Legal
Aspects of Horse Management
LESSON
FOUR
Collections,
Dispute Resolution and Attorneys
Preventing
Collection Problems
The
key to preventing collection problems is simple: Run your business like a business!
The
Importance of Invoices
For
many equine businesses, sending out bills is a hassle that seems like more
trouble than it is worth. The last thing
a tired trainer wants to do after wrestling with problem horses all day is come
home at night and log on to the computer.
However, sending out invoices on a regular basis is well worth the time
and effort.
Primarily, invoices serve as a helpful reminder to your clients that
they need to pay you. In addition, in
the event that you need to hire a collection agency or take your client to
court to get paid, invoices also serve as a valuable record of what your client
owed you and when. Finally,
professional-looking invoices that are promptly sent and free from errors
enhance your business image.
To save time and assist you with keeping good records, consider
investing in bookkeeping software, such as Intuit’s QuickBooks, to help
automate your recordkeeping and billing.
You may also want to consider hiring a small bookkeeping firm to provide
this service for you at a reasonable price.
Make
It Easy to Pay You
A
few small steps will help make it easy for your clients to pay you, and pay you
on time.
When sending out invoices, don’t forget to include the address for
payment. Even better, enclose a
self-addressed stamped envelope – for less than a dollar per client per month,
you can greatly increase your chances of being paid on time. After all, which payment do you think your
client will mail first – the one that goes in the convenient postage-paid
envelope or the one where the client has to hunt around for an envelope and a
stamp?
Horse
people are notoriously cash-poor, so consider accepting credit cards. For a relatively small monthly fee and small
percentage of your payments received via credit card, you can make it
convenient for your clients to pay you.
It is not necessary to invest in an expensive card-reading machine, as
you may be able to enter and clear transactions online. Check with your bank or see your bookkeeping
software for details.
Bank
on Getting Paid
As
you receive payments, deposit those payments immediately. Allowing checks to languish uncashed in your desk drawer can result in nasty surprises
when you go to cash those checks - in a matter of days, your client can close
his account or allow funds to dwindle.
If you are concerned that your client’s check may not clear, go directly
to the bank upon which the check was written.
A note about bounced checks – you are NOT required to re-present any
check for payment, no matter what your client might tell you. Once a check has bounced, it has the same
legal effect as your client not paying you at all.
Example: Big Thang requires
each of his training clients to pay him the first and last month’s training and
board up front. Because of some negative
experiences he has had with deadbeat clients, he makes a practice of
immediately cashing these payment checks.
A fellow trainer warned him that Ruth Less, a well-known Quarter horse
amateur owner competitor, was also well-known for the rubber quality of her
checks.
Ruth brings two colts in to Big for training and presents him with a
large check written on Ruth’s Bank of America account. Before Big does any work on the colts, he
proceeds to the nearest Bank of America branch and tries to cash the check. Sure enough, the clerk informs Big that there
are insufficient funds in Ruth’s account.
Big calls Ruth and informs her that her check has bounced, and she begs
him to present it again in a few days.
Being the savvy guy he is, Big refuses and instead insists that Ruth
send him a cashier’s check via Fed Ex.
When the Fed Ex doesn’t arrive, he calls Ruth and tells her to send her
shipper to pick up the horses.
By taking Ruth’s check directly to her bank to be cashed, Big saved
himself banking fees as well as weeks of providing training without being paid.
Why
Equine Businesses Should Be More Like Landlords
If you rent an apartment, you have to fill out an application, provide
references and put down a deposit. In
contrast, boarding and training barns typically don’t require an application,
credit check, references or deposit.
Consequently, equine businesses have no real idea of their clients’
creditworthiness, and they don’t have as many resources to draw upon when their
clients don’t pay.
Requiring an application, whether for training, boarding or other
services, provides a number of benefits to the equine business owner. First and foremost, an application provides
the business owner with contact information for prospective clients, such as
their full names, addresses and phone numbers.
An application can also provide the consent and information necessary to
run a credit check and call references, as well as data that can help you
pursue a nonpaying client in the future.
