written contracts would make things much easier, both to abide by and to litigate, but a future proliferation of written contracts between owners and trainers would be sea change that is nowhere in sight. Why? The reason is simple: most racetrackers (and people in general, for that matter) hate change.

This said, many would argue that mucking up the existing system–in place for decades if not centuries–with written contracts and more lawyers is not worth the effort. Ironically, it's exactly the opposite; where a writing is missing, it actually encourages non-performance by the owner, and actually clogs the system with more cases, more lawyers, and big problems.

Let's take a common example. An owner and trainer orally agree upon a $100 per-horse day rate–at many tracks, today's standard of what trainers charge.

The question posed is whether a written agreement or an up-front retainer is really necessary for such a simple, straightforward agreement. Consider that by the time a trainer gets her first check from the owner, she has already fronted that owner the training fees for about 45 days. If our hypothetical owner gave our imaginary trainer 10 horses, by the time the trainer bills the first $30,000 at the end of the first month, she is in serious trouble if the owner fails to make timely payment. Worse, the owner might send a check for less, claiming that the day rate verbally agreed to is much less than what the trainer is claiming.

In businesses like law, construction or big-ticket specialty retail, up-front payments, deposits or retainers are the norm. But it is not the standard in the horse industry.

Why are they virtually nonexistent in our industry? The answer is simple. Most successful trainers would tell you they could never ask for either a retainer or a written contract for fear they would not get the horses offered by the owner into their barn, and therein lies the rub.

The late Hall of Fame trainer P.G. Johnson used to say, “An empty stall is better than a no-pay horse.” What Johnson was saying is true: an empty stall does not cost the trainer any money, but the horse of a no-pay owner triggers the same care, custody and control responsibilities (and costs) of any other horse in the barn. Of course, that's when the downward spiral begins.

Coady

The simple fact is that obtaining clients and horses to train is very competitive.

Many times, new owners, who can afford to spend large sums of money on purchasing horses, are greatly influenced to select their trainers based on which trainers win the big races.

Trainers increase their opportunities to win these big races based on the number and quality of the horse they train.

Trainers need horses to train, so when an owner falls behind, the trainer is put in an even more unenviable position. The options are limited: demand payment and most likely lose the horses, or stay the course and hope for a miracle.

The clear answer is demand payment, and don't get further behind. Yet, trainers often keep their no-pay owners on an ever-elongating leash in the faint hope the horse will earn money and the bill will be paid. The consequences of this decision are evident in the headlines today.

Bottom Line

Is there any tax benefit for writing off the accounts receivable as a bad debt?

No.

Most trainers are paid on a cash basis. They only record income as they are paid.

Therefore, they receive no tax benefit for not getting paid.

The Legal Remedy

In every state in the Union except one (Vermont), trainers, or stablemen, have the protection or remedy commonly referred to as an agister's, or stablemen's, lien. In New York, the law is codified as 183 of the New York State Lien Law and in New Jersey it is codified in 2A:44-51.

Under these statutes, a trainer having care, custody and control of a horse has an automatic lien on the horse against unpaid bills. To perfect the lien, the trainer must both formally notify the owner of the indebtedness and the intention to satisfy the debt by selling the horse at public auction. The power of the tool is obvious, because if the horse is worth appreciably more than the bill owned, the wayward owner will usually run to the barn, cash in hand, rather than lose his valuable, income-producing asset in an agister's sale.

Sarah Andrew

Despite this potent legal remedy, most trainers never utilize it.

For one, they often receive bad advice, sometimes from the stewards, who inform them that they had better give up the horse to the non-paying owner lest they be sued and that they should instead sue the owner to get a judgment or, worse yet, they are encouraged to hold the foal papers. None of these “steward tips” have any validity under the law.

First, if an owner is going to sue a trainer, she will do it whether the trainer has possession or not, so the advice is simply bad.

Second, if the trainer turns possession of the horse back to the owner, the trainer loses possession, hence his statutory lien is now forfeited and the trainer has lost the remedy and most likely any chance of recovering her money.

