No. 5:21-CV-071-II
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS LUBBOCK DIVISION
03/31/22
MEMORANDUM OPINION AND ORDER
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
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
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 (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
HISA enables the Authority to propose draft rules covering anti-doping and medication
HISA also empowers the Authority to investigate rule violations and to assess penalties when it determines that an enacted rule has been violated.
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.
To fund its operations, the Authority must initially obtain loans.
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
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.”
There are no disputes of material fact, as the nature of the plaintiffs’ facial challenge turns primarily on the language of the statute.4 Dkt. No. 38 at 7.
B. Procedural History
The National Horsemen‘s Benevolent and Protective Association and twelve of its affiliate organizations sued the FTC, its commissioners, the Authority, and its Nominating Committee members, bringing a facial challenge to HISA‘s constitutionality. Dkt. No. 1.
The Horsemen then amended their complaint, which is the operative pleading. See Dkt. No. 23. They brought claims under the private-nondelegation doctrine, public-nondelegation doctrine, Appointments Clause, and the Due Process Clause, seeking to permanently enjoin the defendants from implementing HISA and to enjoin the Nominating Committee members from appointing the Authority‘s board of directors.5 Id. at 27-29. They also seek declaratory relief, nominal damages for violations of their constitutional rights, compensatory damages for any fees the Authority charges them, and attorneys’ fees and costs. Id. at 26-29.
The FTC and the Authority defendants separately moved to dismiss the amended complaint. Dkt. Nos. 34; 36. The same day, the Horsemen moved for summary judgment on their private-nondelegation and due-process claims only. Dkt. No. 37; see Dkt. No. 23. The parties responded and replied in due course, and the Court heard oral argument.6 See Dkt. Nos. 67; 85. The state of Texas and the Texas Racing Commission intervened after briefing was completed and joined the plaintiffs’ motion. See Dkt. Nos. 73; 91. Thus, the dispositive motions are ripe for review.
Limited by the parties’ motions and assertions at oral argument, the Court examines the two claims in which the plaintiffs persist: Article I private nondelegation and Due Process. The plaintiffs abandoned their Appointments Clause claim by not opposing the defendants’ motions to dismiss that claim, by failing to pursue it in their motion for
summary judgment, and
The plaintiffs also abandoned their “public nondelegation claim” that HISA violates Article I, Section I of the Constitution because it delegates legislative authority to a public entity without an intelligible principle. Dkt. No. 23 at 23. At the hearing, the plaintiffs affirmed that they abandoned their public-nondelegation claim. See Tr. at 10.
2. Jurisdiction8
Before addressing the merits, the Court must first confirm that it has jurisdiction to resolve the case. Without a live case or controversy, the Court cannot assess the merits of any claim.
A complaint must be dismissed under Rule 12(b)(1) if the Court lacks subject matter jurisdiction. See Home Builders Ass‘n of Miss., Inc. v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998). “A case is properly dismissed for lack of subject matter jurisdiction when the Court lacks the statutory or constitutional power to adjudicate the case.” Krim v. pcOrder.com, Inc., 402 F.3d 489, 494 (5th Cir. 2005) (citation omitted). The jurisdiction of federal courts is limited to “cases” and “controversies.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 559 (1992) (citing
A. Standing
The Constitution speaks directly to the limits of the federal judiciary‘s authority. Article III, Section 2, makes clear that federal jurisdiction is limited to “cases” and “controversies.” See Lujan, 504 U.S. at 559. Lujan explained the importance of this limitation: “[T]he Constitution‘s central mechanism of separation of powers depends largely
upon the common understanding of what activities are appropriate to legislatures, to executives, and to courts.” Id. at 559–60; Lexmark Intern., Inc. v. Static Control Components, Inc., 572 U.S. 118, 125 (2014) (noting that “separation-of-powers principles underl[ie] th[e] [case-and-controversy] limitation“).
Thus, to invoke the judicial power and the jurisdiction of the federal courts, “a plaintiff must satisfy the . . . ‘irreducible constitutional minimum’ for standing,” which is composed of three elements. Cranor v. 5 Star Nutrition, L.L.C., 998 F.3d 686, 689 (5th Cir. 2021) (quoting Lujan, 504 U.S. at 560). A plaintiff “must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016). An injury in fact is “an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not ‘conjectural’ or ‘hypothetical.‘” Lujan, 504 U.S. at 560 (internal quotations omitted). To be “fairly traceable to the challenged action of the defendant,” the injury must “not [be] the result of the independent action of some third party not before the court.” Id. (internal quotations omitted). The redressability element will not be satisfied if it is “merely ‘speculative[]’ that the injury will be ‘redressed by a favorable decision.‘” Id. at 561. And because “standing is not dispensed in gross,” plaintiffs “must demonstrate standing for each claim [they] seek[] to press and for each form of relief that is sought.” Town of Chester v. Laroe Est., Inc., 137 S. Ct. 1645, 1650 (2017) (citation omitted).
Though injuries must be concrete and particularized, “an allegation of future injury may suffice if the threatened injury is ‘certainly impending,’ or there is a ‘substantial risk’ that the harm will occur.” Susan B. Anthony List v. Driehaus, 573 U.S. 149, 158 (2014)
(quoting Clapper v. Amnesty Int‘l USA, 568 U.S. 398, 414 n.5 (2013)). But a plaintiff who challenges a “statute must demonstrate a realistic danger of sustaining a direct injury as a result of the statute‘s operation or enforcement.” Babbitt v. United Farm Workers Nat‘l Union, 442 U.S. 289, 298 (1979).
The Horsemen allege many abstract constitutional harms but present only two possible concrete injuries—financial injury arising from the payment of fees and an increased regulatory burden. Dkt. No. 54 at 33–34. First, the Horsemen fail to show a concrete injury arising from the payment of fees. They allege that they will suffer either a direct injury by paying the Authority‘s fees themselves or, in the case of a state commission remitting fees to the Authority, indirect injury resulting
Likewise, the Horsemen fail to show an indirect financial injury arising from state racing commissions passing on increased fees to the Horsemen. If the state racing commissions choose to remit fees to the Authority, they will continue to collect fees from
the Horsemen but then pass the fees along to the Authority. See
In sum, it remains unclear whether the Horsemen will be required to pay fees to the Authority. Even if they are not, it is uncertain whether state racing commissions will increase the fees the Horsemen owe. Thus, any financial injury is “speculative” at this stage. Clapper, 568 U.S. at 401.
The Horsemen, however, primarily challenge the rulemaking mechanism in HISA, and they have shown a concrete injury arising from certainly impending regulation. See Dkt. No. 54 at 33. Requiring regulations to take effect when they allege that any regulation would violate Article I and Due Process “would make little sense.” Cf. State Nat. Bank of Big Spring v. Lew, 795 F.3d 48, 54 (D.C. Cir. 2015) (“[I]t would make little sense to force a regulated entity to violate a law (and thereby trigger an enforcement action against it) simply so that the regulated entity can challenge the constitutionality of the regulating agency.“) (citing Free Enter. Fund, 561 U.S. at 490). The statute requires the regulations to take effect on July 1, 2022, and no one disputes that the Horsemen will be the “objects” of
regulations adopted under HISA.
