FROM THE TDN: Oral Arguments In Sixth Circuit HISA Case Heard Wednesday

By Daniel Ross

CINCINNATI, OHIO — The latest challenge to the Horseracing Integrity and Safety Act (HISA) was the first case before the three judges selected to weigh in on the law’s constitutionality Wednesday in the United States Court of Appeals for the Sixth Circuit, in Cincinnati.

The plaintiffs comprise the state of Louisiana; Oklahoma and its racing commission, plus West Virginia and its racing commission. Three Oklahoma tracks-Remington Park, Will Rogers Downs, and Fair Meadows-are also plaintiffs, as are the Oklahoma Quarter Horse Association, the U.S. Trotting Association, and Hanover Shoe Farms, a Pennsylvania Standardbred breeding entity.

On the other side of the aisle are the United States of America, the HISA Authority, and six individuals acting in their official capacities for the Federal Trade Commission (FTC).

Whether the brisk winter gloom that cloaked the austere courthouse in Downtown Cincinnati Wednesday morning was a good omen for the federal law, or a portent of further legal trouble ahead, is undecided for now, the three-judge panel offering no obvious tip of the hat as to which way it will rule as a body, though with some important clues as to their individual preferences.

The two conservative judges on the panel–Jeffrey Sutton and Richard Griffin–were the most vocal in grilling lawyers from both sides, who each were originally given 15 minutes to argue their cases, with the clock running well over time.

Judge Ransey Guy Cole, the most liberal judge on the panel, remained the quietest, largely staying away from hard constitutional questions.

Sutton–an expert on state constitutionality–was the most vociferous of the three judges, repeatedly drilling down on both sides into whether the FTC has sufficient rule making power over the Horseracing Integrity and Safety Authority, the private entity charged with developing rules related to medication control and racetrack safety, and otherwise just known as the Authority.

The key issues surrounded the FTC’s interim rule making power, and whether that was enough of an independent mechanism to keep it from being subordinate to the Authority– key problem, in the eyes of the conservative judges.

In other words, the Authority appears to wield a lot of “discretion” in the rule-making process “not reviewable” by the FTC, said Sutton. “And that’s a worry,” he added.

Towards the end of the oral arguments in the Sixth Circuit–which has legal jurisdiction over the states of Kentucky, Michigan, Ohio and Tennessee–Griffin’s mind appeared firmly set against the constitutionality of the law, as written.

“The Authority has so much broad power that is not subject to review by the FTC” other than in its ability to review a proposed rule’s consistency with the statutes, said Griffin.

Sutton, however, appeared somewhat swayed by the earlier arguments of attorney Pratik Shah, representing the FTC.

In pre-hearing court filings, lawyers representing the plaintiffs cite the recent ruling in the Fifth Circuit Court of Appeals, which reversed an earlier Northern District of Texas’s decision that had found HISA constitutional.

The plaintiffs point out that the Fifth Circuit found HISA fundamentally different from another important relationship between a governmental agency and a private entity–that between the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA)–because the SEC has the power to “abrogate, add to, and delete from FINRA rules as the SEC deems necessary or appropriate.’”

In contrast, “HISA unambiguously and ‘explicitly limits agency review to ‘consistency,’” wrote the plaintiffs, adding that, “In sum, that court explained that ‘the Constitution vests federal power only in the three branches of the federal government,’ but HISA ‘defies this basic safeguard by vesting government power in a private entity not accountable to the people,’” wrote the plaintiffs.

On Wednesday, Shah argued that the makeup of the rule-making relationship between the FTC and the Authority indeed mirrored that between the SEC and FINRA.

In being limited to reviewing the consistency of the Authority’s proposed rules, the FTC was very similar to “a lot of law” in the relationship between the SEC and FINRA, Shah said.

Furthermore, Shah argued that the FTC’s ability to write and promulgate interim final rules, many of which would go into permanent effect, is indeed enough of an independent mechanism–in the vein of the SEC–to counter concerns that the FTC has no ability to modify rules proposed by the Authority.

Attorney Matthew McGill, representing the plaintiffs, challenged that notion, arguing that the Authority has broad discretion to write its own rules, “and the FTC is utterly powerless to modify that.”

Griffin appeared sympathetic towards that argument, noting unfavorably that the FTC still remains “much more limited” in its scope to write interim final rules than the Authority’s rule-making discretion.

In wrapping up his arguments, Shah referenced the defendants’ own court documents–in the process, sign-posting a possible endpoint for the case.

In court documents, the defendants claim that the Fifth Circuit’s ruling from last month “contradicts (without addressing) the FTC’s interpretation of its independent rulemaking authority under section 3053(e), FTC Br. 32-35, and turns constitutional avoidance on its head.

“The panel’s holding also overlooks that the Coal Commission in Sunshine Anthracite Coal Company v. Adkins could modify proposed minimum prices only ‘to conform to the requirements’ of the statute, not at its freewheeling discretion, Authority Br. 37-38–yet that scheme was ‘unquestionably valid,’” the defendants write.

“For both reasons, the Fifth Circuit panel’s decision is wrong–and stands at odds with not only the two other federal courts that have upheld HISA, but also 80 years of precedent from the Supreme Court (Adkins) and the courts of appeals (uniformly upholding the SEC-FINRA model). Accordingly, this Court should reject the Fifth Circuit’s wayward decision,” the defendants wrote.

On Wednesday, Shah called the Adkins case “the most factually analogous” to the one before the Sixth Circuit, saying that it’s “up to the Supreme Court to overturn Adkins.”

Mention of the Supreme Court raises the possibility that the highest court in the land potentially hears this case, or the one before the Fifth Circuit. For that to happen, a number of dominoes must first fall, however.

Constitutional law experts say that the Supreme Court would be more inclined to hear a HISA-related case in the event of conflicting rulings between the different appeals courts–in other words, if the Sixth Circuit finds that HISA is indeed constitutional as written.

In the interim, HISA’s proponents are apparently seeking a congressional re-write of the rules, to cede the FTC greater input on the rule making process.

Last week, it was reported that Kentucky Senator Mitch McConnell–who was so instrumental in pushing HISA through in 2020–is seeking that fix to be included in the full-year omnibus spending bill, which could pass later this month.

Whether or not that happens, HISA’s anti-doping and medication control program is scheduled to go into effect on Jan. 1 in the vast majority of states that conduct pari-mutuel wagering.

If a congressional fix isn’t sought soon, however, and if the defendants fail to get a stay in the Fifth Circuit decision, HISA will no longer be legally binding in the states of Louisiana, Texas and Mississippi come Jan. 10 next year.

Rarely if ever has the industry been in such flux–cold comfort for the thousands of trainers, jockeys, grooms, hotwalkers, exercise riders, breeders, farriers and assortment of other industry stakeholders that rely on it for their living.