Matthew Workman v. Kentucky Downs, LLC ( 2022 )

RENDERED: DECEMBER 22, 2022; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2022-CA-0003-MR
MATTHEW WORKMAN APPELLANT
APPEAL FROM SIMPSON CIRCUIT COURT
v. HONORABLE JOHN DAVID SIMCOE, SPECIAL JUDGE
ACTION NO. 21-CI-00029
KENTUCKY DOWNS, LLC AND
KYD, LLC APPELLEES
OPINION
AFFIRMING
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BEFORE: CLAYTON, CHIEF JUDGE; JONES AND L. THOMPSON,
JUDGES.
CLAYTON, CHIEF JUDGE: Matthew Workman (“Workman”) appeals from the
Simpson Circuit Court’s order granting Appellees’ motion to dismiss Workman’s
action under Kentucky’s Loss Recovery Act (the “Act”). Workman sought to
recover certain losses from wagers placed on historical horse racing under the Act.
Because the Appellees’ actions fall under the safe-harbor provisions of the Act
contained in Kentucky Revised Statute (“KRS”) 372.005, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
This case centers around wagers on historical horse racing at a facility
known as Kentucky Downs. The legal landscape of wagering on historical horse
racing in Kentucky has a multifaceted history. As the Kentucky Supreme Court
has discussed, “[f]aced with serious financial challenges and seeking a means to
develop new revenue sources, Kentucky’s horse racing industry expressed interest
in developing the use of devices for wagering on historical horse races.”
Appalachian Racing, LLC v. Family Trust Foundation of Kentucky, Inc., 423
S.W.3d 726, 730 (Ky. 2014). As the Court went on to explain, “[h]istorical horse
races are horse races that have been run sometime in the past at an approved racing
facility and are then currently presented in the form of a video display on an
electronic device, or terminal, at which individual wagerers may place bets.” Id.(footnote omitted).
Thus, in July 2010, the Kentucky Horse Racing Commission (the
“Commission”) revised the applicable administrative horse racing regulations and
promulgated new regulations with an eye toward accommodating the racing
industry’s appeal for wagering on historical horse races. Id. at 731 (footnote
omitted). The Commission did so pursuant to KRS 230.215(1), which states that
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the Commission has the authority to “grant[] or den[y]” the “privilege” of
“participat[ing] in any way in horse racing, or the entrance to or presence where
horse racing is conducted[.]” To that end, the General Assembly vested the
Commission with “forceful control of horse racing in the Commonwealth” and
“plenary power to promulgate administrative regulations prescribing conditions
under which all legitimate horse racing and wagering thereon is conducted in the
Commonwealth[.]” KRS 230.215(2).
Specifically, the Commission added specific language to the
administrative regulation permitting historical horse racing:
[w]agering on an historical horse race is hereby
authorized and may be conducted in accordance with
KRS Chapter 230 and 810 [Kentucky Administrative
Regulation (“KAR”)] Chapter 1.
810 KAR 1:011 Section 3(1).
The Commission also revised and promulgated other regulations
authorizing wagering on historical horse racing. Of note is 810 KAR 1:001
Section 1(48),1 which defined “pari-mutuel wagering” as a “system or method of
wagering approved by the [C]ommission in which patrons are wagering among
themselves and not against the association and amounts wagered are placed in one
or more designated wagering pools and the net pool is returned to the winning
1
This language has been revised, and the current version can be found in KRS 230.210(15) and
810 KAR 6:001 Section 1(53).
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patrons.” Additionally, 810 KAR 1:120 Section 4(1) provided that “[a]n
association shall submit a written request to the [C]ommission for permission to
offer any exotic wager on an historical horse race” and set forth the requirements
for the request and approval process.
Following the Commission’s promulgation of the regulations, the
Commission and several racing facilities in Kentucky, including Kentucky Downs,
filed a Joint Petition for Declaration of Rights in the Franklin Circuit Court (the
“Franklin Court”), asking for a declaratory judgment affirming the validity of the
regulations. Appalachian Racing, 423 S.W.3d at 731. The Franklin Court
permitted The Family Trust Foundation of Kentucky, Inc. (the “Foundation”), a
Kentucky non-profit corporation, to intervene in the action. Id. at 730.
Thereafter, the Franklin Court issued an opinion and order in
December 2010, determining that the Commission’s regulations for licensing of
pari-mutuel wagering on historical horse racing were a valid and lawful exercise of
the Commission’s authority. Following the Frankfort Court’s opinion, in
September 2011, Kentucky Downs began offering historical horse race wagering
using a system approved by the Commission.
