Administrative Rule of the Month - 71 IAC 10-3-20 Administrative Complaints

In the 2013 legislative session, Senate Bill 609 (SB 609) became the 'horse racing' bill. While the bill expanded to include changes to how slot revenues will be distributed to the horse racing industry, SB 609 was originally intended to implement recommendations of Indiana's Inspector General (IG) stemming from the investigation into the practices of the Indiana Horse Racing Commission (IHRC). There were a number of reforms recommended to the IHRC and the legislature in the IG's report regarding the IHRC's due process and disciplinary action procedures. Here's a direct quote from the IG's report, "Our investigation, however, revealed that this current system provides many challenges which may, in fact, be detrimental to the horse racing community as the adjudication is currently being applied by the HRC." That's a very strong statement, yet mostly ignored by the IHRC.

Knowing that the IHRC's system WAS "detrimental to the horse racing community" and considering the general lack of any appreciable implementation of those recommendations by the IHRC led certain legislators to create aspects of SB 609 to force the IHRC's hand to reform their procedures. Or, so those certain legislators thought. This month's Administrative Rule of the Month takes a look at '71 IAC 10-3-20 Administrative complaints' which was an administrative rule highlighted in the IG's report and targeted by changes in SB 609. But first, let's look at how SB 609 modified certain aspects of the IHRC's authority.

In reviewing any change to the law, keep in mind that, once modified, the law cannot have the same meaning as before the change. With that in mind, consider the language that SB 609 strikes from the IHRC's authority to penalize horsemen for medication violations. Effective January 1, 2014, the following change will be made to a portion of the 'Medication of Race Horses' section of Indiana law:

SECTION 8. IC 4-31-12-16 IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2014]: Sec. 16. The commission or the commission's designee, as determined under the rules of the commission, on its own motion or in addition to a penalty assessed by the stewards and judges, may impose one (1) or more of the following sanctions against a licensee who violates sections 2 through 13 of this chapter:
(1) Revocation of a license held by the licensee.
(2) Suspension of a license held by the licensee.
(3) A civil penalty not to exceed five thousand dollars ($5,000).

One of the concerns that the IG had regarding adjudication of penalties at the IHRC was the lack of involvement of the commission, meaning the commissioners themselves, in lieu of the Executive Director ("the commission's designee"). The IG's report expressed a concern that having to navigate through multiple levels of the IHRC staff is essentially ".....the same persons (or their co-workers) who have issued the violations, thereby challenging the appearance of impartiality." The IG also felt that "this current procedure loses the independence the HRC Commission could add by being the adjudicating body." SB 609 eliminates the IHRC from being able to create rules to delegate their authority to fine a horseman or to revoke or to suspend a license. While the judges and stewards will have authority to issue fines and suspensions for violations, the Executive Director will not, or might we say, should not, given the changes to the law.

In addition, SB 609 strikes from the law the language "or in addition to a penalty assessed by the stewards and judges." Normally, most violations are of the variety of small fines and minor suspensions. Beginning January 1, 2014, if the judges or stewards create a ruling on an alleged violation, neither the Executive Director nor the commissioners can increase that penalty, or might we say, should not, given the changes to the law.

There is also a similar change in the portion of the IHRC's authorizing statute regarding "Offenses and Enforcement" for non-medication violations. You'll see that effective January, 1, 2014, the commission cannot delegate to the Executive Director ("the commission's designee") the ability to penalize a horseman. In addition, the commissioners will not have the authority to increase penalties for non-medication violations issued by the judges or stewards. Here's how the law will read:

