ACRA TURF CLUB, LLC et al v. ZANZUCCKI

Filing 33

MEMORANDUM OPINION filed. Signed by Judge Joel A. Pisano on 7/11/2012. (mmh)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
__________________________________________
)
ACRA TURF CLUB, LLC et al.
)
)
Plaintiffs,
)
)
v.
)
Civil Action No. 12-2775 (JAP)
)
FRANCESCO ZANZUCCKI
)
MEMORANDUM OPINION
)
Defendant.
)
_________________________________________ )
PISANO, Judge
This matter comes before the Court upon a Motion for Preliminary Injunction by
Plaintiffs ACRA Turf Club, LLC and Freehold Raceway Off Track, LLC (collectively
“Plaintiffs”). (DE 6.) Defendant Francesco Zanzuccki (“Defendant”) opposes the Motion. (DE
9.) The Court has considered the parties’ submissions and held oral argument on June 18, 2012.
For the reasons set forth below, the Court will deny the Motion for a Preliminary Injunction
without prejudice.

I.

BACKGROUND
A.

Off-Track and Account Wagering Act

This case involves New Jersey’s Off-Track and Account Wagering Act (“the Act”) and
several recent amendments made to the Act. Approved on February 1, 2002, the Act authorizes
the establishment of off-track wagering facilities where patrons can bet on live horse races
(hereinafter “wagering facilities”). See N.J. Stat. Ann. 5-5:127. The declared purpose of the
Act, among other things, is “to promote the economic future of the horse racing industry in this

State, to foster the potential for increased commerce, employment and recreational opportunities
in this State and to preserve the State’s open spaces.” N.J. Stat. Ann. 5:5-128b.
To open and operate a wagering facility, the New Jersey Sports and Exposition Authority
(“NJSEA”) must apply for and receive a license from the New Jersey Horse Racing Commission
(“Commission”). See N.J. Stat. Ann. 5:5-130. But the Act places several restrictions on the
licensing and operation of wagering facilities. First, the Act caps the total number of licensed
wagering facilities at fifteen. See N.J. Stat. Ann. 5:5-136a. In addition, no more than eight
wagering facilities are allowed to be licensed in the first two years after the effective date of the
Act. Id. at 5:5-136b.
The Act also limits to whom NJSEA may transfer licenses. See N.J. Stat. Ann. 5-5:130a.
NJSEA may issue licenses only to entities that (1) held a valid permit to hold or conduct a race
horse meeting within the State in the calendar year 2000; (2) [have] complied with the terms of
such permit; and (3) [are] in good standing with the [C]ommission and State of New Jersey. See
N.J. Stat. Ann. 5-5:130a. The Legislature declared that “[i]n establishing off-track wagering
facilities,” however, NJSEA “will not be performing an essential government function but rather
an essentially private business function.” N.J. Stat. Ann. 5-5:128e.
Before NJSEA may issue licenses to eligible permit holders, it must enter into a
“participation agreement” with those permit holders. See N.J. Stat. Ann. 5:5-130a. A
participation agreement is defined by the Act as a “written contract” that provides for “the
manner in which the off-track wagering facility or facilities . . . shall be managed, operated and
capitalized, as well as how expenses and revenues shall be allocated and distributed by and
among [NJSEA] and the other eligible participants.” N.J. Stat. Ann. 5:5-129. The participation

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agreement is required by the Act and must be approved by both the Commission and the New
Jersey Attorney General. See N.J. Stat. Ann. 5:5-130b.
B.

The Parties’ Participation Agreement

When the Act was passed in 2002, Plaintiffs ACRA Turf Club, LLC (“ACRA”) and
Freehold Raceway Off Track, LLC (“Freehold Raceway”) were the only two permit holders that
satisfied the Act’s participation requirements. Accordingly, ACRA, Freehold Raceway, and
NJSEA signed the Master Off Track Wagering Participation Agreement (hereinafter
“Participation Agreement”) on September 8, 2003. (Verified Compl., Ex. A; DE 1-1 (“Ex. A”).)
It was amended on February 6, 2004. (Id. at Ex. B.)
The Participation Agreement, having a term of 40 years, divides the fifteen wagering
facility licenses among the parties: NJSEA is entitled to nine licenses, ACRA is entitled to two
licenses, and Freehold Raceway is entitled to four licenses. (Ex. A, § 1.1.) In exchange for this
“fair and equitable” share of licenses, each party agreed to waive all rights to the other licenses.
(Id.) The parties contemplated that additional licenses, beyond the fifteen permitted by the Act,
may eventually be authorized, and the Participation Agreement divides those among the parties
as well. (Id. § 4.4.)
Each party also was given exclusive control over designated geographic areas near their
respective racetracks. (Id. § 2.1.) For example, ACRA was given geographic exclusivity in
Cumberland County, Cape May County, Salem County, and Atlantic County (with the exception
of Atlantic City) so that ACRA’s two wagering facilities could be located near Atlantic City
Race Course. (Id. § 1.2(i).)
NJSEA agreed to assign to ACRA and Freehold Raceway “full ownership, economic and
operational rights” in the wagering facilities. (Id. § 1.1.) With respect to opening wagering

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facilities, ACRA and Freehold Raceway are entitled “to determine the timing and order of the
application(s) for each respective initial” license.1 (Id. § 1.2(b).) In addition, the parties may
transfer the ownership, economic, and operation interests in their wagering facilities and licenses
to a permit holder that meets the participation requirements of the Act. (Id. § 3.1.)
As required by the Act, the Commission and Attorney General reviewed the Participation
Agreement. The Commission entered an Order on February 23, 2004 approving the
Participation Agreement. (Verified Compl., Ex. E; DE 1-1.) Likewise, the New Jersey Attorney
General approved the Participation Agreement by letter dated March 10, 2004. (Id. at Ex. F.)
C.

