### TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-03-00049-CV

Toby L. Keeton and James T. Hays, D.V.M., Appellants

v.

Texas Racing Commission, Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250TH JUDICIAL DISTRICT

NO. GN201681, HONORABLE SCOTT H. JENKINS, JUDGE PRESIDING

M E M O R A N D U M O P I N I O N

Appellants Tob y L. Keeton and James T. Hays, D.V.M., appeal a district court

judgment which upheld an order by appellee Texas Racing Commission, imposing penalties after

a racehorse trained by Keeton and owned by Hays tested positive for a proh ibited drug. In three

issues, appellants con tend that the Commission’s order is invalid because it is not supported by

substantial evidence and imposes new penalties not promulgated through “n otice and comment”

rulemaking. Furthermore, the Commission’s rule placing the burden on appellants to disprove the

Commission’s allegations violates appellants’ due process rights. For the reasons discussed below,

we affirm the judgment of the district court upholding the Commission’s order.1 Because the relevant provisions of the Texas Administrative Code have not changed

substantively during the pendency of this case, for con venience we will refer to the current code

provisions.

2

FACTUAL AND PROCEDURAL BACKGROUND

On March 25, 2001, at Manor Downs racetrack near Austin, racehorse Sheza Special

Chick finished f

irst in a timed trial. Immediately after the race, samples of the horse’s serum and

urine were taken for drug testing, as required by the Commission’s rules. S ee 16 Tex. Admin. Code

§§ 319.361-.362 (2003). 1 The sample was split, with part of it sent to the Texas Veterinary Medical

Diagnostic Laboratory at Texas A & M (“Texas A & M laboratory”) for testing and part of it frozen.

The Commission splits the samples so that if the original sample tests posit ive for a prohibited

substance, the owner or trainer of the horse may request that the retained sample be sent to another

lab for testing. Id. § 319.362.

The Texas A & M laboratory notified the Commission staff on April 5 that the urine

sample tested positive for Clenbuterol, a “Class 4” prohibited substance under Commission equine

medication guidelines. On the same day, Commission investigator Thomas Neely notified Keeton

of the test results and of his rig ht to have the retained sample tested. Keeton requested testing by

the Louisiana State University (LSU) School of V eterinary Medicine laboratory in Baton Rouge.

As provided by Commission rules, Keeton was present when the sample was packed on April 11.

See id. § 319.362(d). Neely removed the sample from the freezer and packed it in a cooler with ice

packs. He placed a chain of custody form on the cooler then secured the lid of the cooler with a

metal shipping seal and locked it with a padlock. Lastly, Neely delivered the cooler to Airborne

Express at the Austin airport. Airborne then attached a shipping bill to the cooler. Keeton signed2 A steward is a “racing official with general authority and supervision over . . . all licensees

at a racetrack during a race meeting.” Tex. Rev. Civ. Stat. Ann. art. 179e, § 1.03(35) (West Supp.

2003). Racehorse trainers fall under the ambit of the stewards’ authority because they are licensed

by the Commission. Id. § 1.03(36).

3 a form stating that he had witnessed and approved the packing and shipping of the sample with no

objections.

On Friday, April 13, the cooler was returned t o the Commission’s office, never having

reached LSU because the shipping label had become detached. Pat Barker, an administrative

assistant with the Commission, thinking that LSU had returned the empty cooler to be reused, placed

the cooler in a file room that was neither refrigerated nor locked. The following Monday, April 16,

Barker received a message from LSU that it had not received the sample. She went to the file room

and found the cooler in the same place as she had left it, with the metal seal locked and chain of

custody form intact. Barker informed Neely about the problem, and he instructed her to move the

cooler to the freezer, which she did. Barker also informed her supervisor, deputy director of racing

John Williams. The next morning, Barker unlocked the freezer for Williams, who found the cooler

with the chain of custody form and the seal and lock intact. Williams took the cooler to Airborne

for shipment to LSU, which received the sample on April 18. LSU testing confirmed that the horse’s

urine contained Clenbuterol.

On May 24, Keeton appeared at the board of stewards’ 2 hearing concerning the drug

violation. At the hearing, the stewards suspended Keeton’s trainer’s license for forty-five days and

fined him $1,250 because of the positive tests, noting on their ruling t h at this was Keeton’s third

medication violation within twelve months. The stewards also disqualified the horse from the March

25 race and redistributed the purse. Both Keeton and Hays appealed the ruling.4 On October 30, a n administrative hearing was held before an administrative law judge

(ALJ) at the State Office of Administrative Hearings (SOAH). The ALJ then issued a proposal for

decision (PFD) on December 18 in which she recommended that the stewards’ ruling should be

upheld in all respects. In March 2002, the Commission issued a final order adopting all of the

findings of fact and conclusions of la w in the PFD and upholding the stewards’ ruling in full.

