Court Opinion

ID: 9396073
Source: CourtListenerOpinion
Date Created: 2023-05-19 14:06:30.388782+00
Date Added: 2024-06-11T17:19:13.700944
License: Public Domain

RENDERED: MAY 12, 2023; 10:00 A.M.
                  NOT TO BE PUBLISHED

          Commonwealth of Kentucky
                  Court of Appeals

                    NO. 2022-CA-0543-MR

ANNIE JACOBS; AMANDA
MARTIN; ANGELA SMITH; ANN
HARRIS; ANTHONY BLACKBURN;
BARBARA JEFFRIES; BEATRICE
CALDWELL; BENJAMIN
TOMPKINS; BERNICE MCLAURINE;
BERNITHA KENDRICK; BUD
SLONE; CAMERON ROSZKOWSKI;
CAROLYN TOMPKINS; CATHY
RAWLINGS; CAYE OWENS;
CHRISTINA LYNN; CRYSTAL
TEVIS; DEBRA BANKS; DONNA
RUSSELL; HUBERT HAMM;
JACCQUELYNE BURROUGH; JACK
STICKLER; JAMES CARR; JAMES
FENDER; JAMES W. ADKINS;
JESSICA HENDERSON; JOHN
HUTSEL; JONATHAN GOODWIN;
JOYCE CLARK; KENNETH
ATKINSON; KENNETH SMOOT;
LARRY MURPHY; LEO BEGLEY;
LISA PERSLEY; LOLITTA
WILLIAMS; MALINDA YOUNG;
MARCELLA WRIGHT; MARGARET
EDWARDS; MARK KING; MARTHA
THOMAS; MI KYINE; MICHELLE
GREY; MONICA DAVIDSON;
PAMELA HUMMEL; PHILLIP
LYKINS; PHYLLIS MORGAN;
PRICILLA WALKER; ROLAUNDA
JACKSON; SAMUEL STALLWORTH;
SHIRLEY GARNER; SHIRLEY
WALKER-JONES; STEVEN J.
MCCUBBINS; SYLVIA BOND;
TAMMIE OVERSTREET; TAYNA
CARTER; TONY DIVENS; TONY
DIVENS; TREVOR CAMPBELL;
VERONICA AVERY; VICKIE
CRETH; VICKIE SMITH; WANDA
BURGESS; WANDA ROBINSON;
WILLIAM MARSHALL; AND
YVONNE CARSON                                                     APPELLANTS

                 APPEAL FROM FAYETTE CIRCUIT COURT
v.               HONORABLE JULIE M. GOODMAN, JUDGE
                        ACTION NO. 21-CI-00498

KRM WAGERING, LLC;
KEENELAND ASSOCIATION, INC.;
LEXINGTON TROTS BREEDERS
ASSOCIATION, LLC; AND RED
MILE, INC.                                                          APPELLEES

                                   OPINION
                                  AFFIRMING

                                 ** ** ** ** **

BEFORE: THOMPSON, CHIEF JUDGE; CETRULO AND ECKERLE,
JUDGES.

THOMPSON, CHIEF JUDGE: Annie Jacobs, et al. (hereinafter referred to as

Appellants), appeal from an order of the Fayette Circuit Court which dismissed

                                       -2-
their complaint. Appellants request that we reverse the trial court’s order and

remand for discovery and a trial on the merits. We find no error and affirm.

                   FACTS AND PROCEDURAL HISTORY

             Before we begin discussing the case at hand, some background

information is required regarding the changes in betting on horse races that have

occurred over the last decade.

                    Faced 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. Historical 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. One such
             device, similar in appearance to a slot-machine, is a
             patented product marketed under the name “Instant
             Racing.” The bettor inserts money or its equivalent into
             the Instant Racing terminal and then chooses a horse
             identified by a number. The terminal then displays a
             video recording of the race for the better to watch, or, as
             the name “Instant Racing” implies, the bettor may forego
             the excitement of the actual race by opting to see
             immediately the results of the race and the outcome of
             his wager. Bettors are not given information from which
             they might identify the specific time and place of the
             actual running of the race, or the identity of the horse, but
             some statistical data regarding the horses is provided for
             bettors who wish to place their bets with some degree of
             deliberation.

                    Proponents of historical horse racing promoted
             legislation introduced in the 2010 General Assembly that
             would have explicitly authorized the licensed operation

                                          -3-
             of such non-traditional forms of horse racing and horse
             race wagering. However, the proposed legislation was
             not enacted into law. Following the 2010 legislative
             session, in July 2010, the [Kentucky Horse Racing]
             Commission promulgated a series of regulatory changes
             designed to accommodate the industry’s request for
             expanded wagering by way of “terminals” displaying
             video recordings of prior races.

