Jamgotchian v. Ky. Horse Racing Comm'n

488 S.W.3d 594

Jerry Jamgotchian, Appellant

v.Kentucky Horse Racing Commission; John T. Ward, Jr., in his official capacity, as Executive Director, Kentucky Horse Racing Commission; Robert M. Beck, Jr., in his official capacity as Chairman, Kentucky Horse Racing Commission; and Tracy Farmer, in his official capacity as Vice–Chair, Kentucky Horse Racing Commission, Appellees

2014–SC–000108–DG

Supreme Court of Kentucky.

RENDERED: MAY 5, 2016

COUNSEL FOR APPELLANT: Richard A. Getty, Kristopher D. Collman, The Getty Law Group, PLLC

COUNSEL FOR APPELLEES: Robert M. Watt, III, Steven B. Loy, Anthony Joseph Phelps, Monica Hobson Braun, Stoll Keenon Ogden PLLC, Susan Bryson, Speckert Kentucky Horse Racing Commission

OPINION OF THE COURT BY JUSTICE HUGHES

On May 21, 2011, Appellant Jerry Jamgotchian claimed Rochitta, a bay filly, for $42,400 in a claiming race at Churchill Downs in Louisville, Kentucky. Foaled February 26, 2008 in Pennsylvania, Rochitta was first purchased at the 2009 Keeneland Yearling Sales in Lexington, Kentucky for $160,000 by Rabbah Bloodstock. Prior to her debut at Churchill Downs, Rochitta had run previously at Saratoga Race Course and Belmont Park in New York as well as Keeneland Racecourse and Turfway Park in Kentucky. She had never finished better than third place (in two races at Turfway) prior to the maiden claiming race at Churchill Downs where she finished second. After being claimed by Jamgotchian on May 21, 2011, Rochitta's next race was on July 8, 2011 at Presque Isle Downs in Erie, Pennsylvania where she again had a second place finish. She raced three more times that summer at Presque Isle before heading to the Mountaineer Racetrack in Chester, West Virginia where she claimed her first victory on October 14, 2011. Her next and final races were at Tampa Bay Downs in Florida in December 2011 and January 2012. Having concluded her multi-state racing career, Rochitta was shipped to the Tattersalls December 2012 Mares Sale in Newmarket, England by her new owner where she sold for $480,330. At sale, Rochitta was in foal, having been covered by Hat Trick, a Japanese-bred sire. She was purchased by Mattock Equine of Kildare, Ireland.¹

Rochitta's life and times are of interest to this Court because she is the basis for Jerry Jamgotchian's claim that certain Kentucky thoroughbred racing regulations violate the Commerce Clause of the United States Constitution. The regulations challenged provide in pertinent part:

(1) In claiming races a horse shall be subject to claim for its entered price by a licensed owner in good standing, or by the holder of a certificate of eligibility to claim....

* * * * * *

(6)(a) A horse claimed in a claiming race shall not be sold or transferred, wholly or in part, within thirty (30) days after the day it was claimed, except in another claiming race.

(b) Unless the stewards grant permission for a claimed horse to enter and start at an overlapping or conflicting meeting in Kentucky, a horse shall not race elsewhere until the close of entries of the meeting at which it was claimed.

810 Kentucky Administrative Regulations (KAR) 1:015, § 1 (1), (6). Violations of these provisions can, among other things, result in the purchaser of the horse being fined or having his or her Kentucky owner's license suspended. 810 KAR 1:028.

The question this case poses is whether these restrictions on the transfer and racing of claimed thoroughbreds, restrictions often referred to in the industry as the “claiming jail” (and referred to herein as the “Article 6 restrictions” or simply as “Article 6”), run afoul of the so-called “negative” or “dormant” Commerce Clause. Dormant Commerce Clause jurisprudence derives from the limitation on state regulatory authority that the United States Supreme Court has found implicit in the federal Constitution's Commerce Clause (U.S. Const., Art. I, § 8, cl. 3 ), which grants Congress the power “[t]o regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” We are convinced that the challenged Kentucky regulations—regulations similar (often identical) to regulations in effect in the large majority of states that allow wagering on thoroughbred horse races—do not conflict with the federal Constitution's insistence on an interstate commerce unburdened by state-erected barriers against that commerce.

