Request By:
Mr. Robert P. Benson, Jr.
Attorney at Law
1 Riverfront Plaza
Louisville, Kentucky 40202
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Frank F. Chuppe, Asst. Deputy Attorney General
As counsel for the Horsemen's Benevolent and Protective Association and pursuant to agreement with the Kentucky Racing Commission (reached at its meeting of June 23, 1984), you have asked the Office of the Attorney General for an opinion pertaining to an administrative regulation of the Kentucky State Racing Commission, 810 KAR 1:006(28) entitled "Horseman's bookkeeper" . This regulation includes a requirement that each racing association maintain a separate bank account with a balance sufficient "to pay all money owing to horsemen in regard to purses, stakes, rewards, claims and deposits" .
Specifically your request is for an opinion as to the entitlement of interest paid on the Horseman's bookkeeper account. You asked whether such interest may be retained by the racing association, or whether it must be paid on a pro rata basis to the owners who maintain balances in the account.
You have also supplied us with the following information for our consideration:
1. Monies which comprise the Horsemen's bookkeeper account are deposits made by racing associations to be paid to horsemen in the form of purses, stakes and rewards, and monies deposited into the account by horsemen.
2. Monies for purses, etc. are deposited directly into the Horsemen's bookkeeper account on the day the race is run.
3. Racing associations require horsemen to maintain a balance in the Horsemen's bookkeeper account sufficient to satisfy stake nomination fees and the minimum jockey fee schedule.
Given this information and a reading of 810 KAR 1:006, it is our opinion that interest accrued on the Horsemen's bookkeeper account is the property of the horsemen whose funds are deposited into the account.
In reviewing Section 28 of 810 KAR 1:006, it is evident that the intent of the regulation is to construct a reliable and prompt method of insuring that the racing associations meet their financial obligations in the form of prize money to winning horsemen. This intent is made clear by the restrictions it places on the operation of the Horsemen's account which will be discussed at greater length herein. The operation of this account has also apparently derived to provide a method to facilitate certain kinds of transactions between horsemen and the racing associations.
In determining the ownership of interest accruing on the Horsemen's account, it should first be asked whether it is the owners or the racing associations who are the beneficial owners of the principal in the account. This principal, whether deposited by the racing association as prize money for winning horsemen, or deposits by horsemen to be credited to their individual balances in the account, is the property of the horsemen. Therefore, the relationship of the racing association to the Horsemen's account is that of a trustee, with the owners as the beneficiaries of the trust. A trust relationship, in addition to being subject to creation by explicit declarations, may also arise from the manifestation of an intent to create it in the form of other acts and words.
DeLeuil's Ex'rs. v. DeLeuil, 74 S.W.2d 474, 255 Ky. 406 (1934). The guidelines imposed by 810 KAR 1:006(3) on both the racing associations and the horsemen must be addressed in considering whether such a relationship exists.
First, § 28 (1) contains ample language to indicate that the account is to be operated for the benefit and protection of the horsemen. The account must be a "separate bank account" and is specifically entitled as the "horsemen's account". Further, the regulation requires the balance of the account not to fall below the amount owing to the horsemen. Such restrictions can reasonably be interpreted as creating a distinct trust res which exists for the benefit of the horsemen, and which is not to be comingled with racing association funds. Similarly, that part of the regulation which prohibits the racing association from deducting any portion of purse money for itself or another is further indication of the intent to tailor the account for the protection of the participating horsemen. 810 KAR 1:006 § 28(3).
The racing associations have accepted their role as trustees of this account by agreeing as licensed entities to operate according to the regulations and rules of the Kentucky State Racing Commission. The owners participate in this account to withdraw prize money and must maintain a credit balance in the horseman's account not less than the amount of a claim plus Kentucky sales tax in order to claim a horse according to the requirement of 810 KAR 1:015(8).
It is therefore our view that the regulation establishes a fiduciary relationship between the racing associations and the horsemen as far as the Horsemen's account is concerned, and the monies within the account are held in trust for the benefit of the horsemen. Having found that the principal in the Horsemen's account is held in trust, it is axiomatic that the racing association is bound to account for any income earned by the trust res. Trusts, 76 Am. Jur. 2d § 511, p. 730. Interest accrued on the Horsemen's account falls within that category.
Aside from the recognition that the money in the Horseman's account is held in trust, simple equity dictates that the owner of the principal is entitled to the interest which it produces.