Oregon Racing Commission v. Multnomah Kennel Club

• Decision Date: 16 February 1966
• Parties: State of Oregon, by and through its OREGON RACING COMMISSION and its State Land Board, Appellant, v. MULTNOMAH KENNEL CLUB, an Oregon corporation, Respondent.
• Court: Oregon Supreme Court

Page 63

411 P.2d 63

242 Or. 572

State of Oregon, by and through its OREGON RACING COMMISSION and its State Land Board, Appellant, v. MULTNOMAH KENNEL CLUB, an Oregon corporation, Respondent.

Supreme Court of Oregon, Department 2.

Argued and Submitted Dec. 2, 1965.

Decided Feb. 16, 1966.

Scott M. Kelley, Special Asst. Atty. Gen., Portland, argued the cause for appellant. With him on the briefs was Robert Y. Thornton, Atty. Gen.

Lamar Tooze, Sr., Portland, and Robert E. Thompson, Beaverton, argued the cause for appellant. On the brief were Tooze, Powers, Kerr, Tooze & Peterson, Portland, and Thompson & Adams, Beaverton.

Before McALLISTER, C. J., and SLOAN, GOODWIN, HOLMAN, and LUSK, JJ.

LUSK, Justice.

The defendant, Multnomah Kennel Club, has, since 1933, conducted greyhound racing meets as a licensee of the Oregon Racing Commission. As authorized by statute, parimutuel betting is engaged in at these meets. A brief description of the system of betting may be found in City of Portland v. Duntley, 185 Or. 365, 375-376, 203 P.2d 640. This suit was brought by the State of Oregon, through the Commission and the State Land Board, to obtain a declaratory decree that large sums of money retained by the defendant over the years for payment to winning wagerers who have never collected their bets should be accounted for and paid either to the Commission or the State Land Board. The court entered a decree for the defendant and plaintiff has appealed.

The case was submitted on a stipulation of facts from which the following appears: Some of the winning tickets sold for parimutuel betting have never been presented for redemption and remain unsurrendered and unredeemed. Such tickets are known in the trade as 'outs,' an abbreviation for 'outstanding.' The holders of the 'outs' are unknown to either the plaintiff or the defendant and payment to a winning wagerer is made only when the wagerer presents a winning ticket. The defendant keeps book records (as required by a regulation of the Commission) disclosing the net amount of the 'outs,' but the book records kept prior to 1956 were destroyed when the defendant moved the race meets from Multnomah Stadium to Portland Meadows. The book records for the years 1956 to 1963 show that the dollar value of the 'outs' for those years is $102,408.60. The defendant, however, can identify a winning ticket for all races run since the year 1933 to the present time by reference to the printed programs printed each day during the racing season which disclose the identity of the winning dogs and the amount payable on a particular winning ticket. Defendant has redeemed all winning tickets presented to it regardless of the lapse of time; in some instances payment has been made two or more years after the running of the race for which the ticket was presented. No demand was ever made upon the defendant by the commission or any other agency or representative of the State of Oregon for the payment of the redemption value of the 'outs' until October 23, 1963. Since 1959 the following regulation of the commission has been in effect:

'20-520 UNREDEEMED TICKETS. Every Association shall carry on its books an account which shows the total amount due on outstanding unredeemed mutuel tickets which represents the winning tickets not presented for payment.'

The book record of 'outs' has always been available for the inspection of the Commission which has had full knowledge of the fact that defendant has retained the moneys received on account of 'outs,' subject to defendant's obligation to pay on presentation the amount called for by any winning ticket. Defendant has, during all the time that it has been licensed, treated the amounts received by it on account of unredeemed tickets as a part of its gross income for all purposes, including the payment of dividends to its stockholders and beneficial owners, and has included said moneys in its United States income tax and State of Oregon excise tax returns and has paid the required taxes.

Before discussing the specific grounds of the plaintiff's claim, it is well to consider the legal relationship among the three parties concerned in a pari-mutuel betting transaction: The Commission, the licensee and the winning bettor. The entire business is governed by the Oregon Racing Statute, ORS 462.010 to 462.990, and regulations duly adopted by the Commission. ORS 462.060 provides that a licensee conducting any licensed race meet must make percentage payments to the Commission based on the gross receipts of all wagering and, in addition, per diem payments in specified amounts. Regulation 20-435 provides that the 'commission,' i. e., the amount taken out by the license, shall in no event exceed 15 percent of the amounts contributed thereto, breakage excepted, and that the maximum commission shall include the percentage representing the State's revenue exemption. Subsection (2) of this regulation provides that '[a]fter deducting a commission and the 'breaks' as defined in subsequent (4) ¹ of this section a pari-mutuel pool shall be redistributed to the contributors; * * *.' It is further provided by ORS 462.150(1), hereinafter more fully considered, that 'underpayments' shall belong to the State and be paid to the Commission.

