CDI and NYRA Tag-Team in Federal Lawsuit, Alleging HISA'S Purse-Based Assessments Are 'Illegal'

On the eve that Churchill Downs, Inc. (CDI) and the New York Racing Association, Inc. (NYRA) were scheduled to appear at separate enforcement hearings in front of the Horseracing Integrity and Safety Authority board to address disputes over their non-payment of assessment fees that are based partially on purses, those two prominent Thoroughbred track operators teamed up to sue the Authority and the Federal Trade Commission (FTC) in federal court, alleging that both the fee impositions and the attempted enforcement actions for non-payment are “illegal.”

According to the civil complaint filed Dec. 4 in United States District Court (Western Division of Kentucky, Louisville Division), CDI and NYRA are alleging that the Authority, the FTC, and individuals who run those agencies are violating both the private non-delegation doctrine and Article III of the U.S. Constitution, the due process clause of the Fifth Amendment, and four counts of the Administrative Procedure Act.

The lawsuit also stated that the Authority and the FTC should be subject to “equitable estoppel,” which is a doctrine a court may invoke to “avoid injustice in particular cases.”

The complaint, first reported Thursday by Horse Racing Nation, asked the court to “declare the Authority's enforcement actions in this case to be unlawful and enjoin Defendants from taking any further action to enforce the Authority's unlawful fee assessments against CDI and NYRA.”

The Authority, the complaint alleged, “is threatening to prohibit CDI and NYRA from conducting any horse races until they pay the Authority millions of dollars in illegally imposed fees.”

In response, the Authority issued a press release Dec. 5 that stated the agency “will aggressively defend itself” against the “meritless lawsuit.”

The Authority's press release stated that CDI and NYRA were attempting to “avoid paying their fair share” of fees calculated under a structure designed to “equitably allocate the costs” of operations under the Horseracing Integrity and Safety Act (HISA).

“CDI and NYRA are the only two racing organizations subject to this rule that have refused to remit their share of fees,” the Authority's release stated.

Lisa Lazarus, the Authority's chief executive officer, issued a written statement, which said, in part:

“CDI and NYRA have both benefited greatly from HISA's uniform safety rules, expertise and oversight, particularly over the past two years. That uniformity must extend to cost assessments as well. To do otherwise would be unfair to other tracks and industry participants who are paying their fair share. [The Authority] will continue to uphold the standards of the sport with integrity and fairness for all racing participants. Our mission is clear, and we will not allow any parties to pick and choose which rules they follow. Every racetrack, including CDI and NYRA, must operate under the same paradigm. No one is exempt.”

CDI owns six Thoroughbred tracks (Churchill Downs, Turfway Park, Ellis Park, Fair Grounds, Colonial Downs, and Presque Isle Downs). NYRA controls racing at Aqueduct Racetrack, Belmont Park and Saratoga Race Course.

NYRA's Saratoga | Sarah Andrew

The Authority has been named as a defendant in a number of constitutionality lawsuits since HISA's passage into law in 2020. Such litigation challenging the Act and the Authority had been expected, with predictions from the law's outset that it might take years and intervention from the U.S. Supreme Court to decide whether HISA would remain the law of the land in American racing. Currently, there are three separate requests pending before the Supreme Court to take up three different cases arising from the federal appeals court system.

CDI and NYRA outlined their chief beefs in the joint complaint:

“The Act requires the Authority to determine each State's proportionate share of the annual fees necessary to fund its operations based on (1) the Authority's budget for the following year; and (2) the projected amount of covered racing starts for the year in each State.

“Yet the Authority unlawfully adopted–and the FTC unlawfully approved–an assessment methodology that imposes fees based largely on the size of a racetrack's purses [rather than] a State's share of racing starts.

“The only federal court to have considered the question held that the Authority's purse-based assessment methodology violates the Act,” the complaint stated.

“CDI and NYRA declined to fund the Authority according to its unlawful purse-based assessment methodology and instead agreed to remit fees to the Authority pursuant to racing-start-based methodologies outlined in the Act.

“The Authority endorsed this arrangement for nearly two years, until its ever-increasing budget and fiscal mismanagement prompted it to change course and demand that CDI and NYRA immediately remit all fees due under the illegal purse-based methodology.

“When CDI and NYRA refused to accede to the Authority's unlawful demands, the Authority commenced enforcement actions against CDI and NYRA, threatening to prohibit them from conducting any horse races until the fees due under the Authority's illegal assessment methodology are paid in full,” the complaint stated.

“Worse, the Authority is illegally conducting its enforcement action through an internal disciplinary process before its Board of Directors. The Act does not empower the private Authority to adjudicate fee-collection disputes in-house but rather envisions that the Authority would exercise its statutory power to bring a civil action in federal court to compel payment of any legitimate fee assessments.

“Interpreting the Act to permit the Authority to determine for itself whether CDI and NYRA owe it millions of dollars and impose sanctions based on its own findings would violate the Act and Article III of the Constitution, which require that such disputes between private entities be adjudicated in federal courts–not within administrative agencies and certainly not within private, unaccountable corporations. And it would also violate the fundamental due-process principle that no person may serve as a judge in his own case,” the complaint stated.

The late-Wednesday filing of the lawsuit did not affect the Thursday morning and afternoon scheduling of the Authority's separate hearings involving CDI and NYRA.

“A three-person board panel conducted hearings [Dec. 5] on the enforcement actions pending against CDI and NYRA,” an Authority spokesperson confirmed to TDN. “All parties were provided an opportunity to present arguments and evidence relevant to the alleged violations.”

Patrick McKenna, NYRA's vice president of communications, issued a statement Thursday that said NYRA is aligned with the concept and benefits of HISA, but felt compelled to take legal action to challenge the funding aspect.

“NYRA is strongly supportive of the [Authority's] regulatory mission. Since its launch, HISA has formulated and applied rules and safety standards that have successfully improved equine safety. And NYRA will continue to advocate for the importance of national policies designed to protect athletes in competition and protect the integrity of the sport,” McKenna said.

“This lawsuit narrowly targets the unlawful, excessive, and disproportionate financial assessments that HISA's Authority is attempting to impose on NYRA. Since 2022, NYRA has disputed HISA's methodology for calculating fees, which is based on a blended rate of starts and purses, as opposed to methodology required by statute based purely on starts. NYRA joined in this action as a last resort only when threatened with illegal HISA enforcement actions,” McKenna said.