Emergency Application — Horseracing Integrity and Safety Authority, Incorporated, et al., Applicants v. National Horsemen's Benevolent and Protective Association, et al.
Supreme Court briefSep 19, 2024
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APPENDIX
Opinion of the U.S. Court of Appeals for the Fifth Circuit (July 5, 2024) ................ 1a
Memorandum Opinion and Order of the U.S. District Court for the Northern
District of Texas (May 4, 2023) ................................................................................. 40a
Order of the U.S. Court of Appeals for the Fifth Circuit Denying Petitions For
Rehearing En Banc (Sept. 9, 2024) ........................................................................... 95a
Order of the U.S. Court of Appeals for the Fifth Circuit Denying Motion to
Stay the Mandate Pending Disposition of Petition for Writ of Certiorari (Sept.
17, 2024) ..................................................................................................................... 98a
Horseracing Integrity and Safety Act, 15 U.S.C.
§ 3051 .................................................................................................................. 100a
§ 3052 .................................................................................................................. 101a
§ 3053 .................................................................................................................. 103a
§ 3054 .................................................................................................................. 104a
§ 3055 .................................................................................................................. 107a
§ 3056 .................................................................................................................. 109a
§ 3057 .................................................................................................................. 110a
§ 3058 .................................................................................................................. 112a
§ 3059 .................................................................................................................. 113a
§ 3060 .................................................................................................................. 113a
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United States Court of Appeals
for the Fifth Circuit
____________
United States Court of Appeals
Fifth Circuit
FILED
No. 23-10520
____________
July 5, 2024
Lyle W. Cayce
Clerk
National Horsemen’s Benevolent and Protective
Association; Arizona Horsemen’s Benevolent and
Protective Association; Arkansas Horsemen’s
Benevolent and Protective Association; Indiana
Horsemen’s Benevolent and Protective Association;
Illinois Horsemen’s Benevolent and Protective
Association; Louisiana Horsemen’s Benevolent and
Protective Association; Mountaineer Park Horsemen’s
Benevolent and Protective Association; Nebraska
Horsemen’s Benevolent and Protective Association;
Oklahoma Horsemen’s Benevolent and Protective
Association; Oregon Horsemen’s Benevolent and
Protective Association; Pennsylvania Horsemen’s
Benevolent and Protective Association; Washington
Horsemen’s Benevolent and Protective Association;
Tampa Bay Horsemen’s Benevolent and Protective
Association; Gulf Coast Racing, L.L.C.; LRP Group,
Limited; Valle de Los Tesoros, Limited; Global Gaming
LSP, L.L.C.; Texas Horsemen’s Partnership, L.L.P.,
Plaintiffs—Appellants,
State of Texas; Texas Racing Commission,
Intervenor Plaintiffs—Appellants,
versus
Jerry Black; Katrina Adams; Leonard Coleman; MD
Nancy Cox; Joseph Dunford; Frank Keating; Kenneth
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Schanzer; Horseracing Integrity and Safety
Authority, Incorporated; Federal Trade Commission;
Commissioner Noah Phillips; Commissioner Christine
Wilson; Lisa Lazarus; Steve Beshear; Adolpho Birch;
Ellen McClain; Charles Scheeler; Joseph DeFrancis;
Susan Stover; Bill Thomason; Lina Khan, Chair; Rebecca
Slaughter, Commissioner; Alvaro Bedoya, Commissioner; D. G.
Van Clief,
Defendants—Appellees.
______________________________
Appeal from the United States District Court
for the Northern District of Texas
USDC Nos. 5:21-CV-71, 5:23-CV-77
______________________________
Before King, Duncan, and Engelhardt, Circuit Judges.
Stuart Kyle Duncan, Circuit Judge:
We again consider constitutional challenges to the Horseracing
Integrity and Safety Act of 2020 (“HISA”). In HISA, Congress
empowered a private corporation—the Horseracing Integrity and Safety
Authority (“Authority”)—to create and enforce nationwide rules for
thoroughbred
horseracing.
Last
time,
we
held
HISA
facially
unconstitutional under the private nondelegation doctrine because the
Authority’s rulemaking was not subordinate to the Federal Trade
Commission (“FTC”). See Nat’l Horsemen’s Benevolent & Protective Ass’n
v. Black (Horsemen’s I), 53 F.4th 869 (5th Cir. 2022). At the time, we did not
consider a separate nondelegation challenge to the Authority’s enforcement
power. Congress responded to our decision by amending HISA, giving the
FTC power to abrogate, add to, or modify the Authority’s rules.
On remand, the district court held the amendment cured HISA’s
constitutional deficiencies because the FTC now has general rulemaking
power over the Authority’s activities. It also rejected claims raised by a new
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plaintiff, Gulf Coast Racing LLC (“Gulf Coast”), that HISA violates the
Constitution’s Appointments Clause because the Authority wields
significant governmental authority. The plaintiffs all appealed, arguing
HISA is still constitutionally deficient under the private nondelegation
doctrine, the Due Process Clause, the Appointments Clause, and the Tenth
Amendment.
We agree with nearly all of the district court’s well-crafted opinion.
Specifically, we agree that the FTC’s new rulemaking oversight means the
agency is no longer bound by the Authority’s policy choices. In other words,
the amendment solved the nondelegation problem with the Authority’s
rulemaking power. We also agree that HISA does not violate the Due
Process Clause by putting financially interested private individuals in charge
of competitors. Further, we agree that, under current Supreme Court
precedent, see Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374 (1995), the
Authority does not qualify as a government entity subject to the
Appointments Clause. Finally, we agree that plaintiff Gulf Coast lacks
standing to bring its Tenth Amendment challenge.
We disagree with the district court in one important respect, however:
HISA’s enforcement provisions violate the private nondelegation doctrine.
The statute empowers the Authority to investigate, issue subpoenas, conduct
searches, levy fines, and seek injunctions—all without the FTC’s say-so.
That is forbidden by the Constitution. We therefore DECLARE that
HISA’s enforcement provisions are facially unconstitutional on that ground.
In doing so, we part ways with our esteemed colleagues on the Sixth Circuit.
See Oklahoma v. United States, 62 F.4th 221 (6th Cir. 2023) (rejecting
nondelegation challenge to HISA’s enforcement provisions).
Accordingly, the district court’s judgment is AFFIRMED in part
and REVERSED in part.
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I. Background
A. HISA Framework
In 2020, HISA created a framework for enacting and enforcing
nationwide rules governing doping, medication control, and racetrack safety
in the thoroughbred horseracing industry. See 15 U.S.C. § 3054(a). See
generally Horsemen’s I, 53 F.4th at 873–75. To “develop[] and implement[]”
these rules, HISA empowers a “private, independent, self-regulatory,
nonprofit corporation, to be known as the ‘Horseracing Integrity and Safety
Authority,’” subject to the “oversight” of the FTC. §§ 3052(a), 3053.
Under HISA, the Authority writes all the rules—that is, rules
fleshing out the substantive areas covered by HISA, as well as rules
governing investigation, adjudication, and sanctions. 1 The Authority submits
proposed rules to the FTC, which publishes them for public comment.
§ 3053(b)(1), (c)(1). Rules take effect only after FTC approval, which must
occur within 60 days of publication. The FTC “shall approve” a proposed
rule if it finds the rule “consistent” with the Act and with “applicable rules
approved by the [FTC].” § 3053(c)(2). Originally, this “consistency
review” did not allow the FTC to reject a proposed rule based on its
disagreement with the Authority’s policy choices. Horsemen’s I, 53 F.4th at
884–87. In Horsemen’s I, we held that this arrangement violated the private
nondelegation doctrine by making a private entity superior to a government
_____________________
1
See § 3057(a)(1), (c)(1) (power to establish substantive rules governing
medication controls); § 3056(a)(1) (power to establish racetrack safety rules); §§ 3054(c),
3057(c) (power to “develop uniform procedures and rules” governing investigations and
adjudications that afford due process); § 3057(d) (power to establish civil sanctions);
§§ 3054(c), 3054(c), (h) (investigatory and subpoena powers).
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agency. Ibid. In response, Congress amended HISA to give the FTC power
to “abrogate, add to, and modify” the Authority’s rules. § 3053(e).
The Authority also has the power to enforce HISA. It does so by
(1) exercising
“subpoena
and
investigatory
authority,”
§ 3054(h);
(2) imposing civil sanctions, §§ 3054(i), 3057; and (3) filing civil actions
seeking injunctions or enforcement of sanctions, § 3054(j). The actual work
of enforcing HISA involves a further delegation to other entities, however.
For instance, HISA directs the Authority to contract enforcement of doping
and medication rules to a private non-profit, the U.S. Anti-Doping Agency
(“USADA”), or other comparable entity. § 3054(e)(1)(A), (B). 2 USADA
then acts as “the independent . . . enforcement organization” for those rules,
“implement[s]” HISA’s anti-doping programs, and exercises related
powers “including independent investigations, charging and adjudication of
potential medication control rule violations, and the enforcement of any civil
sanctions
for
such
violations.”
§ 3054(e)(1)(E)(i),
(iii),
(iv);
§ 3055(c)(4)(B). 3 USADA’s decisions on such matters “shall be the final
decision or civil sanction of the Authority,” subject to de novo review by an
administrative law judge (“ALJ”) and the FTC. § 3055(c)(4)(B); § 3058.
B. Procedural History
Horsemen’s I concluded that HISA’s delegation of rulemaking power
was facially unconstitutional. HISA delegated rulemaking power to a private
_____________________
2
See
Frequently
Asked
Questions,
USADA,
https://www.USADA.org/resources/faq (last visited June 13, 2024) (“USADA is an
independent, non-profit organization. It is not a branch or office of the federal
government.”).
3
Similarly, the Authority may contract out enforcement of the racetrack safety
program to “State racing commissions” or “other State regulatory agencies.”
§ 3054(e)(2), (3); see also § 3056 (discussing racetrack safety program).
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organization (the Authority) whose policy choices could not be secondguessed by the agency (FTC). The Authority’s rulemaking powers were
therefore not subordinate to the FTC, meaning HISA facially violated the
private nondelegation doctrine. Horsemen’s I, 53 F.4th at 872. We did not
consider the plaintiffs’ distinct nondelegation challenges to the Authority’s
investigative and enforcement powers nor their due process claims. Id. at 890
n.37. Finally, as noted, Congress responded to Horsemen’s I by empowering
the FTC to “abrogate, add to, and modify” the Authority’s rules. § 3053(e).
On remand, the National Horsemen’s Association (“Horsemen”)
and Texas continued to press their private nondelegation claims, arguing
Congress’s amendment did not actually subordinate Authority rulemaking to
the FTC. They also continued to press their nondelegation challenge to the
Authority’s enforcement powers (as well as their due process claims). In
addition, a new plaintiff, Gulf Coast Racing (“Gulf Coast”), raised separate
challenges to HISA in a different division of the same district. See Nat’l
Horsemen’s Benevolent & Protective Ass’n v. Black (Black), 672 F. Supp. 3d
220, 224 (N.D. Tex. 2023). Gulf Coast claimed (1) HISA’s directors qualify
as “officers of the United States” and are therefore subject to Article II’s
appointment and removal requirements; and (2) HISA commandeers Texas
in violation of the Tenth Amendment. Gulf Coast’s suit was consolidated
with the remanded Horsemen’s I case. Id. at 230–31. Following a one-day
bench trial, the district court rejected all the plaintiffs’ claims.
As to private nondelegation, the district court followed the Sixth
Circuit’s decision in Oklahoma, 62 F.4th 221. That court reasoned that
Congress’s amendment empowering the FTC to “abrogate, add to, and
modify” proposed rules “cured the constitutional issues identified by
[Horsemen’s I]” by making the Authority’s rulemaking power “subordinate”
to the FTC. Black, 672 F. Supp. 3d at 241, 243 (citing Oklahoma, 62 F.4th at
230, 232). As to the separate challenge to the Authority’s enforcement
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powers, the district court largely relied on its previous order rejecting the
claim because those powers “comport with due process.” See id. at 248. The
court also relied on the fact that the FTC could review civil sanctions and
control enforcement through rulemaking. Id. at 248–49; see also Oklahoma,
62 F.4th at 231. Finally, the court rejected the due process claims because the
Horsemen failed to show the Authority’s directors have financial interests in
regulating competitors. Black, 672 F. Supp. 3d at 252.
As to Gulf Coast’s claims, the district court concluded that our
Horsemen’s I decision required it to reject them. Specifically, the court
reasoned that Horsemen’s I necessarily decided the Authority was a private
entity, and so its directors were not subject to the Appointments Clause. Id.
at 234–37. Alternatively, the court reasoned that the Authority is private
because “it is not government created, and its directors are not government
appointed.” Id. at 234 (citing Lebron, 513 U.S. 374). Finally, the court
rejected the Tenth Amendment commandeering argument for lack of
standing. Id. at 250.
Accordingly, the district court entered final judgment dismissing all
claims. The Horsemen, Texas, and Gulf Coast timely appealed.
II. Standard of Review
We review the district court’s legal conclusions following a bench trial
de novo. Deloach Marine Servs., L.L.C. v. Marquette Transp. Co., 974 F.3d 601,
606 (5th Cir. 2020). To prevail on their facial challenge, the plaintiffs “must
show that no set of circumstances exists under which [HISA] would be
valid.” Horsemen’s I, 53 F.4th at 878 (cleaned up) (citations omitted).
III. Discussion
The various plaintiffs raise these issues on appeal:
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(A) Did Congress’s amendment to HISA cure the private
nondelegation problem with the Authority’s rulemaking powers?
(B) Do the Authority’s enforcement powers separately violate the
private nondelegation doctrine?
(C) Does HISA violate due process by permitting self-interested
industry participants to regulate their competitors?
(D) Are the Authority’s directors subject to the Appointments
Clause?
(E)
Does
HISA
violate
the
Tenth
Amendment’s
anti-
commandeering rule by forcing States to administer a federal program?
We consider each issue in turn.
A. Private Nondelegation Challenge to Authority’s Rulemaking.
We previously discussed the origins of the private nondelegation
doctrine in Horsemen’s I. See id. at 880–81. In essence, the doctrine teaches
that “a private entity may wield government power only if it ‘functions
subordinately’ to an agency with ‘authority and surveillance’ over it.” Id. at
881 & n.21 (citing Texas v. Rettig, 987 F.3d 518, 532 (5th Cir. 2021)); Pittston
Co. v. United States, 368 F.3d 385, 394 (4th Cir. 2004); United States v. Frame,
885 F.2d 1119, 1128 (3d Cir. 1989)). 4 Or, as our sister circuit has explained:
“Congress may formalize the role of private parties in proposing regulations
so long as that role is merely as an aid to a government agency that retains the
discretion to approve, disapprove, or modify them.” Ass’n of Am. R.R.s v.
U.S. Dep’t of Transp. (Amtrak I), 721 F.3d 666, 671 (D.C. Cir. 2013) (cleaned
_____________________
4
See also generally A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 537
(1935); Carter v. Carter Coal Co., 298 U.S. 238, 311 (1936); Currin v. Wallace, 306 U.S. 1,
15–16 (1939); Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 399 (1940).
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up) (quoting Adkins, 310 U.S. at 388), vacated and remanded on other grounds,
U.S. Dep’t of Transp. v. Ass’n of Am. R.R.s (Amtrak II), 575 U.S. 43 (2015).
In Horsemen’s I, we ruled the Authority’s rulemaking power was an
unconstitutional private delegation. Our analysis focused on the fact that the
Authority’s proposed rules were subject only to the FTC’s limited
“consistency review,” which did not permit the agency to second-guess the
Authority’s policy choices. See Horsemen’s I, 53 F.4th at 882–87. In response,
Congress amended HISA to provide that:
[the FTC], by rule in accordance with section 553 of title 5,
may abrogate, add to, and modify the rules of the Authority
promulgated in accordance with this chapter as the
Commission finds necessary or appropriate to ensure the fair
administration of the Authority, to conform the rules of the
Authority to requirements of this chapter and applicable rules
approved by the Commission, or otherwise in furtherance of
the purposes of this chapter.
15 U.S.C. § 3053(e). This new provision was borrowed from the Maloney
Act, which allocates authority between the SEC and private, self-regulatory
organizations (such as the Financial Industry Regulatory Authority
(“FINRA”)). See Oklahoma, 62 F.4th at 231–32. Although HISA was
originally modeled on the Maloney Act, it lacked this provision until the
recent amendment. See Consolidated Appropriations Act, 2023, Pub. L. 117328, div. O, tit. VII, § 701, 136 Stat. 4459, 5231–32. As noted, the district
court followed the Sixth Circuit in ruling that the amendment cured the
nondelegation problem with the Authority’s rulemaking power. See Black,
672 F. Supp. 3d at 241 (citing Oklahoma, 62 F.4th at 230, 232).
We agree with the district court and the Sixth Circuit that the
amendment cured the nondelegation defect identified in Horsemen’s I. That
defect lay in the agency’s being at the mercy of the Authority’s policy
choices. See Horsemen’s I, 53 F.4th at 872 (“[T]he FTC concedes it cannot
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review the Authority’s policy choices.”). For instance, when the Authority
issued rules on the kinds of horseshoes permitted during races, the FTC told
objecting commenters it lacked the power to question the Authority’s views.
See id. at 885 (discussing Order Approving the Enforcement Rule Proposed by the
Horseracing Integrity and Safety Authority, 26, Fed. Trade Comm’n
(Mar. 25, 2022)). The amendment has corrected that imbalance. Now, the
FTC may “abrogate, add to, and modify” the Authority’s rules. § 3053(e).