In any event, the language of HISA makes clear that the Authority and the FTC will exercise regulatory control over the Horsemen starting on July 1, 2022—the program effective date.
“consistent” with the statute itself and with applicable rules.
The only universe in which members of the Horsemen will not be subject to the FTC-Authority regulatory regime—governing the medication of their horses and racetrack safety at the venues where their horses race—is one in which the Authority proposes no rules consistent with the Act, and the FTC adopts no final interim rules in response. That unlikely series of events contravenes the plain language of the statute and is inconsistent with the presumption that the FTC “will act properly and according to law.” FCC v. Schreiber, 381 U.S. 279, 296 (1965). Accordingly, the “risk” is “substantial” that the Horsemen will be subject to FTC-Authority regulatory control. Susan B. Anthony List, 573 U.S. at 158 (quoting Clapper, 568 U.S. at 414 n.5).
The presence of impending regulation does not, however, end the analysis. The Horsemen must show an “imminent,” concrete injury to challenge the statutory scheme under which they will be regulated. Lujan, 504 U.S. at 560. Attempting to avoid this requirement, the
executive officers for the proposition that separation-of-powers violations can create “here-and-now” injuries. Dkt. No. 54 at 37–38 (citing Free Enter. Fund, 561 U.S. at 477; Seila Law LLC v. Consumer Fin. Prot. Bureau, 140 S. Ct. 2183 (2020)). Indeed, they can. But neither of the Horsemen‘s examples involved allegations of future injuries, nor do they dispense with the concrete injury requirement of standing. In both cases, the regulating entities took some concrete action against plaintiffs that enabled them to challenge the constitutionality of the entity‘s structure. See Free Enter. Fund, 561 U.S. at 487 (the challenged entity “inspected [plaintiff], released a [critical] report . . . and began a formal investigation“); Seila Law, 140 S. Ct. at 2196 (explicitly holding that the petitioner established a “concrete injury” because it was compelled to comply with a “civil investigative demand“).
And while the Supreme Court in Seila Law made clear that its precedents “have long permitted private parties . . . to challenge [an] official‘s authority to wield [executive] power,” the party must still be “aggrieved” by that “official‘s exercise of executive power.” 140 S. Ct. at 2196; see also Bond v. United States, 564 U.S. 211, 223 (2011) (“If the constitutional structure of our Government that protects individual liberty is compromised, individuals who suffer otherwise justiciable injury may object.” (emphasis added)).10 The same is true with the other separation-of-powers cases the Horsemen cite. Dkt. No. 54 at 38; see e.g., Freytag v. Comm‘r, 501 U.S. 868, 872, 892 (1991) (rejecting plaintiffs’ Appointment Clause
challenge to a special trial judge who had decided against them); Plaut v. Spendthrift Farm, Inc., 514 U.S. 211, 239–40 (1995) (upholding a district court‘s decision against plaintiffs because the statute the plaintiffs invoked violated the separation of powers); see also Bowsher v. Synar, 478 U.S. 714, 721 (1986) (finding standing when plaintiff would be injured “by not receiving a scheduled increase in benefits“). So far, the defendants in this case have done nothing to “aggrieve” the Horsemen because the Horsemen are not yet subject to any Authority rules. And the proposition that “[a]n increased regulatory burden typically satisfies the injury in fact requirement” does not necessarily apply to HISA because the Horsemen allege few facts about their current regulatory burdens. Cf. Contender Farms, 779 F.3d at 266 (emphasis added) (highlighting that the “harsher, mandatory penalties” and “additional measures” conferred standing under the new regulation).
Although this case law does not permit the Horsemen to avoid the certainly impending injury requirement, the undisputed facts satisfy it. HISA requires that certain regulations be passed, showing that a concrete injury is “certainly impending,”
Authority to submit rules including these prohibitions and mandates that the FTC “shall approve” proposed rules “consistent” with HISA, a substantial risk exists that the Horsemen will be subject to these requirements.
To be sure, the 48-hour prohibition in Section 3055(d) provides for limited exceptions in Subsections (e) and (f), but neither defeats the Horsemen‘s certainly impending injury. First, a possible exemption under Subsection (e) cannot take effect until at least three years after the initial regulations are implemented. See
The Horsemen‘s certainly impending regulatory injury is also “fairly traceable” to the challenged conduct of the defendants. Lujan, 504 U.S. at 560. Here, the Horsemen challenge HISA‘s allegedly unconstitutional rulemaking scheme—subjecting them to a
private entity‘s regulatory control in violation of Article I and the Due Process Clause. Dkt. No. 38 at 14–15. And, outside of interim final rules, all rules flow through the Authority-proposal-FTC-approval scheme. See
The defendants’ attempts to undermine the traceability and redressability of the Horsemen‘s injury fall short. The FTC argues that the Horsemen “assert non-delegation and due process claims based on their view that HISA delegates too much power and discretion to a private entity,” and severing the substance-prohibition provisions “would do nothing to reduce” the Authority‘s discretion generally. Dkt. No. 61 at 9–10 (citing Dkt. No. 23 at 19-27). In the FTC‘s view, “this incompatibility creates a remedy problem.” Id. at 9. Fundamentally, however, the Horsemen challenge HISA‘s primary rulemaking mechanism, through which their certainly impending injury will arise. See Dkt. No. 54 (challenging “being directly regulated by an unconstitutionally constituted body“).
That they bring a structural challenge distinguishes California v. Texas, the case on which the FTC relies. Dkt. No. 61 at 10. In California v. Texas, the state plaintiffs only challenged the constitutionality of the minimum-essential-coverage provision of the Affordable Care Act, but they alleged injury arising from other provisions.13 California, 141
S. Ct. at 2120. Therefore, the Court held the alleged injuries were not “fairly traceable” to the provision they claimed was unlawful. Id. The Court reasoned that “show[ing] that the minimum essential coverage requirement is unconstitutional would not show that enforcement of any of these other provisions violates the Constitution.” Id. at 2119. They “operate[d] independently” of each other. Id. at 2119–20.
Unlike the plaintiffs in California v. Texas, the Horsemen facially challenge the constitutionality of an entire statute. Moreover, the substance prohibition does not “operate independently” of the Authority‘s statutory mandate to develop and implement the regulations—it operates within it. As described above, the Authority is principally tasked with proposing rules to “establish” the “anti-doping and medication control program.”
