Fifth Circuit Court of Appeals Finds HISA Unconstitutional

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HISA Chief Lisa Lazarus | Carly Storm photo

The United States Court of Appeals for the Fifth Circuit on Friday ruled that the Horseracing Integrity and Safety Act (HISA) is unconstitutional because it “delegates unsupervised government power to a private entity,” and thus “violates the private non-delegation doctrine.”

The Appeals Court order by a panel of three judges reverses a lower court's decision earlier this year that dismissed a constitutionality lawsuit initiated in 2021 by the National Horsemen's Benevolent and Protective Association (NHBPA).

The Nov. 18 order also remands the case back to U.S. District Court (Northern District of Texas) for “further proceedings consistent with” the Appeals Court's reversal.

The immediate ramifications of how this order will affect the day-to-day operations of HISA and its Authority are still unclear. TDN is in the process of obtaining further comment from stakeholders on both side of the issue, and this story will be updated.

On Mar. 15, 2021, the NHBPA and 12 of its affiliates (later joined by the state of Texas and its racing commission) sued the Federal Trade Commission (FTC), its commissioners, the HISA Authority, and its nominating committee members, bringing claims under the private-nondelegation doctrine, public nondelegation doctrine, Appointments Clause, and the Due Process Clause, seeking to permanently enjoin the defendants from implementing HISA and to enjoin the Nominating Committee members from appointing the Authority's board of directors.

“The plaintiffs argued HISA is facially unconstitutional because it delegates government power to a private entity without sufficient agency supervision,” the Appeals Court order stated. “The district court acknowledged that the plaintiffs' 'concerns are legitimate,' that HISA has 'unique features,' and that its structure 'pushes the boundaries of public-private collaboration. Nonetheless, the court rejected the private non-delegation challenge, concluding HISA stays within current constitutional limitations as defined by the Supreme Court and the Fifth Circuit.'

“We cannot agree,” the Appeals Court order stated. “While we admire the district court's meticulous opinion, we conclude that HISA is facially unconstitutional. A cardinal constitutional principle is that federal power can be wielded only by the federal government. Private entities may do so only if they are subordinate to an agency. But the Authority is not subordinate to the FTC. The reverse is true. The Authority, rather than the FTC, has been given final say over HISA's programs.”

The order continued: “While acknowledging the Authority's 'sweeping' power, the district court thought it was balanced by the FTC's 'equally' sweeping oversight. Not so. HISA restricts FTC review of the Authority's proposed rules. If those rules are 'consistent' with HISA's broad principles, the FTC must approve them. And even if it finds inconsistency, the FTC can only suggest changes.

“What's more, the FTC concedes it cannot review the Authority's policy choices. When the public has disagreed with those policies, the FTC has disclaimed any review and instead told the public to 'engag[e] with the Authority.' An agency does not have meaningful oversight if it does not write the rules, cannot change them, and cannot second-guess their substance. As the district court correctly put it: 'Only an Act of Congress could permanently amend any Authority rule or divest it of its powers. The FTC may never command the Authority to change its rules or divest it of its powers.'”

“The end result is that Congress has given a private entity the last word over what rules govern our nation's thoroughbred horseracing industry. The Constitution forbids that. For good reason, the Constitution vests federal power only in the three branches of the federal government. Congress defies this basic safeguard by vesting government power in a private entity not accountable to the people. That is what it has done in HISA,” the order stated.

“It is the duty of the National Horsemen's Benevolent and Protective Association to protect horsemen across the country and that is not a responsibility I take lightly,” said Eric Hamelback, CEO of the NHBPA. “From HISA's onset, we have thoroughly and fairly examined the HISA corporation's impact on our industry and its constitutionality. We operated in good faith and did our due diligence to appropriately weigh the pros and cons. We have been saying for years this law and the defined Authority itself are unconstitutional and we are pleased the court has unanimously sided with our position, an outcome many in our industry thought was impossible. Today's unanimous ruling clearly states the entity constructed under HISA is an unconstitutional body and should not hold governing power over our industry, a position we have long supported. On behalf of the NHBPA, I can assure you that we will be following this development closely and support the power reverting back into the hands of the State Racing Commissions. I will keep our members updated as more details come to the surface. We are very appreciative of the 5th Circuit Court of Appeals for the thorough analysis and opinion. We also thank the many industry stakeholders who supported us in our effort to ensure that horsemen are not subject to an unconstitutional law.”

“While HISA is disappointed by the Fifth Circuit's decision, we remain confident in HISA's constitutionality and will be seeking further review of this case,” said Charles Scheeler, Chair HISA Board of Director. “If today's ruling were to stand, it would not go into effect until January 10, 2023 at the earliest. We are focused on continuing our critical work to protect the safety and integrity of Thoroughbred racing, including the launch of HISA's Anti-Doping and Medication Control Program on January 1, 2023.”

At a different point in the order, the Appeals Court delved deeper into the issue of rulemaking.

“For instance, HISA broadly instructs the Authority to create a program that includes '[a] uniform set of training and safety standards and protocols consistent with the humane treatment of covered horses,' while leaving the policy details up to the Authority…. Keep in mind, moreover, that we are not considering here whether the 'considerations' provide a sufficiently intelligible principle to satisfy the public non-delegation doctrine. Instead, we are deciding whether the Authority is subordinate to the agency. And, on its face, HISA's generous grant of authority to the Authority to craft entire industry 'programs' strongly suggests it is the Authority, not the FTC, that is in the saddle…”

The order continued: “If the FTC cannot review the policy choices behind the rules, then logically the FTC cannot make the Authority modify those policies. That is again confirmed by HISA's plain terms. The modification power the Act gives the FTC is limited in two ways. It pertains only to whether a rule is 'consistent' with the Act and does not include review of the policies informing the rule…”

“The Authority's power outstrips any private delegation the Supreme Court or our court has allowed. We must therefore declare HISA facially unconstitutional. In doing so, we do not question Congress's judgment about problems in the horseracing industry. That political call falls outside our lane. Nor do we forget that '[t]he judicial power to declare a law unconstitutional should never be lightly invoked.' We only apply, as our duty demands, the settled constitutional principle that forbids private entities from exercising unchecked government power.”

The NHBPA lawsuit is separate from a similar HISA complaint over alleged constitutional issues brought by racing commissions and attorneys general in a number of opposing states. That case, too, was dismissed earlier this year but has a motion to dismiss pending.

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