Reply Brief — Texas, et al., Petitioners v. Jerry Black, et al.

No. 24-465

In the Supreme Court of the United States

STATE OF TEXAS AND TEXAS RACING COMMISSION,

PETITIONERS

v.

JERRY BLACK, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

REPLY IN SUPPORT OF PETITION

KEN PAXTON

Attorney General of Texas

BRENT WEBSTER

First Assistant Attorney

General

AARON L. NIELSON

Solicitor General

Counsel of Record

LANORA C. PETTIT

Principal Deputy Solicitor

General

BETH KLUSMANN

Assistant Solicitor General

OFFICE OF THE

ATTORNEY GENERAL

P.O. Box 12548 (MC 059)

Austin, Texas 78711-2548

Aaron.Nielson@oag.texas.gov

(512) 936-1700

TA BLE O F C O NTE N TS

Page

Table of Authorities ....................................................... II

I. This Court Should Decide Whether Congress

Can Delegate Rulemaking Power to Private

Entities .................................................................. 2

II. The Circuits Disagree About the Test................ 7

III. This Question Is Exceptionally Important....... 10

Conclusion ...................................................................... 11

(I)

II

TA BLE O F AU T HO R I TIE S

Page(s)

Cases:

Alpine Sec. Corp. v. FINRA,

No. 23-5129, 2024 WL 4863140

(D.C. Cir. Nov. 22, 2024) ................................................ 6

Ass’n of Am. R.Rs. v. U.S. Dep’t of Transp.

(Amtrak IV),

896 F.3d 539 (D.C. Cir. 2018) .................................... 7, 8

Buckley v. Valeo,

424 U.S. 1 (1976) ............................................................. 4

Carter v. Carter Coal Co.,

298 U.S. 238 (1936) ................................................. 1, 3, 4

City & Cnty. of San Francisco v. Sheehan,

575 U.S. 600 (2015) ...................................................... 11

City of Arlington v. FCC,

569 U.S. 290 (2013) ..................................................... 1, 2

Collins v. Yellen,

594 U.S. 220 (2021) ......................................................... 7

Consumers’ Research v. FCC,

109 F.4th 743 (5th Cir. 2024), cert.

granted sub nom. No. 24-354, 2024 WL

4864036 (U.S. Nov. 22, 2024) ....................................... 10

Dep’t of Transp. v. Ass’n of Am. R.Rs.

(Amtrak II),

575 U.S. 43 (2015) ...................................................... 1, 5

Gall v. United States,

552 U.S. 38 (2007) ........................................................... 6

Lucia v. SEC,

585 U.S. 237 (2018) ......................................................... 7

III

Cases (Ctd.):

Oklahoma v. United States,

62 F.4th 221 (6th Cir. 2023), cert.

denied, 144 S.Ct. 2679 (2024) .................................... 3, 9

PHH Corp. v. CFPB,

881 F.3d 75 (D.C. Cir. 2018) ......................................... 3

Pittston Co. v. United States,

368 F.3d 385 (4th Cir. 2004) .......................................... 9

Riverbend Farms, Inc. v. Madigan,

958 F.2d 1479 (9th Cir. 1992) ........................................ 9

SEC v. Chenery Corp.,

332 U.S. 194 (1947) ......................................................... 2

Seila L. LLC v. CFPB,

591 U.S. 197 (2020) ........................................................ 2

Sunshine Anthracite Coal Co. v. Adkins,

310 U.S. 381 (1940) ..................................................... 3, 4

United States v. Frame,

885 F.2d 1119 (3d Cir. 1989) .......................................... 9

Walmsley v. FTC,

117 F.4th 1032 (8th Cir. 2024) petition for

cert. filed, No. 24-420 (U.S. Oct. 10, 2024) ............... 3, 9

Whitman v. Am. Trucking Ass’ns,

531 U.S. 457 (2001) ......................................................... 8

Constitutional Provisions and Statutes:

