RENDERED: MARCH 31, 2023; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2022-CA-0603-MR
CHARLIE KIRBY; ADAM YORK;
DONNA RUSSELL; EDWARD
RUGGLES; EDWARD RUGGLES,
JR.; LEE RUGGLES; AND NANCY
HURST APPELLANTS
APPEAL FROM FAYETTE CIRCUIT COURT
v. HONORABLE JULIE M. GOODMAN, JUDGE
ACTION NO. 20-CI-02869
KEENELAND ASSOCIATION, INC.;
KRM WAGERING, LLC;
LEXINGTON TROTS BREEDERS
ASSOCIATION, LLC; AND RED
MILE, INC. APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: THOMPSON, CHIEF JUDGE; COMBS AND JONES, JUDGES.
COMBS, JUDGE: Charlie Kirby, Adam York, Nancy Hurst, Edward Ruggles,
Edward Ruggles, Jr., Lee Ruggles, and Donna Russell (Appellants, referred to
collectively as the Wagerers) appeal the order of the Fayette Circuit Court
dismissing their lawsuit against Keeneland Association, Inc.; Lexington Trots
Breeders Association, LLC; Red Mile, Inc.; and KRM Wagering, LLC (the
Appellees). By means of their civil action, the Wagerers sought to recover their
own gambling losses (as well as the gambling losses of numerous unidentified
fellow wagerers) incurred as a result of bets placed at electronic terminals
displaying historical horse races. The circuit court concluded that the complaint
against the Wagerers failed to state a claim upon which relief could be granted.
After our review, we affirm.
The issues underlying this case have undergone a long and somewhat
contradictory journey through our courts for more than a decade. For the sake of
historical perspective, we shall recount the salient events in that odyssey.
In July 2010, the Kentucky Horse Racing Commission (the Racing
Commission) promulgated administrative regulations authorizing wagers on
historical horse races at electronic terminals. On the day that the new regulations
were adopted, the Racing Commission, the Kentucky Department of Revenue, and
several racing associations filed a petition for declaration of rights in the Franklin
Circuit Court. The petitioners sought a declaration that the Racing Commission’s
new regulations were a lawful exercise of its statutory authority; that pari-mutuel
wagering on historical horse races pursuant to the new administrative regulations
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did not violate the gambling prohibitions of KRS1 Chapter 528; and that the
Department of Revenue lawfully exercised its statutory authority in requiring that
excise tax be paid on the revenue generated from wagering on historical horse
races. Although no respondent or opposing party was named in the petition, the
circuit court, sua sponte, determined that the case presented a justiciable
controversy over which it could -- and did -- exercise jurisdiction.
Later, the Family Trust Foundation of Kentucky, Inc., (the Family
Trust Foundation) sought and received permission to intervene in the action. It
contended that a justiciable controversy had not been presented to the court.
Alternatively, it argued that wagering on historical horse races was not pari-mutuel
wagering as permitted under Kentucky law and that the newly promulgated
administrative regulations of the Racing Commission were invalid. However, the
circuit court denied the request of the Family Trust Foundation to conduct
discovery.
The circuit court entered judgment declaring: that the administrative
regulations of the Racing Commission were valid; that the Department of
Revenue’s collection of excise taxes on historical horse racing wagering was valid;
and that the licensed operation of historical horse racing terminals pursuant to the
Racing Commission’s new regulations did not violate Kentucky’s prohibition on
1
Kentucky Revised Statutes.
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gambling as contained in KRS Chapter 528. The Racing Commission duly
licensed the wagering, and, in short order, wagers were being placed on historical
horse races at Kentucky racetracks.
The Family Trust Foundation appealed the judgment of the Franklin
Circuit Court. In a divided opinion, this Court concluded that the case indeed
presented a justiciable controversy. However, we determined that the trial court
had abused its discretion by failing to permit the Family Trust Foundation to
develop proof and to present evidence to establish that the contested wagers did not
constitute pari-mutuel wagering -- thus negating the regulations promulgated by
the Racing Commission. Consequently, we vacated the judgment and remanded
for further proceedings.
