Split Verdict in Magna Simulcast Fees Case

Simulcasting sites were seeking money paid to bettors and for commissions and fees.

A federal bankruptcy judge has ruled that simulcast providers owed money from tracks operated by bankrupt Magna Entertainment are entitled to funds they paid bettors but not reimbursement for fees and commissions.

The simulcast providers filed a complaint seeking to recover more than $7.3 million they claimed was owed when MEC filed for bankruptcy protection in March 2009.

The MEC tracks on which the wagers were taken were Gulfstream Park in Florida, Santa Anita Park and Golden Gate Fields in California, Laurel Park in Maryland, and The Meadows Racetrack and Casino in Pennsylvania. MEC was eventually dissolved and its assets assumed by its parent company, MI Developments.The simulcast providers filing the complaint were Redrock Administrative Services, Racing and Gaming Services, Amwest Entertainment, Bettor Racing, and the Elite Turf Club.

According to the opinion from Mary Walrath, U.S. Bankruptcy Judge for the District of Delaware, the legal action by the simulcast sites asserted 11 causes of action, including assertions. Among those assertions were a determination that the pari-mutuel funds in question are not property of the debtors’ (MEC) estate, a declaration that the funds are being held in constructive trust by debtors for the simulcast sites, and that the debtors have wrongly converted the pari-mutuel funds. 

Constructive trust is a relationship by which a person (or company) who has obtained property has a duty to transfer it to another, to whom it rightfully belongs, on the basis that keeping the property is wrong and would unjustly enrich the person (or company) if retained.

In this case, the property MEC was holding was wagers on races. Much of the consideration in Walrath’s opinion centered around whether federal and state laws in which the MEC tracks operated treated all the funds in question as being held in constructive trust.

Walrath reviewed the laws of each state and the federal Interstate Horseracing Act that governs simulcasting between states, concluding that constructive trust exists for the money owed to bettors’ but not for the additional commissions and fees being sought by the simulcast sites. Since MEC was in bankruptcy, the simulcast sites would be considered as unsecured creditors.

"The court concludes that the simulcast sites’ claims to the funds for their fees and commissions is simply a general unsecured claim against the debtors’ estates...To the extent that the simulcast sites seek payment of fees and commissions due them under their contracts with the debtors, the court agrees that they are merely creditors and have failed to state a claim for imposition of a trust...Based on the express language of the state statues, the court concludes that there is a statutory trust in favor of the winning bettors. The state statutes describe the rights of winning bettors vis-a-vis the racetracks, and it is clear that the pari-mutuel funds are held in trust by the debtors for the winning bettors under the applicable statutes."

In her analysis, the judge noted that even recent provisions added to California racing law specifically to address the issue of payment in circumstances such as MEC do not provide for the declaration that simulcast site commissions and fees are being held in trust. The simulcast sites also argued in their legal filings that the California law was intended to be applied retroactively so it would entitle them to their claimed commissions and fees.

"The court finds that...California racing law does not establish a trust in favor of the simulcast sites for their fees and commissions, even if the statute were applied retroactively...The simulcast sites have not cited any statutory language establishing that they are statutory distributees," the judge’s opinion stated.

The effect of the ruling by Walrath and the amount the simulcast sites are due as a result of the amounts paid to bettors was not immediately known Sept. 21.

Efforts to reach Dennis Mills, MID co-chair and CEO for comment on the ruling were unsuccessful.