In sum, a favorable Court decision would redress the Horsemen‘s certainly impending injury. Were the Court to find that HISA unconstitutionally delegates legislative power to a self-interested private entity, the Horsemen‘s injury would “likely” be redressed. Spokeo, 578 U.S. at 338. They would no longer be subject to certainly impending regulatory control under the HISA and would be able to continue administering the race-day
medications to their horses that the Authority‘s rules would inevitably prohibit. The Horsemen thus have standing to pursue their private-nondelegation and due-process claims.
Like standing, “ripeness is a constitutional prerequisite to the exercise of jurisdiction.” Shields v. Norton, 289 F.3d 832, 835 (5th Cir. 2002). “Ripeness separates those matters that are premature because the injury is speculative and may never occur from those that are appropriate for judicial review.” United States v. Carmichael, 343 F.3d 756, 761 (5th Cir. 2003) (internal quotation marks and citation omitted). A claim is not ripe for review if it is contingent [on] future events that may not occur as anticipated, or indeed may not occur at all.” Lopez v. City of Houston, 617 F.3d 336, 342 (5th Cir. 2010) (quoting Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 580–81 (1985)).
“The ripeness doctrine‘s ‘basic rationale is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements.‘” Choice Inc. of Tex. v. Greenstein, 691 F.3d 710, 715 (5th Cir. 2012) (quoting Abbott Labs v. Gardner, 387 U.S. 136, 148 (1967)). In evaluating whether a case is ripe for adjudication, courts must balance “(1) the fitness of the issues for judicial resolution, and (2) the potential hardship to the parties caused by declining court consideration.” Lopez, 617 F.3d at 342 (citation omitted). Regarding fitness for adjudication, “[a] case is generally ripe if any remaining questions are purely legal ones; conversely, a case is not ripe if further factual development is required.” New Orleans Pub. Serv., Inc. v. Council of City of New Orleans, 833 F.2d 583, 587 (5th Cir. 1987) (citing Thomas, 473 U.S. at 581). In other words, “[a] case becomes ripe when it would not benefit from any further factual development and when the court would be in no better position to adjudicate the issues in the future than it is now.” DM Arbor Ct., Ltd. v. City of Houston, 988 F.3d 215, 218 (5th Cir. 2021)
(citing Pearson v. Holder, 624 F.3d 682, 684 (5th Cir. 2010)). And regarding hardship, the Fifth Circuit has held that the kinds of hardships considered in a ripeness analysis include: “the harmful creation of legal rights or obligations; practical harms on the interests advanced by the party seeking relief; and the harm of being ‘force[d] to modify [one‘s] behavior in order to avoid future adverse consequences.‘” Texas v. United States, 497 F.3d 491, 499 (5th Cir. 2007) (quoting Ohio Forestry Ass‘n v. Sierra Club, 523 U.S. 726, 734 (1998)).
Here, the Horsemen challenge the constitutionality of HISA‘s regulatory structure, which presents a legal question fit for judicial resolution. Their private-nondelegation claim hinges on the language of the statute. The two primary Supreme Court cases dealing with the private-nondelegation doctrine assessed the plaintiffs’ claims by looking to the language of the statute to see if Congress unconstitutionally delegated power. See Carter Coal Co., 298 U.S. at 311 (holding that the statute itself “conferred” regulatory power to “private persons“); Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 399 (1940) (“Since lawmaking is not entrusted to the industry, this statutory scheme is unquestionably valid.“). The inquiry is one of structural subordination and the agency‘s statutory surveillance and authority. See Adkins, 310 U.S. at 399. Tasked with a similar private-nondelegation question arising from a statute imbuing Amtrak with regulatory power, the D.C. Circuit found that the pre-enforcement challenge was ripe. Ass‘n of Am. R.Rs. v. U.S. Dep‘t of Transp., 721 F.3d 666, 672 n.6 (D.C. Cir. 2013) (
The Horsemen‘s separate due-process argument—that HISA allows an economically self-interested actor to regulate its competitors (Dkt. 38 at 7)—also presents a purely legal question. Whether the Authority possesses regulatory power mirrors the private-nondelegation analysis, and, in this context, self-interest also presents a legal question based on the statute‘s language. See Ass‘n of Am. Railroads v. U.S. Dep‘t of Transp., 821 F.3d 19, 32 (D.C. Cir. 2016) (Amtrak III) (finding self-interest based on the statutory language governing its incentives); see also N. Carolina State Bd. of Dental Examiners v. FTC, 574 U.S. 494, 510 (2015) (assessing self-interest in terms of a “structural risk of market participants’ confusing their own interests with the State‘s policy goals“) (emphasis added). Therefore, the Court “would be in no better position to adjudicate the issues in the future than it is now.” DM Arbor, 988 F.3d at 218 (citing Pearson, 624 F.3d at 684).
With respect to hardship, “the harmful creation of legal rights or obligations” is certainly impending as discussed above. Texas, 497 F.3d at 499. Declining to consider these hardships at this stage would likely preclude judicial review before the plaintiffs will be subject to new federal regulatory burdens—burdens that will become effective in three months. Therefore, “[f]ailure to resolve this case now could be harmful to” the plaintiffs. Pearson, 624 F.3d at 685 (finding that the plaintiff satisfied the hardship requirement because he “could suffer harm if his claims are not adjudicated as soon as practicable“).
Because the language of the statute is fixed, resolving the Horsemen‘s facial challenge now does not “entangle” the Court in an “abstract disagreement[]” about administrative policy. Greenstein, 691 F.3d at 715 (quoting Abbott Labs., 387 U.S. at 148). Rather, it requires the Court to resolve a dispute over Congress‘s choice to create a hybrid rulemaking scheme and the words it used to do so. See Carter Coal, 298 U.S. at 287 (finding that the suit was “not prematurely brought” because “mandatory” provisions in the statute required that regulations be “formulated and promulgated“).
3. Dismissal and Summary Judgment Standards
Beyond meeting basic jurisdictional thresholds, a plaintiff‘s complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”
Defendants can challenge the sufficiency of a complaint through a motion to dismiss under
Summary judgment is appropriate when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
4. Under current precedent, HISA is not an unconstitutional private delegation in violation of Article I or the Due Process Clause.
Limited by the parties’ motions, the Court examines the two claims in which the Horsemen persist. The Horsemen facially challenge HISA, arguing that it violates the
A. HISA stays within current constitutional boundaries because it provides standards that confine the FTC‘s and Authority‘s discretion and places the Authority subordinate to the FTC.
The Constitution vests “[a]ll legislative Powers herein granted” in the United States Congress—not in another branch of government nor in a private entity.
