Donna Lee Eferstein v. Kentucky Horse Racing Commission ( 2021 )

RENDERED: DECEMBER 10, 2021; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2020-CA-1390-MR
DONNA LEE EFERSTEIN; DIANE DOTSON;
CARTER DUER; KRISTA HARMON;
JERRY L. LOGAN; HELEN LOGAN;
ANDREW ROBERTS; AND
JAMES SAUTTER APPELLANTS/CROSS-APPELLEES
APPEAL FROM FRANKLIN CIRCUIT COURT
v. HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NOS. 18-CI-00735 & 20-CI-00041
KENTUCKY HORSE
RACING COMMISSION APPELLEE/CROSS-APPELLANT
NO. 2020-CA-1391-MR
KENTUCKY HORSE
RACING COMMISSION CROSS-APPELLANT/APPELLEE
CROSS-APPEAL FROM FRANKLIN CIRCUIT COURT
v. HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NOS. 18-CI-00735 & 20-CI-00041
DONNA LEE EFERSTEIN;
DIANE DOTSON; KRISTA
HARMON; JERRY L.
LOGAN; HELEN LOGAN;
ANDREW ROBERTS; AND
JAMES SAUTTER CROSS-APPELLEES/APPELLANTS
OPINION
AFFIRMING
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BEFORE: CLAYTON, CHIEF JUDGE; GOODWINE AND McNEILL,
JUDGES.
CLAYTON, CHIEF JUDGE: Appellants are the owners of ten standardbred
stallions who sired twenty foals between 2010 and 2013. Appellants requested that
the Kentucky Horse Racing Commission (the “Commission”) pay them certain
stallion-owners’ incentive awards arising out of the twenty foals placement in first,
second, or third place in the Kentucky Sire Stakes races held from 2014 to 2017.
The Commission determined that Appellants did not qualify for such
incentive awards and denied Appellants’ request. Upon review, the Franklin
Circuit affirmed the Commission’s decision, and Appellants appealed the circuit
court’s order to this Court.
Based upon our review of the record and applicable law, we affirm.
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REGULATORY BACKGROUND
The Kentucky General Assembly has provided for the allocation of
specific funds “to promote races, and to provide purses for races, for Kentucky-
bred standardbred horses.” Kentucky Revised Statutes (KRS) 230.770(2). Such
incentives have included the Kentucky Standardbred Development Fund (the
“Development Fund”) and, more recently, the Kentucky Standardbred Breeders’
Incentive Fund (the “Incentive Fund”). See KRS 230.770 and KRS 230.802.
The General Assembly created both the Development Fund and the
Incentive Fund as part of the Kentucky Sire Stakes, a “series of races held annually
in Kentucky for two (2) and three (3) year-old Kentucky bred fillies and colts . . .
and funded in whole or in part by the Kentucky Standardbred Development Fund
or the Kentucky Standardbred Breeders[’] Incentive Fund.” 811 Kentucky
Administrative Regulations (KAR) 1:215 Section 1(4) (2014).
Moreover, the General Assembly directed the Commission, as the
administrative body responsible for the regulation and governance of horse racing
in Kentucky, to determine how to distribute the Development Fund and the
Incentive Fund. See KRS 230.215(2); KRS 230.770(3); KRS 230.802(2)(b). The
Commission did so by promulgating 811 KAR 1:215 (the “Regulation”). The
Regulation first took effect in March of 1985 and has subsequently been amended
several times.
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From 2008 to late 2013, the Commission distributed incentive funds
in the Kentucky Sire Stakes under a version of the Regulation dated 2009 that
mentioned only the Development Fund by name (the “2009 Regulation”). Under
the 2009 Regulation, a foal’s eligibility for the Kentucky Sire Stakes was tied
solely to its sire – or father – which had to “stand[] within Kentucky at the time of
conception” of the foal. See 811 KAR 1:215 Section 1(2) and Section 6 (2009).
Additionally, under the 2009 Regulation, the Commission only paid awards to the
owners of winning offspring in the form of purses. Id. at Sections 11 through 33.
The owners of stallions who had sired such winning offspring received no direct
awards unless they also owned the winning offspring. Id.