Appellants then sought review in a Travis County district court, which affirmed the Commission’s

decision in all respects.

Appellants appeal the administrative proceedings by three issues. In their first issue,

appellants contend that the Commission violated the administrative procedure act (APA) by

modifying a rule of general applicability without notice and comment rulemaking. Specifically,

appellants argue, the Commission imposed a new penalty without prior notice by redistributing the

purse for the March 25 race. In their second issue, appellants contend that the Commission’s order

is not supported by substantial evidence because the Commission failed to maintain the integrity of

the split sample, reship the sample within the required time, and notify Keeton of the return and

reshipment. Appellants contend in their third issue that the Commission’s rule that “[i]n an appeal,

the appellant has the burden to prove that the stewards’ or racing judges’ decision was clearly in

error” violates appellants’ due process rights. Id. § 307.67(c) (2003).

ANALYSIS

Promulgation of Rule without Notice

In their first issue, appellants contend that the Commission failed to follow the APA

by modif ying a rule of general applicability without notice and comment rulemaking. Appellants5

specifically argue that until early 2001, when a horse tested positive for Clenbuterol the “practice”

of the Commission’s staff was to allow the owner of the horse to keep the purse and the horse’s

winning position in the race. According to appellants, the Commission imposed a new practice in

this instance by redistributing the purse and disqualifying the horse. Furthermore, the Commission

failed to give owners and trainers notice of this change until March 29, 2001, four days after the race

in question and “too late for anyone in the regula ted industry to change their behavior or practice

relating to a race that had already been run.” The Commission’s posting of the change is irrelevant.

At the time of the race, the Commission had publicly available rules and policies in effect that gave

notice to appellants of the range of penalties available if a horse tested positive for Clenbuterol.

The stewards’ authority to impose penalties originates in section 3.07(b) of the racing

act:

The commission shall make rules specifying the aut hority and the duties of each

official, including the power of stewards or judges to impose penalties for unethical

practices or violations of racing rules. A penalty imposed by the stewards or judges

may include a fine of not more than $5,000, a suspension for not more than one year,

or both a fine and suspension. Before imposing a penalty under this subsection, the

stewards and judges shall conduct a hearing that is consistent with constitutional due

process.

Tex. Rev. Civ. St. Ann. art. 179e, § 3.07(b) (West Supp. 2003) (emphasis added).

Appellants argue that the Commission’s “policy to redistribu te the purse for

Clenbuterol positives” was never made public before the race. To the contrary, under the

Commission’ s rules in the administrative code, upon a finding by the stewards that a horse tested

positive for any drug, the stewards may6

(1) disqualify the animal and order the purse redistributed ;

(2) declare the race animal ineligible to race for a period of time; and

(3) impose penalties authorized by Chapter 307 of this title

. . . on

. . . the animal’s

trainer or . . . owner.

16 Tex. Admin. Code § 319.304 (2003) (emphasis added). The penalties under chapter 307 include

a fine of not more than $5,000 and license suspension of not more than a year. I d. § 307.64 (2003).

Under the Commission’s Medication Classificatio ns and Penalty Guidelines, issued in January 2001,

if a horse tested positive for a class 4 substance, the range of penalties included a fifteen- to sixty-day

suspension, up to a $1,000 fine, and possible loss of purse

.

Appellants contend that the medication classifications are invalid because they were

not promulgated under notice and comment rulemaking. The racing commission rules, however,

broadly define what was a prohibited drug : “any stimulants, depressants, tranquilizers, local

anesthetics, drugs, [or] other drug metabolites which could affect the health or performance of a race

animal, however minimal.” I d. § 319.1(b)(1) (2003). The guidelines then list the specific prohibited

substances. “Not every statement by an administrative agency is a rule for which the APA prescribes

procedures for adoption.” T exas Educ. Agency v. Leeper , 893 S.W.2d 432, 443 (Tex. 1994). If

every agency policy or procedure had to be promulgated through notice and comment rulemaking,

agencies would be deprived of the powers delegated to them. See Brinkley v. Texas Lottery Comm’n

,

986 S.W.2d 764, 769-70 (Tex. App.—Austin 1999, no pet.). It makes sense that the Commission

listed spec ific drugs in guidelines instead of rules because agencies have greater flexibility in7

revising guidelines than rules. In fact, through guideline revisions, the Commission lowered

Clenbuterol from a Class 3 to a Class 4 substance the year before the race in question.

