New Lawsuit Aims to Halt HISA On Eve of Implementation

The states of Louisiana and West Virginia are at the forefront of a new federal lawsuit filed late Wednesday that seeks to block the Horseracing Integrity and Safety Act (HISA) from going into effect when the clock strikes midnight on Friday.

The defendants, who consist of the HISA Authority, the Federal Trade Commission (FTC), and board members and overseers of both entities, have allegedly violated the Fourth, Seventh and Tenth Amendments to the United States Constitution, plus the Administrative Procedure Act (APA), which governs the process by which federal agencies develop and issue regulations, according to a series of June 29 filings in U.S. District Court (Western District of Louisiana).

“The regulatory power that Congress purported to delegate to HISA is breathtaking in scope, covering virtually all aspects of horseracing,” the complaint states. “HISA claims power to adopt rules governing doping, medication control, and racetrack safety. It claims power to investigate violations of its rules by issuing and enforcing subpoenas. After investigating alleged violations, it claims to then be able to act as judge in its own cases and adjudicate alleged violations of its rules.

“If that's not enough, HISA claims power to bring civil actions in federal court in response to known or anticipated violations of its regulations. And for those it deems guilty of disobeying its commands, HISA claims disciplinary power to issue sanctions up to and including lifetime bans from horseracing, disgorgement of purses, and monetary fines and penalties.

“Since the scope of HISA's purported regulatory authority extends to virtually all activities related to horseracing, it's not surprising that HISA likewise claims authority to regulate nearly all persons associated with the horseracing industry. Specifically, HISA claims power to regulate trainers, owners, breeders, jockeys, racetracks, veterinarians [and] others licensed by a state racing commission, and agents of any of those persons.

“Despite purporting to exercise this breathtakingly broad federal regulatory power over all activities and persons related to horseracing, HISA is unaccountable to any political actor. No federal official can remove the members of HISA's Board of Directors. The Act thus delegates to a private body the full coercive power of the federal government while simultaneously insulating it completely from political accountability,” the complaint states.

The plaintiffs want “expedited consideration” from a federal judge to keep the first phase of HISA's “substantively and procedurally deficient rules” from going into effect July 1.

“Congress's efforts to federalize horseracing regulations through a private entity like HISA suffer from a host of constitutional problems,” the complaint states.

“Just this week, four U.S. Senators wrote to [HISA executives] to question whether the FTC is providing adequate oversight of HISA, whether Congress should extend HISA's statutory deadlines, and why HISA decided to delay implementation of some rules but not others,” the complaint states.

HISA has already gotten two lawsuits dismissed that alleged unconstitutionality, although an appeal is underway in one case and expected in the other. On Mar. 31, a federal judge in Texas threw out a complaint initiated one year ago by the National Horsemen's Benevolent and Protective Association (NHBPA). On June 3, a federal judge in Kentucky tossed a similar suit in which Louisiana and West Virginia were also plaintiffs, ruling that HISA's enforcement powers were indeed lawful.

This time around, the plaintiffs are the state of Louisiana, its racing commission, the Louisiana HBPA, the Louisiana Thoroughbred Breeders Association, the Jockeys' Guild, the state of West Virginia, its racing commission, and five individuals regulated as “covered persons” under the HISA Act.

Lisa Lazarus, the HISA chief executive whose name tops the list of individual defendants, did not respond to a Thursday morning query for comment prior to the breaking-news deadline for this story.

The plaintiffs want a federal court to provide declaratory judgments that assert 1) the FTC exceeded its statutory authority by approving each of the HISA rules; 2) the HISA rules are arbitrary and capricious under the APA; 3) HISA's enforcement rule violates the Fourth and Seventh Amendments, and 4) the HISA rules are procedurally invalid under the APA because the FTC failed to promulgate them through proper notice-and-comment rulemaking procedures.

The suit also asks for declaratory judgment and a permanent injunction finding the HISA rules invalid and setting them aside, plus a temporary restraining order and an injunction prohibiting HISA or the FTC from taking any actions based on the HISA rules currently in place.

HISA's funding is a key issue that comes under question in the lawsuit.

“A private, politically unaccountable entity with breathtaking regulatory power over an entire industry requires significant funding to carry out its work,” the complaint states. “HISA, however, is not funded by Congress. Instead, Congress forced the responsibility of funding HISA onto the States. The Act forces States to choose either to fund HISA with money from the State treasury (or racing commission) or-if a State refuses–HISA intends to assess fees to the racetracks, which will undoubtedly be passed on to participants in that State's racing industry…

“As things stand today, the FTC has finally approved only three sets of regulations from this private, unfunded, politically unaccountable entity known as HISA. Those three sets of final rules cover 1) racetrack safety, 2) HISA enforcement proceedings, and 3) HISA's methods for assessing and collecting funds. All three sets of final rules will wreak havoc on the racing industry within a matter of days. And all three sets must be preliminarily and permanently enjoined because they suffer from fatal flaws under the APA Act or contradict constitutional guarantees,” the complaint states.