Eighty years ago, the Supreme Court—in Carter v. Carter Coal Company—invalidated the part of the Bituminous Coal Conservation Act of 1935 that delegated regulatory power to private parties. 298 U.S. at 310-11. The Act allowed two-thirds of coal producers to set the wage-and-hour rates for the rest of the producers and miners in the industry. Id. In other words, it gave the majority of coal producers “the power to regulate the affairs of an unwilling minority.” Id. at 311. This was “legislative delegation in its most obnoxious form” because Congress delegated power “to private persons whose interests may be and often are
A due process view of private nondelegation seems to comport with modern public-nondelegation jurisprudence. Supreme Court precedent provides that if an act of Congress lays down an intelligible principle, then an agency does not wield any “legislative power” when enacting binding rules according to that principle. See City of Arlington v. FCC, 569 U.S. 290, 304 n.4 (2013) (explaining that agencies do not exercise “legislative power” when making rules); INS v. Chadha, 462 U.S. 919, 953 n.16 (1983) (explaining that rulemaking “may resemble ‘lawmaking,‘” but it is not). As Justice Scalia and many others have explained, agency rulemaking and adjudicating may take “‘legislative’ and ‘judicial’ forms, but they are exercises of—indeed, under our constitutional structure they must be exercises of—the ‘executive power.‘” City of Arlington, 569 U.S. at 304 n.4.15 So, if Congress lays down an intelligible principle in a statute and also properly gives a private party power to help an agency administer that statute, no
Following the Supreme Court‘s reprimand in Carter Coal, Congress passed the Bituminous Coal Act of 1937. The 1937 Act eliminated the unconstitutional provisions of the 1935 version and “made other substantive and structural changes.” Adkins, 310 U.S. at 387. The changes included removing the private parties’ regulatory power over their competitors. Id. Instead, the statute allowed the private parties to “propose minimum prices” and other related standards to a government agency that could “approve[], disapprove[], or modif[y]” those rules. Id. at 388. They “operate[d] as an aid” to the agency. Id. The Supreme Court blessed this scheme as “unquestionably valid.” Id. at 399. Specifically, the Court held that Congress does not impermissibly delegate “its legislative authority” to a private entity, when the entity “function[s] subordinately” to a governmental agency. Id. When the agency retains the ability to “determine the prices” and exercises “authority and surveillance over” the private entity, “law-making is not entrusted to the industry.” Id.
Lawmaking is also not entrusted to the industry when Congress conditions an agency‘s regulatory power on private party approval. In Currin v. Wallace, for example, the Supreme Court upheld a scheme where a regulation could not take effect in a particular market without the approval of two-thirds of the regulated industry members in that market. 306 U.S. 1, 6, 15 (1939). There, the government possessed lawmaking power. Id. at 15 (“[T]he required referendum does not involve any delegation of legislative authority.“). The Court found that “it is Congress that exercises its legislative authority in making the regulation and in prescribing the conditions of its application” on industry approval. Id. at 16; see also United States v. Rock Royal Co-operative, Inc., 307 U.S. 533, 577-78 (1939) (upholding a similar scheme). Other circuit courts have upheld similar schemes where the effect of government regulations was contingent upon approval by a portion of the regulated industry members.17
Courts have consistently relied on Currin and Adkins in assessing private-nondelegation challenges. Just last year—in the subdelegation18 context—the Fifth
The Fifth Circuit has also addressed the private nondelegation doctrine more generally and even identified the constitutional infirmities of Carter Coal and the other cases where the Supreme Court held statutes unconstitutional under the doctrine. Boerschig, 872 F.3d at 707-09. In Boerschig, the Fifth Circuit distinguished the “so-called ‘private nondelegation’ doctrine,“—arising from the Due Process Clause—from the nondelegation doctrine rooted in “separation-of-powers” concerns, which arises from
regulatory authority, this articulation appears to set out a test requiring both an intelligible principle and subordination.
But Boerschig does not provide a perfect fit for federal delegations. Though it discussed Carter Coal, the case itself involved a delegation of state eminent domain power to private companies. Id. at 706. The company could only take another‘s land if “necessary for ‘public use‘” (the standard),
Synthesizing the above case law, HISA must clear two primary hurdles to avoid a private-nondelegation violation. First, HISA must contain an intelligible principle guiding the Authority and the FTC, ensuring that Congress has not given away its legislative power under
i. HISA confines the FTC‘s and Authority‘s discretion.
For nearly a century the Supreme Court has “held, time and again, that a statutory delegation is constitutional as long as Congress ‘lay[s] down by legislative act an intelligible principle to which the person or body authorized to [exercise the delegated authority] is directed to conform.‘” Gundy, 139 S. Ct. at 2123 (quoting Mistretta v. United States, 488 U.S. 361, 372 (1989) (quoting J. W. Hampton, Jr., & Co. v. United States, 276 U.S. 394, 406 (1928))). Indeed, its “jurisprudence has been driven by a practical understanding that in our increasingly complex society, replete with ever changing and more technical problems, Congress simply cannot do its job absent an ability to delegate power under broad general directives.” Mistretta, 488 U.S. at 372.
Those “standards . . . are not demanding.” Gundy, 139 S. Ct. at 2129. In fact, the Supreme Court “has found only two delegations to be unconstitutional. Ever. And none in more than eighty years.” Big Time Vapes, 963 F.3d at 446; see A. L. A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935); Panama Refin. Co. v. Ryan, 293 U.S. 388 (1935). Those delegations were unconstitutional because “‘Congress had failed to articulate any policy or standard’ to confine discretion.” Gundy, 139 S. Ct. at 2129 (quoting Mistretta, 488 U.S. at 373 n.7). On the other hand, the Supreme Court has “blessed delegations that authorize regulation in the ‘public interest’ or to ‘protect the public health’ or to set ‘fair and equitable’ prices. Big Time Vapes, 963 F.3d at 442 n.18 (citing Whitman v. Am. Trucking Ass‘ns, Inc., 531 U.S. 457, 472 (2001); Nat‘l Broad. Co. v. United States, 319 U.S. 190, 225-26 (1943); and Yakus v. United States, 321 U.S. 414, 426-27 (1944)). The Fifth Circuit has also “uniformly upheld Congress‘s delegations.” Id. at 442 n.17 (citing, for example, United States v. Jones, 132 F.3d 232, 239 (5th Cir. 1998) (upholding a delegation to DOJ to “define non-statutory aggravating factors” to determine “death-eligible” offenders
The Supreme Court and Fifth Circuit have both embraced a “non-blinkered brand of interpretation” when assessing whether Congress has given away its legislative powers. Id. at 443 (quoting Gundy, 139 S. Ct. at 2126). The Court is “meant also to consider ‘the purpose of the [statute], its factual background, and the statutory context‘” when “evaluating whether Congress laid down a sufficiently intelligible principle.” Id. (quoting Am. Power & Light Co. v. SEC, 329 U.S. 90, 104 (1946)). In other words, Congress must “‘(1) clearly delineate its general policy, (2) the public agency which is to apply it, and (3) the boundaries of the delegated authority.‘” Id. at 443-44 (quoting Mistretta, 488 U.S. at 372-73) (cleaned up).