For a stallion’s offspring to be eligible for Kentucky Sire Stakes funds
under the 2009 Regulation, an owner was required to register both the stallion and
the stallion’s offspring with the Commission. Id. at Sections 2 and 29. An owner
properly registered their stallion with the Commission by (1) paying both an initial
registration and an annual renewal fee, (2) filing a “Standardbred Stallion
Certificate, KHRA 300-2 (8/06),” and (3) annually filing a “Standardbred Stallion
Certification of Eligibility Renewal Form, KHRA 300-4 (12/06)” (collectively, the
“2009 Forms”). Id. at Sections 2, 3, and 4. The 2009 Forms required an owner of
a stallion to “certify that the . . . stallion [would] stand the entire breeding season of
[the applicable year] in the state of Kentucky [and] at no time during the year
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[would] he service a mare in any other state.” In addition, the regulation required
owners to register a stallion’s offspring with the Commission on a “Kentucky Sire
Stakes Nomination Form, KHRA 300-1 (08/06),” and pay an annual fee. Id. at
Section 29-31.
In 2013, the General Assembly amended KRS 230.770 to remove the
requirement that Kentucky Sire Stakes eligibility be linked solely to a horse’s sire.
Instead, the General Assembly expanded the eligibility for the Development Fund
to include any “Kentucky-bred standardbred horses.” KRS 230.770(2). Following
the statutory alterations, the Commission amended the Regulation on December 6,
2013 (the “2013 Regulation”). The amendments changed how the Development
Fund worked and expressly named the Incentive Fund as a funding source for the
Kentucky Sire Stakes. 811 KAR 1:215 Section 1(5) (2014). Additionally, under
the 2013 Regulation, a foal could be eligible for the Kentucky Sire Stakes if its
father (stallion) or mother (mare) resided in Kentucky and the foal fulfilled all
other regulatory requirements. Id. at Section 1(3).
Thus, under the 2013 Regulation, the General Assembly removed the
stallion’s residence in Kentucky as an absolute condition precedent to any
offspring’s eligibility in the Kentucky Sire Stakes. Id. As a result, the stallion
could be from out of state if the mare met the Kentucky residency and registration
requirements. Id. at Section 2(1).
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Nevertheless, the in-state residency of a stallion was still pertinent
under the 2013 Regulation. As before, an owner who wished to make a Kentucky
stallion’s offspring eligible could register the stallion with the Commission. Id. at
Section 2(1). However, such registration was also on a new form, the
“KSDF/KSBIF Stallion Certificate of Eligibility Form, KHRC 215-2 (7/13)” (the
“2013 Form”). Id. at Section 2(2)(a). The 2013 Form required an owner or lessee
of a stallion to attest to a different set of circumstances than did the 2009 Forms.
Specifically, the owner was required to certify “that the . . . stallion [would] reside
in Kentucky for one hundred eighty (180) days in the calendar year of conception,
and that the stallion [would] not service a mare in any other state, jurisdiction or
country during the year in which the stallion [was] registered.” Id. at Section 1(7).
FACTUAL AND PROCEDURAL BACKGROUND
As previously discussed, Appellants were the owners of ten
standardbred stallions who sired twenty foals conceived between 2010 and 2013
and born between 2011 and 2014. These foals later finished first, second, or third
in Kentucky Sire Stakes races from 2014 to 2017.
While the ten stallions were each registered as a Kentucky sire by
their owners’ filing of the 2009 Forms, none of the stallions’ owners submitted a
2013 Form to the Commission in the year of the conception of the named foal.
Thus, although the Commission paid Sire Stakes purses to Appellants as the
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owners of the twenty foals, it did not pay Appellants an incentive as the owners of
the respective stallions who had sired such foals as provided for in the 2013
Regulation.
Appellants subsequently approached the Commission and requested
stallion-owners’ incentive awards under Section 18(3) of the 2013 Regulation.
They claimed entitlement to awards for winning foals conceived from 2010 to
2013, based on their stallions’ registrations under the 2009 Regulation. The
Commission denied Appellants’ claims because they had not registered their
stallions under the 2013 Form.
On July 20, 2018, Appellants filed suit in Franklin Circuit Court
against the Commission, claiming over $220,000.00 in damages. They premised
their claims on two causes of action: breach of regulatory duty under the
Regulation and theft by failure to make required disposition of property. The
Commission moved to dismiss, citing sovereign immunity, lack of jurisdiction,
statute of limitations issues, and failure to state a claim. The Franklin Circuit
Court ultimately held the case in abeyance, concluding that Appellants had failed
to exhaust their administrative remedies.
