202 KAR 3:030. Retailer administrative regulation

     Section 1. Definitions. (1) "Board" means the Board of Directors of the KLC as established by KRS 154A.030(1).

     (2) "Cashing agent" means a retailer who has executed a "Retailer License Agreement Addendum for Cashing Agents" and who is authorized and required to cash Lottery Tickets of a value up to and including $5,000.

     (3) "Electronic display" means a light-emitting diode display, television monitor, sign, or other electronic display provided by the KLC to its retailers for the display of winning numbers and other information regarding lottery games, and for the identification of a retailer as a retailer.

     (4) "Instant validation terminal" means a terminal with a functionally-integrated barcode reader which has the ability to validate instant tickets and pull-tab tickets, but does not have the ability to sell on-line tickets.

     (5) "Instant ticket" means a preprinted ticket containing play data under a coating or other covering, which when removed by the player reveals if the ticket is a winner.

     (6) "KLC" means the Kentucky Lottery Corporation.

     (7) "Licensing documents" means the "Retailer License Application", the "Retailer Relicensing Application", the "Retailer License Agreement", the "Retailer License Agreement Addendum for Authorized Cashing Agent", and the "Retailer License", all of which are incorporated by reference.

     (8) "Lottery coupon" means a printed document issued by the KLC or its vendors, by which value is transmitted from the KLC to a player in anticipation of a sale of KLC products.

     (9) "Lottery equipment" means every instant validation terminal, on-line terminal, electronic display, vending machine, telecommunications device, wiring, instant or pull-tab ticket dispenser, play center, or equipment now or in the future provided by the KLC or its vendors.

     (10) "Lottery ticket" means an on-line, instant, or pull-tab ticket, and a ticket evidencing a chance to win in a future game sold by the KLC, whether now or hereafter offered by the KLC.

     (11) "On-line terminal" means a terminal operated by a retailer, the KLC, or a player, which has the capability of accepting a quick-pick, playslip, and manually-entered wager, and issuing an on-line ticket. A terminal may include a cash drawer or other KLC-supplied ancillary device or equipment.

     (12) "On-line ticket" means a ticket for a lottery game generated by and sold through an on-line terminal. Instant tickets and pull-tab tickets are not included.

     (13) "Owner" means:

     (a) A sole proprietor of a retailer or an applicant for a "Retailer License" which is a sole proprietorship;

     (b) A limited or general partner or joint venturer in a retailer or an applicant for a "Retailer License" which is a partnership or joint venture, including a registered limited partnership;

     (c) A member, manager as defined in KRS 275.015, or officer of a retailer or an applicant for a "Retailer License" which is a limited liability company;

     (d) An officer, director, or shareholder in a retailer, or an applicant for a "Retailer License" which is a corporation or similar entity, except a person shall be deemed an owner of a publicly-traded retailer or an applicant for a "Retailer License" by reason of the person’s stock ownership in the retailer or applicant for a "Retailer License" only if the person owns at least five (5) percent of the equity interest in the retailer or applicant for a "Retailer License"; or

     (e) A trustee or beneficiary of a trust, an owner of an interest in an unincorporated association, or a person who otherwise holds a legal or beneficial interest in a retailer or applicant for a retailer license.

     (f) "Owner" shall be interpreted as broadly as necessary to protect the security and integrity of the KLC and to ensure the integrity, reputation, and creditworthiness of its retailers and applicants for retailer licenses.

     (14) "Person" means:

     (a) An individual;

     (b) A limited or general partnership, including a registered limited partnership;

     (c) A joint venture;

     (d) A limited liability company;

     (e) An association;

     (f) A corporation;

     (g) A trust;

     (h) An unincorporated organization; or

     (i) Other entity, business, or enterprise.

     (15) "Pull-tab ticket" means a ticket from which the player lifts off a surface tab to reveal if the ticket is a winner.

     (16) "Retailer" is defined at KRS 15A.010(7).

     (17) "Retailer License" means the retailer license issued by the KLC and displayed by each retailer at its retail location.

     (18) "Retailer License Agreement" means the agreement executed by the retailer and the KLC, setting forth the terms and conditions under which the "Retailer License" is issued.

     (19) "Retailer Manual" means the Retailer Manual distributed to retailers by the KLC, as may be amended, setting forth, among other things, detailed descriptions of the KLC's billing, ticket validation and ordering procedures, retailer commissions and bonuses, lottery games, the operation of lottery equipment, and a copy of the administrative regulations.

     (20) "Vending machine" means a mechanical or electronic device which accepts cash, coin, or other method of payment and dispenses one (1) or more forms of lottery tickets, other than on-line tickets.