Amendments to the Off-Track and Account Wagering Act

There are three wagering facilities open in New Jersey: Favorites at Vineland, owned by
ACRA; Favorites at Toms River, owned by Freehold Raceway; and Favorites at Woodbridge,
owned by NJSEA.2 (Verified Compl. ¶ 46.) Both ACRA and Freehold Raceway insist that they
are making progress toward establishing their remaining wagering facilities. (Id. ¶¶ 48, 49.)
The New Jersey Legislature, however, was frustrated with “the glacial pace” at which
ACRA, Freehold Raceway, and NJSEA were opening their wagering facilities. (Def. Br. at 22;
DE 9.) To that end, the Legislature enacted what Defendant calls “economic incentives” in order
to “encourage” Plaintiffs and NJSEA to promptly license and open the remaining wagering
facilities. (Id. at 1, 31.)

1

The Act provides that NJSEA will submit the application for the initial license, which is
valid for one year. See N.J. Stat. Ann. 130a. The Act authorizes the Commission to establish
regulations for the procedure and conditions for renewal of licenses. See N.J. Stat. Ann. 5:5131c.
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The name “Favorites” is the result of a common marketing and branding strategy
required by the Participation Agreement. (Ex A, § 4.2).
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1.

The Forfeiture Amendment

The Legislature first amended the Act on February 23, 2011 to set a date by which permit
holders subject to a participation agreement (i.e., ACRA, Freehold Raceway, and NJSEA) must
establish all remaining wagering facilities. See 2011 N.J. Laws 26, 2011 P.L. ch. 26. This
amendment (hereinafter “Forfeiture Amendment”) provides that “any facility that has not
received a license . . . by January 1, 2012 shall no longer be considered as part of the permit
holder’s share[.]” Id. § 3.
The Commission may, however, allow a permit holder to keep its share of licenses if the
permit holder demonstrates that it is “making progress toward obtaining an off-track wagering
license and establishing an off-track wagering facility . . . .” Id. The Forfeiture Amendment
states that progress towards opening a wagering facility should be evaluated “according to
specified benchmarks developed by the [C]ommission.” Id. But after the New Jersey Governor
conditionally vetoed the Forfeiture Amendment, specific considerations to be made by the
Commission were added. Namely, a permit holder is making progress if it has entered into an
agreement to transfer its share of wagering facility licenses in connection with negotiations over
the sale or lease of a racetrack under its control, or if such an agreement is imminent. Id.
2.

The Deposit Amendment

The next amendment, approved on January 17, 2012, extends the forfeiture date from
January 1, 2012 to June 28, 2012 (hereinafter “Deposit Amendment”). See 2011 N.J. Laws 205,
2011 P.L. ch. 205, § 2. The Deposit Amendment then provides that “any [wagering] facility that
has not received a license” by December 31, 2011 “shall be subject to a cash deposit, bond, or an
irrevocable letter of credit to be posted or deposited in the amount of $1 million for each facility
in the permit holder’s share that remains to be licensed, which deposit shall be paid to the

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[C]ommission” on June 28, 2012. Id. § 1. A permit holder has the same ability to demonstrate
progress in opening its share of wagering facilities under the Deposit Amendment as is provided
by the Forfeiture Amendment.3 Id. If successful, a permit holder is absolved of the need to pay
the $1 million deposit for each un-opened wagering facility. Id. Should a permit holder fail to
pay the $1 million deposit, it forfeits the license needed to open a wagering facility, and the
license becomes available to a “horsemen’s organization.”4 Id.
The $1 million deposit is returned if, in the year after the deposit, the permit holder
makes “substantial progress” towards establishing the wagering facility. Id. If the permit holder
fails to make substantial progress, its license is forfeited. Id. In that case, the Commission gives
both the forfeited license and the $1 million deposit to a horsemen’s organization, who may then
undertake to establish the wagering facility. Id. If a horsemen’s organization fails to open the
wagering facility within a year’s time, then the license is made available through a bidding
process to a “well-suited entity,” and any $1 million deposits are returned to the permit holder
“to be used for capital improvements at the permit holder’s racetrack.” Id.
3.

The Pilot Program Act

The Legislature last amended the Act to create a Pilot Program (hereinafter “Pilot
Program Act”). See 2011 N.J. Laws 228, 2011 P.L. ch. 228. Under the Pilot Program Act, the
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The Deposit Amendment retains the lease or sale, or imminent lease or sale benchmarks
found in the Forfeiture Amendment, and adds a third benchmark: a permit holder may
demonstrate that, despite unsuccessful negotiations regarding the sale or lease of a racetrack, the
permit holder has plans to begin new negotiations that have a reasonable likelihood of success.
See 2011 N.J. Laws 205, § 1.
4

A “horsemen’s organization” is defined by the Simulcasting Racing Act as “the
Horsemen’s Benevolent and Protective Association, the Standardbred Breeders’ and Owners’
Association, or another organization or group representing a majority of horsemen engaged in
competing for purses during a regularly scheduled horse race meeting, as the case may be.” N.J.
Stat. Ann. 5:5-11a.
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Commission must issue a one-year, renewable license to “a lessee or purchaser of a State-owned
racetrack to provide patrons with the ability to place wagers on horse races through electronic
wagering terminals to be located at a limited number of eligible taverns, restaurants, and similar
venues . . . .” Id. §§ 1, 1a.
But the Pilot Program Act does not create a new, sixteenth license. Instead, the Pilot
Program license is “[i]n lieu of a maximum of one off-track wagering facility license that
remains” unused by the NJSEA. Id. § 1a. With the Pilot Program license, the lessee or
purchaser of a State-owned racetrack may install twenty electronic wagering terminals in not
more than twelve qualified locations in the northern part of New Jersey. Id. §§ 1a, 1b. The Pilot
Program Act further provides that the license-holder is subject to all the conditions of a
participation agreement. Id. § 1b.
D.

