CHURCHILL DOWNS INCORPORATED; CHURCHILL DOWNS TECHNOLOGY INITIATIVES COMPANY, doing business as TWINSPIRES.COM, versus CHUCK TROUT, in his official capacity as Executive Director of the Texas Racing C

COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF (re Dormant Commerce Clause et. al.)

by Ian Imrich
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Churchill Downs Inc. challenging Texas law that would ban TwinSpires.com:

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In a bold move to keep online wagers on horse-racing via the internet available, Churchill Down d.b.a. "TwinSpires.com" has filed a federal lawsuit in a US Federal Court in Texas alleging that the Texas Racing Commission's effort to block online gambling vis-a-vis the TwinSpires.com website is unconstitutional. Specifically, the complaint alleges, inter alia, that:

"For years, relations between the racing industry and the Texas Racing Commission have been governed by an unspoken but implicit understanding: Under the U.S. Constitution, states may ban all wagering on horse races altogether—but they may not authorize wagering on terms that effectively favor in-state over out-of-state tracks. Indeed, it is only because the Commission has dutifully declined to enforce unconstitutionally discriminatory laws—quarter-century-old state laws that would otherwise require persons wishing to bet on a horse race to do so in person, to the obvious detriment of out-of-state tracks and their in-state customers—that Texans have been able to wager on out-of-state races by telephone or on the Internet since the 1990s.

A state cannot impose an “in person” transaction requirement on the purchase of

shoes or books, for no reason than to favor local businesses at the expense of out-of-state entities like Zappos.com or Amazon.com. Such a law would surely violate the dormant Commerce Clause. See, e.g., Granholm v. Heald, 544 U.S. 460, 472 (2005) (“The mere fact of nonresidence should not foreclose a producer in one State from access to markets in other States.”); id. at 475 (“in-state presence requirement runs contrary to our admonition that States cannot require an out of-

state firm to become a resident in order to compete on equal terms”) (quotations omitted).

The same principle applies here. Indeed, this case is even more extreme. The

Texas in-person requirement imposes a heavy tax on out-of-state tracks, by forcing them to endure one of three burdens in order to accept Texas wagers: The track must either (1) funnel the wagers through one of its Texas competitors (assuming the competitor is even willing to do so); (2) establish its own Texas track (assuming the Commission is even willing to grant the license); or (3) force customers to travel across state lines to place the wager (assuming a willing and able customer).

So, put simply, Texas law would deprive the vast majority of Texans of any meaningful opportunity to wager on the Kentucky Derby or any other out-of-state horse race, unless the out-of-state track secures the consent of one of its in-state competitors. This is tantamount to forcing Pepsi to sell its soda only through Coke vending machines, only if Coke consents, and only if Pepsi agrees to endure whatever marketing conditions Coke might demand and pay whatever fee Coke might impose. The resulting competitive disadvantage to Pepsi is obvious. And Texas law is no different.

This is a straightforward violation of the dormant Commerce Clause. After all, Texas law plainly raises costs on out-of-state tracks, and thereby tilts the playing field—and

market share—toward in-state tracks. See, e.g., Granholm, 544 U.S. at 466, 468, 474

(invalidating state laws “[i]n many parts of the country” that “increase the cost of out-of-state” goods and thereby “make [] sales impractical from an economic standpoint”); Cherry Hill Vineyards, LLC v. Lilly, 553 F.3d 423, 432 (6th Cir. 2008) (holding that an “in-person purchase requirement benefits local [businesses] because it ‘grants in-state [businesses] access to the State’s consumers on preferential terms’ by driving up the cost of out-of-state [goods], as condemned in Granholm”)."

The TwinSpires.com Plaintiff continues with the basic argument that the Texas Racing Commission cannot lawfully discriminate against an out of state based website that offers internet betting, and further alleges in the complaint that:

"Raising revenue is a valid government function. But it is not a valid justification

for discriminating against out-of-state businesses and their in-state customers. See, e.g., C & A Carbone v. Clarkstown, 511 U.S. 383, 393 (1994) (“of course, revenue generation is not a local interest that can justify discrimination against interstate commerce”).

What’s more, this case presents a double violation of the dormant Commerce

Clause. That is because Texas law not only inflicts pernicious discriminatory effects on out-of state businesses, but because that is precisely its purpose: As the legislative history confirms, the sole motivation for reaffirming the in-person requirement in 2011 was to harm out-of-state businesses, and help in-state businesses, in order to direct more revenue into state coffers."

Plaintiff TwinSpires is seeking preliminary and permanent injunctive relief here.

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Reference Info: Pleadings | Federal, 5th Circuit, Texas | United States

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ian Imrich, Law Offices of Ian J. Imrich, APC | Attorney Advertising

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