 

     Section 2. Conditions of Licensing. As a condition to be licensed to sell lottery tickets and to act as a retailer, each person shall be deemed to have agreed to the following general conditions:

     (1) Compliance with law. To fully comply with applicable laws, rules and regulations of the United States, the Commonwealth of Kentucky and its political subdivisions, including KRS Chapter 154A and the administrative regulations in 202 KAR Chapter 3, and with all policies, procedures, rules, directives, and instructions of the KLC, including the licensing documents and the Retailer Manual, all as may be amended.

     (2) Release and indemnification. To release, indemnify, hold harmless and forever defend the KLC, its officers, directors, employees and agents, and the Commonwealth of Kentucky, its elected officials, employees and agents, from and against all loss, claims, damages, expenses, costs (including court costs and costs and fees of attorneys of the indemnified party’s choice) arising out of, resulting from or in any way connected to a retailer’s sale of lottery tickets and related activities and all actions or omissions of the retailer, its owners, employees or agents, whether or not related to the sale of lottery tickets. In addition, without limiting the generality of the foregoing, to release those persons from any claims (including claims for lost revenue) that may arise out of an interruption, suspension, failure of or defects in the operation of the KLC’s games, lottery equipment, or any other service or product supplied by the KLC, regardless of the reasons.

     (3) Sale and cashing of lottery tickets.

     (a) To offer for sale in a manner convenient and accessible to the public, and to actively promote the sale of, in a manner consistent with the directives of the KLC (including the display of KLC point-of-sale materials, signs and other signs or displays,) all lottery tickets the retailer is authorized to sell, throughout the retailer’s business hours (to the extent that the retailer’s business hours coincide with the KLC’s hours of operation with respect to the sale of on-line tickets) and at a minimum during normal business hours.

     (b) To cash all valid lottery tickets of the type and dollar value the retailer is authorized to cash, in a manner consistent with the directives of the KLC, and to accept all valid lottery coupons issued by the KLC and give the bearer lottery tickets or merchandise in accordance with the terms of the lottery coupons, throughout the retailer’s business hours (to the extent that the retailer’s business hours coincide with the KLC’s hours of operation with respect to the cashing of on-line tickets) and at a minimum during normal business hours. A retailer shall not charge a fee for cashing a lottery ticket and shall not refuse to cash a valid lottery ticket sold by another retailer.

     (4) Training of retailer personnel. To require its sales and accounting personnel to attend all training sessions offered by the KLC or its vendors, and to review training materials and terminal-provided tutorials provided by the KLC or its vendors, so that personnel are able to sell lottery tickets, operate and maintain on-line terminals, instant validation terminals, vending machines and electronic devices, and appropriately account for sales of lottery tickets.

     (5) Accounting records. To maintain for at least one (1) year current and accurate records of every operation relating to the sale of lottery tickets. The records shall conform to the rules, instructions, and directives of the KLC, and shall be available to representatives or agents of the KLC, the Commonwealth of Kentucky’s Auditor of Public Accounts and, to the extent required by law, any other person, upon request for inspection and audit. Notwithstanding the foregoing requirement of the retailer to maintain records, the records of the KLC shall be determinative with respect to a retailer’s accounts and other financial dealings with the KLC, absent a showing of manifest error.

     (6) Change in information. To promptly notify the KLC of a change in information previously given to the KLC, within the time frames established in a licensing document.

     (7) Storage of unsold tickets. To store unsold lottery tickets and on-line ticket stock in a safe and secure place to minimize the risk of loss, theft, damage or destruction. The KLC may inspect, and require alteration or relocation of, the storage place.

     (8) End dates. To adhere to the KLC’s directives and policies on end dates and return dates for lottery tickets and games.

     (9) Loss, destruction or theft of tickets. To promptly report to the Security Division of the KLC and to the appropriate local law enforcement agency a loss, destruction, or theft of lottery tickets, and to cooperate, and cause its employees to cooperate, fully with the investigations of the KLC’s Security Division and law enforcement officials. The retailer shall be liable to the KLC for payment in full for all Lottery Tickets allegedly lost, destroyed or stolen after activation of the relevant pack of tickets.

 

     Section 3. Licensing Process. (1) In general.

     (a) An applicant and an owner of an applicant for a "Retailer License" shall complete and execute a "Retailer License Application" and other documents as may be required by the KLC. An applicant shall tender the licensing fees described in paragraph (b) of this subsection, which shall include a nonrefundable application fee in the amount of fifty (50) dollars.

