Tag: Sixth Circuit

Sixth Circuit Parties Argue Whether New HISA Law Renders Anti-Constitutionality Claims Moot

Parties on both sides of a Sixth Circuit United States Court of Appeals case that seeks to reverse a lower court's decision to dismiss a constitutional challenge of the Horseracing Integrity and Safety Act (HISA) argued via written briefs Thursday as to whether or not a pro-HISA law passed at the tail end of 2022 renders as “moot” any constitutionality claims in the under-appeal lawsuit.

The Jan. 12 briefs were filed in accordance with a Dec. 30 request from the Sixth Circuit to explain how the Dec. 29 signage of the new law (which amended the operative language of HISA) might affect the oral arguments both sides had made in the Sixth Circuit case Dec. 7.

Not surprisingly, the plaintiffs appealing the lower court's ruling–led by the states of West Virginia, Oklahoma and Louisiana–told the court that the anti-constitutionality claims are still relevant.

The defendants–primarily the HISA Authority and the Federal Trade Commission (FTC)–informed the panel of judges that the new law has smoothed over any alleged constitutional issues and paves the way for HISA to move forward.

“The recent amendment to HISA addresses only one of these many constitutional problems,” stated a joint brief filed by all of the plaintiffs, which also include the Oklahoma and West Virginia racing commissions, three Oklahoma tracks, the Oklahoma Quarter Horse Association, the U.S. Trotting Association, and Hanover Shoe Farms, a Pennsylvania Standardbred breeding entity.

“All of HISA's other constitutional defects, however, remain unremedied,” the plaintiffs contended.

The HISA Authority defendants saw it differently, writing that, “Congress's response obviates the principal basis for Plaintiffs' private nondelegation claim in this case, which is predicated on a prior version of HISA that no longer exists.”

In a separate brief, the FTC defendants put it this way: “Congress's recent amendment eliminates any doubt that the private Horseracing Authority 'function[s] subordinately' to the [FTC] in satisfaction of the private-nondelegation doctrine….Congress's grant of general-rulemaking authority to the [FTC] resolves the 'core constitutional defect' plaintiffs purported to identify in support of their private-nondelegation claim….”

The underlying case that the plaintiffs are trying to get overturned via appeal dates to Apr. 26, 2021, when they alleged in a federal lawsuit that “HISA gives a private corporation broad regulatory authority.”

On June 2, 2022, that claim was dismissed by a judge in U.S. District Court, Eastern District of Kentucky (Lexington) for failure to state a claim of action. The plaintiffs then appealed to the Sixth Circuit.

While that Sixth Circuit appeal was pending, the Fifth Circuit came out with its own decision in a similar case against HISA that was led by the National Horsemen's Benevolent and Protective Association (HBPA).

That Nov. 18 Fifth Circuit ruling stated that HISA is unconstitutional because it “delegates unsupervised government power to a private entity,” and thus “violates the private non-delegation doctrine.” The order remanded the case back to U.S. District Court (Northern District of Texas) for “further proceedings consistent with” the Appeals Court's reversal.

But in the interim after the Fifth Circuit ruled and the Sixth Circuit heard oral arguments, Congress in late December amended the operative language of HISA to fix the alleged constitutional defect the panel had identified, and President Biden signed the measure into law as a tiny part of a vastly larger year-end spending bill.

An expected Jan. 10, 2023, mandate issuance date for the Fifth Circuit to enforce its order, has come and gone without any directive from that court that seeks to enforce its anti-constitutionality ruling against HISA. So now the next major court decision on HISA's constitutionality is expected to come when Sixth Circuit issues its order.

The plaintiffs cited specifics about why they believed the new law doesn't alter HISA's alleged unconstitutionality.

“In particular, the FTC still lacks front-end ability to veto the Authority's proposals for policy reasons, a crucial power that the Securities and Exchange Commission (SEC) enjoys when reviewing proposed rules of the self-regulatory organizations that it supervises…” the brief stated.

