Beychok v. Baffert

1

MICHAEL E. BEYCHOK, et al., Plaintiffs, v. ROBERT A. BAFFERT, et al., Defendants.

Civil Action No. 3:24-CV-100-CHB

United States District Court, W.D. Kentucky, Louisville Division

December 13, 2024

MEMORANDUM OPINION AND ORDER

CLARIA HORN BOOM, UNITED STATES DISTRICT COURT JUDGE.

Racehorse Medina Spirit finished first in the 2021 Kentucky Derby, but his reign as champion was short lived. Several months later the Kentucky Horse Racing Commission (“KHRC”) stewards disqualified Medina Spirit due to a failed post-race drug test. The disqualification meant the stewards announced a new order of finish wherein racehorse Mandaloun, who originally finished second, now placed first. Plaintiffs placed bets on Mandaloun which lost based on the stewards' race-day official finish. They argue that they would have won their wagers but for the “drug-induced win by Medina Sprit.” See, e.g., [R. 20 ¶ 7]. The Court must consider whether Plaintiffs' allegations are sufficient to state a claim under federal and Kentucky law.

The plaintiffs-Michael E. Beychok, Justin Wunderler, Keith Mauer Jeffrey Kaufman, Todd Scoville, Brian Daury,^[1] Matthew Wiley James Davis Jr., Randall Jason King, Theresa Martin, Andy McVay, Roger Thomas, Jeffrey Andrews, Jason Eck, Carlo Capogreco, Steven Laibstain, Randall Robert Thompson, Jeffrey Seals, Dean Hokanson, III, Scot Fennell, Eric Wisher, William Wendoloski,^[2] Matthew Schwartz, Andrew Greenberg, Kevin Reed, Robert Fields, Tom Van Houtte, Daniel Smith, Gary Davis, and Charles Cochran-brought suit under federal and state law against Defendants Robert A. Baffert (“Baffert”), Medina Spirit's trainer, and Bob Baffert Racing Stables, Inc. (“Baffert Racing”). Defendants filed a Motion to Dismiss all of Plaintiffs' claims. [R. 90]. Plaintiffs responded, [R. 91], and Defendants replied, [R. 92]. For the following reasons, the Court will deny Defendants' Motion to Dismiss in part, as it relates to Article III standing. Otherwise, the Court will grant Defendants' Motion to Dismiss because Plaintiffs' allegations are foreclosed under Kentucky law and, in any event, are too speculative.

I. BACKGROUND

On the first Saturday of every May, Churchill Downs hosts the Kentucky Derby. Betting on the Kentucky Derby is done through pari-mutuel betting, [R. 20, ¶ 73], which differs from other forms of betting in that bettors bet against other bettors to win a share of the total pool wagered. Id. According to the plaintiffs, the system operates such that

[a]ll bets of a particular type are placed together in a pool and payoff odds are calculated by sharing the pool among all winning bets after taxes and the “housetake” are removed. The payoff is determined by the pool size minus the “take,” and then divided by the number of winning tickets.

Id. After the stewards declare the race “official,” bettors are paid their respective share of the pool. Id.; 810 Ky. Admin. Regs. 6:030 § 10(2) (“Payment of valid pari-mutuel tickets shall be made on the basis of the order of finish as declared “official” by the stewards or judges.”).

The plaintiffs placed bets in the 147th Kentucky Derby (“the 2021 Derby”), which took place on May 1, 2021, at Churchill Downs in Louisville, Kentucky. [R. 20, ¶¶ 5-6]. Medina Spirit crossed the finish line first. Id. ¶ 83. The KHRC stewards determined the “official” order of finish for pari-mutuel wagering for the top horses as follows: (1) Medina Spirit, (2) Mandaloun, (3) Hot Rod Charlie, (4) Essentially Quality, (5) O Besos, and (6) Midnight Bourbon. See Mattera v. Baffert (Mattera II), 100 F.4th 734, 738 (6th Cir. 2024). Later, Medina Spirit underwent post-race drug testing, which revealed the presence of betamethasone, a Class C drug that, while permissible therapeutically, must be discontinued fourteen days prior to racing and must be undetectable on race day. [R. 20, ¶¶ 84, 86].^[3] Over nine months later, on February 21, 2022, Medina Spirit was disqualified from the race, and Baffert, the horse's trainer, was suspended and fined. See Amr. F. Zedan, Stewards Ruling No. 22-0010 (Ky. Horse Racing Comm'n Feb. 21, 2022) [hereinafter Stewards Ruling 22-0010];^[4] Robert A Baffert, Stewards Ruling No. 22-0009 (Ky. Horse Racing Comm'n Feb. 21, 2022) [hereinafter Stewards Ruling 22-0009].^[5]