The suit alleges that when a first batch of HISA rules got approved in March and April, the FTC provided only a 14-day public comment period, far shorter than the typical 30 or 60 days. The complaint purports that this is an “unlawful pattern,” and that the FTC “ignored commentators who identified that HISA's rules for assessing fees are contrary to law because HISA bases assessments on purse size and racing starts but the Act limits the assessment methodology solely to race starts, with no mention of purse size.”

With specific respect to Louisiana, the suit states that “it is unclear how HISA will collect monies from racetracks and covered persons because Louisiana law makes clear that the Louisiana State Racing Commission must ensure pari-mutuel wagering revenue is distributed in a particular manner-namely, that 'fifty percent of [specific proceeds] shall be distributed by such track licensee as purses' and the remaining fifty percent 'shall be distributed by such track licensee as purses.'”

The complaint states that its “most pressing” concerns have to do with an expected spate of scratches come Friday if  “covered persons” aren't properly registered with HISA.

“At recent meetings, Defendant Lazarus claimed that HISA will attempt to scratch horses associated with covered persons who refuse to register with HISA or otherwise seek to disqualify horses post-race associated with unregistered personnel,” the complaint states.

“If HISA is allowed to enforce this punitive system, it will strip jockeys, owners, trainers, and all individuals involved in the horseracing industry of their economic interests in race purses-which are not set by HISA-and call the integrity of the entire industry into question.”

As far as the Jockeys' Guild is concerned, the “one-size-fits-none crop rule” is a chief beef.

“This is a major change from Louisiana's incoming rule, for instance, which will likewise limit the use of the crop to six overhand strokes but permits the use of underhand strikes at different junctures in a race, which is critical to the integrity of the race and participant safety,” the complaint states.

“Indeed, the FTC and HISA chose not to consider problems with state-specific concerns that were raised during the comment period and instead arbitrarily issued a rule without addressing comments criticizing that rule,” the complaint states. “The FTC's failure to meaningfully respond to these comments on the crop rule makes the rule arbitrary and capricious.”

The Fourth Amendment allegedly comes into play because a HISA rule “subjects covered persons, including the Individual Plaintiffs, to searches and seizures by HISA without prior approval by a judge or magistrate. This constitutes a per se violation of the Fourth Amendment,” the complaint states.

The Seventh Amendment allegations refer to HISA's ability to seek civil penalties from covered persons. “HISA enforcement actions under these rules that successfully obtain civil penalties will deprive aggrieved parties of their property rights and economic interests without providing aggrieved parties the right to a jury trial. The Enforcement Rule thus violates the Seventh Amendment's guarantee of a jury trial,” the complaint states.

The Tenth Amendment, which stipulates that the federal government only has powers that are specifically delegated in the Constitution, isn't directly addressed in the complaint. But the plaintiffs allege a violation of it in their separate request for a restraining order and injunction.

Later Thursday, Doug Daniels DVM, National HPBA President and Chairman of the Board, said, “We agree integrity, safety and uniformity in horse racing are of great importance, but we also believe getting each of these addressed in a lawful and proper manner is of paramount importance. Horsemen and horsewomen from coast to coast as well as United States Senators Grassley, Manchin, Ernst and Kennedy are asking for this implementation to be delayed and thus far it has gone on deaf ears.

“Now it has become necessary to request this court decide if HISA is ready for its roll-out. The participants are clearly saying the answer is 'no'–the implementation and the regulations are not ready as they stand today. We applaud Louisiana Attorney General Jeff Landry and the other plaintiffs who are demanding answers for everyone in the industry.”

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Senators Send Letter to HISA, FTC About ‘Chaotic’ Implementation Process

Four U.S. senators, Chuck Grassley (R-IA), Joe Manchin (D-WV), Joni Ernst (R-IA) and John Kennedy (R-LA), sent a letter to the Federal Trade Commission and Horseracing Integrity and Safety Authority Monday asking for clarification and explanation about HISA's ability to meet its upcoming July 1 implementation deadlines for the Horseracing Integrity and Safety Act (HISA).

“The Authority publicly stated in a December 2021 press release that it will not implement the Anti-Doping and Medication Control program by the statutory deadline of July 1, 2022,” the letter said. “This deadline is statutorily required and neither the FTC nor the Authority have the authority to extend this deadline. The Authority's release also makes clear that the Authority has not submitted proposed Anti-Doping and Medication Control program regulations to the FTC in compliance with the statute. HISA required the Authority to issue the rule for Anti-Doping and Medication Control not later than 120 days before the program effective date of July 1, 2022. This deadline has passed, and it appears the Authority failed to meet the statutory requirements.”