U.S. Const.:

art. I ......................................................................... 1, 2, 5

art. II ....................................................................... 1, 2, 5

15 U.S.C.:

§3053(b) ........................................................................... 6

§3053(c) ............................................................................ 6

§3053(c)(1) ....................................................................... 4

§3053(c)(2) ................................................................... 4, 8

IV

Constitutional Provisions

and Statutes (Ctd.):

15 U.S.C.:

§3053(e) ................................................................... 3, 4, 8

Other Authorities:

The Federalist No. 47 (J. Madison)

(J. Cooke ed. 1961) ......................................................... 2

Horseracing Integrity and Safety

Authority Assessment Methodology

Rule Modification,

89 Fed. Reg. 84,600 (Oct. 23, 2024) ............................... 4

Pet. for Writ of Cert., Free Speech Coal.

v. Paxton,

No. 23-1122 (U.S. Apr. 12, 2024) ................................. 10

Pet. for Writ of Cert., N.Y. State Rifle &

Pistol Ass'n, Inc. v. Bruen, No. 20-843

(U.S. Dec. 17, 2020) ...................................................... 10

Whether Congress can empower a private entity to

enforce federal law created by that same private entity

undoubtedly merits this Court’s review. But so does the

logically antecedent question: Can a private entity create

federal law in the first place? First principles, precedent,

and common sense all point the same direction: The sovereign power to regulate can be exercised only by Congress pursuant to its Article I lawmaking authority or at

most a federal agency exercising the President’s Article

II authority to execute laws enacted by Congress. See,

e.g., City of Arlington v. FCC, 569 U.S. 290, 304 n.4

(2013). Allowing a private entity to create legal obligations is thus “delegation in its most obnoxious form,”

Carter v. Carter Coal Co., 298 U.S. 238, 311 (1936), and

lacks “even a fig leaf of constitutional justification,” Dep’t

of Transp. v. Ass’n of Am. R.Rs. (Amtrak II), 575 U.S.

43, 62 (2015) (Alito, J., concurring).

Respondents cannot deny that the question in

Texas’s petition is antecedent to the question they want

the Court to answer. Nor can they dispute that both

questions are critical to the same multi-billion-dollar industry. Accordingly, if their petitions’ significance justifies certiorari (which it does), then so does Texas’s.

Respondents, however, urge the Court to blind itself

to the full constitutional dispute by focusing solely on the

Authority’s power to enforce the law. The Court’s review, however, should not be so myopic. The Authority

cannot enforce federal law at all and certainly cannot enforce federal law it has no right to make.

Respondents’ primary argument against certiorari is

that no judge has yet concluded that the Authority’s rulemaking authority is unconstitutional. But that almost a

dozen judges believe this Court’s precedent requires

them to salute and stand down when Congress purports

(1)

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to allow a private entity to make the law is a reason to

grant review—not deny it. Judges writing on a blank

slate surely would not conclude that the Constitution is

satisfied whenever a federal agency may exercise some

supervision after the fact. This Court should step in

where doctrine has drifted so far from what should be a

simple application of the first sentences of Articles I and

II of the Constitution. Until this Court clarifies its precedent, however, such confusion will continue.

Regardless, Respondents are wrong that the question they would prefer this Court to answer is cleanly divisible from the one Texas raises. Not only does the Authority’s ability to issue guidance implicate both its rulemaking and enforcement powers (one reason why guidance is so potent in a world governed by SEC v. Chenery

Corp., 332 U.S. 194 (1947)), but separation-of-power

principles condemn as “the very definition of tyranny”

any effort to place “legislative, executive, and judicia[l]”

powers “in the same hands,” City of Arlington, 569 U.S.

at 312 (Roberts, C.J., dissenting) (quoting The Federalist No. 47, at 324 (J. Madison) (J. Cooke ed. 1961)). Respondents should not be allowed to artificially narrow the

issues before the Court to escape the reality that Congress here has done precisely that.