     (b) Upon submission of a "Retailer License Application", an applicant shall tender the following licensing and related fees, as applicable, which shall be nonrefundable after installation of the lottery equipment:

     1. A $100 licensing fee for a retailer selling instant or pull-tab tickets, but not on-line tickets;

     2. A $350 licensing fee for a retailer selling on-line tickets and instant or pull-tab tickets;

     3. A $250 licensing fee for an existing retailer selling instant or pull-tab tickets who will commence selling on-line tickets;

     4. A fifty (50) dollars fee for a partial change in owners of an existing retailer; and

     5. A $100 licensing fee for a complete change in ownership of an existing retailer.

     (c) Requirements for applicants for a "Retailer License" shall apply to an existing retailer who applies for a "Retailer License" for a new location, except the KLC may, in its sole discretion, temporarily license a retailer to sell lottery tickets at a new retail location for a period not to exceed sixty (60) days.

     (d) Background investigations, financial investigations and inquiries to the Kentucky Revenue Cabinet will be conducted with respect to the applicant and each owner of the applicant. If the KLC determines that the applicant or an owner of the applicant does not meet the criteria established in KRS Chapter 154A or in 202 KAR Chapter 3, the applicant shall be notified in writing, and the "Retailer License" shall be denied. If the applicant is an existing retailer undergoing relicensing or seeking to open a new retail location, or is a related entity to an existing retailer, or shares one (1) or more owners with an existing retailer, and facts are disclosed which would cause the KLC to deny an application for licensing or relicensing if tendered by the other retailer, the KLC may:

     1. Immediately revoke or suspend all existing retailer licenses of the retailer; or

     2. Notify all the retailers that their licenses will be revoked within thirty (30) days if the conditions justifying revocation are not corrected.

     e. Upon satisfactory completion of background and financial investigation and inquiry from the Kentucky Revenue Cabinet, the KLC shall:

     1. Execute a "Retailer License Agreement" with the successful applicant; and

     2. Issue a "Retailer License" and one (1) or more unique retailer numbers for each location, with each separate On-line and instant validation terminal to have its own retailer number.

     (2) Special rules relating to chain retailers. The KLC may treat more than one (1) retail location with identical owners as one (1) chain retailer. Each retail location shall be issued a separate retailer number or numbers and a unique "Retailer License". The KLC may issue one (1) billing statement for all retail locations or separate billing statements for each retail location. If the chain retailer wishes to add a new retail location, the chain retailer will not be required to undergo a new background investigation.

     (3) Special rules relating to transfer of retail locations,

     (a) A "Retailer License" shall not be sold, transferred, assigned, hypothecated, pledged, or otherwise conveyed.

     (b) Unless waived in writing by the KLC, a retailer shall give thirty (30) days prior written notice to the KLC of its intent to convey its retail location or business. The acquiring person, if it desires to be licensed as a retailer, shall apply with the KLC for a "Retailer License". If the retail location or business of a retailer is conveyed and the sale of lottery tickets continues without issuance of a new "Retailer License" to the acquiring person, the conveying retailer and the acquiring person shall be jointly and severally liable for all debts and other obligations incurred to the KLC prior to and after the conveyance, and shall remain liable for all debts and other obligations until paid, performed, and a new "Retailer License" is issued for the acquiring person.

     (c) The KLC may, in its sole discretion, temporarily, for a period not to exceed sixty (60) days, license a person acquiring or seeking to acquire the retail location or business of an existing retailer, so that the sale of lottery tickets will not be interrupted during the KLC’s performance of background investigations. The temporary licensing of a person to sell lottery tickets shall not limit the KLC’s right to exercise its discretion regarding issuance of a "Retailer License" to the person, and the KLC in its sole discretion may hold the conveying retailer and the acquiring person jointly and severally liable for all debts and other obligations incurred to the KLC prior to the issuance of the new "Retailer License".

     (d) In addition to other grounds for denial of a "Retailer License", the KLC may, in its sole discretion, deny issuance of a "Retailer License" to a person acquiring or seeking to acquire the retail location or business of a retailer until all debts and other obligations of the retailer or the person or any owner of the person, to the KLC are paid and performed in full.

     (4) Special rules relating to partial changes in ownership.

     (a) To the extent possible, retailers shall provide the KLC with thirty (30) days prior written notice of any partial change in owners, and in any event shall provide the KLC with written notice within fifteen (15) days after any partial change in owners. Failure to do so may, in the KLC’s sole discretion, result in termination of the retailer’s "Retailer License". Written notice of a change shall be effected by tendering to the KLC a new "Retailer License Application" and a fee in the amount of fifty (50) dollars.