SECTION 9. IC 4-31-13-1 IS AMENDED TO READ AS FOLLOWS [EFFECTIVE JANUARY 1, 2014]: Sec. 1. (a) The commission or the commission's designee, as determined under the rules of the commission, on its own motion or in addition to a penalty assessed by the stewards and judges, may issue orders under IC 4-21.5 to:
(1) issue, deny, suspend, diminish, or revoke permits and licenses as authorized by this article; and
(2) impose civil penalties, in addition to any other penalty imposed by the commission on a person who violates this article or a rule or an order of the commission. and
(3)
(b) The commission or the commission's designee, as determined under the rules of the commission, on its own motion or in addition to a penalty assessed by the stewards and judges, may issue orders under IC 4-21.5 to rule a person off one (1) or more permit holders' premises, if necessary in the public interest to maintain proper control over recognized meetings.
(b) Except as provided in IC 4-31-12-16, (c) A civil penalty imposed against a licensee under subsection (a)(2) may not exceed five thousand dollars ($5,000). For purposes of subsection (a)(2), each day during which a violation of this article or a rule or an order of the commission continues to occur constitutes a separate offense.
(c) (d) Civil penalties imposed under this article shall be deposited in the state general fund.

At their September 17, 2013 meeting, the commissioners were presented with and approved emergency rules that were characterized by the IHRC's General Counsel Lea Ellingwood as "the administrative rules that we believed would require some kind of adjustment, amendment, or creation" given the changes in the law. One of those changes, which is copied below, was to '71 IAC 10-2-3 Summary suspension' which is a suspension of license without a hearing. What you will see is that subsection (d), which delegates the commission's authority to summarily suspend a license to the Executive Director, is being removed from the administrative rule book. Eliminating the Executive Director's authority within this disciplinary process and the duplication of the process was what the IG had recommended. Here's how the rule was presented to the commissioners:

71 IAC 10-2-3 Summary suspension
Authority: IC 4-31-3-9
Affected: IC 4-21.5-4; IC 4-31-13
Sec. 3. (a) If the judges determine that a licensee's actions constitute an immediate danger to the public health, safety, or welfare, or are not in the best interest of racing, or compromise the integrity of operations at a track or satellite facility, the judges may summarily suspend the license pending a hearing pursuant to the provisions of IC 4-21.5-4.
(b) A licensee whose license has been summarily suspended by the judges is entitled to a hearing following a written request by the licensee.
(c) The judges shall conduct a hearing on the summary suspension in the same manner as other disciplinary hearings. At a hearing on a summary suspension, the sole issue is whether the licensee's license should remain suspended pending a final disciplinary hearing and ruling.
(d) Notwithstanding the provisions of 71 IAC 10-3-20, the commission delegates to the executive director the authority to summarily suspend licenses at any time that a live race meeting is not being conducted on association premises or when the judges are not otherwise available. The commission delegates to the executive director the authority to summarily suspend licenses at satellite facilities at any time. In the event of a summary suspension by the executive director and if the licensee makes a written request for a hearing, a hearing on the summary suspension shall be conducted by the commission or an administrative law judge as quickly as is practicable. (Indiana Horse Racing Commission; 71 IAC 10-2-3; emergency rule filed Feb 10, 1994, 9:20 a.m.: 17 IR 1198; emergency rule filed Jan 27, 1995, 3:30 p.m.: 18 IR 1505; emergency rule filed Nov 30, 1995, 1:00 p.m.: 19 IR 688; emergency rule filed Mar 25, 1997, 10:00 a.m.: 20 IR 2162; emergency rule filed Feb 13, 1998, 10:00 a.m.: 21 IR 2426; readopted filed Oct 30, 2001, 11:50 a.m.: 25 IR 899; readopted filed Mar 23, 2007, 11:31 a.m.: 20070404-IR-071070030RFA)

However, we don't think the changes to 71 IAC 10-2-3 go far enough. To understand this statement, you'd have to read our Administrative Rule of the Month from July: (http://ibopindy.blogspot.com/2013/07/administrative-rule-of-month-71-iac-10.html). We had our suspicions that the IHRC wouldn't voluntarily modify a certain aspect of '71 IAC 10-2-3 Summary Suspension' to conform with what is required by SB 609. We'll make certain legislators aware, yet, the summary suspension is not this month's rule of the month, remember it's '71 IAC 10-3-20 Administrative Complaints.' The impression given by Ms. Ellingwood at the last commission meeting indicated that the staff's review of the administrative rules for SB 609-related changes is complete. We see their review as far from over and that is where the "Administrative Complaints" rule comes into play.

