Part of HISA Ruled Unconstitutional in Fifth Circuit Split Decision

A judgment Friday by the United States Court of Appeals for the Fifth Circuit declared that part of the Horseracing and Safety Integrity Act (HISA) is unconstitutional.

Even though the three-judge panel agreed with “nearly all” of a lower court's ruling that other contested aspects of HISA's constitutionality were fixed by a Congressional amendment to the law in 2022, the panel's one unconstitutional finding has to do with the HISA Authority's broad powers to investigate and operate.

The gravity of that unconstitutionality opinion could be enough to send the case to the U.S. Supreme Court to clear up what are now conflicting opinions between the Fifth Circuit's ruling July 5 and one that the Sixth Circuit Court of Appeals issued in 2023.

The NHBPA, claiming victory via press release on Friday evening, referred to the Fifth Circuit's unconstitutionality opinion as a “fatal problem” for HISA.

“The Court reasoned that Congress unlawfully gave executive governmental power to regulate the horseracing industry over to a private corporation,” the release stated, in part. “[The judges] called HISA a 'radical delegation' of governmental enforcement powers to a private corporation. The Court ruled that the FTC was given 'scant oversight' of the Authority, which could execute many governmental functions on its own…

“In March of last year, the Sixth Circuit Court of Appeals ruled that the [Congressional] tweak solved the problem of giving legislative powers to the Authority,” the NHBPA release continued. “[Friday], the Fifth Circuit agreed with that ruling but found another fatal problem: even after the tweak, HISA still gives unlawful executive powers to the Authority. HISA still violates the Constitution.”

Lisa Lazarus, the chief executive officer of the HISA Authority, said her organization is “disappointed” with the court's decision.

“Particularly,” Lazarus continued, “in light of the Sixth Circuit's strong endorsement of HISA's constitutionality. While the judicial review process continues, it is critical for all racing participants to know HISA is still the law of the land. Its rules are still fully in effect and will remain so for the foreseeable future. We continue to focus on our mission of protecting the safety and integrity of Thoroughbred racing.”

The court explained its general rationale at the outset of the 39-page opinion:

“We agree with nearly all of the district court's well-crafted opinion. Specifically, we agree that the Federal Trade Commission (FTC)'s new rulemaking oversight means the agency is no longer bound by the Authority's policy choices. In other words, the amendment solved the nondelegation problem with the Authority's rulemaking power.

“We also agree that HISA does not violate the Due Process Clause by putting financially interested private individuals in charge of competitors. Further, we agree that, under current Supreme Court precedent, the Authority does not qualify as a government entity subject to the Appointments Clause,” the opinion stated.

“We disagree with the district court in one important respect, however: HISA's enforcement provisions violate the private nondelegation doctrine. The statute empowers the Authority to investigate, issue subpoenas, conduct searches, levy fines, and seek injunctions-all without the FTC's say-so. That is forbidden by the Constitution. We therefore DECLARE that HISA's enforcement provisions are facially unconstitutional on that ground. In doing so, we part ways with our esteemed colleagues on the Sixth Circuit.”

Evolution of the 3-year-old lawsuit…

The NHBPA, 12 of its affiliates, and a number of Texas-based racetrack entities, plus the state of Texas itself and its racing commission, are the plaintiffs/appellants.

The HISA Authority, the Federal Trade Commission (FTC), and officials from each organization  are the defendants/appellees.

The first time the NHBPA-led plaintiffs attempted to challenge the original 2020 version of the HISA statute in federal court, on Mar. 15, 2021, the suit was dismissed, on March 31, 2022.

The NHBPA plaintiffs then appealed, leading to a Fifth Circuit Court reversal on Nov. 18, 2022, that remanded the case back to the lower court.

In the interim, an amended version of HISA got passed by Congress and was signed into law by President Joe Biden on Dec. 29, 2022.

In a separate case Mar. 3, 2023, the U.S. Sixth Circuit Court of Appeals in Cincinnati ruled that a change of language in the HISA law at the end of 2022 was sufficient to alleviate the plaintiffs' concerns over constitutionality.

Then on May 4, 2023, the lower court in the NHBPA case also deemed that the new version of HISA was constitutional because the rewrite of the law fixed the problems the Fifth Circuit had identified.

The HBPA plaintiffs swiftly filed another appeal back to the Fifth Circuit, which led to an  “expedited” scheduling of the oral arguments for Oct. 4, 2023.

