Fifth Circuit: Horseracing Integrity and Safety Act Unconstitutionally Delegates Power to a Private Entity

A rare, successful nondelegation challenge in the U.S. Court of Appeals for the Fifth Circuit.

Today in National Horsemen's Benevolent and Protective Association v. Black, a unanimous panel of the U.S. Court of Appeals for the Fifth Circuit concluded that the federal Horseracing Integrity and Safety Act is unconstitutional. Specifically, the court found that the law violates the nondelegation doctrine. Of note, the court found HISA unconstittional not because it lacks an intelligible principle, but because it delegates too much power to a private entity.

Judge Duncan wrote for the court, joined by Judges King and Engelhardt. Here is how Judge Duncan summarized the opinion.

We consider challenges to the Horseracing Integrity and Safety Act ("HISA" or the "Act"). Enacted in 2020, HISA is a federal law that nationalizes governance of the thoroughbred horseracing industry. To formulate detailed rules on an array of topics, HISA empowers a private entity called the Horseracing Integrity and Safety Authority (the "Authority"), which operates under Federal Trade Commission oversight. Soon after passage, HISA was challenged by various horsemen's associations, who were later joined by Texas and the state's racing commission. The plaintiffs argued HISA is facially unconstitutional because it delegates government power to a private entity without sufficient agency supervision. The district court acknowledged that the plaintiffs' "concerns are legitimate," that HISA has "unique features," and that its structure "pushes the boundaries of public-private collaboration." Nonetheless, the court rejected the private non-delegation challenge, concluding HISA "stays within current constitutional limitations as defined by the Supreme Court and the Fifth Circuit."

We cannot agree. While we admire the district court's meticulous opinion, we conclude that HISA is facially unconstitutional. A cardinal constitutional principle is that federal power can be wielded only by the federal government. Private entities may do so only if they are subordinate to an agency. See generally A.L.A. Schechter Poultry Corp. v. United States [Schechter Poultry], 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 [Adkins], 310 U.S. 381, 399 (1940). But the Authority is not subordinate to the FTC. The reverse is true. The Authority, rather than the FTC, has been given final say over HISA's programs.

While acknowledging the Authority's "sweeping" power, the district court thought it was balanced by the FTC's "equally" sweeping oversight. Not so. HISA restricts FTC review of the Authority's proposed rules. If those rules are "consistent" with HISA's broad principles, the FTC must approve them. And even if it finds inconsistency, the FTC can only suggest changes. What's more, the FTC concedes it cannot review the Authority's policy choices. When the public has disagreed with those policies, the FTC has disclaimed any review and instead told the public to "engag[e] with the Authority." An agency does not have meaningful oversight if it does not write the rules, cannot change them, and cannot second-guess their substance. As the district court correctly put it: "Only an Act of Congress could permanently amend any Authority rule or divest it of its powers. The FTC may never command the Authority to change its rules or divest it of its powers." Horsemen's Benevolent & Protective Ass'n v. Black [Black], No. 5:21-CV-071, 2022 WL 982464, at *69 (N.D. Tex. Mar. 31, 2022). The end result is that Congress has given a private entity the last word over what rules govern our nation's thoroughbred horseracing industry.

The Constitution forbids that. For good reason, the Constitution vests federal power only in the three branches of the federal government. Congress defies this basic safeguard by vesting government power in a private entity not accountable to the people. That is what it has done in HISA. The Authority's power outstrips any private delegation the Supreme Court or our court has allowed. We must therefore declare HISA facially unconstitutional. In doing so, we do not question Congress's judgment about problems in the horseracing industry. That political call falls outside our lane. Nor do we forget that "[t]he judicial power to declare a law unconstitutional should never be lightly invoked." Sveen v. Melin, 138 S. Ct. 1815, 1831 (2018) (Gorsuch, J., dissenting). We only apply, as our duty demands, the settled constitutional principle that forbids private entities from exercising unchecked government power.

UPDATE [from Eugene]: I was pleased to see two of Sasha's articles cited in the opinion.

Comments

[John F. Carr]

The ultimate in regulatory capture.

[nonzenze]

That raises the next interesting question -- why did the court find the entire statute facially unconstitutional?

It seems like in the past the Supreme Court has remedied such deficiencies by reading into the statute the appropriate oversight/supervisory power. For example, in Seila (which is not even cited) the Court (rightly IMO) just removed the bits protecting the head of the CFPB from removal by the President. A likewise remedy would be useful here - -remove the provisions of HISA that prohibit the FTC from modifying or discarding the proposed regulation from the private entity. That seems congruent with Congress' intent and it seems more likely that they intended to have the rules with those rules than not to have any rules at all.

In a better world, one might expect Congress to quickly re-pass the law with the right oversight to comply with the law. And maybe the courts should not enable the general inability of Congress to effectively legislate (or, if the body doesn't want HISA, to just repeal it). But here the remedy seems fairly plainly wrong or at least not argued-through seriously. The court writes

Severing the arbitration provision in Amtrak IV solved the constitutional problem there because, without it, Amtrak no longer had the “power to make law” without the FRA’s agreement. Amtrak IV, 896 F.3d at 548 (quoting Amtrak III). Not so here. If the Authority’s proposed rules pass the FTC’s limited consistency review, the FTC has no choice but to approve the rules. See § 3053(c)(2).

Well, yes, but the court could sever §3053(c)(2) (& a few others) thus giving the FTC the constitutionally required oversight.

My take is that Congress would have preferred that and, as a result, the court is obliged by over a century of law on severability to do so.