“The amendment also continues to permit the Authority to exercise numerous executive powers without any supervision or control by the FTC,” the plaintiffs continued. “The Authority continues to have unfettered discretion to bring enforcement actions in federal court and expand HISA's regulatory scope to include any non-Thoroughbred horse breed.

“Finally, and crucially, the amendment does nothing to cure HISA's anticommandeering violation. HISA still pushes the costs of administering HISA onto the States by requiring them to fund the Authority's operations or lose the ability to collect fees for matters that the Authority isn't even regulating.”

The FTC brief also made a comparison between HISA and the SEC, but in a different light.

Because of the new law, the FTC brief stated, “the [FTC's] oversight power is 'now also materially identical' to that of the SEC, a statutory scheme that 'has been upheld against constitutional challenge on many occasions.'”

At a different point, the FTC wrote, “It is unclear whether plaintiffs will continue to press secondary arguments in support of their private-nondelegation doctrine claim. The government has explained either why those arguments fail on the merits, why plaintiffs lack…standing to press them, or both. If plaintiffs continue to urge their arguments despite Congress's amendment to the statute, the Court should reject them…”

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Conservative Judges in Sixth Circuit Appeals Court “Does Not Bode Well” for HISA

The conservative bent of two of the three judges on the U.S. Court of Appeals for the Sixth Circuit scheduled to hear another case about the constitutionality of the Horseracing Integrity and Safety Act (HISA) “does not bode well” for the near-term future of the act, said appellate law expert Lucinda Finley.

Oral arguments are set for Dec. 7 in the Sixth Circuit Court of Appeals for an appeal of an earlier ruling in U.S. District Court for the Eastern District of Kentucky.

That district court found that HISA was indeed constitutional, and that the Federal Trade Commission (FTC)—the governmental agency charged with ultimately signing off on the law's rules—wields adequate authority over the private entity charged with implementing the law.

If the Sixth Circuit reverses that district court ruling, it would mirror a decision delivered in the United States Court of Appeals for the Fifth Circuit last week, which ruled HISA unconstitutional because it cedes too much governmental authority to a private entity, and too little rule-making input to the FTC.

An overview of the various legal implications from the Fifth Circuit ruling can be read here.

The three-person panel hearing the case in the Sixth Circuit includes in judges Jeffrey Sutton and Richard Griffin “two of the most conservative judges” on the entire circuit court, said Finley—individuals who could perhaps be expected to take a more “skeptical” attitude towards the constitutionality of the law in its current form, she added.

More pointedly, Chief Judge Sutton is an expert on state constitutions, explained Finley. “Given his strong commitment to letting states handle matters themselves, I would not expect him to come at this new federal regulatory scheme openly sympathetic.”

Judge Ransey Guy Cole, the third judge on the panel, is an appointee from the Clinton administration considered moderate to liberal, explained Finley, and could therefore prove more amenable to the arguments from HISA's attorneys.

“This 2-1 slant of extremely conservative judges—and the conservative position these days seems to be against broad federal regulatory schemes—does not bode well for the fate of HISA before the Sixth Circuit,” said Finley.

Finley explained that it was difficult to prognosticate when a ruling on the case—which was brought by various entities such as the States of Oklahoma, West Virginia, and those states' racing commissions—will be issued.

If the panel of judges fails to rule unanimously, “that always takes longer for the decision to come out,” warned Finley.

That said, “The lawyers might say, as part of their oral argument, that this has caused great uncertainty and tumult, and it would be good to have a decision as soon as possible,” said Finley. “But it also depends on something none of us can know, which is for each of the judges on this particular panel, what other cases in the pipeline are they still working on?”

The messy regulatory roadmap for the start of next year, when HISA's Anti-Doping and Medication Control program is scheduled to go into effect, is already looking fraught with potential hazards, especially for trainers and other industry stakeholders with operations in multiple states.