Prior to the IG's report, 71 IAC 10-3-20 was titled as "Preliminary reports" instead of "Administrative complaints." In his report, the IG stated, "We also recommend the elimination or modification of the “preliminary report” procedure granted by promulgation to the HRC Executive Director. 71 IAC 10-3-20(b)." In January, 2012, instead of eliminating 71 IAC 10-3-20(b), the IHRC chose to modify the "preliminary report" rule by simply changing those two words to "administrative complaint" as they appeared in the rule. Certain legislators were not amused by the IHRC's indifferent attitude to this supposed modification of this administrative rule. Take a quick read of 71 IAC 10-3-20(b) while keeping in mind the striking of "the commission's designee" and "in addition to a penalty assessed by the stewards and judges" by SB 609.

71 IAC 10-3-20 Administrative complaints
Authority: IC 4-31-3-9
Affected: IC 4-31-13
Sec. 20. (a) If the commission determines that a person regulated under the Act has violated the Act or a rule or order adopted
under the Act in a manner that constitutes a ground for disciplinary action under the Act, the commission may assess an administrative penalty against that person as provided by this section.
(b) The commission delegates to the executive director the authority to prepare and issue administrative complaints pursuant
to the Act. If, after examination of a possible violation and the facts relating to that possible violation, the executive director
determines that a violation has occurred, the executive director shall issue an administrative complaint that states the facts on which the conclusion is based, the fact that an administrative penalty is to be imposed, the amount to be assessed, and any other proposed sanction, including suspension, or revocation. Furthermore, when the judges have issued a ruling that a violation has occurred, the executive director may issue an administrative complaint identifying the underlying ruling that serves as the basis for the administrative complaint, the fact that an administrative penalty is to be imposed, the additional amount to be assessed, and any other proposed sanction including additional suspension or revocation. The amount of the penalty may not exceed five thousand dollars ($5,000) for each violation. Each day or occurrence that a violation continues may be considered a separate violation. In determining the administrative penalty, the executive director shall consider the seriousness of the violation.
(Please note that subsections(c) through (f) were removed for brevity's sake.)
(Indiana Horse Racing Commission; 71 IAC 10-3-20; emergency rule filed Feb 10, 1994, 9:20 a.m.: 17 IR 1208; emergency rule filed Jan 27, 1995, 3:30 p.m.: 18 IR 1507; errata filed Mar 23, 1995, 4:30 p.m.: 18 IR 2126; readopted filed Oct 30, 2001, 11:50 a.m.: 25 IR 899; emergency rule filed Mar 20, 2007, 1:43 p.m.: 20070404-IR-071070198ERA, eff Mar 16, 2007 [IC 4-22-2-37.1 establishes the effectiveness of an emergency rule upon filing with the Publisher. LSA Document #07-198(E) was filed with the Publisher March 20, 2007.]; readopted filed Mar 23, 2007, 11:31 a.m.: 20070404-IR-071070030RFA; emergency rule filed Jan 25, 2012, 12:20 p.m.: 20120201-IR-071120056ERA)

Effectively, the changes to SB 609 will eliminate the IHRC's authority to keep 71 IAC 10-3-20(b) in the administrative code. By design, SB 609 was supposed to make sure 71 IAC 10-3-20(b) was eliminated. Remember, per SB 609, the IHRC will no longer have the authority to delegate the ability to penalize to the Executive Director, yet 71 IAC 10-3-20(b) does delegate that ability. What we find interesting is that the first line of 71 IAC 10-3-20(b) "delegates to the executive director.......pursuant to the Act," yet beginning January 1, 2014, the "Act" will not allow for that delegation. Also, per SB 609, the IHRC will no longer have the authority to add their own penalty to a ruling by the judges and stewards, yet 71 IAC 10-3-20(b) currently allows for that to happen via an administrative complaint.

