UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY CENTRAL DIVISION FRANKFORT KENTUCKY GAMBLING RECOVERY ) LLC, ) ) Case No. 3:25-cv-00066-CHB-EBA Plaintiff, ) ) MEMORANDUM OPINION v. ) & ) ORDER UNDERDOG SPORTS HOLDINGS, INC., ) et al., ) ) Defendants. )
*** *** *** *** Before the Court are three ripe motions to dismiss, [R 26]; [R. 29]; [R. 36], and three ripe motions to compel arbitration, [R. 27]; [R. 28]; [R. 35], filed by the defendants.1 Plaintiff Kentucky Gambling Recovery LLC (“KGR”) filed an omnibus response opposing the motions to dismiss, [R. 44], and an omnibus response opposing the motions to compel arbitration, [R. 45]. The defendants all replied in support of their motions to dismiss and to compel arbitration. [R. 59]; [R. 60]; [R. 61]; [R. 62]; [R. 63]; [R. 64]. These matters are therefore fully briefed and ripe for review. For the reasons set forth below, the Court grants the motions to dismiss and denies the motions to compel arbitration as moot. I. Background Plaintiff Kentucky Gambling Recovery is a limited liability company formed, it claims, “to enforce Kentucky’s gambling laws.” [R. 15 at ¶ 9]. KGR, however, has no connection to the
1 Kentucky Gambling Recovery named six individual defendants in their Amended Complaint. [R. 15]. The defendants appear separately as three groups: first, Underdog Sports Holdings, Inc.; second, the “Dabble defendants” comprised of Dabble Sports, LLC, Dabble Sports Pty LTD; and third, the “Zula defendants” comprised of Blazesoft LTD, Blazegames Inc., and SCPS LLC d/b/a Zula Casino. The Court will refer to the defendants as the Underdog defendant, the Dabble defendants, and the Zula defendants. Commonwealth of Kentucky, has never wagered on the defendants’ platforms, and explicitly states that it “has no relationship to any gambler who has suffered gambling losses and has not colluded with any gamblers in bringing this action.” [Id.] KGR’s only tie to the state is its interest in Kentucky’s Loss Recovery Act, Ky. Rev. Stat. § 372.020 et seq. Kentucky regulates
gambling and sports wagering and proscribes unregulated betting as a contract against public policy. Therefore, “any person” who “loses to another at one (1) time, or within twenty-four (24) hours, five dollars ($5) or more, . . . may recover it, or its value, from the winner” provided that the action is brought “within five (5) years after the payment, transfer or delivery.” Ky. Rev. Stat. § 372.020. In plain English, the Loss Recovery Act allows a person to claw back their own gambling losses within a five-year statute of limitations. But KGR is not interested in that part of the Loss Recovery Act. Instead, KGR’s complaint sounds in the Act’s third-party suit mechanism: If the loser or his creditor does not, within six (6) months after its payment or delivery to the winner, sue for the money or thing lost, and prosecute the suit to recovery with due diligence, any other person may sue the winner, and recover treble the value of the money or thing lost, if suit is brought within five (5) years from the delivery or payment.
Ky. Rev. Stat. § 372.040. Without identifying any such gamblers, recording the date of their gambling losses, establishing that $5 was lost within a 24-hour period, confirming whether the gamblers sued in their own right, or validating that such claims fall within the five-year statute of limitations period, KGR suggests that it can benefit from the Loss Recovery Act’s third-party provisions. Instead, “on information and belief,” KGR supposes that “on several dates from 2024 to the present,” Kentucky residents met these criteria. [R. 15 at ¶¶ 16–17]. KGR does not bother with specifics in their complaint but suggests that “thousands” of bettors meet the requirements necessary for KGR to bring a third-party claim. [Id. at ¶¶ 21, 67, 111]. If KGR is correct that they can pursue such claims under the Loss Recovery Act, then they could stand to win substantial sums. Wagering that their interpretation of the Loss Recovery Act would be successful, KGR first brought this suit in the Franklin Circuit Court. The defendants removed the case to federal
court on November 26, 2025, and first filed responsive pleadings on January 30, 2026. See [R. 5]; [R. 6]; [R. 7]; [R. 8]; [R. 10]; [R. 11]. KGR filed an amended complaint on February 4, 2026. [R. 15]. In its amended complaint, KGR argues that the defendants operate illegal gambling operations within the state, bringing them within the reach of the Loss Recovery Act. Specifically, KGR targets two types of purported illegal gambling: (1) daily fantasy sports contests offered by Underdog Sports and Dabble Sports and (2) “sweepstakes casinos” like those offered by Zula Casino. [Id. at ¶¶ 32–76, 77–109]. The specifics of these contests are not important for the resolution of these motions. At a general level, daily fantasy sports contests involve wagering on the performance of athletes in a particular sporting event. [Id. at ¶¶ 45–54]. Such bets are classic examples of sports wagering offered by casinos and bookies. KGR alleges
