‘Things are different now’: Judge Dismisses Most of Horsemen-VS.-HISA Suit Over Fee Assessments

A federal judge on Monday ended a nearly two-year-old lawsuit by dismissing seven of the eight counts in litigation initiated by two Iowa horsemen who alleged unconstitutionality of the Horseracing and Safety Integrity Act (HISA) and the way the HISA Authority collects assessment fees.

The eighth count, which pertained to an order from the Federal Trade Commission (FTC) regarding the fees, will simply be remanded back to that agency for a reworded explanation because, the judge wrote, “there is a ‘strong possibility’ that the FTC Order is guilty of nothing more than using imprecise language.”

The lawsuit was originally filed July 29, 2024, in United States District Court for the Southern District of Iowa (Central Division) by Thoroughbred owner Joseph A. Kelly and owner/trainer Douglas L. Anderson against the HISA Authority, the FTC, and executives of both organizations.

Both sides in the case had asked for a summary judgment from the court instead of going through a full trial.

Much has changed in the litigation landscape involving HISA since that suit originally got filed, and U.S. District Judge Steven H. Locher, a 2022 judicial nominee by President Joseph Biden, focused on a number of those shifts in his 16-page ruling on Mar. 23.

“Plaintiffs argue that the Act violates the public and private non-delegation doctrines because Congress gave too much power to the private entity and/or insufficient guidance for how to exercise that power,” the judge wrote. “These arguments fail under recent (and not-so-recent) Supreme Court and Eighth Circuit precedent because the Act gives sufficient oversight authority to the FTC and provides an ‘intelligible principle’ for the FTC to follow in exercising that authority.

“Plaintiffs also argue, in the alternative, that a recent rule promulgated by the FTC violates the Administrative Procedure Act (APA) because the FTC Order adopting the rule gave too much deference to the private entity. In one narrow respect, the Court agrees. The Court will not, however, set aside the rule altogether, but rather will remand without [vacating the rule] to give the FTC the chance to clarify what it meant,” the judge wrote.

Locher explained how “Plaintiffs’ arguments revolve around a rule proposed by the Authority, and approved by the FTC, for the assessment of fees to covered persons like Plaintiffs. The original version of the rule [required] covered racetracks like Iowa-based Prairie Meadows to provide the Authority with a proposal for how to make assessments among ‘covered persons.'”

The judge continued: “The FTC approved the Assessment Methodology Rule, while also stating that it ‘planned to issue guidance on the subject’ soon. Based on input from Prairie Meadows, and in accordance with the original rule, the Authority decided to allocate Iowa’s portion of the Authority’s funding ’50-50 between the track and horsemen’ for 2023. Plaintiffs note that the word ‘horsemen’ is undefined.

“The Authority agreed to the same 50-50 split for 2024,” the judge continued. “In early 2024, the Authority began invoicing two entities for fifty percent of the assessment each: Prairie Meadows and the Iowa Horsemen’s Benevolent and Protective Association (HBPA).”

The plaintiffs, the judge explained, asserted “that the invoices to the Iowa HBPA were improper because it is not itself a covered person under the Act, nor does it have funds” to pay the assessment.

“In any event, the Authority and the Iowa HBPA tried without success to negotiate an arrangement for the Iowa HBPA and/or its members to pay the allocated portion of the assessment,” the judge wrote.

“One of the open issues was whether Prairie Meadows would institute a per-start fee on horseracing participants. After negotiations failed, Plaintiffs filed this action in July 2024 because they feared the Authority would order Prairie Meadows to institute a per-start fee on themselves and other industry participants,” the judge wrote.

Then, Locher wrote, “In response to Plaintiffs’ lawsuit, the Authority proposed, and the FTC published, a Notice of a proposed amendment to the original rule.”

The judge continued: “The proposed new rule [would] assess fees to covered persons according to the following formula: Racetrack, 50%; Owners, 43.50%; Trainers, 5.00%; and Jockeys, 1.50%.”

As Locher explained, “The FTC Notice summarized an ongoing debate regarding whether the allocation of fees should be based on how often industry participants reasonably would be expected to enter horse races or how much money the participants would be expected to earn from these races.”

The FTC then approved its modified assessment methodology rule on Dec. 23, 2024.

“At the time Plaintiffs filed this case, the Eighth Circuit had never addressed the facial constitutionality of the Act,” Locher wrote. “Things are different now. In September 2024, the Eighth Circuit held that neither the rulemaking structure nor the enforcement provisions of the Act violate the private or public nondelegation doctrines. The Eighth Circuit reached this holding because, among other things, the Act makes the Authority subordinate to the FTC for purposes of both rulemaking and enforcement and provides an ‘intelligible principle’ for the FTC to follow in exercising its discretion.

“The Sixth Circuit reached the same conclusion at around the same time,” Locher continued. “The Fifth Circuit likewise concluded that the rulemaking structure of the Act did not violate the non-delegation doctrine, although it split from the Sixth and Eighth Circuits by declaring the Act’s enforcement provisions unconstitutional.

“The Supreme Court later granted petitions for writs of certiorari from the Fifth, Sixth, and Eighth Circuit cases, vacated the judgments, and remanded for further consideration in light of [a new precedent case established in 2025],” the judge wrote.

Locher summed up his decision with respect to the assessment fees by writing that, “it appears that there is a relatively limited universe of ways for the FTC and Authority to allocate fees, with the record showing that the FTC, the Authority, and industry participants focused on proposals allocating fees based either on projected starts, projected purses paid, or some combination of the two.

“In other words, it has been obvious from Day One that an ‘equitable’ allocation should be tethered either to how often the covered persons participate in horseracing or how much they earn while doing so,” the judge wrote.

“The bottom line is that this is not a situation where Congress has given the FTC and Authority boundless discretion to do whatever they want with respect to assessing and allocating fees,” Locher wrote.

“Instead, Congress ‘imposed ascertainable and meaningful guideposts’ for them to follow [and that] the provisions of the Act governing the equitable allocation of fees are not unconstitutional under the public or private non-delegation doctrines,” Locher wrote.