Frozen Assets

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Frozen AssetsProperty law – who could forget the Rule Against Perpetuities, fee simple, remainders or Blackacre from your second semester at Marquette Law? For me, it made me seriously question my abilities to reason through complex issues. For my sister, who practices Trusts and Estates law, it is her way of life.

But that second semester, the opportunity to apply the principles of property law became my reality. It seemed every semester I slogged through law school, I had a personal or business crisis that overlapped with my studies. We used arbitration to resolve a breach of contract during a commercial building project. We used an LLC formed by our neighbors to contend with an eminent domain issue, when the utility company condemned and forever marred our property with a gas line. And most interesting of all, we used property law and many other legal principles to deal with a business purchase.

As a foundation for this, let me explain the rest of my professional life. I graduated from Iowa State’s Veterinary School in 1981 and have run my own small animal veterinary practice in rural Wisconsin, one hour north of Milwaukee, since then. After 25 years out of the classroom, I had the itch to go back to school, for the opportunity to have a second career, and because I missed the energy of being in an academic setting.

As my practice and career evolved, I became increasingly involved in working with dog breeders. We frequently use “assisted reproduction”, which involves several advanced techniques. I will attempt to be descriptive and simultaneously delicate with this issue.  Assisted reproduction includes artificial insemination (AI), transcervical insemination (TCI) and the use of frozen semen (hereafter referred to as “frozen assets”). This process has been done since the 1940s in cattle and the 1970s in dogs; it is a well-established method of sparing genetic material. Now, this by itself could be a long discussion about the legal and ethical issues. But let’s get back to property law.

I was made aware of the untimely death of a business owner from northern Illinois. He ran an independent semen bank and died intestate. His assets were frozen in liquid nitrogen, in 5 tanks, that were sitting in a corncrib, out in his landlord’s field, essentially unprotected. As his landlord was a dairy farmer, he too had nitrogen tanks to maintain. So out of the goodness of his heart, he had the tanks replenished regularly with liquid nitrogen to maintain the integrity of the contents. But time was ticking on his benevolence.

Several of my clients were concerned that their assets would thaw and be rendered unusable. Because of the storage techniques, individual frozen asset owners could not make the pilgrimage to Illinois and toss their goods into the back of their minivan. Ultimately, the American Kennel Club (AKC) dictates the use of this asset to produce litters of pups. When my clients and I contacted AKC, we were not given any legal assistance in how to manage this issue.

An important piece of information to understand is that this type of asset remains the property of the donor dog’s owner, and the business owner has only the rights to storing the asset, not to ownership or distribution of this asset.

I contacted the two attorneys from whom I regularly sought business advice – one in Wisconsin and one out of state. Of course, when you ask two attorneys the same question, you will get two conflicting opinions. So I did what every good law student would do and spoke to my current property professor, Julian Kossow. I still remember him peering over his glasses at 9 p.m. and saying to me “when I got up this morning in Washington D.C., I had no expectation that I would be sitting in my office in Milwaukee discussing this type of property with a student tonight.” Fortunately, his sense of humor prevailed.

One of my attorneys has both a veterinary and law degree. The other one of my attorneys is now a judge. They both have great judgment and reasoning skills. No one at AKC or anyone else I could find could base an opinion of how to proceed on legal precedent. One attorney advised me to walk away, not to purchase the rights to store this asset and move it across state lines: the liability would be too great. The other squirmed a bit, but asked what would happen to this asset if someone did not accept responsibility for storing it rather soon. Of course, the answer was that it would thaw once the tanks were no longer maintained and would immediately be rendered unusable. There is precedent for that.

While we did not want to incur undue liability, we also were being pressured by clients across the country who knew of the situation and were concerned that they would lose valuable and irreplaceable genetic material. Ultimately, AKC came back to us and asked US what we were going to do about it.

So ultimately, we followed Illinois law about notice of found property, published appropriate notice, mailed notice to as many clients as we could contact, and made arrangements to purchase and move the frozen assets. Just moving 5 filled nitrogen tanks and doing inventory on frozen assets, while keeping them frozen, has some logistical issues. My fingertips will never be the same again.

To date, we have used many of the units of the frozen assets, and to the delight of the owners, have had successful breedings producing litters of pups from stud dogs lost over 20 years ago. And to date, we have had no client complaints that we did not have their consent to change storage ownership and location. But it could have just as easily had an unhappy outcome if only one client who did not feel notice was adequate decided to pursue legal action.

Thanks to the common sense and legal reasoning of my attorney, and a bit of luck with judicious use of the assets, there was a great outcome in business ownership transfer.

Funny, somehow Professor O’Meara got the hats that match – ask him about that.

But what would you have advised me to do as one who wanted to purchase these business assets? Or how would you have advised the owner of the dog’s frozen assets to proceed? Puts a new spin on property law, right?

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