So, unlike before, if the FTC now disagrees with the policies reflected in the
Authority’s rules, it may change them. See Oklahoma, 62 F.4th at 230 (noting
recent rule explaining that FTC’s “new ‘rulemaking power’ allows it to
‘exercise its own policy choices’” (quoting Order Ratifying Previous
Commission Orders 3, Fed. Trade Comm’n (Jan. 3, 2023))). As the Sixth
Circuit correctly observed, “§ 3053(e)’s amended text gives the FTC
ultimate discretion over the content of the rules,” which “makes the FTC
the primary rule-maker, and leaves the Authority as the secondary, the
inferior, the subordinate one.” Ibid. (citing Adkins, 310 U.S. at 388).
Appellants’ arguments to the contrary do not persuade us.
First, the Horsemen argue the Authority remains superior because it
continues to write the rules in the first place and the agency must approve
them if they hurdle the low bar of consistency review. We disagree. The
problem was never that the private entity proposed the rules; the problem
was that the agency lacked power to second-guess them once they were
proposed. See Horsemen’s I, 53 F.4th at 884 (“The FTC’s oversight is too
limited to ensure the Authority functions subordinately to the agency.”
(cleaned up) (quoting Adkins, 310 U.S. at 399)). Now the FTC has been
given that power: it can “abrogate” or “modify” Authority rules it disagrees
with. § 3053(e). And that new power gives consistency review new bite.
Previously, consistency review “exclude[d] . . . the Authority’s policy choices
in formulating rules.” Id. at 885. Now it implicitly includes review of those
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choices. The FTC must approve only those rules “consistent
with . . . applicable rules approved by the [FTC],” and, thanks to the
amendment, it is the FTC that has final word over what those rules are.
§ 3053(c)(2); see also Oklahoma, 62 F.4th at 231 (explaining that “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”). 5
Next, the Horsemen argue the FTC’s new review power creates a
timing problem. Because the FTC may alter only rules “promulgated” by
the Authority, § 3053(e), regulated entities may end up being subject to the
Authority’s rules until the FTC can intervene and fix them. We disagree.
The FTC has 60 days to approve or disapprove a proposed rule.
§ 3053(c)(1). If the FTC is concerned about a proposed rule going into effect,
then it can intervene and create safeguards to prevent that from happening.
See § 3053(a) (requiring Authority to submit proposed rules to FTC “in
accordance with such rules as the [FTC] may prescribe”). For instance, the
agency could adopt a rule postponing the effective date of a newly enacted
rule. See Oklahoma, 62 F.4th at 232 (suggesting this). Or the agency could
engage in emergency rulemaking to delay the effective date of a rule. In any
event, these are hypothetical problems that, if they arise, can be addressed in
as-applied challenges. See Hersh v. United States ex rel. Mukasey, 553 F.3d 743,
_____________________
5
Texas contends § 3053(e) does not solve the nondelegation problem because it
gives the FTC only limited rulemaking authority—i.e., “to ensure the fair administration
of the Authority.” Because the FTC lacks plenary rulemaking authority, Texas argues, the
Authority still effectively calls the shots. We disagree. Section 3053(e) empowers the FTC
to engage in rulemaking, not only for specified purposes, but also “otherwise in furtherance
of the purposes of [HISA].” This language, borrowed from the Maloney Act, gives the
agency “broad authority to oversee and to regulate the rules adopted by the
[Authority] . . . , including the power to mandate the adoption of any rules it deems
necessary.” Shearson/Am. Express, Inc. v McMahon, 482 U.S. 220, 233–34 (1987).
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762 (5th Cir. 2008) (holding that “as-applied challenges are preferred”).
This is a facial challenge, however, and we cannot say that a potential timing
gap in FTC’s § 3053(e) review makes HISA unconstitutional in all its
applications. See United States v. Salerno, 481 U.S. 739, 745 (1987) (holding
that a facial challenger “must establish that no set of circumstances exists
under which the Act would be valid”). 6
Finally, the Horsemen point to the SEC’s supervisory authority over
private self-regulatory organizations like FINRA. They argue that,
notwithstanding § 3053(e), the FTC still has less sway over the Authority
than the SEC does over FINRA. We again disagree. We previously pointed
out that the “key distinction” between the FTC and the SEC was the
FTC’s lack of general rulemaking power. See Horsemen’s I, 53 F.4th at 887–
88. “The SEC itself,” we explained, “can make changes to FINRA rules,
but the FTC can only recommend changes to the Authority’s rules.” Id. at
888 (citation omitted). But Congress has now amended HISA to give the
FTC the same general rulemaking authority that the SEC has with respect
to FINRA. See Oklahoma, 62 F.4th at 225 (reaching this conclusion).
In sum, we agree with the district court and the Sixth Circuit that, in
light of Congress’s amendment to HISA in § 3053(e), the Authority’s
rulemaking power is subordinate to the FTC’s. Because the FTC has
ultimate say on what the rules are, the Authority’s power to propose
horseracing rules does not violate the private nondelegation doctrine.
_____________________
6
The Horsemen also argue that the Authority can circumvent the FTC by issuing
unreviewable guidance documents, such as dear colleague letters. We disagree. The
Authority admits such guidance would not have the force of law and, even if it did, the
FTC has authority to review guidance documents, § 3054(g)(2), and to promulgate a rule
overruling guidance it disagrees with.
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B. Private Nondelegation Challenge to Authority’s Enforcement.
Appellants next argue that, apart from its rulemaking powers, the
Authority’s enforcement powers violate the private nondelegation doctrine.
Recall that the Authority enforces HISA by levying sanctions, which are
ultimately subject to FTC review, and by bringing lawsuits. The Authority
also has power to investigate potential violations, although the actual
investigatory work is contracted to other private organizations, such as
USADA in the case of doping rules, or to state racing commissions in the
case of racetrack safety rules. See supra I.A. Our Horsemen’s I decision did
not address this challenge to the Authority’s enforcement powers, see 53
F.4th at 890 n.37, and on remand the district court treated it as a due process
claim and rejected it. See Black, 672 F. Supp. 3d at 248–49. Appellants now
bring the claim to us, arguing that the Authority’s enforcement power is not
subordinate to FTC oversight.
1.
Before addressing the merits of this claim, we must address the
Authority’s argument that it is premature. Arguing both in terms of standing
and ripeness, the Authority contends that it has not yet tried to enforce
HISA against the Horsemen and that any challenge to the Authority’s
enforcement power can be raised if and when it does. We disagree for several
reasons.
First, the Authority misunderstands the Horsemen’s claim. They do
not challenge some particular enforcement action undertaken by the
Authority—claiming, for instance, that the Authority issued an overbroad
subpoena for medical records or lacked probable cause to search a racetrack.
Instead, the Horsemen argue that HISA, on its face, vests the Authority with
enforcement power that is effectively unreviewable by the agency. When a
regulated entity raises “a purely legal challenge” like this one, “it is
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unnecessary to wait for the Regulation to be applied in order to determine its
legality.” Contender Farms, L.L.P. v. U.S. Dep’t of Agric., 779 F.3d 258, 267
(5th Cir. 2015) (cleaned up) (citations omitted); see also Nat’l Env’t
Developmental Ass’n’s Clean Air Project v. EPA, 752 F.3d 999, 1008 (D.C. Cir.
2014) (“Petitioner’s challenge in this case presents a purely legal
question . . . It is unnecessary to wait for the [statute] to be applied in order
to determine its legality.”); Susan B. Anthony List v. Driehaus, 573 U.S. 149,
163 (2014) (“Nothing in this Court’s decisions requires a plaintiff who
wishes to challenge the constitutionality of a law to confess that he will in fact
violate that law.”).
Second, the Horsemen have a cognizable injury for standing purposes.
Pursuant to HISA, they have already had to agree “to be subject to and
comply with [Authority’s] rules, standards, and procedures”—including
rules requiring they cooperate with investigations, consent to searches, and
comply with subpoenas. See 15 U.S.C. § 3054(c)–(f). In other words, the
Horsemen are themselves “objects of the Regulation,” and so “there is
ordinarily little question” that they have standing to challenge it. Contender
Farms, 779 F.3d at 264–65 (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555,
561–62 (1992)). And courts typically do not require a regulated party to “bet
the farm” by violating a regulation before allowing it to test its validity. Free
Enter. Fund v. PCAOB, 561 U.S. 477, 490 (2010); see also, e.g., Metro. Wash.
Airports Auth. v. Citizens for Abatement of Aircraft Noise, Inc., 501 U.S. 252,
265 n.13 (1991) (explaining that a separation-of-powers challenge to a board’s
veto powers was “ripe even if the veto power ha[d] not been exercised to
respondents’ detriment”).
Finally, the record shows several instances in which the Authority has
enforced HISA against the Horsemen. For example, the Authority has
threatened one of the Horsemen’s members with sanctions if it did not repair
a racetrack railing. Additionally, the Authority has both threatened and
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actually barred member racetracks in Texas from broadcasting races out of
state because they failed to register with the Authority. More generally, the
Horsemen represent some 30,000 members and, when the parties filed their
briefs, the Authority’s website already listed hundreds of enforcement
actions—and that number has now grown to over 1,500. 7 So, at a minimum,
the Horsemen have shown a credible threat that the Authority will bring
enforcement actions against their members in the future. See Driehaus, 573
U.S. at 164.
In sum, the Horsemen have standing to challenge the Authority’s
enforcement powers and that challenge is ripe. We proceed to the merits.
2.
The Horsemen’s (as well as Texas’s) basic contention is that HISA
grants the Authority enforcement power that is effectively unreviewable by
the FTC. That claim turns on the same standard as the challenge to the
Authority’s rulemaking addressed in Horsemen’s I: the delegation is
constitutional if, when enforcing HISA, the Authority “‘functions
subordinately’ to an agency with ‘authority and surveillance’ over it.” 53
F.4th at 881 (quoting Rettig, 987 F.3d at 532). In other words, the Authority
may constitutionally enforce HISA only if it acts “as an aid” to the FTC,
which “retains the discretion to approve, disapprove, or modify” the private
entity’s enforcement actions. Ibid. (cleaned up) (quoting Amtrak I, 721 F.3d
at 671). 8
_____________________
7
See generally Rulings, Horseracing Integrity & Safety Auth.,
https://portal.hisausapps.org/public-rulings (last visited June 12, 2024) (listing 1,772
enforcement rulings).
8
As explained in Horsemen’s I, the D.C. Circuit’s Amtrak I decision was vacated
only because the Supreme Court found Amtrak was a governmental, as opposed to private,
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While the constitutional standard is the same, the nature of the
delegated authority is different this time around. Horsemen’s I addressed
delegation of legislative authority—the power to make rules. See Myers v.
United States, 272 U.S. 52, 186 (1926) (“The essence of the legislative
authority is to . . . prescribe rules for the regulation of the society[.]”).
Logically, we focused on which actor—government agency or private
entity?—had final say over the content of those rules. See Horsemen’s I, 53
F.4th at 884–87 (analyzing FTC’s lack of authority over the Authority’s
policy choices). Today, by contrast, we address delegation of executive
authority. The power to launch an investigation, to search for evidence, to
sanction, to sue—these are all quintessentially executive functions. 9 And
_____________________
entity. 53 F.4th at 881 n.22 (citing Amtrak II, 575 U.S. at 46, 50–55). The D.C. Circuit’s
private nondelegation analysis, however, remains sound and has been approved by our
court. See ibid. (explaining that Amtrak I “expressed the [private nondelegation doctrine]
more precisely” than prior formulations).
9
See, e.g., Bowsher v. Synar, 478 U.S. 714, 733 (1986) (“Interpreting a law enacted
by Congress to implement the legislative mandate is the very essence of ‘execution’ of the
law.”); Morrison v. Olson, 487 U.S. 654, 696 (1988) (reasoning “the power to initiate an
investigation” is executive power that must be subject to the Attorney General’s
“unreviewable discretion”); Buckley v. Valeo, 424 U.S. 1, 138, 140 (1976) (per curiam)
(concluding the “discretionary power to seek judicial relief” and “conduct[] civil litigation
in the courts of the United States for vindicating public rights” are exercises of Article II
executive power); Seila L. LLC v. CFPB, 591 U.S. 197, 225 (2020) (holding the CFPB
director unconstitutionally exercised “executive power” to “set enforcement priorities,
initiate prosecutions, and determine what penalties to impose on private parties”); id. at
219 (holding the “power to seek daunting monetary penalties against private parties . . . [is]
a quintessentially executive power”); Free Enter. Fund, 561 U.S. at 504 (holding the
“power to start, stop, or alter individual Board investigations” is part of the executive
power); Collins v. Yellen, 594 U.S. ---, 141 S. Ct. 1761, 1786 (2021) (holding the power “to
issue subpoenas” is an “executive power”); id. at 1806 (Sotomayor, J., concurring in part
and dissenting in part) (noting “the power to impose fines” is an “executive power”); id.
at 1805 (Sotomayor, J. concurring in part and dissenting in part) (arguing the FTC had
significant executive power because it had “wide powers of investigation” and “broad
authority to issue complaints and cease-and-desist orders” (quoting Humphrey’s Ex’r v.
United States, 295 U.S. 602, 620–21 (1935))); United States v. Grubbs, 547 U.S. 90, 98
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they have been considered so from our Nation’s founding. 10 As much as
legislative power, the private nondelegation doctrine forbids unaccountable
delegations of executive power. See, e.g., Amtrak II, 575 U.S. at 62 (Alito, J.,
concurring) (“Private entities are not vested with ‘legislative powers.’ Art. I,
§ 1. Nor are they vested with the ‘executive Power,’ Art. II, § 1, cl. 1, which
belongs to the President.”). Accordingly, we must determine whether HISA
delegates enforcement power to private entities and, if so, whether that
power is subordinate to the FTC.
HISA divides enforcement authority among the FTC, the Authority,
and USADA, “each within the scope of their powers and responsibilities
under this chapter.” § 3054(a). Recall that USADA is the private non-profit
to whom the Authority must delegate anti-doping and medication
enforcement. See § 3054(e)(1)(A). 11 So, the answer to the question before us
_____________________
(2006) (describing a search as an “exercise of executive power”); California v. Acevedo,
500 U.S. 565, 586 (1991) (Stevens, J., dissenting) (“The Fourth Amendment is a restraint
on Executive power.”).
10
See generally Dina Mishra, An Executive-Power Non-Delegation Doctrine for the
Private Administration of Federal Law, 68 Vand. L. Rev. 1509, 1545 (2015) (discussing
“[c]ertain types of tasks that seem quintessentially executive,” including “the tasks of law
enforcement—that is, of forcing compliance with the law”); id. at 1546 (“Ratification-era
history further supports the understanding that law enforcement consists of forcing
compliance or imposing sanctions on law violators” (citing The Federalist No. 21, at
134–35 (Alexander Hamilton) (Clinton Rossiter ed. 1961))); Aditya Bamzai & Saikrishna B.
Prakash, The Executive Power of Removal, 136 Harv. L. Rev. 1756, 1764 (2023) (“Law
execution was the executive power’s principal component.”); Saikrishna Prakash, The
Essential Meaning of Executive Power, 2003 U. Ill. L. Rev. 701, 737 (2003) (“Executive
officers investigate, apprehend, and prosecute potential lawbreakers. As the wielder of the
executive power, the president is the chief of these law enforcement executives.”); Ilan
Wurman, In Search of Prerogative, 70 Duke L.J. 93, 146–47 (2020) (arguing that law
enforcement and prosecution powers have been considered core executive functions since
the Founding).
11
The Authority also “may enter into agreements” with State racing commissions
to enforce the racetrack safety program. See § 3054(e)(2)(A)(i), (3); § 3056(c). The
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turns on what “powers and responsibilities” each of these three entities has
under HISA. Although HISA somewhat confusingly disperses the relevant
provisions throughout the Act, we can discern the following division of labor.
First, the Authority has responsibility for (1) investigating potential
violations, including by issuing subpoenas (§ 3054(h)); (2) levying sanctions
(§§ 3054(j)(1), 3057, 3058(a)); and (3) bringing suit against violators for
injunctive relief or to enforce sanctions (§ 3054(j)(1)–(2)). Second, actual
enforcement of doping and medication rules is done by USADA, which
“implements” those rules “on behalf of the Authority.” § 3054(e)(1)(E)(i).
In
this
regard,
USADA’s
responsibilities
include
“independent
investigations, charging and adjudication of potential medication control rule
violations, and the enforcement of any civil sanctions for such violations.”
§ 3055(c)(4)(B); see also § 3054(e)(1)(E)(iv). Third, the FTC may ask an
ALJ to review any sanction de novo, § 3058(b)(1), and the FTC may itself
review the ALJ’s decision de novo, either on its own motion or upon petition
by an aggrieved party. § 3058(c).
The Act’s plain terms permit only one conclusion: HISA is enforced
by a private entity, the Authority. The Authority decides whether to
investigate a covered entity for violating HISA’s rules. The Authority
decides whether to subpoena the entity’s records or search its premises. The
Authority decides whether to sanction it. And the Authority decides whether
to sue the entity for an injunction or to enforce a sanction it has imposed. To
be sure, the Authority does not perform these functions itself. Rather, HISA
requires the Authority to contract with another private entity, USADA,
which
undertakes
enforcement
“on
behalf
of
the
Authority.”
_____________________
Authority remains in charge, however, and dictates the “scope of work, performance
metrics, reporting obligations, budgets, and any other matter [it] considers appropriate.”
§ 3054(e)(2)(B).
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§ 3054(e)(1)(E)(i). The bottom line, though, is that a private entity, not the
agency, is in charge of enforcing HISA.