We don't see any way in which 71 IAC 10-3-20(b) should exist on January 1, 2014. Yet, the IHRC staff failed to present this administrative rule as part of those that needed modification in light the changes required by SB 609. Was the IHRC staff attempting to misguide the commissioners or was 71 IAC 10-3-20(b) simply overlooked? We'll try to find out by filing a petition directly with the commissioners to have 71 IAC 10-3-20(b) removed from the Indiana Administrative Code by citing the changes made by SB 609. Another 'strike out,' if you will. And, evidently, we'll also have to let certain legislators know how the IHRC staff has reacted to SB 609.

Administrative Rule of the Month - 71 IAC 1.5-1-50 “Jurisdiction” defined

A question Indiana Breeder & Owner Protection, Inc. (IBOP) has posed many times, either through our newsletters, letters to the commissioners, blog articles, etc. is 'what are the limits to the Indiana Horse Racing Commission's (IHRC)authority?' The IHRC believes and acts as if their authority is unlimited. Their penchant for the use of emergency rulemaking to create 'law,' without any meaningful oversight, creates an environment where the IHRC continually steps beyond their actual statutory authority. Within "their environment," which are their administrative rules in the Indiana Administrative Code (IAC), it's still fairly easy to point out when the IHRC goes beyond their statutory authority. We've pointed this out many times, and a few times, the IHRC has modified administrative rules based upon IBOP petitions.

However, the biggest problem with the IHRC's unchecked power is that no one in the legislature, attorney general's office, or the Governor's office reviews the administrative rules the IHRC creates. Plus, the IHRC doesn't want to give up any authority in their rulemaking which provides for their control over horsemen whether they are within their statutory authority or not. This month's Administrative Rule of the Month takes a look at how the IHRC goes beyond their statutory authority with how they define their 'jurisdiction.'

Both the standardbred and flat racing rulebooks have 'jurisdiction' definitions, and to keep things simple we are going to use '71 IAC 1.5-1-50 "Jurisdiction" defined' as our example. Now, most every administrative agency's authorizing statute as determined by the Indiana legislature has a 'definitions' chapter. The IHRC's authorizing statute 'IC 4-31 Pari-Mutuel Wagering On Horse Racing' has IC 4-31-2 as the 'Definitions' chapter. In the Indiana Administrative Code, an administrative agency can, if authorized by statute, create additional definitions as necessary to implement the State's laws. And, here's how 71 IAC 1.5-1-50 reads:

71 IAC 1.5-1-50 "Jurisdiction" defined
Authority: IC 4-31-3-9
Affected: IC 4-31
Sec. 50. "Jurisdiction" of the commission means the state of Indiana. (Indiana Horse Racing Commission; 71 IAC 1.5-1-50;
emergency rule filed Jun 15, 1995, 5:00 p.m.: 18 IR 2819, eff Jul 1, 1995; readopted filed Oct 30, 2001, 11:50 a.m.: 25 IR 899;
readopted filed Mar 23, 2007, 11:31 a.m.: 20070404-IR-071070030RFA)

It's easy to see that the IHRC is defining their jurisdiction as the entire state of Indiana. Merriam-Webster defines jurisdiction in a number of ways: 1) the power, right, or authority to interpret and apply the law, 2a) the authority of a sovereign power to govern or legislate, 2b) the power or right to exercise authority : control, 3) the limits or territory within which authority may be exercised. So, the IHRC believes their "power," "authority," "control," and "territory" is the entire state. Effectively, the IHRC is claiming that its regulatory jurisdiction is the entire state of Indiana. We disagree, and actually, Indiana statute disagrees in a number of ways as well.

First, the idea that the IHRC has to create a definition of their jurisdiction in their rulebooks is actually laughable because the whole idea of an authorizing statute IS to define the limits of an administrative agency's authority. The 'Definitions' chapter in Indiana law (IC 4-31-2) does not include a 'jurisdiction' definition because the entirety of the law is simply a definition in and of itself. Yet, the IHRC's arrogance and/or defiance leads to such a definition as "the State of Indiana." Had the Indiana legislature felt it was necessary to specifically define the IHRC's geographical jurisdiction, they would have.