At a minimum, an application should include the applicant’s full name,
home and work addresses, home and work telephone numbers, cell phone and pager
numbers, the horse’s name, age and breed, and a signature blank with date. The beginning of a client relationship is the
single best time to gather information – once you have entered into the
relationship, the client no longer has as much incentive to provide you with
the information you may need later. If
you plan to run a credit check, the application should include places to enter
Social Security number and driver’s license number and state as well as a
notation that the applicant consents to a credit check with a place for the
applicant’s signature and date.
For references, ask for the name and telephone number of the last two
facilities where the prospective client has boarded or trained. A current facility may be inclined say
anything to get rid of a problem client, but the previous facility has no such
incentive and may be brutally honest.
You can also see if the prospective client has frequently changed barns
or trainers – if they haven’t been happy anywhere else, they probably won’t be
happy at your facility, and unhappy clients are bad for business. Having vet and farrier references is also
useful – if your client doesn’t have a regular farrier or vet, consider that a
red flag.
In reviewing the application, note whether the
addresses given by the prospective client are complete, and whether they match
the address on the driver’s license. If
you do not plan to run a credit check, you can check a prospective client’s
addresses for accuracy by using the Internet.
The website whitepages.com is especially helpful – you can find an
address with a telephone number, a person’s name or a business name.
Many deadbeat clients move a lot – they don’t pay their landlords any
more reliably than they pay their trainers and boarding barns. Consider multiple address changes within the
past few years with no reasonable explanation to be a red flag.
Credit checks can be invaluable tools well worth the modest processing
fee. If a prospective client hasn’t been
paying their utility or phone bills, it is highly likely that they will not pay
their board or training bills, so don’t be afraid to turn away prospective clients
with bad credit. Do not allow yourself
to be swayed by pitiful explanations – you will hear similar heart-wrenching
excuses when it comes time to collect your own bills.
Deposits are among the very best tools you can use to ensure timely payment. Not only do they encourage clients to provide
you with the required notice before leaving your facility, they also serve as
an easy remedy for nonpayment or contract breaches. To avoid misunderstandings, make sure that
your contract with your clients clearly specifies when deposits are refundable
and when you get to keep the clients’ deposits.
To simplify your accounting and avoid any appearance of impropriety,
open a separate business checking account and use it only for clients’
deposits. When you withdraw a client
deposit, keep a record of what you withdrew, when and why, then
provide your client with a written, itemized record of the applicable charges.
Equine businesses are often fearful that requiring protective measures
such as credit checks and references will insult their clients and drive
business away. However, most of your
clients are businesspeople themselves and will understand that these types of
business practices are a necessity of the modern age.
Your business requirements can even be part of a successful marketing
plan. For example, you can explain that
you are requiring references to help ensure that your boarders will be happy
with your facility and to screen out potential boarders who would not be a good
fit with your existing clientele.
Similarly, you can explain that talking to your prospective training
client’s previous trainer(s) is part of your process to help ensure their
success in your program. Applications,
deposits and credit checks help ensure that prospective clients are committed
to your training program, and that your boarding facility maintains a certain
class of clientele.
Late
Fees and the Bottom Line
If
there are no consequences for paying late, all but the most honest and responsible
clients will pay late. Don’t hesitate to
institute and enforce late payment policies. Most non-equine businesses impose
a fixed fee for late payments and/or interest on past due balances – why should
equine businesses be any different?
Credit card companies are aggressive about imposing late payment fees
and interest for a reason – it’s just good business. Not only does it encourage clients to pay on
time, it also compensates the business for the delay in payment.
When Clients Don’t Pay
Even if you follow all of these steps, you
will still encounter some non-paying clients.
When you do not receive payment on time, acting quickly and following a
routine process can help you collect.