Consider also what HISA does not say. It does not empower the FTC
to decide whether to investigate a covered entity, whether to subpoena its
records, whether to search its premises, whether to charge it with a violation,
or whether to sanction or sue it. Nor does the Act empower the FTC to
countermand any of the Authority’s investigatory or charging decisions (or,
more precisely, USADA’s decisions). Nor does it require the Authority or
USADA to seek the FTC’s approval before investigating, searching,
charging, sanctioning, or suing. All these actions are enforcement actions,
and, by the plain terms of the Act, they can be done by the private entities
without the FTC’s involvement.
The inescapable conclusion is that the Authority does not “function
subordinately” to the FTC when enforcing HISA. Horsemen’s I, 53 F.4th at
881. That is not permitted under the private nondelegation doctrine. A
private entity that can investigate potential violations, issue subpoenas,
conduct searches, levy fines, and seek injunctions—all without the say-so of
the agency—does not operate under that agency’s “authority and
surveillance.” Ibid. Put another way, with respect to enforcement, HISA’s
plain terms show that the Authority does not merely act “as an aid” to the
FTC because the FTC does not “retain[] the discretion to approve,
disapprove, or modify” the Authority’s enforcement actions. Ibid. (cleaned
up) (quoting Amtrak I, 721 F.3d at 671).
3.
One might counter, though, that the FTC at least partially supervises
the Authority because it can review sanctions at the back end, after ALJ
review. See §§ 3055(c)(4)(B), 3058(b)(3)–(c)(3). That is true, and it is the
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Authority’s best argument for why its enforcement power is subordinate to
the FTC.
The argument nonetheless fails. Suppose the Authority sanctions a
horse owner for a doping violation, but the sanction is later reversed by the
FTC. Does that make the Authority’s enforcement power subordinate to the
agency? No, it does not. Consider everything the Authority was permitted to
do up to that point: launch an investigation into the owner, subpoena his
records, search his facilities, charge him with a violation, adjudicate it, and
fine him. 12 Each and every one of those actions is “enforcement” of HISA.
Each can occur under HISA without any supervision by the FTC.
Moreover, penalties imposed by the Authority are not automatically stayed
pending appeal. See 16 C.F.R. § 1.148(a). So, any penalty goes into effect as
soon as the Authority makes its decision, unless the ALJ or FTC exercises
its discretion to implement a stay pending appeal. See § 3058(d).
_____________________
12
Not only does HISA facially permit that, but it has already happened. For
example, in one currently active and undecided FTC appeal, it is uncontested that three
private Authority investigators showed up at the appellant’s residence and served her with
a notice of an alleged doping violation (there is no personal service requirement under the
statute). The investigators then “subjected [the appellant] to a coercive interrogation in a
small room” and searched “her barn and . . . her mother’s car” for banned substances.
Statement of Contested Facts and Specification of Additional Evidence, In re Lynch, 9423
F.T.C. 1, 3–4 (Mar. 1, 2024). She was then fined $55,000 and banned from racing for 48
months. Id. at 5–6. Authority investigators have also searched defendants’ property and
extracted fines under HISA’s strict liability regime for possession of banned substances.
For example, one veterinarian forgot to clean out his trailer and still had two buckets of a
newly banned substance two weeks after the effective date. Private Authority investigators
searched his trailer, found the buckets, fined him $5,000, and banned him from practice for
14 months. The ALJ affirmed on appeal. All this despite the fact that the Authority and the
ALJ conceded that the appellant purchased the substance long before it was banned, forgot
it was in his trailer, and did not even attempt to use it on a horse. In re Perez, 9420 F.T.C.
1, 5–6 (Mar. 18, 2024); see also In re Poole, 9417 F.T.C. 1, 5–6, 10 (Nov. 13, 2023) (affirming
an $18,000 fine and banning him from practice for 22 months for a similar inadvertent
possession of a newly banned substance).
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It is no answer to say that the FTC can come in at the tail-end of this
adversarial process and review the sanction. As far as enforcement goes, the
horse was already out of the barn. (You knew that was coming.) Besides, what
if the sanctioned owner, instead of fighting the process, opts to settle for a
lower fine? In that case, according to the Authority’s logic, no one has
enforced HISA. That is obviously not true. To the contrary, the settlement
scenario—which will likely happen often—only underscores that it is the
private entity that acts as HISA’s enforcer in any meaningful sense.
Consider a hypothetical. Suppose a city structures its speeding laws to
let a group of private car enthusiasts monitor speeds with their own radar
guns, pull speeders over, and ticket them. Fines are reviewed by the police
department and, ultimately, the mayor. Who enforces the speeding laws?
Anyone would say the private group. After all, consider how many cases we
decide concerning whether the police have wrongly stopped someone or used
excessive force during the stop. See, e.g., Terrell v. Town of Woodworth, No.
23-30510, 2024 WL 667690 (5th Cir. Feb. 19, 2024) (per curiam). All would
agree that the police were “enforcing” the law when they stopped the
person. The same goes for the private entity in the hypothetical.
The Authority’s argument, moreover, does not work even on its own
terms. In addition to levying fines, HISA empowers the Authority to sue
people and racetracks to enjoin past, present, or impending violations. See
§ 3054(j)(1) (providing “the Authority may commence a civil action against
a covered person or racetrack that has engaged, is engaged, or is about to
engage, in acts or practices constituting a violation of this chapter . . . to
enjoin such acts or practices”); § 3054(j)(2) (allowing issuance of “a
permanent or temporary injunction or restraining order . . . without bond”).
HISA gives the FTC no role in this process, either before or after the fact.
So, even assuming the Authority is correct (and it is not) that the agency’s
after-the-fact supervision of sanctions makes the Authority subordinate, the
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Authority is demonstrably not subordinate when it comes to suing violators
for injunctions. That is plainly an unsupervised delegation of executive power
that the Constitution does not tolerate. See Buckley, 424 U.S. at 138 (“A
lawsuit is the ultimate remedy for a breach of the law, and it is to the
President . . . that the Constitution entrusts [this] responsibility[.]”).
4.
The Authority next argues that the FTC could use its new rulemaking
authority to rein in the Authority’s enforcement actions or even require the
Authority to preclear lawsuits with the agency. See § 3053(e) (empowering
FTC to “abrogate, add to, and modify” the Authority’s rules). This
argument persuaded the Sixth Circuit that at least a facial challenge to the
Authority’s enforcement powers should fail. See Oklahoma, 62 F.4th at 231
(through § 3053(e) rulemaking, “the FTC could subordinate every aspect of
the Authority’s enforcement,” which “suffices to defeat a facial challenge”).
And we have already found that the FTC’s rulemaking power has some
purchase in turning back a facial challenge to the Authority’s rulemaking
power: as explained, the agency could ensure via rulemaking that no
Authority rule could go into effect until the agency had time to review it. See
supra III.A. With great respect to our colleagues on the Sixth Circuit,
however, we are not convinced that this rulemaking argument can save the
Authority’s enforcement powers.
The Authority’s rulemaking argument would let the agency rewrite
the statute. In HISA, Congress set out a definite enforcement scheme,
dividing responsibilities among the FTC, the Authority, and USADA. See
§§ 3054(e)(2), 3054(c)(1), 3054(e). HISA is quite clear about this: it
provides that those three entities “implement and enforce” the Act, “each
within the scope of their powers and responsibilities under this chapter.”
§ 3054(a)(1) (emphasis added). A mere agency cannot alter that statutory
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division of labor. See, e.g., Gulf Fishermen’s Ass’n v. Nat’l Marine Fisheries
Serv., 968 F.3d 454, 460 (5th Cir. 2020) (“We will not defer to ‘an agency
interpretation that is inconsistent with the design and structure of the statute
as a whole.’” (quoting Util. Air. Regul. Grp. v. EPA, 573 U.S. 302, 321
(2014))); 5 U.S.C. § 706(2)(C) (authorizing courts to set aside agency action
“in excess of statutory jurisdiction, authority, or limitations”). 13 As the
Supreme Court recently reiterated, even “statutory permission to ‘modify’
does not authorize ‘basic and fundamental changes in the scheme’ designed
by Congress.” Biden v. Nebraska, 600 U.S. ---, 143 S. Ct. 2355, 2368 (2023)
(quoting MCI Telecomms. Corp. v. Am. Tel. & Tel. Co., 512 U.S. 218, 225
(1994)). Yet that is just what the Authority says the FTC could do through
rulemaking.
Take the Authority’s power to seek injunctions. HISA empowers the
Authority to file suit to enjoin violations, while saying nothing about FTC
involvement in the process. See § 3054(j)(1). Yet the Authority suggests the
FTC could, by rule, require the Authority to preclear any such action with
_____________________
13
See also Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 473 (2001) (holding that
agency rulemaking “has no bearing upon” whether a statutory delegation is
constitutional); Hartford Underwriters Ins. v. Union Planters Bank, N.A., 530 U.S. 1, 6–7
(2000) (“Where a statute names the parties granted the right to invoke its provisions, such
parties only may act.” (cleaned up) (citation omitted)); Bayou Lawn & Landscape Servs. v.
Sec’y of Lab., 713 F.3d 1080, 1084–85 (11th Cir. 2013) (holding it “axiomatic that an
agency’s power to promulgate legislative regulations is limited to the authority delegate[d]
to it by Congress” and that courts cannot “locate . . . power in one agency where it had
been specifically and expressly delegated by Congress to a different agency”); Union Pac.
R.R. v. Surface Transp. Bd., 863 F.3d 816, 823 (8th Cir. 2017) (finding express delegation to
the Federal Railroad Administration precluded implied authority claimed by the private
Board); Perot v. FEC, 97 F.3d 553, 559 (D.C. Cir. 1996) (per curiam) (“We agree with the
general proposition that when Congress has specifically vested an agency with the authority
to administer a statute, it may not shift that responsibility to a private actor[.]”); EPA v.
EME Homer City Generation, L.P., 572 U.S. 489, 509 (2014) (relying on the statute’s “plain
text and structure [to] establish a clear chronology of federal and State responsibilities”).
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the agency. We disagree. That would let the agency amend the enforcement
scheme delineated by statute. 14 The same goes for investigatory and
subpoena power: HISA unqualifiedly gives that power to the Authority, see
§ 3054(h), and then requires the Authority to delegate it to USADA, see
§§ 3054(e)(1)(E)(iv), 3055(c)(4) (the Authority “shall” contract with
USADA to “conduct and oversee” anti-doping and medication
enforcement “including independent investigations”). And the same goes
for charging and adjudicating violations and levying sanctions. See ibid. (the
Authority
“shall”
contract
with
USADA
to
“conduct
and
oversee . . . charging and adjudication of potential medication control rule
violations, and the enforcement of any civil sanctions for such violations”);
§ 3054(j) (recognizing Authority’s power to impose “civil sanctions”).
Congress enacted this reticulated scheme. The agency cannot amend it by
promulgating a rule.
Furthermore, when Congress wanted to put the FTC in charge of
enforcement, it knew how. Section 3059, for instance, is a separate part of
HISA targeting certain “unfair or deceptive” practices in selling horses. 15
With respect to that section, the Authority can only “recommend” that the
_____________________
14
Nor could the Authority claim that the statute is merely silent about FTC preapproval and that gap could be filled by rulemaking. Our circuit has repeatedly rejected this
“nothing-equals-something argument” for conjuring agency authority out of thin air. Gulf
Fishermen’s, 968 F.3d at 460–61 (citing Texas v. United States, 809 F.3d 134, 186 (5th Cir.
2015), aff’d by equally divided court, 579 U.S. 547 (2016) (per curiam)).
15
See § 3059 (deeming it an unfair or deceptive practice under 15 U.S.C. § 45(c) to
fail to disclose to a buyer that a horse was administered “a bisphosphonate” before its
fourth birthday or any other prohibited substance).
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FTC “commence an enforcement action.” 16 § 3054(c)(1)(B). In other
words, only here did Congress limit the Authority’s enforcement discretion
to “recommending” agency enforcement. Cf. § 3054(j)(1) (providing “the
Authority may commence a civil action” seeking an injunction). Yet the
Authority contends that the agency could, by rulemaking, make every
enforcement action subject to similar FTC approval. That would rewrite the
enforcement scheme Congress enacted. See Russello v. United States, 464
U.S. 16, 23 (1983) (“Where Congress includes particular language in one
section of a statute but omits it in another section of the same Act, it is
generally presumed that Congress acts intentionally and purposely in the
disparate inclusion or exclusion.” (cleaned up) (citation omitted)).
Additionally, the Sixth Circuit believed the FTC could supervise the
Authority through a slightly different kind of rulemaking—that is, by issuing
rules governing how the Authority enforces HISA. See Oklahoma, 62 F.4th
at 231. For instance, the agency could issue rules against “overbroad
subpoenas or onerous searches” or “provid[ing] a suspect with a full
adversary proceeding and with free counsel.” Ibid. Unhappily, we again
disagree with our sister circuit.
The Horsemen are not complaining about how the Authority exercises
its enforcement power. They are complaining about where the enforcement
power is lodged: on its face, HISA empowers private entities to enforce it
and permits agency oversight only after the enforcement process is over and
done with (and then only with respect to fines, not injunctions). If the
Horsemen were objecting only to overbroad subpoenas, unwarranted
_____________________
16
See § 3054(c)(1)(B) (providing the “Authority . . . with respect to an unfair or
deceptive act or practice described in section 3059 of this title, may recommend that the
Commission commence an enforcement action”).
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searches, or lack of free counsel, perhaps those complaints could be
addressed through rulemaking or as-applied challenges. But their complaint
is different. They contend that HISA facially delegates unsupervised
enforcement power to private actors. They are right. 17
In sum, HISA’s clear delineation of enforcement power between the
FTC, the Authority, and USADA cannot be altered through rulemaking.
5.
Finally, the Authority defends its enforcement role by analogizing it
to the role of self-regulatory organizations (“SROs”)—specifically,
FINRA—which assist the SEC in enforcing securities laws. The Authority
seeks support in circuit cases concluding that FINRA’s enforcement role
presents no private nondelegation problem. See, e.g., Oklahoma, 62 F.4th at
229, 232 (gathering cases). 18 For their part, the Horsemen argue that, for
_____________________
17
Moreover, consider the revealing premise of this line of argument. Suppose the
FTC issued a rule saying, “The Authority can search racetracks only if it has probable
cause.” Well and good, but that rule still presupposes the Authority is the one doing the
search. Merely because the Authority would have to obey the Fourth Amendment does not
change the fact that a private entity is searching your racetrack without agency say-so. And
it is no answer to say that the agency could issue a rule saying, “The Authority can search
racetracks only if the FTC approves the search.” That rule, as explained, would amend
the statute’s division of authority. See § 3054(h) (“The Authority shall have subpoena and
investigatory authority with respect to civil violations committed under its jurisdiction.”).
18
The Sixth Circuit relied on several cases upholding the constitutionality of
FINRA to hold that “[i]n case after case, the courts have upheld [the Maloney Act’s]
arrangement, reasoning that the SEC’s ultimate control over the rules and their
enforcement makes the SROs permissible aides and advisors.” Oklahoma, 62 F.4th at 229.
We do not read those cases quite so broadly. They relied largely on the grounds that the
SEC ultimately approves any proposed rules and has its own generalized rulemaking
power. See, e.g., R. H. Johnson & Co. v. SEC, 198 F.2d 690, 696 (2d Cir. 1952) (considering
only whether the SEC abused its discretion); Todd & Co. v. SEC, 557 F.2d 1008, 1012 (3d
Cir. 1977) (considering only a nondelegation challenge to the SEC’s legislative rulemaking
authority); First Jersey Sec., Inc. v. Bergen, 605 F.2d 690, 697 (3d Cir. 1979) (same); Sorrell
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enforcement purposes, the FTC-Authority relationship is meaningfully
different from the SEC-FINRA relationship. As we have before noted,
HISA was modeled on the Maloney Act, which created FINRA. See
Horsemen’s I, 53 F.4th at 887; supra III.A. Moreover, we concluded in
Horsemen’s I that HISA lacked a key feature of the Maloney Act empowering
the SEC to “abrogate, add to, and delete” rules proposed by FINRA.
Horsemen’s I, 53 F.4th at 887. As discussed, Congress added a similar
provision to HISA, which remedied the nondelegation problem with the
Authority’s rulemaking powers. Supra III.A.
We agree with the Horsemen that, for enforcement purposes, HISA
gives the Authority an enforcement role meaningfully different from
FINRA’s. Unlike the SEC-FINRA relationship, HISA does not give the
FTC potent oversight power over the Authority’s enforcement such as the
power to enforce HISA itself, deregister the Authority as the enforcing
entity, or remove its directors.
To begin with, Congress empowered the SEC to enforce FINRA’s
rules if needed. The SEC can “in its discretion, make such investigations as
it deems necessary to determine whether any person has violated, is violating,
or is about to violate” the Maloney Act. 15 U.S.C. § 78u(a)(1). The SEC can
also, on its own accord, seek criminal sanctions, injunctive relief, or
disgorgement. § 78u(c), (d), (d)(4). The FTC cannot. See § 3054(c)(iii)
(granting the Authority investigatory power); § 3054(e) (granting the
Authority and USADA enforcement responsibility). The SEC has power to
issue subpoenas, see §§ 77s(c), 78u(c), while HISA gives the Authority that
power, § 3054(h), (c)(ii). The SEC can also revoke FINRA’s ability to
_____________________
v. SEC, 679 F.2d 1323, 1325–26 (9th Cir. 1982) (same). But none addressed a nondelegation
challenge to executive power.
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enforce its rules, § 78s(g)(2), and step in and enforce any written rule itself,
§ 78o(b)(4). HISA gives the FTC none of these tools.