Second, 'IC 4-31 Pari-Mutuel Wagering On Horse Racing' is not the only aspect of Indiana law that addresses horse racing which we are sure will come as a surprise to the IHRC. However, IC 4-31 is the only 'Article' that gives the IHRC any authority over horse racing and more specifically "pari-mutuel" horse racing. The Indiana legislature was very specific in IC 4-31-1-1 which provides that the applicability of the law “does not apply to horse racing meetings at which pari-mutuel wagering is not permitted.” Therefore, the opposite is true in defining the jurisdiction of the IHRC to only horse racing meetings at which pari-mutuel wagering IS permitted which doesn't take place across the entire state of Indiana, only at race tracks during recognized meetings.

The Indiana legislature in ‘IC 15-19-3 Regulation of Horse Racing’ grants no authority to the IHRC over other horse racing within Indiana. Yet, with this particular administrative rule, the IHRC defines their ‘jurisdiction’ as the entire state. Given the purpose of the IHRC as outlined in ‘IC 4-31-1-2’ and the legislative intent expressed in ‘IC 4-31-5.5 Satellite Facilities,’ the IHRC’s jurisdiction is actually only over locations WITHIN the state that provide pari-mutuel wagering on live horse racing and those off-track simulcasting locations that can provide pari-mutuel wagering on horse racing on races in Indiana and around the country. By statue, the IHRC's jurisdiction is defined as being only at Indiana race tracks and at all licensed OTB's, and not beyond.

Third, the authority line in 71 IAC 1.5-1-50 claims that IC 4-31-3-9 gives the IHRC the authority to even create a jurisdiction definition that encompasses the entire state. An administrative agency is required to cite from where they get their rulemaking authority with each administrative rule. In reviewing IC 4-31-3-9, the only possible portion of this statute that provides the IHRC discretionary rulemaking authority is IC 4-31-3-9(a)(1)(H) which states, "any other regulation that the commission determines is in the public interest in the conduct of recognized meetings and wagering on horse racing in Indiana." What the law actually allows for is rulemaking at recognized race meetings and places where people can wager on horse racing which is a very limited definition when compared to the IHRC's 'entire state of Indiana' claim. Again, the law only allows rulemaking, and therefore, exercise of authority, at the two tracks and at all licensed OTB's.

Fourth, statutory construction, which is a set of interpretation guidelines established by courts that apply to laws and to administrative rules, does not allow for any interpretation that would lead to an absurd result. Here's a great example of the IHRC's absurdity with their definition of their jurisdiction. State law, through IC 4-31-13-1(a)(3), allows the IHRC to "rule off" a person from a race track "if necessary in the public interest to maintain proper control over recognized meetings." The IHRC expands upon this authority (unnecessarily) in "71 IAC 2-10-1 Exclusion of patrons and licensed and unlicensed persons." In this administrative rule, the IHRC concludes that their authority allows for "exclusions under this section shall be for all of the premises under the regulatory jurisdiction of the commission, including satellite facilities." Given their definition of jurisdiction, the IHRC's own administrative rule gives them the ability to exclude someone from their "regulatory jurisdiction" which they define as the entire state of Indiana. This, of course, is absolutely absurd that the IHRC can rule someone off and exclude them from the entire state of Indiana.

Again, the problem is that no one within Indiana government keeps tabs on the legality of the rules or the rulemaking procedures at the IHRC. However, IBOP is attempting to change that by challenging the IHRC's jurisdiction definitions and about 80 other administrative rules. (This challenge includes the entirety of '71 IAC 10 Due Process and Disciplinary Action" where the IHRC really goes beyond their statutory authority.) Administrative rules in the IAC expire on January 1st of the seventh year from there adoption and must be readopted. The majority of the IHRC's rulebooks are due to be readopted as of January 1, 2014. The IHRC has already, without a vote at a meeting, filed a Notice to Intent to Readopt for those rules: http://www.in.gov/legislative/iac/20130731-IR-071130345RNA.xml.html. Effectively, the IHRC is saying 'we're good with these rules and we are readopting them 'as is' as of January 1st.' No further action is necessary, and no further review takes place.