     (b) The KLC shall conduct background and financial investigations of and make inquiries of the Kentucky Revenue Cabinet regarding a new owner of retailers.

     (c) If the KLC’s background and credit investigations and inquiries with the Kentucky Revenue Cabinet are not satisfactory, the KLC may revoke or temporarily suspend the retailer’s retail license, or permit the retailer a period of time, not to exceed thirty (30) days, to remove the person as owner or to correct the situation resulting in an unsatisfactory background check.

     (5) Special rules relating to licensing for the sale of specific lottery tickets.

     (a) The KLC shall not grant a "Retailer License" permitting the applicant to sell on-line tickets if the applicant has been denied a license to sell instant or pull-tab tickets, unless the reasons for the denial have been corrected by the applicant to the satisfaction of the KLC.

     (b) Unless specifically permitted in writing by the KLC, a retailer shall not sell on-line tickets unless it also sells instant tickets. Failure to actively sell instant tickets shall be grounds for termination of the retailer’s retail license.

     (6) Special rules relating to cashing agents. The KLC may designate one (1) or more retailers as cashing agents. A cashing agent shall execute a "Retailer License Agreement Addendum for Cashing Agent" and shall follow the procedures established by the KLC for cashing tickets of a value from $601 to $5,000, inclusive. The KLC may, in its sole discretion, terminate a retailer’s status as a cashing agent with or without revocation of the retailer’s "Retailer License".

     (7) Renewal and relicensing.

     (a) The KLC shall relicense all retailers with the new licensing forms established in conjunction with the adoption of this administrative regulation.

     (b) Thereafter, the KLC shall provide continuous renewal of all retailer licenses, renewing one-eighth (1/8) of retailer licenses each calendar quarter, with the ultimate goal of renewing every retailer license not longer than once every two (2) years.

     (c) To be relicensed and to receive a renewal of a "Retailer License", each retailer shall:

     1. Complete, execute, and submit the "Retailer License Application" or the "Retailer Relicensing Application";

     2. Complete, execute, and submit new licensing documents; and

     3. Successfully pass new background and financial investigations and inquiries with the Kentucky Revenue Cabinet.

 

     Section 4. Requirements for Retailers or Owners. (1) Criminal and other background investigations. The KLC shall, with the assistance of the Kentucky State Police and, in its sole discretion, with the assistance of any other available sources, investigate the criminal history of and existence of any statutory violations by a prospective retailer, a retailer seeking relicensing due to a change in ownership or a regularly scheduled relicensing, or an owner. The KLC shall deny the application of a prospective retailer and revoke the license of a existing retailer if:

     (a) A person, or an owner thereof, has been convicted in any jurisdiction of a:

     1. Felony, if ten (10) years have not passed since the satisfactory completion by the person of the sentence imposed by the court for the offense;

     2. Gambling-related offense, if ten (10) years have not passed since the satisfactory completion by the person of the sentence imposed by the court for the offense;

     3. Offense under KRS Chapter 154A, any other statute governing the KLC, or any related administrative regulations; or

     4. Offense which, in the sole judgment of the KLC, relates to or may adversely impact the security or integrity of, or public confidence in, the KLC or its retailers. The KLC's determination shall include consideration of:

     a. The physical and fiscal security of the KLC and its retailers and the integrity of the KLC’s games;

     b. Public perception of and public confidence in the KLC and its retailers; and

     c. Other relevant factors.

     (b) Person, or an owner thereof, has violated the provisions of KRS Chapter 154A or any other statute governing the KLC or any related administrative regulations, if ten (10) years has not passed since the last date that the violation existed; or

     (c) A person, or an owner thereof, or a retailer or applicant for a "Retailer License" with respect to which any person or owner was an owner or related entity, has made a statement of material fact to the KLC, and the person knew or should have known that the statement was false or untrue in any respect, unless at least ten (10) years have passed since the statement was made.

     (2) Financial investigations.

     (a) The KLC shall conduct a financial investigation of each person and each owner applying for a "Retailer License", and of each retailer under consideration for relicensing due to a change of ownership or a routinely scheduled relicensing. In addition to information available from other sources, the KLC shall maintain, and shall review during each financial investigation, a database regarding existing, suspended and canceled retailers and their owners. The KLC may consider in its determination regarding the financial responsibility of an applicant or retailer undergoing relicensing, the connection of the person, whether as owner or related entity, with any retailer whose "Retailer License" was suspended or canceled due to a default in its obligations to the KLC.

