Monarch Content Management LLC v. Arizona Department of Gaming

          ORDER

          Honorable John J. Tuchi United States District Judge

         At issue is Plaintiffs' Application for Temporary Restraining Order with Notice (Doc. 20, Mot.), to which Defendants filed a Response (Doc. 46, Resp.) and Plaintiffs filed a Reply (Doc. 49, Reply). The Court heard oral argument on Plaintiffs' Application on October 30, 2019, at which time the Court converted the Application to a Motion for Preliminary Injunction. (Doc. 64.)

         I. BACKGROUND

         On June 7, 2019, the Arizona Legislature passed, and the Governor signed into law, House Bill (“HB”) 2547, which amended A.R.S. § 5-112 and added § 5-118-statutes related to wagering on horseracing and dog-racing in Arizona. (Mot. Ex. B.) Newly-enacted § 5-112(U) provides that

any simulcast of live racing into this state that originates from outside this state . . . must be offered to each commercial live-racing permittee in this state and additional wagering facility in this state. Each simulcast agreement executed pursuant to this subsection is subject to approval by [Defendant Arizona Racing] Commission. The Commission shall approve the simulcast agreement if the Commission determines that the agreement is reasonable and complies with the requirements of this subsection.

         The subsection goes on to state that a provider of a simulcast for the purpose of pari-mutuel wagering^[1] “may not engage in any anticompetitive or deceptive practice” in offering simulcast contracts by, for example, charging “excessive or unreasonable fees.” (Mot. Ex. B.)

         Plaintiff Monarch Content Management LLC (“Monarch”), a Delaware LLC, is a purchase and sales agent for more than a dozen out-of-state horse racetracks, including Plaintiff Laurel Racing Association, Inc., dba Laurel Park. The racetracks, including Laurel Park, own the simulcasts of their races, and Monarch has the right to market and sell rights to view the simulcasts and associated content. In Arizona, Monarch has a Simulcast Wagering Contract with TP Racing LLLP, dba Turf Paradise. Under this contract, Monarch provides simulcasts of its out-of-state clients' races as well as access to pari-mutuel pools and real-time betting odds to Turf Paradise's racetrack and its Off-Track Betting (“OTB”) sites.

         Defendant Arizona Department of Gaming issues permits to racetracks and OTB site operators in Arizona to offer pari-mutuel wagering. Only two entities in Arizona currently hold such permits: Turf Paradise and Arizona Downs. Monarch and Arizona Downs discussed entering into a simulcast wagering contract, but Monarch decided such an agreement was not in its business interests. In 2018, Arizona Downs asked the Commission to consider adopting a rule requiring that all simulcasts entering Arizona for the purpose of pari-mutuel wagering be made available to all permittees. After several public hearings, the Commission took no independent action, but instead the Arizona Legislature enacted HB 2547.

         The Legislature established that the statutory provisions of HB 2547 were to go into effect on August 27, 2019. Monarch maintains that it does not want to enter into a simulcast wagering contract with Arizona Downs, yet the new statute requires it to either enter into such a contract or stop providing any simulcasts for the purpose of pari-mutuel wagering in Arizona. Monarch filed this lawsuit on August 9, 2019, and filed the present Motion for injunctive relief on August 13, 2019. In the Complaint, Plaintiffs seek a declaration that a portion of HB 2547 is unenforceable because (1) it is preempted by the Interstate Horseracing Act of 1978 (“IHA”), 15 U.S.C. §§ 3001 et seq. (Compl. ¶¶ 61-62, 73-75); (2) it compels speech in violation of the First Amendment and Article 2, Section 6 of the Arizona Constitution (Compl. ¶¶ 71-72); (3) it violates the Contract Clause and Article 2, Section 25 of the Arizona Constitution (Compl. ¶¶ 63-67); (4) it violates due process rights under the Fourteenth Amendment by its vagueness and by infringing on the freedom to contract (Compl. ¶¶ 65, 76); and (5) it violates the Dormant Commerce Clause (Compl. ¶¶ 68-70).

         II. LEGAL STANDARD

         To obtain a preliminary injunction, a plaintiff must show that “(1) [it] is likely to succeed on the merits, (2) [it] is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in [its] favor, and (4) an injunction is in the public interest.” Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015) (citing Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)). The Ninth Circuit Court of Appeals, employing a sliding scale analysis, has also stated that “‘serious questions going to the merits' and a hardship balance that tips sharply toward the plaintiff can support issuance of an injunction, assuming the other two elements of the Winter test are also met.” Drakes Bay Oyster Co. v. Jewell, 747 F.3d 1073, 1078 (9th Cir. 2013) cert. denied, 134 S.Ct. 2877 (2014) (quoting Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011)).

         III. ANALYSIS

         The Court's analysis begins and ends with the first element of the Winter test, namely, Plaintiffs' likelihood of success on the merits of their claims.^[2]

         A. Preemption

         Plaintiffs first allege that certain statutory provisions contained in HB 2547 are preempted by federal law. The Supremacy Clause of the United States Constitution makes federal law “the supreme law of the land.” U.S. Const. art. VI, cl. 2. Federal preemption of state law can be either express or implied. Fid. Fed. Sav. & Loan Ass 'n v. de la Cuesta, 458 U.S. 141, 152-53 (1982). Express preemption occurs when a federal statute contains an explicit preemption provision and the challenged state law provision falls within “the domain expressly preempted by that language.” Medtronic, Inc. v. Lohr, 518 U.S. 470, 484 (1996) (internal quotation omitted). There are two types of implied preemption: field preemption and conflict preemption. Lorillard Tobacco Co. v. Reilly, 533 U.S. 525, 541 (2001). Field preemption occurs where “the depth and breadth of a congressional scheme . . . occupies the legislative field” in which the challenged state law provision exists. Id. Conflict preemption describes a situation in which “compliance with both federal and state regulations is a physical impossibility or where state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Fid. Fed. Sav., 458 U.S. at 152 (internal quotations omitted). An actual, as opposed to hypothetical or potential, conflict must exist for conflict preemption to apply. Id.

         The Court notes that Plaintiffs challenge HB 2547 on its face. “A facial challenge to a legislative Act is, of course, the most difficult challenge to mount successfully, since the challenger must establish that no set of circumstances exists under which the Act would be valid.” United States v. Salerno,481 U.S. 739, 745 (1987). After Salerno, the Supreme Court later observed, in considering a facial challenge, that “some Members of the Court have criticized the Salerno formulation, [but] all agree that a facial challenge must fail where a statute has a ‘plainly legitimate sweep.'” Wash. State Grange v. Wash State Republican Party,552 U.S. 442, 449 (2008) (internal quotations omitted). In deciding a facial challenge, courts “must be careful not to go ...