                   These regulatory changes prescribe the rules by
             which the wagering on historical races shall be
             conducted, but the most critical element of the
             regulations is the requirement that all such wagering
             must be “pari-mutuel.” That is so because, pursuant
             to [Kentucky Revised Statutes (KRS)] 230.215 and KRS
             230.361, any wagering on horse racing in Kentucky must
             be based upon a pari-mutuel system. In other words, the
             Commission has no authority to license an operation for
             wagering on horse racing that is not utilizing a form of
             pari-mutuel wagering.

Appalachian Racing, LLC v. Family Tr. Foundation of Kentucky, Inc., 423 S.W.3d

726, 730-31 (Ky. 2014) (footnotes omitted). Pari-mutuel wagering is “any system

whereby wagers with respect to the outcome of a horserace are placed with, or in, a

wagering pool conducted by a person licensed or otherwise permitted to do so

under State law, and in which the participants are wagering with each other and not

against the operator.” Id. at 737 (citation omitted). In other words, an

establishment that permits and facilitates betting on horse racing does not collect

any winnings. The establishment only collects the wagers from the bettors, places

the wagers into a pool, and then distributes the winnings to the winners.

                                         -4-
             The Kentucky Supreme Court in Appalachian Racing concluded that

the regulations created by the Commission for historical race betting were valid

and within their statutory remit. Id. at 738. The Court, however, remanded to the

trial court for additional discovery to determine if the machine wagering on

historical racing as contemplated by the appellants was actually pari-mutuel

wagering.

             Upon remand, the trial court allowed the parties to conduct discovery.

After four years of discovery, a hearing was held in 2018 to determine if the

wagers made on the instant racing machines constituted pari-mutuel wagering.

The trial court ultimately held that the instant racing machines constituted a system

for pari-mutuel wagering. The case then returned to the Kentucky Supreme Court

in Family Trust Foundation of Kentucky, Inc. v. Kentucky Horse Racing

Commission, 620 S.W.3d 595 (Ky. 2020).

             The Kentucky Supreme Court held that the instant racing machines

did not facilitate pari-mutuel wagering.

             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. The testimony presented to the trial court
             disclosed that odds are established by the “off odds” as
             set at the time the horses left the starting gate. In other
             words, patrons wagering on randomly-generated
             historical horse races within the Exacta System [of
             instant racing] are not establishing odds with other

                                           -5-
             patrons wagering on the same race(s). Emphatically,
             such patrons are not wagering among themselves as
             required by pari-mutuel wagering.

Id. at 601 (emphasis in original) (footnote and citation omitted). “To be clear, pari-

mutuel wagering requires that patrons generate the pools based on wagering on the

same discrete, finite events. Only in that way are patrons ‘wagering among

themselves’ and setting the odds and the payouts[.]” Id. (footnote omitted). The

Court also held that the way the machines work, the betting pool is initially funded

by the association running the machines and not solely by the bettors as required to

be pari-mutuel wagering. Id.

             The Court further held that

             [t]he Commission is charged with regulating pari-mutuel
             wagering. But without positive legislative action and
             sanction, it has no authority to create from whole cloth
             and to approve a wagering pool in which each patron is
             wagering on a different event or set of events. Such a
             wagering pool by no means can be considered a pari-
             mutuel wagering pool in which patrons, as among
             themselves, are setting the betting odds and payout.

Id. at 602-03. The Court ultimately held that any change in the definition of pari-

mutuel racing to include the type of wagering done on instant racing machines had

to be done by the legislature and not an administrative body or the judiciary. Id. at

603.

                                           -6-
                In response to the Family Trust Foundation holding, KRS

230.210(15)1 was amended to the following:

                “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
                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[.]

                On February 12, 2021, the initial complaint was filed in this case.

Appellants, on behalf of themselves and others similarly situated, sought to recover

gambling losses for wagers placed on the instant racing machines over the past five

years. They argued that the wagers made on the instant racing machines were

illegal because the machines were not systems for making pari-mutuel wagers as

held by Family Trust Foundation. Appellants raised three claims for damages:

first, that they were entitled to recovery based on Kentucky’s Loss Recovery Act

(LRA) found in KRS 372.020 and KRS 372.040; second, that the Kentucky

Consumer Protection Act (KCPA) found in KRS 367.220(1) entitled them to

1
    This amended statute became effective on February 22, 2021.

                                               -7-
damages; and third, that they were entitled to damages based on the theory of

unjust enrichment.

             In January of 2022, Appellees filed a motion to dismiss pursuant to

Kentucky Rules of Civil Procedure (CR) 12.02(f), failure to state a claim upon

which relief can be granted, and a hearing was held on February 7, 2022. On April

27, 2022, the trial court entered an order dismissing Appellants’ complaint. This

appeal followed.

                                     ANALYSIS

             As this appeal stems from a motion to dismiss pursuant to CR

12.02(f), we will first set forth our standard of review.