Don’t
Wait - Contact the Client
If
you don’t receive payment within two weeks of the payment due date, you should
not hesitate to call your client. Be
polite and pleasant, merely state that you haven’t received payment and are
calling to make sure that the client is happy with their service. This early contact serves two purposes – it
gives the client an opportunity to tell you if they are unhappy, and it also
puts the client on notice that you expect them to pay on time. Calling can be more effective than sending a
letter, as it reminds the client that an actual person is impacted by their
failure to pay. However, if you cannot
reach a client by phone, send a reminder notice by mail.
Follow
Up Promptly
If
your client tells you that the check is in the mail, and it doesn’t arrive,
call back. Keep a written record of your
efforts to contact your client, as you may need those records later if you are
forced to sue your client.
Resolving
Disputes Outside of the Legal System
If
you are in the horse business, sooner or later, you will have a dispute,
whether it is over unpaid board or a horse that didn’t turn out to be as
advertised. What should you do before
you sue?
1. Call
the person or meet with them in person and try to work out the problem. Calmly explain your perspective and focus on
the facts, keeping your temper in check and avoiding accusations. Come armed with some creative compromises and
be prepared to negotiate instead of adopting a “my way or the highway approach.”
Example: Clara Clueless purchased an Arabian yearling
over the Internet from Fly by Night Arabians.
The colt was advertised as a “stallion prospect” and he had bloodlines
that Clara wanted to add to her herd.
Fly by Night sent Clara a video and the colt had a gorgeous stride. She was in a hurry to get the colt so that
she could start showing him, so she opted against a vet check and wired the
money to Fly by Night.
The colt arrived and Clara had her vet examine
him. The vet exam revealed that only one
of the colt’s testicles had descended – he would not be suitable for breeding
and would have to be gelded.
Clara was furious! She dashed off
an email to Fly by Night and accused them of cheating
her. Fly by Night responded that they
had no idea about the colt’s problem and that Clara should have gotten a vet
check before she bought the colt. Two
days later, Clara had calmed down, so she decided to call Fly by Night and try
to work things out. She really liked the
colt, even if he needed to be a gelding, but she had paid for a stallion
prospect. After Clara outlined her
position politely, Fly by Night agreed to pay for the
colt to be gelded and agreed to refund a portion of the purchase price upon
receipt of a statement from Clara’s veterinarian attesting that the colt had
been gelded.
2. If
you are able to reach a compromise on the phone or in person, put the terms of
that compromise in writing and send a copy to the other party immediately with
a note saying that unless you hear from them by a certain date, you will assume
that they have no issue with the compromise as you have stated it. If you have extended what you believe to be a
reasonable offer to the other party and they refuse your offer, consider
outlining that offer in writing and sending it to them to give them another
chance to think it over. Include a
deadline by which they must respond so that you are not left wondering whether
they plan to take you up on your offer.
Be sure to send any written communications via a method that provides
proof of delivery, such as Federal Express.
3. If
you are still unable to reach a compromise, consider hiring an attorney. Your attorney can write the other party a
letter outlining your position and give them a final opportunity to settle the
dispute before legal proceedings begin.
This step may seem repetitive of your efforts, but it lets the other
side know that you are serious enough about the matter to have hired an
attorney. Note that
hiring an attorney does not require that you actually plan to sue anyone. It can be very cost-effective to have an
attorney spend a few hours negotiating on your behalf to reach an out-of-court
settlement. Later in this lesson we will review guidelines on hiring an
attorney.
Small
Contrary
to popular opinion, small claims court can be an excellent and inexpensive tool
to obtain payment from deadbeat clients.
However, be aware that the wheels of justice turn very slowly – it can
take weeks or even months from the date you file your claim until your court
hearing date- so do not wait to file your claim.
Typically, you can file your claim where the client lives or where the
contract was made (which is usually where you conduct your business). As we discussed in Lesson Five, to avoid any
disputes about where you can file suit, it is extremely convenient to have your
contract specify what state’s law will apply to the contract and where any
suits arising from the contract must be brought.
The dollar amount of claims that you can bring in small claims court
varies from state to state, so check with your local small claims court to
determine how much you can ask for as part of your case. This limit is yet another reason not to waste
any time in filing your claim – you don’t want the amount that your client owes
you to exceed the small claims court limit.
