Frank Becker | Horse Racing Free Tips

By Bill Finley & Dan Ross

The bombshell decision Friday out of the United States Court of Appeals for the Fifth Circuit that ruled that the Horse Racing Integrity and Safety Act (HISA) was unconstitutional has opened up a pandora's box of problems and had legal experts scrambling to make sense of the opinion and figure out what is the best path forward for HISA after a resounding setback in court.

“We have a chaotic situation right now,” said attorney Alan Foreman, an expert in equine law and the Chairman/CEO of the Thoroughbred Horsemen's Association. “That's probably the easiest way to describe it. HISA is still in effect, the anti-doping program is anticipated to go into effect on Jan. 1 and now we have a court ruling that declares HISA unconstitutional. And there are still legal maneuvers that can take place. It would have happened regardless of who prevailed at this level because it is clear that the HBPA, its affiliates and those who joined in the lawsuit would have taken it further if there was an adverse ruling. Now it is HISA that has to take it to the next step.”

According to Frank Becker, a private Kentucky-based attorney, the next step for HISA will be to either petition the Supreme Court to take the case or to seek an “en banc” hearing before the Fifth Circuit. Friday's ruling was handed down by a panel of judges, while an en banc hearing would require the case to be heard by the full circuit court.

The Supreme Court hears oral arguments in fewer than 100 cases a year, but Becker thought the court might take this case.

“They might take this one because it's so unusual,” he said.

Foreman agreed.

“When you have different circuits issuing different rulings as has been the case with this those cases often ultimately end up in the Supreme Court,” he said. “I think this case will ultimately wind up with the Supreme Court and a lot of people feel that way. I think they will take the case. It's got to get there first and there has to be a reason for them to take the case, but what has happened so far has set the stage for them to take it.”

Attorney Bennett Liebman, a Government Lawyer in Residence at Albany Law School, said it was a tossup as to whether or not the Supreme Court would take the case, but said that if it does there are far from any guarantees that the court will rule in favor of HISA.

“This has never been a case from the HISA standpoint that you want to end up in the Supreme Court because the court is obviously very conservative and you just don't know how they are going to rule on this,” he said.

In the meantime, Foreman said, HISA will have to get a stay. Otherwise, it will have to disband on Jan. 10 when Friday's ruling goes into effect.

“Unless there is a stay HISA has to stop in its tracks,” Foreman said.

Foreman said he didn't see a problem getting a stay. Becker disagreed and said he is skeptical HISA will succeed in getting a stay on the ruling in the interim.

Liebman added that there is another way for HISA to prevail. The Fifth Circuit ruling was based on its findings that HISA is ultimately in charge and not the Federal Trade Commission (FTC). “But the Authority is not subordinate to the FTC,” the ruling read. “The reverse is true. The Authority, rather than the FTC, has been given final say over HISA's programs.”

Liebman suggested that HISA could go back to drawing board and ask Congress to rewrite the legislation so that the FTC is clearly put in charge.

“The obvious solution is to try to get Congress to remedy what the Fifth Circuit thought was the problem, that the FTC does not have enough power,” Liebman said. “You could make sure that the FTC had significant power over the rules of the Authority. They could in effect make the rules. They could take recommendations from Authority, but still but make the rules. That is the way to go, but can we achieve that? The way the government works these days, I don't know.”

Becker didn't see that happening.

“Have you seen Congress at work lately?” he said. “Congress is going to be in chaos for the next year or so.”

All three attorneys agreed that the plaintiffs picked the right court when deciding to take their case to the Fifth Circuit.

“It's the Fifth Circuit, which is an extremely conservative circuit, even more conservative as a general rule than the Supreme Court,” Liebman said. “In that sense, this decision is not surprising coming out of the Fifth Circuit. The judge (Circuit Judge Stuart Kyle Duncan) who wrote the decision is ultra conservative.”

Said Foreman: “The experts thought it was constitutional and now it has been declared unconstitutional. I suspect that has something to do with the Supreme Court and this whole focus on the federal government versus states rights. The one circuit that would have reversed the decision and declared it unconstitutional is this circuit. That's why they went there. They were the ones most likely to declare it unconstitutional. The plaintiffs brought this case to the Fifth Circuit for a reason. They know this partuclar court has been very, very anti-government and very anti-regulation.”

In the days and weeks ahead, the industry will no doubt hear more from HISA and its plan of attack. But Friday was not a good day for the Authority. Can it survive and what will it take to do so? Amid the chaos, that appears to be anyone's guess.

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The simmering stand-off between the Texas Racing Commission and the powers behind the Horseracing Integrity and Safety Act (HISA) bubbled higher Monday, when the commission's executive director issued a letter warning Texas will prohibit the import and export of pari-mutuel simulcast signals at its racetracks if the Act goes into effect on July 1 with jurisdictional authority over the state's Thoroughbred racing operations.

In the letter, Amy Cook, the Texas Racing Commission's executive director, invokes various statutes in the Interstate Horseracing Act, the Texas Racing Act and the Texas Rules of Racing to substantiate this approach.

