Wednesday, September 23, 2020
Lexington, KY – The Jockey Club today released a response from its general counsel, Marc Summers, to the United States Trotting Association’s (USTA) recent assertion that the Horseracing Integrity and Safety Act (HISA) is unconstitutional.
In a recent press release, the USTA touts a secret “white paper” purportedly concluding that the HISA is “possibly” unconstitutional. Of course, no one else has set eyes on this white paper. But it is hardly surprising that — after months of USTA opposition to any bill like HISA — the USTA’s hired-gun law firm would come up with the USTA’s preordained conclusion.
The USTA’s unwillingness to release its legal analysis is telling: In reality, HISA is carefully crafted and constitutionally sound. The bill has been rigorously vetted. Many attorneys from different sectors (including Supreme Court and constitutional experts from Akin Gump Strauss Hauer and Feld LLP) have thought through the very issues the USTA raises, because we anticipated that those who oppose the bill for other reasons would lob this type of unfounded attack. In the face of decades of precedent supporting the proposed statutory scheme, none of the USTA’s four constitutional arguments withstands scrutiny.
The Horseracing Integrity and Safety Authority (Authority) designated in HISA is subject to the oversight and approval of the Federal Trade Commission (FTC) in at least two critical respects. On the front end, the Authority must file any proposed rules (or rule changes) with the FTC, which must subject the rules to proper notice-and-comment and agency-approval procedures. Without the FTC’s approval, the rules cannot take effect and have no binding legal force. On the back end, all sanctions imposed bythe Authority “shall be subject to review by an administrative law judge” appointed by the FTC, subject to yet further review by the commissioners. Far from the “exalted brooding” the USTA criticizes, these statutorily mandated constraints ensure the FTC’s ultimate responsibility for any meaningful action carried out under the HISA.
This relationship mirrors the enduring and effective model adopted by the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC). FINRA is a private, independent, nonprofit, self-regulatory organization that participates in the regulation of the securities brokerage industry, subject to SEC oversight. As with the proposed Authority-FTC scheme, FINRA rules must be approved by the SEC and FINRA’s disciplinary actions are subject to SEC review. Courts considering challenges to FINRA on the non-delegation grounds that the USTA’s press release trumpets consistently have held that the contentions have “no merit.”
Grasping at straws, the USTA warns about (undefined) “law-enforcement powers” that “would be free from FTC oversight.” As an initial matter, the predicate for USTA’s warning is false: Any powers carried out by the Authority, whether analogized to “law-enforcement powers” or not, would be cabined by specific rules the FTC adopts and specific review the FTC conducts over any resulting sanctions. In any event, the Authority’s investigatory powers also parallel those that FINRA routinely carries out with respect to securities brokers and firms. In fact, other statutory schemes — such as Congress’ express grant of broad investigatory authority to the U.S. Anti-Doping Agency (USADA), a private entity recognized as the official anti-doping agency for Olympic sports — impose far fewer constraints on self-regulatory organizations than the FINRA-SEC and Authority-FTC models impose.
2. Hedging its non-delegation challenge, the USTA alleges that the HISA may run afoul of the Appointments Clause and Article II removal restrictions. But the USTA does not acknowledge, let alone resolve, the tension between its two arguments: The non-delegation theory rests on the notion that HISA delegates regulatory authority to a private entity. Meanwhile, the Appointments Clause and removability concerns apply only to federal (i.e., non-private) entities. The fact that the pre-existing Authority designated by HISA is private — as USTA emphasizes to support its non-delegation challenge — dooms any Appointments Clause or removability challenge.
3. USTA’s due process theory fares no better. Ignoring the exceedingly difficult standard for bringing a successful claim under the Due Process Clause, the press release vaguely cautions against “economically self-interested private actors.” But the Authority’s only interest is improving the integrity and safety of horse racing. The “capture” theory that the USTA creates out of whole cloth lacks any basis. As the USTA recognizes, the majority of the Authority’s board members are “independent” (i.e., from outside the equine industry). To be sure, the remaining board members will have industry experience and engagement. But it is difficult to understand how that statutory recognition of the value of informed voices constitutes a deprivation of due process. What’s more, with respect to that minority group of board members, HISA expressly provides for equal representation among each of the six equine constituencies (trainers, owners and breeders, tracks, veterinarians, state racing commissions, and jockeys). And the committee tasked with nominating eligible candidates for board and standing-committee positions is made up of entirely non-industry members. The HISA further imposes broad conflicts-of-interest requirements to ensure that all board members and independent standing committee members (and their employees and family members) are free of all equine conflicts of interest.
All those safeguards mean the Authority’s board will be even more constrained from self-dealing than the leadership of other self-regulatory organizations, including FINRA. Regardless, established precedent confirms what common sense indicates: Even when a private entity is engaged in the regulatory process, agency authority and surveillance serve as adequate guards against any promotion of self-interest. See, e.g., Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 399 (1940). The FTC’s ability to overrule the Authority’s proposed rules and sanctions ensures that neither the Authority nor the individuals making up its board can “use their position for their own advantage — to the disadvantage of their fellow citizens.” Pittston Co. v. United States, 368 F.3d 385, 398 (4th Cir. 2004).
4. Finally, no part of HISA commands states to do anything to which they don’t freely agree. Instead of requiring the states to undertake any particular duties, the bill presents them with genuine choices: They can work with the Authority to effect the anti-doping program or they can relieve themselves of enforcement activity, with the Authority implementing the horse racing anti-doping and medication control program in the state. Further, the weakness in the USTA’s anti-commandeering argument is laid bare by its reliance on an incorrect quotation from the bill. Rather than providing that “State law enforcement authorities shall cooperate and share information with the Authority,” the bill directs the Authority “to cooperate and share information” with state and federal law enforcement authorities whenever its investigation into violations of the horse racing anti-doping and medication control program uncovers a violation of state or federal law.
For all its grandstanding, the USTA’s bottom line (apparently quoting its attorneys) is underwhelming to say the least: The “enactment would lead to extensive litigation and the possible invalidation of the statute.” Anyone can sue over anything — the mere existence of litigation says nothing about its likelihood of success. These are the facts: The HISA is ground firmly in 70 years of precedent and the Authority-FTC relationship closely parallels the long-running FINRA-SEC model. However, anything is “possible.” It is possible to place a winning trifecta bet six races in a row. But it is not likely. If Congress rejected every bill that could be litigated and “possibly” invalidated, it would never enact a new law.
The HISA is on solid constitutional footing.