However, under a provision in Indiana law, IBOP has requested that these 80 or so rules "be considered separately" from the Notice of Intent to Readopt. What this means is that simply providing a basis with the request to be considered separately, those rules are now required to go through the regular rulemaking process and cannot be readopted by another emergency rule. We've selected those 80 or so rules based primarily on the IHRC's overstepping their statutory boundaries. With almost every single request for rules to be considered separately, we included the following basis, "Given the IHRC’s past history of exclusively using the emergency rulemaking process to promulgate administrative rules, the public interest would be served by a more extensive review of this administrative rule which would finally include a public hearing and a review for statutory authority, for statutory compliance, for consistency with public policy, and for any effects on small businesses." In addition, each request had at least one other reason/basis for the request. This 'Administrative Rule of the Month' is a great example of the additional information (basis) provided to the IHRC.

We will develop more of the ideas behind our requests in future 'Administrative Rule of the Month' articles as well as keep you up to date as to how the IHRC reacts to them. To help ensure that the IHRC follows the law, we are also providing copies of each request to Indiana's Legislative Rules Oversight Committee. A new law that was established as of July 1st gives this committee more responsibility in taking an active role in monitoring an administrative agency's rulemaking. We're confident IBOP's requests and the bases (yes, that's the plural of 'basis')for each request will be eye-openers to this committee. With these requests, we are trying to facilitate real change with the IHRC's rulemaking procedures and to make sure all administrative rules stay within their statutory boundaries. (As horsemen, if you don't know the deck is stacked against you by the IHRC's administrative rules, then go back and read everything we have posted to this website.)

To meet our objectives, we need your help and your support. You can help by sending a link to this article to every horseman on your email list. The more people that are aware of IBOP's effort, the better. And, you can support this effort by considering a donation to IBOP. We'll be able to do more through this process with your support than without. This is an opportunity that only comes along once every seven years.

2012 Indiana Horse Racing Commission Annual Report

The Indiana Horse Racing Commission has released their 2012 Annual Report, which is the first under new Chairman Bill Diener. Here is the link to the report: http://freepdfhosting.com/bfcf53cea5.pdf.

If you're sharp, and understand basic math, see if you can find the errors on page 5 regarding handle on Indiana races. The same errors have been made in every Annual Report in recent history.

Update: On August 16th, the IHRC updated the 2012 Annual Report to correct some on-going math errors. Here's the link to the corrected report: http://www.in.gov/hrc/files/12_Annual_Report_book.pdf. While we didn't get a response, here's exactly what we said to Chairman Diener last week:

"Chairman Diener, I noticed that the IHRC's 2012 Annual Report has been posted the commission website. Each year, the annual report is one of the few publications, and possibly only publication, that provides a summary of the handle at Indiana's race tracks. In this year's edition, the 'Live Racing at Tracks' is page 5, and each year, the same mathematical error is made on this page.

If you look at the 'Total' column on the page, you'll see simple addition of the Hoosier Park handle numbers to the Indiana Downs handle numbers for each breed. For most of the metrics on this page, simple addition works to create a total. Where simple addition doesn't work is with the averages calculated on this page. More specifically, the average daily handle and average handle per race for quarter horses are being added together. What the annual report does is add the averages together to create a total, yet averages can't be added together as overall averages are a completely separate calculation.

More specifically, the average quarter horse handle per race at Hoosier Park is indicated to be $2,742 with the average at Indiana Downs indicated to be $3,084. The average in the Total column is indicated to be $5,826. Yet, based upon the numbers provided, the overall average is really $2,912. It's mathematically impossible to have an overall average greater than either of the other two averages in the calculation. This same adding-averages-together error is also made on the Simulcast Handle chart on the same page.

For your convenience, here's the link to the current annual report: http://www.in.gov/hrc/files/12_Annual_Report_book.pdf


Thanks,


Jim Hartman"