     (b) If, as a result of financial investigation of the person and its owners, the KLC determines that a prospective or existing retailer poses a financial risk, the KLC may:

     1. Deny the application or revoke the license;

     2. License a prospective Retailer to, or permit an existing retailer to, sell instant tickets or pull-tab tickets only upon the condition that payment is made for tickets upon the delivery thereof in good funds (COD); or

     3. License a prospective retailer or permit an existing retailer to retain its license upon receipt of the letters of credit, bonds, guarantees or other security or assurances of payment as the KLC may in its sole discretion deem satisfactory.

     (3) Kentucky Revenue Cabinet inquires.

     (a) A "Retailer License" shall not be issued to a person which is not or has an owner which is not, and no retailer shall be permitted to retain a "Retailer License" which is not or has an owner which is not, current in the payment of taxes, interest and penalties owed to, and current in filing of applicable tax returns with, the Commonwealth of Kentucky and all political subdivisions thereof, including, without limitation, any political subdivisions in which lottery tickets are being or are proposed to be sold, exclusive of items under formal appeal pursuant to applicable statutes.

     (b) A "Retailer License" shall not be issued to a person which has not previously been issued a federal employment tax identification number and, if applicable, a Kentucky sales tax license number. The KLC shall confirm with the Kentucky Revenue Cabinet that an applicant for a "Retailer License", and an existing retailer in the event of a relicensing, complies with the provisions of this paragraph. The KLC shall rely upon information received from the Kentucky Revenue Cabinet. The KLC may, in its sole discretion, permit an existing retailer a period of time, not to exceed thirty (30) days, within which to meet or cause the owner in question to meet its obligations with the Kentucky Revenue Cabinet prior to revocation of the retailer’s "Retailer License" or prior to final denial of issuance of renewal of a "Retailer License".

     (4) Relationship with KLC vendors, officers or directors. A person shall not be licensed as a KLC retailer, and a retailer shall not be permitted to maintain its "Retailer License", if the person or an owner of the person:

     (a) Is a vendor, as defined at KRS 154A.010, of major lottery-specific procurement items to the KLC, or is an officer, director, employee or agent of a vendor; or

     (b) Resides in the same household as an officer or director of the KLC.

     (5) Miscellaneous requirements. A person shall not be licensed as a KLC retailer, and a retailer shall not be permitted to maintain its "Retailer License" if the person or an owner of the person:

     (a) Has provided false or misleading information, or failed to provide information the failure to provide which is materially misleading, to the KLC or to a law enforcement agency with respect to obtaining or retaining a "Retailer License";

     (b) Provides products, services, or entertainment that, in the sole discretion of the KLC, may have an adverse effect upon the credibility, integrity, and reputation of the KLC;

     (c) Sells products, services, or entertainment that, in the sole discretion of the KLC, constitutes lottery products or services deceptively similar to or in competition with the KLC’s products or services; or

     (d) Does not demonstrate, in the sole discretion of the KLC, the ability to sell and continue to sell an acceptable level of lottery tickets.

     (6) Additional requirements.

     (a) The KLC may promulgate administrative regulations to:

     1. Revise or add requirements for the licensing of new Retailers, the relicensing of existing retailers, and the ability of retailers to retain retailer licenses; and

     2. Amend the licensing documents, the "Retailer License Agreement", and the Retailer Manual.

     (b) The KLC may, in a document not in 202 KAR Chapter 3, amend that document unilaterally.

     (c) The KLC may deny retailer licenses to a prospective retailer, deny relicensing to an existing retailer, and revoke the retailer licenses of a retailer based upon the failure to meet additional or revised requirements established by KLC or by administrative regulation.

 

     Section 5. Terminals and Other Equipment. (1) Allocation.

     (a) One (1) or more instant validation terminals (for retailers licensed to sell only instant tickets or pull-tab tickets) or on-line terminals (for retailers licensed to sell on-line tickets) may be installed by the KLC at the retailer’s retail location. At the request of the retailer, the KLC may install vending machines and other lottery equipment at a retail location. Installation and retention of lottery equipment at a retail location shall be in the sole discretion of the KLC, based upon the following:

     1. The probable future or actual historic sales at the retail location relative to the:

     a. Initial and ongoing maintenance and installation costs of any lottery equipment and ongoing telecommunications charges associated with any lottery equipment; and

     b. Probable sales generated by the lottery equipment at another retail location;

     2. The incremental costs associated with the installation of the lottery equipment under the KLC’s agreements with its on-line ticket vendor, vendors of instant and pull-tab tickets, and other applicable vendors; and

     3. The geographic distribution of retailers and various types of lottery equipment.

     (b) In calculating the probable future or actual historic sales, the KLC may consider information it deems appropriate, to include one (1) or more of the following sets of data:

     1. Actual historic sales of the products sought to be sold by similarly situated retailers;

     2. Total actual historic sales by the retailer in question of instant or pull-tab tickets (in the case of a retailer seeking to become licensed to sell on-line tickets or seeking installation of lottery equipment, vending machines or additional instant validation terminals); and

     3. Actual historic sales by the retailer in question of on-line tickets (in the case of a retailer seeking installation of additional on-line terminals).