The modus operandi is tersely described in Mattson v. Hollywood Turf Club, 101 Cal.App.2d 215, 219, 225 P.2d 276, 279:

'A licensed track sells tickets and acts as custodian of the funds, which are accumulated in pools for win, place and show; the track takes the share of its partner, the State, and its own share, from the top, and divides what is left in the several pools among the holders of winning tickets.'

The word 'partner' was no doubt used by the California court in a colloquial, rather than a strictly legal, sense, though the relationship has some of the aspects of a partnership in which the division of the profits is regulated by law.

As between the licensee and the bettors the relationship has been held to be in the nature of contract and not of trustee and cestui que trust: Wise v. Dela. Steeplechase & Race Ass'n, 28 Del.Ch. 532, 45 A.2d 547, 165 A.L.R. 830. The balance of the money of the ticket buyers after taking out the licensee's share 'is held by the proprietor as a bailee or agent abiding the event of the betting contracts': City of Louisville v. Churchill Downs, 267 Ky. 339, 346, 102 S.W.2d 10, 13; the track is a stake holder: McCall v. State, 18 Ariz. 408, 411, 161 P. 893, Ann.Cas.1918A, 168; it is 'a custodian or depositary of money staked, bet, or wagered': Pompano Horse Club et al. v. State of Florida, 93 Fla. 415, 447, 111 so. 801, 812, 52 A.L.R. 51. 'The racing association is the administrative agent for the collection and distribution of the pool': Aliano v. Westchester Racing Assn, 265 App.Div. 225, 228, 38 N.Y.S.2d 741, 745.

As the stipulation of facts shows, the licensee has no knowledge of the identity of the holders of winning tickets and it pays only upon presentation of a ticket. Due to this unique feature of the pari-mutuel system, it was held, ex necessitate, that a bettor whose tickets were stolen and redeemed by the thief has no cause of action against the licensee: Mattson v. Hollywood Turf Club, supra. Similar decisions have been rendered in cases where the bettors inadvertently destroyed their tickets: Aliano v. Westchester Racing Assn, supra; Carr v. State, 15 A.D.2d 709, 223 N.Y.S.2d 229, and in the case of one who claimed that the ticket seller gave him the wrong tickets: Holberg v. Westchester Racing Ass'n, 184 Misc. 581, 53 N.Y.S.2d 490. The matter is summed up in the following statement by the court in Aliano v. Westchester Racing Assn, supra, 265 App.Div. at 229, 38 N.Y.S.2d at 745:

'The failure of the Legislature to provide for lost or destroyed parimutuel tickets was undoubtedly due to a recognition that the nature of the parimutuel system of betting necessarily requires a ticket to evidence the bettor's participation in the pool and that payment could not practicably be made without presentation of such ticket.'

From all this it follows that, whatever legal label may be used in attempting to categorize the relationships of the various parties concerned, the defendant is in possession--theoretically at least--of a large sum of money as a custodian, depositary, or administrative agent, out of which it is obligated to pay to a large number of unknown bettors the amounts of their winnings, but which it can only pay upon the presentation of their tickets; and that the right of the State to the money, if it have any, must be found either in the racing act itself or in some other provision of statute. It may be added, in the words of the trial judge, that 'the likelihood of any significant portion [of the money] being ultimately claimed by the ticketholders is more fanciful than real.'

The claim of the State on behalf of the Commission rests mainly on a section of the racing act relating to underpayments and Regulation 20-515 adopted pursuant thereto. ORS 462.150(1) reads:

'If during any race meet conducted under this chapter, there is an underpayment of the amount actually due to any wagerer, the amount of such underpayment shall revert and belong to the state and be paid to the Oregon Racing Commission and become a part of its fund and shall not be retained by the licensee under whose license such race is held.'

Regulation 20-515(1) reads:

'If at any time it should be discovered that there has been an underpayment in the odds announced and paid, the money shall revert and belong to the State, and be paid to the Commission and not be retained by the fair, association, or license sponsoring the race meet.'

It is contended that an unredeemed ticket represents an 'underpayment.' No such claim was ever made by the Commission or anyone on its behalf until 1963. If the matter were otherwise doubtful, the administrative construction of the statute shown by the Commission's failure...