First, HISA‘s general policy is clear. It expressly defines the FTC‘s and Authority‘s purposes and jurisdictional boundaries. See
and state regulation on any “matters unrelated to antidoping, medication control and racetrack and racing safety of covered horses and covered races.”
Second, the “public agency” to apply the policy highlights HISA‘s hybrid nature. Congress both “recognized” the Authority as a “private, independent, self-regulatory, nonprofit corporation” for “purposes of developing and implementing” HISA‘s two programs and tasked the FTC with “oversight” so that only the FTC possessed the power to give draft rules the force of law.
The third factor—the “boundaries” of the delegated authority—falls within the outer-limits of precedent under the Fifth Circuit‘s “non-blinkered” approach. See Big Time Vapes, 963 F.3d at 443. Under HISA, the FTC shall approve proposed rules if they are “consistent with (A) this [statute] and (B) applicable rules approved by the [FTC].”
The Horsemen assert that this framework provides no boundaries to the FTC‘s authority and “no standards upon which to base its decisions” because the statute‘s
“considerations” are given to the Authority. Dkt. No. 54 at 14. But the FTC can only approve proposed rules if they are “consistent with” the statute—and the statute contains those “considerations.”
As in Big Time Vapes, Congress restricted the agency‘s—and the Authority‘s—discretion by making some of the “key regulatory decisions itself.” Big Time Vapes, 963 F.3d at 445. HISA specifically creates the baseline list of permitted and prohibited substances by incorporating the lists “in effect for the International Federation of Horseracing Authorities.”
prohibition—furosemide—and may only do so if its board unanimously adopts four specific findings that the statute explicitly outlines: (1) the modification must be “warranted“; (2) the modification must be in the “best interests of horse racing“; (3) furosemide must have “no performance enhancing effect on individual horses“; and (4) “public confidence in the integrity and safety of racing [must] not be adversely affected.”
The Authority also has the power to propose modifications to the baseline rules. But before it can, it must consider, among other things, the following imperatives:
(1) Covered horses should compete only when they are free from the influence of medications, other foreign substances, and methods that affect their performance. (2) Covered horses that are injured or unsound should not train or participate in covered races, and the use of medications, other foreign substances, and treatment methods that mask or deaden pain in order to allow injured or unsound horses to train or race should be prohibited.
(3) The amount of therapeutic medication that a covered horse receives should be the minimum necessary to address the diagnosed health concerns identified during the examination and diagnostic process.
For the racetrack-safety program, the Act‘s boundaries are more limited. HISA directs the Authority and the FTC to consider “existing safety standards,” including those from “the National Thoroughbred Racing Association Safety and Integrity Alliance Code of Standards, the International Federation of Horseracing Authority‘s International Agreement on Breeding, Racing, and Wagering, and the British Horseracing Authority‘s Equine Health and Welfare program.”
These considerations, topics, and elements confine the bounds of Congress‘s delegated authority to provide a sufficient intelligible principle. HISA cabins Congress‘s delegation more than the many statutes the Supreme Court has upheld despite “very broad delegations.” Gundy, 139 S. Ct. at 2129. The standards it provides the Authority in proposing rules and the FTC in approving them as they seek to ensure the “safety, welfare, and integrity” of thoroughbred horseracing do not trespass the limits set by precedent.24 See Big Time Vapes, 963 F.3d at 442 n.18 (collecting cases).
An intelligible principle is necessary, but not sufficient, to save the Act, however. The FTC must still exercise “authority and surveillance” over the Authority, which must function as a “subordinate[]” private entity. Adkins, 310 U.S. at 399; Boerschig, 872 F.3d at 709 (holding that private entities cannot wield “unreviewable” power). As explained next, HISA clears that hurdle as well.
ii. The Authority functions subordinately to the FTC because the FTC retains sole power to enact binding rules after independently reviewing the Authority‘s proposals.
HISA suffers from neither of the “twin ills” the Fifth Circuit has identified as markers of private-nondelegation violations. Boerschig, 872 F.3d at 708. Unlike
In this respect, HISA mimics other self-regulatory organizations (SROs) that have consistently withstood private nondelegation challenges. See, e.g., R. H. Johnson & Co. v. SEC, 198 F.2d 690, 695 (2d Cir. 1952) (citing Adkins, 310 U.S. 381). SROs are private organizations that govern members of an industry under an agency‘s oversight.25 See, e.g.,
Circuit courts have uniformly rejected private nondelegation challenges to the Maloney Act, relying on the SEC‘s “power, according to reasonably fixed statutory standards, to approve or disapprove of [NASD] Rules.” Sorrell v. SEC, 679 F.2d 1323, 1325–26 (9th Cir. 1982) (quoting R. H. Johnson & Co., 198 F.2d at 695); see also Todd & Co. v. SEC, 557 F.2d 1008, 1012 (3d Cir. 1977). Courts have likewise rejected challenges to NASD‘s ability to impose sanctions because the SEC has the power to “review [] any disciplinary action.” Sorrell, 679 F.2d at 1326 (quoting R. H. Johnson & Co., 198 F.2d at 695). Thus, every court to consider a nondelegation challenge to the Maloney Act has concluded that there is “no merit in the contention that the Act unconstitutionally delegates power to” a private entity. Id.
Though the Fifth Circuit has not addressed a private nondelegation challenge to the Maloney Act, just last year it approvingly cited R. H. Johnson & Co.—the original case upholding the Maloney Act on nondelegation grounds. See Rettig, 987 F.3d at 532 n.12 (citing R. H. Johnson & Co., 198 F.2d at 695). There, the Fifth Circuit rejected a private-legislative-nondelegation challenge to a Department of Health and Human Services (HHS) rule that granted power to a private entity. Id. at 531-32. The rule at issue required a private board to certify that the rates that states had to pay insurers in their Medicaid contracts were “actuarially sound.” Id. at 526. But the board did so according to its own “practice standards,” leading the district court to conclude that the rule unlawfully delegated legislative power to the private board “to set rules on actuarial soundness.” Id. at 530-31. The Fifth Circuit first found that HHS did not subdelegate legislative authority to private entities because it only “reasonably conditioned” HHS‘s approval of state Medicaid contracts on the actuaries’ standards and certification. Id. at 531. Next, assuming arguendo that “HHS subdelegated authority to private entities,” the Fifth Circuit held that “such subdelegations were not unlawful.” Id. at 532. The private board “function[ed] subordinately to” HHS because HHS maintained “final reviewing authority” over its activities. Id. (citing Adkins, 310 U.S. at 399). That is, HHS “independently perform[ed] its reviewing, analytical and judgmental functions.” Id. (citing Sierra Club v. Lynn, 502 F.2d 43, 59 (5th Cir. 1974)). Because HHS “reviewed and accepted” the board‘s standards, the rule did not “divest HHS of its final reviewing authority.” Id. at 532-33 (citing Louisiana Pub. Serv. Comm‘n v. FERC, 761 F.3d 540, 552 (5th Cir. 2014)).