After granting discretionary review, the Kentucky Supreme Court
determined that the circuit court had also erred by concluding that the petition for
declaratory judgment presented a justiciable controversy. Appalachian Racing
LLC v. Family Trust Foundation of Kentucky, Inc., 423 S.W.3d 726 (Ky. 2014).
However, it held that participation by the Family Trust Foundation before the
appellate courts had cured that constitutional infirmity. The court rejected the
contention of the Family Trust Foundation that the Racing Commission acted
outside the scope of its authority. It held specifically that the promulgation of
administrative regulations by the Racing Commission to license the operation of
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pari-mutuel wagering on historical horse racing was a valid and lawful exercise of
the agency’s authority under its enabling statute. Nonetheless, it concluded that
additional proceedings in the trial court were required in order to determine
whether the wagering envisioned by the various horse racing associations
constituted an actual pari-mutuel form of wagering; i.e., the only form of wagering
authorized by the provisions of KRS Chapter 230.
On remand, discovery commenced on this narrow issue. In January
2018, the Franklin Circuit Court conducted a bench trial. The circuit court
concluded that the method of wagering on historical horse races (referred to as
either the “Encore system” or the “Exacta system”) permitted at Kentucky
racetracks did indeed constitute a pari-mutuel system of wagering meeting the
requirements of the Racing Commission’s regulations. Again, the Family Trust
Foundation appealed.
On transfer from this Court, the Supreme Court of Kentucky held that
the trial court erred by concluding that wagering using the Encore platform
constituted a pari-mutuel form of wagering meeting the requirements of the Racing
Commission’s regulations. Family Trust Foundation of Kentucky, Inc. v. Kentucky
Horse Racing Comm’n, 620 S.W.3d 595 (Ky. 2020). It reiterated that “pari-mutuel
wagering requires that patrons generate the pools based on wagering on the same
discrete, finite events.” Id. at 601. It observed as follows:
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Without providing simultaneous access to one historical
horse race to the same group of patrons, no pari-mutuel
pool can be created among the patrons in which they are
wagering among themselves, setting the odds and the
payout.
Id. Additionally, the Supreme Court concluded that the funding of the “initial seed
pool” by a racing association removed the wagering from a pari-mutuel form of
wagering. It held that random generation of multiple historical horse races with
patrons placing wagers on different races or sets of races does not qualify as pari-
mutuel wagering and reversed the judgment of the Franklin Circuit Court.
On February 2, 2021, the General Assembly reacted to the holding of
the Supreme Court of Kentucky and unequivocally stated its legislative intent as
being contrary to the interpretations of the high court. Senate Bill 120 adopted a
definition of pari-mutuel wagering that included the pooling of wagers on different
events and authorizing contributions from racing associations to fund gaming seed
pools.2 The bill passed the Senate without amendment, and two days later, it
passed the House without amendment. On February 22, 2021, Governor Beshear
signed the bill into law. Codified at KRS 230.210(15), the law provides as
follows:
“Pari-mutuel wagering,” “pari-mutuel system of
wagering,” or “mutuel wagering” each means any
method of wagering previously or hereafter approved by
the racing commission in which one (1) or more patrons
2
2021 Ky. Laws 8, § 1 (S.B. 120) (eff. Feb. 22, 2021).
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wager on a horse race or races, whether live, simulcast,
or previously run. Wagers shall be placed in one (1) or
more wagering pools, and wagers on different races or
sets of races may be pooled together. Patrons may
establish odds or payouts, and winning patrons share in
amounts wagered including any carryover amounts, plus
any amounts provided by an association less any
deductions required, as approved by the racing
commission and permitted by law. Pools may be paid
out incrementally over time as approved by the racing
commission . . . .
