What changed in this filing

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Item 1. Legal Proceedings

2021-04-21 compared with 2020-10-28 · 57 added, 40 removed, 45 unchanged (68% of the section changed)

4 unchanged sentences

Kater Class Action Suit

On April 17, 2015, the Kater litigation was filed in the Washington District Court alleging, among other claims, that the Company’s "Big Fish Casino" operated by the Company’s then-wholly owned mobile gaming subsidiary Big Fish Games, violated Washington law, including the Washington Consumer Protection Act, by facilitating unlawful gambling through its virtual casino games (namely the slots, blackjack, poker, and roulette games offered through Big Fish Casino), and seeking, among other things, return of monies lost, reasonable attorney’s fees, treble damages, and injunctive relief.

As previously disclosed, on January 9, 2018, the Company sold Big Fish Games to Aristocrat, an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation, pursuant to the Stock Purchase Agreement.

On April 17, 2015, the Cheryl Kater v.

Churchill Downs Incorporated class action lawsuit (the "Kater Litigation") was filed in the United District Court for the Western District of Washington (the "Washington District Court") alleging, among other claims, that the Company’s "Big Fish Casino" operated by the Company’s then-wholly owned mobile gaming subsidiary Big Fish Games, Inc.

("Big Fish Games") violated Washington law, including the Washington Consumer Protection Act, by facilitating unlawful gambling through virtual casino games (namely the slots, blackjack, poker, and roulette games offered through Big Fish Casino), and seeking, among other things, return of monies lost, reasonable attorney’s fees, treble damages, and injunctive relief.

On January 9, 2018, the Company sold Big Fish Games to Aristocrat Technologies, Inc.

("Aristocrat"), an indirect, wholly owned subsidiary of Aristocrat Leisure Limited, an Australian corporation, pursuant to the Stock Purchase Agreement, dated as of November 29, 2017, by and among the Company, Big Fish Games and Aristocrat (the "Stock Purchase Agreement").

Pursuant to the terms of the Stock Purchase Agreement, the Company agreed to indemnify Aristocrat for the losses and expenses associated with the Kater Litigation for Big Fish Games, which is referred to in the Stock Purchase Agreement as the "Primary Specified Litigation."

After the Washington District Court dismissed the case with prejudice on November 19, 2015, the United States Court of Appeals for the Ninth Circuit reversed and remanded the Washington District Court’s dismissal of the complaint on March 28, 2018.

After the Washington District Court dismissed the case with prejudice on November 19, 2015, the U.S.

Court of Appeals for the Ninth Circuit reversed and remanded the Washington District Court’s dismissal of the complaint on March 28, 2018.

The complaint was amended on March 20, 2019, to add Big Fish Games as a party and to assert claims on behalf of an additional plaintiff, Suzie Kelly.

Prior disclosures in our filings with the Securities and Exchange Commission have identified the extensive procedural history associated with this case.

As previously disclosed, on May 22, 2020, the parties entered into an agreement in principle to settle the Kater litigation and the Thimmegowda litigation.

The agreement in principle remains contingent on final court approval by the Washington District Court.

Under the terms of the settlement, which will take effect only after final court approval of the proposed class settlement:

(i) a total of $155.0 million will be paid into a settlement fund.

CDI will pay $124.0 million of the settlement from its available cash;

Aristocrat will pay $31.0 million of the settlement;

On May 22, 2020, the parties entered into an agreement in principle to settle the Kater litigation and the Thimmegowda litigation (as defined below).

Under the terms of the settlement, which has been approved by the court:

(i) a total of $155.0 million was paid into a settlement fund.

The Company paid $124.0 million of the settlement;

Aristocrat paid $31.0 million of the settlement;

(ii) all members of the nationwide settlement class who do not exclude themselves will release all claims relating to the subject matter of the lawsuits;

and (iii) Aristocrat has agreed to specifically release CDI of any and all indemnification obligations under the Stock Purchase Agreement arising from or related to the Kater and Thimmegowda litigations, including any claims of diminution of value of Big Fish Games and any claims by any person who opts out of the proposed class settlement.

