Common Legal Pitfalls That Rescue Groups Can Avoid

Make sure your rescue owns the animal

When your rescue takes possession of an animal, make sure the previous owner no longer owns it. I have been involved in several cases where a previous owner came forward and demanded that the rescue—or its adopter—return the animal. There are only four ways that a previous owner could have lost ownership of an animal:

1. The owner voluntarily relinquished ownership, such by surrender, gift, or sale.  (Be sure the relinquishment is in writing so you can prove it.) Or
2. The animal was impounded by a city or county for the prescribed time period and their ordinance complies with the Lira case (discussed below), or
3. The owner abandoned the animal (the owner must have intended to abandon the animal), or
4. A court terminated ownership of the animal (e.g. at a cruelty seizure hearing.)

These are the only ways a person can lose ownership of an animal. Animals are considered “property” under Texas law and, unfortunately, a person’s ownership rights are not affected by his cruelly treating, abusing, or neglecting an animal (unless those rights are terminated by a court in a cruelty seizure hearing.) Unless ownership of a dog has been terminated in one of these four ways, there is a risk that a rescue or its adopter will have to return the dog if an orginal owner comes forward.  If ownership of an animal has been terminated, then the name on a microchip, vet records, tags and photographs, and the fact that the animal is a service or emotional support animal do not matter if an original owner wants the dog back.

Be careful pulling dogs from cities with defective animal ordinances

In Lira v. Greater Houston German Shepherd Dog Rescue the Texas Supreme Court held that a person’s ownership of a dog impounded by a city is not terminated unless the city’s ordinance expressly states that an impounded dog becomes the property of the city or that ownership is terminated. An ordinance that merely says the animal may be adopted out or euthanized does not terminate the owner’s rights and the owner may sue the rescue or adopter to get the dog back.  In the Lira case, the rescue group that had pulled the dog from the city’s animal shelter after the mandatory six-day impoundment period had passed, was ordered to return the dog to the original owner.

After the Lira decision came out, most Texas cities and counties amended their ordinances to make them expressly terminate ownership as required by the supreme court. However, some cities and counties did not, and dogs pulled from shelters in those cities and counties are still owned by the original owner (unless ownership was forfeited in one of the other three ways discussed above.) If a city or county ordinance is defective, your rescue group should encourage the city council or county to amend their ordinance to comply with Lira.  You should also disclose to potential adopters that there could be an ownership issue if the previous owner comes forward, and you should say this in the adoption contract. The ordinances of many cities may be viewed here: https://library.municode.com/tx. If a city is not on that list, you may have to go to the city’s website. Some counties’ websites have their ordinances. Otherwise, you will have to get them from the county.

Always have written contracts with fosters

I get a surprising number of calls from rescue groups that are in heated disputes with a foster. Sometimes these disputes even wind up in litigation. The most common disputes involve: 1) the foster deciding to keep the dog or adopting the dog to someone else without the rescue’s permission, and 2) the foster or another person getting bitten. To reduce the chance of litigation and to improve the rescue’s chances in court if there is litigation, I recommend that a written contract be entered into between the rescue and the foster. The contract should include:

• An acknowledgement that the rescue owns the dog, the foster may not transfer the dog to another, and must surrender the dog to the rescue upon request.
• An agreement that the foster will be liable for attorney’s fees if he or she refuses to return the dog as requested by the rescue.
• An acknowledgment that the foster may not adopt or permanently keep the dog except by entering into a written adoption contract with the rescue.
• A list of obligations of the foster and the rescue (such as who pays for food and veterinary expenses, where the dog will be kept, and whether other animals or children may be in the foster’s home).
• A statement that no representations have been made by the rescue concerning the dog’s temperament or propensity to bite.
• Waiver of liability and indemnity clauses in which the foster assumes the risk of being injured by the dog and agrees to indemnify the rescue for any claims arising out of injuries caused by the dog. (These clauses must be properly worded and conspicuous in the contract in order to be valid).
• A clause stating that the foster contract may not be verbally or orally modified and may only be modified by a written agreement signed by both parties.  (I have had more than one case where the foster refused to return a dog, falsely claiming that the rescue orally agreed the foster could permanently keep it.)
• A clause obligating the foster to comply with all local ordinances and state animal control laws.
• A liquidated damages clause that provides for payment of a certain amount of money if the foster contract is breached. (These clauses are only valid if the harm caused by the breach and the agreed-upon amount are a “reasonable forecast of just compensation.”) A liquidated damages clause may deter the foster from breaching the contract.

Adoption contracts

Adoption contracts are very important and, if properly drafted, can prevent a lot of serious problems for rescue groups. Here are some clauses that are often in adoption contracts.

