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ACRA Turf Club, LLC v. Zanzuccki

United States Court of Appeals, Third Circuit

March 31, 2014

ACRA TURF CLUB, LLC, A New Jersey Limited Liability Company; FREEHOLD RACEWAY OFF TRACK, LLC, A New Jersey Limited Liability Company, Appellants
v.
FRANCESCO ZANZUCCKI, Executive Director of the New Jersey Racing Commission

Argued February 12, 2014

On Appeal from the United States District Court for the District of New Jersey District Court No. 3-12-cv-02775 District Judge: The Honorable Michael A. Shipp

Kellen F. Murphy John M. Pellecchia [ARGUED] Riker, Danzig, Scherer, Hyland & Perretti, Counsel for Appellants

Julie Barnes Stuart M. Feinblatt [ARGUED] Office of Attorney General of New Jersey Division of Law Richard J. Hughes Justice Complex, Counsel for Appellee

Before: SMITH, SHWARTZ, and SCIRICA, Circuit Judges

OPINION

SMITH, Circuit Judge.

ACRA Turf Club, LLC ("ACRA") and Freehold Raceway Off Track, LLC ("Freehold") (collectively, "Plaintiffs") filed this suit pursuant to 42 U.S.C. §§ 1983 and 1988, against Francesco Zanzuccki ("Zanzuccki"), Executive Director of the New Jersey Racing Commission (the "Commission"), asserting that certain amendments to New Jersey's Off-Track and Account Wagering Act violate their rights under the United States Constitution. The District Court dismissed the case on Younger abstention grounds, and Plaintiffs appealed. During the pendency of this appeal, the Supreme Court issued its decision in Sprint Communications, Inc. v. Jacobs, 134 S.Ct. 584 (2013), which clarifies and reminds courts of the boundaries of the Younger abstention doctrine. Because this action does not fit within the framework for abstention outlined in Sprint, we will reverse.

I.

In an effort to promote horse racing in the State, the New Jersey Legislature enacted the Off-Track and Account Wagering Act (the "Act"), N.J. Stat. Ann. § 5:5-127 et seq., on February 1, 2002, providing for the establishment of up to fifteen off-track wagering ("OTW") facilities. The Act authorized the Commission to issue a license to a single entity, the New Jersey Sports and Exposition Authority (the "NJSEA"), but conditioned this grant upon the NJSEA entering into a participation agreement with all other entities that held valid permits to conduct horse racing in the year 2000. N.J. Stat. Ann. §§ 5:5-130, 5:5-136. Other than the NJSEA, ACRA and Freehold were the only two entities to qualify as permit holders during the relevant period. Thus, on September 8, 2003, the NJSEA, ACRA, and Freehold entered into the Master Off-Track Wagering Participation Agreement (the "Agreement"), which allocated licensing rights for the fifteen OTW facilities as follows: NJSEA the right to license nine OTW facilities, Freehold the right to license four OTW facilities, and ACRA the right to license two OTW facilities. The Agreement also provided for geographic exclusivity near the participants' respective racetracks.

Although the Act authorized licenses for up to fifteen OTW facilities, by 2011, only four facilities had opened and were operating, including one by ACRA (Favorites at Vineland) and one by Freehold (Favorites at Toms River). The NJSEA owned two racetracks (Monmouth Park and the Meadowlands), but had leased control of those tracks to other entities, one of which was the New Jersey Thoroughbred Horsemen's Association, Inc. (the "NJTHA"), which currently operates thoroughbred racing at both tracks.[1]

Disappointed by the slow pace at which OTW facilities were being opened, the New Jersey Legislature passed several amendments to the Act beginning in 2011, in an attempt to induce permit holders to open their remaining share of OTW facilities allocated by the Agreement. On February 23, 2011, the New Jersey Legislature enacted the Forfeiture Amendment, 2011 N.J. Laws 26, § 4 (amending N.J. Stat. Ann. § 5:5-130(b)(1)), which provided that permit holders would forfeit their rights to any OTW facility that was not licensed by January 1, 2012, unless the permit holder could demonstrate that it was "making progress" toward obtaining an off-track wagering license and establishing an OTW. The Forfeiture Amendment provided further that a permit holder's rights to an OTW facility, if forfeited, shall be made available to other "horsemen's organizations" without compensation to the permit holder.[2] The NJTHA is one such organization that would be entitled to any forfeited rights.