Plaintiffs’ Progress Petitions and Verified Complaint

Pursuant to the Forfeiture and Deposit Amendments, ACRA and Freehold Raceway
submitted petitions to the Commission in order to demonstrate that they are making progress
toward establishing their share of wagering facilities. (Def. Br. at 9.) On June 20, 2012, the
Commission approved Plaintiffs’ progress petitions, and therefore, at least for this year, Plaintiffs
do not forfeit their licenses and do not need to post deposits. (Def. 6/22/12 Letter at 1; DE 20.)
In order for the Commission’s decision to have force and effect, a certified copy of the
Commission’s minutes must be delivered to the Governor for approval. See N.J. Stat. Ann. 5:522.1. The Commission’s certified minutes were submitted to the Governor, and he approved the
Commission’s action on June 25, 2012. (Def. 6/28/12 Letter, Exs. A and B; DE 30-1.) Counsel
for Defendant, Assistant Attorney General Stuart Feinblatt, stated that given the Commission’s
rulings and the Governor’s approval, the “Forfeiture and Deposit Amendments that are being

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challenged by plaintiffs will not be enforced by the Commission at this time.” (Def. 6/25/12
Letter at 1-2; DE 25.) It is not until a year from now that Plaintiffs will need to make another
showing of progress before the Commission. See 2011 N.J. Laws 26, § 3; 2011 N.J. Laws 205, §
2.
Plaintiffs filed their Verified Complaint on May 9, 2012 alleging violations of the
Contract Clause, Takings Clause, Due Process Clause, and Equal Protection Clause of the United
States Constitution and the equivalent provisions of the New Jersey Constitution. (See Verified
Compl.; DE 1.) On May 24, 2012, Plaintiffs filed a Motion for Preliminary Injunction seeking to
enjoin the enforcement of the Forfeiture Amendment, Deposit Amendment, and Pilot Program
Act pending a final determination of the action. (DE 6.) Defendant opposes the Motion. (DE
9.) The Court held oral argument on June 18, 2012.

II.

JURISDICTION
Federal courts have limited subject matter jurisdiction and possess “only the power that is

authorized by Article III of the Constitution and the statutes enacted by Congress pursuant
thereto.” Bender v. Williamsport Area School Dist., 475 U.S. 534, 541 (1986). Article III limits
this Court’s jurisdiction to actual “cases” and “controversies.” U.S. Const. art. III, § 2. “To
satisfy Article III’s ‘case or controversy’ requirement, an action must present ‘(1) a legal
controversy that is real and not hypothetical, (2) a legal controversy that affects an individual in a
concrete manner so as to provide the factual predicate for reasoned adjudication, and (3) a legal
controversy so as to sharpen the issues for judicial resolution.’” Armstrong World Indus., Inc. v.
Adams, 961 F.2d 405, 410 (3d Cir. 1992) (quoting Int’l Brotherhood of Boilermakers v. Kelly,
815 F.2d 912, 915 (3d Cir. 1987)).

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Because a “live” case or controversy is required, a cause of action must fulfill the
ripeness requirement, which “determines when a proper party may bring an action.”
Philadelphia Fed’n of Teachers v. Ridge, 150 F.3d 319, 322-23 (3d Cir. 1998) (internal
quotations omitted). The doctrine “serves to determine whether a party has brought an action
prematurely,” County Concrete Corp. v. Town of Roxbury, 442 F.3d 159, 164 (3d Cir. 2006),
and “prevent[s] federal courts, through premature adjudication, from entangling themselves in
abstract disagreements,” Wyatt v. Virgin Islands, 385 F.3d 801, 806 (3d Cir. 2004).
There are two factors in making a ripeness determination: “the fitness of the issues for
judicial decision and the hardship to the parties of withholding court consideration.” Abbott
Labs. v. Gardener, 387 U.S. 136, 149 (1967); see also Texas v. United States, 523 U.S. 296, 30001 (1998). The Third Circuit has set forth several considerations applicable in the context of
forward-looking injunctions: the “adversity of the parties’ interests,” the “probable
conclusiveness of a judgment,” and “the practical utility to the parties of rendering a judgment.”
NE Hub Partners, L.P. v. CNG Transmission Corp., 239 F.3d 333, 342 (3d Cir. 2001) (citing
Step-Saver Data Sys. Inc. v. Wyse Tech., 912 F.2d 643, 647 (3d Cir. 1990)).
First, in determining the adversity of the parties’ interests, the court need not find that a
plaintiff has suffered a completed harm. See Armstrong, 961 F.2d at 412 (citing Pacific Gas &
Elec. Co. v. State Energy Resources Conservation & Dev. Comm’n, 461 U.S. 190, 201 (1983).
Here, the Commission approved Plaintiffs’ progress petitions and therefore Plaintiffs will not
pay $1 million deposits or forfeit their wagering facility licenses this year. In view of the
Commission’s action, Defendant maintains that the Forfeiture and Deposit Amendments are not
being enforced. But that is not entirely accurate. By requiring Plaintiffs to petition in the first
place, Defendant has already enforced the Forfeiture and Deposit Amendments in that, if