Moreover, HISA diverges radically from the Maloney Act in
empowering the Authority to sue. The SEC alone has the power to bring
civil suits, §§ 78u-1(a), 78u(d)(1), while HISA gives that power exclusively
to the Authority, § 3054(j)(1). Giving a private entity the sole power to sue in
federal court to enforce a statute cuts to the core of executive power. See
Buckley, 424 U.S. at 138 (“A lawsuit is the ultimate remedy for a breach of
the law, and it is to the President . . . that the Constitution entrusts [this]
responsibility[.]”). 19
Finally, the SEC “retains formidable oversight power to supervise,
investigate, and discipline [FINRA] for any possible wrongdoing or
regulatory missteps.” In re NYSE Specialists Sec. Litig., 503 F.3d 89, 101 (2d
Cir. 2007). The FTC does not. This “formidable” power is manifest in the
SEC’s ability to derecognize FINRA’s regulatory role entirely,
§§ 78s(a)(3), (h)(1); remove FINRA board members for cause, § 78s(h)(4);
remove any individual FINRA member, § 78s(h)(2); and bar any person
from associating with FINRA, § 78o-3(g)(2). HISA, on the other hand,
_____________________
19
One may reasonably ask whether HISA’s delegation of enforcement authority
is supported by an analogous delegation in qui tam statutes. We think not. The Horsemen
note our decision in Riley v. St. Luke’s Episcopal Hospital, 252 F.3d 749 (5th Cir. 2001) (en
banc), where we held that the False Claims Act (“FCA”) does not violate Article I’s Take
Care Clause. They argue that Riley does not support HISA’s delegation because qui tam
relators are episodic and do not have a continuing relationship with the government. That
is true, but we see a more fundamental distinction between the two statutes: under the
FCA, the executive branch has substantial power over qui tam relators that the FTC does
not have over the Authority. For example, the United States can intervene in any qui tam
litigation, take control of the litigation, veto settlement agreements, and dismiss the suit
“notwithstanding the objections of the [relator].” Id. at 753–54. HISA gives the FTC
none of those powers.
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“recognize[s] for purposes of developing and implementing” the Act only
“[t]he private, independent, self-regulatory, nonprofit corporation, to be
known as the ‘Horseracing Integrity and Safety Authority.’” § 3052(a). And
only the Authority’s Board can remove members: directors by a two-thirds
vote and committee members for any reason. 20
***
In sum, we agree with the Horsemen that the FTC lacks adequate
oversight and control over the Authority’s enforcement power. HISA’s
explicit division of enforcement responsibility empowers the Authority with
quintessential executive functions and gives the FTC scant oversight until
enforcement has already occurred. Such backend review by the FTC does
not subordinate the Authority. And the FTC’s general rulemaking power
provides no answer because executive rulemaking cannot amend the plain
division of enforcement power laid out in HISA’s text. Such a radical
delegation differs materially from the SEC-FINRA relationship because the
FTC lacks any tools to ensure that the law is properly enforced. HISA’s
enforcement provisions thus violate the private nondelegation doctrine.
C. Due Process Challenge
We turn next to the Horsemen’s challenge based on the Fifth
Amendment’s Due Process Clause. They argue that HISA, both facially and
as-applied, deprives them of due process by permitting economically selfinterested actors to regulate their competitors. See Carter Coal, 298 U.S. at
311 (government violates due process by allowing regulation by “private
persons whose interests may be and often are adverse to the interests of
_____________________
20
In saying all this, we express no opinion on whether the SEC-FINRA
relationship poses any constitutional issues under the private nondelegation doctrine (or
any other doctrine). Such questions are not posed by this case.
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others in the same business”). Specifically, the Horsemen contend that
Carter Coal does not require proof of economic self-interest, only that the
private person “may be” adverse to those he regulates. They then argue that
several members of the Board and standing committees violate the conflict of
interest provisions due to their professions and prior financial interests.
Finally, the Horsemen contend that the statute fails to properly protect
against self-interested actors because it does not cover financial interests
other than interests in a covered horse, as opposed to a racetrack or other
facility.
The district court correctly rejected these claims. As to the
Horsemen’s facial challenge, the court concluded it was defeated by HISA’s
conflict-of-interest provisions. See Black, 672 F. Supp. 3d at 252. Those
provisions prohibit a range of individuals from serving as Board or
independent committee members, § 3052(e), including individuals with
financial interests in, or who provide goods or services to, covered horses;
officials, officers, or policy makers for an equine industry; and employees,
contractors, or immediate family members of the prior individuals.
§ 3052(e)(1)–(4).
As to the as-applied challenge, the district court rejected it on the
facts. Following a bench trial, the court found the Horsemen relied only on
the committee members’ biographical information but adduced no other
evidence showing their adverse interests, financial or otherwise. See Black,
672 F. Supp. 3d at 252 (“HISA affords sufficient protection through its
conflicts-of-interest provisions, and the plaintiffs have not met their burden
to show unconstitutional self-dealing by directors, committee members, or
others associated with the Authority.”). At most, the court observed that the
biographical information may show the members do not qualify as
“independent members.” Ibid.; § 3052(b)(1)(A) (“[I]ndependent members
[must be] selected from outside the equine industry.”). But, as the court
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pointed out, even assuming that to be true, it says nothing about the
members’ financial interests. Black, 672 F. Supp. 3d at 252. On appeal, the
Horsemen fail to show any error by the district court here.
D. Appointments Clause Challenge
A separate plaintiff, Gulf Coast, challenges the Authority’s structure
under the Appointments Clause of Article II. 21 Recall that Gulf Coast raised
this distinct challenge in a suit later consolidated with the Horsemen’s. See
id. at 230. Gulf Coast argues that, for constitutional purposes, the Authority
is governmental, not private, and so is subject to the Appointments Clause.
This means the Authority’s directors, if they are principal officers, must be
appointed by the President with Senate confirmation or, if they are inferior
officers, by the President, courts, or department heads according to law. See
Free Enter. Fund, 561 U.S. at 487–88; Cochran v. SEC, 20 F.4th 194, 198 (5th
Cir. 2021) (en banc). The Authority’s directors are not appointed in any of
these ways, 22 and so, if Gulf Coast is right, their appointment would violate
Article II.
The Authority and the FTC first respond that we previously decided
this question in Horsemen’s I. By applying the private nondelegation doctrine
to the Authority, they argue we necessarily determined the Authority is not
governmental for constitutional purposes. The district court took this view
_____________________
21
The Appointments Clause reads “[The President] shall nominate, and by and
with the Advice and Consent of the Senate, shall appoint . . . all other Officers of the United
States, whose Appointments are not herein otherwise provided for” but provides “the
Congress may by Law vest the Appointment of such inferior Officers, as they think proper,
in the President alone, in the Courts of Law, or in the Heads of Departments.” U.S.
Const. art. II, § 2, cl. 2.
22
The directors are appointed by the Authority itself. See § 3052(d)(3) (Board
members are selected by the Authority’s nominating committee).
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as well. See Black, 672 F. Supp. 3d at 234. That is understandable. Challenges
based on private nondelegation, on the one hand, and the Appointments
Clause, on the other, appear mutually exclusive. For constitutional purposes,
an entity is either governmental or not. See, e.g., Lebron, 513 U.S. at 378–79;
Amtrak II, 575 U.S. at 50–51. That is why the Horsemen themselves call Gulf
Coast’s
claim
“fundamentally
incompatible”
with
their
private
nondelegation challenge. Texas seems to agree, noting that Gulf Coast’s
Appointments Clause theory would apply only if “the Court disagree[s]”
with its assumption that the Authority is private.
That said, however, we cannot agree that we decided this question in
Horsemen’s I. The Appointments Clause question was never posed. Party
presentation is a fundamental constraint on appellate decision-making. See
United States v. Sineneng-Smith,
590
U.S. 371,
375–76
(2020)
(“Courts . . . wait for cases to come to them, and when cases arise, courts
normally decide only questions presented by the parties.” (cleaned up)
(citation omitted)). The fact is that in Horsemen’s I, all parties proceeded on
the assumption that the Authority is private for constitutional purposes. See
Horsemen’s I, 53 F.4th at 875 n.11 (“The Horsemen also claimed HISA was
unconstitutional under the . . . Appointments Clause. The district court did
not rule on those claims and so they are not before us.”). No one suggested
that the Authority might qualify as a government entity or that its directors
were subject to the Appointments Clause. So, because we did not settle the
question previously, we can address it now. See Companion Prop. & Cas. Ins.
v. Palermo, 723 F.3d 557, 561 (5th Cir. 2013) (“Appellate powers are limited
to reviewing issues raised in, and decided by, the district court.” (cleaned up)
(citation omitted)); Alpha/Omega Ins. Servs. v. Prudential Ins. of Am., 272
F.3d 276, 281 (5th Cir. 2001) (“[T]he law of the case doctrine only applies to
issues we actually decided[.]”).
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The basic premise of Gulf Coast’s argument is that the Authority is
part of the federal government for Appointments Clause purposes. See
Amtrak II, 575 U.S. at 50–51. We of course recognize that HISA calls the
Authority private, as does the Authority’s own charter. See § 3052(a) (“The
private, independent, self-regulatory, nonprofit corporation, to be known as
the ‘Horseracing Integrity and Safety Authority’ is recognized for purposes
of developing and implementing [HISA].”); HISA Charter (“The
Corporation is organized and shall be operated as a nonprofit business
league[.]”). But deeming an entity “private” does not settle whether it is
legally part of the federal government. Otherwise, the government could
evade constitutional restrictions by mere labeling. See Lebron, 513 U.S. at 397
(“It surely cannot be that government, state or federal, is able to evade the
most solemn obligations imposed in the Constitution by simply resorting to
the corporate form.”). So, we must determine whether the Authority
qualifies as part of the federal government for constitutional purposes.
The analysis guiding that inquiry comes from Lebron. In that case, the
Supreme Court examined “the long history of corporations created and
participated in by the United States for the achievement of governmental
objectives.” Id. at 386. 23 The specific question before the Court was whether
“Amtrak, though nominally a private corporation, must be regarded as a
Government entity for First Amendment purposes.” Id. at 383. The answer
was yes. That was so, the Court held, because “the Government create[d]
[the Amtrak] corporation by special law, for the furtherance of governmental
_____________________
23
See also id. at 386–91 (discussing corporations such as the first and second Banks
of the United States, the Panama Railroad Company, the United States Grain Corporation,
the Reconstruction Finance Corporation, the Federal Deposit Insurance Corporation, the
Communications Satellite Corporation, the Corporation for Public Broadcasting, and the
Legal Services Corporation).
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objectives, and retain[ed] for itself permanent authority to appoint a majority
of the directors of that corporation.” Id. at 399. The Supreme Court and
circuit courts have since used Lebron’s analysis to discern whether
corporations are part of the government for constitutional purposes. 24
Applying Lebron, we conclude that the Authority is not a federal
instrumentality for purposes of the Appointments Clause.
First, the Authority was not created by the federal government “by
special law,” ibid., but was incorporated under Delaware law shortly before
HISA’s passage. Contrast this with Amtrak, which “Congress established”
by enacting the Rail Passenger Service Act of 1970. Id. at 383–84; see also
Nat’l R.R. Passenger Corp. v. Atchison, Topeka & Santa Fe Ry. Co., 470 U.S.
451, 454 (1985) (observing “Congress established the National Railroad
Passenger Corporation, a private, for-profit corporation that has come to be
known as Amtrak”).
Second, the Authority was not created to further “governmental
objectives,” Lebron, 513 U.S. at 399, but instead as a private association to
address doping, medication, and safety issues in the thoroughbred racing
_____________________
24
See Nebraska, 143 S. Ct. at 2366–67 (applying Lebron to conclude that the
Missouri Higher Education Loan Authority is “an instrumentality of Missouri”); Free
Enter. Fund, 561 U.S. at 486 (citing Lebron when referencing parties’ agreement that the
Public Company Accounting Oversight Board (“PCAOB”) “is ‘part of the Government’
for constitutional purposes”); Amtrak II, 575 U.S. at 54–55 (explaining Lebron “provides
necessary instruction” and “teaches that, for purposes of Amtrak’s status as a federal actor
or instrumentality under the Constitution, the practical reality of federal control and
supervision prevails over Congress’ disclaimer of Amtrak’s governmental status”); Kerpen
v. Metro. Wash. Airports Auth., 907 F.3d 152, 158–59 (4th Cir. 2018) (applying Lebron to
conclude that the Metropolitan Washington Airports Authority (“MWAA”) is not “a
federal entity” because “MWAA was not created by the federal government” and “is not
controlled by the federal government”); Montilla v. Fed. Nat’l Mortg. Ass’n, 999 F.3d 751,
759–61 (1st Cir. 2021) (applying Lebron to conclude that Fannie Mae and Freddie Mac are
not government actors).
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industry. Again, contrast this with Amtrak, which Congress created “to avert
the threatened extinction of passenger trains in the United States” and for
other goals Congress itself “establish[ed].” Id. at 383.
Third, the federal government does not “control[] the operation of
the [Authority],” nor has it “retain[ed] for itself permanent authority to
appoint a majority of the [Authority’s] directors.” Ibid. To the contrary, the
government has no role in appointing the Authority’s Board. Once again,
contrast this with Amtrak—where a majority of its directors was appointed
by the President. Id. at 397–98; see also Amtrak II, 575 U.S. at 51 (observing
that seven of nine Amtrak board members “are appointed by the President
and confirmed by the Senate”); cf. Free Enter. Fund, 561 U.S. at 484, 484–85
(noting the PCAOB—despite being statutorily deemed “private”—is a
“Government-created,
Government-appointed
entity,”
whose
five
members are “appointed . . . by the [SEC]”).
Instead of engaging with Lebron, Gulf Coast argues that Lebron’s
analysis is not “the only way” to tell whether a corporation is a government
instrumentality. That takes too narrow a view of precedent, however. Lebron
canvassed “the long history of corporations created and participated in by
the United States” and set out a detailed analysis to determine whether a
particular corporation—despite its designation as “private”—counts as a
government instrument for constitutional purposes. See 513 U.S. at 386, 386–
91. That is precisely the question we must answer with respect to the
Authority. How can we, as an inferior court, simply bypass Lebron? We
cannot.
Gulf Coast tries to offer us a way around Lebron, but it is a dead end.
Gulf Coast argues that Lebron addressed only government-created
corporations “that in no way exercised government power.” But Lebron did
not limit itself in that way—to the contrary, it relied on cases where Congress
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turned to private corporations to “accomplish purely governmental
purposes.” 513 U.S. at 395 (quoting Cherry Cotton Mills, Inc. v. United States,
327 U.S. 536, 539 (1946)). 25 Furthermore, the corporation actually addressed
in Lebron—Amtrak—itself exercised regulatory power, as the Supreme
Court, the D.C. Circuit, and our court have all recognized. See Amtrak II, 575
U.S. at 51 (“Amtrak . . . cannot constitutionally be granted the regulatory
power[.]” (citation and quotation omitted)); Amtrak I, 721 F.3d at 671 (“No
case prefigures the unprecedented regulatory powers delegated to
Amtrak.”); Horsemen’s I, 53 F.4th at 889 (discussing how Congress gave
“regulatory power to the ‘economically self-interested Amtrak’” (citation
omitted)).
Gulf Coast also argues that, to determine whether directors of a
private entity are “Officers of the United States,” we should focus on their
duration in office and the nature of the entity’s power. We disagree. The two
principal cases Gulf Coast relies on for this argument addressed whether
individuals already part of the government should be considered “Officers.”
So, Buckley examined whether Federal Election Commission appointees
wielded “significant authority pursuant to the laws of the United States.”
424 U.S. at 126. And Lucia v. SEC applied this same test to SEC ALJs. 585
U.S. 237, 244–45 (2018). Gulf Coast urges us to extend Buckley and Lucia
well beyond their facts to analyze whether persons in a private entity are
“Officers.” Even if we were inclined to take that step, however, Lebron
would remain an insuperable hurdle. As explained, Lebron addressed when a
private entity qualifies as part of the government for constitutional purposes.
_____________________
25
See also Inland Waterways Corp. v. Young, 309 U.S. 517, 524 n.4 (1940) (“The
corporations, of course, perform ‘governmental’ functions.” (citation omitted)); id. at 522
(“The banking system which Congress thus established embodied a blend of governmental
and private purposes.”).
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That is precisely the question before us. Post-Lebron, no case has applied
Buckley to private actors. Instead, the Supreme Court has repeatedly applied
Lebron for three decades. See supra note 23. We are not at liberty to displace
the Supreme Court’s governing framework. 26
Finally, Gulf Coast argues that if Lebron is the test, then the federal
government can simply vest all executive power in a private corporation and
avoid the Appointments Clause. This argument ignores the role of the private
nondelegation doctrine. The government cannot delegate core governmental
powers to unsupervised private parties. Pittston, 368 F.3d at 394. A private
entity can only act “subordinately to an agency with authority and
surveillance over it.” Horsemen’s I, 53 F.4th at 881 (quotations omitted). The
private nondelegation doctrine thus corrals any attempts to evade Lebron by
giving unaccountable governmental power to a pre-existing private entity.
In sum, Lebron is the governing test to determine whether an entity is
private or public and, under that test, the Authority is a private entity not
subject to Article II’s Appointments Clause.
