Judges rule partially vs. HISA; Supreme Court may be next

Federal regulation of horse racing moved a step closer Friday to what may be an inevitable date with the U.S. Supreme Court when part of the government’s authority was declared unconstitutional by appeals judges.

Even though the Fifth Circuit Court of Appeals in New Orleans endorsed most of a Texas district ruling in favor of the Horseracing Integrity and Safety Authority, the three judges said the regulators overstepped their boundaries when it came to enforcing their rules.

“HISA’s enforcement provisions violate the private non-delegation doctrine,” judge Kyle Duncan wrote on behalf of his colleagues Carolyn Dineen King and Kurt Engelhardt. “The (federal) statute empowers the authority to investigate, issue subpoenas, conduct searches, levy fines and seek injunctions, all without the Federal Trade Commission’s say-so. That is forbidden by the Constitution. We therefore declare that HISA’s enforcement provisions are facially unconstitutional on that ground.”

The National Horsemen’s Benevolent and Protective Association, which has led a three-year legal battle against HISA, claimed a victory Friday night.

“The courts have proven once again that the HBPA was right in our fight to protect horsemen across the country and their constitutional rights,” NHBPA CEO Eric Hamelback said in a written statement. “Last year’s tweak to HISA was nothing but a meaningless attempt to appease the industry.”

That tweak took the form of legislation that patched a constitutional leak identified by the Fifth Circuit in a November 2022 ruling. Signed into law in December 2022 by President Biden, the new law forced HISA to do a better job answering to the Federal Trade Commission when it came to making rules and enforcing them.

“We agree that the FTC’s new rulemaking oversight means (the FTC) is no longer bound by the authority’s policy choices,” Duncan said. “In other words, the amendment solved the non-delegation problem with the authority’s rulemaking power.”

But the Fifth Circuit judges were clear in saying rulemaking was one thing. Enforcing the rules was another.

“We agree with the horsemen that the FTC lacks adequate oversight and control over the authority’s enforcement power,” Duncan said. “HISA’s explicit division of enforcement responsibility empowers the authority with quintessential executive functions and gives the FTC scant oversight until enforcement has already occurred. Such backend review by the FTC does not subordinate the authority.”

Friday’s ruling then gave each side a win. It also gave the NHBPA and 19 other plaintiffs, including 13 state horsemen’s groups, four track operators, the state of Texas and its racing commission, the fuel they need to continue their legal fight.

“This is a huge victory for horsemen and for the rule of law in this country,” said Daniel Suhr, the lead lawyer for the NHBPA’s side. “Our Constitution protects our freedom by ensuring regulatory power is exercised through transparent and accountable government agencies. The Constitution does not allow HISA to run a private police department that enforces federal law.”

Backers of HISA were hoping the Fifth Circuit judges would have fallen in line with a ruling in March 2023 by the Sixth Circuit. In a separate case, those federal judges in Ohio said HISA was legal. It was only late last month when the Supreme Court refused to hear an appeal of that opinion.

Where momentum was on HISA’s side after that, it was swung back the other way Friday.

“We part ways with our esteemed colleagues on the Sixth Circuit,” Duncan said Friday.

Because of the difference of opinion between the two appeals courts, the likelihood has grown that HISA and the FTC will appeal to the Supreme Court, which may have to rule once and for all on HISA.

“We are disappointed with the court’s decision, particularly in light of the Sixth Circuit’s strong endorsement of HISA’s constitutionality,” HISA CEO Lisa Lazarus said in a media statement Friday night. “While the judicial review process continues, it is critical for all racing participants to know HISA is still the law of the land. Its rules are still fully in effect and will remain so for the foreseeable future. We continue to focus on our mission of protecting the safety and integrity of Thoroughbred racing.”

While the legal wheels turn, though, HISA rules have been suspended in some plaintiff states. The refusal of Texas to accept the federal authority led to its simulcast signals being cut off from the rest of the country last year and, with it, about a 90 percent handle plunge. Louisiana backpedaled last month on its plan to loosen HISA medication standards after Churchill Downs Inc. made clear it did not approve of the direction the state was taking. West Virginia put its schedule of 2024 racing dates in pencil late last year based on whether it yet might have to adhere to HISA rules.

In its media statement Friday, the NHBPA reiterated its desire to see horse racing brought under its own Racehorse Health and Safety Act, which would create an alternative coalition of state racing regulators to write medication and track-safety rules that would apply nationwide.