As a result of the disqualification, the stewards issued a new order of finish: (1) Mandaloun, (2) Hot Rod Charlie, (3) Essentially Quality, (4) O Besos, and (5) Midnight Bourbon. Stewards Ruling 22-0010. Upon recognizing Mandaloun as the new first place finisher, the KHRC ordered that the prize money (“the purse”)-which had not yet been distributed-be given to Mandaloun's owner and other subsequent finishers pursuant to the new order. See Stewards Ruling 22-0010. Payouts to bettors, however, were not altered. Id.; [R. 20, ¶ 84]. The Stewards' Ruling explicitly provided, “[p]ari-mutuel wagering is not affected by this ruling.” Stewards Ruling 22-0090. This is according to Kentucky regulations on horse race betting. See 810 Ky. Admin. Regs. 4.040 § 17 (stating, in the context of the race-day decision, “[t]he decision of the stewards as to the official order of finish for pari-mutuel wagering purposes shall be final, and no subsequent action shall set aside or alter the official order of finish for the purposes of pari-mutuel wagering”); see also [R. 90, pp. 6-7 (Defendants' Motion to Dismiss) (citing Id.)].

As mentioned, Plaintiffs bet on Mandaloun in the 2021 Derby. They individually bet between $4,575, [R. 20, ¶ 13 (Plaintiff Wiley's bet)], and five dollars, Id. ¶ 9 (Plaintiff Mauer's bet). See generally id. ¶¶ 7-36. They lost their bets based on the “official” race-day order of finish which placed Medina Spirit first and Mandaloun second.^[6] Id. ¶ 6. The Plaintiffs assert that those who place bets do so under the expectation that participants in the Derby will do so in compliance with racing rules and regulations, which prohibit certain substances, such as betamethasone, in competing horses. Id. ¶¶ 76-78; see also KHRC, Medication Guidelines, 810 Ky. Admin. Regs. 8:010-070.^[7] They allege injury due to Medina Spirit's drug violation, arguing they “would have won, but for the illegal, drug-induced win by Medina Spirit.” Id. ¶¶ 7-36.

By way of brief background, Plaintiffs Beychok, Kaufman, Mauer, and Wunderler filed the initial complaint in this action on July 23, 2021, in the United States District Court for the District of New Jersey. [R. 1].^[8] The plaintiffs later filed their Amended Complaint, [R. 20], which remains the operative pleading. After full briefing on a previous motion to dismiss filed by Defendants and an unsuccessful mediation, [R. 22]; [R. 30]; [R. 31]; [R. 32]; [R. 43], the New Jersey Court transferred this case to the Western District of Kentucky, at which point it was assigned to the undersigned. [R. 59, p. 30]; [R. 61].

The Amended Complaint alleges six causes of action: (1) violations of the federal Racketeering Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c), id. ¶¶ 167-77 (Count I); (2) conspiracy to violate the RICO Act under 18 U.S.C. §§ 1962(d), 1962(c), Id. ¶¶ 178-87 (Count II); (3) violations of twenty-three state RICO laws, Id. ¶¶ 188-97 (Count III); (4) conspiracy to violate state RICO laws, Id. ¶¶ 198-204 (Count IV); (5) common law fraud, id. ¶¶ 205-212 (Count V); and (6) equitable fraud, Id. ¶¶ 213-220 (Count VI). Specifically, they allege that each Plaintiff's wagers on the 2021 Derby “would have won, but for the illegal, drug-induced win by Medina Spirit.” Id. ¶¶ 7-36, 91; see also ¶ 92 (“But for the illegal entrance of Medina Spirit into the race, Plaintiff Beychok would not have lost the $966.00 invested in the race and would have instead won ”). Based on these allegations, Plaintiffs requested relief including “ordering Defendants to pay to Plaintiffs and the Class the amount they would have won, but for the illegal doping of Medina Spirit.” Id. at 47 (Request for Relief, ¶ (h)).

II. LEGAL STANDARD

Rule 12 of the Federal Rules of Civil Procedure provides grounds upon which a defendant may move to dismiss a claim. Relevant here are Rule 12(b)(1) and Rule 12(b)(6). See [R. 90, p. 1]. First, under Rule 12(b)(1), a defendant may move to dismiss a claim for lack of subject matter jurisdiction. If subject matter jurisdiction is challenged pursuant to this rule, “the plaintiff has the burden of proving jurisdiction in order to survive the motion.” Moir v. Greater Cleveland Reg. Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990).

Under Federal Rule of Civil Procedure 12(b)(6), a party may move for dismissal for “failure to state a claim upon which relief may be granted.” To survive a Rule 12(b)(6) motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is “plausible on its face” if the factual allegations in the complaint “allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). This standard “is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (citing Twombly, 550 U.S. at 556). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly 550 U.S. at 557) (internal quotation marks omitted). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550...