HISA passes muster under Rettig‘s rubric as well. Structurally, the FTC possesses final reviewing authority over all of the Authority‘s proposed rules and standards.
To be sure, the subdelegated power in Rettig concerned only “a small part of the [contract] approval process” and that process was “closely ‘superintended by HHS in every respect.‘” Rettig, 987 F.3d at 533 (citing Tabor v. Joint Bd. for Enrollment of Actuaries, 566 F.2d 705, 708 n.5 (D.C. Cir. 1977)). In HISA, by contrast, Congress instructs the Authority to draft myriad medication control and racetrack safety rules. See
Another Fifth Circuit subdelegation case, City of Dallas v. FCC, similarly fails to help the Horsemen. 165 F.3d 341 (5th Cir. 1999). There, the FCC promulgated a blanket rule banning cable operators from providing video programming coming from other service providers (OVS operators). Id. at 357. But under another FCC rule, OVS operators (private entities) could “selectively” lift this general ban for cable operators without any FCC oversight. Id. at 358. The Court held the FCC rule—permitting OVS operators to discriminate amongst cable operators—contradicted the plain language of the statute and impermissibly delegated regulatory authority to a private entity. Id. at 357-58. Critically, however, the FCC could not review the private entities’ regulatory decisions. See In the Matter of Implementation of Section 302 of the Telecommunications Act of 1996 Open Video Sys., 11 F.C.C. Rcd. 20227, 20253 ¶ 52 (1996) (“We believe that it is not appropriate for the Commission to deny an open video system operator the independent business discretion to decide that a cable operator‘s presence on its system may be beneficial.” (emphasis added)). So while the Horsemen correctly assert that the FCC could not modify the private entities’ decisions, the FCC also could not approve or disapprove their decisions. Dkt. No. 38 at 27. Here, the FTC can. See
But the subdelegation inquiry likely differs from Congress‘s choice to involve a private entity in the regulatory process. In the subdelegation context, courts must ensure that an agency does not abdicate its statutory duties when reviewing particular private actions. Rettig, 987 F.3d at 532; Lynn, 502 F.2d at 59 (noting that the statute does “not permit the responsible federal agency to abdicate its statutory duties by reflexively rubber stamping a statement prepared by others“; rather, “the agency must independently perform its reviewing, analytical and judgmental functions“); see also Sierra Club v. Sigler, 695 F.2d 957 (5th Cir. 1983).
957, 962 & n.3 (5th Cir. 1983). Here, by contrast, whether the FTC abdicates its statutory duties is irrelevant to the central question this facial challenge presents: whether the Authority‘s and FTC‘s assigned “statutory duties” were lawful in the first instance. That is why the subdelegation inquiry fits better with an as-applied challenge to a specific agency action—for example, failing to independently analyze and review a proposed rule—than with a facial challenge where the plaintiff must show that “no set of circumstances exists under which the Act would be valid.” United States v. Salerno, 481 U.S. 739, 745 (1987). In any event, the Congressional authorization here likely puts HISA on firmer constitutional footing than subdelegations further removed from Congressional will. “[I]t is one thing to bless a Congressional decision to involve private parties in the rulemaking process. It is quite another to allow an agency—already acting pursuant to delegated power—to re-delegate that power out to a private entity.” Rettig, 993 F.3d at 415 (Ho, J.) (dissenting from denial of rehearing en banc) (citing Gundy, 139 S. Ct. at 2123).
Still, the Horsemen argue that the statute itself renders the FTC a rubber stamp because the FTC has no pre-existing expertise in horseracing and only has 60 days to review proposed rules. Dkt. Nos. 38 at 23. Historically, valid private-public partnerships have involved agencies that possess independent expertise over the industry they are tasked with regulating. For example, the National Bituminous Coal Commission had expertise in the coal industry, and the SEC has expertise in securities regulation. See Adkins, 310 U.S. at 387-88; Scottsdale Cap. Advisors Corp. v. FINRA, 844 F.3d 414, 417-18 (4th Cir. 2016). This abnormality, however, is not fatal. While the Horsemen‘s concern is understandable—the parties agree that the FTC lacks pre-existing expertise in thoroughbred horseracing—neither contention presents an adequate legal basis on a facial challenge to hold that FTC review will automatically prove meaningless. Rather, the Court must presume that the FTC “will act properly and according to law.” See FCC v. Schreiber, 381 U.S. 279, 296 (1965); see also United States v. Raines, 362 U.S. 17, 22 (1960) (“The delicate power of pronouncing an Act of Congress unconstitutional is not to be exercised with reference to hypothetical cases.“). And, at the hearing, the Horsemen stated that they were not concerned with the FTC wielding regulatory control over them. Tr. at 117 (clarifying that they had no preference between being regulated by the Department of Agriculture or the FTC). The Horsemen‘s concern lies with the Authority‘s power. Id. at 117-18.
Moreover, some of HISA‘s goals fit neatly into the overall mission of the FTC—stopping unfair, deceptive, or fraudulent practices and promoting competition. Dkt. No 38 at 12. Congress passed HISA, in part, to stop cheating through the use of unauthorized substances and to otherwise increase the fairness of competition in horseracing and wagering. See, e.g.,
iii. HISA‘s unique features do not transform the Authority into an insubordinate entity, free from sufficient FTC oversight.
The Horsemen make several other compelling arguments, highlighting the unusual nature of the FTC-Authority relationship, but none establish a private nondelegation violation under current law.
a. The FTC‘s limited power to draft rules itself does not create a private nondelegation violation.
Though an uncommon feature in public-private partnerships, the FTC‘s limited ability to draft rules does not necessarily convert the Authority into an insubordinate entity in the rulemaking scheme. Without Authority proposals, the FTC may adopt interim final rules “if the Commission finds that such a rule is necessary to protect—(1) the health and safety of covered horses; or (2) the integrity of covered horseraces and wagering on those horseraces.”
But Congress‘s decision to restrict the FTC‘s stand-alone rulemaking power parallels the private veto allowed in Currin, 306 U.S. at 16. The Supreme Court has long allowed private parties to reject agency rules until their substance reflects the private parties’ preferences. Id.; see Rock Royal, 307 U.S. at 577-78; see
Relying on the Amtrak litigation, the Horsemen argue that giving private parties both the power to draft rules and the power to veto the government‘s preferences violates the private nondelegation doctrine. Dkt. No. 38 at 21-26. Indeed, Congress can enter precarious territory when attempting to combine roles that private parties may play in the rulemaking process. HISA, however, does not transgress these limits.
