Evans v. Arkansas Racing Commission & Oaklawn Jockey Club, Inc.

Darrell Hickman, Justice. Gomer Evans, a thoroughbred horse owner and trainer, was denied permission by the Oaklawn Jockey Club, Inc., to race his horses during the 1980 racing season. Oaklawn, a private corporation, operates the Oaklawn Race Track at Hot Springs, Arkansas, by virtue of a state franchise. The Arkansas Racing Commission, a state agency charged with the regulation of Oaklawn, held three hearings in the Evans matter. Evans was granted a temporary license at one hearing and a regular one-year or seasonal license at the second hearing. Oaklawn refused to permit Evans to race his horses despite the license. At the third hearing the Commission did not order Oaklawn to permit Evans to race. The Pulaski County Circuit Court upheld the Commission’s actions on appeal. Evans appeals from that judgment alleging five errors. First, Evans argues that he had, as a licensee, a property interest and was entitled to protection by due process of law; second, that he did not receive due process in a proper hearing; third, Oaklawn, while a private corporation, could not exclude Evans under its common law property rights; fourth, he was denied his rights without substantial evidence; and, finally, the Commission was legally empowered to overrule Oaklawn’s decision to exclude Evans despite his license. Oaklawn argues that the Commission’s ruling was lawful, but, in any event, as a private corporation it had the common law right to exclude Evans for whatever reasons it chose. At the final hearing, a question was raised whether the Commission had the power to order Oaklawn to permit Evans to race his horses. In any event, the Commission denied Evans’ appeal and declined to overrule Oaklawn’s actions. On appeal the Commission argues that even if it had that authority, it declined to exercise the power because Oaklawn has the right to make certain business judgments and this was one of them. We affirm the circuit court judgment and the Commission’s actions. The facts are not seriously disputed. Evans has a substantial stable of thoroughbreds, raising horses in Arkansas, Oklahoma and Illinois. He has raced his horses at tracks in Arkansas, Illinois, New Jersey, New York, and Louisiana. Evans has raced horses as a trainer or owner at Oaklawn since 1954 and has been licensed for all those years with a one-year or seasonal license. Oaklawn operates the only thoroughbred race track in Arkansas; the racing season usually begins in February of each year and runs for about 60 days. In late 1979 only one Oaklawn steward signed Evans’ application for a license, three being required. Oaklawn did not grant Evans any stall space for his horses as it had in past years and refunded his money for a spectator’s box. It is undisputed that Oaklawn gave Evans no reasons for these actions. Evans was justified in concluding that he was being denied access to Oaklawn as an owner or trainer for the 1980 racing season. Subsequently, Evans filed an appeal with the Arkansas Racing Commission asking for a license. The Commission, not Oaklawn, is empowered by law to grant the licenses to owners, trainers and jockeys. Ark. Stat. Ann. § 84-2734(c) (Repl. 1980). I. THE FIRST HEARING On February 8, 1980, a hearing was held before the Commission, all parties being present and represented by counsel. Oaklawn still gave no real reasons for its actions regarding Evans, contending it needed none since it was a private corporation and not a state agency. The Commission granted Evans a temporary license until it could hold a “due process” hearing. II. THE SECOND HEARING A week later, on February 16, another hearing was held with all parties present and represented by counsel. Evans was the only witness. During his testimony he was confronted with a bulletin mailed out November 13, 1979, by the Thoroughbred Racing Association which read: Although it took place on a non-TRA track early in October TRPB learned that Gomer Evans, a licensed trainer, who prefers bookmaking to training, was ejected and barred at Louisiana Downs. Evans was not only made to leave personally but his horses were also evicted. The immediate cause of this action was evidence involving a demonstrated bookmaking activity. All tracks should recognize the fact that there is no need to permit or put up with the likes of Evans, especially with strong legal precedence which exists and under which a private race track can deny stalls and/or rejection to premises. Evans denied any knowledge of the bulletin, and no evidence was offered that he knew of it before the February 16th hearing. Evans contended that he had never been guilty of “bookmaking” and asserted he was not “put off’ the Louisiana Downs Race Track or accused of any illegal activity in Louisiana in 1979- He did admit that the security chief at Louisiana Downs had asked him to remove his horses. Evans’ testimony reads as follows: Q. Are you familiar with a Mr. Pernici in Louisiana? A. I know who the man is. Q. Is he the director of security at Louisiana Downs? A. That’s who he is. Q. And did Mr. Pernici ask you to leave the grounds? A. He asked me to ship my