that defendants Dabble Sports and Underdog both offer this form of unregulated, and therefore illegal, sports betting operations within Kentucky. [Id. at ¶¶ 62–72]. Sweepstakes casinos, on the other hand, are a little more complicated. Sweepstakes casinos are digital platforms that allow people to play typical casino games “using a digital token that can be purchased with, and freely exchanged into, U.S. Dollars.” [Id. at ¶ 77]. As alleged by KGR, such operations use a “two-tiered” currency system consisting of free “Gold Coins” and “Sweeps Coins,” the latter of which users pay real money to acquire. [Id. at ¶¶ 79–80]. Users play the simulated casino games using either the free Gold Coins or the purchased Sweeps Coins. Unlike Gold Coin, users who play online casino games using Sweeps Coins can exchange Sweeps Coins for U.S. currency. [Id. at ¶ 80]. KGR alleges that hosts of sweepstakes casinos, such as defendant Zula Casino, unequivocally violate Kentucky’s ban on online casino gambling. [Id. at ¶¶ 77, 101–105]. The Defendants argue that KGR’s litigating position is too cute by half. They raise a
series of arguments in favor of dismissing this action or, alternatively, compelling arbitration. Zula casino argues that this court cannot exercise personal jurisdiction over Zula and its affiliates. [R. 26-1 at 11–18]. All three groups of defendants move to dismiss the complaint under Fed. R. Civ. P. 12(b)(b) for failure to state a claim. [R. 26-1 at 19–26]; [R. 29-1 at 10–21]; [R. 36-1 at 7–12]. They all additionally argue that KGR does not have standing to bring this claim in federal court. [R. 64 at 2–9]; [R. 29-1 at 7–10]; [R. 36-1 at 5–7]. Similarly, all defendants separately argue that the Court should stay the proceedings and enforce the arbitration provisions contained in their respective user agreements. [R. 27]; [R. 28]; [R. 35]. Both Dabble Sports and Underdog requested that the Court first review the motions to compel arbitration before addressing the motions to dismiss. [See R. 29 at 1]; [R. 36 at 1]. But before a
court can determine whether a plaintiff has failed to state a claim upon which relief may be granted or stay the litigation and compel arbitration, it must decide whether it has subject matter jurisdiction. Mitchell v. BMI Fed. Credit Union, 374 F. Supp. 3d 664, 666–67 (S.D. Ohio 2019). II. Standard of Review The parties in this case requested oral argument on the motions to dismiss and motions to compel arbitration. But no party has explained why oral argument is necessary in this matter or how additional argument would assist the Court in resolving the pending motions. See, e.g., Branch Banking & Tr. Co. v. Jones, No. 5:18-CV-610-JMH, 2019 WL 1085172, at *2 (E.D. Ky. Mar. 7, 2019) (denying request for oral argument where parties did not explain why it was necessary or beneficial to the court). There are no factual disputes, and the parties have submitted hundreds of pages of briefing on these two sets of motions. Oral argument is therefore unnecessary to resolve the disputes currently pending before the Court. Under Federal Rule of Civil Procedure 12(b)(1), a party may move for dismissal for “lack
of subject-matter jurisdiction.” Fed. R. Civ. P. 12(b)(1). “Where subject-matter jurisdiction is challenged pursuant to Rule 12(b)(1), the plaintiff has the burden of proving jurisdiction to survive the motion.” Moir v. Greater Cleveland Reg’l Transit Auth., 895 F.2d 266, 269 (6th Cir. 1990). A party may use Rule 12(b)(1) motions to make either facial or factual attacks on subject- matter jurisdiction. Howard v. City of Detroit, 40 F.4th 417, 422 (6th Cir. 2022). “A facial attack on the subject-matter jurisdiction alleged in the complaint questions merely the sufficiency of the pleadings.” Gentek Bldg. Prods. Inc. v. Sherwin-Williams Co., 491 F.3d 320, 330 (6th Cir. 2007). “When reviewing a facial attack, a district court takes the allegations in the complaint as true, which is a similar safeguard employed under 12(b)(6) motions to dismiss.” Id. But when addressing a factual attack on the subject-matter jurisdiction alleged in the complaint, “no
