HORSEMEN'S BENEVOLENT, ETC. v. PA. HORSE RACING

• Decision Date: 08 January 1982
• Docket Number: Civ. A. No. 81-1992.
• Citation: 530 F. Supp. 1098
• Parties: HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION, INC., et al. v. PENNSYLVANIA HORSE RACING COMMISSION, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

530 F. Supp. 1098

HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION, INC., et al. v. PENNSYLVANIA HORSE RACING COMMISSION, et al.

Civ. A. No. 81-1992.

United States District Court, E. D. Pennsylvania, Civil Division.

January 8, 1982.

Richard P. Brown, Morgan, Lewis & Bockius, Philadelphia, Pa., for plaintiffs.

David H. Allshouse, Deputy Atty. Gen., Harrisburg, Pa., Richard M. Bernstein, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for defendants.

MEMORANDUM OF DECISION

McGLYNN, District Judge.

This case is the third action brought by horse owners and/or trainers to challenge Rule 9.15 of the Pennsylvania Horse Racing Commission ("Commission") which sets fees to be paid to jockeys who ride at racetracks in the Commonwealth. The first case was brought in late 1978 in the Commonwealth Court of Pennsylvania by the Pennsylvania Division of the Horsemen's Benevolent and Protective Association ("HBPA")¹, one of the plaintiffs in the instant action, and other horse owners and trainers claiming, inter alia, that the Commission lacked authority under the Horse Racing Act, Pa.Stat.Ann. tit. 15, §§ 2651-2675 (Purdon Supp. 1981-82), to regulate jockey fees. This action resulted in a decision of the Pennsylvania Supreme Court in Gilligan v. Pennsylvania Horse Racing Commission, 492 Pa. 92, 422 A.2d 487 (1980), holding that the Commission was authorized by the Legislature to set jockey fees.

Euster v. Pennsylvania Horse Racing Commission, Civil Action No. 79-265, was a second action brought in this Court in January of 1979, alleging, inter alia, that the Commission rule which sets fees to be paid to jockeys violates Section 1 of the Sherman Act, 15 U.S.C. § 1. On July 9, 1981, in light of the Pennsylvania Supreme Court's decision in Gilligan, supra, this Court granted summary judgment for the defendants on the ground that they were immune from antitrust liability by the "state action" doctrine of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943).

Finally, this instant action was brought in May, 1981, by the HBPA and three other horse owners against the Horse Racing Commission, its members, and the Jockeys' Guild.² Counsel for these plaintiffs also represented the plaintiffs in the Gilligan and Euster case when they filed this action. At that time, the Euster action was still pending and plaintiffs' counsel requested the Court to dismiss the prior action pursuant to Federal Rule of Civil Procedure 41(a)(2). In support of their motion, plaintiffs asserted that the two actions raised the identical issue, i.e., whether Rule 9.15 of the Rules of Racing violated the Sherman Act, and that because the new complaint more "fully delineated the antitrust issues" raised in Euster,³ the earlier complaint should be disregarded. The Court denied the plaintiffs' motion for voluntary dismissal but instead granted defendants' pending motion for summary judgment in the Euster action.

The plaintiffs seek to maintain the present action as a class action on behalf of "all horse owners whose horses have raced at racetracks within the Commonwealth of Pennsylvania since November 25, 1978...." Complaint ¶ 8. Essentially, plaintiffs' factual allegations are that on March 1, 1978, the members of the Jockeys' Guild agreed among themselves on a proposed schedule of fees to be paid to jockeys; that on June 26, 1978, the Guild wrote a letter to the Horse Racing Commission requesting that the Commission "adopt the Jockeys' Guild fee scale as the required schedule of payment for jockeys that race thoroughbred horses in Pennsylvania"; and that at a July 19, 1978 meeting, the Commission "voted unanimously to amend Rule 9.15 to conform exactly to the fee scale requested by the Jockeys' Guild." Complaint ¶¶ 16, 17, 22.

Plaintiffs allege that these facts establish that defendants violated the antitrust laws of the United States. Specifically, the complaint alleges the following:

36. By agreeing among themselves to set jockeys' fees, the jockeys who are members of the Jockeys' Guild have violated Section 1 of the Sherman Act, 15 U.S.C. § 1.

37. By agreeing among themselves to set jockeys' fees in the absence of an express articulated Pennsylvania legislative policy to displace competition in the market for jockey services, the Racing Commission and its members and the Jockeys' Guild and its members have violated Section 1 of the Sherman Act, 15 U.S.C. § 1.