If HISA fails to get a stay granted on the Fifth Circuit decision—something several legal eagles think is a likely scenario—then the ruling goes into effect on Jan. 10, and will apply to those states under the circuit court's decision, namely Texas, Louisiana and Mississippi, said Finley.

Since Friday's Fifth Circuit decision came out, the same circuit court has also lifted an “administrative stay” on a HISA-related ruling allowing an injunction against the plaintiffs to go into effect. As Finley explains, the injunction essentially prevents HISA from “enforcing its rules” in Louisiana and West Virginia.

Other states beyond the Fifth and Sixth Circuits, therefore, must weigh the decision whether or not to continue abiding by HISA's rules against a backdrop of legal uncertainty surrounding the law's constitutionality.

On Monday, Ed Martin, president of the Association of Racing Commissioners International (ARCI) said that some states, like California, will honor a written agreement they have executed with HISA to enforce its racetrack safety rules.

“Other States, upon the advice of counsel or Attorney General, will revert to state rules that remain on the books, not wanting to jeopardize the outcome of a court challenge to any enforcement action,” Martin added.

A reversal in the Sixth Circuit of the earlier district court decision would only muddy the waters even more. At the same time, said Finley, consistent rulings between the Fifth and Sixth Circuits would make it “significantly less likely” the Supreme Court would eventually take up the case—what is one of the potential legal options open to HISA.

“But I think if the Sixth Circuit disagrees with the Fifth Circuit, then I think it makes it significantly more likely that the Supreme Court takes the case,” said Finley.

The TDN repeatedly pressed HISA for comment on a series of questions about the pathway forward. HISA responded with a statement by Charles Scheeler, chair of HISA's board of directors, which was first issued last week:

“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. 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.”

Finley also emphasized a previously made comment—that arguably the “most successful” route for HISA to legally undergird the act could be to seek a congressional re-write of the rules to cede greater rule-making authority to the FTC.

When asked if greater FTC oversight of the rule-making process would satisfy the Horsemen's Benevolent and Protective Association (HBPA)—the national organization that has spearheaded the legal push against HISA—the organization's general counsel, Peter Ecabert, demurred, citing other problems with the act as written, such as a lack of transparency in meetings unavailable to the public and in the budgetary process.

“One of the things that Congress could do that would be a blessing for the industry would be to fund this,” Ecabert said.

“We all want uniformity,” he added. “But do this in the brightness of the light and not behind closed doors.”

Far from uniformity, however, come the start of 2023 the regulatory playing field could be as fractured, puzzling and complicated as it has ever been for industry participants.

When asked what he would tell the likes of Steve Asmussen and Todd Pletcher—trainers with large sprawling multi-state barns—about operating in this highly confusing environment, Ecabert recommended reaching out to individual state racing commissions.

“Hopefully the racing commissions will give some guidance, or the attorney general for the jurisdiction will say how they're going to treat HISA,” Ecabert said. “It's now a state-specific issue until HISA's ruled to be unconstitutional and unenforceable nationwide.”

Ecabert also pointed to legislation introduced into the U.S. House of Representatives in October of last year seeking to delay the full implementation of HISA until the start of 2024.

HBPA CEO, Eric Hamelback, wrote in a text that the bill currently only has 3 co-sponsors, but that there has been verbal support for the bill among other congressional members, and he expects support to build for it in after Friday's Fifth Circuit decision.

Another plan still in its infancy, Ecabert added, is to introduce into congress a separate and national “medication compact” similar in its framing to the now defunct National Uniform Medication Program (NUMP), but which would mandate “uniformity among the states.”

NUMP ultimately failed, Ecabert conceded. “But we're in a different atmosphere today than we were years ago,” he added. “People now, trainers and owners, have seen how disruptive HISA has been and they're more likely to jump on board.”

 

 

 

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Q and A With Constitutional Law Expert Lucinda Finley

The latest tumultuous turn in the unfolding saga of the Horseracing Integrity and Safety Act (HISA) was delivered in the United States Court of Appeals for the Fifth Circuit Friday, when the court ruled the law unconstitutional because it cedes too much governmental authority to a private entity, and too little rule-making input to the Federal Trade Commission (FTC), which is charged with ultimately signing off on the law's rules.

