In re: Racing Services, Inc., Debtor. PW Enterprises, Inc., a Nevada corporation, Appellant,
State of North Dakota, a governmental entity; North Dakota Racing Commission, a regulatory agency; North Dakota Breeders Fund, a special fund; North Dakota Purse Fund, a special fund; and North Dakota Promotions Fund, a special fund, Appellees Bankruptcy No. 04-30236 Adversary No. 06-7020
January 3, 2014, Filed
Appeal from District of North Dakota Bankruptcy Court.
For PW Enterprises Inc., a Nevada corporation, Appellant: Mark R. Hanson, LEAD ATTORNEY, NILLES LAW FIRM, FARGO, ND; Leanna M. Anderson, Dentons U.S. LLP, Los Angelas, CA; Martin J. Foley, MARTIN J. FOLEY, PLC, LOS ANGELES, CA.
For State of North Dakota, a governmental entity, North Dakota Racing Commission, a regulatory agency, North Dakota Breeders Fund, a special fund, North Dakota Purse Fund, a special fund, North Dakota Promotions Fund, a special fund, Appellees: Douglas B. Anderson, LEAD ATTORNEY, ATTORNEY GENERAL'S OFFICE, CIVIL LITIGATION, BISMARCK, ND; Roger J. Minch, LEAD ATTORNEY, Serkland, Lundberg, Erickson, Marcil & McLean, Ltd., Fargo, ND.
Ralph R. Erickson, Chief United States District Judge.
INTRODUCTION AND SUMMARY OF DECISION
PW Enterprises, Inc. appeals from an adverse bankruptcy court decision in which the bankruptcy judge concluded that North Dakota law authorized the collection of taxes on account wagering. Aside from the State, PW Enterprises was the largest creditor in Racing Services, Inc.'s (" RSI" ) bankruptcy. PW Enterprises initiated an adversary proceeding to recover money collected by the State when RSI was insolvent.
Because there was no statutory authority directing the collection of taxes for account wagering during the time period in question, the State must return the money to the bankruptcy estate. The bankruptcy court's decision granting summary judgment in favor of the State is REVERSED and this case is REMANDED for further proceedings consistent with this opinion.
North Dakota's parimutuel horse racing laws evolved over a number of years. A brief time line gives context to the status of the law during the time period in question. In 1987, North Dakota legalized parimutuel horse racing under the certificate system. N.D. Cent. Code § 53-06.2-10. In order to participate bettors had to attend a live horse race in North Dakota. The legislature also enacted a " take-out statute", N.D. Cent. Code § 53-06.2-11, which established formulas for collecting certain amounts from each day's parimutuel pool total, including allotments for tax payments to the State of North Dakota. Revenue derived from parimutuel horse racing was directed to the general fund under the state treasurer's control and to three special funds administered by the North Dakota Racing Commission - the North Dakota Breeders Fund, the North Dakota Purse Fund, and the North Dakota Promotions Fund.
Two years later, the legislature authorized off-track parimutuel wagering. N.D. Cent. Code § 53-06.2-10.1 (1989). This allowed bettors to wager on horse rases within and outside of North Dakota. The legislature also modified the take-out formulas. In 1991, the legislature amended § 53-06.2-10.1 to reclassify " off track wagering" to " simulcast wagering." 
It was not until 2001 that the North Dakota Legislature authorized " account wagering" as a form of parimutuel horse racing. N.D. Cent. Code § 53-06.2-10.1 (2001). The statute provided, in relevant part:
The certificate system also permits parimutuel wagering to be conducted through account wagering. As used in this section, 'account wagering' means a form of parimutuel wagering in which an individual deposits money in an account and uses the account balance to pay for parimutuel wagers. An account wager made on an account established in this state may only be made through the licensed simulcast service provider authorized by the commission to operate the simulcast parimutuel wagering system under the certificate system. . . . .
Players could thus bet against each other rather than the " house." An account wager could be made in person, by telephone, or through other electronic communication. Id. There was no change made to the take-out statute during the 2001 legislative session. Thus, the 1995 version remained in effect, which provided the following bet payoff formulas:
1. For each day of a live race meet or a simulcast day in this state on win, place, and show parimutuel pools, the licensee shall deduct up to twenty percent of the total win, place, and show pool. The licensee may retain seventeen percent for expenses. One-half of one percent must be paid to the North Dakota racing commission to be used for the North Dakota purse fund. One-half of one percent must be paid to the North Dakota
racing commission to be used for the North Dakota breeders' fund for the respective breed of horses racing at that meet. The remaining two percent must be paid to the state treasurer to be deposited in the general fund.
2. For each day of a live race meet or a simulcast day in this state for each daily double, quinella, exacta, trifecta, or other wager combining two or more horses for winning payoffs, the licensee shall deduct up to twenty-five percent of each wagering pool. Of this amount, the licensee may retain twenty-one percent for expenses. One-half of one percent must be paid to the commission to be deposited in the purse fund. One-half of one percent must be paid to the commission to be deposited in the promotion fund. One-half of one percent must be paid to the commission to be deposited in the breeders' fund. The remaining two and one-half percent must be paid to the state treasurer to be deposited in the general fund.
N.D. Cent. Code § 53-06.2-11 (1995).
In 2007, the legislature amended the take-out statute to create a new category for account wagering. N.D. Cent. Code § 53-06.2-11 (2007). This is the first time the legislature ...