horses. Q. Did you question Mr. Pernici why he was asking you to leave the track? A. I did ask him why. He said he would rather not go into it and also said “I can’t make you do it.” Q. When they came to you the next day and asked you to please ship these other six horses did you want to know why? A. Yes, I did. He said “I don’t want to get into it,., and if you don’t want to we can’t make you but we might take other measures if you don’t.” I didn’t want to be there — I heard about those guys down there and I don’t think you could win and stay there if they didn’t want you. Evans removed the horses he had at the Louisiana track; but he contends that the action of the security chief was a request, not an order. Part of a letter from Richard Pernici to Oaklawn was read into the record. It reads: After receiving numerous complaints regarding bookmaking activities by Gomer Evans, Sr., at the Louisiana Downs Race Track, surveillance was established by Louisiana Downs security personnel on the subject. Surveillance determined a large number of individuals approaching Evans repeatedly between races giving him verbal information and on a number of occasions Evans was observed making notations on a piece of paper which appeared to be the front of an overnight sheet. Coming on down, following the 7th race on 9/26/79, this writer invited Mr. Evans to the security office at which time he was informed the management wanted him to remove his stock from the grounds as well as himself and conduct his racing at some location other than Louisiana Downs. Mr. Evans departed. Evans admitted to some suspensions at out-of-state tracks in prior years, but it was concluded that these suspensions caused Evans no problems in Arkansas because he had raced his horses at Oaklawn since those incidents. Evans admitted that he and his friends were watched for “bookmaking” actions at Oaklawn in 1979, but testified that he was never confronted by Oaklawn about bookmaking. That statement was not refuted. In a statement to the Commission, counsel for Oaklawn said Oaklawn had FBI reports which contained complaints of Evans acting as a “bookmaker.” Those reports were not offered as evidence.1 Oaklawn argued that Evans should not be granted a license because of the evidence it had produced. Further, Oaklawn defended its position that it was a private corporation and needed no legal cause for denying Evans access to the track. Evans argued that (1) Oaklawn had no such absolute right since it was actually an arm of the state and bound to comply with due process of law; (2) Oaklawn had given him no notice or reasons for its action; and (3) Oaklawn had not afforded him a hearing. Evans also argued that the evidence, admittedly hearsay, did not warrant denying him a license and a right to race his horses. Four commissioners voted to grant Evans a license, one abstained and one voted to deny Evans a license. During the second hearing Oaklawn informed the Commission it would continue to exclude Evans and immediately after the hearing wrote Evans a letter formally denying him access to the track.2 III. THE THIRD HEARING Evans appealed again to the Commission and another hearing was held February 23, 1980. This hearing actually was just a presentation of the positions of Evans and Oaklawn. Evans argued he had been issued a license by the Commission, that this license was a property right, and that this property right was being denied him by the arbitrary action of Oaklawn. Furthermore, Evans argued that the Commission had the power to order Oaklawn to let him race. Oaklawn argued that it had the right, as set forth in its formal letter to Evans, to keep Evans from racing, despite his license. The Commission declined to overrule Oaklawn’s decision. Evans appealed from the Commission’s actions, reciting that “The Commission was not authorized by Arkansas law, or rules or regulations to supervise Oaklawn as here sought by Evans.” Generally, the legal issues raised fall into two categories: First, Oaklawn’s authority as a private corporation holding a public franchise; next, the legality of the Arkansas State Racing Commission’s hearing and decision. In the first regard two questions must be answered: Did Oaklawn have the right to act as it did in denying Evans access to the track before any hearings were held; did Oaklawn have a right to deny Evans access to its track after he had been granted a license? The answers to these questions lie, in part, with a determination of whether Oaklawn was acting for the State of Arkansas, or as a private corporation. If Oaklawn was acting for the state, it was bound to give Evans due process under the Fourteenth Amendment to the United States Constitution. That would mean it had to give Evans a hearing at a meaningful time and in a meaningful manner. Barry v. Barchi, 443 U.S. 55 (1979). It is not disputed that Oaklawn did not give Evans a hearing before it initially denied him access to its track in late 1979. Whether Oaklawn was acting purely as a private business depends upon its relationship with the State of Arkansas. Oaklawn is a private corporation but it has a public franchise to operate the only thoroughbred