The Horrors of Hauling: Or Are You Really Insured

Once upon a time Kindly Equestrian offered to give her friend, and her friend’s horse, a ride to a nearby competition.  The friend was delighted and offered to split the cost of the gas as well as the hotel expenses in return, per Kindly Equestrian’s typical arrangement with persons she transported to shows.

Early the next morning, they loaded their show gear in the Kindly Equestrian’s Blazer, and their two horses, tack, and feed into Kindly Equestrian’s bumper-pull 2 horse Kiefer.  On the way to the show, a car ran a red light and slammed into the passenger side of Kindly Equestrian’s Blazer, which flipped, causing the Kiefer trailer to flip with it.  Kindly Equestrian and friend were severely injured, as were both horses who were then euthanized.  The show gear and tack were also destroyed.  The driver of the car which ran the red light was uninsured.

Once able to leave the hospital, Friend (now labeled “Former Friend”), sues Kindly Equestrian on the grounds that:  (1) Former Friend paid valuable consideration for the service of hauling, and (2) Kindly Equestrian breached the standard of care owed by hauling the horses in a trailer too large for the Blazer pulling it.  Former Friend alleged that “but for” the oversized trailer, the car and trailer would not have flipped when hit, thus making Kindly Equestrian negligently liable to Former Friend for damages including:  (1) Former Friend’s medical expenses, rehab expenses, lost salary, impaired earning capacity; emotional distress and pain and suffering; (2) Former Friend’s damaged show gear and tack; and (3) Former Friend’s dead horse.

Wow.  A terrible accident, you say.  Fortunately, this one is entirely hypothetical, but it’s designed to illustrate how important it is for YOU to determine what insurance coverages you have, and what insurance coverages you NEED, before you ever haul horses.  But sometimes it’s hard to know what issues you need to even raise with your insurance agent on these coverages.  Here’s some help.

  1. What issues are involved?

  2. Was the endeavor business or personal?

    In this instance, while Kindly Equestrian is not in the business of hauling horses, she did agree to accept Friend’s offer to split the gas and hotel expenses in return for the ride.  This is a form of barter, which may be considered compensation for those services, which may constitute a business endeavor profiting Kindly Equestrian.  If  shown that Kindly Equestrian routinely hauls horses for barter or compensation, it may be determined that Kindly Equestrian’s hauling activities comprise a business not otherwise covered under her general auto policy. This in turn may require her to secure business coverage on the auto.

  3. What does Kindly Equestrian’s auto insurance cover?

    Let’s assume that Kindly Equestrian’s Blazer was insured by a rated auto insurance company and its determined it was not being used for a business purpose.  If so, and her coverage amounts were sufficient, that insurance would most likely cover:  (1)  repair or replacement of the vehicle damage; (2) repair or replacement of the vehicle contents, including the show tack which was destroyed; and (3) reasonable personal injury/medical expenses of Kindly Equestrian and Former Friend up to the limits of that particular policy.  However, if the cumulative expenses exceed the value of the policy, Kindly Equestrian is still on the hook for the difference.  In catastrophic injuries (ie spinal cord or closed head injuries, etc.), this can easily be the case.  Also, returning to the business aspect, be aware that most personal insurance policies contain a specific exclusion for business endeavors.  Because the use of an auto, or home in business is different than the use of an auto or home for personal reasons, an insurance company requires particularity in your identification of the use so the company can appropriately assess the risk based on use.  If its determined that Kindly Equestrian was using this Blazer to frequently haul friends for compensation, even though she didn’t consider it a business, Kindly Equestrian may have no coverage where business use was not identified and thus not contemplated under the policy.

  4. What about coverage for tack and horses in the horse trailer?

    Kindly Equestrian did carry separate auto insurance coverage for the horse trailer.  This coverage typically covers repair or replacement of the trailer itself, as well as the damaged tack in the trailer.  However, to Kindly Equestrian’s shock, this trailer coverage may not cover the horses hauled in the trailer.  In many instances, the value of the horses can exceed the value of the trailer and tack. If Kindly Equestrian or Former Friend carried individual Mortality and/or Major Medical policies on their horses, these policies would come into play.  However, Former Friend would still have the ability to sue Kindly Equestrian for the injury to her horse, and Kindly Equestrian would not typically have coverage for these damages.  For this reason, if Kindly Equestrian is going to routinely haul horses, Kindly Equestrian should also consider a Care, Custody and Control policy to cover any potential harm to the horses while in Kindly Equestrian’s care, as well as counsel her friends that they should carry separate Mortality and Major Medical on their own horses.

  5. Does Kindly Equestrian need insurance coverage when we have the Equine Liability Act?

    The biggest misconception people have about the Equine Liability Act is that this Act somehow prevents lawsuits from being filed.  IT DOES NOT.  Anyone can file a lawsuit if they can identify basic elements of a legal cause of action against another.  The Equine Liability Act merely serves as a statutory defense to assist in dismissing frivolous lawsuits.  However, in this instance, the Act would not even apply!  Note that the purpose of the Equine Activity Liability Acts is to prevent frivolous lawsuits related to personal injury to a person which arises out of the inherent risks of equine activities.  The injury to Kindly Equestrian and Former Friend had nothing to do with the horses – it resulted from a car running a red light, and the potential negligence of Kindly Equestrian in mismatching hauling vehicle to trailer.  Likewise, the resulting damage to the trailer and contents arose from the same activity, which had nothing to do with inherent behavior of horses,  thus making the Act inapplicable.


    I cannot understand why anyone wouldn’t consider complete insurance coverage essential in every phase of their lives.  Any defense theory, whether legal or statutory,  should never be viewed as a replacement to carrying insurance.  YOUR INSURANCE ESSENTIALLY SERVES AS A PREPAID LEGAL PLAN WHERE YOUR POLICY INCLUDES COST OF DEFENSE!  Look at this from a practical standpoint.  Costs of insurance policies typically run anywhere from a few hundred to several thousand dollars per year, depending on your requirements and the size of your operation.  In the event you are sued, it is difficult for any lawyer to secure a dismissal of the case for much less than $1,000 to $5,000 dollars, a sum which typically exceeds the cost of your insurance premium by thousands of dollars.  Why?  In order to dismiss a case, the lawyer must review the legal documents filed, prepare required legal responses to be filed with the court, perform legal research to identify and brief the case law which supports a dismissal (if any), interview witnesses to secure factual support for the brief,  draft and file the brief asking for dismissal, and then appear and argue the dismissal motion before the court.  To this must be added various phone calls between the lawyers and court regarding time frames, deadlines, mandatory discovery scheduling, as well as out of pocket costs including copies, telefaxes, filing fees, delivery fees, travel expenses, expert witness costs, etc.  If you have no insurance, you pick up these costs.  If you have insurance, your insurance company picks up these  costs assuming you have complied with all terms of your policy.  Thus there is NO SITUATION WHERE YOUR INSURANCE POLICY DOES NOT REPRESENT ONE HECK OF A DEAL IF YOU ARE SUED!


In summary, many of us haul horses with no thought as to our exposure or our insurance coverages.  In the above example, we see that Kindly Equestrian should have considered:  (1) personal auto insurance for the Blazer; (2) potential business use coverage for the Blazer; (3) potential equine Commercial General Liability coverage if she engages in these kinds of activities for compensation on a regular basis; (4) separate auto insurance coverage for the trailer and physical contents; and (5) Care, Custody and Control equine insurance for the horses hauled.  Based on this article, isn’t it time you call your various agents to be sure you’re properly covered before you haul another horse?  (And oh, by the way, in addition to your insurance coverages, it’s never a bad idea to have your friends sign a liability waiver and release if you agree to haul their horses, especially when you’re doing it as a favor!)


This article provides general coverage of its subject area.  It is provided with the understanding that the author, publisher and/or publication do not intend this article to be viewed as rendering legal advice or service.  If legal advice is sought or required, the services of a competent professional licensed in your state should be sought.  The author and the publisher shall not be liable for any damages resulting from any error, inaccuracy or omission contained in this publication.


© Denise E. Farris (November 2004).  All rights reserved.  This article may not be reprinted nor reproduced in any manner without the express permission of the author, who can be contacted at: Denise Farris, Farris Law Firm, L.L.C., 20355 Nall, Stilwell, KS  66085.  Tel: 913-685-3192. Fax: 913-685-3292. Email:

Compounding Conundrums: New AAEP Guidelines

Reprinted Courtesy of Equine Veterinary Management Magazine (Summer 2005)


Click here for a .pdf version of this article in Equine Veterinary Management magazine.



Gain insight on the new AAEP guidelines on compounding drugs with this in-depth report.



On the surface, veterinary compounding–that is, preparing a multi-ingredient drug from generic or trade-name pharmaceutical products for animal use under veterinary care–appears to be a straightforward practice. However, it remains a hotly contested issue in both courts and administrative halls, and among practitioners and their clients and patients.
Recognizing that compounding continues to serve a useful, albeit controversial, function, the American Association of Equine Practitioners recently published a set of guidelines, which, it’s hoped, will clarify the existing compounding confusion. Here, we’ll identify those guidelines (see page xx), as well as give you their legislative and legal precedent.


Compounded-Drug Scenarios

According to the International Academy of Compounding Pharmacists, there are many situations that might require pharmacists to compound medications for animal patients. These include:


  • Discontinued products. Under this scenario, a pharmacist may compound commercial medications that have been discontinued from the market for reasons other than safety or effectiveness, therefore otherwise unavailable.
  • Product integrity. A pharmacist may use bulk active pharmaceutical ingredients (APIs) to compound medications in cases where using a commercially available, finished product as the ingredient source could add unnecessary excipients to the medication and increase the risk of contamination or yield a product that isn’t concentrated enough to offer proper compliance.
  • No alternative therapy. One of the more common scenarios; here, a pharmacist compounds medications using bulk APIs when there’s no commercial alternative to treat the disease state or condition treated by the compounded medication.
  • Patient compliance. Also prevalent in the veterinary industry; in this case, a pharmacist compounds medications for animal patients to make it easier for horse owners to administer medications to their horse. This compounding often involves flavoring a medication or changing the dosage form.


Some scenarios involving compounding are so subtle they might not be immediately recognized. Veterinary compounding might refer to combining two injectible medicines into one syringe application. Or, it can apply to the administration of potassium bromide to a patient that suffers from severe brain seizures and would otherwise die without it. Or, it might refer to an Internet product represented to be antibiotic that upon further testing proves otherwise.
It’s these contradictory applications–met by equally contradictory regulations–that have given rise to the current confusion over compounding, its legitimacy, effectiveness and exposures.


A Complex History

To understand the context for compounding drugs as it relates to equine veterinary medicine, we first must look at the history and legal precedents of the practice in human medicine.

Compounding has been an integral part of the development and ongoing practice of pharmacology since mankind first discovered medicinal use of certain plants and minerals. As such, compounding was and continues to be taught as part of the standard curriculum at most pharmacy schools.

