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Sixth Circuit hears bid to dismantle horse racing authority

A trio of states say giving rulemaking authority for horse racing to an unaccountable entity through a piece of legislation is the “most obnoxious form" of private delegation in the nation's history.

CINCINNATI (CN) — Regulatory authority for the horse racing industry should be left to states or the federal government, not a private entity with unfettered power, according to arguments made by Oklahoma, West Virginia and Louisiana before the Sixth Circuit on Wednesday.

The three states, along with several governing bodies for the industry, sued the federal government in 2021, claiming the creation of the Horseracing Integrity and Safety Authority Inc., or HISA, violated the U.S. Constitution and deprived them of any rulemaking authority.

HISA was created by the Horseracing Integrity and Safety Act as a means to address doping and track safety conditions across the United States, but Oklahoma and the governing body of its horse racing industry criticized it as an unlawful delegation of legislative power to a private entity.

Senior U.S. District Judge Joseph Hood, an appointee of George H.W. Bush, sided with the federal government and dismissed the case after he determined the legislation established clear boundaries on HISA's power, including a requirement that all rules be approved by the Federal Trade Commission, or FTC.

Oklahoma and the other states disagreed with Hood's assessment in their brief to the Cincinnati-based Sixth Circuit and argued the FTC acts merely as a "rubber stamp" when it comes to rules and regulations proposed by HISA.

This arrangement violates the private nondelegation doctrine of the U.S. Constitution, according to the states, which allows Congress to "grant private entities no more than a 'ministerial' or 'advisory' role in the exercise of governmental power."

"The delegation here is the 'most obnoxious form' of private delegation that has ever been enacted into federal law," the brief states. "The FTC cannot refuse to publish the Authority’s regulations unless they fall outside the wide range of permissible policy choices that are 'consistent' with HISA. If the Authority proposes a rule that is consistent with HISA but that the FTC opposes as a policy matter, the FTC is impotent; it must promulgate that rule as federal law."

In its brief to the Sixth Circuit, the federal government compared the system created by the Horseracing Integrity and Safety Act to that used by the securities industry, "where private self-regulatory organizations are subject to oversight by the Securities and Exchange Commission."

According to the brief, HISA can write and propose regulations for the horse racing industry, but ultimate rulemaking authority lies with the FTC.

"The FTC can modify a proposed rule by rejecting it and directing HISA to revise it and resubmit it," the government explained. "And the FTC can promulgate rules itself, without HISA's participation, whenever doing so is necessary to serve the Act's purposes of safeguarding the health and safety of horses and the integrity of horse racing."

Attorney Matthew McGill of Gibson, Dunn, and Crutcher argued Wednesday on behalf of the states and emphasized the relative lack of power the FTC has to change or reject rules adopted by HISA.

"Rules [created under the Act] are insulated from oversight," he said.

Chief U.S. Circuit Judge Jeffrey Sutton, a George W. Bush appointee, asked the attorney why the legislation didn't follow the SEC model exactly to ensure proper oversight.

"I can't figure it out," Sutton quipped.

McGill said it could have been the result of the FTC's lack of knowledge of the horse racing industry, but admitted to the court his answer was speculative.

The attorney went on to say the SEC is required to enact rules that further the goals of the legislation used to create it, while "the FTC has no similar mandate here."

"All the FTC can do," he continued, "is make recommendations to change rules, and HISA is not required to [make the changes]."

Sutton probed into the heart of the matter near the conclusion of McGill's arguments, asking why oversight of the industry being placed in the hands of a private entity is harmful.

"[The nondelegation clause] protects liberty," the attorney said. "It ensures regulations are made by individuals who are accountable to elected officials."

Justice Department attorney Courtney Dixon argued on behalf of the federal government and told the panel the "FTC has sole authority to make rules."

"Why don't they act like it?" Sutton asked.

Dixon assured the three-judge panel the commission reviews every rule proposed by HISA and that none take effect until they have passed its independent review process.

U.S. Circuit Judge R. Guy Cole Jr., a Bill Clinton appointee, asked the government's attorney if she had any examples of rules being rejected by the commission. Dixon admitted she did not, but emphasized the current setup has only been implemented for a short period of time.

Attorney Pratik Shah of Akin Gump argued on behalf of HISA and urged the panel to adopt the U.S. Supreme Court's precedent in Sunshine Anthracite Coal Co. v. Adkins.

Adkins, which dealt with the price of coal and was decided in 1940 by the nation's high court, upheld what Shah described as a "parallel arrangement" to the one found in the current dispute.

HISA's attorney pointed out that while his client comes up with the rules, they cannot be implemented without the review process established by the legislation and carried out by the FTC.

Sutton remained skeptical.

"If the FTC is subordinate to HISA [in certain situations], that is a serious problem," he said.

In his rebuttal, McGill emphasized the FTC can only put forth temporary rules under the current scheme and is "utterly powerless" to change rules adopted by HISA.

U.S. Circuit Judge Richard Griffin, another George W. Bush appointee, rounded out the panel.

No timetable has been set for the court's decision.

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