race track in Arkansas. Arkansas has extensive regulations concerning the track and derives substantial revenue from the franchise.3 In Jackson v. Metropolitan Edison Co., 419 U.S. 345 (1974) the United States Supreme Court dealt with this issue. The case involved a privately owned utility company subject to extensive state regulation. The court conceded that whether action by such a corporation is “private conduct” or “state action” is frequently a difficult one. The mere fact a business is subject to state regulations and those regulations are extensive does not mean that action by a private corporation is state action. Nor would the fact that such a private company held a monopoly be controlling. The test in such cases is whether “there is sufficiently close nexus between the State and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the State itself.’’Jackson v. Metropolitan Edison Co., id., at 351. The court concluded that the utility company was not acting for the state. The case law is virtually uniform in holding that a private race track can exclude a patron for no reason at all and such action will not be “state action.” Watkins v. Oaklawn Jockey Club, 86 F. Supp. 1006 (W.D. Ark. 1949), aff'd. 183 F. 2d 440 (8th Cir. 1949); Madden v. Queens County Jockey Club, 296 N.Y. 249, 72 N.E. 2d 697 (1947); Marrone v. Washington Jockey Club, 227 U.S. 633 (1913). However, the authorities vary when a private corporation, operating a race track, denies a licensee certain rights or privileges that ordinarily go with such a license. Some cases hold that the private corporation is not acting for the state. In Fulton v. Hecht, 545 F. 2d 540 (5th Cir. 1977) the United States Court of Appeals, Fifth Circuit, affirmed a Florida Supreme Court decision which held that the exclusion of a licensed owner from a private kennel club, regulated by Florida, was not state action. The court found that although Florida extensively regulated the track, licensed the owners, audited the books, received revenue from the track, and had the dogs checked by state veterinarians, the court could not say that the race track’s actions should be stamped as those of the state. Also, the court rejected the argument that the race track was an agency of the state simply because the track had a monopoly for one-third of the year! Similarly, the court in Martin v. Monmouth Park Jockey Club, 145 F. Supp. 439 (D.N.J. 1956) held that a jockey who was licensed in New Jersey had no right to require a private race track to let him ride. The court said: [N]owhere in the statutes or rules governing race tracks is there any indication that simply because he has a license from the New Jersey Racing Commission a jockey thereby possesses a right to ride at any track in the state despite the wishes of its owner .... Obviously, the fact that he does have to make such engagements imports no guarantee of employment, for jockeys are employed by the owners of the horses and not by the Club. Equally obviously it imports no obligation on the Club to open the premises to all licensed jockeys. Other jurisdictions have viewed the matter differently in somewhat identical circumstances. For example, Jacboson v. New York Racing Association, Inc. 41 A.D. 2d 87, 341 N.Y.S. 2d 333 (1974), 33 N.Y. 2d 144, 350 N.Y.S. 2d 639 (1973), 49 A.D. 2d 634, 370 N.Y.S. 2d 640 (1975), the court found that when a privately owned race track denied a licensed owner access to its track it was state action. In Jacobson the court based its decision on virtually the same circumstances, i.e. state regulation, receipt of revenue, and so forth, that the Florida Court used to reach the opposite conclusion. There are other cases which seem to be in agreement with the Jacobson decision. See Fitzgerald v. Mountain Laurel Racing, Inc., 464 F. Supp. 263 (W.D.Pa. 1979) and Hubel v. Virginia Racing Comm., 513 F. 2d 240 (4th Cir. 1975). We are of the view that Oaklawn’s actions in failing to recommend Evans for a license and failing to provide him with stall space before any hearing was held were not state action. Arkansas does not run Oaklawn. While it has laws which permit the extensive regulation of Oaklawn, the state does not dictate to Oaklawn how it will run its track. Oaklawn has a franchise and a license to run its race track. The Commission has the sole authority to license owners, trainers and jockeys, but nowhere in the law or in the regulations of the Commission is any licensee guaranteed a right to use that license. Whether an owner is granted the right to enter a certain number of races is not the subject of a regulation. Whether an owner is to be given a certain number of stalls at the race track is not the subject of a rule or regulation. Arkansas has decided by the absence of law or regulation to leave the running of the track to the judgment of the franchisee in matters such as the one involving Evans. This does not mean that Oaklawn’s actions are not subject to review by the State of Arkansas. They are, as we will point out. Was Oaklawn’s action in denying Evans access to the track, after he had been issued a license, arbitrary and unlawful? The difference between this action and