E. Anti-Commandeering Challenge
Finally,
we turn to Gulf
Coast’s argument
that
HISA
unconstitutionally commandeers state officials. The Constitution forbids
Congress from “command[ing] the States’ officers, or those of their political
subdivisions, to administer or enforce a federal regulatory program.” Printz
_____________________
26
That principle also answers Gulf Coast’s reliance on a 2007 Office of Legal
Counsel (“OLC”) opinion. The opinion argued that the Appointments Clause applies to
someone with significant and continuing government authority, whether he is a private or
a government employee. Officers of the United States Within the Meaning of the Appointments
Clause, 31 Op. O.L.C. 73, 121–22 (2007). If the opinion was suggesting its analysis as an
alternative to Lebron (a decision, it should be noted, the opinion cited, see id. at 121), that is
a suggestion only the Supreme Court could act upon, not a circuit court bound by Lebron.
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v. United States, 521 U.S. 898, 935 (1997); see also New York v. United States,
505 U.S. 144, 165, 188 (1992). Gulf Coast argues HISA violates that principle
by coercing state racing commissions to remit fees to fund the Authority’s
operations. If state officials refuse, the Authority collects fees directly from
covered persons—but, in that event, HISA prohibits the state from
imposing taxes or fees to finance the state’s own horseracing programs. See
§ 3052(f). This scheme, argues Gulf Coast, “puts a gun to the head of
Texas” by coercing state officials to administer a federal program rather than
a state program.
The problem with this claim, as the district court pointed out, is that
Gulf Coast lacks standing to raise it. Specifically, Gulf Coast’s alleged
injury—that it prefers Texas’s racetrack safety rules to HISA’s—is “no
injury at all.” Black, 672 F. Supp. 3d at 250. As the district court correctly
reasoned, “[a] party cannot establish constitutional injury by suggesting that
he may be subject to rules he does not prefer.” Ibid.; see also, e.g., Consumers’
Rsch. v. Consumer Prod. Safety Comm’n, 91 F.4th 342, 350 (5th Cir. 2024)
(holding that “merely being subject to . . . regulations, in the abstract, does
not create an injury”).
On appeal, Gulf Coast fails to explain how the district court erred. It
merely argues that the coercive pressure the funding scheme allegedly places
on Texas will lead it to implement HISA’s rules rather than the current
Texas regulations, which makes Gulf Coast subject to “a new set of
unwanted (federal) regulations.” Again, though, this does not explain why
Gulf Coast experiences an injury sufficient to assert an anti-commandeering
challenge to HISA.
IV. Conclusion
In sum, we affirm the district court’s judgment that (1) Congress’s
recent amendment to HISA cured the private nondelegation flaw in the
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Authority’s rulemaking power; (2) HISA does not violate due process;
(3) the Authority’s directors are not subject to the Appointments Clause
under Lebron; and (4) Gulf Coast lacks standing to challenge HISA on anticommandeering grounds.
We reverse the district court’s judgment in one respect. Insofar as
HISA is enforced by private entities that are not subordinate to the FTC,
we DECLARE that HISA violates the private nondelegation doctrine.
Accordingly, the district court’s judgment is AFFIRMED in part
and REVERSED in part.
39
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Page 1 of 55 PageID 3134
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF TEXAS
LUBBOCK DIVISION
NATIONAL HORSEMEN’S
BENEVOLENT AND PROTECTIVE
ASSOCIATION, et al.,
Plaintiffs,
THE STATE OF TEXAS and THE
TEXAS RACING COMMISSION,
No. 5:21-CV-071-H
Intervenor-Plaintiffs,
v.
JERRY BLACK, et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
In hopes of standardizing horseracing regulation, the Horseracing Integrity and
Safety Act of 2020 (HISA) empowered a private entity to draft nationwide regulations
subject to the Federal Trade Commission’s review and approval. In response, the plaintiffs
claimed that HISA was unconstitutional because it did not give the FTC meaningful
oversight—violating the private-nondelegation doctrine. Although this Court recognized
that the plaintiffs’ concerns were legitimate, it construed binding precedent as permitting
Congress’s approach in its March 2022 order. The Fifth Circuit disagreed, explaining that
precedent could not justify HISA and that it was unconstitutional because the FTC lacked
discretion to approve, disapprove, or modify the proposed regulations. Answering the Fifth
Circuit’s call, Congress amended HISA to empower the FTC to “abrogate, add to, and
modify” the entity’s regulations. Nevertheless, the plaintiffs continue to allege
constitutional violations. But because Congress remedied the offending provisions and
brought the law within the Fifth Circuit’s stated requirements, the plaintiffs’ claims fail.
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Specifically, after remand, the original plaintiffs continue to claim that HISA violates
the private-nondelegation doctrine under Article I and the Due Process Clause. Dkt. No.
116. Texas and the Texas Racing Commission, as intervenor-plaintiffs, raise the same
arguments. Dkt. No. 155 at 22–25. Additionally, also after remand, another court
transferred a related case to this Court. Gulf Coast Racing LLC v. Horseracing Integrity & Safety
Authority, No. 2:22-CV-146-Z (N.D. Tex.), Dkt. No. 53. Those plaintiffs make the same
private-nondelegation claim, but only as an alternative to their primary claim that HISA
violates Article II’s Appointments Clause and Article I’s Vesting Clause. Dkt. No. 136. In
their view, the private entity at issue—the Horseracing Integrity and Safety Authority—is, in
reality, a public entity subject to the same requirements applicable to all public officers. No.
5:23-CV-077, Dkt. No. 36 at 33. They also allege, albeit briefly, that HISA violates the
Tenth Amendment’s anti-commandeering principles by requiring Texas to do the federal
government’s bidding. Id. at 57.
In light of Congress’s amendment to HISA and the undisputed evidence following a
bench trial, each of these arguments falls short. First, the plaintiffs’ private-nondelegation
argument reveals too much and is barred by precedent. Previously, the plaintiffs argued that
“HISA violates the private nondelegation doctrine because the FTC cannot modify the
Authority’s rules.” Dkt. No. 38 at 26. Now that Congress expressly authorizes the FTC to
modify the Authority’s rules, the plaintiffs retreat and admit their true view: that there is
nothing Congress could do to bring the HISA–Authority arrangement within constitutional
bounds. Dkt. No. 182 at 31–33, 37–38. But this argument ignores the long history of the
executive branch leveraging—with court approval—expertise from private industry so long
as the industry remains subordinate to a supervisory federal agency. E.g., Sunshine Anthracite
–2–
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Coal Co. v. Adkins, 310 U.S. 381, 388, 399 (1940) (allowing private parties to participate in
price setting because the private entities “function[ed] subordinately to the Commission”
and because the Commission retained “pervasive surveillance and authority” over the
activities of the private parties); see also Lebron v. Nat’l R.R. Passenger Corp., 513 U.S. 374,
386–90 (1995) (detailing the “long history of corporations created and participated in by the
United States for the achievement of governmental objectives” beginning in the 18th
Century). The Court understands the plaintiffs’ concerns with these arrangements,
especially given how long horseracing has been regulated at the local level. But because
Congress brought HISA within the Constitution’s limits as defined by the Fifth Circuit, the
Court concludes that HISA does not violate the private non-delegation doctrine.
Second, the plaintiffs’ facial and as-applied Fifth Amendment Due Process argument
fails for the same reasons this Court explained in its first order rejecting it. The Court finds
that the Authority is not a self-interested industry competitor creating a constitutional
violation. As a facial matter, HISA explicitly protects against self-interest through structural
safeguards while preserving industry representation in the Authority. And the as-applied
challenge fails because there is no evidence of actual, unconstitutional self-dealing that has
harmed industry competitors.
Third, the plaintiffs’ appointment and removal arguments fail for a simple reason—
the challenged entity at issue (the Authority) is not a public, governmental actor subject to
these constitutional limitations. The Fifth Circuit held as much in its panel opinion, so the
plaintiffs’ assertion otherwise at this point is both contrary to the law of the case and
foreclosed by precedent. Moreover, even assuming that the Fifth Circuit left this issue open,
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precedent makes clear that the Authority is private because it was not created by the
government, and it retains for itself permanent authority to appoint its directors.
Finally, the plaintiffs lack standing to raise their Tenth Amendment argument that
HISA unconstitutionally commandeers the states. Although private plaintiffs are not
automatically barred from bringing Tenth Amendment claims, they must still demonstrate
injury that is traceable to the defendant’s conduct and redressable by the Court. But the
private plaintiffs have no traceable, redressable injury to assert because HISA allows Texas
to either elect to collect fees of covered persons or, if not, the Authority will. HISA allows
states to “elect[]” to assess and collect fees on covered persons. 15 U.S.C. § 3052(f)(2)(A).
But if the state does not make such an election, then the Authority steps in to do
so. § 3052(f)(3). In this way, covered persons like the Gulf Coast plaintiffs will be regulated
and subject to assessments even if they were to succeed on the anti-commandeering
claim. Although the private plaintiffs clearly prefer to be regulated by Texas instead of the
Authority, the preference alone is insufficient to establish a redressable injury.
For all these reasons, the Court rejects the plaintiffs’ arguments and conclude that
Congress cured the unconstitutional aspects of HISA’s original approach. Given the parties’
desire for an expeditious resolution, the Court’s opinion is sufficient to permit appellate
review but does not exhaust every possible vein of analysis. 1
1
As explained infra in Parts 1.I through 1.L, the Court is operating on an expedited timeframe.
After resolving multiple emergency motions, the Court consolidated these cases on April 11—
roughly three weeks ago. Trial was held last week on April 26. Although the ADMC rule’s
effective date was delayed until May 22 (Dkt. No. 180), the plaintiffs request resolution “as soon as
possible.” Dkt. No. 181 at 8.
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1.
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Findings of Fact
Following remand from the Fifth Circuit, the plaintiffs filed multiple motions for a
preliminary injunction. Dkt. Nos. 116; 124; 139. Given the plaintiffs’ requests for
expedited treatment and temporary emergency relief, the Court consolidated the hearing on
the plaintiffs’ motions for preliminary injunction with the trial on the merits. Dkt. No. 135;
See also Fed. R. Civ. P. 65(a)(2). The Court finds the following facts.
A.
Congress enacts HISA with broad bipartisan support.
American horseracing has existed for centuries, and throughout it “has been
regulated by the States, local communities, and private organizations.” Nat’l Horsemen’s
Benevolent & Protective Ass’n v. Black, 53 F.4th 869, 873 (5th Cir. 2022). Although popular
even in the colonial era, the growth of American horseracing in the 1850s was met with “a
growing interest in the formation of a national governing board to regulate racing.” Joan S.
Howland, Let’s Not “Spit the Bit” in Defense of “The Law of the Horse”: The Historical and Legal
Development of American Thoroughbred Racing, 14 MARQ. SPORTS. L. REV. 473, 483 (2004).
But it would take more than 170 years for the first national horseracing legislation to be
signed into law. Nat’l Horsemen’s, 53 F.4th at 873.
After an increase in doping scandals and racetrack fatalities, Congress passed HISA
with broad bipartisan support. Pub. L. No. 116-260, §§ 1201-12, 134 Stat. 1182, 3252-75
(2020) (codified at 15 U.S.C. §§ 3051–60). On December 27, 2020, HISA was signed into
law. Id. For the first time in the long history of American horseracing, HISA established a
framework for national regulation of certain aspects of the industry. 15 U.S.C. §§ 3051–60.
Specifically, HISA aims to establish nationwide rules over racetrack safety and anti-doping
and medication control (ADMC). Nat’l Horsemen’s, 53 F.4th at 873. HISA applies to all
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covered horses (thoroughbreds (§ 3051(4)), covered persons (all trainers, owners, breeders,
jockeys, racetracks, and veterinarians, among others (§ 3051(6)), and covered horseraces
(those horseraces with a substantial effect on interstate commerce (§ 3051(5)). In other
words, “[t]he Act’s reach is broad,” and HISA creates a truly nationwide, comprehensive
regulatory scheme for racetrack safety and ADMC. Nat’l Horsemen’s, 53 F.4th at 873.
B.
A private entity, the Authority, is incorporated in aid of HISA.
The Authority was incorporated as a nonprofit on September 8, 2020. GPX 6 at 1;
No. 5:23-CV-077, Dkt. No. 47 at 5. HISA “recognize[d]” the Authority, a “private,
independent, self-regulatory, nonprofit corporation . . . for purposes of developing and
implementing a horseracing anti-doping and medication control program and a racetrack
safety program for covered horses, covered persons, and covered horseraces.” 15 U.S.C.
§ 3052(a). HISA prescribes the makeup of the Authority’s board of directors, including the
number of total directors (nine), independent directors (five), and industry-member directors
(four). § 3052(b)(1). The initial directors are chosen by a nominating committee,
“comprised of seven independent members . . . set forth in the governing corporate
documents of the Authority.” § 3052(d). HISA also directs the Authority to establish
racetrack-safety and ADMC standing committees. § 3052(c).
C.
HISA creates a rulemaking procedure that attempts to allow the Authority
to aid the FTC in regulating thoroughbred horseracing.
HISA creates a regulatory framework that allows the Authority to operate in aid of
the FTC: The Authority first drafts proposed rules, which are then submitted for FTC
approval. § 3053(a). Once a rule is received by the FTC, it goes through notice and
comment. § 3053(a)–(b). HISA also requires FTC approval before a proposed rule can take
effect. § 3053(b)(2). The FTC is given sixty days to “approve or disapprove the proposed
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rule or modification,” and the FTC “shall approve” a proposed rule if it is consistent with
the statute and applicable rules. § 3053(c).
D.
With oversight by the FTC, the Authority is tasked with enforcement.
The Authority is empowered to enforce the rules it aids the FTC in creating by
investigating violations, imposing civil sanctions, and suing to enforce sanctions or obtain
injunctive relief. §§ 3058(a), 3057(d), 3054(h)–(j). The Authority’s investigatory powers are
subject to “uniform procedures” reviewed and approved by the FTC. § 3054(c). All civil
sanctions imposed by the Authority are subject to two layers of FTC oversight. First, all
civil sanctions are subject to de novo review by an Administrative Law Judge appointed by
the FTC. § 3058(b). And the FTC can review de novo the ALJ’s final decision. § 3058(c).
E.
The Authority is funded by private parties.
At its initial stage, the Authority is funded by loans. See § 3052(f)(1). After that
initial stage, the majority of the Authority’s funding will derive from fees collected from
covered persons or state racing commissions. § 3052(f)(1)–(4). Any “proposed increase” in
fees for covered persons must be reported to the FTC for review and submitted for notice
and comment. § 3052(f)(1)(c)(iv).
F.
Multiple parties challenge HISA’s constitutionality.
This case involves many parties, consisting of the lead-case plaintiffs, 2 the member-
2
The plaintiffs in the lead case are National Horsemen’s Benevolent and Protective Association,
Arizona Horsemen’s Benevolent and Protective Association, Arkansas Horsemen’s Benevolent
and Protective Association, Indiana Horsemen’s Benevolent and Protective Association, Illinois
Horsemen’s Benevolent and Protective Association, Louisiana Horsemen’s Benevolent and
Protective Association, Mountaineer Park Horsemen’s Benevolent and Protective Association,
Nebraska Horsemen’s Benevolent and Protective Association, Oklahoma Horsemen’s Benevolent
and Protective Association, Oregon Horsemen’s Benevolent and Protective Association,
Pennsylvania Horsemen’s Benevolent and Protective Association, Tampa Bay Horsemen’s
Benevolent and Protective Association, and Washington Horsemen’s Benevolent and Protective
Association (hereinafter the Horsemen plaintiffs). Dkt. No. 149 at 2–10.
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case plaintiffs, 3 the intervenor-plaintiffs, 4 the FTC defendants, 5 and the Authority
defendants. 6 Both plaintiff groups sued FTC-related defendants and Authority-related
defendants.
G.
The Fifth Circuit holds HISA unconstitutional.
In March 2021, the National Horsemen’s Benevolent and Protective Association and
twelve of its affiliates (the Horsemen plaintiffs) filed suit against the FTC, its commissioners,
the Authority, and the Authority’s Nominating Committee members, challenging HISA’s
constitutionality on several grounds. Dkt. No. 1 at 19–26. In due time, the FTC defendants
and the Authority defendants separately filed motions to dismiss (Dkt. Nos. 34; 36), and the
Horsemen filed a partial motion for summary judgment, seeking declaratory and injunctive
relief on their private-nondelegation and due-process claims (Dkt. No. 37). After
considering the briefing of the parties and various amici, and after oral argument, the Court
concluded, based on what it viewed as binding precedent, that HISA did not result in a
constitutional violation. Nat’l Horsemen’s Benevolent & Protective Ass’n v. Black, 596 F. Supp.
3d 691, 725 (N.D. Tex. 2022), rev’d and remanded, 53 F.4th 869 (5th Cir. 2022). Thus, the
Court denied the partial motion for summary judgment (Dkt. No. 37) and noted that the
3
The plaintiffs in the member case are Gulf Coast Racing LLC, LRP Group Ltd., Valle de Los
Tesoros Ltd., Global Gaming LSP, LLC, and the Texas Horsemen’s Partnership LLP (hereinafter
the Gulf Coast plaintiffs). Dkt. No. 142 at 7–8.
4
The intervenor-plaintiffs are the State of Texas and the Texas Racing Commission. Dkt. No. 155.
5
The Authority defendants are Jerry Black, the Horseracing Integrity and Safety Authority, Lisa
Lazarus, Steve Beshear, Adolpho Birch, Leonard Coleman, Ellen McClain, Charles Scheeler,
Joseph DeFrancis, Susan Stover, Bill Thomason, D.G. Van Clief, Katrina Adams, Nancy Cox,
Joseph Dunford, Frank Keating, and Kenneth Schanzner. Dkt. Nos. 142; 149.