I. This Court Should Decide Whether Congress Can

Delegate Rulemaking Power to Private Entities.

A. As Texas’s petition explains, the Constitution empowers Congress to make federal law and the President

to enforce it. Accordingly, were the Authority a governmental entity, its unaccountability to the President by itself would “‘pose a significant threat to individual liberty

and to the constitutional system of separation of powers

and checks and balances.’” Seila L. LLC v. CFPB, 591

U.S. 197, 240 (2020) (Thomas, J., concurring and

3

dissenting in part) (quoting PHH Corp. v. CFPB, 881

F.3d 75, 165 (D.C. Cir. 2018) (Kavanaugh, J., dissenting)). Basic principles of federalism, moreover, confirm

that private entities cannot create federal law; otherwise,

people acting outside of constitutional checkpoints could

use preemption to boss around the States. The States

never agreed to such disrespect of their sovereignty.

Nevertheless, relying on a pair of this Court’s cases

from more than 80 years ago—Carter Coal and Sunshine

Anthracite Coal Co. v. Adkins, 310 U.S. 381 (1940)—the

Fifth, Sixth, and Eighth Circuits have determined that

so long as a federal agency exercises enough supervision,

Congress can delegate rulemaking authority to private

entities, with the Sixth and Eighth Circuits separately

holding that Congress additionally may delegate away

the President’s enforcement authority to private entities. See Pet.App. 9a-33a, 79a-80a; Oklahoma v. United

States, 62 F.4th 221, 228-33 (6th Cir. 2023), cert. denied,

144 S.Ct. 2679 (2024) (rehearing pending); Walmsley v.

FTC, 117 F.4th 1032, 1038-40 (8th Cir. 2024) petition for

cert. filed, No. 24-420 (U.S. Oct. 10, 2024).

The Fifth Circuit rightly concluded that, even under

such an elastic, constitutionally ungrounded standard,

Congress’s decision to delegate power to the Authority

to enforce HISA and its associated rules offends the Constitution. Pet.App.17a-33a. But the Fifth Circuit erred

regarding Congress’s delegation of rulemaking authority when it concluded that the FTC’s ability to “abrogate,

add to, and modify” the Authority’s rules sufficiently

subordinates the Authority to the FTC. Pet.App.14a

(discussing 15 U.S.C. §3053(e)).

This Court’s cases, however, do not tolerate such a

stark departure from the Constitution. Carter Coal holds

that Congress cannot delegate power to create law to a

4

private entity, 298 U.S. at 311, and Adkins at most allows

a private entity to make recommendations to a federal

agency, 310 U.S. at 399—not to create rules that will go

into effect unless a federal agency affirmatively prevents

them from doing so. It is one thing to offer advice to help

guide an agency’s choices; it is something else to make

real-world decisions. Cf. Buckley v. Valeo, 424 U.S. 1,

138-39 (1976) (per curiam).

Here, the Authority does much more than offer advice to the FTC, as confirmed by the Authority’s recent

proposal to modify its rule regarding the assessment

owed by each state racing commission. See Horseracing

Integrity and Safety Authority Assessment Methodology Rule Modification, 89 Fed. Reg. 84,600 (Oct. 23,

2024). Fulfilling its ministerial duty to publish the Authority’s proposed modification in the Federal Register,

the FTC quotes §3053(c)(2) and explains it must approve

the rule so long as it is consistent with HISA and the

FTC’s own rules. Id. at 84,605. Absent any inconsistency,

the FTC can do nothing but approve the Authority’s rule

modification within 60 days, 15 U.S.C. §3053(c)(1), which

modification will become effective 30 days later, 89 Fed.

Reg. at 84,601—without any government “approval”

other than a conclusion that the modification is not unlawful. In short, then, the amount of the assessment

owed by each state racing commission will be set by a

private entity with the FTC acting as little more than a

printer.