1. Disclaimer I recommend that rescue groups include a clause that disclaims all implied warranties including the “implied warranty of merchantability.” This is a warranty that Texas law imposes on all “merchants” that sell “goods.” It has been argued that a dog adoption by a rescue carries an implied warranty of merchantability unless it is disclaimed. The disclaimer must be properly worded with specific language and must be conspicuous in order to be valid. I also recommend that the contract specifically state that the transfer of ownership is not a “sale,” and that the adoption fee is not a price but is a charitable donation.
2. Waiver of liability I recommend that the adoption contract include a clause releasing the rescue from any liability for injuries caused by the dog. Such clauses are valid only if they are properly worded and appear conspicuous in the contract. They must be specific about the types of legal claims and activities to which they apply. Otherwise, they may not be enforceable. The waiver language must also be conspicuous and not difficult to find or notice.
3. “Control” clauses Rescue groups understandably want to make sure adopted dogs will be safe, loved, and well cared for. To this end they will often put clauses in the adoption contract that dictate how the adopter is to care for the dog after the adoption. Examples I have seen include: 1) adopter will not tether the dog, make it stay outside or use it as a guard dog, 2) adopter will comply with all state and local animal control laws, 3) adopter will allow periodic inspections by the rescue and provide copies of vet records, 4) the dog will be given heartworm prophylaxis, flea preventive, veterinary care, etc., 5) adopter will love the dog, and 6) the rescue group may enter the adopter’s property and seize the dog if it decides the adopter is not complying with the adoption contract.  It is debatable whether all of these control clauses are enforceable. The general rule in Texas is that the courts will enforce a contract as long as the terms of the contract do not “violate public policy.” (For example, a clause that allows a rescue group to go onto an adopter’s property without permission and seize a dog probably violates public policy.)  Another rule of contract law is that the terms of a contract must be clear and unambiguous. A clause that requires the adopter to “love” the dog is ambiguous and probably not enforceable.
4. Right of first refusal I recommend that rescue groups have a clause in the contract that says if an adopter no longer desires to keep the dog, is unable to care for it, or intends to relinquish ownership, the rescue has the “right of first refusal.” The adopter agrees to give the rescue notice when this happens, and the rescue can then take possession of the dog.
5. Reversion of ownership A clause that says ownership of the dog automatically reverts back to the rescue if the contract is breached by the foster may or may not be enforceable, but it might deter the adopter from breaching the contract.
6. Liquidated damages A liquidated damages clause provides for payment of a certain amount of money if the adoption contract is breached. These clauses are only valid if the harm caused by the breach and the agreed-upon amount are a “reasonable forecast of just compensation.” A liquidated damages clause may deter the adopter from breaching the contract.
7. Modification of contract I recommend a clause that says the adoption contract may not be orally or verbally modified and may only be modified by a writing signed by both parties.

Follow corporate formalities or risk forfeiture and personal liability

Non-profit corporations must be managed according to their bylaws. They must have at least one board meeting per year, or more if required by the bylaws, and must elect and have at least three directors, or more if required by the bylaws. They must elect and have officers—at least a president and a secretary—and more officers if required by the bylaws. If there are members, then there must be at least one membership meeting per year, or more if required by the bylaws. Minutes of all board and member meetings must be kept.  A non-profit rescue group can lose its corporate status if it does not follow these corporate formalities.  Officers and directors must always treat the corporation as a totally separate entity. They may be held personally liable if a lawsuit is filed and it is proven that they did not follow corporate formalities, if they used the corporation for their personal benefit, or if the corporation’s funds were “co-mingled” with their own personal funds.  This is called “piercing the corporate veil.” I have had to defend officers, directors, and volunteers who were sued personally, along with their rescue group, after a dog owned by the rescue bit someone and the dog bite victim alleged that  the corporate veil should be pierced.

Maintain liability insurance

I advise rescue groups to carry liability insurance. It isn’t as expensive as you might think, and it protects the rescue from personal injury claims and lawsuits. The liability limits of the insurance should be at least $500,000 per person and $1million per occurence.  If the rescue gets sued, the insurance company will hire a lawyer to defend the rescue and if the rescue is found liable, the insurance company will pay the damages. But be sure the policy actually covers injuries caused by dogs. I once had a case where the rescue’s liability policy covered car wrecks and slip and fall injuries, but not dog bites!  Debra Palacios is an insurance broker who helps Texas rescues with their insurance needs: debbie.palacios@iscential.com.

Maintain corporate and financial books and records or risk jail

A non-profit corporation must maintain “current and accurate financial records in accordance with generally accepted accounting principles” for at least three years. The board of directors must approve annual financial reports. Financial records and reports must be available for inspection by the public unless the funds come exclusively from members, or the contributions are under $10,000 in a year. Failing to comply with these rules is a Class B misdemeanor punishable by up to six months in jail and a $2,000 fine. The Texas Secretary of State may require non- profit corporations to file an “information report” every four years upon request. The Texas Attorney General has the right to inspect the books and records of a non-profit corporation and to sue the corporation and its directors when there is mismanagement or malfeasance.

Be sure to pay sales tax on merchandise

Non-profit rescues do not have to collect and remit sales tax on animal adoptions, but sales of all other merchandise are taxable—such as items sold at fundraisers, leashes, t- shirts, coffee mugs, etc. There are increasing penalties for failing to remit sales taxes to the Texas Comptroller. 501(c)(3) rescues are allowed to hold two one-day, tax-free sales each calendar year when they are not required to collect sales tax.

Be sure to file with the IRS

A non-profit corporation is required to file an annual IRS Form 990 Information Return with the IRS if it has more than $50,000 in gross receipts. If its gross receipts are less than $50,000 it is required to file an IRS Form 990-N. The IRS can revoke a non-profit corporation’s 501(c)(3) status if it violates federal tax laws.

Join the Texas Humane Legislation Network

Every organization and person in Texas who rescues, owns, or takes care of animals and cares about the laws that protect them should join the Texas Humane Legislation Network (www.thln.org). THLN is a non-profit, grassroots organization that fights for animals in the Texas legislature. Most of the animal protections laws in Texas were passed because of THLN’s efforts. The more members THLN has, the more clout they have in Austin to get animal protection legislation passed.