On August 31, 2020, the Washington District Court granted the parties' motion for preliminary approval, and the final settlement approval hearing is currently scheduled for February 11, 2021.

and (iii) Aristocrat has agreed to specifically release the Company of any and all indemnification obligations under the Stock Purchase Agreement arising from or related to the Kater Litigation and Thimmegowda Litigation, including any claims of diminution of value of Big Fish Games and any claims by any person who opts out of the proposed class settlement.

On August 31, 2020, the Washington District Court granted the parties' motion for preliminary approval.

On December 14, 2020, plaintiffs filed a motion for final approval of class action settlement agreement.

The Washington District Court entered an order granting final approval of class action settlement on February 11, 2021.

The Company’s settlement contribution was made on March 25, 2021.

Thimmegowda Class Action Suit

On February 11, 2019, the Thimmegowda litigation was filed in the Washington District Court alleging, among other claims, that “Big Fish Casino,” which is operated by Big Fish Games, violated Washington law, including the Washington Consumer Protection Act, and seeking, among other things, return of monies lost, reasonable attorney’s fees, injunctive relief, and treble and punitive damages.

Prior disclosures in our filings with the Securities and Exchange Commission have identified the extensive procedural history associated with this case.

As previously disclosed, on May 22, 2020, the parties entered into an agreement in principle to settle the Kater and Thimmegowda litigations.

The agreement in principle with respect to the Thimmegowda litigation is described above, under the "Kater Class Action Suit." On August 31, 2020, the Washington District Court granted the parties' motion for preliminary approval, and the final settlement approval hearing is currently scheduled for February 11, 2021.

On February 11, 2019, the Manasa Thimmegowda v.

Big Fish Games, Inc.

class action lawsuit (the "Thimmegowda Litigation") was filed in the Washington District Court alleging, among other claims, that “Big Fish Casino,” which is operated by Big Fish Games, violated Washington law, including the Washington Consumer Protection Act, and seeking, among other things, return of monies lost, reasonable attorney’s fees, injunctive relief, and treble and punitive damages.

On May 22, 2020, the parties entered into an agreement in principle to settle the Kater and Thimmegowda Litigations.

The agreement in principle with respect to the Thimmegowda Litigation is described above, under the "Kater Class Action Suit." On August 31, 2020, the Washington District Court granted the parties' motion for preliminary approval.

On December 14, 2020, plaintiffs filed a motion for final approval of class action settlement agreement.

The Washington District Court entered an order granting final approval of class action settlement on February 11, 2021.

The Company’s settlement contribution was made on March 25, 2021.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

The Kentucky Horse Racing Commission, et al.

1 unchanged sentence

In 2010, all Kentucky racetracks and the Kentucky Horse Racing Commission (the "KHRC" and together with the Kentucky racetracks, the "Joint Petitioners") sought a declaration from the Franklin Circuit Court (the "Court") that:

(i) the KHRC’s historical racing regulations are valid under Kentucky law, and (ii) operating historical racing machines pursuant to a license issued by KHRC would not run afoul of any criminal gaming statutes.

(i) the KHRC’s historical racing regulations are valid under Kentucky law, and (ii) operating historical racing machines ("HRMs") pursuant to a license issued by KHRC would not run afoul of any criminal gaming statutes.

The Family Trust Foundation of Kentucky, Inc.

(the "Family Foundation") intervened, and the Court subsequently granted summary judgment to the Joint Petitioners holding that the KHRC's historical racing regulations are valid under Kentucky law.

Following an appeal to the Kentucky Court of Appeals, in February 2014 the Supreme Court of Kentucky affirmed the Court’s decision that the regulations are valid under Kentucky

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

law, but remanded the case to the Court to determine whether operation of historical racing machines that were licensed during the pendency of the litigation constitute pari-mutuel wagering.

