Government Power Is Just as Dangerous in “Private” Hands

Thomas A. Berry

In 2020, Congress passed the Horseracing Integrity and Safety Act (HISA). HISA established a private nonprofit corporation called the Horseracing Integrity and Safety Authority (the Authority). HISA empowered the Authority to formulate detailed rules governing the thoroughbred horseracing industry. Through this rulemaking power, the Authority could create programs regulating anti‐​doping efforts, horse medication, and racetrack safety.

Several groups sued to challenge HISA on multiple grounds. Their case reached the U.S. Court of Appeals for the Fifth Circuit, which held that one of those claims was successful. The court found that HISA unconstitutionally granted unchecked governmental power to a private entity, namely the Authority. Although the Federal Trade Commission (FTC) had some power to review rules issued by the Authority, the FTC could not review the Authority’s policy judgments. Because the Authority had the final word on questions of government policy, the Court held that HISA was unconstitutional

In response to this decision, Congress amended HISA in 2022. In an attempt to save the law, Congress gave the FTC more supervisory power over the Authority than it had before. Now the FTC can issue its own rules that abrogate, add to, or modify the Authority’s rules, including on questions of policy. But unless and until the FTC chooses to do so, the Authority’s rules remain just as binding as before.

The case then went back to a federal district court in Texas, which reviewed the challengers’ claims against the new version of HISA. The district court rejected each of the challengers’ claims, holding that the 2022 amendments had brought HISA into compliance with the Constitution. Now the challengers have once again appealed their case to the Fifth Circuit. And Cato has filed an amicus brief supporting that appeal, joining Reason Foundation, The Competitive Enterprise Institute, The Goldwater Institute, The Manhattan Institute for Policy Research, and The Niskanen Center.

Our brief focuses on just one of the challengers’ many claims: HISA violates the Constitution’s “Appointments Clause.” The Constitution requires, as a default rule, that “Officers of the United States” must be nominated by the president and confirmed by the Senate. The Constitution allows only one potential exception to this default rule: If an officer is merely an “inferior officer,” Congress may waive Senate consent. But even if an officer is inferior, Congress is limited to only three choices for who may appoint that officer: “the President alone,” “the Heads of Departments,” and “the Courts of Law.”

The challengers argued that the directors of HISA are “Officers of the United States” because they still hold significant governmental power, even after the 2022 amendments. And if the directors are indeed officers, there is no doubt they were appointed unconstitutionally. None of the directors were appointed by the president, a department head, or a court.

In our brief, we explain how the district court failed to properly evaluate this Appointments Clause argument. Puzzlingly, the district court did not even cite the foundational modern Appointments Clause case, Buckley v. Valeo (1976). Buckley established the current legal test for whether a person is an “officer” in the constitutional sense. Buckley held that “officers” are those who have continuing positions and wield “significant authority pursuant to the laws of the United States.”

Instead of asking whether the Authority’s directors possess significant federal power, the district court instead focused on whether the Authority is “public” or “private.” Because the Fifth Circuit had held that the Authority was private, the district court concluded that the Authority’s directors cannot be officers. In the district court’s view, “private entities are not subject to the constitutional requirements governing appointment and removal of officers.”

But as our brief explains, that cannot be right. The government cannot evade constitutional limits by simply vesting governmental power in a private entity. Otherwise, the government could easily create private corporations and grant them legal authority to suppress the freedom of speech, violate due process, or engage in other constitutional violations. What matters is not whether an entity is private but whether it has been granted the government’s power. The Authority has the power to issue binding federal rules, which means its directors exercise significant federal authority.

The Authority’s directors are thus “Officers of the United States” who were never properly appointed. For that reason, the Fifth Circuit should once again hold HISA unconstitutional.

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