                     A motion to dismiss for failure to state a claim
             upon which relief may be granted “admits as true the
             material facts of the complaint.” So a court should not
             grant such a motion “unless it appears the pleading party
             would not be entitled to relief under any set of facts
             which could be proved[.]” Accordingly, “the pleadings
             should be liberally construed in the light most favorable
             to the plaintiff, all allegations being taken as true.” This
             exacting standard of review eliminates any need by the
             trial court to make findings of fact; “rather, the question
             is purely a matter of law. Stated another way, the court
             must ask if the facts alleged in the complaint can be
             proved, would the plaintiff be entitled to relief?” Since a
             motion to dismiss for failure to state a claim upon which
             relief may be granted is a pure question of law, a
             reviewing court owes no deference to a trial court’s
             determination; instead, an appellate court reviews the
             issue de novo.

Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010) (footnotes and citations omitted).

                                          -8-
                  LOSS RECOVERY ACT (LRA) CLAIMS

            As previously mentioned, Appellants raised three claims in their

complaint. We will analyze each in turn. The first is the LRA claim. The LRA,

found in Chapter 372 of the Kentucky Revised Statutes, states that gambling

contracts and transactions are void. KRS 372.010. KRS 372.020 states:

            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 372.040 states:

            If 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.

            These two statutes are the methods of recovery Appellants are using

to try and recoup gambling losses from the instant racing machines during the time

                                        -9-
they were not pari-mutuel wagering systems. While wagers made on pari-mutuel

racing are legal in Kentucky pursuant to Chapter 230 of the Kentucky Revised

Statutes, Appellants claim that because the instant racing machines were held to

not be pari-mutuel wagering systems, all bets made on those machines were illegal

and void.

                 The trial court held that KRS 372.005 and KRS 230.210(15) preclude

recovery in this instance. KRS 372.0052 states 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.” As previously mentioned,

KRS Chapter 230 concerns pari-mutuel wagering and that chapter allows the

Commission to promulgate rules to regulate pari-mutuel wagering. The trial court

held that the Commission authorized and permitted Appellees to operate instant

racing machines for the purposes of pari-mutuel wagering. The court also held that

even though those machines were later found to be illegal, they were nonetheless

authorized by the Commission. The court held that this authorization was

sufficient for KRS 372.005 to apply.

                 We agree with the trial court. The legislature permitted the

Commission to regulate pari-mutuel wagering and Appalachian Racing, supra,

2
    This was referred to as the safe harbor provision during the trial court proceedings.

                                                  -10-
permitted the Commission to regulate pari-mutuel wagering on historical racing

via instant racing machines. KRS 372.005 does not require that the wagering on

pari-mutuel racing be legal. It requires that it be “authorized, permitted, or

legalized[.]” Id. (emphasis added). The Commission was permitted to authorize

the instant racing machines; therefore, KRS 372.005 applies and Appellants cannot

recover under the LRA.

             Furthermore, KRS 230.210(15), the current definition of pari-mutuel

wagering, also precludes Appellants’ recovery under the LRA. The current

definition of pari-mutuel wagering includes the type of wagers made on the instant

racing machines. The definition also states that it is “any method of wagering

previously or hereafter approved by the racing commission[.]” Id. (emphasis

added). The trial court held that the word “previously” made the definition

retroactive. The court believed that the retroactive definition, in conjunction with

KRS 372.005, made all previous wagers on the instant racing machines authorized,

permitted, and legal.

             Appellants argue that the new definition of pari-mutuel wagering is

not retroactive because it was not expressly deemed so. We agree with the trial

court and disagree with Appellants. KRS 446.080(3) states that “[n]o statute shall

be construed to be retroactive, unless expressly so declared.” “Though it is clear

that the General Assembly must expressly manifest its desire that a statute apply

                                         -11-
retroactively, magic words are not required. What is required is that the enactment

make it apparent that retroactivity was the intended result.” Baker v. Fletcher, 204

S.W.3d 589, 597 (Ky. 2006) (footnote and citation omitted). We believe that the

“previously . . . approved by the racing commission” language is sufficient to make

this statute retroactive. The statute is clearly intending to make the previous

authorizations for pari-mutuel wagering on the instant racing machines legal under

the new pari-mutuel wagering definition. While the Family Trust Foundation case

may have held that wagers made on the instant racing machines were not pari-

mutuel wagers, the new definition of pari-mutuel wagering made those wagers

authorized, permitted, and legal. The retroactive definition of pari-mutuel wagers,

read together with KRS 372.005, precludes Appellants from recovering.

          KENTUCKY COMMERCE PROTECTION ACT (KCPA)

             We will now address Appellants’ claim regarding the KCPA. The

KCPA can be found in Chapter 367 of the Kentucky Revised Statutes.