Appellants then filed an administrative action with the Commission
on November 9, 2018, and the hearing officer issued a recommended order
denying Appellants’ claim. The hearing officer concluded that the 2013
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Regulation had a latent ambiguity, as he determined that the 2013 Regulation was
silent as to whether the stallion-owners’ incentive program began with the 2014
breeding season or the 2014 racing season. The hearing officer reasoned that the
overriding factor in interpreting the ambiguous regulations was the drafters’ intent.
In reviewing the regulation’s history, the hearing officer found that
the drafters’ intent for the 2013 Regulation was to establish the stallion-owners’
incentive program beginning with foals conceived in 2014. Therefore, the
Commission would not pay any awards associated with the stallion-owners’
incentive program until those foals competed as two-year-olds in 2017. Otherwise,
the hearing officer reasoned that the funds would not incentivize the standing and
residing of stallions in Kentucky.
The Commission issued its final order on December 11, 2019,
adopting the hearing officer’s recommended order and most of its reasoning with a
few modifications and additions. The Commission, however, held that the 2013
Regulation was unambiguous when construed as a whole and that it barred
Appellants’ claims. In addition, the Commission held that Appellants’ stallions
were not “registered” for stallion-owners’ incentive awards as required by the
regulation because the required registration form – the 2013 Form – did not exist
until December 2013. Instead of relying on the hearing officer’s factual finding
concerning the Commission’s regulatory intent as the basis for its decision,
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therefore, the Commission concluded that “[t]he regulatory intent further supports
this plain reading of the regulation.”
Appellants appealed the Commission’s final order to the Franklin
Circuit Court. The circuit court consolidated the original case that it had held in
abeyance and Appellants’ appeal from the Commission’s final order. The parties
submitted to the circuit court joint stipulations of fact. On appeal, the Franklin
Circuit Court held that Appellants were not eligible for the stallion-owners’
incentive awards for stallions registered from 2010 to 2013 for applicable races
from 2014 to 2017. The circuit court reasoned that Section 2 of the 2013
Regulation provided that a stallion was registered “only if its owner completes the
correct form – the [2013 Form] – in the year of conception of the foal.”
Consequently, because the 2013 Form did not exist until December 2013, the
circuit court reasoned that the stallion-incentive awards could not begin with the
2014 racing season.
Appellants thereafter filed this appeal, and the Commission filed a
“protective or conditional cross-appeal” to preserve arguments concerning
sovereign immunity, failure to state a claim, and lack of jurisdiction.
We will develop further facts as they become relevant to this Opinion.
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ANALYSIS
a. Standard of Review
While an appellate court reviews issues of law de novo, it must also
“afford deference to an administrative agency’s interpretation of the statutes and
regulations it is charged with implementing.” Commonwealth, ex rel. Stumbo v.
Kentucky Public Service Comm’n, 243 S.W.3d 374, 380 (Ky. App. 2007). Indeed,
as stated by another panel of this Court, “[a] reviewing court is not free to
substitute its judgment as to the proper interpretation of the agency’s regulations as
long as that interpretation is compatible and consistent with the statute under which
it was promulgated and is not otherwise defective as arbitrary or capricious.”
Commonwealth, Cabinet for Health Services v. Family Home Health Care, Inc., 98
S.W.3d 524, 527 (Ky. App. 2004) (citation omitted).
Additionally, when reviewing an agency’s factual determinations, the
court must determine “whether the agency’s decision was based upon substantial
evidence.” Runner v. Commonwealth, 323 S.W.3d 7, 10 (Ky. App. 2010)
(citations omitted). “Substantial evidence” is that which “has sufficient probative
value to induce conviction in the minds of reasonable men.” Kentucky State
Racing Commission v. Fuller, 481 S.W.2d 298, 308 (Ky. 1972) (citation omitted).