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Plaintiffs did not submit progress petitions, they would have needed to post deposits or otherwise
forfeit their wagering facility licenses. And, if Plaintiffs do not make progress according to the
timeline set by the Commission, Defendant will require Plaintiffs to pay deposits or forfeit their
rights under the Participation Agreement. “In this circumstance, compliance is coerced by the
threat of enforcement, and the controversy is both immediate and real.” Lake Carriers’ Ass’n v.
Macmullan, 406 U.S. 498, 508 (1972).
Next, “any contest must be based on a real and substantial controversy admitting of
specific relief through a decree of a conclusive character, as distinguished from an opinion
advising what the law would be upon a hypothetical state of facts.” Step-Saver, 912 F.2d at 649
(quotation omitted). Here, the amendments to the Act have an immediate impact on Plaintiffs,
and there is little need for further factual development. See Atlanta Gas Light Co. v. U.S. Dep’t
of Energy, 666 F.2d 1359, 1364 n. 7 (11th Cir. 1982) (“[T]he [constitutional] challenge is
unlikely to change in substance or in clarity by virtue of an actual prosecution. Thus another of
the values inherent in the ripeness doctrine, namely, the need for a concrete presentation of the
issues, would not be served by awaiting enforcement.”). Even disregarding the forfeiture and
deposit requirements, the amendments to the Act have an immediate effect on Plaintiffs by
directing them to continue to make progress in establishing their wagering facilities. Cf.
Armstrong, 961 F.2d at 421 (finding an action not ripe in part because the challenged act had no
present impact on the plaintiffs); see also Pacific Gas & Electric Co., 461 U.S. at 201-02 (finding
a claim ripe where the parties would otherwise be forced to proceed with substantial construction
expenditures without knowing whether the challenged act was constitutional). Further still, the
amendments to the Act were aimed at Plaintiffs specifically, such that they “are now, and will in
the future be the most appropriate parties to raise the [constitutional] objection[s].” Atlanta Gas

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Light Co., 666 F.2d at 1364 n. 7. Therefore, any judgment rendered in this action will be
conclusive of the claims raised.
Finally, adjudication of this action will have an effect on the “parties’ plans of action.”
Step-Saver, 912 F.2d at 649 n. 9. The “utility” factor weighs against finding a claim ripe where
the tangible benefit of a judgment is conjectural. See Armstrong, 961 F.2d 423. That is not the
case here because a judgment would change Plaintiffs’ course of conduct immediately. Plaintiffs
would no longer need to attempt to open multiple wagering facilities in the next year. In
addition, the electronic terminals authorized by the Pilot Program Act affect where Plaintiffs
build their wagering facilities because the electronic terminals dilute Plaintiffs’ exclusive
geographic and market share. Therefore, adjudication of Plaintiffs’ claims will be practically
useful.
The Court, in sum, finds this action ripe. Plaintiffs are faced with two choices: relinquish
what they believe to be their contractual rights to comply with the Commission’s progress
requirement or risk the loss of their rights forever. Defendant has therefore, in effect, compelled
Plaintiffs to comply with the Forfeiture and Deposit Amendments but then used their compliance
as grounds to deny constitutional review. Presented with this scenario, the Court finds that this
action is fit for judicial review, and Plaintiffs would suffer hardship if the Court were to deny
them consideration of their constitutional claims.

III.

LEGAL STANDARD
Plaintiffs seek a preliminary injunction enjoining the enforcement of the Forfeiture

Amendment, the Deposit Amendment, and the Pilot Program Act. In evaluating a motion for
preliminary injunctive relief, a court must consider whether: “(1) the plaintiff is likely to succeed

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on the merits; (2) denial will result in irreparable harm to the plaintiff; (3) granting the injunction
will not result in irreparable harm to the defendant; and (4) granting the injunction is in the
public interest.” NutraSweet Co. v. Vit-Mart Enter., Inc., 176 F.3d 151, 153 (3d Cir. 1999)
(quoting Maldonado v. Houstoun, 157 F.3d 179, 184 (3d Cir. 1998)).
A preliminary injunction “should not be granted unless the movant, by a clear showing,
carries the burden of persuasion.” Mazurek v. Armstrong, 520 U.S. 968, 972 (1997).
Preliminary injunctive relief is an extraordinary remedy, which “should issue only if the plaintiff
produces evidence sufficient to convince the district court that all four factors favor preliminary
relief.” American Tel. and Tel. Co. v. Winback and Conserve Program, Inc., 42 F.3d 1421, 1427
(3d Cir. 1994). “The burden lies with the plaintiff to establish every element in its favor, or the
grant of a preliminary injunction is inappropriate.” P.C. Yonkers, Inc. v. Celebrations the Party
and Seasonal Superstore, LLC, 428 F.3d 504, 508 (3d Cir. 2005).

IV.

ANALYSIS
A.

Likelihood of Success on the Merits
1.