The practice recognizes that it’s possible to custom-create specific medications for specific patients that wouldn’t otherwise be commercially available, such as medication for a patient who’s allergic to an ingredient in a mass-produced product. Accordingly, compounding regularly has been allowed and regulated by the various states as part of their regulation of pharmacies.

The historical and beneficial utilization of compounding in human pharmacology was recognized as recently as 2002 by the United States Supreme Court in the case of Tommy G. Thompson, Secretary of Health and Human Services, et. al. v. Western States Medical Center, et. al. In that decision, the Supreme Court held that a statutory ban on advertising compounded drugs–as set out in 21 USCS §353a of the Food and Drug Administration Modernization Act of 1997–represented an unconstitutional violation of compounding pharmacies’ free-speech rights under the First Amendment, where compounding was legally permissible and commercial advertising served a useful function in disseminating information about the product.

Although this recent Supreme Court case was based on First Amendment issues related to commercial free speech and arguably deals with compounding in human medicine, it contains a concise history of the evolution of compounding and its relevant regulations, which also apply to compounding in veterinary medicine.

The case defines “drug compounding” as “a process by which a pharmacist or doctor combines, mixes, or alters ingredients to create a medication tailored to an individual patient’s needs.” The case explains the treatment of compounding under the federal Food, Drug and Cosmetic Act of 1938, which regulates drug manufacturing.

Under the FDCA, “No person shall introduce or deliver for introduction into interstate commerce any new drug, unless an approval of an application filed [with the FDA]…is effective with respect to such drug.”

A “new drug” is defined as: “Any drug…not generally recognized, among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under the conditions prescribed, recommended, or suggested in the labeling thereof.”

Section 360b of the FDCA applies the regulations to animal drug compounding by stating: “No one may sell a new animal drug, or feed containing a new animal drug, without the approval of the Food and Drug Administration.”

For the first 50 years following enactment of the FDCA, the FDA generally left regulation of compounding drugs to the states. As a result, some states required all licensed pharmacies to offer compounding services. Other states allowed pharmacists to provide compounded drugs to patients only upon receipt of a valid prescription from a doctor or other medical practitioner licensed to prescribe medication. Where the regulations varied from state to state, pharmacists continued to provide patients with compounded drugs subject to various interpretations of the FDA regulations, and without FDA approval of those drugs.

The FDA eventually became concerned that some pharmacists were manufacturing and selling drugs under the guise of compounding, thereby avoiding the FDCA’s “new drug” requirements. The FDA could’ve elected to implement criminal or administrative sanctions against the prescribing veterinarians or pharmacies providing compounded medications. However, recognizing the benefit of compounding in specific circumstances, the FDA elected instead to implement procedures that restricted compounding pharmacies access to bulk drug ingredients necessary for the compounding process.

Thus, in 1992, in response to what it perceived to be a growing abuse and circumvention of FDA manufacturing regulations, the administration issued a Compliance Policy Guide, which announced that the FDA may “in the exercise of its enforcement discretion, initiate federal enforcement actions…when the scope and nature of a pharmacy’s activities raises the kinds of concerns normally associated with a manufacturer and…results in significant violations of the new drug, adulteration, or misbranding provisions of the Act.”

Several years later, Section 503a of the Food and Drug Administration Modernization Act of 1997 was enacted to specifically address the FDA’s concern of mass-manufacture of compounded medications. Under this section, compounded drugs were exempt from FDA-approval requirements, but only where the providers of those drugs refrained from advertising or promoting particular compounded drugs, and only where the manufacturing was in quantities small enough to meet the “one patient, one prescription” test. (ep)

Thus, in the above historical context, the amount of bulk ingredients on hand for the manufacture of a compounded medicine gave rise to the appearance of “mass manufacture” more akin to new drug development rather than single-patient or single-circumstance compounding.


Testing, Testing  

The stringent requirements of the FDCA drug-approval process is the underlying basis for the current compounding confusion. Under testing and approval regulations of the FDA, new medications–called “pioneer drugs”–undergo a rigid testing process designed to determine whether the drug is safe, effective, and susceptible to side effects in both the short and long terms.

In determining whether or not a drug is safe, the manufacturer is required to submit the drug to extensive safety studies. This testing analyzes potential side effects and effects of overdosing before a product is introduced into the market. The testing also confirms that the manufacturing of the drug is subject to stringent industry standards to ensure ongoing purity and safety. Finally, the drug is monitored over a period of time to ensure there are no undisclosed long-term side effects in terms of patient reaction to the drug or the manner in which it’s administered.

Obviously, the detail involved in the development and FDA approval of pioneer drugs, is extensive, time consuming and costs in the millions. Companies devoting time, resources and money to new drug development are entitled to recoup their investment through lucrative and protected drug patents. However, these patents are time-limited. When the patents expire, competitors are allowed to use similar formulas to create generic substitutes.

Although bypassing the years of testing involved in pioneer-drug development, generic drugs still require compliance with all FDA manufacturing standards to preserve integrity, purity and consistency. Yet both forms–pioneer and generic–are FDA-approved drugs.

In comparison, the compounded drug is not FDA-tested, not FDA-approved and not subject to any form of manufacturing oversight that serves as a standard for purity, integrity, consistency and safe application. For this reason, the use of compounded drugs is a form of “last hope” treatment in situations where no FDA-approved pharmaceutical is available to adequately address the presenting medical situation. And this is why such medications are subject to stringent requirements that ensure they won’t be passed onto an unsuspecting marketplace in the guise of an FDA-approved substance.


New AAEP Guidelines

With these principals in mind, the new AAEP guidelines can serve as a reliable roadmap in determining when–and when not–to rely on compounded medications in your practice. These guidelines suggest that you should verify that the use of compounded medications is covered under your existing liability policy and whether such coverage is subject to special restrictions.

These guidelines also suggest that–as a regular practice–you shouldn’t prescribe compounded medications without fully disclosing their unique characteristics to the client. To comply with the latter suggestion, you can simply provide the client with a copy of the guidelines for their review, secure his or her signature, date the form and then permanently place the form in the client’s file.

Following is a paraphrased version of the recently released AAEP’s Drug Compounding Task Force Position Paper. For the original version, visit


Recognize the differences between FDA Pioneer Drug, Generic Drug and Compounded Drug:

* FDA Pioneer Drug:

A drug that has undergone the scrutiny of blinded controlled studies to demonstrate safety and efficacy in accordance with federally mandated Good Laboratory Procedures. The active ingredient and product were manufactured under federally mandated Good Manufacturing Practices in federally inspected plants. Therapeutic consistency, product quality, accurate drug shelf life and scientifically substantiated labeling are all federally mandated on these products.

* Generic drug:

A generic drug is bioequivalent to a brand-name drug in dosage form, efficacy, safety, strength, route of administration, quality and intended use. Generic drug labels display an ANADA # or ANDA # signifying FDA approval of a generic animal drug or human drug, respectively. Generic drugs and their active ingredients also must be manufactured under GMP in federally inspected plants.

* Compounded drug:

Any drug manipulated to produce a dosage-form drug (other than that manipulation provided for in the directions for use on the labeling of the approved-drug product).

  1. Understand that use of bulk drugs in the preparation of compounded medications is, under strict interpretation of the Federal Food Drug and Cosmetic Act, illegal because it results in the production of an unapproved new animal drug. Preparation, sale, distribution and use of unapproved new animal drugs are in violation of the Act.

However, the preparation of compounded medication from bulk drugs may be permissible in medically necessary situations but only where there’s no approved product available, the needed compounded preparation can’t be made from an FDA-approved drug, and where the compounding involves only FDA-approved drugs in compliance with federal extra-label drug use regulations subject to the rules and regulations set forth by the appropriate governmental regulatory bodies that pertain to the country or province where the veterinarian practices.

  1. Legal compounding requires a valid veterinarian-client-patient relationship, with its use limited to unique needs in specific patients, limited to situations in which a physiological response to therapy or systemic drug concentrations can be monitored, or situations for which no other method or route of drug delivery is practical.
  2. Remember that compounded drugs haven’t been evaluated by the FDA approval process for safety, efficacy, stability, potency and consistency of manufacturing. For this reason, you:

> Cannot assume that compounded drugs are consistent from one batch to another.
> Cannot assume that the compounded drugs contain the stated amount of drug substance or the desired drug substance.
> Cannot assume that the compounded drugs are safe and efficacious for the intended use.

  1. Remember that compounding pharmacies operate in a dynamic regulatory situation; laws, regulations and guidelines might vary widely from state to state. For this reason, make sure the compounding pharmacy you use is licensed in the state in which you practice.
  2. Proactively seek to educate yourself on regulations concerning compounded medications.
  3. Beware of pharmacies using trademarked brands in their literature to promote “look-alike” compounded products.
  4. Beware of firms that appear to disregard federal, state and local laws, regulations and guidelines concerning disposition of compounded drug products.
  5. Understand that compounding drugs to mimic licensed, FDA-approved drugs is illegal.

> You cannot use compounded “look-alikes” as substitutes if there’s an FDA-approved product in the appropriate dosage form that can be used for the specific patient indication.
> A decision to use compounded products in lieu of appropriate FDA-approved products is illegal and may jeopardize the patient and the veterinarian’s liability insurance.

  1. Contact your state pharmacy boards concerning the reselling of compounded products–some state boards reportedly require compounded drugs to be dispensed at cost; others allow a regular markup.
  2. Consider the legal, ethical and clinical ramifications when making recommendations concerning the use of compounded medications for their patients. You should:

> Provide information about the benefits and risks of compounded drugs, as it’s important to an owner’s decision about therapy.
> Understand the concept of “Standard of Care.” One acts below the standard of care when he/she fails to exercise the level of care, skill, diligence and treatment that’s recognized as the standard of acceptable and prevailing veterinary medicine.

  1. Understand your professional liability policy may or may not respond to allegations of negligence arising from the use of compounded drugs. If you’re insured with AVMA-PLIT, you can review comments at
  2. Don’t miss the opportunity to form a relationship with a pharmacist experienced in compounding who, when medical necessity exists for a specific patient, can produce the best possible compounded product and discuss related product expectations. (bug)


Denise E. Farris is a litigator practicing equine, insurance, defense and construction law in the Kansas City area. She’s a nationally known equine-law attorney and, in addition to writing numerous articles, has been a featured speaker at local, state and national symposiums, including the National Equine Law Practitioner’s Conference, the National Farrier’s Convention, the National Multiple Trail Users Conflict Symposium and the North American Trail Ride Conference. She’s an avid equestrian who competes in endurance and competitive-trail riding events.   


DISCLAIMER: This article provides general coverage of its subject area. It’s provided free, with the understanding that the author, publisher and/or publication do not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The author and publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.