If the record contains substantial evidence supporting the agency’s finding, then
the circuit court must defer to the administrative agency’s finding, “even though
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there may be conflicting evidence in the record.” Kentucky Commission on Human
Rights v. Fraser, 625 S.W.2d 852, 856 (Ky. 1981) (citation omitted).
b. Discussion
In this case, Appellants contend that their stallions were eligible for
both the Development Fund and the Incentive Fund because they were registered
correctly under the 2013 Regulation, although Appellants stipulate that they had
only registered their stallions on the 2009 Forms and not on the 2013 Form.
On the other hand, the Commission argues that Appellants seek
stallion-owners’ incentive awards for stallions siring winning foals conceived from
2010 to 2013, before the Commission added the incentive award to the 2013
Regulation. The Commission argues that Appellants are not entitled to the relief
sought because the stallions at issue were not registered using the 2013 Form.
Accordingly, the Commission contends that Appellants’ registration of their
stallions on the 2009 Forms is invalid for the new stallion-owners’ incentive award
added via the amendments evidenced by the 2013 Regulation.
Section 18(3) of the 2013 Regulation stated that stallion-owners’
incentive awards “shall be awarded . . . to the owner of the stallion or stallions
residing in Kentucky that sired the [Kentucky Sire Stakes] first[-], second[-], or
third[-]place finisher . . . [.]” (Emphasis added.) Further, a “[s]tallion residing in
Kentucky” was defined in Section 1(7) of the 2013 Regulation as “a stallion
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physically located and standing in Kentucky for 180 days of the calendar year in
which the stallion is registered that does not service mares in any other state,
jurisdiction, or country outside of Kentucky during the calendar year in which the
stallion is registered.” 811 KAR 1:215 Section 1(7) (emphasis added). Thus, the
certification language contained in the 2013 Form exactly mirrors the definition of
a “[s]tallion residing in Kentucky” in the 2013 Regulation. The 2009 Forms do not
contain such language.
Finally, Section 2(2)(a) states that “[a] standardbred stallion shall be
registered on the [2013 Form].” (Emphasis added.) Section 2(2)(b) clarifies that a
stallion satisfying such requirement “shall be considered a registered stallion for
purposes of this administrative regulation.” (Emphasis added.)
We agree with both the circuit court and the Commission that
substantial evidence exists in the record to support the Commission’s findings in
this case. Specifically, because the 2013 Form did not exist until December 2013,
and because Appellants’ stallions were registered only under the 2009 Forms,
Appellants did not meet all the regulatory registration requirements contained in
the 2013 Regulation and are not eligible for the incentive award thereby created.
The specific language of the definition of a “[s]tallion residing in Kentucky” is a
stallion “physically located and standing in Kentucky for 180 days of the calendar
year in which the stallion is registered that does not service mares in any other
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state, jurisdiction, or country outside of Kentucky during the calendar year in
which the stallion is registered.” Moreover, the 2013 Regulation spells out how a
“[s]tallion residing in Kentucky” is registered, which is to file a 2013 Form for
such stallion. In practical terms, the 2009 Forms and the 2013 Form are far from
identical, as the 2013 Form required certification to a much larger time
commitment than the 2009 Forms.
Although Appellants’ stallions may have been present in Kentucky in
the years in which the various Sire Stakes-winning offspring were conceived
(between 2010 and 2013), the Commission’s determination that they were not
“registered” as required by the regulation was supported by substantial evidence of
record. Moreover, while Appellants may have registered their stallions under the
previous version of the Development Fund, those registrations only made those
stallions’ offspring eligible for Kentucky Sire Stakes races and purses, a program
in place from 2009 to 2013 and continued after the 2013 Regulation. Indeed, the
parties stipulated that the Commission had already made awards to Appellants as
owners of the applicable foals for each first-, second-, or third-place finish.
Accordingly, we conclude that the Commission’s interpretation of the 2013
Regulation is reasonable and “based on a permissible construction” of the
regulation’s plain language. See Stumbo, 243 S.W.3d at 380.
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CONCLUSION
We affirm the Franklin Circuit Court’s opinion and order upholding
the Commission’s interpretation of the 2013 Regulation. Therefore, we do not
address the arguments in the protective cross-appeal.
ALL CONCUR.
BRIEFS FOR APPELLANTS/ BRIEF FOR APPELLEE/
CROSS-APPELLEES: CROSS-APPELLANT:
Michael D. Meuser Jennifer Wolsing
Elizabeth C. Woodford T. Chad Thompson
Lexington, Kentucky Lexington, Kentucky
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