Third, holding the foal papers is an illegal act and, moreover, foal papers are soon to go the way of bobby socks and land-line telephones, as electronic papers become the norm. This is very bad advice as well.

Aside from this, trainers who are owed vast sums of money often don't perfect their liens because they are afraid they will be looked at as bad guys in the industry, while others simply don't want to pay the legal fees to get their money.

Whatever the reason, trainers who are owed money have a legal recourse, but they have to make the hard decision to perfect their liens and sell the horse. If they don't, we have seen the results.

In sum, although it may be unlikely to ever become a reality, all agreements with owners involving the trainer's care and custody of the horse should be expressed in a clear, concise, comprehensive, straightforward writing signed by the parties, and one of the terms that should not be left out is the payment of an up-front training fee.

Lastly, the question should not be whether to auction off the horse of a non-paying owner, but rather how quickly it can be done after the first training bill is more than 30 days late.

The post This Should be Required Reading for Every Trainer and Owner appeared first on TDN | Thoroughbred Daily News | Horse Racing News, Results and Video | Thoroughbred Breeding and Auctions.

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What Will HISA Look Like?

We recently ran part one of our story on the challenges facing HISA. Today, we deal with lawsuits, adjudication, and more.

This time next year, the machinery of horse racing in the U.S. may be almost a month into a radical system overhaul.

But with scant few calendar pages between now and then, what do we know about how the cogs, wheels, and pulleys of the Horseracing Integrity and Safety Act (HISA) will work together?

To find out, the TDN reached out to Charles Scheeler, chair of the HISA board of directors, interim executive director Hank Zeitlin, as well as several individuals listed on HISA's two standing committees. All explained that they were unable to comment publicly at present.

U.S. Anti-Doping Agency (USADA) chief executive officer Travis Tygart was also unable to speak in person within time of the story going to print, but the agency provided answers via email.

Figures familiar with the drafting process stress the changing nature of the blueprints–cold comfort to certain state regulators and other stakeholders concerned that with so many details to thrash out, few specifics have yet been made public, especially when crucial deadlines loom large, as we detailed yesterday in part one.

In part two, we try to parse through other key aspects of the program, beginning with arguably the most salient, given recent high-profile cases in the U.S.–that of enforcement.

Lawsuits

All of these points could be moot, however, if either of the two federal lawsuits seeking to strike the law down on constitutional grounds are successful.

In March, the National Horsemen's Benevolent and Protective Association (National HBPA)–along with a variety of state affiliates–filed federal suit against the Federal Trade Commission (FTC), arguing that it affords powers to private individuals and a private organization in an area strictly limited to a government entity.

The following month, it was announced that a second lawsuit–spearheaded by the Oklahoma Attorney General in conjunction with that state's racing commission–was similarly focused on the constitutionality of the law, focusing in on the 10th amendment.

Judicial rulings are essentially pending in both cases.

Sarah Andrew

According to Frank Becker, a noted equine lawyer and former adjunct professor at the University of Kentucky College of Law, the “Oklahoma” case has a “significant chance” of prevailing.

“But what happens at the district court level will not be the final word–it's really going to be up to the court of appeals,” Becker says, speculating that either case could eventually be taken up by the Supreme Court.

If the district courts render rulings against the defendants, what might that mean for HISA's implementation on July 1 next year?

“While this case is pending, there will be this battle over whether the law will be enforceable in the interim,” says Becker, itemizing a chessboard set of scenarios made complicated by the possibility of inconsistent rulings by different courts in two different circuits.

One is that an injunction goes into immediate effect, in which case, the law would be put on the back burner until an appeals court meters out judgment–if, as would be likely, the government appeals the district court's decision.

Another is that a district court judge renders a stay on the injunction pending appeal. In this scenario, the appeal is “unlikely” to occur before the July 1 deadline, Becker says, meaning the law would theoretically go into effect.

Nevertheless, nothing is etched in stone.

Becker pointed to a potential precedent-setting scenario in a current case involving the cruise ship industry and the Centers for Disease Control and Prevention (CDC) in which the judge granted a stay on an injunction, only to subsequently withdraw it. And so, “anything could happen,” says Becker.