Those oral arguments centered on the non-delegation doctrine with regard to HISA's enforcement, focusing on a legal principle that holds that Congress cannot delegate the power to legislate to executive agencies or private entities.

The racing industry had been waiting for the Fifth Circuit's opinion ever since. It was issued nine months after the arguments took place (an unusually long span), and it got handed down late in the day on the Friday of the long Independence Day holiday weekend.

Drilling down the 'unconstitutionality' aspect…

The panel of three judges was the same Fifth Circuit trio that declared the previous version of HISA unconstitutional in November 2022, leading to the amended version of HISA that is currently in effect.

The judges are: Stuart Kyle Duncan and Kurt D. Engelhardt (both nominated to their positions by President Donald Trump in 2018) and Carolyn Dineen King (nominated by President Jimmy Carter in 1979).

Regarding the private nondelegation clause that the Fifth Circuit panel declared unconstitutional as it relates to HISA's enforcement, the opinion explained the court's view this way:

“First, the Authority misunderstands the Horsemen's claim. They do not challenge some particular enforcement action undertaken by the Authority-claiming, for instance, that the Authority issued an overbroad subpoena for medical records or lacked probable cause to search a racetrack. Instead, the Horsemen argue that HISA, on its face, vests the Authority with enforcement power that is effectively unreviewable by the agency.

“The Act's plain terms permit only one conclusion: HISA is enforced by a private entity, the Authority. The Authority decides whether to investigate a covered entity for violating HISA's rules. The Authority decides whether to subpoena the entity's records or search its premises. The Authority decides whether to sanction it. And the Authority decides whether to sue the entity for an injunction or to enforce a sanction it has imposed.

“Consider also what [the HISA statute] does not say. It does not empower the FTC to decide whether to investigate a covered entity, whether to subpoena its records, whether to search its premises, whether to charge it with a violation, or whether to sanction or sue it. Nor does the Act empower the FTC to countermand any of the Authority's investigatory or charging decisions…

“The inescapable conclusion is that the Authority does not 'function subordinately' to the FTC when enforcing HISA. That is not permitted under the private nondelegation doctrine. A private entity that can investigate potential violations, issue subpoenas, conduct searches, levy fines, and seek injunctions-all without the say-so of the agency-does not operate under that agency's 'authority and surveillance.'

“Put another way, with respect to enforcement, HISA's plain terms show that the Authority does not merely act 'as an aid' to the FTC because the FTC does not 'retain the discretion to approve, disapprove, or modify' the Authority's enforcement actions.

“One might counter, though, that the FTC at least partially supervises the Authority because it can review sanctions at the back end, after [an administrative law judge, or ALJ] review. That is true, and it is the Authority's best argument for why its enforcement power is subordinate to the FTC.

“The argument nonetheless fails,” the opinion stated.

“Suppose the Authority sanctions a horse owner for a doping violation, but the sanction is later reversed by the FTC. Does that make the Authority's enforcement power subordinate to the agency? No, it does not. Consider everything the Authority was permitted to do up to that point: launch an investigation into the owner, subpoena his records, search his facilities, charge him with a violation, adjudicate it, and fine him. Each and every one of those actions is 'enforcement' of HISA. Each can occur under HISA without any supervision by the FTC.

“Moreover, penalties imposed by the Authority are not automatically stayed pending appeal. So, any penalty goes into effect as soon as the Authority makes its decision, unless the ALJ or FTC exercises its discretion to implement a stay pending appeal.

“It is no answer to say that the FTC can come in at the tail-end of this adversarial process and review the sanction. As far as enforcement goes, the horse was already out of the barn,” the opinion stated, humorously acknowledging the pun by parenthetically adding, “You knew that was coming.”

“If the sanctioned owner, instead of fighting the process, opts to settle for a lower fine? In that case, according to the Authority's logic, no one has enforced HISA. That is obviously not true. To the contrary, the settlement scenario-which will likely happen often-only underscores that it is the private entity that acts as HISA's enforcer in any meaningful sense…

“The Horsemen are not complaining about how the Authority exercises its enforcement power. They are complaining about where the enforcement power is lodged: on its face, HISA empowers private entities to enforce it and permits agency oversight only after the enforcement process is over and done with (and then only with respect to fines, not injunctions).

“If the Horsemen were objecting only to overbroad subpoenas, unwarranted searches, or lack of free counsel, perhaps those complaints could be addressed through rulemaking or as-applied challenges. But their complaint is different. They contend that HISA facially delegates unsupervised enforcement power to private actors,” the opinion stated.

“They are right,” the Fifth Circuit concluded.