The Appalachian Racing case ultimately reached the Kentucky
Supreme Court, which determined in February 2014 that “[b]ecause the regulations
promulgated by the Commission for the licensing of historical horse race wagering
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are consistent with the statutory mandate for ‘pari-mutuel wagering’ on ‘legitimate
horse racing,’” the regulations were not invalid. Id. at 738. The Supreme Court
further held that the regulatory definition of “pari-mutuel wagering” was consistent
with the references to pari-mutuel wagering in KRS Chapter 230. Id. at 737-38.
In upholding the Commission’s regulations, the Court recognized that
the Commission’s and racing facilities’ purpose:
was to obtain before actually conducting operations for
wagering on historical horse racing a ruling of the court
on the issue in order to eliminate or minimize the risk of
wrong action and to ensure that they may proceed
without being subject to any legal penalties, including
criminal liability under Kentucky’s penal code.
Id. at 741-42 (emphasis in original) (internal quotation marks omitted).
However, the Supreme Court did remand the case to the Franklin
Court for “further proceedings relevant to the issue [of] whether the licensed
operation of wagering on historical horse racing as contemplated by Appellants
constitute[d] a pari-mutuel form of wagering[.]” Id. at 742. This Court denied the
Foundation’s requests for an injunction or stay during the appeals process.
After several years of discovery, the Franklin Court held a bench trial
in January 2018. In October 2018, the Franklin Court issued an opinion “that the
Encore system [of historical horse race wagering] constituted a pari-mutuel system
of wagering, approved by the Commission and meeting the elements of 810 KAR
1:001 § 1(48).” Family Trust Foundation of Kentucky, Inc. v. Kentucky Horse
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Racing Commission, 620 S.W.3d 595, 599 (Ky. 2020), reh’g denied (Jan. 21,
2021).
After accepting a transfer, the Supreme Court disagreed with the
Franklin Court, determining in September 2020 that the Franklin Court “erred in its
conclusion that pari-mutuel wagering does not require patrons to wager on the
same horse races, nor does it require reciprocity among patrons.” Id. at 601
(internal quotation marks and brackets omitted). The Supreme Court remanded the
case to the Franklin Court for entry of a judgment consistent with its opinion. Id.
at 603.
Meanwhile, the General Assembly passed Senate Bill 120 in its 2021
session, which codified the definition of “pari-mutuel wagering” to include
wagering on historical horse races. The Governor signed Senate Bill 120 on
February 22, 2021, after which it became immediately effective as KRS 230.210.
Additionally, following the passage of Senate Bill 120, the Commission adopted
new regulations in accordance with the new definition of pari-mutuel wagering.
In the meantime, the Franklin Court entered judgment in compliance
with the Supreme Court’s opinion in March 2021, holding that the subject
wagering system 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.”
However, the Franklin Court did not give the decision retroactive application, as it
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found that the racing associations had not operated the wagering systems in
violation of a court order. The Foundation moved to alter or amend and give the
judgment retroactive application, which the Franklin Court denied.
On January 24, 2021, Workman filed the complaint underlying this
appeal in Simpson County against Kentucky Downs. Workman sought to recover
under the Act, or KRS 372.040. The Simpson Circuit Court (the “Simpson Court”)
entered a final order in this case on November 23, 2021. In its ruling, the Simpson
Court determined that the racing association had operated the gaming systems
based upon their reliance on the Commission’s apparent authority, permission, and
authorization. It further noted that, while the Kentucky Supreme Court found the
Commission’s authorization invalid, “[a] party has the right to rely on approvals of
commissions and previous court opinions unless and until they are overturned, or
injunctive relief is granted.” Thus, the Simpson Court granted the Appellees’
motion to dismiss. This appeal followed.
We will discuss further facts as they become relevant.
ANALYSIS
As previously discussed, Workman’s claims rely on the Loss
Recovery Act contained in KRS Chapter 372. KRS 372.020 affords a losing
gambler with a first-party cause of action to recover any losses he or she incurs. If
a losing gambler fails to bring a recovery action under KRS 372.020 within a
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certain amount of time, KRS 372.040 permits “any other person” a third-party
cause of action against the winning gambler and allows for the recovery of treble
damages. Specifically, KRS 372.040 states:
[i]f the loser or his creditor does not, within six (6)
months after its payment or delivery to the winner, sue
for the money or thing lost, and prosecute the suit to
recovery with due diligence, any other person may sue
the winner, and recover treble the value of the money or
thing lost, if suit is brought within five (5) years from the
delivery or payment.
However, KRS 372.005 contains a safe-harbor provision, which
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,
including, but not limited to, all activities and transactions permitted under KRS
Chapters 154A, 230, and 238.” (Emphasis added.)
In this case, Workman alleges he is entitled to maintain his third-party
action under KRS 372.040 for the un-filed wager losses on historical horse racing
at Kentucky Downs, or $200,243,797.00. Alternatively, the Appellees argue that
KRS 372.005’s exception applies in this case, as all wagers were “authorized,” or
“permitted” by the Commission and previous court rulings.