If the case reaches the hallowed halls of the U.S. Supreme Court, a final decision “could take years,” says Becker.

“But again, you've got the issue of, if there's an injunction in place when it goes to the Supreme Court, the Supreme Court would [likely] be asked to lift the injunction pending a decision,” says Becker. And how it might decide, he adds, “is very hard to predict.”

For the purposes of the story, however, we'll take the view the law will already be functioning a year from today.

Adjudication Process

HISA's enforcement agency serves several vital purposes, from establishing a deterrence program to implementing “anti-doping education, research, testing, compliance and adjudication,” among other duties.

Racing Post

But first, who will the Horseracing Integrity and Safety Authority–the broad non-profit umbrella established by HISA and commonly referred to as just the “Authority”–contract with to serve this purpose?

The Authority is largely expected to enter into an agreement with USADA, but the contract hasn't yet been formally inked. Indeed, according to USADA spokesperson Adam Woullard, the agency is working through the details with the Authority, “in anticipation of signing” a contract.

If, for some reason, USADA is not the contracted enforcement agency, the law instructs the Authority to enter into an agreement “with an entity that is nationally recognized as being a medication regulation agency equal in qualification” to USADA–conceivably individual state commissions.

In terms of the enforcement agency's broad remit, the processing of violations sits high on the priority list.

But which specific set of personnel will be responsible for adjudicating the first drug-related violations that arrive after July 1 next year–those belonging to the existing regulatory infrastructures within individual states or those belonging to USADA, or the contracted enforcement agency?

Specifics remain unclear. According to Woullard, USADA would “independently handle” the “investigation and results management” arm of the program.

“Independence is the cornerstone of any effective and fair anti-doping program,” he wrote. “Complementing this, education is paramount in creating a cohesive program and we look forward to working with those within the industry to help them understand and comply with the rules.”

Asked what the adjudication process might look like on a practical, everyday basis, Woullard replied that “the exact nature of how this will look is a work in progress.”

It appears, according to several individuals familiar with the process, that a tiered approach could be taken to the adjudication of medication violations, with the severity of the infraction governing which set of personnel–either the state's or USADA's–will handle the hearing.

“Extra importance could be attached to certain races and horses,” says Bill Lear, The Jockey Club (TJC) vice chairman and someone instrumental in getting the legislation passed.

Coady

Appeals

Once a violation has been adjudicated, a notice of the sanction will be filed with the FTC. The sanctioned party then has 30 days to petition for a review of the decision, which will be handled by an administrative law judge within the FTC. That judge then has 60 days to issue a ruling.

A number of stakeholders contacted for the story questioned whether the FTC has the necessary human capacity and experience to handle its expanded obligations under HISA.

“How quickly do rules and hearings move through the federal pipeline?” says Bennett Liebman, government lawyer in residence for the Albany Law School's Government Law Center.

Liebman has previously written of the FTC that it has “much bigger business to pursue than just racing,” and that it “enforces many more laws of greater consequence to the American economy than horse racing regulation.”

The FTC failed to provide a response to questions about the steps the agency has taken to prepare for HISA's implementation.

But according to Lear, the FTC has been “very engaged” with defending the two federal lawsuits challenging the constitutionality of the law.

Safety Committee

In tandem with the Anti-Doping and Medication Control Standing Committee, the Racetrack Safety Standing Committee will be responsible for establishing a uniform set of rules governing things like training and racing safety protocols that are regionally specific, crop use, racetrack surface quality standards, and a racetrack accreditation program.

What could those safety standards look like?

The safety committee is required to consider as a blueprint existing programs like the National Thoroughbred Racing Association (NTRA)'s Safety and Integrity Alliance Code of Standards, along with other comparable international programs.

“You won't see much of a sea change in most of racing,” says Alex Waldrop, president and CEO of the NTRA, pointing to tracks and jurisdictions like those in Kentucky, California, New York, and across the Mid-Atlantic region, which have in recent years implemented their own significant plans to reduce equine fatalities.

“But there are multiple states where that has not been the case,” says Waldrop.