presumptive truthfulness applies to the allegations.” Id. As to standing specifically, “a facial attack on standing challenges the legal sufficiency of the complaint, whereas a factual challenge against standing questions whether the complaint’s factual assertions reflect reality.” Shumway v. Neil Hospitality, Inc., 570 F. Supp. 3d 585, 588 (W.D. Tenn. 2021). In this case, the defendants bring a facial rather than factual challenge. III. Discussion A. Plaintiff Lacks Article III Standing. The Court must first answer whether KGR has constitutional standing to bring this lawsuit. Here, the Court limits its review to the familiar Article III standing test announced in Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), and its progeny. For the reasons that follow, the Court is convinced that KGR lacks constitutional standing, and thus the case must be dismissed for lack of subject-matter jurisdiction. Federal courts are courts of limited jurisdiction, only exercising the power “that is
authorized by Article III of the Constitution and the statutes enacted by Congress pursuant thereto.” Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986). A court acting within this authority does so because it has subject matter jurisdiction over the controversy, as subject matter jurisdiction “defines the court’s authority to hear a given type of case.” Carlsbad Technology, Inc. v. HIF Bio, Inc., 556 U.S. 635, 639 (2009) (quoting United States v. Morrison, 467 U.S. 822, 828 (1984)). Without subject matter jurisdiction, a federal court lacks authority to hear a case whatsoever. Lightfoot v. Cendant Mortg. Corp., 580 U.S. 82, 91 (2017). Standing is a question of subject matter jurisdiction. State by & through Tennessee Gen. Assembly v. United States Dep't of State, 931 F.3d 499, 507 (6th Cir. 2019). The doctrine of Article III standing upholds the Constitution’s command that the judicial power of the United
States extend only to “Cases” and “Controversies.” U.S. Const. Art. III, § 2; Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016). The “irreducible constitutional minimum of standing” requires a plaintiff to show three elements. Lujan, 504 U.S at 560 (1992). KGR must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendants, and (3) that is likely to be redressed by a favorable judicial decision. Id. at 560–61. At the pleading stage, the plaintiff must “clearly . . . allege facts demonstrating each element.” Spokeo, 578 U.S. at 338 (citation modified). “The first and foremost of standing’s three elements” concerns injury in fact. Id. The injury-in-fact element requires a plaintiff to show that he or she suffered “an invasion of a legally protected interest that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’” Id. (quoting Lujan, 504 U.S. at 560). An injury is “particularized” when it “affect[s] the plaintiff in a personal and individual way.” Id. An injury is “concrete” where it “actually exist[s]” and is “not abstract.” Id. at 340. The Supreme Court in Spokeo held that
plaintiffs must satisfy this “concreteness” requirement “even in the context of a statutory violation.” Id. at 341. “A bare procedural violation, divorced from any concrete harm,” does not “satisfy the injury-in-fact requirement of Article III.” Id. (citing Summers v. Earth Island Inst., 555 U.S. 488, 496 (2009)). The Erie doctrine “requires a federal court sitting in diversity to apply state substantive law and federal procedural law.” Degussa Admixtures, Inc. v. Burnett, 277 F. App’x 530, 532 (6th Cir. 2008) (citing Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78 (1938)). Because standing is a question of procedural law, federal standing jurisprudence applies. Hagy v. Demers & Adams, 882 F.3d 616, 624 (6th Cir. 2018) (stating that Article III standing requirements apply to state-law claims in federal court). In any event, even if the Court were required to apply
Kentucky procedural law, the Commonwealth follows the federal test for standing. Commonwealth Cabinet for Health & Fam. Servs., Dep't for Medicaid Servs. v. Sexton by & through Appalachian Reg'l Healthcare, Inc., 566 S.W.3d 185, 196 (Ky. 2018) (formally adopting the Lujan test as the constitutional standing doctrine in Kentucky as a predicate for bringing suit in Kentucky’s courts). Two recent federal cases confirm that plaintiffs such as KGR lack constitutional standing to pursue third-party claims under statutes similar to the Loss Recovery Act. First, in Burt v. Playtika, Ltd., 132 F.4th 398 (6th Cir. 2025), the Sixth Circuit evaluated a claim by a third-party plaintiff seeking to recover “all sums paid by Tennessee residents to Playtika in its online gambling games,” advancing under Tennessee’s gambling loss statute. Id. at 402. Like KGR, Burt did not allege that she personally suffered any gambling losses. Id. at 403. The Sixth Circuit independently raised the issue of Article III standing and concluded that Burt could not satisfy the traditional standing elements because “she did not suffer an injury in fact[.]” Id.