© Denise E. Farris, Esq. All rights reserved. This article may not be reprinted or reproduced in any manner without prior written permission by the author. Contact: The Farris Law Firm, LLC, 20355 Nall, Stilwell, KS 66085; (913) 685-3192; FAX (913) 685-3292; e-mail,

ADR in Equine Disputes

ADR in Equine Disputes
ADR – A Cost Efficient Alternative To Litigation

It’s a familiar situation.  You’ve either purchased or sold a horse and the deal has gone south.  For one reason or another, one of the parties is dissatisfied and is making demands which the other party believes are unfair or unjustified.  You’ve reached a stalemate where it appears the only options are living with the deal, or litigating.  However, the thought of litigation is scary.  How can you estimate the litigation costs?  What interruption impact could it have on your  business?  Your reputation?  What (horror!) if you lose?  All of these are valid questions which apply to any business dispute directed towards litigation.  So is there any other choice?

Click here to see this article in Equine Veterinary Management magazine (.pdf format).

Most people are unaware they can submit their disputes to voluntary ADR, or “Alternative Dispute Resolution”.  ADR is a dispute resolution mechanism that has been widely and successfully used for centuries.  Remember the famous Bible story of Solomon presiding over the two women claiming one baby?  Solomon’s role essentially involved elements of ADR.  In modern practice, ADR has not only been employed successfully over the past thirty years or so but is now required by many courts as part of the litigation process in an effort to clear clogged litigation dockets. ADR is ideally suited for the equine disputes, where the amount of damages is often limited but the facts and parties have a high emotional investment in the dispute.  By utilizing an ADR process, the parties can quickly and cost-efficiently resolve the dispute, feel as if they have had their “say” in the matter, and move on with the lives and businesses.

In considering ADR methods, recognize that there are distinct differences between the two ADR mechanisms:  Arbitration and Mediation.  Briefly summarized, arbitration is more formal, is conducted by a neutral third-party who sits as a “judge” even though that person is not required to be a legal judge, and the arbitrator’s decision is binding (that is, the decision of the arbitrator is final and in most instances cannot be legally challenged or appealed).


In contrast, mediation is less formal, involves a neutral third party mediator who actively participates in the discussion in an attempt to move the parties towards compromise. Unlike arbitration, the mediation process is non-binding (that is, the mediator does not issue a binding decision and either party can elect to terminate the settlement negotiations at any time).


In both arbitration and mediation, all parties must voluntarily consent to submit the matter to the arbitration or mediation process.  Such consent is required in writing in the arbitration process but can be verbal in the mediation process. The key is that neither party can force the other to submit to either arbitration or mediation against their will.


There are also significant differences in the arbitration versus mediation process.  In arbitration, the parties agree to submit the matter for consideration to a neutral, third-party arbitrator who typically has received formal training as an arbitrator.  The parties have the ability to chose, through mutual consent, their arbitrator or mediator.  This factor alone can be beneficial in equine cases as it allows the parties to seek someone familiar with industry practices, a benefit not always available in the judicial process.  The process can be an informal process, or the parties can agree to submit the dispute to arbitration under set rules established under the American Arbitration Association (“AAA”).  The process can be conducted through AAA offices or elsewhere if the matter is not being arbitrated under the AAA’s jurisdiction.  In arbitration, the parties jointly decide how to manage discovery, witness depositions (if needed), and the time and manner for the arbitration hearing.  In most instances, the parties agree up front as to a mutual exchange of documents intended to be used at arbitration and a date prior to the hearing to exchange the documents. The arbitrator hears the evidence, much as a judge would, but can interrupt at any time to ask questions or request clarifications. The arbitrator then issues his or her decision, which can be detailed or simply a summary disposition of the case, depending on the level of detail requested by the parties.  The arbitrator’s decision is then registered with the local court as a “final decision”, and typically cannot be challenged legally or appealed except in limited circumstances involving:  (1) evidence of arbitrator bias which affected the final judgment, or (2) evidence that the arbitrator exceeded his or her authority.  Directly contrary to a legal case, the arbitration decision CANNOT BE APPEALED OR CHALLENGED for errors of law or misjudgments of fact.  This is perhaps the largest drawback to arbitration, particularly where a dispute is based upon novel or “first-case” impressions of law.  In such cases, the dispute may be best suited to litigation where a losing party has the right to appeal if it feels an error of law has been made.  However, the appealing party must recognize that the appeal process adds one more layer of legal fees to an already costly proceeding.  These accumulated legal fees are limited through the ADR process’s quick resolution timeframes.


As a more informal dispute resolution mechanism, mediation does not involve a quasi-judge person but instead employs a neutral third party facilitator who listens to the claims of both sides, then typically splits the sides into separate rooms and moves from party to party, discussing the facts and the law of the dispute, in attempting to facilitate a settlement.  The statements and opinions of the mediator, while non-binding, can be helpful in allowing both sides to consider the strengths and weaknesses of their case to determine whether compromise and settlement may not be the best alternative.  Statements made by either party during the mediation process are deemed confidential and cannot later be used against the party in court.  Contrary to arbitration, mediation is non-binding and either party may elect to terminate the mediation at any time, or to agree to continue settlement discussions even if settlement is not achieved at the time of the mediation. Even where the mediation is not successful, both parties receive a more impartial review of their case which can be beneficial in moving to litigation, if necessary.


If you currently have a case that is heading towards litigation, consider the following chart and then ask your lawyer if arbitration or mediation may not be the better and more cost-efficient alternative for dispute resolution.



This article provides general coverage of its subject area.  It is provided with the understanding that the author, publisher and/or publication do not intend this article to be viewed as rendering legal advice or service.  If legal advice is sought or required, the services of a competent professional licensed in your state should be sought.  The author and the publisher shall not be liable for any damages resulting from any error, inaccuracy or omission contained in this publication.


© Denise E. Farris (September 2004).  All rights reserved.  This article may not be reprinted nor reproduced in any manner without the express permission of the author, who can be contacted at: Denise Farris, Farris Law Firm, L.L.C., 20355 Nall, Stilwell, KS  66085.  Tel: 913-685-3192. Fax: 913-685-3292. Email:

An Affirmative Action Prognosis

Recent shakeups in the make-up of the United States Supreme Court have left many groups wondering about the future of affirmative action. Since the 1989 seminal decision of City of Richmond v. J. A. Croson, affirmative action policies at the local, county, state and federal levels have been under constant constitutional attack.

The Croson decision, authored by Justice Sandra Day O’Connor, established the principal that affirmative action goals could no longer be quotas unrelated to the actual availability of minority and women contractors in an area. Programs were thereafter required to be more narrow in their focus, and to specifically address and remedy past discrimination against those groups. The Croson decision was thereafter adopted in subsequent litigation impacting state and federal programs.

Croson was a key constitutional decision which, while it narrowed the boundaries of affirmative action, nonetheless kept those programs alive. Croson author and Supreme Court Justice Sandra Day O’Connor, the fifth and therefore swing vote on all recent affirmative action cases, later admitted in interviews that her support of affirmative action was based in part upon her recognition that discrimination continues to exist and must be addressed in some form. This view was most likely influenced by O’Connor’s early inability to secure work as an attorney following her graduation as a top student from an Ivy League law school, where she was actually a classmate of Chief Justice William Rehnquist.

In those cases challenging affirmative action programs after Croson, the dissenting votes were typically cast by conservative Justices Antonin Scalia and Clarence Thomas, the only minority Justice on the Court. Both Justices wield tremendous influence on the court and per the esteem from the White House. Both Scalia and Thomas denounce affirmative action programs as creating the concept of a “creditor/debtor race”. They claim the programs do not benefit women and minorities but in fact exacerbate an appearance of inferiority where the programs foster dependence and prohibit the program recipients from reaching their full potential.

With the recent death of Chief Justice Rehnquist and his replacement with conservative Chief Justice John Roberts, it is expected that Roberts will continue to view affirmative action programs with strong skepticism. However, the key swing vote will be the individual who ultimately fills Sandra Day O’Connor’s shoes. Nominee Harriett Myers, strongly opposed by conservatives from President Bush’s own party, would likely be close to the moderate voice that Justice O’Connor brought to the court. For this very reason, current legal and political watchdogs speculate that Myers’ nomination will either be withdrawn or she will be pressured to withdraw, thus allowing Bush’s appointment of a strong conservative. Should this happen, all groups should prepare to see swift and significant changes in affirmative action.

But what to expect? In nearly every dissenting opinion authored by Justices Scalia or Thomas, they identify their support for race neutral small business incentive programs which, by their nature, have a disproportionate beneficial impact on women and minorities while still allowing white men to participate. To withstand constitutional challenges under a more conservative court, the following race neutral measures for all small business owners should be developed and expanded in all current affirmative action programs, including:

  1. Special training programs
  2. Technical and business assistance programs
  3. Bonding assistance programs
  4. Mentor/protégé programs and incentives for further development of same
  5. Anti-bundling measures (ie breaking up government contracts into smaller components capable of small business performance), and
  6. More stringent prompt payment mechanisms

The more race neutral measures within a program, the less susceptible that program will be to subsequent legal challenge by what appears to be Bush’s legacy of a substantially more conservative United States Supreme Court.

© Denise E. Farris (October 2005). All rights reserved. This article may not be reprinted nor reproduced in any manner without the express permission of the author, who can be contacted at: Denise Farris, Farris Law Firm, L.L.C., 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192. Fax: 913-685-3292. Email:

Is Certification Worth the Hassle?

Seeking certification for your minority- or woman-owned business may even be your civic duty!

The certification process for minority, woman or disadvantaged business enterprise status is detailed and time-consuming. To ensure against potential program abuse, the process requires an applicant to submit detailed information concerning company ownership, bylaws, financing arrangements, purchase agreements, customer lists and other confidential information. If an applicant has a non-minority or non-woman partner or relative involved in the business, the interview process evaluating “ownership and control” can be offensive. In addition, being classified a “disadvantaged business” makes the business owner appear—well—disadvantaged. Many small business owners wonder if certification is really worth the hassle. The answer is “yes,” for a number of reasons:

Government Clients are Large and Consistent Clients.

In times of economic boom or bust, government clients, whether federal, state or local, can be the largest purchasers of goods and services, cumulatively representing purchasing power in the multi-billion dollar range.

Higher Certification Numbers Create Additional Opportunities for all Small Businesses

Recognizing that small business is an important element to a strong economy, government procurement tracks and then attempts to create special opportunities for small business. As most minority and women-owned businesses are small businesses, the recognized increased growth of these businesses justifies higher budgets for overall small business development. Higher budgets, in turn, mean more government programs and/or incentives providing all small business owners with greater loan, investment and training programs.

Certification Provides Constitutionally Required Proof

To withstand legal challenge, any affirmative action program must show: a) a compelling government interest (i.e., the remediation of past discrimination against specific groups), and b) a program “narrowly tailored” to address that compelling government interest (i.e., that it defeats discrimination against the identified group without being overbroad or under-inclusive in its application). The certification process provides data to show that these two tests are being met.

Certification Provides Statistical Data

The certification application performs many functions necessary to sustaining not only affirmative action programs, but also small business programs in general. The certification application:

  • Identifies a specific company as either minority, woman-owned or disadvantaged.

