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Sixth Circuit OKs private rulemaking authority for horse racing

An appellate panel found the creation of a private regulator by federal legislation is not an unconstitutional delegation of power because the corporation is overseen by the Federal Trade Commission.

CINCINNATI (CN) — Amendments to the Horseracing Safety and Integrity Act that allow the Federal Trade Commission to repeal or amend rules passed by a private governing body for the horse racing industry render the legislation constitutional, according to a ruling from the Sixth Circuit.

Although the Fifth Circuit declared the law unconstitutional just last year, Friday's ruling determined changes made in the Consolidated Appropriations Act of 2023 remedied any constitutional concerns and gave ultimate rulemaking authority to the federal government.

The states of Oklahoma, West Virginia and Louisiana, along with several racing commissions, sued the federal government, the FTC and its officers in federal court in 2021, claiming the creation of the Horseracing Integrity and Safety Authority, or HISA,  was a blatant and unconstitutional delegation of power by the federal government.

They argued HISA's final say on development of anti-doping and racetrack safety programs with limited oversight from the FTC gave a private entity unregulated control of the industry and violated the Constitution's nondelegation provision.

A federal judge disagreed and determined the statute's FTC approval requirement established a clear boundary on HISA's rulemaking powers.

The states appealed to the Sixth Circuit and arguments were heard last December.

Shortly thereafter, the federal government passed the Consolidated Appropriations Act of 2023 and gave the FTC "sweeping power" to "abrogate, add to, and modify the rules of the Authority."

At the outset of the appeals court's decision, Chief U.S. Circuit Judge Jeffrey Sutton clarified the status of the case and emphasized the Appropriations Act did not moot the states' constitutional challenge because it "changes very little about the [Horseracing Safety and Integrity] Act's basic structure" and merely provides the FTC with additional oversight.

Sutton, an appointee of George W. Bush, highlighted the creation of "self regulatory organizations," or SROs, by the Securities and Exchange Commission as a quintessential example of the federal government's constitutional delegation of rulemaking authority to private entities.

While the SROs can propose and enforce rules, ultimate authority lies with the SEC, which can approve or change the rules as necessary, which Sutton said is an arrangement upheld by courts "in case after case."

A similar arrangement is now espoused by the horse racing industry, the panel determined.

"The Horseracing Authority is subordinate to the agency," Sutton wrote. "The Authority wields materially different power from the FTC, yields to FTC supervision, and lacks the final say over the content and enforcement of the law -- all tried and true hallmarks of an inferior body."

Under the amendments to the original setup, an "emergency" is no longer required for the FTC to overrule HISA or adopt interim rules, which Sutton called "true oversight authority."

The states pushed back and claimed the amendments failed to address whether the FTC or HISA had the final say when "policy disagreements" arose between the governing bodies, and while Sutton agreed that was the case, he concluded it was ultimately inconsequential.

"Even if that is the case," he said, "the FTC's later authority to modify any rules for any reason at all, including policy disagreements, ensures that the FTC retains ultimate authority over the implementation of the Horseracing Act." (Emphasis in original.)

Sutton pointed out the Fifth Circuit had emphasized this lack of "modification power" in its previous decision to rule the statute unconstitutional, but that the 2023 amendments put the current structure on par with that of the SEC and its subordinate organizations.

Attorney Matthew McGill of Gibson, Dunn, and Crutcher in Washington D.C., who argued the case last year on behalf of the states, quoted U.S. Supreme Court Justice Samuel Alito in response to the ruling.

"The HISA Act puts an unaccountable private corporation in charge of horseracing nationwide, and then requires that States pay for the privilege," he said. "As Justice Alito recently explained, ‘[t]o ensure the Government remains accountable to the public, it cannot delegate regulatory authority to a private entity.’  That is just what HISA does.  We are considering our options for further review."

Senior U.S. Circuit Judge R. Guy Cole Jr., an appointee of Bill Clinton, and U.S. Circuit Judge Richard Griffin, a George W. Bush appointee, also sat on the panel.

Cole authored a separate, concurring opinion to offer his own analysis of the nondelegation doctrine and its historical implications.

"If we root the private nondelegation doctrine solely in separation of powers concerns," he said, "we circumvent our own court's private nondelegation doctrine cases -- many of which focus on local regulations, not federal ones, and are grounded in due process rights, as opposed to separation of powers principles."

Historical analysis aside, Cole agreed with the ultimate outcome of the case and said "HISA as a whole is facially constitutional because the Authority is subordinate to the FTC in several ways."

The federal government did not respond to a request for comment.

Categories: Appeals Government National Sports

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