Oaklawn’s initial action is that Evans had been granted a license by the State of Arkansas. However, as pointed out in Fulton v. Hecht, supra, such a license does not give one the right to an unlimited use over the objections of a private race track. No doubt there must be some justification for that action and that justification must be made to the Arkansas Racing Commission. Rule 1256 of Rules and Regulations Governing Horse Racing in Arkansas provides: Any persons, firms, association or corporation penalized or disciplined under the Law, or under these Rules, or who is otherwise aggrieved by any action, proceeding or decision of a Racing Official or franchise holder licensed by the Commission, may appeal to the Commission for a review of such action, proceeding or decision by requesting a hearing before the Commission, which may take whatever action it deems appropriate. Oaklawn’s actions were appealed in every instance to the Arkansas Racing Commission, reviewed by the Commission and were not overruled. The rules and regulations of the Racing Commission actually permit Oaklawn to put off individuals from its race track or to suspend the license of an owner or jockey. For example, Rule 1134 provides: The Stewards may fine, suspend or Rule off any person who, in their opinion, has acted to the detriment of racing or violated the Rules. But this action is subject to review by the Racing Commission. Rule 1128 provides: Each franchise holder shall furnish to the Commission the names and addresses of all persons ejected by the franchise holder from its grounds, together with the offense or offenses alleged against them and any other material information relating thereto. Oaklawn complied with these rules in that it notified the Commission and Evans after its second hearing that it intended to keep Evans off its track and it cited the rules and regulations upon which it was relying. It would be a close question whether, under the Arkansas Racing Commission’s rules and regulations, Oaklawn had to formally report to the Commission its actions in failing to recommend Evans for a new license or failing to give him stall space. That issue, however, is moot because Evans appealed from Oaklawn’s actions and Oaklawn did justify its action to the Racing Commission. Therefore, Oaklawn did not violate any constitutional or legal rights of Evans either before or after the hearings. Besides the evidence in the case, some consideration must be given to the integrity of the sport iself and in that regard Oaklawn has a duty and responsibility. In Martin v. Monmouth Park Jockey Club, supra, the court said: In a sport where the greatest importance should be attached to dissipating any cloud of association with the undesirable, and in which the appearance as well as the fact of complete integrity is a paramount consideration, to exclude Plaintiff from riding because of his record was an understandably warranted exercise of discretion. There is no doubt this entered into Oaklawn’s decision as well as the Commission’s final decision. The remaining question concerns the actions by the Commission. This case comes to us on appeal from a decision of the Racing Commission which is an administrative agency of the State of Arkansas governed by the Administrative Procedure Act. Ark. Stat. Ann. § 5-701 to -715 (Repl. 1976). Evans’ argument in this regard is essentially that the Commission’s decision not to overrule Oaklawn’s actions was arbitrary and not supported by substantial evidence. Additionally, Evans argued that the Commission had the right to overrule Oaklawn and failed to do so. There is no question that the action by the Arkansas Racing Commission was state action and Evans had to be accorded his rights by the Commission according to due process of law. That is precisely what the Commission did. It held not one but three hearings, all of which were attended by Evans and his counsel. Evans was first granted a seasonal or one-year license, and at the final hearing, after reviewing the matter, the Commission decided it should not overrule the judgment of Oaklawn in denying Evans access to its track as an owner. Refined, the issue becomes: Was the Commission justified as its last hearing in failing to overrule Oaklawn’s decision? We conclude that the Commission’s decision was supported by substantial evidence and was not arbitrary. The substantial evidence in this case was the testimony of Evans, the bulletin from the Thoroughbred Racing Association, and the letter from the security chief at Louisiana Downs. Evans gave his version of what happened in Louisiana and he concluded that he had not been “put off’ the track. The documentary evidence, admittedly hearsay, was to the contrary. Hearsay evidence that normally would be excluded in a trial may be used in a hearing before an administrative agency. Ark. Stat. Ann. § 84-2745 (Repl. 1980). The Commission also had the benefit of Evans’s testimony when it made its decision. Our determination is not based on whether we would do the same but whether there was substantial evidence to support the agency’s decision. White County Guaranty S & L v. Farmers and Merchants Bank of Des