“Since the Texas Racing Commission regulates all aspects of Texas horse racing, including, in particular, pari-mutuel and simulcast wagering in Texas, the application of federal law pursuant to HISA in any aspect of horse racing regulation for a particular race or meet will necessarily preclude the Texas Racing Commission from full compliance with the Texas Racing Act and will, therefore, necessitate that no such affected race shall be allowed to conduct on-site pari-mutuel wagering or provide simulcast export signal,” Cook writes.

“Any such request will, of necessity, be denied by the Texas Racing Commission,” Cook adds.

In an article for horseracing.net, Cook is quoted as explaining how Texan tracks will, pending race-date approval by the commission, be permitted to run after July 1, but that imported and exported wagering signals will not cross the state line. In other words, “Texans supporting Texans,” Cook is quoted as saying.

To discuss some of the legal implications of Texas' approach, TDN spoke with Frank Becker, a noted equine lawyer and former adjunct professor at the University of Kentucky College of Law.

The following is a mix of written answers and a recorded conversation, slightly edited for brevity and clarity.

TDN: As I understood, the federal HISA supersedes state law. Am I wrong in thinking that?

Becker: No.

TDN: And so, this includes Texas?

B: HISA goes so far as to state it preempts inconsistent state law. Texas obviously has its haunches up by the federal government's intrusion into what it considers state business.

TDN: Cook is reported as saying that when it comes to pari-mutuel betting, only in-state wagering will be allowed come July 1. She also states that under the Texas Racing Act, no pari-mutuel wagering on live or simulcast races is permitted on races the state commission does not supervise. What are your thoughts about the arguments and the approach? Are they legal?

B: The federal government's authority is limited by the United States Constitution. Typically, the federal government justifies its constitutional authority for pervasive regulation on the 'commerce clause' of the constitution. The 'commerce clause' provides that the federal government has jurisdiction over 'interstate commerce.'

HISA's purported jurisdictional authority is based on the commerce clause. Thus, it relies on 'interstate commerce' as its justification. HISA attempts to codify the authority in the definitions of 'covered horse,' 'covered persons' and 'covered horserace.'

Texas appears to be attempting to be excluded from the definition of 'covered horserace.' That definition is: “The term 'covered horserace' means any horserace involving covered horses that has a substantial relation to interstate commerce, including any Thoroughbred horserace that is the subject of interstate off-track or advance deposit wagers.”

Although Texas attempts to avoid its races being covered horseraces by eliminating 'interstate off-track or advance deposit wagers,' that may not fully solve the problem because a Texas track might be considered to be otherwise having a 'substantial relation to interstate commerce.'

The federal government often takes a very expansive view of what constitutes 'interstate commerce,' and might argue that many other aspects of horseracing involve 'interstate commerce' such as the presence of horses, participants, and even equipment from other states.

It will be up to a federal court to ultimately determine this issue, although some courts have recently taken a dim view of regulatory overreach attempted to be justified by an expansive view of 'interstate commerce.'

TDN: Let's take the hypothetical scenario that Texas takes this approach on July 1. What you're saying is, if trainers, owners and jockeys and such who are registered with HISA, and compete in states under the supervision of HISA, if they also try to compete in Texas, that potentially could yolk Texas to the Interstate Horseracing Act?

B: Even if Texas succeeds in avoiding HISA for horseracing conducted in Texas, are horses and participants nevertheless subject to HISA, even with regard to activities in Texas? We look to HISA's definition of 'covered horse' and 'covered person.'

A 'covered horse' is any Thoroughbred from the time it begins a workout at 'a racetrack that participates in covered horseraces or at a training facility' and ends 'when the horse has been retired.'

The federal government might take the position that any Thoroughbred horse that has ever done a workout at any track outside of Texas, or any training facility anywhere, remains subject to HISA even while in Texas.

And because the definition of 'covered persons' is very expansive and applies to those dealing with 'covered horses,' the federal government might take the position that all racing professionals and owners are subject to HISA, even while racing in Texas, if the horse involved ever worked out outside the state of Texas.

If the federal government takes this approach, it appears that the only way to avoid HISA is for horses and participants to conduct activities exclusively in Texas.

Thus, Texas' effort to avoid HISA may end up excluding horses, trainers, owners, and other participants from being involved in racing in Texas, unless they confine all of their activities to Texas.

TDN: I know you're not a self-professed expert in the economics of the industry, but just on a common sense reading of the threatened scenario, how impactful could this be to the industry there? Is Texas shooting itself in the foot?

B: It could have a dramatic negative impact on Texas horse racing. It's hard to imagine it wouldn't.

I don't think it takes an economics expert to say, 'gosh, eliminating simulcasting is one thing, but if Texas has to keep out participants from other states, that's going to have an extremely deleterious effect.'

TDN: So, what do you think is driving this?

B: Do you want me to answer this?

TDN: Sure.

B: It doesn't appear to be difficulty in complying with the regulations. It appears to be somewhat philosophical. Texas has, traditionally, been averse to federal regulatory overreach into what it considers state business.

TDN: What do you think about the other argument Texas is making, that they're doing this to slow down HISA's implementation so as to better manage some of the problems that have arisen, and are expected to still arise?

B: It seems to me that the slowing down may be their main goal here. It's hard to say. I mean, [if so], it's a pretty drastic action to get them to slow down.

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