The Racing Commission accordingly promulgated new regulations incorporating
and implementing the new legislation’s definition of pari-mutuel wagering
contained in the new legislation.
On March 17, 2021, on remand from the Kentucky Supreme Court,
the Franklin Circuit Court entered its final judgment. It held that historical horse
race wagering using the Exacta platform was “not a form of pari-mutuel wagering
under the laws in effect at the time of the Kentucky Supreme Court’s September
24, 2020, opinion.” The Franklin Circuit Court denied the motion filed by the
Family Trust Foundation to give its judgment retroactive application.
The Wagerers filed the action underlying this appeal in Fayette Circuit
Court. Contending that wagers placed at electronic terminals displaying historical
horse races before the enactment of Senate Bill 120 did not qualify as pari-mutuel
wagering as a matter of law, they argued that the wagers constituted illegal
gambling. Relying upon the provisions of Kentucky’s Loss Recovery Act, KRS
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Chapter 372, they sought to recover their lost wagers -- plus lost wagers made by
every other individual at one of the electronic terminals operating at Kentucky
racetracks.
The statutes now comprising KRS 372.010 to 372.050 are nearly
verbatim reenactments of provisions contained within the legislature’s first
codification of the Commonwealth of Kentucky’s statutes and are derived from the
days of our Virginia heritage and parentage. See Commonwealth ex rel. Brown v.
Stars Interactive Holdings (IOM) Ltd., 617 S.W.3d 792 (Ky. 2020). KRS 372.020
enables a losing gambler to file a first-party cause of action in order to recover his
gambling losses. It provides as follows:
If any person loses to another at one (1) time, or within
twenty-four (24) hours, five dollars ($5) or more, or
anything of that value, and pays, transfers or delivers it,
the loser or any of his creditors may recover it, or its
value, from the winner, or any transferee of the winner,
having notice of the consideration, by action brought
within five (5) years after the payment, transfer or
delivery. Recovery may be had against the winner,
although the payment, transfer or delivery was made to
the endorsee, assignee, or transferee of the winner. If the
conveyance or transfer was of real estate, or the right
thereto, in violation of KRS 372.010, the heirs of the
loser may recover it back by action brought within two
(2) years after his death, unless it has passed to a
purchaser in good faith for valuable consideration
without notice.
KRS 372.020. Where a losing gambler fails to bring a recovery action under the
provisions of KRS 372.020 within six months, KRS 372.040 permits a third-party
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cause of action to be brought against the winning gambler by any other person and
allows for the recovery of treble damages.
After the Wagerers filed their second amended complaint in January
2022, and before they filed an answer, the defendant racing associations and KRM
Wagering, LLC, filed a motion to dismiss. Following a hearing, the court
concluded that the Wagerers were not entitled to relief under the provisions of
Kentucky’s Loss Recovery Act. It relied upon the safe-harbor provision of KRS
372.005, which expressly provides that “[t]he terms and provisions of this chapter
do not apply to betting, gaming, or wagering that has been authorized, permitted,
or legalized . . . .” The court concluded that the plain language of this provision
means that no cause of action will lie where the challenged wagering was
authorized, permitted, or legalized (retroactively or otherwise). By its order
entered on April 27, 2022, the trial court granted the motion and dismissed the
complaint. This appeal followed.
On appeal, the Wagerers argue that the Fayette Circuit Court erred by
granting the motion to dismiss. They contend that the trial court erroneously
concluded that the provisions of the Loss Recovery Act are inapplicable by its
terms.
A motion to dismiss for failure to state a claim upon which relief may
be granted presents a question of law. Therefore, we do not defer to the trial
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court’s determination. Fox v. Grayson, 317 S.W.3d 1 (Ky. 2010). Instead, we
must review the issue de novo. Id.
Where a statute is clear and unambiguous, it must be applied as
written. Stephenson v. Woodward, 182 S.W.3d 162 (Ky. 2005). In analyzing
whether the Wagerers’ complaint states a claim upon which relief may be given,
we must apply the language of the safe-harbor provision of Kentucky’s Loss
Recovery Act according to its plain and ordinary meaning.