The application first requires you to establish your status as either a minority, woman-owned, and/or disadvantaged business. Standard registration with the Secretary of State’s office does not accomplish this same task. Proof of status often is vital in producing the statistical information necessary to justify the program. The application also educates the applicant concerning the distinction between minority and woman-owned businesses from “disadvantaged” businesses.

Specifically, the application explains that minority and woman-owned business certification is based only on proof that minorities or women own and control 51 percent of the business. In contrast, the disadvantaged business enterprise must additionally prove that it is under a certain size threshold as measured either by number of employees or gross annual receipts based on its industry; and also that its 51 percent owner has a personal net worth below an established range.

  • Identifies “availability” to provide a certain product or work scope.

Following recent U.S. Supreme Court decisions, a governmental procurement may not identify a goal for certain certified business products or services unless it can prove availability of companies capable of providing those goods or services. Thus, if a municipality wishes to create a goal for certified business participation in building a nuclear power plant, it must identify scopes of work in which two or more companies are capable of performing. Thus, certification is especially important in those areas in which few minority or woman-owned businesses operate.

In many instances, a city, county or state’s directory of registered certified companies per product or scope of work performed is available online, enabling companies immediately to see and identify areas where additional certification is required.

  • Creates visibility and places your company in the information pipeline.

Once you’ve been certified, your company is entered into a government database, which enables prompt communication regarding procurement opportunities. In addition, your company typically is listed on a government online directory, which enables other companies and contractors seeking certified companies to identify you, according either to your company’s name, or the product or scope of work you provide. This advertising element of certification can often be invaluable.

  • Enables the government to identify and regularly update vital statistics.

The statistical underpinnings of any affirmative action program are its most vital defense against legal challenges. If you have not certified, how can a government justify programs aimed at assisting small minority or women-owned businesses? How can it determine how many of those businesses exist within its jurisdiction? How can it determine what percent of government businesses those minority and woman-owned or disadvantaged companies are securing? Certification provides an efficient method enabling the government to answer these important questions on a quarterly and annual basis.

For all of these reasons, certification certainly is worth the hassle. And, when you look at it in terms of justifying additional funding for small business development programs, you might even say it should be viewed as a small business owner’s civic duty. And well, it’s just good business!

Denise Farris practices commercial construction, business and equine law. She has served as the past chairperson of the Missouri Bar Construction Law Committee and the Kansas City Metropolitan Bar Committee. She is a member of the national steering committee of the American Bar Association’s Forum on the Construction Industry. She can be reached at (913) 685-3192 or

© Denise E. Farris (September 2005). All rights reserved. This article may not be reprinted nor reproduced in any manner without the express permission of the author, who can be contacted at: Denise Farris, Farris Law Firm, L.L.C., 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192. Fax: 913-685-3292. Email:

Managing Veterinarian Malpractice Exposure

Top risk-management strategies every equine practitioner needs to know.
By Denise Farris, Esq.

Veterinary medicine can be an imprecise science. In contrast to human medical care, you deal with a mute patient who can’t verbally communicate his symptoms. When diagnosing and treating your patient, you must rely on descriptions by owners, which can be incomplete or flawed.  (For more on the fallibilities of client reporting, see Client Corner on page xx.)

Under these circumstances, undesirable consequences sometimes occur, despite your best efforts. Your equine patient might fail to fully recover from an injury or illness.  You might lose, or in the alternative need to euthanize an animal. These consequences can be particularly catastrophic for the equine veterinarian, where the value of the animal is usually significant.

Further, many owners now view their horses as “companion animals,” similar to house pets. This in turn opens the door for higher damage recovery in legal actions, through claiming an owner’s emotional distress. All of these factors translate into higher professional-liability premiums.

Despite the daily risk of malpractice exposure, there are many steps you can and should take to manage this exposure. These include implementation of standard daily operating procedures, good recordkeeping, optimal client communication and industry efforts for statutory reform. I’ll detail each of these steps on the following pages. But to manage something you must first understand it, so I’ll start by defining what we mean by “malpractice.”

What is Malpractice?

The term “malpractice,” from a legal standpoint, requires proof of certain elements. These elements, paraphrased, are: the existence of a duty by the veterinarian to treat the animal; a failure to meet the standard of care expected, as measured against practices in either that location or within that particular discipline; injury or death resulting in the loss of use, diminished value or death of the animal, and causation (evidence that the damages were directly caused by the negligence of the vet and not some other intervening or contributory cause).

These factors are called the “prima facie” elements of a lawsuit, and must be pled with enough particularity in the initial petition to avoid an early motion to dismiss the lawsuit. While somewhat different, these same elements are at play whenever a disciplinary complaint is evaluated. Where malpractice is alleged, a disgruntled owner can elect to file a professional disciplinary complaint against the alleged offender, a lawsuit for civil damages or both.

There’s nothing as unpleasant as being the accused in a malpractice action. You should therefore implement practices by which you either avoid such allegations, or permit an early defense and dismissal of frivolous claims. However, many malpractice lawsuits must run the full course in court simply because of the poor recordkeeping practices of the accused practitioner. Most practitioners agree that they would’ve kept much better records if they’d known they’d be in court. So isn’t this a great time to assume that possibility and start writing everything down?

Personal Risk-Management Tools
You can’t eliminate the possibility of being sued by a client, but you can manage the risk that the case will go to court by implementing two strategies into your day-to-day practice routine. Here’s how.

* Keep a professional-development record. On an individual basis, one of the most important elements for managing malpractice is to keep current with industry standards in terms of professional development. While most practitioners accomplish this, many don’t keep a concise record of annual activities they’ve undertaken to do so. This record should include: 1) a report identifying all continuing-education courses you’ve taken in a year by dates, course title(s), location and credits; 2) a report identifying all industry journals you subscribe to and review on a regular basis; 3) a report identifying all industry conferences you attend, articles you write, or any other factor which identifies your expertise and continuing attention to state-of-the-industry developments. (While you should develop this record yourself, see the “Professional Development Record” form on page xx to get started.)

Tip: Not only is this record a great risk-management tool, but it also is invaluable in marketing your practice. Most clients respect the effort you make to excel in your discipline and will often use your medical expertise to sing your praises to potential referrals.

* Keep daily written records. Unlike the small-animal veterinarian who typically practices out of an office, you’re often required to travel to your equine patients. Many use this as an excuse to skip detailed recordkeeping. However, good recordkeeping is often one of the most important factors in risk management. By doing so, you’ll:

> Create a master sheet that quickly reminds you of the animal’s treatment history, known medical conditions or allergies, etc.

> Address presenting symptoms and treatment in a more deliberate, formalized process than you would otherwise.

> Create a contemporaneous written record of the presenting symptoms, as communicated in the words of the owner.

> Create a contemporaneous written record, authored by you, as to the presenting symptoms, conditions and treatment.

> Educate the owner as to reasonable expectations concerning diagnosis, treatment, follow-up and remaining uncertainties beyond your control.

> Establish that your care was in accordance with industry standards within that area or discipline.

> Create a document that, in many instances, will be instrumental in the early dismissal of a disciplinary complaint or lawsuit.

Recordkeeping Tips  

You can streamline daily recordkeeping by creating standardized forms (i.e., a Patient Summary Form and a Standardized Treatment Form), using computer software, using carbonless memo pads, and/or by dictating records rather than writing them down. Here’s a rundown of each recordkeeping method.

* The Patient Summary Form. Each equine patient you treat should have a master record, which generally summarizes the animal’s medical history. (See the “Patient Summary Form” on page xx to get started; modify this form to meet your own particular practice needs.) Review the patient’s medical-history sheet and, if possible, take it with you to the treatment area. This will allow you to reference and update the record at the time of treatment. (For technology that will help you tote and update patient records in the field, see Practice Pointers on page xx.) This sheet should include:

> Information concerning the owner (i.e., name, address, telephone number, fax number, Social Security or Federal Employment Identification Number, etc.).

> Whether there are multiple owners of the horse. As horses are sometimes owned by multiple parties, be sure to identify all owners in the event a life-and-death situation affects the animal. If this occurs, be sure to secure a written statement that the owner you’re dealing with has authority to make these decisions on behalf of all other owners.

> Information about the horse (i.e., name, breed, sex, age and owner’s estimated value, as determined by purchase price, insured value or other factors). This information, when provided before any issues arise, can be an important record in establishing the actual worth of the horse before litigation ensues.

> Any unique characteristics of the horse from a treatment-history perspective (i.e., prior history of colic, founder or laminitis; prior surgeries; known food, drug or other allergies; history of abuse or neglect; history of breeding problems, etc.)

* The Standardized Treatment Form (Call Sheet). This form, at a minimum, should identify: the date; time of initial call; time of arrival at destination; owner or contact name; animal name and information; presenting complaints as identified by the owner, preferably in the owner’s own handwriting; diagnosis; treatment provided; follow-up care to be provided by the owner; date of next examination, if required, or referral to a third party; and a generalized disclaimer. (See the “Call Sheet” form on page xx to get started; modify this form to meet your own particular practice needs.)

* Computer software. Practice-management software is available to help you keep track of patient history, treatment, etc. You can also input and update customized forms. For a listing of several software companies to get you started, see Practice Pointers on page xx. Caveat: Print out a hard copy of each form at the end of each business day, and make backup files on disk, in case your hard drive crashes.

* The carbonless memo pad. This pad should include the same information listed in the Standardized Treatment Form. However, since this pad is essentially a blank page, you’ll need to hand-enter all of the headings and information. For convenience, ask your local printer to create a carbonless form that includes the pre-printed headings identified above. After completion, pull off the top copy, give it to the owner, then file the bottom copy in the client/patient file when you return to your office.

* Dictation. If you’re reluctant to complete the necessary paperwork by hand, you can opt to simply use dictated notes concerning the treatment. You can buy a small, handheld Dictaphones from any office-supply store or department store for less than $25. Then you have your dictation transcribed by a staff member or outside transcription service. (Look in the Yellow Pages under the “Transcription Service” or “Temporary Secretarial Service” heading.) The disadvantage of this system is that you won’t have an immediate record to give to the owner. However, that said, the dictated daily record is still a powerful tool capable of defeating a complaint or lawsuit, as measured against months-old memory and an old bill.

* The calendar-entry follow-up. When completing and filing the forms outlined earlier, you should also get into the habit of immediately docketing a calendar entry reminding you of required follow-up. If no formal follow-up is required, you might perhaps docket a simple courtesy call to check on the patient’s status. Although unnecessary, this type of call represents that personal touch and value-added service that really impresses an owner and distinguishes you from your competition! In addition, this type of personal follow-up might, at some future date, be the critical factor in defeating owner thoughts of a formal complaint or proceeding. While often ignored, the respect, trust and relationships built upon these extra personal touches makes it less likely a client would be willing to sue you.

Proactive Insurance Management

As an equine practitioner, you need to understand the importance of professional-liability coverage, and frequent and ongoing communication with your carrier as to the nature of your practice. Otherwise, you’ll ignore an important tool in the arsenal of malpractice defense.

