What changed in this filing

/stocks — the workspaceLOADING

Item 1. Legal Proceedings

2022-04-27 compared with 2021-10-27 · 37 added, 84 removed, 30 unchanged (80% of the section changed)

3 unchanged sentences

Refer to Note 15, Contingencies, to our condensed consolidated financial statements, for further information.

Kater and Thimmegowda Class Action Suits

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 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.

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 Litigation and the Thimmegowda Litigation.

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 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 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.

The Kentucky Horse Racing Commission, et al.

The Family Trust Foundation of Kentucky, Inc.

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 ("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 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,

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

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

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.

Although the Family Foundation filed a notice of appeal of the final judgment on April 6, 2021, it moved to dismiss the appeal on September 13, 2021.

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.

3 unchanged sentences

On August 30, 2021, plaintiffs filed a Chapter 13 Bankruptcy Petition with the Western District of Kentucky, and filed a notice of automatic stay in the matter pending against the Company.

The Company’s motion to dismiss has been remanded until the automatic stay is lifted.

The Company’s motion to dismiss was remanded because of the automatic stay, which has ended.

On February 9, 2022, the Company filed a motion for oral argument on the motions to dismiss.

The court granted that motion and oral argument is scheduled for May 11, 2022.

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 Environmental Protection Agency Non-Compliance Issue

On December 6, 2013, we received a notice from the U.S.

Environmental Protection Agency (the "EPA") regarding alleged Concentrated Animal Feeding Operations (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.

On October 5, 2021, the United States District Court for the Eastern District of Louisiana granted the EPA’s unopposed motion to approve the consent decree.

Pursuant to the consent decree, Fair Grounds will pay a $2.8 million penalty, which was accrued in our consolidated statement of comprehensive income for the year ended December 31, 2019, and accrued expense and other current liabilities in our accompanying condensed consolidated balance sheets at September 30, 2021 and December 31, 2020.

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

Louisiana Horsemen's Purses Class Action Suit

3 unchanged sentences

14-3873) in the Parish of Orleans Civil District Court, State of Louisiana (the "District Court").

The petition defined the "alleged plaintiff class" as quarter horse owners, trainers and jockeys that have won purses at the "Fair Grounds Race Course & Slots" facility in New Orleans, Louisiana since the first effective date of La.

27:438 and specifically since 2008.

4 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.

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

On October 9, 2014, HBPA and Fair Grounds Defendants filed exceptions to the suit, including an exception of primary jurisdiction seeking referral to the Louisiana Racing Commission.

By Judgment dated November 21, 2014, the District Court granted the exception of primary jurisdiction and referred the matter to the Louisiana Racing

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

On January 26, 2015, the Louisiana Fourth Circuit Court of Appeals denied the plaintiffs’ request for supervisory review of the Judgment.

On August 24, 2015, the Louisiana Racing Commission ruled that the plaintiffs did not have standing or a right of action to pursue the case.

The plaintiffs appealed this decision to the District Court, which affirmed the Louisiana Racing Commission’s ruling.

The plaintiffs filed an appeal of the District Court’s decision with the Louisiana Fourth Circuit Court of Appeals, which reversed the Louisiana Racing Commission’s ruling and remanded the matter to the Louisiana Racing Commission for further proceedings on June 13, 2018.

The Louisiana Fourth Circuit Court of Appeals denied the Fair Grounds Defendants’ Motion for Rehearing on July 12, 2018 and the Louisiana Supreme Court denied the Fair Grounds Defendants’ Writ of Certiorari seeking review of that decision on November 14, 2018.

The parties had previously attempted to mediate the matter in October 2018 but were unsuccessful.

Thereafter, the parties resumed informal settlement discussions, and, as a result, the Company established an accrual for an immaterial amount in the third quarter of 2019.

The Louisiana Fourth Circuit Court of Appeals reversed the Louisiana Racing Commission's previous ruling that the plaintiffs did not have standing and remanded the matter to the Louisiana Racing Commission for further proceedings on June 13, 2018.

The Company established an accrual for an immaterial amount in the third quarter of 2019.

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.