6
The FTC defendants are the Federal Trade Commission, Lina Khan, in her official capacity as
Chair of the Federal Trade Commission, Rebecca Kelly Slaughter, Alvaro Bedoya, Noah Phillips,
and Christine Wilson, all in their official capacities as Commissioners of the Federal Trade
Commission. Dkt. Nos. 142; 149.
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plaintiffs had abandoned their remaining claims (Nat’l Horsemen’s Benevolent & Protective
Ass’n, 596 F. Supp. 3d at 728). The Court dismissed the plaintiffs’ complaint (Dkt. No. 23)
with prejudice.
On appeal, the Fifth Circuit reversed in a thorough opinion, holding that the FTCAuthority regulatory scheme was unconstitutional because it gave the FTC too little control
over a private entity with regulatory authority. Nat’l Horsemen’s, 53 F. 4th at 872. The court
explained that “[a] cardinal constitutional principle is that federal power can be wielded
only by the federal government.” Id. As a result, “a private entity may wield government
power only if it ‘functions subordinately’ to an agency with ‘authority and surveillance’ over
it.” Id. at 881. To explain the concept “more precisely,” the court noted that it is within
constitutional bounds for Congress to “formalize the role of private parties in proposing
regulations so long as that role is merely ‘as an aid’ to a government agency that retains the
discretion to ‘approve[ ], disapprove[ ], or modif[y]’ them.” Id. (quoting Ass’n of Am. R.R.s v.
Dep’t of Transp. [Amtrak I], 721 F.3d 666, 671 (D.C. Cir. 2013)). But “[i]f the private entity
does not function subordinately to the supervising agency, the delegation of power is
unconstitutional.” Id.
Applying these principles, the court held that the Authority was not subordinate to
the FTC. Id. at 872–73. “An agency does not have meaningful oversight if it does not write
the rules, cannot change them, and cannot second-guess their substance.” Id. at 872. It was
the Authority, not the FTC, that had “the last word over what rules govern our nation’s
thoroughbred horseracing industry,” which rendered HISA unconstitutional. Id.
Three aspects of HISA and the FTC-Authority relationship led the panel to this
conclusion. First, the court noted the Authority’s “sweeping rulemaking power” and
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observed that “HISA’s generous grant of authority to the Authority to craft entire industry
‘programs’ strongly suggests it is the Authority, not the FTC,” that is in control. Id. at 882–
83. Moreover, the court explained that the FTC’s ability to adopt interim final rules did not
meaningfully alter the scope of the Authority’s power because such rulemaking is narrow
and reserved for emergencies. Id. at 883.
Second, the court relied on the FTC’s limited power to review proposed rules, which
prevented the FTC from reviewing the Authority’s policy choices. Id. at 884. The FTC’s
review of proposed rules for consistency with HISA was “too limited to ensure the
Authority ‘functions subordinately’ to the agency.” Id. “[S]uch arms-length review hardly
subjects the Authority’s rules to ‘independent’ oversight.” Id. at 885. Perhaps more
importantly, the court explained that, whatever the FTC’s consistency review would entail,
it excludes review of the Authority’s policy choices. Id. Similarly, the FTC could not force
the Authority to modify those choices; it could only make recommendations to the
Authority. Id. at 886. “The Act’s division of labor is clear: the Authority writes the rules;
the agency may suggest certain changes, but the Authority can take them or leave them.”
Id.
Finally, the Fifth Circuit noted that HISA’s FTC-Authority relationship was
materially different from the Maloney Act’s SEC–FINRA model, which has consistently
withstood non-delegation challenges. Id. at 887. Although FINRA, like the Authority, “is a
private entity empowered to draft and propose regulations” to a federal agency, there was “a
key distinction” between the two. Id. “Unlike HISA, the Maloney Act empowers the SEC
to ‘abrogate, add to, and delete from’ FINRA rules ‘as the [SEC] deems necessary or
appropriate[.]’” Id. (quoting 15 U.S.C. § 78s(c) and citing Aslin v. Fin. Indus. Regulatory
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Auth., Inc., 704 F.3d 475, 476 (7th Cir. 2013) (observing that the SEC “may abrogate, add
to, and delete from all FINRA rules as it deems necessary”)). The SEC’s rulemaking
power, the court explained, “meaningfully distinguishes the SEC-FINRA relationship from
the FTC-Authority relationship.” Id. The court recognized that while “FINRA plays an
important role in formulating securities industry rules, its role is ultimately ‘in aid of’ the
SEC, which has the final word on the substance of the rules.” Id. The Authority, in
contrast, has the final word on formulating and proposing rules because of “the limits built
into the FTC’s oversight.” Id. Thus, the Fifth Circuit held that “the FTC’s power to
recommend modifications is not equivalent to the power to require modifications.” Id. at 888.
These reasons—combined with the Fifth Circuit’s view that precedent did not
require affirmance—led the Court to hold that the Authority was not subordinate to the
FTC and, thus, the FTC-Authority structure violated the Constitution’s guarantee against
private nondelegation. Id. at 890.
H.
Congress amends HISA.
Roughly six weeks after the Fifth Circuit’s decision, Congress enacted, and the
President signed into law, an amendment to HISA. As amended, § 3053(e) now provides
the FTC with authority to “abrogate, add to, and modify the rules of the Authority
promulgated in accordance with this chapter as the Commission finds necessary or
appropriate to ensure the fair administration of the Authority, to conform the rules of the
Authority to requirements of this chapter and applicable rules approved by the Commission,
or otherwise in furtherance of the purposes of this chapter.” 15 U.S.C. § 3053(e). The
defendants sought rehearing in the Fifth Circuit in light of the amendment, but the panel
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remanded the case to this Court for further proceedings. Nat’l Horsemen’s, No. 22-10387,
Dkt. Nos. 223–24 (5th Cir. Jan. 31, 2023) (denying rehearing and issuing mandate).
I.
The plaintiffs allege several post-remand emergencies.
Following remand, the plaintiffs in National Horsemen’s filed a Motion for a
Preliminary Injunction (Dkt. No. 116), asking the Court to enjoin the Authority from
implementing and enforcing HISA while the parties dispute whether Congress’s recent
modification to HISA makes the statute constitutional. Id. at 6. The plaintiffs proposed that
the Court order an expedited briefing schedule on the motion so the Court could issue its
order by March 27, 2023—the date an anti-doping rule was scheduled to (and eventually
did) go into effect. Dkt. No. 117. After considering the parties’ respective positions, the
Court declined to order expedited briefing and instead set a regular briefing schedule. Dkt.
No. 121.
On March 27, 2023—the very day that the anti-doping rule was approved and went
into effect—the plaintiffs filed their Motion for an Emergency Preliminary Injunction
Against the Medication Rule. Dkt. No. 124. The emergency motion focused specifically on
the anti-doping rule, alleging that it violated the Administrative Procedure Act. Id. The
Court ordered expedited briefing for the emergency motion only. Dkt. No. 127. In its
order, the Court found that the anti-doping rule issued without the notice required under the
APA and delayed the Rule’s effective date until May 1, 2023. Dkt. No. 134.
Five days later, the plaintiffs in Gulf Coast—a case originally pending in the Amarillo
Division—moved for a temporary restraining order and preliminary injunction, seeking to
enjoin the defendants from enforcing HISA while the Court resolved the pending dispositive
motions. No. 2:22-CV-146-Z, Dkt. No. 50. This case was transferred to the Lubbock
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Division of this Court because of the substantial overlap of the claims in Gulf Coast and
National Horsemen’s, the similarity of the parties, and the likelihood that the evidence
involved and objective of the plaintiffs in both cases would be nearly identical. Gulf Coast,
No. 5:23-CV-077-H, Dkt. No. 53 at 4. After the transfer, the Court denied the motion for
temporary restraining order but reserved its ruling on the motion for preliminary injunction.
Gulf Coast, No. 5:23-CV-077-H, Dkt. No. 59.
J.
The plaintiffs bring numerous constitutional claims.
The Court found that Gulf Coast and National Horsemen’s involved “a common
question of law or fact” and consolidated the two cases pursuant to Federal Rule of Civil
Procedure 42(a)(2). Dkt. No. 135 at 1.
i.
Gulf Cost Racing
The Gulf Coast plaintiffs’ operative complaint makes the following constitutional
claims: (1) the Authority’s leadership-appointment process violates Article II’s
Appointments Clause, (2) the Authority leadership-removal process violates Article II’s
Vesting Clause, (3) the Authority’s rulemaking constitutes “a naked delegation” of
legislative power, (4) the rulemaking authority that is delegated to the Authority violates the
nondelegation doctrine because Congress has not supplied an intelligible principle, (5) the
delegation of power to the Authority violates the private-nondelegation doctrine, (6) the
Authority’s power to seek civil penalties from covered persons violates the Seventh
Amendment right to a jury trial, (7) the Authority’s ability to adjudicate private rights
violates Article III, (8) HISA’s elect-or-preempt provision violates the Tenth Amendment’s
guarantee that the federal government cannot command States to enforce federal law, and
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(9) HISA Rule 8400, which requires covered persons to consent to inspection as a condition
of registration, violates the Fourth Amendment. Dkt. No. 142.
At the April 18, 2023 pretrial conference, the parties discussed with the Court the
possibility that the claims might be narrowed in advance of trial. Dkt. No. 163 at 16–17.
During the conference, the Gulf Coast plaintiffs indicated they were abandoning an
argument related to the breed-expansion authority, which they called a subclaim of the
private-nondelegation challenge. Id. at 13. The next day, the Gulf Coast plaintiffs filed an
advisory that they would be willing to abandon “Claims 3-4 (public nondelegation), Claim 6
(Seventh Amendment), Claim 7 (Article III), and Claim 9 (Fourth Amendment),” provided
the defendants would not hold that abandonment against them in another case or in an
enforcement proceeding. Dkt. No. 161. The defendants filed a notice advising that they
agreed to these conditions (Dkt. Nos. 164; 165), so the Gulf Coast plaintiffs have abandoned
their third, fourth, sixth, seventh, and ninth claims.
Thus, the Gulf Coast plaintiffs’ remaining claims are:
7
•
An Article I, Section 2, Clause 2 Appointments Clause challenge (Claim 1)
•
An Article II, Section 1 removal challenge (Claim 2)
•
A private-nondelegation challenge (Claim 5), 7 and
•
An anti-commandeering challenge under the Tenth Amendment (Claim 8).
The plaintiffs do not identify the constitutional source of this claim. Dkt. No. 142 at 45–49. The
Fifth Circuit noted that “[c]ourts and commentators differ over the locus of the constitutional
violation” (Nat’l Horsemen’s, 53 F.4th at 881 n.23), but the parties do not dispute that such a
violation is cognizable under the Constitution, so the Court does not reach this question.
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ii.
Page 15 of 55 PageID 3148
National Horsemen’s
The Horsemen plaintiffs’ Original Complaint (Dkt. No. 1) and First Amended
Complaint (Dkt. No. 23)—which was the operative complaint when the Court previously
heard the defendants’ motions to dismiss and the plaintiffs’ partial motion for summary
judgment—included an intelligible-principle claim and an Appointments Clause claim, but
those were recognized as abandoned in the Court’s memorandum opinion and order (Dkt
No. 92 at 60 (“The plaintiffs abandoned their Appointments Clause claim (Claim II) and
public nondelegation claim (Claim III), so they are dismissed.”)).
The Horsemen plaintiffs’ live complaint (Dkt. No. 149) asserts that HISA violates the
Constitution in three claims, none of which are abandoned:
•
Delegation of legislative powers to a private entity in violation of Article I,
Section 1,
•
Delegation of executive powers to a private entity in violation of Article II,
Section 1, and
•
A violation of the Fifth Amendment’s Due Process Clause—alleging that selfinterested industry participants are given regulatory power over their
competitors.
iii.
The intervenor-plaintiffs
The claims in the intervenor-plaintiffs’ operative complaint mirror those in the
Horsemen plaintiffs’ complaint. The intervenor-plaintiffs assert that HISA violates the
constitution in two claims:
•
Delegation of legislative and executive powers to a private entity under
Article I, Section I and Article II, Section II, and
•
Violation of the Due Process Clause because self-interested industry
participants regulate their competitors.
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K.
Page 16 of 55 PageID 3149
Multiple motions are currently pending.
Pending before the Court is the Horsemen plaintiffs’ Motion for a Preliminary
Injunction (Dkt. No. 116). Also before the Court is the Gulf Coast plaintiffs’ Motion for
Summary Judgment (Dkt. No. 136) and Motion for a Preliminary Injunction (Dkt. No.
139); the Authority Defendants’ Motion to Dismiss (Dkt. No. 137); and the FTC
Defendants’ Motion for Summary Judgment (Dkt. No. 138).
The Horsemen plaintiffs’ Motion for Preliminary Injunction (Dkt. No. 116) asserts
that HISA is facially unconstitutional on three bases: First, the Horsemen argue that “the
Authority is not subordinate when exercising legislative powers.” Id. at 8. They argue that
the Authority is delegated with rulemaking authority, more so (according to the plaintiffs)
than other permissible private delegations. Id. at 8–9. They also argue that, postamendment, HISA still requires the FTC to approve rules that are consistent with the
statute. Id. at 9–12. The Horsemen argue that the FTC must be able to approve,
disapprove, or modify a rule at the time the Authority proposes it. Id. at 11. And they
argue that the FTC is subordinate to the Authority because the FTC cannot initiate
rulemaking. Id. at 12–13. They say the FTC cannot issue interim final rules. Id. at 13. And
they argue that the Authority has behaved inconsistently with the Act and the Rules by, for
instance, extending effective dates of Rules without FTC permission. Id. at 13–14. They
also argue that the Authority exercises taxing-and-spending powers by issuing assessments.
Id. at 15–16.
Excluding the abandoned claims, the Gulf Coast plaintiffs’ Motion for Summary
Judgment and Motion for a Preliminary Injunction argue that HISA violates Article II’s
Appointments Clause because the Authority’s directors are “Officers of the United States”
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under Lucia v. SEC, 138 S. Ct. 2044 (2018). No. 5:23-CV-077, Dkt. No. 36 at 28. They also
argue that HISA violates Article II’s Vesting Clause because the President cannot remove
the Authority’s directors. Id. at 34. They then argue that HISA violates the nondelegation
doctrine because the Authority exercises legislative power in violation of the nondelegation
doctrine (regardless of whether the Authority is a private or public entity). Id. at 37. The
plaintiffs next argue that even if the Authority is a private entity, it violates the
nondelegation doctrine. Id. at 45. Finally, the plaintiffs argue that HISA violates the anticommandeering doctrine. No. 5:23-CV-077, Dkt. No. 36 at 57.
In addition to responding to the plaintiffs’ arguments, the FTC defendants argue in
their Motion to Dismiss (Dkt. No. 137) that the plaintiffs do not have standing to assert an
anti-commandeering claim because they cannot enforce the rights of a state and Texas is not
joined in that claim. No. 5:23-CV-077, Dkt. No. 46 at 27–30. In their motion for summary
judgment, the Authority defendants argue that the plaintiffs’ fail to prove their claims. Dkt.
No. 137.
L.
The Court received evidence and heard argument at trial.
On April 26, the Court held a trial on the merits consolidated with the hearings of
the plaintiffs' motions for preliminary injunction. Dkt. No. 178. The plaintiffs admitted a
number of exhibits, as well as witness testimony by declaration. Dkt. No. 179. The
Horsemen admitted 57 exhibits, including matters of public record (e.g., HPX 14—HISA
Racetrack Safety, 87 Fed. Reg. 435 (2022)); Authority guidance (e.g., HPX 26—Guidance
of the Horseracing Integrity and Safety Authority (November 29, 2022)); and biographies of
Authority board members (e.g., HPX 53-I—Biography of Jerry Black). The Horsemen also
presented three witnesses by declaration, who testified regarding the economic and practical
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effects of HISA (HPXs 58; 59; 61). The Gulf Coast plaintiffs admitted exhibits in the public
record, as well as the meeting minutes of the Authority’s board of directors (GPXs 41–53)
and the Authority’s balance sheet (GPX 40). The Gulf Coast plaintiffs also presented three
witnesses by declaration—all agents of the plaintiff entities—who testified regarding the
effect of HISA on their businesses or association members. GPXs 29–32.
The FTC presented no evidence. The Authority presented seven witnesses, who are
agents of the Authority, veterinarians, and horse trainers. DXs 1–8. Lisa Lazarus, the CEO
of the Authority, testified regarding the benefits of HISA and the Authority on the
horseracing industry. DXs 1–2. The Authority’s CFO, Jim Gates, disputed the economic
impact estimated by the Gulf Coast plaintiffs. DX 3. Sara Langsam (DX 4), Susan Stover
(DX 7), and Mary Scollay (DX 8) are veterinarians who testified regarding the benefits, in
their view, of the Authority’s anti-doping and medication control (ADMC) program. And
Mark Casse (DX 5) and Graham Motion (DX 6), horse trainers, testified about the positives
of uniform regulation. After the parties closed, the Court heard oral argument and took its
ruling under advisement.
2.
Standard of Review
When challenging the facial constitutionality of a statute, a plaintiff must show “that
no set of circumstances exists under which the [statute] would be valid.” United States v.
McGinnis, 956 F.3d 747, 752 (5th Cir. 2020) (alteration in original) (quoting United States v.
Salerno, 481 U.S. 739, 745 (1987)). As a result, “[a] facial challenge to a legislative Act is, of
course, the most difficult challenge to mount successfully.” Salerno, 481 U.S. at 745.
“Facial challenges to the constitutionality of statutes should be granted sparingly and only
as a last resort.” McGinnis, 956 F.3d at 752–53 (citations omitted).
