Nat'l Horsemen's Benevolent & Protective Ass'n v. Black

• Citation: 596 F.Supp.3d 691
• Decision Date: 31 March 2022
• Docket Number: 5:21-CV-071-H
• Parties: NATIONAL HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION, et al., Plaintiffs, v. Jerry BLACK, et al., Defendants.
• Court: U.S. District Court — Northern District of Texas

596 F.Supp.3d 691

NATIONAL HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION, et al., Plaintiffs,

v.Jerry BLACK, et al., Defendants.

No. 5:21-CV-071-H

United States District Court, N.D. Texas, Lubbock Division.

Signed March 31, 2022

Daniel R. Suhr, Brian Kirk Kelsey, Jeffrey Daniel Jennings, Pro Hac Vice, Reilly Walsh Stephens, Pro Hac Vice, Liberty Justice Center, Chicago, IL, Fernando M. Bustos, Bustos Law Firm PC, Lubbock, TX, for Plaintiffs National Horsemen's Benevolent and Protective Association, Arizona Horsemen's Benevolent and Protective Association, Arkansas Horsemen's Benevolent and Protective Association, Indiana Horsemen's Benevolent and Protective Association, Illinois Horsemen's Benevolent and Protective Association, Louisiana Horsemen's Benevolent and Protective Association, Mountaineer Park Horsemen's Benevolent and Protective Association, Nebraska Horsemen's Benevolent and Protective Association, Oklahoma Horsemen's Benevolent and Protective Association, Oregon Horsemen's Benevolent and Protective Association, Pennsylvania Horsemen's Benevolent and Protective Association, Washington Horsemen's Benevolent and Protective Association.

Daniel R. Suhr, Brian Kirk Kelsey, Liberty Justice Center, Chicago, IL, for Plaintiff Tampa Bay Horsemen's Benevolent and Protective Association.

Brennan Holden Meier, Akin Gump Strauss Hauer & Feld LLP, Dallas, TX, Aileen M. McGrath, Pro Hac Vice, Akin Gump Strauss Hauer & Feld LLP, San Francisco, CA, David T. Royse, Pro Hac Vice, John C. Roach, Pro Hac Vice, Ransdell Roach & Royse PLLC, Lexington, KY, Lide E. Paterno, Pro Hac Vice, Pratik A. Shah, Pro Hac Vice, Akin Gump Strauss Hauer & Feld LLP, Washington, DC, for Defendants Jerry Black, Katrina Adams, Leonard Coleman, Nancy Cox, MD, Joseph Dunford, Frank Keating, Kenneth Schanzer, Horseracing Integrity and Safety Authority, Inc.

Alexander V. Sverdlov, US Department of Justice, Civil Division, Washington, DC, Brian Walters Stoltz, U.S. Attorney's Office, Dallas, TX, for Defendants Federal Trade Commission, Commissioner Kelly Slaughter, Commissioner Rohit Chopra, Commissioner Noah Phillips, Commissioner Christine Wilson.

W. Wade Arnold, Autum Leigh Flores, Underwood Law Firm PC, Amarillo, TX, for Amicus The American Quarter Horse Association.

Fernando M. Bustos, Bustos Law Firm PC, Lubbock, TX, Peter John Sacopulos, Pro Hac Vice, Sacopulos Johnson & Sacopulos, Terre Haute, IN, for Amicus North American Association of Racetrack Veterinarians.

Eric Grant, Hicks Thomas LLP, Sacramento, CA, Paul E. Salamanca, Pro Hac Vice, Lexington, KY, for Amici U.S. Senator Mitch McConnell, U.S. Representative Paul Tonko, U.S. Representative Andy Barr.

MEMORANDUM OPINION AND ORDER

JAMES WESLEY HENDRIX, UNITED STATES DISTRICT JUDGE

After a rash of doping scandals and racetrack fatalities, Congress began considering how it could standardize thoroughbred-horseracing regulation. Proposals in 2013, 2015, and 2017 stalled. But after a particularly deadly 2019 season, the Horseracing Integrity and Safety Act of 2020 (HISA) became law. HISA creates a novel regulatory scheme that pairs the expertise of a private, self-regulatory nonprofit entity with the oversight of the Federal Trade Commission. Although modeled on the longstanding and long-upheld self-regulatory schemes found in the securities industry and elsewhere, the parties agree that HISA breaks new ground. And while the private plaintiffs favor nationwide regulation, they allege that HISA's unconventional structure facially violates the private-nondelegation doctrine under Article I and the Due Process Clause. Their concerns are legitimate. But precedent requires only that the private entity function subordinately to the FTC, guided by Congressional standards. And it does: Only the FTC can give proposed rules the force of law and, even then, the FTC can only do so when both it and the private entity adhere to Congress's instructions. Given the current state of the law and the private entity's subordination to the FTC, the plaintiffs’ challenge must fail.