In beginning our analysis of the safe-harbor language contained in
KRS 372.005, we note that “[i]t is an elementary rule of construction that effect
must be given, if possible, to every word . . . of a statute.” Hampton v.
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Commonwealth, 257 Ky. 626, 630, 78 S.W.2d 748, 750 (1934) (citations omitted).
Moreover, “a statute should be construed, if possible, so that no part of its
provisions are rendered meaningless.” Bob Hook Chevrolet Isuzu, Inc. v.
Commonwealth Transp. Cabinet, 983 S.W.2d 488, 492 (Ky. 1998) (citation
omitted). Further, a statute’s words should be given their “normal, ordinary,
everyday meaning[,]” and an unambiguous statute should be applied as written.
Stephenson v. Woodward, 182 S.W.3d 162, 169-70 (Ky. 2005).
In his appeal, Workman concentrates primarily on the legality of
historical horse racing when discussing the exception under KRS 372.005. Stated
differently, Workman’s action was based on the idea that, because the Supreme
Court ultimately determined that historical horse racing systems did not qualify as
pari-mutuel wagering, the operation of historical horse racing systems was illegal
at all points in time. However, KRS 372.005’s safe-harbor provision not only
protects betting, gaming, or wagering that is “lawful,” but also protects betting,
gaming, or wagering that is “authorized” or “permitted.”
Indeed, Black’s Law Dictionary broadly defines “authorize” in two
ways: “[t]o give legal authority; to empower,” and “[t]o formally approve, to
sanction.” Likewise, “permit” has three definitions: “[t]o consent to formally; to
allow (something) to happen, esp. by an official ruling, decision, or law”; “[t]o
give opportunity for; to make (something) happen”; or “[t]o allow or admit of.”
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BLACK’S LAW DICTIONARY (11th ed. 2019). Under their “normal, ordinary,
everyday meaning,” the Commission “authorized” and “permitted” historical horse
racing at Kentucky Downs at all times that Kentucky Downs offered historical
horse racing.
Specifically, in July 2011, the Commission approved KYD’s request
to offer historical horse racing using the Instant Racing System, which Kentucky
Downs used from September 2011 to March 2015. In March 2015, the
Commission approved KYD’s request to use the Exacta System, which Kentucky
Downs used from April 2015 to March 2019. In August 2020, the Commission
approved Kentucky Downs’ request to use the Ainsworth System. Thus, under the
definition of “authorize” discussed above, the Commission “formally approve[d]”
or “sanction[ed]” Kentucky Downs’ use of wagering systems for historical horse
racing. Further, under the definition of “permit,” the Commission “allow[ed]” the
wagering at issue by an “official ruling [or] decision.”
Moreover, multiple levels of Kentucky courts have authorized and
permitted Kentucky Downs’ operation of historical horse racing wagering. The
Franklin Court initially allowed historical horse racing and licensed operation of
terminals allowing for pari-mutuel wagering in 2010. While the Foundation
appealed, it did not post a bond and was not granted injunctive relief during the
extensive appeals process.
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In 2014, while the Supreme Court remanded the matter to the Franklin
Court for further fact-finding, the Supreme Court held that the regulations and
definition of “pari-mutuel” were valid and “consistent with the statutory mandate
for ‘pari-mutuel wagering’ on ‘legitimate horse racing[.]’” Appalachian Racing,
423 S.W.3d at 738. Again, the courts granted no injunctions.
Additionally, the Supreme Court’s September 2020 opinion did not
hold that the regulations were invalid or that Kentucky did not permit historical
horse racing, and it did not instruct the racing associations to cease operations.
Thus, we find that the Appellees fall within the Act’s safe-harbor provisions.
Because we have already determined that the Appellees fall under the
safe-harbor provision of the Act contained in KRS 372.005, we decline to address
Workman’s “apparent authority” argument. Additionally, because the Simpson
Court did not discuss the issue of whether Workman had standing in this matter,
we decline to address Workman’s arguments concerning such issue.
CONCLUSION
For the foregoing reasons, we affirm the Simpson Circuit Court.
ALL CONCUR.
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BRIEFS FOR APPELLANT: BRIEF FOR APPELLEES:
Andre F. Regard Jay E. Ingle
Lexington, Kentucky Christopher F. Hoskins
Lexington, Kentucky
ORAL ARGUMENT FOR Timothy J. Crocker
APPELLANTS: Franklin, Kentucky
Andre F. Regard ORAL ARGUMENT FOR
Lexington, Kentucky APPELLEES:
Jay E. Ingle
Christopher F. Hoskins
Lexington, Kentucky
AMICUS CURIAE BRIEF FOR
CHURCHILL DOWNS
INCORPORATED:
Philip W. Collier
Chadwick A. McTighe
Jeffrey S. Moad
Bethany A. Breetz
Louisville, Kentucky
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