Why do you need insurance, particularly when it seems so expensive? First, in completing the initial insurance application, you’re required to think about and define the nature and intended scope of your business. This invaluable business-planning tool is often overlooked in the rush to get your practice up and running.

As you complete and discuss the application with your agent, seek the agent’s guidance regarding your planned activities, the agent’s perceptions as to unnecessary risks or exposures you can avoid, the agent’s suggestions as to coverages and limits and, most importantly, the agent’s identification of standard policy exclusions and available riders to put those exclusions back into the policy.

Policy-exclusion analysis can be detailed and confusing. Ask your agent for a list of policy riders and an explanation of each rider. Understand that if coverage is provided only in an insurance-policy rider, it isn’t part of your standard coverage. If you feel you need the rider coverage for your particular practice, get it. It’s usually a wise investment.

Next, note that in developing a rapport with your agent and familiarizing your agent with your daily operating procedures, you may be able to position yourself to request some type of premium discount. Insurance companies are interested in representing clients with strong risk-management practices in their businesses. Such practices equal lower exposure to insurance claims and a corresponding ability, if necessary, for insurance defense counsel to secure early dismissals of frivolous lawsuits.

Thus, the stronger and more detailed your risk-management plan, the more likely you’ll qualify for a premium discount. Therefore, provide your agent with a detailed description of your business, a copy of any risk-management procedures you follow and a copy of any forms you use that apply to your risk-management activities (such as those outlined earlier).

The final, and most significant benefit provided by your professional-liability coverage, is that it provides two critically important elements: cost of defense and damage coverage. In many instances, a malpractice case may be filed but may ultimately be dismissed in pre-trial motions, or taken to trial with a verdict in favor of the practitioner. While legally vindicated, the cost of legal representation can often run anywhere from $5,000 to $25,000 or more. Your insurance policy typically covers these “defense costs” within the limits of the policy. In most instances, the value of this benefit vastly exceeds the total amount of premiums you pay over a course of years.

In addition, if you’re ultimately found at fault, the policy, in addition to your defense costs, also cover the judgment assessed by the court or jury, again within the policy limits and subject to the amount of legal defense fees paid. For these reasons, it’s vitally important that each practitioner carry liability coverage in amounts sufficient to adequately cover the highest level of damage exposure, as well as litigation costs.

Proactive Group-Risk Management

As a collective group, veterinarians are capable of exercising a tremendous amount of economic and political clout. This is particularly true in the equine industry. Every state–except for Alaska, California, Maryland, Nevada, New York and Pennsylvania–has recognized the economic significance of the horse industry and has enacted Equine Activity Liability Act statutes recognizing the unique characteristics affecting professionals who deal with horses.

Thus, the veterinary industry, through coordination with such national groups as the American Veterinarian Medical Association, should aggressively lobby to enact veterinarian malpractice legislation barring malpractice actions unless expert pre-certified as exhibiting evidence of negligence.  These types of statutes have been in play in most states in the human medical malpractice arena.  The certification typically is required in the form of an expert affidavit which verifies that the expert: 1) has reviewed the records; and 2) has identified evidence that the alleged defendant failed to exercise that standard of care reasonably expected in his/her profession. This statutory enactment has significantly reduced the number of frivolous medical malpractice lawsuits filed.

The effect of this precertification is significant in reducing frivolous lawsuits.  In most instances, secural of such an expert affidavit is often difficult. Professionals who live in glass houses don’t like to throw stones at their colleagues. Thus, the requisite affidavit is typically not secured unless: 1) The lawyer uses a “hired gun,” who makes a living testifying against his or her professional colleagues and thus is subject to strong cross-examination as to the neutrality and objectivity in her/her testimony; or 2) the facts are so dramatic that no practitioner could honestly reach any other conclusion than malpractice was committed.  In that situation,  the practitioner’s insurance company and defense counsel should endeavor to quickly and economically settle the suit.

Similar statutes exist in a limited number of states for actions against other professionals such as engineers, architects and other design professionals. Called Certificate of Merit statutes, they operate under the same principals and have the same effect in reducing frivolous lawsuits. The Certificate of Merit statutes propose that lacking an affidavit of sufficient evidence, the malpractice action cannot be filed.

The enactment of such a statute for veterinarians should be an attainable goal.  Most state legislatures are already familiar with the concept through human medical malpractice / tort reform.  In addition, with 46 states now enacting some form of the  Equine Activity Liability Act, the legislators are also generally familiar with the horse industry in general, its economic importance, and the difficulties in working with these large and unpredictable patients.  Accordingly, the equine-veterinarian community appears to be in a particularly strong position to spearhead national legislative reform for its industry, as well as the veterinarian community as a whole. Reform is necessary. The entire industry suffers from frivolous lawsuits through higher insurance premiums, which are driving away those contemplating a career in equine veterinary medicine at a time when vets are badly needed to serve today’s horse-owning client base.


While it’s never pleasant to contemplate malpractice, such analysis remains an invaluable business-planning tool. By contemplating worst-case scenarios, you can develop internal business forms and practices that keep you out of trouble. You can effectively manage your malpractice exposure by this kind of review, as well as keeping your skills current, implementing good recordkeeping practices, keeping clear and consistent communication with your clients, maintaining adequate insurance coverage and close contact with your liability carrier and supporting efforts for national tort reform within the veterinarian industry. These tips should enable you to enjoy trouble-free dreams after a long day of caring for your large and grateful patients. (bug)

Denise E. Farris is a litigator practicing equine, insurance defense and construction law in the Kansas City area. She’s an avid equestrian who competes in endurance and competitive-trail competitions. She’s a nationally known equine-law attorney and, in addition to writing numerous articles, has been a featured speaker at various local, state and national symposiums, including the National Equine Law Practitioner’s Conference, the National Farrier’s Convention, the National Multiple Trail Users Conflict Symposium and the North American Trail Ride Conference.

DISCLAIMER: This article and draft forms provide general coverage of their subject areas. It’s provided free, with the understanding that the author, publisher and/or publication don’t intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. Forms should be modified to meet the practitioner’s individual practice and reviewed by a local attorney before use. The author and publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.



© Denise E. Farris, Esq. All rights reserved. This article may not be reprinted or reproduced in any manner without prior written permission by the author. Contact: The Farris Law Firm, LLC, 20355 Nall, Stilwell, KS 66085; 913-685-3192; fax 913-685-3292; e-mail,

Equine Business Health Check-up

Denise Farris, Esq.

We have now discussed the EALA statute, liability waiver, and collections tools.  Utilize the following Equine Business Health Check-Up to determine whether your equine business practices are offering you maximum protection.

  1. Am I Using Appropriate Contracts?

A written contract can maximize your legal protection.  The wrong right contract could expose you to needless and potentially devastating liability.  Use of professionally drafted contracts may result in insurance premium savings.  Not only is it important to use such contracts, they must be executed and used properly.
If you are not currently using written contracts, you may worry about how your customers will react.  If contracts are presented in the proper manner and with a positive approach, most people will respond in kind.  A contract creates the opportunity to clarify each party’s understanding of the terms and conditions.  Use of contracts will often assure the customer that the stable is a well-managed and professional business.

Practical Example: 
An equine client implemented a new boarding contract which required the owner to specifically authorize and establish the parameters of acceptable emergency medical care for the horse in the owner’s absence.  The boarder was thus forced to consider, before an accident occurred, exactly what her instructions would be with respect to this previously unanticipated but extremely common situation.

  1. Does my contract language track my state’s Equine Activity Liability Act?

Most states, which have passed some form of the Equine Activity Liability Act, require special warning language in all contracts used by the equine business.  The language must track the language of the statute.  It warns participants of the inherent risks of equine activities.  If your state requires this contractual warning, and you do not include it, you will most likely be unable to take advantage of the special liability protections provided by the statute.

Practical Example: 
An equine boarding stable included a participant warning which did not exactly track the language of the statute.  A participant was injured and sued.  The stable’s attempts to dismiss the suit under the Equine Activity Limited Liability Act failed, because there existed an issue as to whether the contract warning language strictly complied with the statutory warning requirements.

  1. Have I trained my employees to properly execute contracts?

Contracts must be signed by every customer or participant.  If anyone is under the age of 21, their parent or legal guardian must also sign.  Make sure that your customers understand the terms of the contract.  Honestly answer any questions they may have.  Be sure all blanks are filled in.  Never hand a contract to a customer and ask them to immediately sign.  Sufficient time should be allowed to give them time to thoroughly read and understand the agreement.  When the signed contract is returned, ask if they read and understood the contract.  DO NOT DOWNPLAY THE CONTRACT FORMALITIES.  Your contracts are there to protect you.
Review the signed contract to ensure that it is completed fully.  Areas that require special attention should immediately be noted and resolved.  Return a copy of the executed agreement to the customer and retain the original for a minimum of five years.

Practical Example: 
An equine business owner permitted the trainer to handle execution of all contracts.  The trainer reviewed only the last page signature line, but did not review all pages of the contract.  Following a serious accident, the owner discovered that the contract forms had all been turned in without signatures next to the liability waiver, rendering the waiver useless.

  1. Do I regularly update my contracts?

All contracts should be reviewed annually.  An updated contract should be executed each year to account for changed circumstances, language update to comply with statutory changes, stable procedure changes, and/or new fee schedules.

Practical Example
:  An equine business owner required execution of an original boarding contract that granted a security interest in the horse for unpaid board.  The horse was subsequently traded for a new horse, but the Stable did not require the owner to execute a new contract.  When the owner fell behind in board payments, the Stable subsequently found it had no contractual grounds for perfecting and foreclosing on its security interest where the old contract was inapplicable to the new horse.

  1. Do I include a security interest clause in my contracts?

When a horse’s board remains unpaid, you remain obligated to pay ongoing maintenance costs until the payment dispute is resolved.  A good contract will notify your clients of your intent to claim an agister’s lien and perfected security interest in the horse, permitting you to sell the horse to collect unpaid board and training fees.  Even if never intend to sell the animal, a well worded letter, enclosing the contract language which permits you to do so, is generally sufficient to compel payment of the debt.

Practical Example: An equine client provided training to a green hunter/jumper.  That particular state’s agister lien permitted liens based upon “stipulated fees.”  Following extensive training, the horse began to successfully compete at the Grand Prix level, but the owners were seriously delinquent in payment of board and training fees.  Where the training was provided under a verbal contract, and where there was no express agreement as to “stipulated fees” for the training, the trainer was unable to establish a lien against the horse.  The owner was able to remove it from the Stable and sell it at a greatly appreciated value without first compensating the trainer for the time and expense invested.