The Circuit noted that “a plaintiff does not automatically satisfy the injury-in-fact requirement ‘whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.’” Id. (quoting TransUnion LLC v. Ramirez, 594 U.S. 413, 426 (2021)). The Sixth Circuit later rejected Burt’s suggestion that the Tennessee statute at issue was a qui tam statute evaluated under a different standing test. Id. at 403–05. The Court addresses KGR’s argument to that effect in Part III.B of this Memorandum Opinion. As to traditional standing, the Sixth Circuit in Burt emphasized that the plaintiff in that case could not meet the traditional standing elements where she sought to recover gambling losses without alleging that she personally suffered any such harms. Id. at 403. “The plaintiff must ‘have been concretely harmed by a defendant’s statutory violation [to] sue that private defendant over that
violation in federal court.’” Id. (quoting TransUnion, 594 U.S. at 427). In other words, a third- party plaintiff suing under a gambling loss recovery statute must point to their own concrete and particularized injury, rather than relying on the hypothetical statutory injuries to others. Id. A second court evaluated Kentucky’s statute and came to the same result: third-party plaintiffs lack standing to sue where they do not allege any individual, concrete, and particularized harms. Cayce v. VGW, Ltd., ___ F. Supp. 3d ___, No. 4:24-CV-86-BJB, 2026 WL 837144, at *5–6 (W.D. Ky. Mar. 26, 2026). Like KGR, the plaintiffs in Cayce sought all the money lost by anyone who ever played VGW’s social casino games. Id. at *1. And like KGR, the Cayce plaintiffs brought suit under the third-party provisions of Ky. Rev. Stat. § 372.040. Id. The Cayce court, pointing to the Sixth Circuit’s Burt decision, quickly determined that the plaintiffs could not proceed under “ordinary standing principles” because they did not allege that they suffered any gambling losses. Id. at *2 (citing Burt, 132 F.4th at 403). Like the Sixth Circuit in Burt, the court in Cayce seemingly drew a distinction between
the Loss Recovery Act’s grant of statutory standing and Article III’s distinct constitutional standing requirements. See id. at *2. The court acknowledged that § 372.040 ostensibly permits a claimant “to recover money lost by any other person besides the loser or his creditor.” Id. Statutory standing may be present, but the plaintiff relying on this formula alone would still lack constitutional standing: “By asserting that he’s not himself among the injured, each Plaintiff pleads himself out of federal court because the suit neither redresses nor otherwise protects against any injury to the complaining party.” Id. (citation modified). Lest there be any doubt, persuasive state-law authority confirms that a third-party Loss Recovery Act plaintiff such as KGR lacks constitutional standing. Both KGR and the defendants point the Court to the Kentucky Supreme Court’s decision in Commonwealth ex rel. Brown v.
Stars Interactive Holdings (IOM) Ltd., 617 S.W.3d 792 (Ky. 2020). There, the Supreme Court of Kentucky evaluated the Loss Recovery Act’s third-party provisions in a suit brought, interestingly, by the Commonwealth itself against a foreign online gambling website. KGR holds up Brown for the proposition that a “person” under §372.040 need not be a natural individual, but rather any body politic or organization as defined elsewhere in state law. Id. at 798–99. Indeed, the Brown court ruled that the Commonwealth had statutory standing to sue under the statute, rejecting the defendant’s position that the Loss Recovery Act narrowed the class of eligible plaintiffs to natural persons. Id. at 789–801. KGR would have the analysis end there: Because the Kentucky Supreme Court allowed the Commonwealth to sue in Brown, this court should find that an out-of-state LLC with no connection to the Commonwealth and no injuries should be able to sue under the same statute. KGR conveniently ignores large swaths of the Brown opinion which explained in further detail
why the Commonwealth had standing to sue. Critically to the constitutional standing analysis, the Brown court detailed the Commonwealth’s interest in protecting Kentucky’s citizens from defendants like PokerStars and chronicled how PokerStars’ illegal online gambling harmed the Commonwealth. See id. at 802–05 (finding that “the Commonwealth can sue under civil laws to protect its citizens” and that “PokerStars’ illegal online gambling harms the Commonwealth”). The Brown court highlighted the concrete and particularized injury-in-fact suffered by the Commonwealth—the Plaintiff in that case. KGR, on the other hand, makes no attempt to identify how it suffered an injury at the hands of any of the named defendants. Subsequent state law decisions confirm that Kentucky’s courts have not adopted KGR’s preferred interpretation of Brown. In Roszkowski v. Churchill Downs Inc., No. 22CI-3753, 2023
WL 12057554 (Ky. Cir. Ct. Apr. 21, 2023), the Jefferson Circuit Court granted the defendants’ motion to dismiss on the basis that the safe harbor provision of Ky. Rev. Stat. § 372.005 barred the plaintiffs’ claims. Id. at *2.The Court included a footnote, though, that speaks to the heart of this case: The only concern that the Court has with the three involuntary dismissals is that the circuit courts in those cases chose to address the merits of the Plaintiffs' claims under KRS 372.040 without addressing the issue of whether the plaintiffs had constitutional standing to pursue a recovery for gambling losses incurred by third parties. The Court agrees with the Defendants' position that the Plaintiffs lack constitutional standing to pursue a recovery for gambling losses incurred by third parties under KRS 372.040 because of the absence of a concrete, particularized injury affecting them in a “personal and individual way.” Overstreet v. Mayberry, 603 S.W.3d 244, 252 (Ky. 2020). Unlike the Plaintiffs, the Court cannot interpret the Kentucky Supreme Court's decision in [Brown] as providing support for the proposition that private individuals, as opposed to the government, have constitutional standing to pursue a recovery for gambling losses incurred by third parties under KRS 372.040.