     (c) The KLC may also consider factors including:

     1. The retailer’s and the retailer’s owners’ and related entities’ history with the KLC;

     2. The retailer’s participation in promotional activities including the display of point of sale promotional materials;

     3. The number of games carried by the retailer; and

     4. The retailer’s store hours.

     (d) The KLC may establish initial fees and periodic charges with respect to installation or maintenance of lottery equipment.

     (2) Title to equipment.

     (a) Lottery equipment provided to retailers is and shall remain the property of the KLC or its vendors, and shall not be or become property of a retailer or person claiming an interest in lottery equipment through a retailer including, without limitation, the holder of a consensual, judgment, landlord’s, or mechanic’s lien.

     (b) Before placement of lottery equipment within a retailer's retail location, the retailer shall obtain KLC approval of the proposed location for the lottery equipment. The retailer shall not move, modify, or alter the equipment.

     (c) The KLC shall have the right to enter a then-present or former retail location, during normal business hours, or at any other time with the consent of the holder of any interest in the real property on which the retail location is situated, to remove property belonging to the KLC, including, without limitation, lottery equipment, lottery tickets, on-line ticket stock, signs, and point of sale materials, with or without revocation of the "Retailer License" and termination of the "Retailer License Agreement" applicable to the retail location.

 

     Section 6. Prize Payments. (1) Prize payments up to and including $600. A retailer shall, upon presentation of a winning KLC ticket which properly validates, pay the nonminor holder of the ticket the amount of the prize to which the winner is entitled, up to and including the sum of $600.

     (2) Prize payments up to $5,000. The KLC shall establish a network of cashing agent retailers which shall, upon presentation of a winning KLC ticket which properly validates, pay the nonminor holder of the ticket the amount of the prize to which the winner is entitled, up to and including the sum of $5,000.

 

     Section 7. Ticket Purchases, Deposit of Funds and Payments. (1) Lottery ticket purchases, billings and payment. The KLC shall promulgate and distribute to all retailers detailed procedures regarding purchases of and billings for lottery tickets, which procedures shall be deemed to be a part of the "Retailer License Agreement". The KLC may, in its sole discretion, establish payment terms with individual retailers to address situations unique to those retailers. All proceeds from the sale of lottery tickets shall be deposited not later than the close of the next banking day after the date of their collection by the retailer and shall be held in an account designated by the retailer to the KLC in the "Retailer License Application" or "Retailer Relicensing Application". The account shall be in an institution insured by the Federal Deposit Insurance Corporation or Federal Savings and Loan Insurance Corporation, or their successors. All proceeds of the sale of lottery tickets, net of credits for compensation due to retailers and for prizes paid by retailers, are the property of the KLC and shall be held by retailers in trust and in a fiduciary capacity for the benefit of the KLC.

     (2) Credits. Retailers’ accounts with the KLC will be credited by the KLC in accordance with its retailer compensation policies, as established by the KLC.

     (3) Delinquent accounts. In addition to all other rights and remedies available to the KLC at law or in equity, including the rights and remedies provided in KRS Chapter 154A, the KLC shall have the following rights and remedies:

     (a) The right to set off against and recoup from sums due by the KLC to a delinquent retailer or owner any sums due the KLC by the delinquent retailer or owner, or by any other retailer in which the delinquent retailer or an owner thereof is an owner;

     (b) The right to request the Commonwealth of Kentucky to set off against and recoup from sums due any delinquent retailer, owner thereof, or other retailer which is in part owned by an owner of the delinquent retailer by the Kentucky Revenue Cabinet, any sums due to the KLC by the delinquent retailer;

     (c) The right to require payment of all sums due the KLC, in the KLC’s sole discretion, by a retailer prior to issuance of a "Retailer License" to a new retailer at the same retail location; and

     (d) The right to write off a retailer's obligations to the KLC, without releasing any retailer from its obligations for repayment of sums owed the KLC, and reimburse its operating accounts in the amount of the write-off from a segregated account that shall be established from all licensing fees received by the KLC, including any additional sums authorized for that purpose by the board. The board may increase or reduce the amount held in the segregated account.

