Monday, 16 August 2010 11:08

Horses and the Law Seller Beware

Written by  Kenneth C. Sandoe, Attorney-at-Law
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Disclaimer - This article is intended as general discussion and information on the topic covered, and is not to be construed as rendering legal advice. If legal advice is needed, you should contact an attorney. This article may not be reprinted or reproduced in any manner without prior written permission of the author.

A recent decision out of the State of Wisconsin could turn the law of livestock sales upside down. “Buyer Beware” has been the legal maxim forever. At least until June 25, 2008, when the Wisconsin Court of Appeals published its decision in Michael and Marsha Wilson v. Robert and Shelly Tuxen, 2008 WI. App. 94 (Decided May 20, 2008). The decision significantly lowered the burden of proof in lawsuits for buyers of livestock who purchased diseased animals so long as they fall into one of 19 specific diseases set forth in the Wisconsin Administrative Code (to be identified later in this article). This section creates a “strict liability” situation so long as the buyer can present evidence that the livestock (including horses) had the disease at the time of sale. The other part of the decision that is also very eye-opening is that the buyer can plead, prove and recover all losses from the sale including loss of a business operation and loss of a herd if the herd becomes infected.

The decision has far reaching potential as it affects all buyers who purchase livestock in Wisconsin. As far as draft horses are concerned, Wisconsin holds a number of public auctions, the Midwest Select Draft Horse Sale, the Central Wisconsin Horse Sale and Gingerich’s Fall Horse Sale. The National Clydesdale sale was also held in Madison, Wisconsin,  this year (although it will be returning to Illinois in 2009) not to mention the number of private treaty sales that occur in the state.

In order to analyze the possible ramifications of this decision we should review the facts and decision in some detail. The Wilsons purchased 50 adult dairy cows from Tuxen in August of 2001. Some of the cows began exhibiting health problems within months of the sale. In June 2002, two of the cows tested positive for Johne’s disease and several more tested positive later.

The Wilsons’ veterinarian testified that Johne’s disease is a fatal, contagious disease that is typically acquired during the first six months of a cow’s life. However, a cow may not exhibit clinical symptoms for many years later. Symptoms of Johne’s disease include weight loss, diarrhea and reduced milk production. A cow that has Johne’s disease must be destroyed.

Wilson sued Tuxen in September 2004. The lawsuit alleged that the diseased cattle ruined the Wilsons’ farm business including infecting other livestock they owned. Wilson sued for breach of contract, breach of warranty, misrepresentation, negligence and violation of Wisconsin Statute Section 95.19.

Tuxen argued that the case should be dismissed because of the “economic loss” doctrine and failure to give timely notice on the contract claim. Under Wisconsin law the “economic loss” doctrine precludes tort or negligence remedies when a buyer suffers only economic losses from the defective product purchased. Economic losses include loss of value of the product and consequential economic losses to the purchaser caused by the defect, such as lost profits. However, economic losses do not include damage to other property distinct from the purchased defective product.

The trial court held that the cows were the “defective product” in the case and, as such, dismissed all negligence or tort claims under the “economic loss” doctrine. The trial court also found that Wilson did not give notice of the breach of contract and implied warranty claims within a reasonable time, and that the 10-month delay in notifying Tuxen was unreasonable and therefore dismissed all contract claims.

The case was appealed to the Wisconsin Court of Appeals which upheld the trial court on the dismissal of the contract claims for failure to give timely notice, but, reversed the trial court on the tort claims. The Court of Appeals first held that the “economic loss” doctrine bars the Wilsons from recovering for the diseased cows purchased from Tuxen. The Appeals Court reasoned that such losses are “loss[es] in value of the product,” a direct economic loss, rather than damage to other property. However, Wilson could recover for “damage to other property” i.e., livestock Wilson owned which became infected by the Tuxen herd.

The next part of the Court’s opinion could change the legal landscape of livestock sales. The Court held that statutory claims under Wisconsin law, Section 95.19 are not barred by the economic loss doctrine and anyone who violates Section 95.19 is liable to any person for damages suffered as a result. Violation of the Wisconsin Statute 95.19 creates strict liability for anyone selling diseased livestock. Wisconsin Administrative Code, ATCP 10.08 sets forth the rules for Section 95.19 as it relates to strict liability claims. This section, along with the 19 categories is set forth as follows:

“ATCP 10.08 Moving diseased animals.
(1) General. No person may, in connection with the import, sale, movement or exhibition of any animal, do any of the following:
(a) Knowingly conceal that the animal has been infected with or exposed to any contagious or infectious disease.
(b) Knowingly misrepresent that the animal has not been exposed to or infected with any contagious or infectious disease.
(c) Knowingly permit an animal that has been exposed to or infected with a contagious or infectious disease to commingle with other animals under conditions that may cause the disease to spread to an animal owned by another person.

(2) CONTAGIOUS OR INFECTIOUS DISEASES. Except as provided in sub.(3), no person may sell or move any animal that is infected with or exposed to any of the following contagious or infectious diseases, or any animal that the department has classified as a suspect or reactor for any of the following contagious or infectious diseases:
(a) Anthrax
(b) Brucellosis
(c) Chronic wasting disease
(d) Equine encephalomyelitis
(e) Equine infectious anemia
(f) Foot and mouth disease
(g) Hog cholera (classic swine fever)
(h) Vesicular stomatitis
(i) Mycoplasma gallisepticum
(j) Pseudorabies
(k) Psoroptic mange
(l) Pullorum
(m) Rabies
(n) Salmonellosis entriditis in poultry
(o) Scrapie
(p) Sheep foot rot
(q) Swine dysentery
(r) Tuberculosis
(s) Vesicular exanthema

As can be seen, Section 10.08(2) is the strict liability section. Note the number of diseases related to horses. Further note that if an animal is infected with one of the 19 diseases, the buyer does not have to prove that the seller knew the livestock was infected at time of sale. This decision is very favorable to buyers who unknowingly purchase diseased livestock and are economically harmed as a result.

What is the practical affect of this decision? A seller can no longer afford to be a casual seller. A seller must insure against a horse having a disease on the strict liability list. If a buyer takes an infected horse home and the horse infects the rest of the buyer’s herd, the seller is responsible for the loss. Imagine the potential damage if a stallion or brood mare operation is infected by a newly purchased diseased horse. The loss of future breeding contracts as well as sales can become part of the lawsuit. A seller cannot afford to be casual anymore.

The liability in private sales is simple, there is a buyer and a seller and they would be the respective parties in a lawsuit. But what about public auctions, or a case where a trainer takes a horse to market and sells it for the owner? Under the Wilson decision the auction company and the trainer are potentially responsible and must make certain that the horse is not infected with any of the diseases set forth above. I recommend that all sellers and auction committees review the list very carefully and consult with a veterinarian to determine a strategy for timely and accurate testing to minimize the exposure for liability in light of this case. A review of numerous sale catalogs confirms that there is exposure for the auction company to a strict liability action as set forth in Wilson v. Tuxen.

It must be remembered that this case only applies to the state of Wisconsin and sales which occur in the state of Wisconsin. It will be interesting to see if this decision spreads among other states and the potential affect thereof. Frankly, this decision has the potential to be one of the most important decisions affecting horse sales in decades. We will keep a sharp eye on Wisconsin sales and any states which follow suit.

Enough legal talk–it’s time to hitch horses.

Ken is a practicing attorney in Myerstown, PA, where a good bit of his practice involves negligence cases. Ken and his wife, Karen, own Sunny Hill Farm Belgians, and they have been exhibiting their six horse hitch for the past few years at most major shows in the East.

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