Contract Clause

The Contract Clause provides “[n]o State shall . . . pass any . . . Law impairing the
Obligation of Contracts.” U.S. Const. art. I, § 10, cl. 1. In determining whether there has been a
violation of the Contract Clause, the threshold inquiry is whether the change in State law has
“operated as a substantial impairment of a contractual relationship.” Gen. Motors Corp. v.
Romein, 503 U.S. 181, 186 (1992) (citations omitted); N.J. Retail Merch’s Ass’n v. SidamonEristoff, 669 F.3d 374, 386 (3d Cir. 2012). If the threshold inquiry is satisfied, the court then
determines whether the State law “has a legitimate and important public purpose.” Transport

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Workers Union of Am., Local 290 v. S.E. Pa. Transp. Auth., 145 F.3d 619, 621 (3d Cir. 1998).
If so, the court “must ascertain whether the adjustment of the rights of the parties to the
contractual relationship was reasonable and appropriate in light of that purpose.” N.J. Retail
Merch’s Ass’n, 669 F.3d at 386.
The Court agrees with Plaintiffs that there are problems with the amendments to the OffTrack and Account Wagering Act. The Verified Complaint sets forth credible facts making up a
colorable claim that the Forfeiture and Deposit Amendments effect violations of the Contract
Clause. However, as of June 25, 2012, the Commission has chosen not to enforce those
amendments for at least the next year. On the other hand, the Pilot Program will go into effect
this year, and as explained below, Plaintiffs have also demonstrated a plausible claim that the
Pilot Program Act violates the Contract Clause.
a.

Substantial Impairment of the Contractual
Relationship

The first question in determining if there is a Contract Clause violation is whether there is
a substantial impairment of the contract, and to answer that question, the Court must consider the
expectations of the contracting parties. See N.J. Retail Merch’s Ass’n, 669 F.3d at 386. Here,
Plaintiffs legitimately expected to have, and indeed received, full ownership and control over
their wagering facility licenses for 40 years. NJSEA assigned to Plaintiffs “full ownership,
economic and operational rights” in the wagering facilities. (Ex. A, § 1.1, ¶2; see also id. at §§
1.2(d), 1.3(a).)
In association with their ownership rights, Plaintiffs expected and received “full and
exclusive management authority, discretion and oversight with regard to the ownership and
operation of each” wagering facility. (Id. § 1.3(a)(ii).) The unlimited discretion granted to
Plaintiffs in this regard extends to the timing of the establishment of wagering facilities:
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With regard to each of the Participant Off Track Facilities, each
respective Participant [Plaintiff] shall be entitled, subject to the
provisions of this Agreement, to determine the timing and order of
the application(s) for each respective initial Off Track License for
a Participant [Wagering Facility], without the consent or approval
of the [NJSEA] or any other Participant, except as otherwise
provided herein.
(Id. § 1.2(b).) For that reason, the Plaintiffs expected that the time frame for establishing their
share of wagering facilities was entirely left up to them, and reliance on that expectation was
justified because both the Commission and Attorney General approved the Participation
Agreement.
In addition, given the Act’s maximum number of authorized licenses, Plaintiffs expected
that only fifteen wagering facilities would be established. Even so, Plaintiffs prepared for a
situation in which the Legislature authorized additional licenses, and the Participation Agreement
specifically allocates any additional licenses proportionately. The Participation Agreement
thereby predetermined each party’s market share in the event that the Legislature authorized
additional licenses.
After identifying a plaintiff’s legitimate expectations, a court then determines “whether
the modification imposes an obligation or liability that was unexpected at the time the parties
entered into the contract and relied on its terms.” Id. (citing U.S. Trust Co. of New York v. New
Jersey, 431 U.S. 1, 19 n.17 (1977)). When the Legislature enacted the Off-Track and Account
Wagering Act, it limited the State’s involvement with respect to the establishment and operation
of wagering facilities. In particular, the Legislature left it to NJSEA to negotiate “the manner in
which the off-track wagering facility or facilities . . . shall be managed, operated and
capitalized.” N.J. Stat. Ann. 5:5-130 (defining the scope of the mandatory participation
agreement). Moreover, the Legislature did not establish a minimum number of wagering
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facilities that must be opened, and it did not require the wagering facilities to be opened within a
set time period.
As a consequence, Plaintiffs could not have anticipated that the Legislature would reverse
its position on who may control the operation and management of wagering facilities and how
the licenses would be allocated. But the Legislature did so in several ways.
First, the Deposit Amendment requires Plaintiffs to post an onerous $1 million deposit
just to keep the rights granted to them by the Participation Agreement. Given the 40 year term of
the Participation Agreement, Plaintiffs could not have expected to lose their share of wagering
facility licenses any sooner. Nor could Plaintiffs anticipate the need to pay what amounts to
additional consideration in order to keep their bargained-for rights eight years after signing the
Participation Agreement. See Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 245 (1978)
(“Contracts enable individuals to order their personal and business affairs according to their
particular needs and interests. Once arranged, those rights and obligations are binding under the
law, and the parties are entitled to rely on them.”).
Second, the Forfeiture Amendment expressly requires Plaintiffs to have established all of
their wagering facilities by January 1, 2012 or forever lose the rights in those wagering facilities.
The dire and permanent consequences for failing to meet the deadline are in direct conflict with
the full operational and managerial authority granted to Plaintiffs for 40 years by the
Participation Agreement.
Third, the Pilot Program Act altered the way in which additional licenses were to be
distributed. While the Pilot Program Act does not add an additional license, it allows the lessee
or purchaser of a State-owned racetrack to establish, in effect, five additional wagering locations
in the northern part of New Jersey. This not only adds a necessary party to the Participation

15

Agreement, but it alters the share of the off-track wagering market that Plaintiffs expected to
have.
b.