Although the FTC also notes that it can engage in its

own rulemaking pursuant to §3053(e) and invites members of the public to file petitions, id. at 84,605, the rule

proposal reveals no effort by the FTC to impose its own

policies on the Authority. Contra FTC Resp. 9-10. It is

therefore unclear why the Authority believes (at 22) that

5

Texas is “wrong” to claim that the FTC cannot reject

proposed rules on “policy grounds” when performing its

consistency review. The FTC has repeatedly rejected

comments to the Authority’s proposed rules that raise

“policy” concerns, rather than inconsistency with HISA,

both before and after the amendment to HISA. E.g.,

ROA.3288, 3326, 3418-19, 3436.

B. Although claiming that Congress satisfied this

Court’s precedent, Respondents share remarkably little

about what that precedent says. More remarkably still,

they say almost nothing about the Constitution’s plain

language, failing to even cite Article I and Article II’s

Vesting Clauses, which straightforwardly exclude private entities from creating or enforcing federal law.

Instead, Respondents double down on their theory

that Congress can give that power away to private entities with minimal federal oversight. But the Constitution

is not satisfied merely because an agency can undo a private entity’s rulemaking: It precludes the private entity

from making rules in the first place. The power to set the

status quo—and thus to benefit from inertia—is too important to place in private hands, especially because (per

elementary game theory) such a table-setting power allows a first mover to create policies that a second mover

cannot realistically undo due to transaction costs.

The Authority’s suggestion (at 18) that Texas agrees

with the “supervision” test is false: Any exercise of rulemaking power by a private entity is unconstitutional, no

matter how much supervision there is. Of course, a private entity can make recommendations to a federal

agency about how that agency should act. But “nothing

final should appear in the Federal Register unless a

Presidential appointee has at least signed off on it.”

Amtrak II, 575 U.S. at 64 (Alito, J., concurring). Here,

6

after undertaking its ministerial obligation to publish the

Authority’s proposed rules, the only “sign[] off” provided

by the FTC is its conclusion that the rules do not otherwise violate the law. 15 U.S.C. §3053(b)-(c). The Authority accordingly does a great deal more than make recommendations; it can (and does) make rules.

In any event, even if supervision could satisfy this

Court’s caselaw, such supervision must at least be meaningful. That is not the case here. Respondents cannot dispute that the FTC is an extraordinarily busy agency—

and not one with any special expertise regarding horses.

It defies credulity that the FTC will be able to adequately control the Authority’s lawmaking decisions, especially given the anchoring effect of the Authority’s initial choices. Cf. Gall v. United States, 552 U.S. 38, 49

(2007). And even when the FTC does act, it will be impossible to tell whether it has exercised the plenary policymaking authority the Constitution demands. This is a

structural flaw that dooms HISA.

C. Respondents also invoke the Maloney Act and the

SEC/FINRA structure. But FINRA is not beyond constitutional question. The D.C. Circuit just held that

FINRA’s decision to expel a member for violating a

cease-and-desist order (issued by FINRA) regarding alleged violations of rules (issued by FINRA) without effective review by the SEC likely violated the privatenondelegation doctrine. Alpine Sec. Corp. v. FINRA, No.

23-5129, 2024 WL 4863140, at *1 (D.C. Cir. Nov. 22,

2024). Another member of the panel would have gone further and held unconstitutional even more of FINRA. See

id. at *20-25 (Walker, J., concurring and dissenting in

part). Alpine confirms that FINRA is no talisman to

ward off constitutional challenges. To the contrary, Respondents’ reliance on FINRA—despite the significant

7

constitutional questions surrounding FINRA—underscores why this Court must provide guidance about the

correct constitutional standard.