In the immediate aftermath of the decision, three legal experts weighed in for the TDN on the legal avenues open to HISA, besides asking for a stay on the ruling. They include seeking an “en banc” hearing before the full Fifth Circuit panel of judges, possibly taking the case to the U.S. Supreme Court, or a Congressional re-write of the rules to afford the FTC greater input in the rule-making process.

Another important date for HISA's near-term future looms on Dec. 7, when a case that raises similar constitutional questions of the law is scheduled to be argued in the U.S. Court of Appeals for the Sixth Circuit.

To discuss these issues more closely, the TDN spoke with Lucinda Finley, Frank Raichle Professor of Trial and Appellate Advocacy, and director of Appellate Advocacy at the University of Buffalo Law School. In her work as a litigator and appellate advocate in federal courts, Finley frequently testifies before the U.S. Congress and state legislative committees. She has also argued cases before the U.S. Supreme Court.

Intriguingly, Finley–sister of TDN writer Bill Finley–believes Friday's ruling is legally binding only in the three states under the Fifth Circuit's jurisdiction.

Finley's interpretation mirrors that of Bennett Liebman, a legal scholar routinely cited in the TDN, but runs counter to what has been to date the overarching response to the ruling, which has been to regard it as nationally applicable.

 

TDN: Were you surprised by the Fifth Circuit decision?

Finley: No, I wasn't for several reasons. First, the Fifth Circuit is probably the most conservative group of circuit court judges in the country. The conservative judges that have been appointed in the last few years are known to be hostile to broad regulatory schemes.

Second, I wasn't surprised because I think it's actually a very close legal question–whether the HISA statute gives too much rule-making authority to the private entity.

On the law, I think the ruling makes many important points that perhaps the HISA statute went too far in giving too much authority to the private entity and not enough regulatory authority to the FTC.

 

TDN: Does the Fifth Circuit ruling apply nationally, or just to the states under their jurisdictional umbrella, i.e., Louisiana, Texas, and…?

 Finley: …Mississippi.

It has binding legal effect only in those three states. However, it will have important precedential impact on courts in other states, including the Sixth Circuit U.S. Court of Appeals that is considering a case raising the identical constitutional issues.

 

TDN: Yes, how does that case in the Sixth Circuit affect things?

Finley: We don't know until the Sixth Circuit rules. If the Sixth Circuit were to disagree with the Fifth Circuit and conclude that HISA is constitutional, we will have two different federal courts saying the exact opposite about the constitutionality of a federal statute.

In that event, the U.S. Supreme Court would be very likely to agree to hear the case and come up with one uniform national ruling on whether or not HISA is constitutional.

 

TDN: What would happen if they ruled in unison?

 Finley: The same way as the Fifth Circuit? That might make it less likely that the U.S. Supreme Court would agree to hear the case.

[The Supreme Court] is most likely to take a case when there are conflicting decisions in different U.S. Courts of Appeals because they realize you really can't have the federal law be completely different in some regions of the country compared to others. If the U.S. Courts of Appeals are in agreement, the Supreme Court sees that there is no uncertainty about the federal law that they need to resolve.

 

TDN: In Friday's TDN, various legal experts discussed two main legal routes available to HISA, including to seek an “en banc” hearing before the full Fifth Circuit Court, or to take the case to the Supreme Court. Which do you think is the likeliest scenario?

Finley: I think that, first, the HISA lawyers are likely to ask the Fifth Circuit panel of judges, the three that decided the case, to stay the effective date of their decision to give them time to pursue further appeals. I think it is unlikely that the panel of Fifth Circuit judges will grant a stay. They were very, very strong in their conclusion that HISA is unconstitutional.