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In addition to clearing this high bar, a plaintiff must also overcome the
constitutional-doubt canon: “[W]here a statute is susceptible of two constructions, by one of
which grave and doubtful constitutional questions arise and by the other of which such
questions are avoided, our duty is to adopt the latter.” United States ex rel. Attorney General v.
Delaware & Hudson Co, 213 U.S. 366, 408 (1909); see also ANTONIN SCALIA & BRYAN A.
GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 247 (2012) (“A statute
should be interpreted in a way that avoids placing its constitutionality in doubt.”). The
canon is not without limits, but “[i]t is the Court’s settled policy, however, to avoid an
interpretation of a federal statute that engenders constitutional issues if a reasonable
alternative interpretation poses no constitutional question.” Gomez v. United States, 490 U.S.
858, 858 (1989). In light of this standard of review and the Court’s findings of fact, the
Court reaches the following conclusions of law detailed in Parts 3–7.
3.
The plaintiffs’ Article II claims fail because the Authority is a private entity.
The Gulf Coast plaintiffs allege two violations of Article II of the Constitution. First,
they claim that HISA violates Article II’s Appointments Clause by creating public officers—
the Authority’s directors—who were not appointed by the President with the advice and
consent of the Senate. No. 5:23-CV-077, Dkt. No. 36 at 21. Second, they claim that HISA
violates Article II’s Vesting Clause because neither the President nor the FTC on his behalf
may remove the Authority’s directors, which Gulf Coast believes are executive officials. Id.
at 34. The Gulf Coast plaintiffs concede that their arguments fail if the Authority is a
private entity. No. 5:23-CV-077, Dkt. No. 61 at 9. More broadly, the plaintiffs recognize
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that their Article II arguments and private-nondelegation arguments are mutually exclusive.
Dkt. No. 182 at 75.
For two reasons, the Court finds that the Authority is a private entity. First, in light
of the Fifth Circuit’s opinion, it is both the law of the case and foreclosed by binding
precedent. Second, even if that were not the case, the Authority is a private entity under
Lebron and other relevant precedent because it is not government created, and its directors
are not government appointed. This matters because private entities are not subject to the
constitutional requirements governing appointment and removal of officers, and
governmental entities are not subject to private-nondelegation claims. Like the rest of
Article II, “the Appointments Clause says nothing” about private entities. Fin. Oversight &
Mgmt. Bd. For P.R. v. Aurelius Inv., LLC, 140 S. Ct. 1649, 1658 (2020).
Despite the Gulf Coast plaintiffs’ admission that finding the Authority to be private
forecloses their arguments, they fail to squarely address the issue. Instead, they merely state
that the Authority is different than other self-regulatory organizations (SROs) because it is
not a voluntary association. No. 5:23-CV-077, Dkt. No. 61 at 14. But this argument
ignores both the Fifth Circuit’s opinion in this case and Lebron’s application here, which
weighs heavily in favor of the defendants’ argument that the Authority is private.
A.
The Fifth Circuit’s holding in this case rests necessarily on finding that the
Authority is a private entity.
On appeal, the Fifth Circuit held that the Authority was a private entity that was
improperly delegated government authority. Nat’l Horsemen’s, 53 F.4th at 872. The Court
explained that “HISA empowers a private entity called [the Authority]” to operate “under
[FTC] oversight.” Id. The Court further explained that “[t]he end result is that Congress
has given a private entity the last word over what rules govern our nation’s thoroughbred
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horseracing industry.” Id. This was a constitutional issue, the Court concluded, because
“Congress defies [the nondelegation doctrine] by vesting government power in a private
entity not accountable to the people . . . [C]ourts have distilled the principle that a private
entity may wield government power only if it ‘functions subordinately’ to an agency with
‘authority and surveillance’ over it.” Id. at 873, 881. This holding is necessarily predicated
on the Authority being a private entity. Moreover, there is the simple fact that the Fifth
Circuit called the Authority a private entity throughout its opinion. Id. at 872, 873, 881, 887
(the terms “private entity” and “private entities” appear a combined 31 times in the Fifth
Circuit opinion). 8
Of course, “[n]ot all text within a judicial decision serves as precedent.” BRYAN A.
GARNER ET AL., THE LAW OF JUDICIAL PRECEDENT 44 (2016) (collecting cases). Only an
appellate court’s holding—those parts of the decision consisting of the “court’s
determination of a matter of law pivotal to its decision”—are given the weight of binding
precedent (and therefore, likewise become the law of that particular case). Id. (quoting
Francis Bacon, “The Lord Keeper’s Speech in the Exchequer” (1617), in 2 THE WORKS OF
FRANCIS BACON 477, 478 (Basil Montagu ed., 1887)). While “commentators and judges
don’t uniformly define what counts as a holding,” all agree that those propositions that are
logically necessary to the outcome of the case are counted within the holding. Id. at 45; see
8
Like the Fifth Circuit, other courts to consider challenges to the FTC-Authority structure have
called the Authority a private entity. Oklahoma v. United States, 62 F.4th 221 passim (6th Cir. 2023)
(calling the Authority “a private entity beyond public control” and referring to private entities more
than 40 times); Oklahoma v. United States, No. 5:21-CV-104-JMH, 2022 WL 1913419, at *11 (E.D.
Ky.) (“Plaintiffs make several alternative arguments in case the Court finds the Authority to be a
public entity, including that its structure violates the Appointments Clause, its officers are not
properly removable under Article II and the separation of powers, and it violates the public
nondelegation doctrine. However, as repeatedly stated herein, . . . the Authority is a private
entity.”).
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also United States v. Johnson, 256 F.3d 895, 914–15 (9th Cir. 2001) (en banc) (discussing
whether a holding is limited to that which is “necessary in some strict logical sense” or the
broader “necessarily decided”); Int’l Truck & Engine Corp. v. Bray, 372 F.3d 717, 721 (5th Cir.
2004) (defining a holding as a statement “necessary to the result or constitut[ing] an
explication of the governing rules of law”).
Additionally, in the Fifth Circuit, “[t]he law of the case doctrine states that absent
manifest error, or an intervening change in the law, an appellate court’s decision of a legal
issue, whether explicitly or by necessary implication, establishes the law of the case and
must be followed in all subsequent proceedings in the same case.” Carnival Leisure Indus.,
Ltd. v. Aubin, 53 F.3d 716, 718–19 (5th Cir. 1995). Although the doctrine “does not include
determination of all questions which were within the issues of the case and which, therefore,
might have been decided,” the doctrine “does mean that the duty of a lower court to follow
what has been decided at an earlier stage of the case comprehends things decided by
necessary implication as well as those decided explicitly.” Terrell v. Household Goods Carriers’
Bureau, 494 F.2d 16, 19 (5th Cir. 1974) (cleaned up). Thus, an issue of law or fact decided
on appeal may not be reexamined either by the district court on remand or by the appellate
court on a subsequent appeal. Todd Shipyards Corp. v. Auto Transp., 763 F.2d 745, 750 (5th
Cir. 1985).
For example, in Cooper Tire & Rubber Co. v. Farese, the Fifth Circuit explained that a
prior panel “held that the effective date of the separation agreement was ambiguous as a
matter of law.” 248 F. App’x 555, 560–61 (5th Cir. 2007). In doing so, “the prior panel
necessarily had to consider whether the contract’s apparent ambiguities could or should be
resolved by applying the discretionary canons of construction.” Id. As a result, the court
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explained that the contract’s ambiguity became “the law of the case, and the question of
whether the effective date of the separation agreement can be determined on summary
judgment is now closed.” Id.
Here, the Fifth Circuit’s decision is necessarily predicated on a finding that the
Authority is a private entity. The Fifth Circuit held that HISA violates the privatenondelegation doctrine because the statute delegates legislative and executive powers to a
private entity. Nat’l Horsemen’s, 53 F.4th at 873 (applying “the settled constitutional
principle that forbids private entities from exercising unchecked government power”). The
Fifth Circuit recognized that “HISA empowers a ‘private, independent, self-regulatory,
nonprofit corporation”—the Authority. Id. And the Fifth Circuit expressly disclaimed the
idea that it was addressing the public-nondelegation doctrine. Id. at 883. The animating
concern of the Fifth Circuit’s opinion—the “obnoxious” delegation of governmental
authority to unaccountable private actors—is meaningless if the entity to whom power is
delegated is considered a public body. Thus, the Fifth Circuit has already held—either
expressly or, at the very least, by necessary implication—the Authority is a private entity,
and the recent Congressional amendment does nothing to disturb that holding. Bound by
both precedent and the law of the case, the Court must deny the Gulf Coast plaintiffs’
Article II claims.
The plaintiffs insist that the Court is not bound by the Fifth Circuit’s private-entity
holding. At trial, counsel for the Gulf Coast plaintiffs argued that the Authority’s privateentity status was an uncontested assumption of the Fifth Circuit. Dkt. No. 182 at 70–72.
When asked, counsel indicated that Lebron was his best case on this point, citing the
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following language: “[W]e think that Atchison’s assumption of Amtrak’s nongovernmental
status (a point uncontested by the parties in that case . . .) does not bind us here.” Id. at 68.
But the plaintiffs misread Lebron, which held that Amtrak is a public entity for
purposes of the First Amendment. Lebron, 513 U.S. at 399. In Lebron, Amtrak argued that
another case, Atchison, foreclosed the question of Amtrak’s status as a private entity. Id. at
393–94. The Supreme Court identified two reasons it was not bound by Atchison, and
neither was that Atchison rested on an uncontested assumption that Amtrak was a private
entity. First, in Atchison, Amtrak’s governmental status was irrelevant because in any event
no contractual obligation was imposed. Nat’l R.R. Passenger Corp. v. Atchison Topeka & S.F.
RR. Co., 470 U.S. 451, 471 (1985) (stating that “neither the Act nor the Basic Agreements
created a contract between railroads and the United States”); Lebron, 513 U.S. at 393
(explaining that “[t]he Court said it did not have to consider th[e] question” of whether
Amtrak was a governmental entity). Therefore, with no contractual obligation, the Atchison
court “ha[d] no need to consider whether an allegation of a governmental breach of its own
contract warrants application of the more rigorous standard of review that the railroads
urge[d] [it] to apply,” much less whether Amtrak was a governmental entity in the first
place. Atchison, 470 U.S. at 470. Second, Lebron concluded that even if Amtrak were a
governmental entity, there was an independent basis for the court’s decision. See Lebron,
513 U.S. at 394. (concluding that “even if Amtrak is a Government entity,” the statute
claiming otherwise “suffices to disable that agency from incurring contractual obligations on
behalf of the United States”—resolving the challenge). Thus, Lebron did not say that
Atchison did not bind it because Amtrak’s governmental status in that case was an
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uncontested assumption; rather, Atchison simply did not need to resolve that issue—either
expressly or by implication.
Moreover, the Fifth Circuit’s affirmative grant of relief in this case makes clear that it
did not decide the case based on an uncontested assumption. Writing for the court, Judge
Duncan emphasized that “Congress defies [the nondelegation doctrine] by vesting
government power in a private entity.” Nat’l Horsemen’s, 53 F.4th at 872–73. The Fifth
Circuit identified private-entity status as an element—a necessary condition—of a privatenondelegation claim. See id. Thus, unlike where Lebron distinguished Atchison—which
denied relief—here the opinion in question granted relief and, therefore, necessarily decided
certain issues, including the Authority’s status as a private entity. And not only was that
decision made in this same case, invoking the law-of-the-case doctrine, it was made by a
superior court that precedentially binds the Court.
Finally, while the Supreme Court may be able to consider the reach of its own
precedent based on whether a case had “the benefit of full briefing or argument on the
issue,” McCutcheon v. Fed. Elec. Comm’n, 572 U.S. 185, 202–03 (2014), the district court is in
a different position. It is accepted that “[a]n inferior court cannot decide adversely to a
decision of [a superior court] and send the case up to that court again upon the ground that
in the former decision of the court . . . certain points were not sufficiently argued.” Basil
Jones, Stare Decisis, in 26 THE AMERICAN AND ENGLISH ENCYCLOPEDIA OF LAW 158, 170
(David S. Garland & Lucius P. McGehee eds., 2d ed. 1904).
Thus, the Court is bound by the Fifth Circuit’s holding that the Authority is a private
entity, and that holding forecloses the Gulf Coast plaintiffs’ appointments and removal
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arguments. But even if the Fifth Circuit had never addressed the issue, the Court
independently finds that the Authority is a private entity.
B.
Even if the Fifth Circuit’s opinion only assumed the Authority’s status as a
private entity, the Court finds that the Authority is not a government
actor.
The Court now addresses the question that it previously assumed without deciding:
whether the Authority is a private entity. Nat’l Horsemen’s Benevolent and Protective Ass’n, 596
F. Supp. 3d at 699. Before the Fifth Circuit’s remand, the Court assumed the Authority’s
private-entity status, “respecting the contours of the claims before it” but noting the
Authority’s “unique genesis.” Id. at 699 n.7. The Court now finds that the Authority is a
private entity because it is neither government-created nor government-appointed.
“[A]ctions of private entities can sometimes be regarded as governmental action for
constitutional purposes.” Lebron, 513 U.S. at 378 (collecting cases); see also Free Enter. Fund
v. Pub. Co. Accounting Bd., 561 U.S. 477, 485–86 (2010) (citing to Lebron for purposes of
determining whether another nonprofit corporation was “‘part of the government’ for
constitutional purposes”). Even the Supreme Court has admitted that the “cases deciding
when private action might be deemed that of the state have not been a model of
consistency.” Lebron, 513 U.S. at 378 (quoting Edmonson v. Leesville Concrete Co., 500 U.S.
614, 632 (1972) (O’Connor, J., dissenting)). But one proposition that is clear is that
corporations become more than a private entity when created or “selected by Government
to accomplish purely governmental purposes.” Id. at 395 (quoting Cherry Cotton Mills v.
United States, 327 U.S. 536, 539 (1946)).
Lebron explained that to determine whether the Authority is a private entity for
constitutional purposes, the Court need only look to other “corporations created and
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participated in by the United States for the achievement of governmental objectives.” Id. at
386. The first such corporation was the Bank of the United States, created in 1791. Id. And
the federal government has had close ties with specially created private corporations
throughout our nation’s history, chartering or buying outright banks, railroad companies,
and grain corporations. Id. at 387–88; e.g., Lebron, 513 U.S. 374 (1995) (Amtrak); McGinn,
Smith & Co., Inc. v. FINRA, 786 F. Supp. 2d 139, 147 (D.D.C. 2011) (FINRA); McCulloch v.
Maryland, 4 Wheat. 316 (1819) (second Bank of the United States); Osborn v. Bank of United
States, 9 Wheat. 738 (1824) (same).
This case law teaches that to be considered a government entity for constitutional
purposes, a corporation must be created by the government. Lebron, 513 U.S. at 394. In
Lebron, for example, the Supreme Court determined that Amtrak is a government entity “for
the purpose of individual rights guaranteed against the Government by the Constitution.”
Id. The Supreme Court found it significant that “Amtrak was created by a special statute,
explicitly for the furtherance of federal governmental goals.” Id. at 397. The Supreme
Court also noted that six of the board’s nine directors were named by the President himself
and that the government’s influence over Amtrak was not temporary. Instead, Amtrak was
“established and organized under federal law for the very purpose of pursuing federal
governmental objectives, under the direction and control of federal governmental
appointees.” Id. at 398.
Courts continue to emphasize the requirement that a corporation is only “part of the
government” if it is created by special law. “A corporation is part of the government for
constitutional purposes when (1) the government creates the corporation by special law,
(2) for the furtherance of governmental objectives, and (3) retains for itself permanent
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authority to appoint a majority of the directors of that corporation.” Herron v. Fannie Mae,
861 F.3d 160, 167 (D.C. Cir. 2017) (cleaned up). And in response to a challenge to
Congress’s restrictions on removal of Fair Housing Finance Agency officers, the Supreme
Court rejected an argument that an agency can be considered a private entity when “its
authority stems from a special statute.” Collins v. Yellen, 141 S. Ct. 1761, 1785 (2021).
Unlike Amtrak and the FHFA, the Authority is a private entity. First, the Authority
is a private corporation incorporated under Delaware law. It was not created by the
government through special law. No. 5:23-CV-077, Dkt. No. 47 at 5–10. Moreover, the
government has no say over the appointment of the Authority’s directors—that’s the point
of the Gulf Coast plaintiffs’ appointments argument. See also 15 U.S.C. § 3052(c)–(d)
(establishing that appointment of the Authority’s directors is to be controlled by the
corporate bylaws and the initial nominating committee).
Like FINRA, the Authority is a private entity. Nat’l Horsemen’s, 53 F.4th at 887.
Courts have determined that FINRA, like its predecessor NASD, is a private entity.
Desiderio v. Nat’l Ass’n of Sec. Dealers, Inc., 191 F.3d 198, 206 (2d Cir. 1999) (“The NASD is a
private actor . . . It is a private corporation that receives no federal or state funding. Its
creation was not mandated by statute, nor does the government appoint its members or
serve on any NASD board or committee.”); First Jersey Sec., Inc. v. Bergen, 605 F.2d 690, 699
n.5 (3d Cir. 1979) (“NASD is not a state agency.”); see also United States v. Solomon, 509 F.2d
863, 867 (2d Cir. 1975) (holding that the New York Stock Exchange is not an agency). To
be sure, FINRA and the Authority were created in anticipation of aiding a federal agency,
but that alone is insufficient to render it part of the government. Nat’l Horsemen’s Benevolent
& Protective Ass’n, 596 F. Supp. 3d at 696 (“Had the Authority been created by Congress, it
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may have been subject to certain Article II requirements . . . . But because Congress
‘recognized’ it . . . the Authority avoids some of the strictures of governmental entities, just
as other private, self-regulatory organizations that operate nationwide do.”). Ultimately,
because the Authority “is a private corporation” that “receives no federal or state funding,”
whose “creation was not mandated by statute,” and whose directors, executives, and
employees are not “government appoint[ed],” the Authority is a private entity. See
Desiderio, 191 F.3d at 206.