D. Finally, Respondents misunderstand facial challenges. This Court has emphasized that where an entity

or person is ineligible to wield federal power, any exercise of federal power by that entity is per se unlawful. See

Collins v. Yellen, 594 U.S. 220, 258 (2021) (collecting

cases). That is the case here. Congress has created a

structure by which everything the Authority does is unconstitutional because private entities categorically cannot exercise governmental authority. That the FTC can

now amend or countermand the Authority’s rules

changes nothing because the Authority lacks the capacity to exercise governmental power to begin with. Cf. Lucia v. SEC, 585 U.S. 237, 251-52 (2018) (requiring a hearing before a new ALJ to remedy unconstitutional appointment).

II. The Circuits Disagree About the Test.

Certiorari is also warranted because—even apart

from first principles or the fact that the rulemaking

question is antecedent to the enforcement question—the

circuits disagree about what standard to apply.

A. As the petition explains, the approach taken by

the Fifth Circuit starkly departs from that used by the

D.C. Circuit. Attempting to demonstrate otherwise, the

Authority learns the wrong lesson from the Amtrak litigation. There, the Federal Railroad Administration and

Amtrak were to “jointly” develop metrics and standards,

and any impasse was to be resolved by an arbitrator.

Ass’n of Am. R.Rs. v. U.S. Dep’t of Transp. (Amtrak IV),

896 F.3d 539, 542 (D.C. Cir. 2018). Because the use of the

arbitrator rendered the FRA “powerless” to keep

Amtrak’s “naked self-interest in check,” the D.C. Circuit

8

held the arbitration provision unconstitutional. Id. at

545-46. That holding supports Texas here in multiple respects.

First, Amtrak IV confirms that the FTC’s consistency review (15 U.S.C. §3053(c)(2)) does not remedy

the unconstitutional delegation—as the Fifth Circuit

originally held. Pet.App.134a-39a. Just as the use of an

arbitrator rendered the FRA powerless to stop Amtrak

from making the law, Amtrak IV, 896 F.3d at 545-46,

HISA’s consistency review renders the FTC powerless

to stop the Authority from making rules within the scope

of delegated authority, 15 U.S.C. §3053(c)(2).

Second, Amtrak IV confirms that Congress’s purported fix—allowing the FTC to abrogate, add to, or

modify the Authority’s rules on the back end, id.

§3053(e)—is insufficient. The mere possibility that an arbitrator would be used (cutting the government out of

the rulemaking process) was enough to hold the statute

unconstitutional in Amtrak. See Amtrak IV, 896 F.3d at

548. Here, the possibility that the FTC will decide not to

“supervise” the Authority through §3053(e) (leaving the

government out of the rulemaking process) is fatal. After

all, as this Court has held (and Respondents have not addressed), “[w]hether the statute delegates legislative

power is a question for the courts,” and an agency’s actions do not bear upon the answer. Whitman v. Am.

Trucking Ass’ns, 531 U.S. 457, 473 (2001). Regardless,

for the reasons explained in Texas’s petition, Respondents overstate the FTC’s power to create rules in this

space.

Texas does not claim that the D.C. Circuit addressed

HISA. Under that court’s analysis, however, HISA’s delegation of rulemaking authority would fail, contrary to

9

the conclusion of the Fifth Circuit. That significant division of authority warrants certiorari.

B. Despite misunderstanding Amtrak, Respondents’

principal argument is that lower-court judges agree that

the Authority’s rulemaking authority does not offend the

Constitution. But the Fifth, Sixth, and Eighth Circuits

all borrowed from each other when it came to articulating the private-nondelegation test. Pet.App.10a-14a (citing the Sixth Circuit); Oklahoma, 62 F.4th at 230 (citing

the original Fifth Circuit decision); Walmsley, 117 F.4th

at 1038-39 (citing the Fifth and Sixth Circuits). It is thus

hardly unsurprising that they reached similarly incorrect conclusions with respect to rulemaking.

What matters, however, is that the test these circuits

used to judge HISA differs from tests other circuits used

to judge other delegations to private entities. Circuits

have defined the private-nondelegation test to require

the government to retain ultimate authority over what

becomes the law and have not blessed such far-reaching

participation by a private entity. See Pittston Co. v.