Id. at *2 n.1 (citation modified). KGR mentions Roszkowski just once as a “misreading” of Brown without offering so much as an attempt to counter the logic of the Jefferson Circuit Court’s reasoning. [R. 44 at 22]. Nevertheless, it is the only post-Brown state court decision identified by the Court or the parties on the question of third-party § 372.040 standing.2 The Court is left with the definite and firm conviction that Kentucky’s judiciary would reach the same conclusion as the federal courts in Burt and Cayce: A plaintiff suing under § 372.040 only has constitutional standing if they can identify a concrete, particularized injury affecting them in a personal and individual way. KGR’s legal gamble unravels at the first standing element. That is because KGR does not—and cannot—allege an injury-in-fact showing that it suffered an “invasion of a legally protected interest that is concrete and particularized.” Lujan, 504 U.S. at 560. KGR’s single- count claim is conjectural and hypothetical, not actual or imminent. Id. KGR admits that it “has no relationship to any gambler who has suffered gambling losses.” [R. 15 at 4]. Nowhere in KGR’s 35-page amended complaint can it identify a single injury suffered by KGR or its members. Instead, as defendants correctly point out, KGR’s allegations “are based on the bare statistical assumption that, among all Kentucky users of the Platform, at least one person must
2 Kentucky state court cases do not control this Court’s analysis of a procedural question such as constitutional standing. They are, however, persuasive because they suggest that Kentucky’s judiciary would not accept KGR’s argument that Brown stands for the proposition that any uninjured third-party claimant has standing under § 372.040. See, e.g., Bailey v. V & O Press Co., 770 F.2d 601, 604 (6th Cir. 1985) (if a state’s highest court has not spoken on a particular issue, then a district court must turn to the decisions of the state’s lower courts, to the extent they are persuasive, to predict how the highest court would decide the issue). have lost at least $5.” [R. 59 at 13]. The Burt and Cayce decisions plainly foreclose any argument in favor of conferring Article III standing on KGR. Burt, 132 F.4th at 403 (“Because Burt did not incur a gambling loss herself, she did not suffer an injury in fact and therefore lacks standing”); Cayce, 2026 WL 837144, at *2 (“Under ordinary standing principles, then, the
Plaintiffs cannot proceed in this Court”). KGR plainly cannot satisfy the traditional Article III standing test and makes no attempt to do so. Instead, KGR argues that a wholly different standing test applies because § 372.040 is actually a qui tam statute. [R. 44 at 13–16]. The Courts addresses this argument below. B. Plaintiff Lacks Qui Tam Standing Because § 372.040 is Not a Qui Tam Statute. KGR argues that the Loss Recovery Act is really a qui tam statute, satisfying any concerns about Article III standing. For the reasons explained below, the Court disagrees. “A qui tam statute allows an individual to bring a claim on behalf of the government to redress an injury to the government.” Burt, 132 F.4th at 403 (citing Stalley v. Methodist Healthcare, 517 F.3d 911, 916–17 (6th Cir. 2008)). “In a qui tam action, the plaintiff has
standing because she is the assignee of the government’s claim against the defendant.” Id. (citing Vt. Agency of Nat. Res. v. United States ex rel Stevens, 529 U.S. 765, 773 (2000)). In Burt, the Sixth Circuit set out a three-part analysis for weighing whether a third-party gambling recovery statute satisfies the traditional requirements of a qui tam action. Id. at 404–05. First, a qui tam statute “is intended to redress an injury to the government,” and typically contains “language requiring that the private plaintiff bring the action on behalf of the state.” Id. at 404. Second, “a qui tam statute usually requires that the plaintiff share part of the recovery with the government.” Id. And third, “a qui tam statute usually provides procedural safeguards to ensure that the government retains some control of the action,” which reinforces the sense that “the government is the real party in interest” in a qui tam action. Id. at 404–05. In Burt, the Sixth Circuit applied this analysis to the Tennessee statute at issue, Tenn. Code Ann. § 29-19-105. The plaintiff in that case argued that § 29-19-105 was a qui tam statute
because it “assigns the right to recover certain gambling losses to ‘any other person,’ including an individual who neither suffered a gambling loss nor bears a relation to someone who did.” Burt, 132 F.4th at 404. The Sixth Circuit first asked whether the statute benefited the State in any way. They found that it did not: Section 29-19-105 does nothing to redress an alleged injury to the state. It allows a suit to recover a gambling loss “for the use of the spouse; or, if no spouse, the child or children; and, if no child or children, the next of kin of the loser.” Tenn. Code. Ann. § 29-19- 105. Thus, a plaintiff who sues under § 29-19-105 seeks to redress an injury to a private, third party—the spouse, child, or other relative of an aggrieved player—not the state.