The challenged regulations are merely evolved, updated versions of regulations that have applied to “selling” or “claiming”—type horse races for hundreds of years, but, more importantly, they are by no means pervasive and unavoidable governmental restrictions because any thoroughbred horse (including Rochitta as her history illustrates) can be bought and sold (assuming a willing buyer and willing seller) in Kentucky without regard to these regulations through either a private sale transaction or at auction. In essence, the buyer who claims a horse at a licensed Kentucky race track has voluntarily chosen a form of purchase that is closely regulated (indeed, the sale is enforced) by the state racing authority and, in doing so, has contracted for the horse at a guaranteed pre-race price binding on the horse's owner and the buyer, both of whom receive advantages in the carefully structured claiming process but also agree to certain limited restrictions. And in fact, the Article 6 restrictions which claiming owners such as Jamgotchian agree to by presenting a binding pre-race claim are fleeting; the claiming jail has quickly vanishing bars, as illustrated by Rochitta's run at Presque Isle in Pennsylvania a few weeks after her Churchill Downs debut.

Turning to the constitutional issues, we agree with the lower courts that the Commonwealth is not actually a market participant as that concept is currently understood in dormant Commerce Clause jurisprudence, but we cannot agree with their conclusions that regulating thoroughbred racing is itself a governmental function that results in all racing regulations getting the usual “government” pass under the Commerce Clause. We do recognize, however, as did the lower courts, that thoroughbred racing only exists because the Commonwealth allows it to exist with extensive regulation of racetracks and the requisite pari-mutuel betting (legalized gambling) necessary to racing's survival. The uniqueness of this industry, an industry that depends on the blessing of the state for its very existence, but more importantly the limited scope and terms of the voluntarily-encountered Article 6 regulation demand the nuanced approach to dormant Commerce Clause analysis which has characterized several United States Supreme Court opinions. So, while Jamgotchian, as a claiming owner, has a sufficient “case or controversy” to sustain this action, he does not have a winning claim. When Article 6 is placed in its proper context it is essentially a contract term that has evolved, not for economic protectionism, but to advance the underlying purpose of a claiming race, the classification of thoroughbreds for racing purposes. Jamgotchian knowingly and voluntarily agreed to this limited restriction when he sought the benefits of claiming Rochitta in a regulated claiming race rather than buying her in a private sale transaction or at auction. In the final analysis, Article 6 survives the strict scrutiny applicable to laws that appear facially discriminatory, and, accordingly, we affirm the lower courts.

RELEVANT FACTS

Jamgotchian is, or at least was in 2011 when this case arose, a California resident and a leading owner of thoroughbred race horses. According to Jamgotchian's complaint, he owned at that time in excess of eighty thoroughbred horses, and in the first half of 2011 his horses were so successful at winning purses that he ranked as one of the United States' seventy winningest thoroughbred owners. Among the tracks where Jamgotchian was licensed and where his horses raced was Churchill Downs, a race track licensed by the Commonwealth of Kentucky.

In this country presently, thoroughbred horse racing is conducted for the most part by licensed racing associations² at “tracks” during periods referred to as “meets” or “meetings” assigned to the association by the state agency responsible for racing regulation. 810 KAR 1:001(40) (defining “meeting” as “the entire period of consecutive days, exclusive of dark days, granted by the commission [Horse Racing Commission] to a licensed association for the conduct of live horse racing.”) In Kentucky, the agency that regulates racing is the Kentucky Horse Racing Commission (HRC or the Commission),³ the appellee in this case and the agency that promulgated the Article 6 restrictions at issue. In 2011, HRC assigned to Churchill Downs the period from April 30 through July 4 for its Spring meeting. During that meet, on May 21, 2011, Jamgotchian, pursuant to Kentucky's claiming regulations, claimed Rochitta prior to her start in a $40,000 claiming race. A “claiming race” is “any race in which every horse running in the race may be transferred in conformity with 810 KAR Chapter 1,” the thoroughbred racing chapter of Kentucky's administrative regulations. 810 KAR 1:001(12). As noted above, under Chapter 1 (810 KAR 1:015 Section 1(1)), “[i]n claiming races a horse shall be subject to claim for its entered price by a licensed owner in good standing.” Jamgotchian claimed Rochitta for the $40,000 claiming price and also paid taxes of $2,400, for a total of $42,400.

As a claimer, Rochitta was subject to the “Article 6” restrictions, and thus was not to be sold or transferred for thirty days, except via “another claiming race,” and, absent steward permission for an in-state exception, she was not to race “elsewhere,” i.e., anyplace other than Churchill Downs, until the close of entries for Churchill's spring meet (July 1, 2011, according to the Commission). Notwithstanding Article 6, in May and June, 2011, prior to the end of Churchill's meeting, Jamgotchian sought to enter Rochitta in several...