United States, 368 F.3d 385, 395 (4th Cir. 2004) (stating

Congress may “employ private entities for ministerial

or advisory roles” but “may not give these entities governmental power over others”); United States v. Frame,

885 F.2d 1119, 1129 (3d Cir. 1989) (permitting “advisory”

and “ministerial” functions); Riverbend Farms, Inc. v.

Madigan, 958 F.2d 1479, 1488 (9th Cir. 1992) (allowing

the Secretary to “seek advice from whatever sources he

deems appropriate, so long as he or his delegate in the

Department retains ultimate authority to issue the regulation”). Contrary to these cases, the Authority’s role is

not advisory or ministerial, and the FTC does not seek

its advice. Instead, the Authority has created nationwide

regulatory schemes out of whole cloth.

10

In response, the FTC observes (at 11-12) that these

cases concern “other statutes.” Of course they do—

HISA has been around for less than four years, while this

Court’s cases setting forth the contours of the privatenondelegation doctrine have existed for over eighty. Few

constitutional cases in this Court involve a split with respect to the same statute; instead, the question is what

standard courts should use across statutes. See, e.g., Pet.

for Writ of Cert. at 30-32, Free Speech Coal. v. Paxton,

No. 23-1122 (U.S. Apr. 12, 2024); Pet. for Writ of Cert. at

9-15, N.Y. State Rifle & Pistol Ass’n, Inc. v. Bruen, No.

20-843 (U.S. Dec. 17, 2020). Here, the question is what

test governs delegation of rulemaking authority to a private entity. The Circuits have not uniformly answered

that question. This Court should.

III. This Question Is Exceptionally Important.

The question presented here is also exceptionally important. Respondents cannot deny that this issue has

profound implications for federalism—to say nothing of

a multi-billion-dollar industry. Nor do they deny that

Congress intends to use this model for other industries.

Thus, absent clear direction from this Court, it is inevitable there will be more litigation regarding the correct

analysis when Congress hands off rulemaking authority

to a private entity. Accordingly, clarity from this Court

is essential with respect to both the Authority’s enforcement and rulemaking powers. 1

The Court’s recent grant of certiorari concerning the nondelegation doctrine underscores the need for certiorari here. See Consumers’ Rsch. v. FCC, 109 F.4th 743 (5th Cir. 2024) (en banc), cert.

granted sub nom. No. 24-354, 2024 WL 4864036 (U.S. Nov. 22, 2024).

Not only does it confirm the importance of this issue, but the Court

may not be able to reach the private-nondelegation question due to

the presence of jurisdictional and public-nondelegation questions.

1

11

Furthermore, even if—contrary to fact—this question was not independently certworthy, Respondents’

petitions concerning the same Fifth Circuit decision are.

And when this Court grants certiorari on one part of a

case, it “often also grant[s] certiorari on attendant questions that … are sufficiently connected to the ultimate

disposition of the case that the efficient administration of

justice supports their consideration.” City & Cnty. of

San Francisco v. Sheehan, 575 U.S. 600, 619-20 (2015)

(Scalia, J. concurring in part). The Court accordingly

should grant Texas’s petition to ensure that the entire

constitutional dispute is before the Court.

C O NC LU SIO N

The Court should grant the petition.

Respectfully submitted.

KEN PAXTON

Attorney General of Texas

BRENT WEBSTER

First Assistant Attorney

General

AARON L. NIELSON

Solicitor General

Counsel of Record

LANORA C. PETTIT

Principal Deputy Solicitor

General

BETH KLUSMANN

Assistant Solicitor General

DECEMBER 2024

OFFICE OF THE

ATTORNEY GENERAL

P.O. Box 12548 (MC 059)

Austin, Texas 78711-2548

Aaron.Nielson@oag.texas.gov

(512) 936-1700

See 2024 WL 4864036 (adding mootness question). So while certiorari should still be granted here, at a minimum, this petition should

be held pending the Court’s resolution of that case.