Whether the Legislation Has a Legitimate
Public Purpose

The next inquiry in the Contract Clause analysis is whether the legislation has a
legitimate public purpose. See Nieves v. Hess Oil Virgin Islands Corp., 819 F.2d 1237, 1248 (3d
Cir. 1987) (internal citation omitted). “Courts are required to defer to the legislature’s judgment
concerning the necessity and reasonableness of economic and social legislation.” Id. at 1249.
For example, the Supreme Court has upheld state laws that impair contracts but are passed
pursuant to the state’s police powers. See, e.g., Home Building & Loan Ass’n v. Blaisdell, 290
U.S. 398 (1934); Keystone Bituminous Coal Ass’n v. DeBenedictis 480 U.S. 470 (1987).
In this case, the Legislature stated that “[t]he horse racing industry is economically
important to this State, and the general welfare of the people of the State will be promoted by the
advancement of horse racing and related projects and facilities in the State.” N.J. Stat. Ann. 5:5128a. The Legislature more narrowly explained the purpose of the wagering facilities. “In
establishing off-track wagering facilities, the [NJSEA] will not be performing an essential
government function but rather an essentially private business function.” N.J. Stat. Ann 5:5128e. Nevertheless, the wagering facilities are an important component of New Jersey’s horse
racing industry because they increase the size of purses, improve the quality of the horses and
races, and increase overall interest in horse racing, thereby financially benefiting the industry as
a whole.

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c.

Whether the Adjustment of the Rights of the
Parties to the Contractual Relationship Was
Reasonable and Appropriate

The final inquiry is “whether the adjustment of the rights and responsibilities of
contracting parties [is based] upon reasonable conditions and [is] of a character appropriate to the
public purpose justifying [the legislation’s] adoption.” Nieves, 819 F.2d at 1243 (internal
citations and quotations omitted).
The Court recognizes that the New Jersey horse racing industry, a decade after the Act
was passed, is facing new challenges due in large part to the economic instability of the New
Jersey horsemen’s organizations. The horsemen’s organizations are composed of the
Thoroughbred and Standardbred owners and trainers, and therefore their existence is necessary
to keep the entire New Jersey horse racing industry afloat. Accordingly, the State decided to
lease Meadowlands Racetrack and Monmouth Park to the horseman’s organizations in order to
begin to create a self-sustaining horse racing industry. (See Governor’s Conditional Veto,
Verified Compl., Ex. L, DE 1-2.) In connection with negotiating the lease agreements, the State
wanted to be able to provide economic incentives to the horsemen’s organization, including the
prospect of income from off-track wagering facilities and additional Pilot Program electric
wagering terminals. (Id.) Thus, faced with this reality and the desire to rescue New Jersey’s
storied horse racing industry, the Legislature took those steps it thought appropriate.
Yet, in doing so, the Legislature introduced an unforeseen competitor into the off-track
wagering market despite having already defined and limited the market participants when it
passed the Act and approved the Participation Agreement. Indeed, Defendant appears to
recognize that the Forfeiture and Deposit requirements pose constitutional problems, and the
Commission is no longer enforcing those requirements. By approving Plaintiffs’ progress

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petitions, the Commission has delayed any forfeiture and deposit for at least a year. And, if the
Commission continues to find Plaintiffs are making progress, Plaintiffs will never have to post a
deposit or forfeit their licenses. Despite Defendant’s reassurances, however, the Court observes
that the Commission has wide discretion in determining whether Plaintiffs are continuing to
make progress. In effect, Defendant compelled Plaintiffs to comply with the making-progress
provisions of the Forfeiture and Deposit Amendments and then used Plaintiffs’ progress as
reason to postpone constitutional review, all the while retaining the broad authority to reinstate
the problematic amendments each year. Cf. Lake Carriers’ Ass’n v. MacMullan, 406 U.S. 498,
507-508 (1972).
Furthermore, even if Plaintiffs continue to make progress in opening their wagering
facilities, the Pilot Program Act will go into effect and dilute the market share Plaintiffs received
in the Participation Agreement. Therefore, although the Commission will not enforce the
Forfeiture and Deposit Amendments, the Court finds Plaintiffs have demonstrated that the Pilot
Program Act by itself may not pass scrutiny under the Contract Clause.
2.

Fifth Amendment Takings Clause

Plaintiffs next assert that the amendments to the Act violate the Fifth Amendment
“Takings Clause.” The Takings Clause, which is made applicable to the States through the
Fourteenth Amendment, see Chicago, Burlington, and Quincy R.R. Co. v. Chicago, 166 U.S. 226
(1897), provides that “private property [shall not] be taken for public use, without just
compensation.” U.S. Const., Amend. V. In determining whether there is an unconstitutional
taking, a court asks (1) whether the plaintiff has a property interest protected by the Fifth
Amendment’s Takings Clause; (2) if so, whether the government’s action constitutes a taking of
that property; (3) whether the taking is for a public use; and (4) if there is a taking for public use,