The letter also raised questions about reports of the Authority delaying rules regarding riding crops and horseshoes, calling the implementation process 'chaotic' and as a result difficult to comply with for horsemen.

“Recent news reports also highlight that the Authority will postpone enforcement of newly approved rules regarding horseshoes and riding crop specifications, initially set to take effect on July 1, 2022 under the Racetrack Safety Program. This is also concerning because we understand the initial rules were functionally impossible for industry participants to implement due to limited supply chain availability of horseshoes and riding crops. This raises questions about what industry representatives were consulted in the drafting of the rule. And now, only one week before the rule was set to take effect, the Authority published a notice announcing a one month delay in enforcement of these rules. This chaotic implementation process and poor communication by the Authority makes it difficult for industry participants to comply with the new rules and regulations. Additionally, continuously changing implementation dates for new rules and regulations, and last-minute delays, cause more confusion and difficulty with implementation.”

The National HBPA applauded the letter Tuesday, saying in a statement, “Hardworking, day-to-day horsemen and horsewomen want safe and clean horse racing, and the Authority is failing in its duty to realize this goal. The Authority and HISA staff are populated with members who do not offer a true inclusive representation for the entire industry, and because of that we are seeing what lack of proper input from all participants causes. They are brazenly violating federal law by missing deadlines and staff are admitting in public forums that the FTC gave them permission to do so. We fully support Senator Grassley's efforts to find out why this is happening.”

TDN has reached out to both the FTC and HISA for comment.

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HISA CEO Lisa Lazarus Joins Writers’ Room

With the July 1 implementation date for the Horseracing Integrity and Safety Act rapidly approaching, there has been a feverish push to get tens of thousands of horsemen and horses registered in time as well as an education effort to get the industry's stakeholders up to speed on the Act's myriad rules and regulations. Tuesday, Lisa Lazarus, the CEO of the Horseracing Integrity and Safety Authority–the governing body tasked with implementing HISA–joined the TDN Writers' Room presented by Keeneland as the Green Group Guest of the Week to provide updates on the registration drive, the possibility of scratches of non-registered horses post-July 1, where HISA stands with its drug enforcement partnership and more.

“From my metrics, I feel like [registration] is going very well right now,” Lazarus said. “We have about 26,000 persons plus horses registered, and the trajectory of registrations is on a very steep incline. We're doing everything possible to answer questions and make sure people have the tools to get registered. We've heard some concerns from people that, if they register, they're giving up a lot of rights. They don't know what the drug and medication control program is going to look like. So we're going to be rolling out a feature that allows people to unregister very easily at any time, should they ultimately change their mind. But my view is that once we get going on July 1, everyone's going to realize that this program is actually supportive, that it's not going to be punitive.”

Asked about the drug enforcement section of the law, which is scheduled to go into effect Jan. 1, 2023, Lazarus said, “That's very close to getting up and running. In early May, we appointed the Center for Drug-Free Sport to be the enforcement agency, and they've created an entity called the Horseracing Integrity and Welfare Unit, which essentially has five pillars: testing, lab accreditation, education, science and prosecutions/investigations. We're working on equipping all of these pillars to be ready to go Jan. 1. We have some top people and experts in their field involved, and this is important–the anti-doping and medication control rules are posted on our website now for public comment. So if anybody wants to have their say or wants to be heard on any particular issue, please make sure to comment before the end of the month.”

The conversation turned to the Texas Racing Commission, which has said it will stop the interstate importing and exporting of simulcast signals in order to avoid the umbrella of HISA's regulation.

“As you might have read, I went down to Texas to meet with the Texas Racing Commission and their executive director, Amy Cook, as did my general counsel, John Roach. We tried really hard to find a solution. Ultimately, Texas's view is that, given the way their racing commission's regulations are written and structured, they don't have the authority to allow another regulator to come in and regulate any portion of horse racing. Obviously, we believe that's not consistent with the federal law and what Congress ordered. In Texas right now, the only [Thoroughbred] track running is Lone Star and they only run until July 23. So it's really 22 days that's at issue, and I had really hoped we could reach a resolution, however we'll then have from the end of July to Jan. 1 to try to find a way forward with Texas.”

Elsewhere on the show, which is also sponsored by Coolmore, Lane's End, the Kentucky Thoroughbred Owners and Breeders, XBTV, West Point Thoroughbreds and Legacy Bloodstock, the writers reacted to an eventful week at Royal Ascot for American connections, lauded Santa Anita for its continued improvements in safety and previewed the career debut of the show's filly namesake. Click here to watch the show; click here for the audio-only version or find it on Apple Podcasts or Spotify.

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Attorney Frank Becker on Texas, HISA Standoff

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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