Specifically, Appellants relied on KRS 367.220(1). KRS 367.220(1) states:

             Any person who purchases or leases goods or services
             primarily for personal, family or household purposes and
             thereby suffers any ascertainable loss of money or
             property, real or personal, as a result of the use or
             employment by another person of a method, act or
             practice declared unlawful by KRS 367.170, may bring
             an action under the Rules of Civil Procedure in the
             Circuit Court in which the seller or lessor resides or has
             his principal place of business or is doing business, or in
             the Circuit Court in which the purchaser or lessee of

                                         -12-
             goods or services resides, or where the transaction in
             question occurred, to recover actual damages. The court
             may, in its discretion, award actual damages and may
             provide such equitable relief as it deems necessary or
             proper. Nothing in this subsection shall be construed to
             limit a person’s right to seek punitive damages where
             appropriate.

KRS 367.170 states: “(1) Unfair, false, misleading, or deceptive acts or practices

in the conduct of any trade or commerce are hereby declared unlawful. (2) For the

purposes of this section, unfair shall be construed to mean unconscionable.”

             The trial court held that there was no evidence that Appellees were

engaged in any unfair or deceptive practices. In fact, Appellees, along with others,

initiated the Appalachian Racing case in order to determine if the Commission’s

historical racing regulations were lawful. Furthermore, the court held that because

Appellees were operating under the safe harbor provision in KRS 372.005, there

can be no deceptive or unconscionable acts.

             We agree with the trial court. Appellants were not deceived into

making these wagers and the provisions of the safe harbor statute make the wagers

legal. As there was no deception or unconscionable acts, there can be no recovery

under the KCPA.

             Furthermore, we do not believe gambling falls under the KCPA. The

KCPA covers the purchase or leasing of goods and services. Appellants argue that

providing the opportunity for gambling is a service. The case of Collins v.

                                        -13-
Kentucky Lottery Corporation, 399 S.W.3d 449 (Ky. App. 2012), suggests

otherwise. In Collins, the Kentucky Supreme Court held that the purchase of a

lottery ticket was not a service because it “does not create any ongoing contractual

relationship between [the Kentucky Lottery Corporation (KLC)] and the player. It

is merely a game of chance resulting in a temporary and ephemeral association

between the KLC and the purchaser of the ticket.” Id. at 453. While the trial court

in this case did not discuss this issue, we believe it also supports our conclusion

that the KCPA does not apply. Like the lottery, wagering on horse races is a game

of chance and there is no ongoing relationship between the bettor and the entity

taking the wagers.

                             UNJUST ENRICHMENT

             Appellants’ final claim is unjust enrichment. “For a party to prevail

under the theory of unjust enrichment, they must prove three elements: (1) benefit

conferred upon defendant at plaintiff’s expense; (2) a resulting appreciation of

benefit by defendant; and (3) inequitable retention of benefit without payment for

its value.” Jones v. Sparks, 297 S.W.3d 73, 78 (Ky. App. 2009) (citation omitted).

The trial court held there was no unjust enrichment because there was no

inequitable retention. We agree. Appellants knew they were gambling and could

lose their money. Furthermore, the instant racing machines were authorized and

later made legal by the retroactive application of the current pari-mutuel wagering

                                         -14-
definition. Appellants gambled and lost; this is not unjust enrichment. See

Collins, 399 S.W.3d at 455.

                                  CONCLUSION

              Based on the foregoing, we affirm the judgment of the trial court.

Appellants’ claims are precluded by law and there is no set of facts which would

entitle them to relief.

              ALL CONCUR.

                                         -15-
BRIEFS AND ORAL ARGUMENTS     BRIEF FOR APPELLEES KRM
FOR APPELLANTS:               WAGERING, LLC AND
                              KEENELAND ASSOCIATION,
Andre F. Regard               INC.:
Lexington, Kentucky
                              Steven B. Loy
AMICUS CURIAE BRIEF FOR       Anthony J. Phelps
CHURCHILL DOWNS               Lexington, Kentucky
INCORPORATED:
                              Kathryn S. Beck
Bethany A. Breetz             Louisville, Kentucky
Phillip W. Collier
Chadwick A. McTighe           BRIEF FOR APPELLEES KRM
Jeffrey S. Moad               WAGERING, LLC; LEXINGTON
Louisville, Kentucky          TROTS BREEDERS
                              ASSOCIATION, LLC; AND RED
                              MILE, INC.:

                              Robert E. Maclin, III
                              Preston W. Worley
                              Brittany Deskins
                              Lexington, Kentucky

                              ORAL ARGUMENTS FOR
                              APPELLEES KRM WAGERING,
                              LLC AND RED MILE, INC.:

                              Steven B. Loy
                              Lexington, Kentucky

                              Robert E. Maclin, III
                              Lexington, Kentucky

                            -16-