 

     Section 8. Termination or Suspension. (1) Termination for cause. In addition to any other bases for termination or suspension established in this administrative regulation, KRS Chapter 154A, and the "Retailer License Agreement", the KLC may, in its sole discretion, terminate or suspend a retailer’s "Retailer License" and "Retailer License Agreement" at any time upon a finding by the Senior Vice President of Finance and Administration that the retailer or an owner of the retailer:

     (a) Is in default or has violated any of the terms and conditions of its "Retailer License Agreement";

     (b) Has violated or is in violation of any provision of 202 KAR Chapter 3 or KRS Chapter 154A;

     (c) Failed or fails to meet the requirements and minimum standards for granting a "Retailer License" as established in 202 KAR Chapter 3, KRS Chapter 154A, or the licensing documents;

     (d) Has provided false or misleading information, or has failed to provide information the failure of which to provide is false or misleading, to the KLC or to a law enforcement agency with respect to obtaining or retaining a "Retailer License";

     (e) Provides or has provided a product, service, or entertainment that, in the sole opinion of the KLC, may have an adverse effect upon the credibility, integrity and reputation of the KLC;

     (f) Sells, and continues to sell after written notice by the KLC to cease and desist the sale, a product, service, or entertainment that, in the sole opinion of the KLC, constitutes a product or service deceptively similar to or in competition with a KLC product or service;

     (g) In the case of a retailer, sells its business, or, in the case of an owner, sells all or a sufficient part of its interest in the retailer, that the buyer meets the definition of an owner;

     (h) Has not, in the sole judgment of the KLC, maintained an acceptable level of sales of lottery tickets; or

     (i) Poses a situation that causes the President of the KLC to determine that the action is necessary in order to ensure the integrity, security, honesty, or fairness of the operation of the KLC or any of its games.

     (2) Termination without cause. The KLC may terminate a retailer’s "Retail License" and "Retailer License Agreement" without cause, upon thirty (30) days prior written notice.

     (3) Termination by retailer. A retailer may terminate its "Retail License" and "Retailer License Agreement" upon thirty (30) days prior written notice. The KLC may, at its option, elect to terminate the retailer’s "Retailer License" and "Retailer License Agreement" prior to the end of the thirty (30) day period.

     (4) Effect of termination or suspension. Every obligation of a retailer to the KLC shall survive termination or suspension of the "Retailer License" and "Retailer License Agreement". Upon termination of a "Retailer License" and "Retailer License Agreement", the retailer shall immediately pay to the KLC all sums owed to the KLC and shall surrender to the KLC the retailer’s "Retailer License" and all lottery equipment and other property of the KLC or its vendors, including, without limitation, all lottery tickets, on-line ticket stock, point of sale materials, signs, and other property provided to the retailer by or on behalf of the KLC.

     (5) Other remedies. In addition to the remedies of termination or suspension, the KLC may avail itself of any other remedies available to it at law or in equity, including, without limitation, injunctive relief.

 

     Section 9. Retailer Remedies. (1) Right to protest. An applicant for a "Retailer License" or a retailer aggrieved in connection with an action taken by the KLC pursuant to KRS 154A.400 or 202 KAR Chapter 3 may protest, in writing, to the president. The protest shall be submitted within thirty (30) calendar days after the aggrieved person knows or should have known of the facts giving rise to the protest. A person shall be deemed to have knowledge of the facts giving rise to the protest within thirty (30) days of the KLC’s issuance of a written notification to the retailer or applicant for a "Retailer License" regarding the action or decision of the KLC.

     (2) Effect of protest. If a timely protest is filed under this section and the action protested is the termination of a "Retailer License", the "Retailer License" shall be temporarily suspended rather than terminated until all administrative and judicial remedies have been exhausted. In all other circumstances, the KLC’s action or decision shall stand unless and until reversed or revised as a result of the protest.

     (3) Action by president and right to appeal. The decision of the president shall be promptly issued in writing and shall be immediately furnished to the protesting person by hand delivery, telecopier (with a hard copy sent by certified mail, return receipt requested,) or by certified mail, return receipt requested. A notice shall be deemed received on the date hand delivered or sent by telecopier, or three (3) business days after deposit of the notice in the United States Mail, postage prepaid, by certified mail, return receipt requested. The decision shall recite the grounds relied on by the president in reaching the decision and shall inform the protesting party of its further appellate rights under subsections (4) and (5) of this section. The president’s decision shall be final and conclusive, unless within ten (10) calendar days from the date of receipt of the decision, the protesting party delivers a written appeal to the board, by hand, by telecopier (with a hard copy sent by certified mail, return receipt requested) or by certified mail, return receipt requested, all pursuant to KRS 154A.090. The address is: Board of Directors, Kentucky Lottery Corporation, 1011 West Main Street, Louisville, Kentucky 40202, Telecopier No. [phone].

