Federal Judge Dismisses Second Lawsuit Claiming HISA Is Unconstitutional - Horse Racing News | Paulick Report

Federal Judge Dismisses Second Lawsuit Claiming HISA Is Unconstitutional

Opponents of the Horseracing Integrity and Safety Authority and the law that created it lost another round in court on Friday, June 3, when a federal judge in Kentucky dismissed a lawsuit claiming the law forming the independent, non-governmental organization is unconstitutional because it grants legislative powers to the Authority.

Joseph M. Hood, United States District Court Judge for the Eastern District of Kentucky's Central Division in Lexington, dismissed the claim, a little over two months after a federal judge in Texas threw out a similar suit filed by the National Horsemen's Benevolent and Protective Association and a number of its state affiliates.

A variety of organizations brought this action, including  the states of Oklahoma, West Virginia and Louisiana; racing commissions in Oklahoma and West Virginia; the United States Trotting Association and the Hanover Shoe Farm run by the USTA's president, Russell Williams; the Oklahoma Quarter Horse Association; and the operators of Oklahoma racetracks Fair Meadows, Remington Park and Will Rogers Downs.

At the heart of their suit, the plaintiffs assert that the Authority, as a private entity, is unconstitutionally dictating rules and regulations to the Federal Trade Commission, the branch of government that oversees the organization charged with enforcing racetrack safety and anti-doping and medication control programs for Thoroughbred racing in the U.S. The Authority's racetrack safety programs goes into effect July 1, 2022, with the anti-doping and medication control program scheduled to go into effect Jan. 1, 2023.

The Horseracing Integrity and Safety Act that created the Authority gives ultimate power to the FTC to approve or reject proposed rules from the Authority board . Plaintiffs, however, felt the law puts the FTC, as Hood wrote in his opinion, in a “ministerial role where the FTC is forced to act as a rubber stamp for the Authority's proposed rules.”

The legislation that led to the Authority is modeled on the Maloney Act, a 1938 law amending the Securities Exchange Act by creating the Financial Industry Regulatory Authority (FINRA) that developes and enforces rules in the securities markets. Like the Authority, FINRA is a non-governmental independent agency. In both cases, the government entities that oversee the Authority and FINRA may only approve proposed rules and regulations if they are consistent with the requirements of the laws that created them.

If the FTC does not approve the rules and regulations proposed by the Authority, it may make recommendations to modify them.

“In the event the Authority fails to incorporate the FTC's recommended modifications,” Hood wrote in his order, “the FTC has the power to disapprove the proposed rule until the Authority makes the recommended modification, meaning the FTC retains the ability to control what becomes a binding rule and can contribute to the language of the proposed rule through recommendations that must be made for the Authority to resubmit.”

Plaintiffs also objected that the Authority operates with “self interest” because four of the nine board members are from within the Thoroughbred industry – even though none is allowed to have any direct involvement or vested interest. Hood found that argument lacks merit for the same reason, namely that even if the Authority is “comprised of self-interested competitors,” it “is subordinate to the FTC in the regulatory process.”

Hood also rejected plaintiffs' allegations that HISA unconstitutionally commandeers states by requiring them to fund the Authority's operations. According to the law, states “may elect” to remit fees on behalf of their members but are not required to do so.

“The provision neither requires the states to collect fees from covered persons nor does it involve state funds,” Hood wrote. “Instead, it is merely a requirement on private entities, i.e., the covered persons, to remit fees to the Authority. … Under HISA, the consequence of a state not opting to collect the remitted fees from its members is that the state may not collect funds for related regulation of their own because HISA provides 'exclusive national authority' over covered activities and state(s) that Authority rules 'shall preempt any provision of state law or regulation with respect to matters within the jurisdiction of the Authority under this Act.”

Hood's order granted a motion by the defendants (the Authority, the Federal Trade Commission and numerous FTC officers) to dismiss the action based on “failure to state a claim upon which relief can be granted.”

Like the Texas suit that was also dismissed, Hood's order is expected to be appealed.

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