3 unchanged sentences

The settlement includes a release of claims against the Fair Grounds Defendants in connection with the proceeding, although individual plaintiffs may opt-out.

If there are opt-out claims in excess of $50,000, the settlement will be voided, unless the parties agree to stipulate otherwise.

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

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 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.

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

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

1 unchanged sentence

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.

On August 12, 2021, the Louisiana Court of Appeals for the Fourth Circuit granted a joint motion to expedite oral argument, which took place on October 13, 2021.

Anthony Mattera v.

Baffert, Bob Baffert Racing, Inc.

and Churchill Downs Incorporated

On May 14, 2021, plaintiff Anthony Mattera filed a class action complaint in the Jefferson County Circuit Court in Louisville, Kentucky against defendants Robert A.

Baffert, Bob Baffert Racing, Inc., and Churchill Downs Incorporated regarding the entry of Medina Spirit into the 147th running of the Kentucky Derby, along with the potential disqualification of Medina Spirit as the winner of Kentucky Derby 147.

Plaintiff’s claims against the Company include negligence, a violation of the Consumer Protection Act, and unjust enrichment, along with a claim for injunctive relief.

The Company removed the case to the U.S.

District Court for the Western District of Kentucky on May 21, 2021 and filed a motion to dismiss on July 7, 2021.

On September 1, 2021, Plaintiff filed a notice of voluntary dismissal, without prejudice.

On December 22, 2021, the Fourth Circuit Court of Appeal entered an order affirming the orders of the District Court and approving the settlement.

On January 7, 2022, the Fourth Circuit Court of Appeal denied the objectors’ motion for remand and application for rehearing.

On February 6, 2022, the objectors filed a writ of certiorari with the Louisiana Supreme Court, which was denied on April 12, 2022.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

Bob Baffert and Bob Baffert Racing Stables, Inc.

Churchill Downs Incorporated, Bill Carstanjen and Alex Rankin

On February 28, 2022, plaintiffs Bob Baffert and Bob Baffert Racing Stables, Inc.

filed a complaint and motion for preliminary injunction against Churchill Downs Incorporated, its Chief Executive Officer Bill Carstanjen, and its Chairman of the Board of Directors Alex Rankin in the U.S.

District Court for the Western District of Kentucky, arising out of the Company’s decision to suspend Mr.

Baffert from entering horses trained by him at any Company-owned racetrack for a period of two years.

The Company’s two-year suspension of Mr.

Baffert came after Baffert-trained horse, Medina Spirit, finished first in the 147 th running of the Kentucky Derby but subsequently tested positive for betamethasone, a banned race-day substance.

Plaintiffs allege that the Company’s decisions to suspend Mr.

Baffert from racing at any Company-owned racetrack and to prohibit horses trained by him (or any other suspended trainer) from accumulating Derby-qualifying points were unlawful.

Plaintiffs assert claims for (i) violation of the due process clause, (ii) unlawful exclusion, (iii) violations of the federal antitrust laws, (iv) tortious interference with contract, and (v) tortious interference with prospective business advantage.

In addition to and separate from the Company’s suspension of Mr.

Baffert, on February 21, 2022, the Kentucky Horse Racing Commission (“KHRC”) Board of Stewards suspended Mr.

Baffert from racing in Kentucky for 90 days and issued a fine to him.

The KHRC rejected Mr.

Baffert’s requests to stay the suspension.

Baffert unsuccessfully sought judicial intervention relieving him from the KHRC suspension.

On March 21, 2022, the Franklin County Circuit Court concluded Mr.

Baffert was not entitled to a stay of the KHRC suspension and that he had not satisfied a single element required for a temporary injunction of the KHRC suspension.

This decision was affirmed by the Kentucky Court of Appeals on April 1, 2022 in an order denying Mr.

Baffert’s motion for emergency relief.

After the Kentucky Court of Appeals allowed the KHRC’s 90-day suspension of Mr.

Baffert to stand, plaintiffs voluntarily withdrew their motion for preliminary injunction against the Company without prejudice.

The Company, Mr.

Carstanjen, and Mr.

Rankin intend to defend this matter vigorously and believe that there are meritorious legal and factual defenses against plaintiffs' allegations and requests for relief.

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, 2021.

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