  1. Do I maintain the appropriate detailed business records?

All businesses should keep detailed records.  It is recommended that you keep copies of all executed contracts and liability waivers FOR AT LEAST 5 YEARS.  This includes any old contracts, even if they have been updated by new contracts.
In addition, implementation of certain additional forms may assist in speedily resolving a lawsuit under your particular state’s Equine Activity Liability Act.  These forms should include:

a) Horse Evaluation Forms.       Should be completed for every lesson horse.  Forms should be updated at least twice a year, or as required by circumstances.  The form serves as evidence as to a horse’s character and or known propensities.

b)  Rider Evaluation Forms. This form should be filled out before the rider’s first lesson.  It should include information provided by the rider as to their experience and include the instructor’s evaluation of the rider’s ability following their first ride.  It should be updated at least twice a year, or as required by additional lessons or an incident.  Such records should be kept confidential.

c)  Tack Identification and Maintenance Forms.  All tack used by a stable should be inventoried with maintenance and cleaning dates documented.  This is to limit the stable’s liability for injuries resulting from broken or defective tack.  Many states liability statutes provide that a stable WILL BE LIABLE for injuries  resulting from faulty tack which the stable “knew or should have known about.”  Keeping adequate records of your tack, showing that you check and clean the tack on a regular basis and make repairs as needed, can show that you did not know and could not have known of any faulty tack.  Tack should be checked, cleaned, evaluated and repaired on a regular basis.  A separate Tack Identification and Maintenance Record should be used for each piece of tack.

Practical Example: 
A green rider represents on the Rider Evaluation Form a much higher experience level than is warranted.  The rider is accordingly given a more advanced horse.  The rider fails to adequately fasten the girth and is injured when the saddle slips.  The stable avoids a lawsuit by:  1) showing the stable’s reasonable assignment of the horse based upon the rider’s own representations as to skill, and 2) showing that the saddle slip could not have occurred due to faulty tack, where the girth had been cleaned and checked the prior week.


  1. Have I recently inspected and safeguarded the premises?

Approximately every six months, a comprehensive review of the farm should be made.  A “Premises Inspection Report” should be filled out in order to document such inspections.  The inspection should examine and record inspection results for the following:

a) Fire Extinguishers. Fire extinguishers should be placed in several places throughout the barn and all outbuildings.  The fire extinguishers should be checked frequently to ensure they are in proper working condition.

b) All horse stalls should be closely scrutinized to ensure safety for all people and horses.  Stalls should be lined with wood in order to prevent exposure to metal surfaces.  Make sure all boards are secure and no nails or screws are protruding.  All feed troughs/bins and water buckets should be checked for safety.  Light fixtures should be high enough so that the horse cannot reach or otherwise interfere with them.  Stall latches should be adjusted in order to prevent injuries to horse or tack damage when moving through doorway.  If a horse presents any danger to people, the stall should be properly reinforced to prevent such exposure to the public.  Any stalls occupied by problem horses (biting, kicking, charging) should have a warning sign clearly identifying the dangers presented.

c) Aisle/Alley Ways. All aisle or alleyways should be kept clear of obstructions at all times.  Make sure there are no protrusions that could potentially injure a passing horse or rider.  All ties and cross-ties should be checked for safety and replaced as needed.  Any dangerous areas or areas where people and/or horses are not permitted should be clearly marked.  Alleyway surfaces should be appropriate, with no slick surfaces.

d) Tack Rooms. Ensure that tack rooms are in good condition.  All tack rooms should have a fire extinguisher near the door.  All special instructions should be noted by posting signs.

e) Feed/Hay Areas. Such areas should be well ventilated.  Feed and hay areas should be secured, so as to prevent entry of horse if horse becomes free.  Obviously, all feed and hay areas should be designed “NO SMOKING” areas.  In fact, the stable, as a whole, should be designated a “NO SMOKING” area.

f) All arenas should have a fence or barrier high enough to accommodate the use intended.  It is recommended that all arena partitions be AT LEAST 3’ 6” high, and constructed out of materials suitable to create an adequate barrier.  All fences and barriers should be checked for protruding nails.  Arenas should be of an adequate size to accommodate the number of horses, riders, and riding styles utilizing the premises.  Arenas should be clear and free of obstructions and hazards.  Footing should be appropriate for the use intended.  Check for any rocks and holes in arena and repair as necessary.

g) If applicable, check all riding trails to ensure they are properly cleared and safe to ride through.  Footing should be checked, and any dangerous conditions remedied.  Any areas which present hidden or concealed hazards should be identified by posting a warning sign or marking with yellow caution ribbons.

h)  Where applicable, fences should be of an appropriate height and material for the intended use.  All fences should be checked for safety, sturdiness and protruding nails, and repaired or replaced as necessary.

i)  Driveways should be kept clear of all obstructions.  Parking areas should be clearly marked and enforced.  Trailer parking areas should also be clearly marked and enforced.

j) Electrical Wiring. Routinely check all wiring for safety.  Any areas which present a potential danger should be tended to and repaired immediately.

k) Emergency Procedures. Make sure that emergency numbers are clearly posted near all telephones.  The stable staff should also be trained in emergency procedures, including emergency evacuation procedures and standard procedures for handling accidents and injuries.

l) Dogs and Pets. Vicious or noisy dogs or other pets must not be allowed to roam freely when visitors are on premises.  Dogs and lesson horses are not a good mix.

m) “Attractive Nuisances.” Vicious or unpredictable horses should not be housed or turned out into pens that are highly visible or accessible to the public, where innocent children who cannot read warning signs may be attracted to them.  This includes stallions, mares with foals and horses with known dangerous tendencies.

n) Dangerous Horses. Do not keep dangerous horses in a public section of a stable.  Harboring a known dangerous or vicious horse can make you liable for damages if the horse harms someone.  If such a horse is kept on the premises,  be sure that the horse is properly enclosed and that adequate warning signs are posted.

Congratulations!  You have just completed a much needed health check of your equine business.  Now measure your results and determine what additional treatment is necessary!



  1. If you answered “Yes” to 5 or more of the above questions, you receive:  AN EXCELLENT BUSINESS HEALTH RATING.  Prescription:  Keep up the good work.!
  1.  If you answered “Yes” to between 3 to 4 of the above, you receive:  AN AVERAGE BUSINESS HEALTH RATING.  Prescription:  Better spend some time fine tuning some of your business practices to avoid future illness.


  1. If you answered “Yes” to 2 or less of the above, you receive:  A SERIOUSLY ILL HEALTH RATING.  Prescription:  Time to: (1) take some drastic remedial action, (2) get out of the business, or (3) begin saving for your own self-funded insurance to cover that lawsuit lurking just around the corner.





This handout provides general coverage of its subject area. It is provided with the understanding that the author, publisher and/or publication does not intend this handout to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional licensed in your state should be sought. The author and the publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

© Denise Farris, Esq., Farris Law Firm LLC.  (May 2005). All rights reserved. This document may not be reprinted nor reproduced in any manner without prior written permission by the author. For reprint information contact Denise Farris, Farris Law Firm LLC, 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192. Fax: 913-685-3292. Email:

Learning the ABC’S of MBE Certifications

Learning the alphabet seemed a daunting business when we were small. Small business owners often find minority or women business enterprise applications similarly daunting. Like the alphabet, learning the ABC’s of certification can provide a worthwhile competitive business tool for the small business. Further, given affirmative action’s survival of various recent legal challenges, the programs are likely to remain with us for some time.

  1. What Agencies Provide Certification?

Minority or women business enterprise (MBE/WBE) certifications are typically provided by each of the federal, state and local government contracting authorities. Many of the certification requirements are similar. Many of the agencies recognize certifications already issued by other agencies. The certifications can substantially increase the business visibility of a small business. For instance, the business is listed in an MBE/WBE directory provided to companies doing business with the government. The companies rely on this directory in finding qualified MBE/WBE companies to meet the government’s utilization goals, often listed on a contract specific basis.

  1. What is Required for MBE/WBE Certification?

While varying from agency to agency, the MBE/WBE certifications require:

    1. That the company be owned and controlled by a minority or woman.
    2. That the controlling minority or woman be capable of performing the daily business management of the company.

Ownership is established through proof that the minority or woman owns at least 51% of the stock of the corporation, or hold a 51% interest in any partnership. The “control” factor requires proof that the minority or woman holds 51% control of the voting power of the business.

The owner must also prove that he or she controls the daily management of the company. This inquiry is established to eliminate “front” companies, or those companies where a minority or woman owns 51% of the company but does not manage the business. For certification purposes, the minority or woman must be capable of running most, if not all, aspects of the business. This requires more than just performing accounting functions. The certifying agency will examine whether the minority or woman has taken out personally guaranteed loans for business purposes, the professional certifications or licenses held, the technical training received, and the owner’s ability to trouble-shoot all aspects of the day to day business. If the owner does not have these full management capabilities, the owner must be prepared to show that the owners in other like or similar businesses typically do not hold all of these capabilities. In addition, if either a minority or woman owned business has strong non-minority management personnel involved in the business, the company should expect a much higher level of scrutiny from the certifying agency. For example, in the construction field, this heightened scrutiny sometimes requires the minority or woman to hold technical trade licenses, and/or to be capable of running all equipment, small and heavy, used by the business.

If the MBE/WBE owner is not present on a daily basis, or merely performs nominal management of the company, the business will not be certified. If already certified, the business will lose its certification. In addition, if it’s determined the business is not controlled by a minority or woman, the business may find itself subject to administrative, civil and even criminal penalties for fraud and/or making false claims to a government entity!

  1. What is the DBE Certification?

 Certain agencies, including the City of Kansas City, Missouri, the Missouri and Kansas Departments of Transportation, and most federal agencies, also include a Disadvantaged Business Entity (DBE) certification. The DBE certification, in addition to requiring proof of the Minority/Women ownership and control of the company, also requires proof of the owner’s social and economic disadvantage. “Social disadvantage” is presumed for any recognized minority, including African-Americans, Indians, Aleutians, Asians, and Hispanics, although this presumption is subject to third party challenge. Non-minorities can also prove “social disadvantage” through documentation of special circumstances in their lives creating the disadvantage. “Economic disadvantage” is established through the owner submitting an affidavit and backup documentation showing their personal net worth to be less than $750,000.00. Even if DBE status is granted, the certification is cancelled when the owner’s personal net worth exceeds the $750,000 threshold.

  1. What is 8(a) Certification?

The 8A certification is offered by the U.S. Small Business Administration. Similar to the local and state DBE certification, the 8A certification requires proof that:

  1. The company is 51% owned or controlled by a minority or woman, and
  2. That the minority or woman owner was socially and economically disadvantaged

Involving a more stringent evaluation process, the 8A certification is still one of the most valuable certifications available given its utilization in many large dollar federal government contracts. If the small business owner provides a product or service in large demand by the federal government, the 8a certification is a worthwhile goal to explore.

  1. Additional Agency Assistance

While it may seem overwhelming at first, the certification process can be simplified by early assistance from the certifying agency. The web pages of most government authorities now link to their MBE/WBE certification requirements. They also typically provide the name and phone number of agency personnel available to assist and answer your questions. Forms can also be downloaded from most of these sites.