The Court held a trial during the week of January 8, 2018 to determine whether the games from one of the historical racing machine manufacturers (Encore/Exacta) are pari-mutuel, and the Court set a post-trial briefing schedule for the parties.

Although the Court ordered, on August 24, 2017, that this pending litigation only directly involves the historical racing machine games presently in use, and any future historical racing machine games proposed by the Company would not be included in the pending case.

On October 24, 2018, the Court ruled that the historical racing machines in question (Encore/Exacta) are a pari-mutuel system of wagering legally permitted under Kentucky law.

Following an appeal to the Kentucky Court of Appeals, in February 2014 the Supreme Court of Kentucky affirmed the Court’s decision that the regulations are valid under Kentucky law, but remanded the case to the Court to determine whether operation of HRMs that were licensed during the pendency of the litigation constitute pari-mutuel wagering.

The Court held a trial during the week of January 8, 2018 to determine whether the games from one of the HRM manufacturers (Encore/Exacta) are pari-mutuel, and the Court set a post-trial briefing schedule for the parties.

The Court ordered, on August 24, 2017, that this pending litigation directly involves only the HRMs presently in use and any future HRMs proposed by the Company would not be included in the pending case.

On October 24, 2018, the Court ruled that the HRMs in question (Encore/Exacta) are a pari-mutuel system of wagering legally permitted under Kentucky law.

In November 2018, the Family Foundation filed a notice of appeal and subsequently filed a motion to transfer the appeal directly to the Kentucky Supreme Court, which was granted in June 2019.

On September 24, 2020, the Kentucky Supreme Court issued an opinion reversing the Court’s opinion.

On October 14, 2020, the KHRC and certain other defendants filed petitions for rehearing.

The Company does not use the Exacta system in any of its historical racing machine facilities in Kentucky.

The Company intends to work within its legal rights and in coordination with the KHRC to ensure the ongoing legal operation of our historical racing machine facilities in Kentucky.

Louisiana Environmental Protection Agency Non-Compliance Issue

On December 6, 2013, we received a notice from the EPA regarding alleged CAFO non-compliance at Fair Grounds Race Course.

On October 21, 2019, we reached an agreement in principle, subject to final agreement and regulatory and court approval.

On September 29, 2020, the EPA filed a complaint and proposed consent decree, which was agreed to by both parties.

Comments must be received by November 4, 2020.

If approved, the agreement will include a $2.8 million penalty, which has been accrued and is included in selling, general and administrative expense in our accompanying consolidated statement of comprehensive income for the year ended December 31, 2019, and accrued expense and other current liabilities in our accompanying consolidated balance sheet at December 31, 2019.

The consent decree would also require corrective measures to ensure compliance with applicable federal laws and regulations.

Louisiana Horsemens' Purses Class Action Suit

On November 9, 2020, the KHRC and certain other defendants filed petitions for rehearing which was rejected by the Court.

On February 22, 2021, the Governor of the Commonwealth of Kentucky signed into law Senate Bill 120 which creates a statutory definition of pari-mutuel wagering that includes historical horse racing approved by the KHRC and addresses the Supreme Court of Kentucky's opinion.

On remand, the Court entered final judgment on March 17, 2021, holding that the Exacta system is not a form of pari-mutuel wagering under the laws that were in effect at the time of the Kentucky Supreme Court’s September 24, 2020, opinion.

The Court also held that (i) the final judgment would not be applied retroactively because the associations were authorized and permitted to operate the Exacta system by the KHRC, and (ii) any prospective application of the final judgment would be subject to Senate Bill 120.

On April 7, 2021, the Court denied various motions challenging the final judgment, including motions to intervene and a motion to alter, amend, or vacate filed by the Family Foundation.

The Court reaffirmed its interpretation that the final judgment would not be applied retroactively and also refused to extend the final judgment to apply to games other than the Exacta system.