Because regular civil court is far more costly than going to small
claims court, it may make sense for you to file a small claims court claim even
if the amount you are owed is more than the small claims limit. You can ask only for the small claims limit
rather than the full amount you are owed.
Note
that although an attorney cannot actually speak for you in small claims court,
you can hire an attorney to assist you in preparing your case. Often, this is money well spent, because your
attorney can make sure that you are following the court’s procedural
requirements and that your case will make sense to the judge. Most small claims courts have free advice services
- ask them how to request reimbursement for attorneys’ fees and court
costs.
At
a minimum, here is what you will need to file a small claims court case.
1. The
right forms. Many courts post forms and
other self-help information on the Internet, and you
can also find these forms at the courthouse where small claims court is held.
2. Contact
information for the opposing party. The small claims court will require you to
serve a copy of the complaint on the opposing party. Ask the small claims court advice service
about your options for proper service.
If you do not properly serve the opposing party, it can compromise your
case. Do not wait to start the process
of serving the opposing party, because it may take weeks to locate and properly
serve them. Many small claims courts
allow you to serve the complaint via certified mail, so if you have a valid
mailing address for the opposing party, this method of service may work, and it
is certainly much less expensive than hiring a process server. However, many deadbeats are well aware that
no good news ever arrives via certified mail, and consequently, they may avoid
signing for a certified mail package. If
the opposing party does not sign for the letter, you will have to find another
way to serve them with the complaint.
Ask the small claims advice service for a referral to a process
server. The process server will need to
know where he or she can find the opposing party, so it is helpful to find as
many potential addresses for the defendant as possible, such as a work address
or a barn address. Knowing the opposing
party’s typical schedule is also helpful for the process server.
3. A
good description of your claim. Your
good recordkeeping practices will pay off in small claims court. Your records can help prove when a contract
was entered into, what services were provided and when, and the client’s
payment record. When describing your
claim in the complaint, keep it simple and factual and assume that the person
who will be reading your complaint knows absolutely nothing about horses. Your complaint should read like a newspaper
story and tell the who, when, what, where and why in
chronological order. Make copies of all
relevant documents and emails, and check with the small claims court advice
service to find out how to file them as part of your case. Also check with the small claims court
advice service about witnesses – whom you can call as a witness, and what
procedure must be followed.
What
to Expect in Small Claims
After
you file your complaint and serve the opposing party with the complaint, the
small claims court will assign you a hearing date. Once you have a hearing date, do everything
possible to not change that date, because if you have to postpone the date, it
will significantly delay your hearing.
The court will notify the opposing party of the hearing date.
Before
you attend the hearing, gather all of your documents (see above re: filing them
with the court) and prepare what you plan to say in court. Practice your statement with your attorney,
and if you do not have an attorney, practice with your family and friends and
ask for their honest feedback. Have your
witnesses prepare their remarks and practice them, too.
On
the day of the hearing, plan plenty of time into your schedule to wait around
for your case to be heard. Don’t assume
it will only take an hour and that you’ll be back at work by the
afternoon. Hearing times are often affected
by what is happening in other cases being heard that day. You will be far more relaxed if you have
allowed plenty of time and are not in a hurry to be anywhere. Make sure that your witnesses allow plenty of
time as well, and remember that they are doing you a favor – compensate them
for their time and gas mileage, and take them to lunch. As previously discussed, your attorney will
not be able to speak for you in court, but they can accompany you to the
courthouse.
If the opposing party does not show up for the hearing, the court may
enter a default judgment in your favor.
Be aware, however, that the opposing party can petition the court to set
aside that judgment, so a default judgment does not always mean you have won
your case.
In
small claims court, you will have a hearing before a judge in which you present
your case and the opposing party presents his or her case. In contrast to what you see on TV, the judge
will not usually render his decision right away. Instead, you will typically receive notice of
the judge’s decision by mail a few weeks after the hearing. If you win your case, the opposing party will
generally have a deadline by which they must pay the judgment amount to
you. Depending upon the local rules of
your small claims court, you and/or the opposing party may be able to appeal
the judgment.