Nevertheless, the safety measures even among the more proactive tracks and jurisdictions can vary quite significantly, and there's apprehension among respective stakeholders that the Authority's uniform safety standards won't have the same bite.

“We're pretty proud of the work we've been doing here, and we don't want to see that rolled back in any way,” says Scott Chaney, executive director of the California Horse Racing Board (CHRB), pointing to the immense political headwinds the state industry has had to withstand in recent years.

Susie Raisher

Unlike the baseline medication standards, however, the law appears to provide a certain amount of individual wriggle room in the implementation of safety and welfare protocols.

According to Lear, individual tracks–but not individual states–will have the leverage to implement stricter safety standards than that outlined by the Authority.

“That said, I think HISA is going to make every effort to work with the states to create a good working relationship, and one that doesn't back up on any safety standards,” Lear says.

State racing commissions aren't expected to be rendered redundant under the new law–indeed, the Authority will likely contract state racing commissions to enforce components of the racetrack safety program.

But whether individual tracks decide to tighten their own safety standards and protocols or not, those in charge of nailing down the specifics of the safety program have the sizeable problem of wrestling with this central question, says Liebman: Which entity, the individual state commission or the federal Authority, has exactly what responsibility?

“Do racing commissions still have the power to punish riders for improper whip use?” he says. “Who will have the power to scratch a horse for medical or welfare reasons?”

Funding Concerns

Some of the touted benefits of the new law concern improvement in racing's overall intelligence infrastructure, including greater out-of-competition testing and a more comprehensive investigatory network.

HISA also calls for the implementation of a centralized database for a variety of potential key information points, including injury and fatality data, pre- and post-training and race inspections, and inclusion on a veterinarian's list.

Coady

“We'll be able to better follow these horses wherever they are on a daily basis–we'll know what they look like a week ago, a month ago, a year ago,” says Waldrop.

But undergirding the successful implementation of any of these measures is the issue of funding–what almost everyone contacted for this story described as something of an elephant in the room.

The language of the law outlines two broad scenarios–that individual racing commissions establish a mechanism to remit fees to the Authority, or else the racing commissions permit the Authority to assess the fees for them.

How will the fees be calculated?

If a state elects to collect and remit the fees itself, it may consider “foal registration fees, sales contributions, starter fees, track fees, and other fees on covered persons,” wrote Sarah Reeves, attorney with the firm Stoll Keenon Ogden and someone who has worked extensively on building the legal architecture of the law, in an email.

If a state chooses to delegate this task, then the Authority would calculate, “on a monthly basis,” the applicable fee per racing start multiplied by the number of racing starts in the state in the preceding month, wrote Reeves.

She wrote that in the latter event, it is too early to say exactly how the Authority would decide to collect the fees, “whether on a per-start fee basis or otherwise.”

Reeves noted, however, that the law precludes a double tax. “If a state chooses not to collect fees to cover the costs of the Authority in that state, the statute precludes the state from charging members of the Thoroughbred industry any fees or taxes related to anti-doping and medication control or racetrack safety,” she wrote.

As it stands, no specific budget proposals have been publicly aired. And until more specifics are made available, states are largely hamstrung as to which fee remittance route to take, multiple stakeholders told the TDN.

What's more, like a Sword of Damocles, numerous states around the county are already embroiled in budget negotiations for the next fiscal year or two–like in Wyoming, currently in the process of thrashing out their 2022-23 biennial budget, says Charles Moore, the Wyoming Gaming Commission's executive director.

“Here we are going into a budget session and we don't know what to expect–will there be a cost, and if so, what will it be? What is the net effect?” Moore says.

Coady

The longer budget details take to concretize, the more likely are individual states to punt broader everyday responsibilities over to USADA, certain stakeholders warn.

In that scenario, does USADA have enough personnel to manage a larger-than-anticipated workload?

In answer, Woullard pointed to a recent hire in Dr. Tessa Muir, newly minted director of their Equine Testing Program.