The Wagerers contend that they did not fail to state a claim upon
which relief may be granted because operation of electronic terminals that did not
employ a pari-mutuel form of wagering were rendered illegal at all points in time
by the 2020 decision of the Kentucky Supreme Court in Family Trust Foundation
of Kentucky, Inc., supra. Additionally, in an effort to circumvent the safe-harbor
provision of KRS 372.005, they argue that operation of the terminals was never
properly “authorized” or “permitted” because the administrative regulations of the
Racing Commission were void ab initio.
Contrary to the Wagerers’ representations, the disputed administrative
regulations of the Racing Commission were never declared void ab initio. In 2010,
the Franklin Circuit Court declared that the administrative regulations of the
Racing Commission were valid and that the licensed operation of historical horse
racing terminals pursuant to the Racing Commission’s regulations did not violate
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the prohibition on gambling as contained in KRS Chapter 528. Thereafter, and
pursuant to its administrative regulations, the Racing Commission licensed the
operation of wagering on historical horse races at electronic terminals situated at
Kentucky racetracks. In its 2014 decision, the Supreme Court of Kentucky
concluded unequivocally that “the regulations promulgated by the Commission for
the licensing of historical horse race wagering are consistent with the statutory
mandate for ‘pari-mutuel wagering’ on ‘legitimate horse racing. . . .’”
Appalachian Racing, 423 S.W.3d at 738. It held specifically that the Racing
Commission “did not exceed the scope of its authority, and the regulations are
therefore not invalid.” Id. From the outset, the challenged wagering was plainly
“authorized” or “permitted” -- as those terms are commonly understood.
In October 2018, the Franklin Circuit Court concluded that the
method of wagering on historical horse races being offered at Kentucky racetracks
constituted a pari-mutuel system of wagering that met the requirements of the
Racing Commission’s administrative regulations. In its 2020 decision reviewing
that determination, the Supreme Court of Kentucky did not retreat from its initial
conclusion that the administrative regulations of the Racing Commission were
valid. Instead, it concluded that the trial court had misapplied the regulations as a
matter of law.
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The Racing Commission licensed the challenged wagering placed on
historical horse races at Kentucky racetracks. The wagers were both “authorized”
and “permitted” before they were placed. Moreover, they were eventually
legalized by the General Assembly. As a result, the losses incurred by the
Wagerers are not compensable under either the first-party or third-party provisions
of Kentucky’s Loss Recovery Act. Because the Act does not provide the Wagerers
with a cause of action, the trial court did not err by dismissing the complaint.
Finally, in the conclusion portion of their brief, the Wagerers mention
that the trial court’s dismissal of their additional claims -- based on the common
law doctrine of unjust enrichment and the provisions of our Consumer Protection
Act -- must also be reversed. However, no arguments with respect to these issues
of law were presented to us. Consequently, we decline to consider them. Grief v.
Wood, 378 S.W.2d 611, 612 (Ky. 1964) (“Other matters suggested in appellants’
brief [that] are unsupported by argument or by citation of authority . . . present
nothing for consideration.”).
We affirm the order of the Fayette Circuit Court.
ALL CONCUR.
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BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEES:
Robert L. Roark Steven B. Loy
Tyler Z. Korus Anthony Phelps
Lexington, Kentucky Lexington, Kentucky
Kathryn S. Beck
Louisville, Kentucky
Robert E. Maclin, III
Preston W. Worley
Brittany Deskins
Lexington, Kentucky
AMICUS CURIAE BRIEF FOR
CHURCHILL DOWNS, INC.:
Bethany A. Breetz
Philip W. Collier
Chadwick A. McTighe
Jeffrey S. Mood
Louisville, Kentucky
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Charlie Kirby v. Keeneland Association, Inc.
Combined Opinion