“It is time to recognize the reality that HISA is fundamentally broken and cannot be fixed,” Hamelback said. “For the survival of our industry, we must move on to the Racehorse Health and Safety Act. Passing the RHSA will bring safety and integrity to the industry.”

The entire NHBPA statement Friday:

Today the National Horsemen’s Benevolent and Protective Association and 12 state affiliates won their second court victory as the Horseracing Integrity and Safety Act was found unconstitutional yet again. The United States Fifth Circuit Court of Appeals ruled unanimously that HISA violated the private non-delegation doctrine. The Court reasoned that Congress unlawfully gave executive governmental power to regulate the horse-racing industry over to a private corporation, called the HISA authority. It called HISA a “radical delegation” of governmental enforcement powers to a private corporation.

The Court ruled that the Federal Trade Commission was given “scant oversight” of the authority, which could execute many governmental functions on its own. In dismissing a central legal argument from the HISA authority that HISA was based on the relationship between the Securities and Exchange Commission and the Financial Industry Regulatory Authority, the Court explained that HISA “differs materially from the SEC-FINRA relationship, because the FTC lacks any tools to ensure that the law is properly enforced.” The Court of Appeals concluded, “In sum, we agree with the horsemen that the FTC lacks adequate oversight and control over the authority’s enforcement power.”

This marks the second time the Fifth Circuit has ruled in favor of HBPA in its lawsuit. On Nov. 18, 2022, the same three-judge panel unanimously ruled HISA unconstitutional. That time the court ruled that HISA violated the private non-delegation doctrine because Congress gave the private corporation legislative governmental powers. In response Congress passed a one-sentence tweak to HISA in an effort to nullify the decision. In March of last year, the Sixth Circuit Court of Appeals ruled that the tweak solved the problem of giving legislative powers to the authority. Today the Fifth Circuit agreed with that ruling but found another fatal problem. Even after the tweak, HISA still gives unlawful executive powers to the authority. HISA still violates the Constitution.

In September 2020, Jockey Club general counsel Marc Summers called the HBPA’s constitutional objections to HISA an “unfounded attack,” claiming that “HISA is carefully crafted and constitutionally sound” and “has been rigorously vetted” and concluding that “HISA is on solid footing.”

Today, Daniel Suhr, president of the Center for American Rights and HBPA lead counsel, responded, “This is a huge victory for horsemen and for the rule of law in this country. Our Constitution protects our freedom by ensuring regulatory power is exercised through transparent and accountable government agencies. The Constitution does not allow HISA to run a private police department that enforces federal law.”

Eric Hamelback, CEO of the National HBPA, concurred, “The courts have proven once again that HBPA was right in our fight to protect horsemen across the country and their constitutional rights. Last year’s tweak to HISA was nothing but a meaningless attempt to appease the industry. HISA has done nothing but impose exorbitant costs and headaches on horsemen and women with little to no benefit for the health of horses. It is time to recognize the reality that HISA is fundamentally broken and cannot be fixed. For the survival of our industry, we must move on to the Racehorse Health and Safety Act. Passing the RHSA will bring safety and integrity to the industry.”

Hamelback continued, “RHSA is the much better alternative to the unconstitutional HISA. RHSA works from the ground up and brings all horse-racing industry entities to the table. The goal to achieve uniformity must be initiated with a collaborative, veterinary science based, consensus-driven approach that sets horse racing up for success over the long term.”

The RHSA was introduced last year by Rep. Clay Higgins (Louisiana 3rd district), and it establishes an interstate compact that develops and enforces scientific medication control rules and racetrack safety rules, allowing only participating states to export simulcast signals for interstate, offsite betting.

Congressman Higgins stated, “This is a victory for horses, horsemen and for state sovereignty. Constitutional rights are worth fighting for. My RHSA legislation is far superior in every way to the current law. With the help of American horsemen who are actually devoted to the industry and the beautiful horses we love, I will lead the Congressional mission to repeal the unconstitutional law that is currently crippling the horse industry. HISA is going down, and RHSA is standing up.”

Hamelback concluded, “The RHSA will be far less costly for horsemen than HISA, because it will be utilizing resources already existing in the states. And it will be constitutional and representational, allowing everyone in the industry a voice in the rulemaking process.”

HISA CEO Lisa Lazarus’s media reaction Friday night:

We are disappointed with the court’s decision, particularly in light of the Sixth Circuit’s strong endorsement of HISA’s constitutionality. While the judicial review process continues, it is critical for all racing participants to know HISA is still the law of the land. Its rules are still fully in effect and will remain so for the foreseeable future. We continue to focus on our mission of protecting the safety and integrity of Thoroughbred racing.