In Amtrak I, the D.C. Circuit struck down
Referring to the valid arrangements in Adkins and Currin, the D.C. Circuit suggested that a private party‘s involvement may become unconstitutional when granted two separately permissible roles: (1) drafting and proposing regulations (Adkins) and
(2) effectively vetoing regulations developed by an agency (Currin). Amtrak I, 721 F.3d at 671. Even if the statute “merely synthesize[d] elements approved by Currin and Adkins, that would be no proof of constitutionality.” Id. at 673. “[N]ovelty,” the court warned, “may, in certain circumstances, signal unconstitutionality.” Id. (citing Free Enter. Fund, 561 U.S. at 505-06). The court rejected the government‘s argument that the Constitution only required “the government‘s ‘active oversight, participation, and assent in its private partner‘s rulemaking decisions.‘” Id. That proposition—one the court found “nowhere in the case law—vitiate[d] the principle that private parties must be limited to an advisory or subordinate role in the regulatory process.” Id. And because an arbitrator settled disagreements between Amtrak and the FRA, “it would have been entirely possible for metrics and standards to go
While not disturbing the D.C. Circuit‘s private nondelegation analysis, the Supreme Court vacated Amtrak I, holding that Amtrak was a governmental—not private—entity. Amtrak II, 575 U.S. at 55. Nonetheless, on remand, the D.C. Circuit held that
The ultimate remedy? Severing the arbitration provision. Amtrak IV, 896 F.3d at 545. “For it empowered Amtrak to impose on its competitors rules formulated with its own self-interest in mind, without the controlling intermediation of a neutral federal agency.” Id. (emphasis added). The problem was that “Amtrak, through unilateral resort to the arbitrator, had the power ‘to make law’ by formulating regulatory metrics and standards without the agreement or control of the Administration.” Id. at 548 (quoting Amtrak III, 821 F.3d at 23). Consistent with the Fifth Circuit‘s analyses in Boerschig and Rettig, the D.C. Circuit found that the power to make law without government review or approval violated the Due Process Clause under Carter Coal. See id. at 541.
Because the arbitration provision allowed Amtrak‘s standards to take legal effect over the government‘s objection, the D.C. Circuit could distinguish the cases upholding the SEC-NASD model. Amtrak I, 721 F.3d at 671 n.5 (“In none of these cases did a private party stand on equal footing with a government agency.“) (citing, inter alia, Sorrell, 679 F.2d at 1325-26). Here, by contrast, the Authority can never enact rules without FTC review and approval.
The Horsemen‘s reliance on the dissenting judges’ nondelegation analysis in Brackeen v. Haaland likewise falls short. Dkt. No. 38 at 23. In Brackeen, the plaintiffs challenged the Indian Child Welfare
But the Horsemen urge the Court to apply the nondelegation reasoning of the dissenting judges, which treated the tribes as private entities in part of its analysis. Dkt. No. 38 at 23-24. First, the dissenting judges would have found a nondelegation violation because the statute did not “delegate to tribes authority merely to regulate under Congress‘s general guidelines.” Brackeen, 994 F.3d at 420 (Duncan, J., dissenting). Rather, it “empowere[d] tribes to change the substantive preferences Congress enacted” and “bind courts, agencies, and private persons to follow them.” Id. at 421. Second, viewing the statute as delegating only regulatory—not legislative—authority, they would still have held it unconstitutional “because it delegates that authority outside the federal government.” Id. at 422. The Horsemen translate this to mean “when an entity is private, it cannot be given the sole authority to draft regulations.” Dkt. No. 38 at 23-24 (emphasis added).
But the Horsemen‘s translation has never been the test, as the SEC-FINRA model demonstrates. Drafting for agency review was not the problem—drafts do not bind. The problem in Brackeen (for the dissenters, at least) was that the statute empowered tribes to draft, enact, and bind others to their preferences. Here, by contrast, the Authority cannot change Congress‘s preferences. In fact, it cannot change anything: the FTC retains the exclusive power to give draft rules the force of law and, in doing so, ensures that the Authority‘s proposals are consistent with—not contrary to—Congress‘s will.
b. HISA adequately guides the FTC in its review of proposed rules.
The Horsemen also attack the “limited guidance” HISA gives the FTC in its review of proposed rules because the FTC must approve proposed rules that are “consistent with” the Act and with “applicable rules.” Dkt. No. 54 at 14;
horses, covered persons, and covered horseraces.”
Similarly, Congress itself provided lists of the baseline rules for the medication control program.
Finally, the notice and comment period also buttresses FTC review by allowing all industry stakeholders to highlight potential inconsistencies with HISA.
Despite HISA‘s unique characteristics, the Horsemen‘s argument is also undermined by the fact that HISA‘s consistency review tracks the SEC‘s review of FINRA rules. Under the Maloney Act, the SEC “shall approve a proposed rule change of a self-regulatory organization” if “consistent with” the requirements of the Maloney Act and applicable rules.
c. The FTC‘s inability to formally modify proposed rules does not render HISA unconstitutional under current law.
Because the FTC has the power to approve, disapprove, and recommend modifications to the Authority‘s proposed
Though arising in the subdelegation context, the Fifth Circuit‘s view also supports the conclusion that Adkins did not turn on the commission‘s ability to modify proposed rules. In Rettig, HHS retained no ability to modify the private board‘s standards and certifications. 987 F.3d at 532. Rather, aside from the drastic remedy of repealing the board‘s involvement entirely, HHS could only “review[] and accept[]” the board‘s standards. Id. at 533. That HHS lacked modification power formed one of the dissent‘s primary critiques. See 993 F.3d at 415 (Ho, J.) (dissenting from denial of rehearing en banc) (“[W]hile the instant scheme arguably allows HHS to ‘approve’ private standards and actuarial certifications, it emphatically does not leave HHS free to ‘disapprove or modify’ them.“) (quoting Amtrak I, 721 F.3d at 671). This Court, of course, is bound by majority opinions.
Consistent with the analyses of Adkins and Rettig, the decisions upholding the Maloney Act against delegation challenges do not rest their conclusions on the SEC‘s ability to “modify” NASD rules. See, e.g., Todd & Co., 557 F.2d at 1012. Rather, courts have limited their rulemaking analyses to whether the agency could “approve or disapprove” the private entity‘s rules even though the SEC retains authority to amend their rules. Id.; see Aslin v. FINRA, 704 F.3d 475, 476 (7th Cir. 2013) (citing
Again, the Horsemen‘s grievance is understandable. Unlike the SEC-FINRA relationship, the FTC needs the Authority to function as a typical regulator. See In re Series 7 Broker Qualification Exam Scoring Litig., 548 F.3d 110, 114 (D.C. Cir. 2008) (“Absent the unique self-regulatory framework of the securities industry, [FINRA‘s] responsibilities would be handled by the SEC.“). Only an act of Congress could permanently amend any Authority rule or divest it of its powers. The FTC may never command the Authority to change its rules or abolish its role in the administrative process. But Congress has
Though the Fifth Circuit has not yet confronted a scheme like HISA, its precedents on the private nondelegation doctrine indicate that Congress has not given away its legislative power under
B. The Authority‘s enforcement powers comport with due process.
Outside of the Authority‘s rule-drafting power, the Horsemen argue that several of the Authority‘s non-legislative regulatory functions violate the private nondelegation doctrine. Dkt. No. 38 at 21-32. For example, the Horsemen challenge the Authority‘s power to investigate and punish rule violations.