This article provides general coverage of its subject area. It is provided free, with the understanding that the author, publisher and/or publication does not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional licensed in your state should be sought.

© Denise E. Farris, Esq. January 2002. All rights reserved.     Ms. Farris is a member with Husch & Eppenberger, L.L.C., in the firm’s Construction Law Group. Her expertise includes MBE/WBE/DBE certification and affirmative action issues.

Forbidden Substance – But Who Knows the Rules

The old adage “An ounce of prevention is worth of pound of cure”, is certainly applicable to the issue of equine medications.  Understanding the basic rules, and applying an overabundance of caution regarding disclosure reports, can save most owners and trainers from the pain and suffering of whispered reports of drug violations, not to mention countless dollars in legal fees should a sanctions hearing and appeal be scheduled!  The following rules will guide owners and trainers through the potential minefields of the AHSA’s Rule IV, Drug and Medication Program Compliance.


  1. Know the Difference Between Permitted, Restricted and Forbidden Substances.

“Permitted” substances are those substances medically necessary, for use with no reporting or time requirements.  These include most antibiotics (except procaine penicillin), worm medicines, anabolic steroids (except for the Arabian halter and breeding classes 3 years old and younger), corticosteroids, hormones, vitamins, minerals, nutrients, and electrolytes.


“Restricted drugs” include drugs “permitted” at certain threshold levels. These drugs may become violations when exceeding those thresholds, such as Bute and other nonsteroidal anti-inflammatory drugs. Thresholds are reported in terms of the maximum permitted plasma concentration at time of competition.


“Forbidden drugs” are those drugs determined by the AHSA to affect performance in a horse. The list is extensive, and can be found on the AHSA/USA Equestrian’s web page. In addition, many herbal or similarly “benign” products often contain one or more forbidden substances sufficient to result in a positive test and potential disqualification from show earnings.


If you are not certain whether a particular substance is permitted, restricted, or forbidden, DON’T GUESS – check directly with the USA Equestrian at:  800-MED-AHSA.


  1. Liberally Use the Medical Report to Disclose All Medications


      The AHSA rules do not forbid medically necessary treatment for horses.  Instead, Rule IV accommodates the use of forbidden medications provided three basic requirements are met:


  1. The medication must be necessary for a therapeutic reasons; i.e. treatment of an existing illness or injury;


  1. It cannot for any reason be administered during the 24 hours preceding competition; and


  1. It must be properly and timely reported, in writing, on an official AHSA medication report form.


These rules seem straightforward enough, at least for those medications administered during a competition.  But what about medication given prior to the competition?  While there is no hard and fast rule, the AHSA suggests that a medical report form be completed any time a medication is given within seven days prior to a competition.  However, many forbidden substances remain detectable for much longer than 7 days.  Under the current AHSA rules, any positive drug test constitutes prima facie evidence that a forbidden substance has been given. This in turn is an automatic violation — unless its proven the drug was therapeutically given and properly disclosed. Even then, it is within the Association’s discretion to determine whether a violation occurred.


To avoid any appearance of wrongdoing, the owner or trainer should adopt the uniform and ultra-conservative rule of reporting ANY medication given to the competition horse within 45 days preceding competition.  This in turn avoids the appearance of unfair advantage through illicit use of forbidden substances.


  1. Know Your Rights


Let’s assume that you have not read this article and find yourself faced with an unexpected positive test result at competition.  Should you throw in the towel and accept the consequences?  Absolutely not!  First, examine whether a licensed veterinarian for therapeutic reasons prescribed the identified substance. In many instances, proof of legitimate application may be sufficient to avoid sanctions, even if a medical report was not filed.  Second, know the obligations of the testing authority.  Just as Rule IV requires you to comply with the rule, so does it also apply to the AHSA testing authority.  These rules require that the tests be administered through a veterinarian duly appointed by the AHSA Administrator of the Drug and Medications Program; that the samples be collected with a concurrent blood and urinalysis sample; that the samples be collected in sufficient quantity to permit alternate testing and/or reanalysis; and that the testing be conducted by an AHSA sanctioned laboratory.  Then, before sanctions can be imposed, the association must first issue a preliminary determination and report, and provide you with the means to appeal any adverse ruling.


  1. Remember:  It Ain’t Over Till It’s Over


Finally, if you’ve gone through each of the steps mentioned above, and you’re still unsatisfied with the results, you may have the ability to challenge sanctions in court.  Remember, however, that where you’ve voluntarily joined this organization and have agreed to be bound by its rules, courts in turn will be prone to hold you accountable to those rules.  An association sanction will be upheld unless you can prove one of three things:  (1) that you were denied basic “due process” (i.e. an opportunity to be heard); (2) that the association failed to follow its own rules and regulations; or (3) that the result was tainted by malice or self-dealing, or the association acted in an “arbitrary and capricious manner”. On the other hand, where a professional association has complete monopoly on membership and the association significantly affects the member’s practice of his profession, the association has a fiduciary duty to be “substantially rational and procedurally fair” in the disciplinary process.


  1. Keep the Right Attitude – It’s All For A Good Cause


In the final analysis, we all agree that horses should not be subjected to medication or other artificial tricks to win in the show ring.  Such practices are abusive to the animal, defeat the integrity of the breed or discipline, and taint the entire profession as a whole.  As in all things, if you recognize the principles underlying the rules, understand the rules, and consistently apply them in your day to day procedures, you should find yourself fully compliant with the AHSA’s Drug and Medications Rule.  After all, you have no more excuses (if you’ve read this article!)


© Denise E. Farris, Esq., Farris Law Firm LLC.  All rights reserved.  This article contains general coverage of its subject area.  It is provided free, with the understanding that the author, publisher and/or publication does not intend this article to be viewed as rendering legal advice or service.  If legal advice is sought or required, the services of a competent professional should be sought.  The author and publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.


Denise Farris is the founder and a member with the Farris Law Firm LLC in Stilwell, Kansas.  The firm provides equine business owners with assistance in the areas of business formation, risk management, compliance with state equine liability acts, environmental and zoning issues, immigration, syndication, and equine boarding, breeding, lease and sales contracts.  For further information, contact Denise Farris at:  (913) 685-3192 or

Missouri Retainage Law: Show Me The Money Or Holding The Money?

Effective August 28, 2002, the Missouri Legislature enacted new requirements governing retainage treatment and release on private construction projects. The new legislation is intended to level the economic playing field, and in doing so, alters the former rules governing private construction projects and the computation and release of retainage. The statute additionally contains various penalties to assist in its enforcement. In particular, a heavy-handed owner, general contractor or upper tier subcontractor could find itself in violation of the statute.

The following seminar will address the nuts and bolts of the new statutory scheme, identify potential compliance issues for owners, general contractors and subcontractors, and employ a panel presentation of questions and answers to flesh out various aspects of the new law.

I. Historical Tie: Missouri Private Prompt Payment Act

A. Overview

The Missouri Private Prompt Payment Act (hereinafter referred to as the MPPPA) was enacted in 1995 and is applicable to late payments on private construction contracts. [1] The statute underwent extensive revisions in 2002 to include significant revisions to the law on retainage withholding.

The Missouri Private Prompt Pay Act (MPPPA) applies to all private contracts executed after August 28, 1995, except those for improvements or construction to owner-occupied residential property involving four units or less. The newly enacted and related retainage statute, RSMo §436.300, applies to all contracts entered after August 28, 2002.

B. Payment Due

Unlike the Public Works Prompt Payment Act, the statute governing private construction payment does not outline various scenarios of when payment is due. The statute merely provides that “payment due” is based upon the contract terms expressing the agreement of the parties. Owners and contractors alike are encouraged to closely review contract terms defining when payment is due.

C. Remedies

The MPPPA allows the court to award statutory penalty interest and attorneys fees to the prevailing party. [2] The most significant deviation of the MPPA (public contracts) from the MPPPA (private contracts) is that the private statute does not require a finding of “bad faith” in the withholding decision in order to apply to the Act’s penalties. In other words, under the public Prompt Payment Act (MPPA), penalty interest and attorneys fees will not be awarded without evidence of “bad faith” in the withholding. In contrast, the private Prompt Payment Act can assess penalties based only on evidence that payment was not made when due under the contract.

The private Prompt Payment Act assesses penalty interest “up to one and one-half percent per month from the date payment was due pursuant to the terms of the contract.” [3] The amount of penalty interest is discretionary with the court, but cannot exceed the one and one-half percent per month amount. Since the penalty amount is not defined, the owner and general contractor should specifically negotiate the interest amount that will be applicable. If the contract is silent, the statute permits the court full discretion to set the penalty interest amount, up to 18% per annum. The statute also permits the court full discretion to award recovery of attorney’s fees to the “prevailing party”. [4]

II. Missouri Retainage Act

A. Overview

In 2002, the private Prompt Payment Act was amended by the legislative enactment of related statute RSMo §436.300 et. seq.. Applicable to all private construction contracts entered into after August 28, 2002[5], the new statute contains specific limitations on retainage and timing of retainage payments on projects. Prior to this law, there were no statutory restrictions on retainage for private construction projects in Missouri.

First note that “retainage” is a term which refers to a specific portion of a contract sum that is withheld from progress payments in a construction contract. The purpose of retainage is to provide the holder security against a performance default.

The new Retainage Act contains specific limitations on retainage and timing of retainage payments, plus automatic penalties if retainage is not released according to the timeframes and conditions set forth in the statute. Prior to this law, there were no statutory restrictions on retainage for private construction projects in Missouri.

Because the Act is new, there is, and most likely will be, no interpretative case law defining its parameters for several years. This fact, combined with the broad and somewhat vague provisions in the Act, has left the impact of the Act open to some speculation. The following is a summary of the Act’s most significant requirements.

B. Significant Requirements

The Act’s significant new requirements include:

(1) It limits the contract retainage rate in most private construction contracts, subcontracts and purchase orders to no more than 10%. [6] The owner may withhold more retainage only upon a determination that additional amounts must be withheld to protect satisfactory performance of the contract. [7]

(2) If a contractor or a subcontractor supplies the owner with “acceptable substitute security” (specifically defined as a surety bond, a certificate of deposit or unconditional letter of credit[8]), that contractor or subcontractor’s retainage must be released by the owner within 5 days after acceptable substitute security is provided.[9]

(3) If a subcontractor or contractor tenders substitute security in the form of a letter of credit, it must be renewed at least sixty days before its expiration or the owner may draw upon it regardless of the contractor’s or subcontractor’s performance, in the amount of any work yet unperformed.[10]

(4) The Act prohibits any contractor from withholding retainage from its subcontractors or suppliers in an amount greater than that withheld by the project owner, unless additional sums are necessary to ensure satisfactory performance of the contract.[11]

(5) It requires the project owner to release the retainage of early finishing subcontractors “following the general contractor’s request for the release of the retainage,” if it is determined that the subcontractor’s performance has been satisfactorily completed,” and if it is determined that such release is “without risk to the owner. [12]

(6) It requires the project owner to release all retainage within 30 days of substantial completion, less an amount equal to 150% of the costs to complete any remaining punch list work. [13] (Under the statute, “substantial completion” is determined by the issuance of a certificate of substantial completion by the project architect or engineer or by the owner’s acceptance of the “performance of the full contract.”)[14]

(7) It requires the general contractor to release retainage to subcontractors within 7 days of receipt of retainage from an owner.[15]

(8) It authorizes a court to award attorney’s fees and 18% interest to a claimant in the event that retainage is improperly withheld. [16] However, it also protects the owner and general contractor from frivolous litigation by authorizing award of attorney fees to the “prevailing party” if litigation ensues.[17]

The Act does not apply to single family residential construction or contracts for the construction of other residential construction of four or fewer units in a building.[18] The Act additionally provides that agreements will be unenforceable to the extent that they are inconsistent with this law for any contracts entered into on or after August 28, 2002. [19] In other words, if your contract contains language which requires the payment of retainage on terms which conflict with Missouri’s retainage statute, the statute will legally trump the conflicting contract terms and potentially expose non-complying parties to the statutory penalties.