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whether the plaintiff is justly compensated. See Ruckelshaus v. Monsanto Co., 467 U.S. 986,
1000-01 (1984).
On its face, the Verified Complaint presents a colorable claim under the Takings Clause.
Plaintiffs have a recognized property interest in their wagering facility licenses, which were
granted to them for 40 years as set forth Participation Agreement. See Lynch v. United States,
292 U.S. 571, 579 (1934) (“Valid contracts are property, whether the obligor be a private
individual, a municipality, a State or the United States.”).
Plaintiffs have also demonstrated the likelihood that the amendments, if enforced,
constitute a taking. “Governmental action short of acquisition of title or occupancy has been
held, if its effects are so complete as to deprive the owner of all or most of his interest in the
subject matter, to amount to a taking.” Ruckelshaus, 467 U.S. at 1005 (quoting United States v.
General Motors corp., 323 U.S. 373, 378 (1945)). If Plaintiffs do not meet the requirements of
the Forfeiture and Deposit Amendments, Plaintiffs lose their wagering facility rights forever,
without compensation, and those rights are given first to a horseman’s organization or second to
a well-suited entity.
It is unlikely, however, that the Plaintiffs can demonstrate that the taking is not for a
public use. The public benefits from the prompt establishment of the remaining wagering
facilities, even if the wagering facility is “essentially a private business function.” N.J. Stat.
Ann. 5:5-128e. “That property is taken by eminent domain and is transferred to a private party
can still fall within the gambit of public use.” Hughes v. Consol-Pennsylvania Coal Co., 945
F.2d 594, 612 (3d Cir. 1991). “[T]he Supreme Court has also held that the fact that a taking
creates incidental benefits for individual private parties ‘does not condemn that taking as having
only a private purpose.’” Carole Media LLC v. N.J. Transit Co., 550 F.3d 302, 310 (3d Cir.

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2008) (quoting Hawaii Housing Authority v. Midkiff, 467 U.S. 229, 243-44 (1984)). Here, in
negotiating horse track lease agreements, the State wanted to be able to provide economic
incentives to the horsemen’s organization, including the prospect of income from off-track
wagering facilities and Pilot Program electric wagering terminals. Wagering facilities and
terminals will produce additional income, increase purse sizes, and promote interest in horse
racing, all of which would assist the horsemen’s organizations attain financial stability and
strengthen New Jersey’s horse racing industry. The fact that a horsemen’s organization will
receive the wagering facility licenses and enjoy the benefit thereof does not make the taking
unconstitutional.
The Court is careful to ensure that the public’s benefit is not merely incidental to a
private purpose. In particular, forfeiture of Plaintiffs’ licenses would greatly assist in financially
stabilizing the owners and breeders of the horses that race in New Jersey. See Carole Media
LLC, 550 F.3d at 309 (“[T]he state may not take property under the mere pretext of a public
purpose, when its actual purpose was to bestow a private benefit.”) (citation omitted). However,
“[t]he role of the judiciary in determining whether [the takings] power is being exercised for a
public purpose is an extremely narrow one,” Berman v. Parker, 348 U.S. 26, 32 (1954), and the
Court is satisfied at this stage that the State’s interest in reinvigorating the horse racing industry
is not a pretextual public use. Consequently, it is unlikely that Plaintiffs will be able to
demonstrate that the State lacks a public use in taking the wagering facility licenses.
Even so, the Plaintiffs are likely to succeed on this claim because the Deposit and
Forfeiture Amendments do not provide compensation. “The Fifth Amendment does not
proscribe the taking of property; it proscribes taking without just compensation.” Williamson
County Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172, 194 (1985). “[T]here must be

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at the time of taking reasonable, certain and adequate provision for obtaining compensation.
Reg’l Rail Reorganization Act Cases, 419 U.S. 102, 124-125 (1974) (quotation and citation
omitted). But neither the Forfeiture nor the Deposit Amendments provide any procedure for
obtaining compensation, and therefore, should Plaintiffs be required to forfeit their wagering
facility licenses, they are likely to succeed in proving an unconstitutional taking.
3.

Equal Protection and Substantive Due Process

The Fourteenth Amendment provides that no State shall “deprive any person of life,
liberty, or property, without due process of law; nor deny to any person within its jurisdiction the
equal protection of the laws.” U.S. Const., Amend. XIV. The first part of this guarantee, the
Due Process Clause, has a “substantive” component that bars certain arbitrary, wrongful
government actions.” Foucha v. Louisiana, 504 U.S. 71, 80 (1992). The second part, the Equal
Protection Clause, “secure[s] every person within the State’s jurisdiction against intentional and
arbitrary discrimination, whether occasioned by express terms of a statute or by its improper
execution through duly constituted agents.” Village of Willowbrook v. Olech, 528 U.S. 562, 564
(2000) (quoting Sioux City Bridge Co. v. Dakota County, 260 U.S. 441, 445 (1923)). In other
words, the Equal Protection Clause prevents the State “from treating differently persons who are
in all relevant respects alike.” Nordinger v. Hahn, 505 U.S. 1, 10 (1992).
In this case, to survive substantive due process and equal protection challenges, the
amendments to the Act must be rationally related to a legitimate state interest. See Williamson
v. Lee Optical, 348 U.S. 483 (1955) (rational basis review applied to regulations affecting
business or industry that are challenged on substantive due process ground); City of Cleburne v.
Cleburne Living Ctr., 473 U.S. 432, 440 (1985) (rational basis review applied to social and
economic legislation challenged on equal protection ground).

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In this case, the Legislature identified a broad economic purpose in passing the Act: “The
horse racing industry is economically important to this State, and the general welfare of the
people of the State will be promoted by the advancement of horse racing and related projects and
facilities in the State.” N.J. Stat. Ann. 5:5-128a. Even if a wagering facility is “an essentially
private business function,” id. 5:5-128e, the Act nevertheless authorized wagering facilities to
advance the broader legislative purpose. Specifically, wagering facilities and the Pilot Program
electronic wagering terminals increase commerce, employment, recreation, and revive the
quality of the economically important horse racing industry. The Court finds these objectives to
be legitimate, and the Court “is not entitled to second guess the legislature on the factual
assumptions or policy considerations underlying the same.” Sammon v. N.J. Bd. of Med.
Examiners, 66 F.3d 639, 645 (3d Cir. 1995).
By “incentivizing” Plaintiffs to establish their wagering facilities, the Forfeiture and
Deposit Amendments accomplish the goals of protecting and advancing the horse racing
industry. Additionally, in allowing only the lessees of the Meadowlands and Monmouth horse
tracks to establish electronic wagering terminals, the Pilot Program Act facilitates the
development of self-sustaining horse racing industry, which benefits the State’s economy. As
such, the amendments to the Act advance a legitimate State purpose, and, therefore, Plaintiffs are
not likely to succeed in demonstrating their substantive due process and equal protection claims.
B.

