New Florida Rules Governing Horse Sales - Part I

When the State of Florida enacted Section 535.16 of the Florida Statutes tasking the Florida Department of Agriculture and Consumer Services with adopting rules to "prevent unfair or deceptive trade practices" in horse sales, the equine community waited with great anticipation (and a fair bit of scoffing). There was widespread speculation that the horse sale rules would never be promulgated, or that when they were, they'd be toothless or poorly written, and it would be business as usual for the horse industry. However, the new Florida equine sale rules go a long way toward leveling the playing field for both horse buyers and horse sellers. In this article, we'll discuss the new disclosure requirements for horse sales agents (and horse purchase agents), in Part II, we'll discuss the new horse sales disclosure requirements, and in Part III, we'll discuss the new horse sale requirements as applied to auctions.

Florida Requirements for Dual Agents in Horse Sales

Horse Sale #1: Big Name Trainer has two clients, Clara Clueless and Nona Knownothing. Clara has a horse, Money Pit, that she wants to sell. BNT agrees to help Clara sell her horse in exchange for a 10% commission. Nona wants to buy a horse and BNT agrees to help her find a horse in exchange for his customary 10% finder's fee. BNT shows Money Pit to Nona, who loves him and immediately agrees to buy him. BNT arranges for the sale of Money Pit to Nona, and collects a 10% commission on the sale price of Money Pit from each of Clara and Nona. BNT does not talk to Clara about the commission that Nona paid him, and likewise, he doesn't discussion Clara's commission payment with Nona. BNT has heard about the Florida equine sale rules, but figures they don't apply to him because that's the way he's always done business, and after all, he is a big name trainer.

Under Florida Rule 5H-26.002, BNT served as a "dual agent" because he represented both the horse owner (Clara) and the horse purchaser (Nona) in the horse sale transaction. Florida Rule 5H-26.003(2) prohibits dual agency in horse sale transactions unless the horse buyer and the horse owner know in advance and agree to the dual representation in writing. Here, BNT violated Florida rule 5H-26.003 because there is no indication that Clara and Nona both knew in advance of the sale that BNT was representing both of them and they certainly did not agree in writing to the dual representation.

Florida Horse Sale Commission Disclosure Requirements

Horse Sale #2. After the purchase of Money Pit, Clara decides she needs to sell another of her horses, Always Lame. Clara approaches BNT and asks him to sell Always Lame, telling him that she wants to "get at least $25,000" for him. BNT doesn't have a client in his barn who would be interested in Always Lame, so he calls up a trainer buddy of his, Dewey Cheatem. Dewey tells BNT that he does have a client who's horse shopping, Nancy Naive, and Nancy is willing to spend up to $50,000 for a new horse. Dewey and BNT show Always Lame to Nancy, telling her that the asking price is $50,000. Nancy falls in love with Always Lame (and on Dewey's expert advice, decides to forgo a vet check). Nancy pays $50,000 to BNT, who provides her with Always Lame's registration papers (and of course, the parties do not use a bill of sale). BNT tells Clara that Nancy has agreed to pay $25,000 for Always Lame, and Clara is thrilled to get her asking price. BNT had agreed with Dewey that they would split any amount over $25,000 that they could get Nancy to pay for Always Lame, so BNT pays $12,500 to Dewey, $25,000 to Clara and pockets the remaining $12,500. BNT also receives a commission of $2,500 from Clara, and Dewey receives a commission of $5,000 from Nancy. BNT and Dewey shake their heads at the cluelessness of Florida legislators, noting it would ruin their business if they complied with the new Florida rules. Fortunately, they decide, the rules don't apply to industry scions like themselves.

If an agent for a horse purchaser or a horse owner receives more than $500 of compensation in connection with a horse sale, Florida Rule 5H-26.003(3) requires certain disclosures. The agent who receives the commission and the person who pays it must provide written disclosure to both the horse purchaser and the horse owner. And, the horse owner and purchaser must consent to the payments in writing. So, in Horse Sale #2, BNT and Dewey would have to disclose in writing to both Clara and Nancy that they would each receive $12,500 in connection with the sale, and Clara and Nancy would both have to consent in writing. As you might imagine, Florida Rule 5H-26.003(3) is designed to thwart exactly the type of "secret commission" sales described in Horse Sale #2.

Florida Horse Ownership Interest Disclosure Requirements

Horse Sale #3: BNT has worked out a deal with Clara whereby he will train Clara's horse Pig in a Poke in exchange for 50% of the sale proceeds when Pig in a Poke sells. No one knows about the particulars of this arrangement except Clara and BNT. One of BNT's other clients, Farah Fearless, tells BNT that she wants to buy a new horse. BNT agrees to help Farah buy a new horse and Farah agrees to pay him a 10% commission. BNT just happens to mention to Farah that Clara is planning to sell Pig in a Poke. Clara loves Pig in a Poke and jumps at the chance to buy him for $40,000. BNT never mentions to Clara that he owns 50% of Pig in a Poke, and only Clara's name is on Pig in a Poke's registration papers. Farah pays Clara $40,000, and Clara delivers $20,000 to BNT. Farah also pays BNT a commission of $4,000.

BNT has just violated Florida Rule 5H-26.003(5), which provides that an agent or trainer can't recommend that their client purchase a horse in which the agent/trainer has an ownership interest unless the client is aware of the ownership interest prior to the sale. Interestingly, Rule 5H-26.003(5) does not require the client's written consent unless it is "practicable."

Horse Sale #4
Anna Amateur is a very successful rider and spends a lot of time training her horses for competition. Anna co-owns a horse, Expensive Hobby, with Nona Knownothing. Expensive Hobby is registered in Nona's name only and stabled with Nona's trainer. Clara Clueless is a friend of Anna's, and she admires Anna's taste in horses. After having been burned a few times by BNT, Clara decides that she'd much rather have Anna help her select a horse. Anna steers Clara toward Expensive Hobby, but never mentions that she is a part owner. Clara buys Expensive Hobby and pays the purchase price to Nona. As a thank-you for Anna's help, Clara takes Anna out for a lavish dinner.

Notably, and unlike the other provisions of Rule 26.003, Section 5H-26.003(5) includes "trainers" as well as agents. Florida Rule 5H-26.002(3) defines "trainer" as "a person who trains horses for contests, shows or performances." Notably, this definition of trainer doesn't state that the person must be paid for the training or otherwise have a business training horses. Therefore, an amateur such as Anna could possibly fall within the purview of the rule.

Penalties for Violating Florida Equine Sales Agent Disclosure Rules

Florida Rule 5H-26.003(13) provides that violation of any part of the Florida equine sale rules is an "unfair and deceptive trade practice" under Part II of Chapter 501 of the Florida Statutes. Pursuant to Section 501.211 of the Florida Statutes, the injured party can recover their actual damages, attorneys' fees and court costs from the violator. This is very significant. In the typical horse sale transaction, actual damages are fairly low, and therefore attorneys' fees and court costs often greatly exceed the actual damages. Without a horse sale contract containing an attorneys' fees clause, plaintiffs have little hope of recouping their costs of bringing suit and therefore they're unlikely to sue. However, the new Florida rules change that by providing a mechanism for plaintiffs to recoup their costs if they win. Therefore, Florida can expect a lot more lawsuits related to horse sales!

In addition, pursuant to Section 501.2075, the State of Florida is entitled to collect a civil penalty of up to $10,000 if the violator knew or should have known that their conduct was a violation of the Florida rules. This provision may provide an incentive to sue in cases where the plaintiff's actual damages are low, but sense of outrage is high, such as in Horse Sale #1.