Collecting
on Small
Before you even file your claim, check with the small claims court
advice service to see what your options are for collecting on a judgment. If you have something of value that belongs
to the opposing party in your possession, such as a horse trailer, horses or
tack, you may want to ask the court for an order allowing you to sell those
items. Check with the small claims
advice service about when you can request such an order – sometimes, you can
ask for that order as part of your initial case.
If the opposing party doesn’t pay a court judgment, it is extremely
helpful to have additional data, such as their bank account information, the
address where they work and the address where they keep their horses (if they
are not still on your property). With
the opposing party’s work address, you can typically garnish the opposing
party’s wages. Garnishment is typically
an extremely effective method of collecting your judgment. It is embarrassing
to have your employer receive a notice that you haven’t complied with a court
order, and employers are legally required to comply with a garnishment order,
so it is very likely that you will receive payment unless the opposing party’s
employment is terminated.
Liens
and Abandoned Property
One
of the most common misconceptions about the horse business is that boarding
stables and other equine service providers automatically have a lien on the
horses and property in their possession.
The reality is that each state has its own laws regarding what are
commonly known as “stablemen’s liens” or “agisters’
liens.” Some states provide for an
automatic lien and some do not, so you will need to determine the law of the
state where you conduct your business.
Because misconceptions about liens are so common, you should not rely on
your fellow horsemen’s opinions. This
area is one where it makes sense to either look up the law yourself or consult
an equine attorney in your state. Many
attorneys give free initial consultations, and they
may be willing to answer this simple question for you at no charge.
Note that you should find out what liens you might have BEFORE you need
to use those liens! This step is
important not only for your own knowledge about whether you have a lien or not,
but also because some state lien laws may require you to take steps to perfect
your lien. For example, many states
provide that equine service providers only have a lien on the animals in their
possession. This distinction is
important, because you may need to take steps, such as locking gates, to
prevent horses or other property from leaving your facility until you are
paid. Knowing your lien rights is also
essential to drafting a good contract for your services – see Lesson Five.
Knowing your state’s lien laws is also helpful when horses and other
property are abandoned at your facility.
How do you determine when property has been abandoned? How long can you wait until you sell or give
away the horses or items left at your place?
Again, most states have laws regarding abandoned property than answer
these questions. If you sell or give
away property before the law permits you to do so, the property owner can sue
you for what is known as “conversion” – treating property left in your care as
though it were your own property. This
turn of events may seem really unfair, especially if the property owner has
left you with a large outstanding bill, but the laws are designed to protect
property owners from unscrupulous service providers.
Alternative
Dispute Resolution
Because
of the cost and waiting time associated with modern litigation, the popularity
of alternative dispute resolution (ADR) has increased greatly. ADR includes mediation, where a neutral third
party, usually an attorney, will mediate the dispute between the parties and
coach them to negotiating a settlement.
ADR also includes arbitration, in which the parties select a neutral
third party, often a retired judge, to hear the facts of the case and render a
decision. Mediation is typically
non-binding and does not prevent the parties from filing a lawsuit if they fail
to reach an agreement. In contrast, the
parties can (but are not required to) contractually agree that an arbitration will be binding, meaning that they will lose
their rights to bring suit in the matter.
When
and How to Hire an Attorney
You
need to hire a lawyer as soon as possible if you are ever sued, arrested, or
served with a notice from a government agency (such as a zoning
violation). In addition, you should
strongly consider hiring an attorney to draft the form contracts for your
business and customized contracts for any complex transactions that you enter
into. Finally, if you think you need to
sue someone, you should contact an attorney rather than trying to handle the
matter on your own.
Now
that you’ve decided to hire an attorney, how do you find the right
attorney? Attorneys are typically rather
specialized and deal only with matters that relate to a certain subject matter
area, such as criminal defense, personal injury, real estate, trusts and
estates or medical malpractice.
Accordingly, consider what your case or matter is about before you start
looking. The attorney who can do the
best and most cost-effective job for you is the one whose typical practice
looks the most like your own matter.