Irreparable Harm

Continuing the preliminary injunction analysis, the Court next considers whether “denial
will result in irreparable harm to the plaintiff” and whether “granting the injunction will not
result in irreparable harm to the defendant.” NutraSweet, 176 F.3d at 153 (citations omitted).

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In order for a preliminary injunction to be appropriate, the complained-of injury must be
imminent and irreparable. See Marxe v. Jackson, 833 F.2d 1121, 1128 (3d Cir. 1987). It is not
sufficient that Plaintiffs have demonstrated a likelihood of success on the merits. See Morton v.
Beyer, 822 F.2d 364, 371 (3d Cir. 1987). “The possibility that adequate compensatory or other
corrective relief will be available at a later date, in the ordinary course of litigation, weighs
heavily against a claim of irreparable harm.” Sampson v. Murray, 415 U.S. 61, 90 (1974).
Moreover, a preliminary injunction is not appropriate where the harm is speculative and
contingent upon future events. See, e.g., O’Shea v. Littleton, 414 U.S. 488, 493-495 (1974). “It
must be alleged that the plaintiff ‘has sustained or is immediately in danger of sustaining some
direct injury’ as the result of the challenged statute or official conduct.” Id. at 494 (quoting
Massachusetts v. Mellon, 262 U.S. 447, 488 (1923)).
Defendant asks the Court to deny the Motion for Preliminary Injunction because the
Commission will not be enforcing the Forfeiture or Deposit Amendments for at least a year.
Defendant thus argues that the application for a preliminary injunction is premature. In light of
the Commission’s approval of Plaintiffs’ progress petitions, the harm caused by the forfeiture or
deposit requirements would not occur until a year from now at the earliest. In addition, the
regulations necessary to effectuate the Pilot Program Act are still in a notice and comment
period. Thus, the Commission cannot implement the Pilot Program Act until later this year.
The amendments to the Act have not yet been applied so as to cause substantial
interference with Plaintiffs’ contract rights. See e.g., Armstrong, 961 F.2d at 413-24. In
addition, a plaintiff ordinarily cannot claim that the Takings Clause has been violated until after
the plaintiff has sought compensation from the State. See, e.g., Williamson County Reg’l
Planning Comm’n, 473 U.S. at 191-95. To enter a preliminary injunction now would result in a

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“premature adjudication that duly enacted Legislation is unconstitutional.” NUI Corp. v.
Kimmelman, 765 F.2d 399, 402 (3d Cir. 1985). Therefore, even though the Court finds this
action is ripe for judicial review due to Defendant’s threat of enforcement should Plaintiffs fail to
comply with the making-progress provisions, a preliminary injunction is not appropriate.
Plaintiffs have not demonstrated immediate irreparable harm since deposit or forfeiture is at least
a year away, and sufficient relief will be available in the later stages of litigation.
C.

Public Interest

The final determination with respect to whether a party is entitled to preliminary
injunction is whether “granting the injunction is in the public interest.” NutraSweet, 176 F.3d at
153. The public interest in not served by entry of a preliminary injunction at this early stage of
the case. In approving the amendments to the Act, the Legislature reinforced the need to support
the New Jersey horse racing industry. See, e.g., 2011 N.J. Laws 26, § 1. “The horse racing
industry is economically important to this State, and the general welfare of the people of the
State will be promoted by the advancement of the horse racing and related projects and facilities
in the State.” Id.; N.J. Stat. Ann. 5:5-128a. While it is true that wagering facilities are private
businesses, they support the horse racing industry by increasing commerce, employment,
recreation, and reinvigorating the quality of the sport in New Jersey. Id. § 1a-c. Enjoining laws
designed to foster that development is not in the public interest, especially given that Plaintiffs’
injury is speculative and contingent upon events that may not occur or at least will not take place
right away.
As a final thought, the Court believes that a protracted dispute over the amendments to
the Off-Track and Account Wagering Act could be avoided. When the Legislature passed the
Off-Track and Account Wagering Act, it envisioned a statewide network of wagering facilities

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that would offer recreation and quality dining, and that simultaneously would promote superior
quality horse racing in New Jersey. What it got was a horse of a different color. Only three
wagering facilities are open, the horsemen’s organizations are in financial trouble, and the New
Jersey horse racing industry is ailing. Therefore, it appears that the public interest is best served
if the parties come to some global resolution as to how to ensure a stable economic future for
New Jersey’s horse racing industry. This might involve, for example, exploring the market need
for additional wagering facilities and determining how the various participants in the industry
(i.e., the State, horse track owners, and horsemen’s organizations) can best carry out a plan to
establish the ideal number of wagering facilities. Such a plan could maximize profits, increase
consumer interest in horse racing, and enhance the quality of horse racing, thereby achieving the
purposes of the Act.

V.

CONCLUSION
For the reasons above, the Court denies Plaintiffs’ Motion for a Preliminary Injunction

without prejudice. An appropriate order is filed herewith.

Dated: July 11, 2012
/s/ JOEL A. PISANO
United States District Judge

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