Thus, for the reasons stated below, the Court denies the plaintiffs’ motion for summary judgment (Dkt. No. 37). The Court grants the defendants’ motions to dismiss the plaintiffs’ Article I private nondelegation and due process claims (Dkt. Nos. 34; 36). The Court also dismisses the plaintiffs’ Appointments Clause and public nondelegation claims, which the plaintiffs abandoned.

1. Factual and Procedural Background

A. Factual Background¹

On September 8, 2020, the Horseracing Integrity and Safety Authority, Inc. (the Authority) incorporated as a nonprofit to "establish safety and performance standards" and "develop and implement a horseracing anti-doping and medication control program and a racetrack safety program." Dkt. 34-1 at 28. A few weeks later, the Authority issued its corporate bylaws, defining its terms in accordance with the "contemplated Horseracing Integrity and Safety Act of 2020 or a substantially similar act." Id. at 53. And on December 27, 2020, HISA was signed into law, nationalizing thoroughbred horseracing regulation and "recogniz[ing]" the Authority for purposes of developing and implementing the same programs listed in its certificate of incorporation and bylaws. See Horseracing Integrity and Safety Act of 2020 § 1202, 15 U.S.C. § 3052. Although the private plaintiffs support nationalizing regulation, they take issue with the Authority's powers under HISA. Transcript of Oral Argument at 117–18 (hereinafter "Tr.").

Had the Authority been created by Congress, it may have been subject to certain Article II requirements. See Free Enter. Fund v. Pub. Co. Acct. Oversight Bd. , 561 U.S. 477, 483–85, 130 S.Ct. 3138, 177 L.Ed.2d 706 (2010) (recognizing that, unlike private self-regulatory organizations, entities that are "Government-created [and] Government-appointed" must comply with Article II). But because Congress "recognized" it and left the appointment of its board to a private group selected by industry constituents—the Nominating Committee—the Authority avoids some of the strictures of governmental entities, just as other private, self-regulatory organizations that operate nationwide do. See 15 U.S.C. § 78o-3 (recognizing private associations such as the Financial Industry Regulatory Authority (FINRA)).

HISA enables the Authority to propose draft rules covering anti-doping and medication control (Section 3055), racetrack safety (Section 3056), and disciplinary proceedings (Section 3057). The Authority lacks the power, however, to promulgate rules themselves. See § 3053(b). Only the FTC can give a rule the force of law. Id. To do so, the FTC must determine that the rule is consistent with the statute and applicable rules, and it must independently approve it following notice and public comment. § 3053(b)–(d). If the FTC disapproves a proposed rule, it must recommend modifications so that the Authority may "incorporate[ ] the modifications" prior to resubmission. § 3053(c)(3). Without a proposed rule, the FTC may, for good cause under the Administrative Procedure Act, "adopt an interim final rule" if it finds it "necessary to protect (1) the health and safety of covered horses; or (2) the integrity of covered horseraces and wagering on those horseraces." § 3053(e); 5 U.S.C. § 553(b)(B) (good cause provision).

HISA also empowers the Authority to investigate rule violations and to assess penalties when it determines that an enacted rule has been violated. 15 §§ 3054(i), 3057(d). But the Authority may only investigate rule violations according to "uniform procedures" reviewed and approved by the FTC. § 3054(c). Moreover, HISA lists the required elements of the disciplinary process and mandates that all proceedings provide due process, including "impartial hearing officers or tribunals commensurate with the seriousness" of the alleged violation. § 3057(c)(3).

The FTC retains the ability to review sanctions imposed by the Authority. All civil sanctions are subject to de novo review by an Administrative Law Judge appointed by the FTC, and the FTC can review de novo any final decision of the ALJ. § 3058(b)–(c). Finally, any determination by an ALJ or the FTC is a "Final decision," triggering judicial review under the Administrative Procedure Act. See § 3058(b)(3)(B), (c)(2)(B); see also Administrative Procedure Act § 10, 5 U.S.C. § 704 (outlining judicial review of administrative agency decisions).

To fund its operations, the Authority must initially obtain loans. § 3052(f)(1). After this initial funding stage, it appears that the Authority will primarily fund its programs by collecting fees from covered persons or state racing commissions. § 3052(f)(1)–(4). Before the Authority can collect any fees, however, the FTC must approve the "formula or methodology" for determining fee assessments. § 3053(a)(11).

HISA also creates parameters for the composition of the Authority's Board and committees in an attempt to ensure fair governance and representation within the horseracing industry. A nominating committee of "seven independent members selected from business, sports, and academia" chose the Authority's board members and standing committee members.² § 3052(d). HISA attempts to insulate the Authority from conflicts of interest with other industry members. For example, a majority of the Board and standing committee members must be "independent members selected from outside the equine industry." § 3052(b) – (c). And no board member or independent member of the committees may (1) have a "financial interest in, or provide[ ] goods or services to, covered horses"; (2) be "[a]n official or officer of an equine industry representative" or serve in a "governance or policymaking capacity for an equine industry representative"; or (3) be "[a]n employee of, or an individual who has a business or commercial relationship with" people who have financial interests in covered horses or equine industry officers. § 3052(e)(1)–(3). The immediate family...