     (4) Board appeal.

     (a) Upon receipt of an appeal, the board shall promptly schedule a hearing for the protesting person which shall be held as soon as practicable after receipt of the appeal. The board may hold the hearing at the next regularly scheduled board meeting. The protesting person and the president shall have the right to be represented by counsel before the board and, in addition, shall have the following rights relative to the hearing:

     1. To submit written memoranda as to relevant facts or applicable law, if submitted at least ten (10) calendar days before the hearing;

     2. To call and examine witnesses;

     3. To cross-examine witnesses called by the opposing party; and

     4. To introduce evidence.

     (b) The parties shall exchange a list of witnesses they intend to call at the hearing, a summary description of the evidence to be presented by each, and the documents proposed to be presented at the hearing, at least five (5) business days prior to the dates set for hearing.

     (c) The board may consider and grant motions by either party for extensions of time, for the right to file responsive memoranda, and to call additional witnesses after receiving the opposing party’s list of witnesses.

     (d) The protesting person shall have the burden of proving, by a preponderance of the evidence, that the president’s decision was clearly erroneous, arbitrary and capricious, procured by fraud, or was a result of misconduct of the president or another employee of the KLC.

     (e) An accurate transcript of the hearing shall be kept, and the protesting person shall have the right to obtain a copy of the transcript upon payment of reasonable charges associated with the preparation of the transcript.

     (f) The chairman of the board shall act as the presiding officer at the hearing, unless the chairman appoints another board member or an independent hearing officer specifically for that purpose. The presiding officer shall act to maintain decorum and shall determine the order of procedure during the hearing, making all rulings on matters of law, evidence, and procedure.

     (g) Admissibility of evidence shall be determined by the presiding officer.

     (h) A decision of the board shall be made by a majority of the board present at the meeting in which the appeal is decided. The board shall issue its decision on the appeal within thirty (30) calendar days following the hearing and shall provide copies of the decision to the president, the protesting person and their respective counsel via certified mail, return receipt requested. Proof of receipt shall be made a part of the administrative record.

     (i) The decision of the board shall be final unless the decision is appealed as provided by subsection (5) of this section and other applicable law.

     (5) Access to state courts. A person aggrieved by a decision of the board under this section may appeal the decision, within thirty (30) calendar days of its date of issuance, to a court of competent jurisdiction, in accordance with KRS 154A.090.

 

     Section 10. Sales of Lottery Tickets by KLC.  Nothing in 202 KAR Chapter 3, a retailer licensing document, or any other document shall limit the right of the KLC to sell lottery tickets directly to the public, in person, by mail, by subscription, or otherwise.

 

     Section 11. Incorporation by Reference. (1) The following material is incorporated by reference:

     (a) "Retailer License Application, 11/16/01";

     (b) "Retailer Relicensing Application, 11/16/01";

     (c) "Retailer License Agreement, 11/16/01";

     (d) "Retailer License Agreement Addendum for Authorized Cashing Agent, 11/16/01"; and

     (e) "Retailer License, 11/16/01".

            (2) This material may be inspected, copied, or obtained, subject to applicable copyright law, at the Kentucky Lottery Corporation, 1011 West Main Street, Louisville, Kentucky 40202-2623, Monday through Friday, 8 a.m. through 5 p.m. (25 Ky.R. 584; Am. 834; eff. 10-12-98; 28 Ky.R. 1682; 2195; eff. 4-15-2002.)

Notation

     RELATES TO: KRS Chapter 154A, 275.015

     STATUTORY AUTHORITY: KRS 154A.050(1)(d), 154A.400(1)(b)

     NECESSITY, FUNCTION, AND CONFORMITY: KRS 154A.400(1) requires the Kentucky Lottery Corporation to develop and maintain a statewide network of lottery retailers that will serve the public convenience to promote the sale of lottery tickets, while insuring the integrity of the lottery. To govern the selection of lottery retailers, KRS 154A.400(1)(b) requires the Board of Directors of the Kentucky Lottery Corporation to develop a list of objective criteria upon which the selection of lottery retailers shall be based. This administrative regulation lists the objective criteria upon which the selection of lottery retailers shall be based.