Doing Business on a Handshake, and a Prayer

By Denise Farris, Esq., Oct 22, 2016 | stablemanagement.cmo

For want of a nail, the shoe was lost.
For want of a shoe, the horse was lost.
For want of a horse, the rider was lost.
For want of a rider, the message was lost.
For want of a message, the battle was lost.
For want of a battle, the kingdom was lost.
And all for the want of a nail.[i]

Wise sayings typically remain universally applicable throughout the ages. When tying up dangling ends on equine business transactions, no saying rings more true. The nail and shoe proverb describes circumstances where failure to take timely action at a critical stage leads to logical but unforeseen and potentially disastrous results down the road. No better description exists for that situation where parties in the horse world enter into a verbal agreement without a mindful and deliberate process generating negotiated, written terms and conditions formalizing the transaction.

1. Our Increasingly Complex Industry

Let’s examine why written agreements, and NOT verbal agreements, should be the preferred protocol in equine contracts. First, let’s agree that when referring to today’s equine industry, “That old gray mare, she ain’t what she used to be!” Today’s U.S. horse industry contributes over $39 billion in direct impact to the economy.[ii] When indirect and induced spending factors are included, that impact expands to $102 billion, a value on par with the motion picture industry![iii] Thus equine transactions often begin to resemble the same level of sophistication encountered by executives negotiating deals for Fortune 100 and 500 corporations!

The industry’s increased complexity is also reflected in the value of our horses and the terms and conditions now applied to sales, sales on time, leases, partial leases, multiple ownerships, and donations. Today’s backyard grade horses range in value anywhere from $500 to $5,000, whereas competition and performance horses can sell for anywhere from $5,000 to millions of dollars. Add to these values the added factors of sales and use tax and who is responsible, risk of loss in transit, proof of “ownership” under association breed and competition rules, and you can see a complicated jigsaw of problematic issues emerging.

2. Our Increasingly Complex Terms and Conditions

Next, consider what is potentially “sellable” following recent scientific advancements. Gone are the days when a “horse sale” was simply the sale of a horse. Today, horse sales can include an embryo, a uterus (i.e., for a surrogate dam), sperm or eggs, current progeny, future progeny, performance and breeding rights and/or income rights tied to that horse and/or its progeny’s show winnings, just to name a few factors. It’s not uncommon for the higher-dollar horses to be owned by multiple parties, creating the need for detailed partnership or corporate formality guidelines. Given the extended performance times inherently involved in these contracts, plus all of the issues which arise when a horse is injured or died before a contract is completed and the parties expectations achieved, wouldn’t you want to anticipate and address the respective parties’ right and obligations? Otherwise how do you identify expected benefits, or obligations?

Consider the example of a mare or stallion sale with carryover breeding rights reserved by the Seller in return for a reduced sales price. Yet what occurs when Buyer 1 then sells that horse to an innocent 3rd party Buyer 2 who has no knowledge of these pre-existing breeding agreements? Lacking a written agreement, what serves to protect Seller 1 when attempting to enforce the very agreement that led to a reduced sales price in the first place? Is Buyer 2 even legally obligated to honor a verbal agreement of this nature? (Answer: “No.” See comments on the UCC statutes in Section 3).

Here’s another example. Four friends have agreed to purchase, board, train, compete and sell a horse for a profit. Even lacking a written document, these parties have created a legal partnership merely by verbally agreeing to share profits and losses. If nothing is in writing, who makes the management decisions for the horse? Does everyone have to agree? A majority agree? Who is responsible for the COSTS of those decisions? How are competition winnings distributed, profits and losses determined and allocated if and when that horse is sold? What if the horse is injured and requires surgery? Who is named as the insured party in the event of a covered loss for the injury to, loss of use of, or death of that horse?

3. Our Increasingly Complex Statutes and Laws

Many people remain unaware that the law in certain instances MANDATES the use of written agreements in equine transactions.

A. Uniform Commercial Code Requirements (UCC)

Under the law of all 50 states, a horse is deemed a “commodity” or “good.” Training, breeding, transporting,and similar types of activities are deemed “services” related to that “good.” Under both federal and state Uniform Commercial Code requirements applicable in all 50 states, certain contract rules apply to the sale or provision of “goods” and “services” which are addressed below.[iv]

Statute of Frauds

The Statute of Frauds found under all UCC codes requires that any contract for the sale of “goods or services” which exceeds $500 in value MUST be in writing to be enforceable. Thus the sale of any horse for a value of $501 or more must have a written document or either party can “rescind” the sale. “Rescission” is defined as placing the parties back in the position they occupied before the sale occurred. This means the horse goes back to the seller, the seller refunds all purchase funds paid, and all parties return any related funds of the sales (i.e., pre-purchase exam fees, transportation fees, etc.)

What constitutes writing? Any document that identifies the key terms of the contract agreement will suffice. Key terms of the agreement include:

The parties (i.e. buyer and seller identification)
The date
The subject matter (i.e. sufficient information to specifically identify the horse
The price
Performance time (if applicable)

Under this definition, a cancelled check will satisfy the “writing” requirement so long as the horse has been specifically identified within the memorandum portion of the check.

Executory Contracts

The UCC also requires that any executory (i.e., future performance) contract involving goods and services that cannot be performed within one year must be in writing. Thus contracts are required for: any sale on terms, any agreement to reserve breeding rights, or multiple ownership agreements requiring specific services to be provided beyond a year. Lacking a contract, any party may rescind the agreement.

B. Agent Commission Disclosures

Recently, several states, including California, Florida and Kentucky, enacted statutes requiring mandatory agent commissions in equine sales. While differing from state to state, the statutes typically share the following provisions:

Cover equine sales exceeding a certain dollar amount, for competition and race horses
Applicable to trainers/agents representing buyer and seller in the transaction
Requires Trainer/Agent to disclose and receive written agreement of all parties regarding dual agency and commission
Requires Trainer/Agent to disclose percent and amount of commission
Identifies sanctions if Trainer/Agent fails to comply, including commission forfeiture or treble damages and fraud exposure


Lacking a contract, a judge or jury must “guess” at what the parties intended. This can often be messy, expensive and lead to surprising results for all parties involved. The failure to execute a written contract can lead to the unintentional legal unraveling of the contract by either party to the agreement. Lack of an agency disclosure form in some states can unexpectedly make you liable for fraud. So why take these chances? Contracting formality is time well spent. Don’t forget:

“The Kingdom was lost for want of a nail!”

Denise Farris, Farris Law Firm LLC, can be reached at 913-766 1262 or Denise is a nationally recognized equine and business attorney, “AV” rated with Martindale Hubbell and recipient of numerous business law awards at the local and national level including Equus Magazine “Leaders in Equine Law.” The firm also offers dispute resolution services for the equine and agricultural law industry.

This article provides general coverage of its subject area. It is 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 publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

undefinedJohn Gower,Confessio Amantisv. 4785–4787 (c. 1390)

[ii] Equine Economic Impact Study (American Horse Council 2005)


[iv] Information identifying both federal and state UCC provisions can be located at:

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:

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,