Id. Moving to the second factor, they similarly found that the Tennessee statute did not require the plaintiff to share part of the recovery with the government. The Sixth Circuit particularly noted that Black’s Law Dictionary defines a “Qui Tam Action” as “an action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive.” Id. (citing Qui Tam Action, Black’s Law Dictionary (12th ed. 2024)). The Tennessee statute at issue clearly apportioned recovery for the gambler’s family members, but not for the government. Id. Finally, the Court found that “no procedural safeguards are present in § 29-19-105,” suggesting that the government is not a party in interest to the suit. Id. at 405. The Tennessee statute evaluated by the Sixth Circuit in Burt obviously differs from Kentucky’s Loss Recovery Act. But a federal court applied Burt’s qui tam factors to the Loss Recovery Act and concluded that “[a]ll three features that Burt treated as distinctive to qui tam suits, and therefore dispositive of the standing question,” were not present in the Kentucky statute. Cayce, 2026 WL 837144, at *3. Applying the Burt factors to Ky. Rev. Stat. § 372.040, the Court first noted that the statute does not redress an injury to the government. Instead, the
Loss Recovery Act “identifies injuries suffered by private parties (rather than the Commonwealth) and nowhere suggests that plaintiffs suing under the statute do so on the Commonwealth’s behalf.” Id. The Cayce court emphasized that the captioning of cases brought under § 372.040 does not include the traditional “ex rel.” designation, suggesting that a Loss Recovery Act plaintiff is not a private relator. Id. (citing United States ex rel. Polansky v. Executive Health Resources, Inc., 599 U.S. 419, 424–25 n.1 (2023)). Moving on, the Cayce court evaluated whether § 372.040 requires the plaintiff to share part of the recovery with the government. Id. It plainly does not: “Plaintiffs who prevail under Kentucky’s statute … pocket all their winnings . . . Because the government receives no direct benefit from the lawsuit, it would be disingenuous to claim that the suit is brought for the
government’s benefit and on its behalf.” Id. (quoting Stalley, 517 F.3d at 918–19) (citation modified). As to the third factor, the court similarly found that the Commonwealth of Kentucky has no control over § 372.040 lawsuits. Id. at *4. Indeed, it was not even clear that the Commonwealth could bring its own case under that statute until the Brown decision in 2020, and even then, the “Commonwealth could compete with private plaintiffs by attempting to step into the losers’ shoes and recovering itself.” Id. (citing Brown, 617 S.W.3d at 798–800, 805). The Cayce court thus found that none of the Burt factors weighed in favor of considering § 372.040 a qui tam statute. Id. This Court sees no reason to depart from the sound logic of Cayce. Plainly, none of the three Burt factors apply to § 372.040. Kentucky plaintiffs suing under the third-party provisions of the Loss Recovery Act do so for their own gain and benefit, not for the government’s. Cayce, 2026 WL 837144, at *3. Nor do such plaintiffs share their winnings with the government or with
any other individual. Id. The state likewise has no control over a § 372.040 action whatsoever. This Court has no difficulty concurring with the Western District’s decision that § 372.040 is not a qui tam statute. KGR’s arguments to the contrary are unavailing. KGR makes no mention of the Cayce decision other than to characterize it in a parenthetical citation as “erroneously” adopting Burt’s logic as a three-part test for evaluating qui tam actions. [See R. 44 at 15]. KGR holds up Vt. Agency of Nat. Res. v. United States ex rel. Stevens, 529 U.S. 765 (2000), to stand for the proposition that third-party qui tam relators satisfy Article III. [R. 44 at 16]. There, the Supreme Court held that qui tam relators under the False Claims Act, 31 U.S.C. §§ 3729–3733, have Article III standing. Stevens, 529 U.S. at 778. The majority in that case determined that
“adequate basis for the relator’s suit for his bounty is to be found in the doctrine that the assignee of a claim has standing to assert the injury in fact suffered by the assignor.” Id. at 773. The Stevens majority held that this relator standing, combined with the history of qui tam actions around the founding period, left “no room for doubt that a qui tam relator under the FCA has Article III standing.” Id. at 778. The Stevens decision does not carry as much weight as KGR would have the Court believe. First and foremost, the FCA differs greatly from Kentucky’s LRA. The FCA explicitly permits a person to bring a civil action “for the person and for the United States Government,” and holds that the “action shall be brought in the name of the Government.” 31 U.S.C. § 3730(b)(1). Section (c) outlines the various “rights of the parties to qui tam actions,” stating that the government has the primary responsibility for prosecuting the action if it chooses to proceed with the action, that the government may dismiss the action over the objections of the relator, that the government may limit the relator’s participation in the action, and that the court may