In that event, the HISA lawyers could ask the U.S. Supreme Court to stay or suspend the effective date of the Fifth Circuit decision to give them time to take an appeal to the U.S. Supreme Court. Whether the Supreme Court would grant that stay is, I think, something nobody can predict. Nobody has a crystal ball in that one.

It is certainly a worthwhile and likely step for the HISA lawyers to seek first in the Fifth Circuit itself and then in the US Supreme Court a stay of the effective date of the decision, just to give more time for appeals.

Then they could seek what's known as an “en banc” review where they ask all of the judges of the Fifth Circuit to consider the case. I think that's a real long shot that the judges would agree to. I think it would just delay the timing of trying to get to the U.S. Supreme Court.

However, an advantage of seeking the “en banc” review is, if it is granted, that suspends the effective date of the panel decision. When the entire court, sitting what we call en banc, agrees to rehear a case, it has the effect of wiping out the panel decision. If the Fifth Circuit were to grant that request for en banc review, it would mean that HISA was back in business, at least until the entire Fifth Circuit ruled.

The next step after that would be to take it to the U.S. Supreme Court and ask them to agree to hear the case.

 

TDN: Let's step back a step. As you stated earlier, the Fifth Circuit ruling applies only to those states within its jurisdiction. Why have quite a lot of other people considered it nationally applicable?

Finley: I don't know why somebody would think that. There was no injunction in this Fifth Circuit decision, meaning they haven't issued an order stopping anyone from doing anything. There's nothing in the order itself that says it has national effect.

The traditional rule is that a U.S. Court of Appeals decision only is binding in that circuit, otherwise, there wouldn't be 11 different Federal Circuit Appeals Courts if the ruling of one would affect the whole country. You would basically just have one huge U.S. Court of Appeals that made decisions for the whole country. That's not the structure of our Court of Appeals federal system.

As I said earlier, it certainly has a powerful precedential effect. I think it means that it would be very unwise for HISA to continue with its regulatory program in other states because of the risk of constantly being sued. Everyone will cite the Fifth Circuit decision. [But] saying that it might have persuasive impact on judges in other parts of the country is different from saying that it is automatically legally binding on judges in other parts of the country.

For example, to show you why it's not binding in the whole country, as we noted, the U.S. Court of Appeals for the Sixth Circuit is about to hear a case raising the same issues. The Sixth Circuit is free to disagree with the Fifth Circuit.

 

TDN: What way does the Sixth Circuit Court lean?

Finley: They are a more mixed court. They have a more equal number of judges appointed by Democratic presidents and Republican presidents. I think, in the Sixth Circuit, it's really going to depend on which three judges are assigned to hear the appeal.

 

TDN: Do you see HISA as being in some kind of legal jeopardy nationwide, moving forward, if they continue to issue rulings?

Finley: Yes, I do. With the Fifth Circuit having said they think the entire statute is unconstitutional, anyone who gets an investigation or ruling from HISA would most likely file a lawsuit asking the court to issue an injunction against HISA, investigating them or nullifying the ruling, making the exact same argument that all their rules are unconstitutional, and citing to the Fifth Circuit decisions.

 

TDN: Does this also apply retroactively to all rulings that they've issued since July 1?

 Finley: Court decisions usually do not apply retroactively. [But] people still have the right to appeal the decisions that have been made against them, and to challenge them in court. They can, now, raise the argument that the whole statute is unconstitutional, and as I said, ask the judge to agree with the Fifth Circuit.

As the Fifth Circuit itself said, in its ruling, “Without the constitutional right to even make the rules, HISA's enforcement and investigative powers are null and void.” So, I would think anyone who is a subject of a HISA investigation, or ruling against them, will now go to court and make the argument that they can't enforce their rules because their rules are unconstitutional.

 

TDN: So, from everything that you've laid out, if no stays are issued on the Fifth Circuit ruling and it goes into effect on Jan. 10, and the Sixth Circuit makes some kind of ruling that mirrors the Fifth Circuit ruling, theoretically, you could see a potential scenario whereby HISA is nullified in those jurisdictions—the states that fall under the Fifth and Sixth Circuits—but is in effect in states beyond that?