“We will continue to recruit experts in the field and train our existing staff for the huge responsibility ahead of us,” Woullard wrote, adding that while USADA will hire additional personnel, including those with equine-specific expertise, “There is significant overlap in several areas of equine and human anti-doping, particularly in relation to doping practices, test planning and risk analysis.”

Lear, however, argues that “HISA is working hard to zero in costs,” and adds that, while “the principal driver of added costs is in out-of-competition testing,” federal consolidation and centralization will bring about efficiencies through economies of scale.

What's Next

In the meantime, some much sought-after details about the Authority could soon be available for public consumption.

On Aug. 15 at The Jockey Club's next annual Round Table Conference, Scheeler is expected to give his first public presentations on developments thus far.

According to USADA spokesperson Woullard, Tygart and Muir have also been invited to appear at the round table event.

If there's an overarching sentiment among industry stakeholders wondering how HISA will fit into their everyday operations, it's centered around caution and circumspection.

“From my own perspective, they ought to be as practical as possible getting started,” says Alan Foreman, chairman and CEO of the Thoroughbred Horsemen's Association (THA). “They're going to have to build confidence in the whole process as it's such a dramatic change.”

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Crawford: Racing Needs ‘Fair, Transparent, And Timely Resolution’ To Medina Spirit Case

Sports journalist Eric Crawford of WDRB urged the Kentucky Horse Racing Commission to issue a decision on whether or not Bob Baffert trainee Medina Spirit will be disqualified from his victory in this year's Kentucky Derby.

He points out that in the only other similar case, when 1968 Derby first-place finisher Dancer's Image was disqualified over a post-race drug test, that decision was handed down three days after the race. Crawford acknowledged that the lawsuits dragged on for another four years, but adds that the lawsuits are “inevitable.”

“The state racing commission should do all it can to make sure Baffert and Medina Spirit's owner, Amr Zedan, get due process,” Crawford wrote. “But in the end, that body must also realize that racing as a sport needs a fair, transparent and timely resolution of this high-profile situation.

“For the sport of horse racing, which long has been (rightly) accused of capitulating to big-name trainers, dragging its feet on potentially controversial drug rulings or washing its hands of them altogether, the public nature of this particular allegation adds an urgency to getting it right – and doing it in the right way.”

Read more at WDRB.

Additional stories about Baffert's Kentucky Derby positive and ensuing legal battles can be found here.

The post Crawford: Racing Needs ‘Fair, Transparent, And Timely Resolution’ To Medina Spirit Case appeared first on Horse Racing News | Paulick Report.

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Louisiana Thoroughbred Breeders Association To Hold New Board Election, Rescind Broodmare Rules Following Lawsuit

The Louisiana Thoroughbred Breeders Association will hold a new election for its board of directors by a judge's order, following a pending lawsuit alleging the voting in last year's original race might have been fixed, NOLA.com reports.

Judge Danyelle Taylor of Jefferson Parish's 24th Judicial District Court also ordered on Thursday that the LTBA pay $90,000 in legal costs to plaintiff Lora Pitre. Perhaps most importantly, the decision dissolves all decisions the board has made since it was elected last summer, including a major change to the state's breeding rules regarding broodmare residency.

Pitre is the owner of Peach Lane Farms in Opelousas, La., a former three-term member of the LTBA board, and a vocal opponent of the new broodmare rules. In her January filing, she claimed the board tried to hide a review of pending membership applications and sent ballots to non-members in an attempt to swing the voting toward candidates in favor of implementing the new rules.

Among the changes the new bylaws brought about was allowing breeders to send their mares to stallions outside the state in consecutive seasons, with the ensuing foals still eligible to be registered as Louisiana-breds. Opponents of the rule argued it would harm the business of Louisiana's stallions without the requirement to breed back in-state to maintain state-bred eligibility, while unfairly benefitting larger breeders who could afford to ship their mares out of state.

Judge Taylor agreed with the notion that the LTBA board had not properly shown that the election had adhered to its own bylaws, and ordered an arbitration panel to supervise a new board election. In the meantime, the previous board was reinstated to run the day-to-day operations.

The LTBA board will also submit additional documents and sit for depositions as a result of Thursday's hearing.

Read more at NOLA.Com.

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