limit participation by the relator. Id. § 3730(c). The FCA, the preeminent qui tam statute at the federal level, contains significantly more detail than Kentucky’s third-party one-sentence LRA statute. Second, the majority in Stevens concluded that standing existed in large part because of the FCA’s unique function as “effecting a partial assignment of the Government’s damages claim.” 529 U.S. at 773. It is well-established that an “assignee of a claim has standing to assert the injury in fact suffered by the assignor.” Id. The LRA, on the other hand, does not effectuate an assignment—partial or otherwise—of a gambler’s claims. Cayce, 2026 WL 837144, at *4 (“victorious Kentucky plaintiffs . . . bypass . . . the parties to the transaction purportedly at issue”) (citation modified). Nevertheless, KGR argues that they may have standing under a
theory of assignment. [R. 44 at 17]. Underdog points out the fundamental inconsistency in KGR’s assignment position. [R. 61 at 7]. In opposing the defendants’ motions to dismiss, KGR asserts that it “may validly take assignment to the right to recover gamblers’ losses,” citing to the Brown decision where the Commonwealth itself could “disgorge the gambling winnings and impose penalties.” [R. 44 at 17]. But in opposing the defendants’ motions to compel arbitration, KGR argues that it has no relationship—contractual or otherwise—with gamblers in Kentucky: Plaintiff did not accept arbitration, voluntarily or otherwise: it is a non-party, non-signatory to the underlying contracts between Defendants’ and their customers . . . Plaintiff has not derived benefits from any part of the contracts, assumed any duties or obligations under them, or enjoyed any protections or entitlements as a result of them. Indeed, even in this litigation, Plaintiff disclaims any reliance on them.
[R. 45 at 11]. This is particularly relevant where basic principles of assignment law hold that an assignee’s rights derive from the assignor. That is, an assignee of a contract occupies the same legal position under a contract as did the original contracting party, he or she can acquire through the assignment no more and no fewer rights than the assignor had, and cannot recover under the assignment any more than the assignor could recover.
Brown v. BlueCross BlueShield of Tenn., Inc., 827 F.3d 543, 548 (6th Cir. 2016) (quoting CardioNet, Inc. v. Cigna Health Corp., 751 F.3d 165 (3d Cir. 2014)). Such an assignment of legal claims, therefore, would require “an express agreement . . . showing that [the injured parties] manifested an intent to assign their right to sue.” Burt, 132 F.4th at 404 n.3. KGR explicitly denies that any such agreement could exist because they disclaim any relationship to Kentucky gamblers. It follows that any assignment theory faces the same long odds, and ultimate failure, as KGR’s qui tam theory. KGR also points the Court to a recent decision in the District Court for the District of Columbia, where that Court found that a related entity3 had Article III standing while ultimately dismissing the case due to the unique aspects of the District of Columbia’s gambling statute. See DC Gambling Recovery LLC v. Am. Wagering, Inc., No. 25-CV-01023 (CJN), 2026 WL 850330 (D.D.C. Mar. 26, 2026). That court noted that “third-party Statute of Anne lawsuits are cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process” after analyzing the history of such causes of action. Id. at *5 (citation modified). The court then found that it had Article III standing under the Lujan standard because of two Supreme Court decisions.
3 The plaintiff in this case was “DC Gambling Recovery LLC,” represented by the same firm and attorneys as “Kentucky Gambling Recovery LLC” in this case. Id. First, the court cited Stevens for the proposition that a qui tam relator had standing to pursue a claim under the False Claims Act based on an assignment theory. Id. (citing Stevens, 529 U.S. at 771–74). But as the Court in Cayce addressed, “Kentucky’s law departs from the tradition of qui tam lawsuits described in [Stevens]—and therefore Kentucky plaintiffs in federal court cannot
trace a redressable injury through any such analogy.” 2026 WL 837144, at *5. Further, Kentucky’s statute does not assign any private interests. Id. at *5, n.9. “Rather than directly transferring property rights, Kentucky’s statute assigns the procedural right to press a civil suit.” Id. (citing James E. Pfander, Public Law Litigation in Eighteenth Century America, 92 FORDHAM L. REV. 469, 476 (2023)). And Burt instructs courts in the Sixth Circuit that “a plaintiff does not automatically satisfy the injury-in-fact requirement ‘whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right,’” even where the “plain language of [the statute] appears to allow [the plaintiff] to do so.” 132 F.4th at 403 (quoting TransUnion, 594 U.S. at 426). The Court in DC Gambling also cited to the Supreme Court’s decision in Thole v. U.S.