Finley: Potentially. I expect that the legally prudent thing for HISA to do right now is to suspend their investigations and enforcement of their rules until the constitutionality of the statute is sorted out, perhaps in the Supreme Court, or until they convince Congress to amend the statute to fix the problems that the Fifth Circuit found.

 

TDN: Do you think that's the easiest route, a congressional rewrite of the rules?

Finley: Easy? None of the routes are easy. But, I think it is the route that is likely to have the most success in saving the goal of national rules for racing.

The reason I think that is because there's a very strong chance that if the Supreme Court did take the case, they would agree with the Fifth Circuit and say that HISA is unconstitutional because it gives too much governmental rule making authority to the private body. Congress could easily fix that by giving the FTC more authority to change, add to, delete, or reject the proposed rules that HISA develops.

Since HISA itself had such strong bipartisan support, and two of its biggest champions in the House and the Senate are Republicans from Kentucky who understand that preserving the public perception that horse racing is kind to horses and has integrity is essential to preserving the entire breeding and racing industry. I think there's a chance that, fairly quickly, Congress may want to fix the problems in the statute. It's not the kind of issue that's going to get caught up in partisan politics.

 

TDN: You think there's the political will right now to do this?

Finley: What will it take to of reignite the fire in Congress? Just one more fatal breakdown of a horse that maybe should have been on the vet's list, but it was in a lax state. One more drug scandal. That's all it's going to take for Congress to say, “Maybe we better go back to the drawing board and save this national structure.”

What do you think are the odds in horse racing that over the next few months there'll be one more fatal breakdown of a horse that probably should have been on the vet's list, or one more drug scandal?

 

TDN: What are some of the broader implications if the case does eventually end up at the Supreme Court, with its current make up?

Finley: This current court has signaled that there are at least four, perhaps five, justices who would like to curtail the power of regulatory agencies, broadly. This case could present a vehicle for them to do that, to cut back not only on the ability of agencies to use private bodies that have expertise to help them develop their rules, but potentially to cut back on the rule making authority of regulatory agencies, in general.

Potentially, even if the court were to simply cut back on the ability of regulatory agencies to use the expertise of private advisory bodies, that would have major implications because many regulatory agencies do call on expert advisory bodies to develop their rules and policies, including the Securities and Exchange Commission.

The [Food and Drug Administration] convenes expert panels of scientists to assess the safety, or risks, of various drugs. The Medicare and Medicaid agencies often, in some states, look to experts from the health insurance industry to help them determine reimbursement rates and policies.

There are all kinds of examples throughout our entire regulatory system where agencies rely on private expertise. If the Supreme Court takes the case, it would really be about much more than just HISA.

 

TDN: Who would've thought that horse racing would be positioned in this way.

Finley: That's a very interesting observation.

It could become the vehicle for altering a lot of our current federal regulatory law, but in particular, the branch of it involved in this case, which is a somewhat obscure but important doctrine known as the Private Delegation Doctrine. In other words, “When can a federal governmental agency delegate some of its ability to make rules to a private, i.e., non-governmental, entity?”

As I said, it would have implications in securities exchanges, in pharmaceutical product regulation, in financial regulation, in healthcare regulations.

 

TDN: Where does all this lead for HISA?

Finley: It may turn out to be a pyrrhic victory [for the plaintiffs]. If your whole argument as to why HISA is unconstitutional is that it doesn't give the FTC bureaucrats enough authority to set your rules, guess what's going to happen? FTC bureaucrats will now have the authority to set your rules instead of people that are much more receptive to your concerns.

   [Industry stakeholders] get a lot more input and flexibility in making adjustments from HISA–as we've already seen–than they will from some federal bureaucrats at the FTC in Washington who will say, `Oh, you don't like our rules? Go sue.' And the case will take five years. I don't think the FTC would be nearly as open and receptive to being so flexible with stakeholder concerns.

So, be careful what you wish for.

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