Nor does Cherry Cotton Mills change the fact that the Authority is a private entity
under relevant precedent. The plaintiffs neither cite nor rely on Cherry Cotton Mills, but
because Lebron quotes its reference to corporations “selected by Government,” the Court
notes here why that case is distinguishable. 327 U.S. at 539. In Cherry Cotton Mills, the
Supreme Court held that a debt owed to the Reconstruction Finance Corporation was a debt
owed to the federal government, which allowed the debt to be set off against a tax refund.
Id. But Cherry Cotton Mills does not control this case because the RFC was clearly
government-created and government-controlled. The RFC was created by special law. 47
Stat. 5 (“That there be, and is hereby, created a body corporate with the name
‘Reconstruction Finance Corporation.’”). Its directors were appointed by the President by
and with the advice and consent of the Senate. Cherry Cotton Mills, 327 U.S. at 539. “[A]ll
of its money c[ame] from the Government; its profits if any [went] to the Government; its
losses the Government must bear.” Id. Thus, Cherry Cotton Mills is inapposite, and its
statement that corporations “selected by” government are equivalent to corporations
“created by” government is dicta. See id.
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At trial, counsel for the Gulf Coast plaintiffs indicated that the Lebron standard was
inapplicable in cases involving the power to appoint and remove federal officials. Dkt. No.
182 at 83. Instead, the plaintiffs argue that Lucia sets forth the standard for determining
whether the Authority is subject to the Appointments Clause. E.g., No. 5:23-CV-077, Dkt.
No. 51 at 10 (citing Lucia for the proposition that “[t]he Authority’s Directors . . . are
officers subject to the Appointments Clause”). But Lucia does not resolve an Appointments
Clause question where the challenged entity is private. The Supreme Court in Lucia noted
that Freytag, a case involving special trial judges of the United States Tax Court, “necessarily
decide[d] th[e] case.” 138 S. Ct. at 2052. Thus, both Lucia and the case on which it relied
resolved Appointments Clause challenges involving individuals who were clearly federal
employees. There was never any possibility that the parties at issue were private employees
from outside the government. And in any event, “[t]he sole question” in Lucia was
“whether the Commission’s ALJs are ‘Officers of the United States’ or simply employees of
the Federal Government.” Id. at 2051. Thus, Lucia does not answer the question presented
by the parties.
Gulf Coast’s argument is further undermined by the fact that other courts apply
Lebron—not Lucia—in cases involving private-nondelegation or Appointments Clause
challenges. For instance, the Fourth Circuit rejected an Appointments Clause challenge to
the Metropolitan Washington Airports Authority, an interstate compact, after finding that it
was not a public entity under the Lebron standard. Kerpen v. Metro. Wash. Airports Auth., 907
F.3d 152, 159 (4th Cir. 2018) (“MWAA does not satisfy either prong [of the Lebron test]. In
the first place, MWAA was not created by the federal government . . . . MWAA is not
controlled by the federal government . . . [b]ecause the[] [federal] appointees are a distinct
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minority of the Board.”); Free Enter. Fund, 561 U.S. at 485–86 (relying on Lebron in stating
that the Public Company Accounting Oversight Board is “part of the government” for
constitutional purposes in an Appointments Clause challenge) (citing Lebron, 513 U.S. at
397).
Finally, while Lucia would be applicable if the Court found that the Authority were
part of the government, the plaintiffs provide no argument or authority explaining why a
private entity should be considered part of the government for purposes of the
Appointments Clause. To the contrary, the current state of jurisprudential affairs indicates
that the Authority’s directors are not “Officers of the United States” within the
Constitution’s original public meaning. “[T]he phrase ‘of the United States’ limit[s] the
Appointments Clause to ‘federal’ officers.” Fin. Oversight & Mgmt. Bd. for P.R., 140 S. Ct. at
1666 (Thomas, J., concurring in the judgment). “‘Officers of the United States’ was
probably not a term of art that the Constitution used to signify some special type of official.
Based on how the Founders used it and similar terms, the phrase ‘of the United States’ was
merely a synonym for ‘federal.’” Lucia, 138 S. Ct. at 2056 (Thomas, J., with whom
Gorsuch, J. joins, concurring); see also Jennifer Mascott, Who are “Officers of the United
States”?, 70 STAN. L. REV. 443, 531 (2018) (explaining that the First Congress provided that
“individuals involved with [the] operation” of the national bank, such as the “bank
directors,” “were not appointed in accordance with Article II’s requirements”; and that “the
probable explanation is that Congress saw the bank as a public-private nongovernmental
entity”). True, neither the Fifth Circuit nor the Supreme Court has explained in detail the
meaning of “Officers of the United States,” but the currently available precedent suggests
that the Authority’s directors and committee members do not meet that definition. Thus,
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Lebron—rather than Lucia—supplies the appropriate standard, and the plaintiffs fail to prove
their Article II appointments and removal claims.
4.
As amended, HISA does not create an unconstitutional delegation of
governmental power to a private entity.
A.
The Constitution requires a private entity wielding government power to
function subordinately to a federal agency’s authority and surveillance.
A pair of 80-year-old cases—Carter Coal (1936) and Adkins (1940)—lay the
foundation for our modern nondelegation doctrine: “a private entity may wield government
power only if it functions subordinately to an agency with authority and surveillance over
it.” Nat’l Horsemen’s, 53 F.4th at 881 (internal marks omitted). In Carter Coal, the Supreme
Court called private nondelegation “legislative delegation in its most obnoxious form” and
held that it was “so clearly arbitrary, and so clearly a denial of rights safeguarded by the due
process clause of the Fifth Amendment, that it is unnecessary to do more than refer to
decisions of this court which foreclose the question.” Carter v. Carter Coal, 298 U.S. 238, 311
(1936). A few years later, however, the Supreme Court clarified in Adkins that an agency
can rely on a private entity as long as the private entity “function[s] subordinately to the”
agency, which has “authority and surveillance” over the private entity. Adkins, 310 U.S. at
399.
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From these twin holdings spring our modern nondelegation jurisprudence, cemented
in recent cases like the Amtrak line of cases, 9 Texas v. Rettig,10 National Horsemen’s, and
Oklahoma v. United States. In Texas v. Rettig, the Fifth Circuit held that an agency may
subdelegate an accounting task to a private entity where the agency “reviewed and
accepted,” “ha[d] the ultimate authority to approve,” and “superintended . . . in every
respect” the private-entity determination. 987 F.3d at 533. Before the Supreme Court held
that Amtrak was a public entity in Amtrak II, the D.C. Circuit concluded that Amtrak was a
private entity that was delegated too much power. Amtrak I, 721 F.3d at 672, rev’d on other
grounds by Amtrak II, 575 U.S. 43. Amtrak was impermissibly delegated government
authority because, unlike the agency in Adkins, the Federal Railroad Administration did not
have the authority to “unilaterally change regulations proposed to it.” Amtrak I, 721 F.3d at
671.
In National Horsemen’s, the Fifth Circuit surveyed this jurisprudence, noting that the
private-nondelegation doctrine is rooted in “the government’s promised accountability to
the people.” 53 F.4th at 880. The Fifth Circuit also reconciled this general principle with
Carter Coal and Adkins, which together allow a private entity to “wield government power”
so long as the private entity “‘functions subordinately’ to an agency with ‘authority and
In Amtrak I, the D.C. Circuit struck down Section 207 of the Passenger Rail Investment and
Improvement Act (PRIIA) because it unlawfully delegated “regulatory power to a private entity.”
721 F.3d 666, 668 (D.C. Cir. 2013), rev’d on other ground by Dep’t of Transp. v. Ass’n of Am. R.R.
(Amtrak II), 575 U.S. 43 (2015). While not disturbing the D.C. Circuit’s private-nondelegation
analysis, the Supreme Court vacated Amtrak I, holding that Amtrak was a governmental—not
private—entity. Amtrak II, 575 U.S. at 55. On remand, the D.C. Circuit held that Section 207 of
PRIIA violated the Due Process Clause because it gave Amtrak, a self-interested entity with a
statutorily required profit-seeking motive, regulatory power over its competitors. Amtrak III, 821
F.3d 19, 27–34 (D.C. Cir. 2016).
9
10
987 F.3d 518, 533 (5th Cir. 2021).
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surveillance’ over it.” Id. at 881. Thus, the court explained it is within constitutional
bounds for Congress to “formalize the role of private parties in proposing regulations so
long as that role is merely ‘as an aid’ to a government agency that retains the discretion to
‘approve[ ], disapprove[ ], or modif[y]’ them.” Id. at 881 (quoting Amtrak I, 721 F.3d at
671).
B.
As amended, HISA functions subordinately to the FTC and addresses the
Fifth Circuit’s concerns.
The Court finds that the congressional amendment to § 3053(e) cured the
constitutional issues identified by the Fifth Circuit. First, the Fifth Circuit identified that
HISA improperly granted the Authority “sweeping rulemaking power,” but the FTC’s new
power to “abrogate, add to, and modify” the “rules of the Authority” closed the necessary
gap in the relative rulemaking power between the FTC and the Authority. 15 U.S.C.
§ 3052(e). Second, the Fifth Circuit noted that the FTC’s review of Authority rulemaking
was limited to so-called consistency review, which gave the Authority the final word on
policy. But because the FTC now has the right to make its own policy choices, the
amendment remedied that concern. Finally, the Fifth Circuit noted that the FTC had less
control over the Authority than the SEC does over FINRA. The congressional amendment
cured these issues as well.
i.
Although the Authority retains its generous grant of authority to
craft and propose rules, the amended statute significantly broadens
the FTC’s rulemaking power.
The parties disagree on the correct reading of § 3053(e) as amended. The amended
statute says that the FTC can “abrogate, add to, and modify” Authority rules. Does this
mean, as the plaintiffs assert, that the FTC can abrogate, add to, and modify only the content
of existing rules? See Dkt. No. 145 at 6 (claiming that “Congress granted only the power to
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modify, add to, or abrogate existing rules, not to issue new rules”). The defendants, in
contrast, believe the amendment allows the FTC to “modify, add to, or abrogate” the entire
body of Authority rules, meaning the FTC can promulgate new rules, as well as modify or
abrogate existing rules. E.g., Dkt. No. 128-1 at 18–19; Dkt. No. 129 at 10. Based on a plain
reading of the statute and the canon of constitutional avoidance—and confirmed by the only
other court to interpret this amended subsection—the Court concludes that the FTC has the
power to “abrogate, add to, or modify” the body of Authority rules, rather than a single,
proposed rule. In other words, the FTC can create new substantive rules, so it is the FTC
that now has “sweeping rulemaking authority.” See Nat’l Horsemen’s, 53 F.4th at 882. If in
practice, the FTC is derelict in performing its oversight, as-applied challenges may be
brought. But this facial challenge must fail.
A plain reading of the statute confirms that the FTC can “abrogate, add to, or
modify” the entire body of the Authority rules. Congress’s amendment included a single,
yet significant, change: Section 3053(e), which previously gave the FTC the ability solely to
issue interim final rules, was amended to read:
The Commission, by rule in accordance with section 553 of Title 5 may
abrogate, add to, and modify the rules of the Authority promulgated in
accordance with this chapter as the Commission finds necessary or appropriate
to ensure the fair administration of the Authority, to conform the rules of the
Authority to requirements of this chapter and applicable rules approved by the
Commission, or otherwise in furtherance of the purposes of this chapter.
15 U.S.C. § 3053(e). As a result, the FTC now has the power to “add to . . . the rules of the
Authority.” Id. When the FTC promulgates a new rule, it “add[s] to” the rules of the
Authority. Thus, a plain, fair reading of this section confirms that the FTC can initiate
rulemaking.
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Even if the statute’s language were not clear, three additional reasons support this
plain reading: the surplusage canon, the canon of avoidance, and the Sixth Circuit’s
persuasive opinion. First, the surplusage canon confirms that the FTC can initiate
rulemaking. Under the plaintiffs’ reading, only existing rules can be “abrogate[d], add[ed]
to, [or] modif[ied].” But if this were the case, why did Congress include both “modify” and
“add to” in the statute? If the FTC adds language to a rule promulgated under HISA,
clearly it has modified the rule. See MODIFY, WEBSTER’S THIRD INT’L DICTIONARY
UNABRIDGED (2002) (defining Modify as to “make a basic or important change in: alter”).
Thus, the plaintiffs’ proposed reading of the statute—prohibiting the FTC from initiating
rulemaking—would render “add to” a nullity. And it is a “cardinal principle of statutory
construction” that the Court ought to give effect to every word of a statute. Williams v.
Taylor, 529 U.S. 362, 404 (2000); see also Wash. Market Co. v. Hoffman, 101 U.S. 112, 115–16
(1879) (“As early as in Bacon’s Abridgement, sect. 2, it was said that ‘a statute ought, upon
the whole, to be so construed that if it can be prevented, no clause, sentence, or word shall
be superfluous, void, or insignificant.’”).
Second, the canon of constitutional avoidance favors the defendants’ reading of the
statute. “[W]hen deciding which of two plausible statutory constructions to adopt, a court
must consider the necessary consequences of its choice. If one of them would raise a
multitude of constitutional problems, the other should prevail . . . .” Clark v. Martinez, 543
U.S. 371, 380–81 (2005) (Scalia, J.). Here, the Court agrees with the defendants’ reading of
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§ 3053(e), which demonstrates HISA’s constitutionality. 11 The Fifth Circuit previously
noted that the Authority was not subordinate to the FTC because it was the Authority who
wrote the rules. Nat’l Horsemen’s, 53 F.4th at 883. And the Fifth Circuit explained that the
FTC’s authority to issue temporary rules “on a break-glass-in-case-of-an-emergency basis”
was not enough to subordinate the Authority to the FTC. Id. That being the case, the
Court finds that the proper reading of the statute gives the FTC the authority to initiate
rulemaking because Congress does not ordinarily write statutes to be unconstitutional,
particularly in cases of an amendment in direct response to a successful constitutional
challenge.
Throughout its persuasive opinion, the Sixth Circuit—the only court to interpret the
amended HISA’s constitutionality—confirms this reading. The court explained that “[t]he
FTC now may create new rules.” Oklahoma, 62 F.4th at 230. It noted expressly that the
FTC could decide to act either “by abrogating one of the Horseracing Authority’s rules or
introducing its own.” Id. Leaving no doubt, it described the “FTC’s new discretion to
adopt and modify rules” and its “complete authority to initiate new rules.” Id. at 232. And
while the plaintiffs may disagree with the Sixth Circuit’s reading of the amended statute by
pointing to the “nearly identical” language of the Maloney Act (Dkt. No. 116 at 12), the
textual differences in the two subsections reveal that “add to” in HISA gives the FTC the
power to initiate rulemaking. The Maloney Act gives the SEC the power to “abrogate, add
to, and delete from” proposed rules submitted by FINRA. 15 U.S.C. § 78S(c). While the
11
For the reasons previously stated, the Court finds implausible the plaintiffs’ reading of § 3053(e).
But even if the Court found that the plaintiff’s reading were plausible, the canon of avoidance
instructs that the Court should adopt the defendants’ reading, which is also plausible and does not
call into question the statute’s constitutionality.
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language is similar, Congress’s choice to use “modify” rather than “delete from” reveals that
the FTC has the power to initiate rules. The term “modify” encompasses the power to both
“add to” and “delete from” the content of rules. After all, to modify is to change, and
regulations are only changed by adding to or deleting from the statutory text. But HISA’s
grant of power to both “add to” and “modify” ensures the FTC can initiate rulemaking.
Finally, a recent example confirms the FTC’s power to create new rules. The Court
previously delayed the effective date of the ADMC Rule to May 1, 2023. Dkt. No. 134. In
response to “substantial uncertainty regarding the criteria and procedures under which antidoping and medication control protocols will be implemented as the thoroughbred
horseracing industry nears the Triple Crown events,” the FTC issued a new, substantive rule
delaying the effective date of the ADMC rule to May 22, 2023. Dkt. No. 180 at 6–7.
Relying on its § 3053(e) authority, the FTC noted that it has the authority to initiate
rulemaking, including in emergency circumstances. Id. at 8 (“Here, the Commission finds,
for good cause, that notice and comment is impracticable and unnecessary with respect to
the final rule.”). This example is just one additional datapoint of the FTC’s rulemaking
authority in practice.
In sum, the only fair reading of the statute is that the FTC can create new rules as
necessary to accomplish its policy preferences. This is confirmed by the canons of
surplusage and constitutional avoidance, as well as the only court to address the issue. It is
no secret that Congress amended HISA in response to the Fifth Circuit’s opinion. For
Congress to amend the law without addressing one of the critical issues identified by the
Fifth Circuit would be, to say the least, unusual.
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The FTC is no longer limited to reviewing the Authority’s proposed
rules for consistency with HISA; to the contrary, Congress expressly
empowered it to review and change policy choices.
The second constitutional flaw identified by the Fifth Circuit was that, prior to the
congressional amendment, the FTC was limited to consistency review and “lack[ed] the
power to review the Authority’s policy choices.” Nat’l Horsemen’s, 53 F.4th at 884. But the
amendment changes this. Through its rulemaking author
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