On April 16, 2021, the Family Foundation filed a notice of appeal of the final judgment.

The Company does not use the Exacta system in any of its historical racing machine facilities in Kentucky and does not believe that any further rulings in this case will impact its ability to operate HRM facilities in Kentucky.

Kentucky Downs, LLC, et al.

On December 18, 2020, Robert and Patricia Lassiter filed a complaint against Kentucky Downs, LLC, Keeneland Association, Inc., Turfway Park, LLC, Players Bluegrass Downs, LLC, Appalachian Racing, LLC, Ellis Park Race Course, Inc., The Lexington Trots Breeders Association, Inc., and Churchill Downs Incorporated (“Defendants”).

Plaintiffs allege that Defendants’ HRMs constitute illegal gambling and assert that they can recover for their losses and the losses of all patrons at those facilities with HRMs over a five-year period under Kentucky Revised Statutes 372.010.

The Company filed a motion to dismiss on March 31, 2021.

The Company intends to defend this matter vigorously and believes that there are meritorious legal and factual defenses against the plaintiffs' allegations and requests for relief.

Louisiana Horsemen's Purses Class Action Suit

On April 21, 2014, John L.

9 unchanged sentences

27:438, and to pay the plaintiff class such sums as it finds to reasonably represent the value of the sums due to the plaintiff class.

On August 14, 2014, the plaintiffs filed an amendment to their petition naming the Horsemen’s Benevolent and Protective Association 1993, Inc.

On August 14, 2014, the plaintiffs filed an amendment to their petition naming the Horsemen’s Benevolent and

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Protective Association 1993, Inc.

("HBPA") as an additional defendant and alleging that HBPA is also liable to plaintiffs for the disputed purse funds.

9 unchanged sentences

The parties submitted a settlement agreement to the District Court on February 14, 2020, following the Louisiana Racing Commission’s approval to transfer the matter to the District Court for approval and administration of the settlement agreement on February 12, 2020.

At a hearing on February 18, 2020, the District Court granted preliminary

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

approval of the settlement agreement and set certain deadlines relating to actions to be taken by class members.

At a hearing on February 18, 2020, the District Court granted preliminary approval of the settlement agreement and set certain deadlines relating to actions to be taken by class members.

The settlement agreement requires, among other items, the Fair Grounds Defendants to (i) pay a certain out-of-pocket amount that is within the amount for which we established an accrual in the third quarter of 2019, and (ii) support legislation that allocates a specified amount of video poker purse funds to quarter horse purses for races at Fair Grounds with maximum annual payout caps that are not deemed material.

3 unchanged sentences

The settlement agreement is subject to certain conditions, including court approval.

After the parties entered into the settlement, legal counsel for six objecting, named plaintiffs filed an amended petition with the District Court.

After the parties entered into the settlement, legal counsel for six objecting plaintiffs filed an amended petition with the District Court.

After a hearing on July 20, 2020, the District Court dismissed the amended petition.

The objecting plaintiffs filed a notice of their intention to seek a writ with the Louisiana Court of Appeals for the Fourth Circuit related to the dismissal of the amended petition, which was denied.

The fairness hearing with the District Court relating to the terms of the settlement agreement began on October 7, 2020, and has been continued until November 17, 2020.

The fairness hearing with the District Court relating to the terms of the settlement agreement occurred on October 7, 2020, and November 17, 2020, and the parties have submitted post-trial briefing and proposed final judgments.

Objecting plaintiffs have filed a notice of appeal of the February 2020 Order appointing class counsel certifying a class for settlement purposes.

On January 28, 2021, the District Court issued a Final Order and Judgement approving the settlement.

The objectors filed a notice of appeal of the January 28, 2021 Final Order and Judgment.

That appeal has been consolidated with the earlier-filed appeal of the February 2020 order appointing class counsel and certifying a class for settlement purposes.

There have been no material changes with respect to our risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Legal Proceedings