On January 17, 2012, the New Jersey Legislature supplemented the Forfeiture Amendment by passing the Deposit Amendment, 2011 N.J. Laws 205, § 4 (amending N.J. Stat. Ann. § 5:5-130(b)(1)). The Deposit Amendment extended the forfeiture date to June 28, 2012, and added a requirement that each permit holder make a $1 million deposit for each OTW facility in its share that is not licensed by December 31, 2011. Id. The Deposit Amendment retained the "making progress" exception, thus allowing a permit holder to avoid the deposit requirement (and forfeiture of rights) if it could establish that it was "making progress toward obtaining an [OTW] license and establishing an [OTW] facility according to specified benchmarks developed by the commission." N.J. Stat. Ann. § 5:5-130(b)(1).

On the same date the Deposit Amendment was enacted, the New Jersey Legislature also passed the Pilot Program Act, 2011 N.J. Laws 228 (codified at N.J. Stat. Ann. § 5:5-186), which directed the Commission to establish a three-year Pilot Program for the installation of electronic wagering terminals in a limited number of bars and restaurants. N.J. Stat. Ann. § 5:5-186. Participation in the Pilot Program was limited to lessees or purchasers of NJSEA-owned racetracks, who were permitted to exchange any unused OTW licenses for a license to install electronic wagering terminals. The NJTHA secured the right to a Pilot Program license by paying $2 million to the other assignee of NJSEA's licenses, the New Meadowlands Racetrack, LLC.

On January 30, 2012, the Commission sent letters to ACRA, Freehold, and other OTW licensees, detailing the Forfeiture and Deposit Amendments and notifying each permit holder that it could extend its rights to establish licensed OTW facilities either by posting a deposit or demonstrating to the satisfaction of the Commission that the permit holder had made progress toward establishing its share of OTW facilities. On March 29, 2012, ACRA and Freehold submitted petitions to the Commission (the "Progress Petitions"), seeking to demonstrate that they were making progress toward opening their remaining OTW facilities. In their respective petitions, ACRA and Freehold also challenged the constitutionality of the amendments under the Contracts, Takings, Due Process, and Equal Protection Clauses of the United States Constitution.

On May 9, 2012, while their petitions were pending before the Commission, Plaintiffs filed the instant suit in the United States District Court for the District of New Jersey, seeking to enjoin enforcement of the three amendments based on the same constitutional challenges set out in the Progress Petitions. Plaintiffs then filed a motion for preliminary injunction on May 24, 2012, claiming they faced irreparable harm if the state review process was allowed to proceed. Zanzuccki opposed the motion, arguing, inter alia, that abstention was warranted under Younger v. Harris, 401 U.S. 37 (1971).

While the preliminary injunction motion was pending before the District Court, the Commission held a meeting on June 20, 2012, to consider whether Plaintiffs had made progress toward establishing their share of OTW facilities. The Commission determined that both ACRA and Freehold had made progress toward establishing their unlicensed OTW facilities, absolved them of the obligation to submit deposits, and directed them to "comply with the requirements of the statute and continue to make progress on an annual basis." App. 320–21. Following the Commission's decision, Zanzuccki filed a letter with the District Court arguing that the Commission's decision eliminated any irreparable harm that would previously have resulted from denial of the motion for preliminary injunction. On July 11, 2012, the District Court denied Plaintiffs' motion for a preliminary injunction without prejudice, finding that there was no immediate, irreparable harm "since deposit or forfeiture is at least a year away." App. 34.

As one of the entities that would have been entitled to licensing rights forfeited by ACRA or Freehold, the NJTHA was not satisfied with the Commission's decision that Plaintiffs had made sufficient progress in establishing their remaining unlicensed OTW facilities. Thus, on July 11, 2012, the NJTHA filed an appeal with the New Jersey Superior Court, Appellate Division (the "Making Progress Appeal"), contesting the Commission's determination. ACRA and Freehold subsequently joined the Making Progress Appeal as corespondents of the Commission.[3]

With the Making Progress Appeal pending before the New Jersey Appellate Division, Plaintiffs filed a motion for summary judgment in their federal action on October 12, 2012, seeking a judgment declaring that the Amendments were unconstitutional. Zanzuccki filed an opposition as well as a cross-motion for dismissal of the complaint based on Younger abstention. Specifically, Zanzuccki argued that the Making Progress Appeal ...


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