Arc, 262 Ark. 893, 562 S.W. 2d 582 (1978). We find there was substantial evidence in this case. Should the Commission have granted Evans the right to use his license? There is nothing in the Arkansas statutes or the rules of the Racing Commission that states that a licensed owner or jockey has a right to race. The Commission decided not to superimpose its judgment on Oaklawn. The circuit court upheld the Commission but went on to say the law did not permit the Commission to suppress Oaklawn’s decision by making Oaklawn let Evans race. In that regard the circuit court was wrong. The Commission could have ordered Oaklawn to permit Evans to race. On review, we look to the Commission’s findings, not the circuit court’s. We address the issue of the Commission’s authority because it is a point raised on appeal by Evans. Ark. Stat. Ann. § 84-2734 reads: [I]t shall be the function, power and/duty of the Commission to: (f) Take such other action, not inconsistent with the law, as it may deem necessary or desirable to supervise and regulate, and to effectively control in the public interest, horse racing in the State of Arkansas [Emphasis added.] This power is apparently recognized by the Commission because the preamble to the Rules and Regulations promulgated by the Commission reads, in part: The Racing Commission shall have continuing jurisdiction and control over all penalties and decisions imposed or made by them, or their predecessors, except as otherwise provided by Law. Furthermore, the Commission shall have the power and authority to review, affirm, modify or rescind any penalty or decision with regard to any infraction of these Rules which may be imposed or made by the racing officials of any Meeting. [Emphasis added.] The law clearly gives the Racing Commission the duty to regulate Oaklawn and the authority to carry out that regulation. In this case, the Commission had the right to order Oaklawn to permit Evans to race. The fact that it did not is not error. The record reflects the Commission deferred to the private corporation’s judgment in this matter and we cannot say the Commission’s judgment in that regard was arbitrary. It would mean that the Commission would have to decide when Evans could race, how often, how many stalls he could have and so forth — a posture the Commission, no doubt, did not want to take. But it could have done so. The Commission is charged with regulating that track in the public interest and that interest is paramount. The dissent by Justice Purtle attempts to bring this case within the purview of the equal protection clause. Here there was no claim that Evans’ exclusion was based on race, sex, or any other discriminatory criterion. The dissent misses this point, and relies on the case of Burton v. Wilmington Parking Authority, 365 U.S. 715 (1961), where the appellant was refused services solely because he was black. That case is irrelevant. In summary, we find that Oaklawn is a private corporation and that its acts in regard to Evans were not state action and, therefore, not subject to due process of law requirements imposed by the Fourteenth Amendment to the United States Constitution. Next, we find that the Arkansas Racing Commission granted Evans his rights as guaranteed by the United States Constitution, the statutes of the State of Arkansas and the rules and regulations adopted by the Commission. Finally, we cannot say that the Commission’s actions in failing to overrule Oaklawn’s final judgment were arbitrary or not supported by substantial evidence. We disagree with the Commission’s original interpretation of its duty and authority but do not find that its action was contrary to law. Consequently, we affirm the Commission’s decision and the judgment of the Circuit court. This decision, of course, would not be determinative of the merits of any future application Evans may make. Affirmed. George Rose Smith, Purtle & Mays, JJ., dissent. Footnotes [1] Counsel for Oaklawn and Evans discussed the FBI reports and Evans’ counsel said he would get the reports and offer them at a later hearing. They were never offered by either counsel. [2] The letter recited the reasons for excluding Evans were Rules 1124, 1126 and 1128 of the Rules and Regulations Governing Horse Racing in Arkansas. Rule 1124 provides that a person who is ruled off any course or suspended by any thoroughbred horse franchise holder shall be ineligible to start any of his horses in any race until the particular horse has been reinstated either by rescission of the owner’s suspension or by the horse’s transfer to another owner. 1126 provides that the same is true for any horse under the care, management, training or superintendence of the suspended person, and 1128 states that a suspended person shall not be qualified to run any horse in any race either in his own name or in that of any person until the rescinding of his suspension. [3] Ark. Stat. Ann. § 84-2749(c) (Repl. 1980) reads: The franchise holder shall withhold and pay to the Commission for the use and benefit of the State of Arkansas, as a privilege tax, six percent (6%) of all moneys wagered. See Rules and Regulations of Arkansas Racing Commission.