The Horse Racing Commission and its members have filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted.⁴ The Jockeys' Guild has filed a separate Rule 12(b)(6) motion. I will consider the Commission's motion first.⁵

I. THE COMMISSION'S MOTION TO DISMISS

The Commonwealth defendants base their Rule 12(b)(6) motion to dismiss on the basis of (1) the state-action exemption of Parker v. Brown, supra, and (2) the res judicata and/or collateral estoppel effect of this Court's decision in Euster. For the reasons herein stated, I hold that the Commonwealth defendants are immune from suit under the Parker doctrine and, accordingly, their motion to dismiss will be granted. I therefore need not reach the res judicata and collateral estoppel issues.

A. Rule 9.15 and the Gilligan case.

The jockey fee schedule in dispute here was adopted in 1968 and remained unchallenged and unchanged until an increase in fees was requested by the Jockeys' Guild in June 1978. The fee schedule is contained in Rule 9.15 of the Rules of Racing, which are promulgated by the Commission pursuant to the Horse Racing Act. The Commission unanimously voted to amend the rule containing the fee schedule on July 19, 1978. Notice of the proposed amendment appeared in the Pennsylvania Bulletin on September 2, 1978, citing inflation as the primary justification for the increase. The amendment was subsequently adopted despite written and oral objections by the HBPA and other individuals. See generally, Gilligan v. Pennsylvania Horse Racing Commission, 492 Pa. 92, 94-95, 422 A.2d 487, 488-89 (1980). These objectors petitioned for review of the Commission's decision in the Commonwealth Court claiming, inter alia, that the Commission lacked authority under the Horse Racing Act to regulate jockey fees. The Commonwealth Court agreed with the petitioners, 46 Pa. Commw. 595, 598, 407 A.2d 466, 468 (1979), but the Pennsylvania Supreme Court reversed, emphatically holding that the Commission was authorized by the Legislature to promulgate a jockey fee schedule. Gilligan v. Pennsylvania Horse Racing Commission, 492 Pa. 92, 422 A.2d 487 (1980). Justice Kauffman, writing for the court, stated that the Horse Racing Act expressly conferred broad rule making powers on the Commission which included the power to set jockey fees:

The Act reflects a clear legislative policy to vest the Commission with broad general supervisory powers over the previously unlawful activity of thoroughbred horse racing.... A pervasive system of regulation and supervision of this otherwise criminal activity was thus contemplated by the Commission's broad legislative mandate, and a general rule making power was clearly and unmistakably conferred....

....

... The breadth of the Commission's powers is required for the prevention of corruption and the maintenance of high standards and public confidence in racing. The imposition of a jockey fee schedule is simply part of a comprehensive scheme of regulation consistent with — indeed, necessary to accomplish — those legislative goals.

....

... Moreover, the Legislature's acquiescence in the Commission's exercise of its rule-making power to set jockey fees manifests approval thereof. Indeed, when the Legislature amended the Act in 1976, no effort was made to curtail that authority, even though the section enumerating the powers of the Commission (§ 2652) was among those amended. (Act of Dec. 2, 1976, P.L. 1249, No. 276, § 1).

Id. at 96-99, 422 A.2d at 489-90 (emphasis added).

B. Anticompetitive State Regulation, Substantive Due Process, and the Parker Doctrine.

Historically, state governments regulated the competitive sectors of the economy. As was noted by Chief Justice Waite in Munn v. Illinois, 94 U.S. 113, 24 L.Ed. 77 (1877), when the Court upheld an Illinois statute setting maximum warehouse charges for the storage of grain:

It has been customary in England from time immemorial, and in this country from its first colonization, to regulate ferries, common carriers, hackmen, bakers, millers, wharfingers, innkeepers, etc., and in so doing to fix a maximum of charge to be made for services rendered, accommodations furnished, and articles sold.

Id. at 125, 24 L.Ed. 77.

In the years after Munn v. Illinois, the Supreme Court, applying the concept of the Fourteenth Amendment substantive due process, both sustained and invalidated a multitude of state enactments providing for price or wage control in such varied fields as insurance, milk, cream and butterfat, theatre tickets, the fees of employment agencies, weighing and handling of grain charges of stockyard companies, water rates, commissions of insurance agents, rent control, pipe line rates and the retail price of gasoline. See Handler, The Current Attack on the Parker v. Brown State Action Doctrine, 76 Colum.L.Rev. 1, 3-7 (1976). However, in Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 505, 78 L.Ed. 940 (1934), and in West Coast Hotel Co. v. Parrish, 300 U.S. 379, 57 S.Ct. 578, 81 L.Ed. 703 (1937), the Supreme Court reversed its earlier stance and held that the doctrine of substantive due process could not be used by the federal judiciary as a means to invalidate state economic regulations. Justice Black summarized the Supreme Court's current position as follows:

Under the system of government created by our Constitution, it is up to legislatures, not courts, to decide on the wisdom and utility of legislation. There was a time when the Due Process Clause was used by this Court to strike down laws which were thought

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