The Authority does not have the “unrestrained ability to decide whether another citizen‘s property rights can be restricted.” Boerschig, 872 F.3d at 708. The Authority may only investigate rule violations according to “uniform procedures” reviewed and approved
by the FTC, and they cannot impose any penalty or sanctions without providing due process and an impartial tribunal.
Case law supports this conclusion. The Maloney Act authorizes private entities to perform certain investigative and disciplinary functions, subject to the SEC‘s oversight. See
By contrast, in Carter Coal, Eubank, and Roberge—the cases invalidating private delegations—“the actions of the private party [were] unreviewable.” Boerschig, 872 F.3d at 709. Any deprivation caused by their actions was “final.” Boerschig, 872 F.3d at 708 (quoting Roberge, 278 U.S. at 121-22). To the extent these enforcement powers implicate
C. The Authority is not a self-interested industry competitor.
Relying on Amtrak III, the Horsemen also move for summary judgment under the theory that they will be regulated by an economically self-interested competitor in violation of due process. Dkt. 38 at 7. The test they put forth asks whether “a self-interested entity” possesses “regulatory authority over its competitors.” Amtrak III, 821 F.3d at 32-34. They assert, however, that the “legal analysis is the same whether the economic self-interest constitutes a violation of the Due Process Clause or the private nondelegation doctrine.” Dkt. No. 38 at 32 (citing Amtrak I, 721 F.3d at 671 n.3). The Authority agrees. Dkt. No. 56 at 36. And, as discussed, the Fifth Circuit treats the private-nondelegation doctrine as a due process issue, suggesting that the claims are coterminous. See Boerschig, 872 F.3d at 707-09 (discussing Carter Coal). Having already found that HISA falls within the permissible boundaries of private-nondelegation precedent, this claim fares no better for the same reasons.
Assuming that the inquiries are different, however, the Court finds that the Authority is not a self-interested industry competitor creating a due process violation under the Horsemen‘s alternate theory. HISA explicitly protects against self-interest while preserving industry representation in the Authority. Five of the Authority‘s nine board members must be “independent members selected from outside the equine industry,” meaning that directors in the controlling coalition cannot be members or representatives of any organization of “owners, breeders, trainers, racetracks, veterinarians, State racing commissions, and jockeys.”
The Horsemen‘s CEO alleges in his affidavit that the Horsemen “compete in the horseracing industry with those who selected the Nominating Committee for the Authority and advocated for passage of HISA. Dkt. No. 39-1 at 3. The Authority disputes this “unfounded conclusion.” Dkt. No. 56 at 12. And the Horsemen later admit that it is “impossible to know who selected the nominating committee members.” Dkt. No. 59 at 21. In any event, the dispute is not material. While the selection of the Nominating Committee is less than clear, it does not repeal the conflict-of-interest provisions found in the statute, nor render their protections meaningless. HISA prevents the type of “structural risk” that may present due process problems. See N. Carolina State Bd. of Dental Examiners v. FTC, 574 U.S. 494, 510 (2015). All seven members of the Nominating Committee must be “independent,” equally subject to the conflict-of-interest provisions, which bar them from financial, commercial, and familial relations with the industry.
The Horsemen also argue that the standing committees—which provide advice to the Board—are infected with self-interest, but their argument fails for similar reasons. Four of the seven members of both committees must be independent and subject to the conflict-of-interest provisions.
In addition, the Horsemen also argue that the Authority itself is self-interested because they will charge fees. Dkt. No. 54 at 30. Such is the nature of any “self-regulatory” organization, which, unlike Amtrak, has no profit-seeking motive as a nonprofit corporation. See
To the extent the Horsemen are concerned about self-interest in the disciplinary process, HISA again mitigates any concerns despite stricter due process demands for “adjudicatory” functions than for “rulemaking” functions. Amtrak III, 821 F.3d at 27 n.3 (distinguishing Marshall v. Jerrico, Inc., 446 U.S. 238, 248 (1980) (recognizing “rigid requirements” of impartiality for adjudicators); Tumey v. Ohio, 273 U.S. 510, 532 (1927) (finding a due process violation when a mayor sat as judge over a criminal trial where he would receive the fines he imposed); Ward v. Village of Monroeville, 409 U.S. 57 (1972) (similar); Gibson v. Berryhill, 411 U.S. 564, 578 (1973) (finding that an Optometry Board “composed solely of optometrists in private practice for their own account” was “so biased by prejudgment and pecuniary interest that it could not constitutionally conduct [license revocation] hearings” for other optometrists)). Here, the statute requires that “impartial hearing officers or tribunals” conduct all rule violation adjudications according to procedures—approved by the FTC—that afford adequate due process before any sanction may be imposed.
Given the statutory protections, the Authority‘s nonprofit, self-regulatory nature, and its subordinate role to the FTC in the regulatory process, the Horsemen‘s alternative due-process theory fails.
5. Conclusion
The Court recognizes that HISA‘s regulatory model pushes the boundaries of public-private collaboration. The Court also acknowledges the dramatic change that HISA imposes nationwide on the thoroughbred horseracing industry. But that change resulted from a decision of the people through Congress. And despite its novelty, the law as constructed stays within current constitutional limitations as defined by the Supreme Court and the Fifth Circuit. Perhaps the Supreme Court or the Fifth Circuit will cabin their private-nondelegation precedent in light of HISA‘s reach. But this district court will not “read tea leaves to predict where [the doctrines] might end up.” Big Time Vapes, 963 F.3d at 447 (quoting Mecham, 950 F.3d at 265). Indeed, “[d]eclaring unconstitutional an Act of Congress, duly adopted by the Legislative Branch and signed into law by the Executive, is one of the gravest powers courts exercise.” Amtrak IV, 896 F.3d at 544. And under present articulations of the private-nondelegation doctrine, the plaintiffs’ challenge must fail.
The plaintiffs abandoned their Appointments Clause claim (Claim II) and public nondelegation claim (Claim III), so they are dismissed. The Court denies the plaintiffs’ motion for summary judgment (Dkt. No. 37) and grants the defendants’ motions to dismiss (Dkt. Nos. 34; 36) the plaintiffs’ Article I private-nondelegation claim and due-process claim. Because the plaintiffs’
So ordered on March 31, 2022.
JAMES WESLEY HENDRIX
UNITED STATES DISTRICT JUDGE