Bank N.A., 590 U.S. 538, 543 (2020), for the proposition that a “plaintiff has Article III standing when its right to sue has been legally or contractually assigned to [it by] another party,” and where the parties in that case agreed that the D.C. Code “effects an assignment of either the loser’s injury (her gambling losses) or the District’s sovereign injury to the plaintiff who elects to pursue a claim.” DC Gambling, 2026 WL 850330, at *5. As an initial point, it is imperative to emphasize that Thole found that the plaintiffs in that case did not have Article III standing under any of the four theories they advanced. Thole, 590 U.S. at 546. In Thole, the plaintiffs were two retired participants in U.S. Bank’s defined-benefit plan, a unique retirement plan where retirees receive a fixed payment each month, rather than fluctuating amounts due to the fiduciaries’ investment choices. Id. at 540. Although the plaintiffs suffered no monetary injury, they sued U.S. Bank for mismanaging the defined-benefit plan. Id. at 540–41. The plaintiffs advanced four alternative arguments to circumnavigate the inconvenient fact that they had not suffered any injury. Id. at 541. One of these arguments
involved Article III standing of assignees where “a party’s right to sue has been legally or contractually assigned to another party.” Id. at 543. But the Supreme Court noted that the plan’s claims were not legally or contractually assigned to either of the named plaintiffs. Id. No such identifiable assignment existed in Thole, just as no such identifiable assignment exists here. Such an assignment would only exist if the gamblers assigned to KGR “all rights, title, and interest in claims based on those injuries,” thereby allowing KGR to assert transferred, legal rights of their own. See Sprint Commc'ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 290 (2008). No such assignment exists, and KGR itself inadvertently shows that no such assignment could exist by its disclaiming of any relationship or partnership with any Kentucky gamblers. This Court finds the decision in DC Gambling unpersuasive for another key reason: The
District of Columbia statute is wholly different from Kentucky’s statute. The District’s government has an identifiable stake in the outcome of third-party claims. The District’s statute provides that “any person may sue” a gambling winner for treble the loss amount, with “one- half” going to the “[non-bettor] plaintiff, [and] the remainder . . . to the District.” D.C. Code § 16-1702(a) (2026). If Kentucky’s statute contained such language, it could, under Burt, plausibly be considered a traditional qui tam statute because it would require “that the plaintiff share part of the recovery with the government” and because it would seek to redress an injury to the District of Columbia itself. Burt, 132 F.4th at 404. Indeed, the parties in DC Gambling agreed that the unique text of the D.C. Code “effect[ed] an assignment of . . . the District’s sovereign injury to the plaintiff who elects to pursue a claim.” DC Gambling, 2026 WL 850330, at *5 (emphasis added). Thus, DC Gambling is not at odds with the Sixth Circuit’s acknowledgement that “a qui tam action involves more than the mere assignment of rights” because a qui tam action “is intended to redress an injury to the government.” Burt, 132 F.4th at 404. That is
precisely what the D.C. Code envisioned. The Kentucky statute, by comparison, contains no reference to the Commonwealth’s rights, role, or pecuniary interest in the litigation. Courts interpreting Kentucky law previously held that Kentucky's law "departs from the tradition of qui tam lawsuits," and that the statute does not assign any private interests, explicitly foreclosing KGR's assignment theory. Cayce, 2026 WL 837144, at *5. Even where a qui tam statute might apply, Burt holds that such an action "involves more than the mere assignment of rights" and must intend "to redress an injury to the government." 132 F.4th at 404. The plain text of the Loss Recovery Act shows no intention to redress an injury to the Commonwealth. The Court declines KGR's invitation to adopt the holding of an out-of-circuit decision based on a statute whose language is markedly different from the Loss Recovery Act. This Court
distinguishes the holding in DC Gambling from this case because of the significant differences between the Kentucky and D.C. gambling recovery statutes. The nature of the District’s statue more closely fits with the qui tam assignment theory of Stevens, and any borrowed reliance on Thole is impaired by the fact that the Thole majority emphasized the lack of an identifiable contractual assignment as dooming Article III standing. III. Conclusion The Court does not have subject matter jurisdiction to hear this case because KGR fails to show that it has Article III standing. Without standing, the Court lacks subject-matter jurisdiction and cannot proceed at all in any case. Tennessee General Assembly, 931 F.3d 499, 507 (6th Cir. 2019). The Court may not address the defendants’ motions to arbitrate, Zula’s personal jurisdiction argument, or the defendants’ Rule 12(b)(6) arguments. The Court must grant a dismissal on the basis of lack of subject matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1). Accordingly, and the Court being sufficiently advised, it is hereby ORDERED as follows: 1. The defendants’ Motions to Dismiss [R. 26], [R. 29], [R. 36] are GRANTED. 2. The defendants’ Motions to Compel Arbitration [R. 27], [R. 28], [R. 35] are DENIED as moot. 3. All matters having been resolved, this case is DISMISSED and STRICKEN from the Court’s active docket. 4. The Court will enter a corresponding Judgment pursuant to Fed. R. Civ. P. 58 contemporaneously with this Memorandum Opinion and Order. This 18th day of August, 2026. 0 Bice. Hous Boone & Side . a a ae aa COURT JUDGE SS acd ey EASTERN AND WESTERN DISTRICTS OF Soe KENTUCKY
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