C. Potential Issues

Aside from the prompt payment implications of the Act, the law has far-reaching and important consequences for most players in the construction industry.

1. The “Trust Fund” Issues

Section 436.303 of the Act compels an owner to hold retainage “in trust for the benefit of the contractor and the contractor’s subcontractors, sub-subcontractors, and suppliers at whatever tier who are not in default, in proportion to their respective interests.”

For owners, this language can create several potential issues, including:

It prohibits the owner from using retainage held for the benefit of any subcontractor, sub-subcontractor or supplier who is not in default to ensure the performance of the project. In essence, the owner must figure out which sub is likely to be at fault for a problem that has come up, and only hold that sub’s money after substantial completion.[20] This is a new obligation for owners since the typical construction contract gives the owner the unfettered right to withhold retainage and other contract amounts otherwise due to the general contractor in the event of a default no matter whether the general contractor, a subcontractor or a supplier was responsible for the default.

It obligates the owner to require its general contractor to obtain and disclose to the owner the amount of retainage held against every subcontractor, sub-subcontractor and supplier on the project. Without this information, an owner cannot comply with the “trust fund” requirement in § 436.303 and withhold the correct amount on each subcontractor. The statute will result in prudent owners taking on significant accounting responsibility. Additionally, general contractors may see contract forms from owners which contain accounting and disclosure obligations not previously required of the general contractors.[21]

It requires release of retainage to subcontractors or suppliers who have completed work or material deliveries prior to substantial completion of the entire project, based on a determination that there is no “risk to the owner involving the subcontractor’s work.” There is, however, no direction in the Act concerning whom or how that determination must be made.

The “trust fund” language in the Act arguably creates a fiduciary duty from the owner to subcontractors and suppliers. The breach of this duty may create a tort cause of action which, in rare circumstances, could expose the owner to punitive damage claims. [22]

It exposes the owner, contractor or upper tier subcontractor holding retainage to 18% interest on funds and the attorney’s fees of the claimant in the event of a breach of the Act.[23]

2. “Substitute Security” Issues

The Act requires an owner to pay retainage within 5 days of receiving “acceptable” substitute security (letter of credit, surety bond or CD). [24] This in turn raises several issues, including:

The Act requires the owner and general contractor, in the short five day time period, to determine if the substitute security is “acceptable” under the Act and, if so, make payment of the retainage. The Act leaves some discretion to the owner in evaluating whether the security is “acceptable.” For instance, a Certificate of Deposit must be in a form “mutually agreeable to the project owner and contractor or subcontractor.” Additionally, while the Act states that a retainage bond must be “in the amount of the retainage released,” it is silent on the terms and conditions in the bond itself.

The “5 working day” payment time frame may cause issues because, on many private projects, the dispersal of funds to pay for construction is controlled by the lender. The traditional loan agreement, in most cases, does not anticipate release of retainage funds until the Project is over. Unless the owner has language in its loan documents obligating the bank to disperse retainage within “5 working days” of receiving adequate substitute security, the owner may have to look for money from other sources to avoid violating the Act and subjecting itself to interest and attorney’s fees penalties.

If the contractor has a surety bond in place, it may be necessary for the owner to get the surety’s consent prior to release of retainage. This will be difficult to do within the 5 day period contemplated by the Act.

The statute identifies “retainage bonds” as one form of acceptable “substitute security.” The retainage bond requirement, however, requires that the owner be named as the bond’s obligee. Most sureties will not issue a bond in favor of a party not “in privity of contract” with the obligee. This fact will make it difficult for a subcontractor or supplier, which does not have a contract with the Owner, to provide this type of security. The surety market is currently addressing this issue, however, it is unclear how many (if any) sureties will write retainage bonds in the form required by the Act. Some sureties are exploring the use of “dual obligee bonds,” although such bonds are typically disfavored in the industry. Costs for these bonds are uncertain as well.

Contractors, subcontractors and suppliers will have to weigh the cost of substitute security against the value of receiving its retainage. A retainage bond encumbers the subcontractor’s bonding capabilities, and may prevent the subcontractor from pursuing other work. A letter of credit or certificate of deposit requires either security or a cash outlay in an amount equal to the instrument. This may prevent entities from using retainage as working capital once they obtain the release of their retaingage by providing substitute security. Although the contractor is entitled to receive interest on the substitute security, contractors will have to determine whether that gain outweighs time and expense associated with obtaining a release of the retained funds.

3. Other Issues

In addition to the issues listed above, the statute raises other concerns which should be discussed and addressed by all companies potentially affected by the statute. Additional areas of concern include:

Statutory compliance may require extra attention when key employees are absent. Contract payment duties must be assigned to an adequate replacement due to the short time frames within the statute.

More owners may elect to abandon retainage altogether and look for other ways to ensure performance, such as requiring performance bonds more frequently. If they do so, general contractors will not have the right to hold retainage either. This may lead general contractors to require performance bonds from subcontractors (raising construction costs), or restrict the number of subcontractors with whom they will work (decreasing competition).

The law applies to all “contracts entered into after August 28, 2002,” but it is not clear how it applies to a contract between an owner and contractor entered before that date, and related subcontracts or purchase orders executed after that date. Theoretically, the owner-contractor agreement can call for retainage under the “old rules” but the subcontracts would be governed by the “new rules.” In other words, if the owner has no “trust” obligations because the general contract was executed before August 28, 2002, it is uncertain how a subcontractor can enforce its trust rights upstream where the owner is under no legal obligation to honor the statute.

III. Conclusion

The new retainage statute, read in conjunction with Missouri’s private Prompt Payment Act, serves the primary purpose of encouraging fair and prompt payment which in turn supports the growth of a vigorous and competitive construction industry. The Act aims to deter payment abuses by owners or general contractors against lower tiered subcontractors through unjustified retention of contract proceeds. The Prompt Payment laws shift the balance of power in the contracting arena toward the subcontractor. Owners, prime contractors and subcontractors alike may decide to withhold payment from their lower tiered subcontractors and vendors. However, the penalty provisions of the Acts, the developing case law stressing the remedial purpose of the acts, and the uncertainty of how a distant judge and jury will evaluate the surrounding facts, makes any withholding decision a potential economic liability.

Industry players should also realize that practical aspects of this statute suggest the statute’s procedures for retainage release will only be used in extraordinary situations. The substitute security provisions of the statute require the subcontractor or supplier to bear some expense, whether it is the financial cost of obtaining a letter of credit or certificate of deposit, or the reduction of its bonding capacity if a retainage bond is obtained. The costs to secure each of these substitutes must be measured against the economic advantage gained by the early retention release. Where the retainage at a maximum amounts to only 10% of the contract value, in most instances it will not be economically feasible to secure this early release.

As a final caveat, please note that the retainage and private prompt payment statutes are new and untested in the courts. It is likely that the retainage statute will be the subject of attempted legislative revisions to address some of the issues identified in this article. Even if no legislative amendments occur, subsequent court decisions will guide future application of the process. Under these facts, the contracting community is encouraged to be aware of the law, to understand its applications and potential issues, and with that knowledge to seek the professional advice of a local attorney, banker and accountant should you need more specific guidance on how these Acts may impact your company on a contract specific basis.

© Denise E. Farris. Esq. and Paul Odum, ,Esq., December 2002. All rights reserved. This article may not be reprinted nor reproduced in any manner without prior written permission by the authors The author may be contacted at: (913) 685-3192.

This article provides general coverage of its subject area. It is provided free, with the understanding that the authors, sponsors and/or publishers do not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The authors, sponsors and/or publishers shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

Retainage, Trust and Escrow Requirements


Public Works Contracts         Private Contracts
AL      AZ     AR     CA             MO
CO     CT     DE      FL
GA     HI      KS     KY
LA      ME     MI     MN
MS     MT     NH     NJ
NM     NY     OK     OR
PA      RI      SD     TN


Public Works Contracts         Private Contracts
AZ     CO     DE     IL             AZ     CO     DE     IL
LA     MD     MI     NJ             MD     MI     MO    OK
NY     NC     ND     OK            TN     TX     WI
OR     PA     WA     WI


Public Works Contracts         Private Contracts
Mandatory    Optional            Mandatory    Optional
AR     IN         AL     CA         CA                 TN
MD    MI         CO     DE
NJ     NM        GA     KS
OH    VT         LA     NY
VA    WY        NC     PA

[1] RSMo 431.180 & RSMo 436.300 (2002)

[2] RSMo 431.180.2 (Supp. 2002)

[3] RSMo 431.180.2 (Supp. 2002)

[4] Id.

[5] RSMo §436.333; 436.336 (2002).

[6] RSMo §436.303 (2002).

[7] RSMo §436.303 (2002).

[8] RSMo §436.312.1 (1-3)(2002).

[9] RSMo §436.306.2 (2002)(contractors); RSMo §436.309 (2002). Note that the owner is required to release the retainage within five days of receipt of acceptable substitute security from the contractor. The contractor is required to release to the subcontractor retainage within five days of receipt of retainage from the owner after acceptable substitute security has been submitted to the owner.

[10] RSMo §436.312.1.1 (2002).

[11] RSMo §436.315 (2002).

[12] RSMo §436.321 (2002).

[13] RSMo §436.324 (2002).

[14] RSMo §436.327 (2002).

[15] RSMo §436.324 (2002).

[16] RSMo §436.333 (2002).

[17] Id.

[18] RSMo §436.336 (2002).

[19] RSMo §436.333 (2002).

[20] RSMo §436.303 (2002); RSMo §436.309 (2002); RSMo §436.321 (2002); RSMo §436.324 (2002).

[21] RSMo §436.321 (2002).

[22] See e.g. People v. Miller, 259 N.W. 2d 877, 78 Mich.App. 336 (1977) (identifying breach of fiduciary duty claim in similar Michigan retainage trust fund statute.)

[23] RSMo §436.333 (2002).

[24] RSMo §436.303; 436,306; 436.309; and 436.312 (2002).