The
single best source for finding a good attorney is often friends who have had
similar matters. If you operate a
boarding stable and need legal advice to evict a troublesome boarder, ask
around among your contacts who also run boarding
stables. Another good source is a broad
Internet search – you can type in the key words about your matter and see what
attorneys’ web sites pop up. For example,
if you need a boarding contract, you might search for “boarding contract” and
“attorney.” There are numerous online
attorney directories, but one of the most comprehensive is Martindale-Hubbell
(www.martindale.com), where you can search by attorney name, location, law
firm, specialty and other criteria.
Finally, your local bar association may have a referral service that you
can call. If your matter is
horse-related, finding an attorney familiar with horses will be helpful to you.
How
do you screen potential attorneys? The
first step is to make sure that they are licensed to practice in your
state. Most states now have their bar
association membership directory posted on the Internet and you can conduct a
name search to see whether your attorney is listed and whether they have had
any disciplinary actions filed against them.
Once you have determined that the attorney is licensed in your state and
has a clean disciplinary record, you can interview them a bit – ask them where
they went to school, how long they have been practicing and how many years they
have been practicing in this field. You
can also ask them what experience they have that is directly relevant to your
case – perhaps they represent numerous boarding stables and/or are horse owners
themselves. Trust your instincts – if
your attorney seems somewhat evasive or irritated at your questions, you should
choose another attorney. Definitely
choose another attorney if you can’t get the attorney to talk with you briefly
about your case before you make a decision to hire them. Finally, don’t be afraid to “Google” them by
searching their name online – it can yield a wealth of interesting information.
Once
you have found an attorney you would like to hire, ask them for a cost
estimate. Most attorneys charge a fixed
hourly rate and expect prompt reimbursement for expenses such as copying,
long-distance telephone calls and court filing fees. Some attorneys also offer certain services at
fixed prices. A few attorneys will take
cases on a contingency basis, which means that they are paid a percentage of
your proceeds if you win your case.
Regardless of your attorney’s billing practices, make sure that you
understand how much you can expect to pay before you hire the attorney.
Before
beginning work, attorneys typically ask their clients to sign what is commonly
called an engagement letter, which is essentially your contract with your
attorney. The engagement letter will
describe generally what services your attorney will provide and what rates you
can expect to pay. If you don’t
understand any portions of the engagement letter, do not be afraid to ask your
attorney to explain them.
Most
attorneys who work on an hourly basis will require you to pay them a
retainer. There are two types of
retainers – one type is essentially a deposit that will be applied to your
invoices as they come due, and the other type of retainer is a non-refundable
fee that you pay to have the attorney take you on as a client. Accordingly, make sure you understand which
type of retainer is required.
How to Minimize Your Legal Bills
In
addition to determining at the outset what you can expect to pay your attorney,
there are certain other key steps that you can take to reduce your legal bills. For starters, organize all of your records
pertaining to your case before you send them to your attorney. If you have a dispute, prepare a
chronological timeline for the attorney that shows what happened when and
attach documents that are relevant to those events. You should pay for your attorney to read the
evidence that you have gathered, not to assemble it and organize it.
You
can also keep your communications organized, short and to the point. Many clients feel the need to pick up the
phone, but often email communication is more efficient, because you can figure
out what you want to say without your attorney’s time clock running, and you
can avoid paying your attorney for chit-chat.
Busy attorneys are frequently on the phone all day, so often an email
will receive a quicker response. Not
only that, you will have a record of what you discussed with your attorney, so
if you need to refresh your memory later, you can refer back to the emails. If you need to call your attorney, the best
times are often right before his or her office opens, at lunchtime and after
their office closes. At those times,
office staff is frequently not around and attorneys may answer their own
phones.
Finally,
don’t be afraid to ask your attorney what you can do to make his or her job
easier and keep your costs down. Perhaps
there are records you can pull and send to him, or addresses that you can look
up on your own. Save your legal budget
for the things that you really need an attorney to do, such as drafting pleadings
or contracts.