The statute, rule, and policy manual were in effect b efore March 25, 2001, giving

appellants and the regulated industry at large notice of the rules and policies in place at the time of

the race. All of the penalties imposed upon Keeton and Hays were within the range of the publicly

available rules and policies: suspension of forty-five days , fine of $1,250, loss of purse, and

disqualification of the horse. Furthermore, both appellants were aware of certain aspects of the rules

and policies. Keeton was fined and suspended in December 2000 after another horse tested positive

for Clenbuterol. Hays testified at the SOAH hearing that he was specifically aware of Commission

rule 319.304, which gives notice of a possible loss of purse and disqualification of the horse. Thus,

we reject appellants’ contention that the Commission imposed new penalties on th em without notice.

We overrule appellants’ first issue.

Lack of Substantial Evidence

Appellants contend in their second i ssue that the Commission’s order is not supported

by substantial evidence. Under substantial evidence review, we must uphold an agency action unless

we find, among other factors, that the action is “[n]ot reasonably supported by substantial evidence

considering the reliable and prob ative evidence in the record as a whole” o r is “arbitrary or

capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.”

Tex. Gov’t Code Ann. § 2001.174(2)(e), (f) (West 2000). Under substantial evidence review, we

may not substitute our judgment as to the weight of the e vidence for that of the agency. T exas

Health Facilities Comm’n v. Charter Med.–Dallas, Inc. , 665 S.W.2d 446, 452 (Tex. 1984). We8

must first determine whether the evidence as a wh o le is such that reasonable minds could have

reached the conclusion that the agency must have reached to take the disputed action. Texas State

Bd. of Dental Exam’rs v. Sizemore , 759 S.W.2d 114, 116 (Tex. 1988); Ramirez v. Texas State Bd.

of Med. Exam’rs

, 995 S.W.2d 915, 919 (Tex. App.—Austin 1999 , pet. denied). The test is not

whether the agency made the correct co nclusion but whether some reasonable basis exists in the

record for the agency’s action. Railroad Comm’n v. Pend Oreille Oil & Gas Co. , 817 S.W.2d 36,

41 (Tex. 1991); Charter Med.–Dallas, Inc.

, 665 S.W.2d at 452. Nevertheless, even after applying

a substantial evidence standard of review, we must ensure that the actions of the Commission were

not arbitrary and capricious. Agency decisions not supported by substantial evidence are deemed

to be arbitrary and capricious. Charter Med.–Dallas, Inc. , 665 S.W.2d at 454.

Appellants contend that the Commission’s order is not suppor ted by substantial

evidence because the Commission failed to follow its rules by n ot (i) properly storing the sample

when it was returned, (ii) reshipping the sample within the required time, and (ii) giving Keeton

notice of the return and an opportunity to observe the reshipment to LSU. Appellants further argue

that the finding of fact holding Keeton as absol ute insurer of the horse “ignores the fact that [the

Commission] bases its conclusion on findings tainted by its own failure to follow its rules and

procedures.”

Appellants’ chief complaint in its substantial evidence challenge is that the

Commission was obligated to follow the same rules when handling the returned split samp le as it

followed when it first shipped the sample to LSU. We disagree. The Commission’s rules set forth

requirements for initially storing and sending split samples, not contingency plans for handling a3 “To ensure the integrity of the specimen, the split specimen must be shipped to the selected

laboratory no late r than 10 days after the day the trainer is notified of the positive test.” 16 Tex.

Admin. Code § 319.362(d) (2003).

9 returned split sample. Appellants do not dispute that the Commission complied with its procedures

when first shipping the split sample to LSU: Keeton observed the first packing and shipping of the

split sample on April 11 and attested that he had “witnessed and approved, with no objections, the

packing and shipping of [the] sample.” Appellants also agree that the Commission initially complied

with the ten-day deadline to ship the split sample: 3 the Commission notified Keeton of the positive

test result on April 5 and initially shipped the sample to LSU on April 11, six days later.

Appellants’ complaint is with the handling of the sample after it was returned on

April 13. On that day, the receptionist at the Commission’s offices signed for the cooler, which

Airborne returned because the shipping label had become detached. The receptionist notified Pat

B arker, an administrative assistant, who placed the cooler in a file room at room temperat ure,

mistakenly thinking that the cooler had been returned empty. On the following Monday, April 16,

after receiving a message from LSU that it had not received the sample, Barker went to the file room

and found the cooler in the same place as she had left it, wit h the metal seal locked and chain of

custody form intact. Barker informed Commission investigator Thomas Neely, who instructed her

to move the cooler to the freezer, which she did.

The Commission’s rules mandate that the Commission’s “veterinarian or designee

shall store the [split sample] in a matter that ensures the integrity of the specimen.” 16 Tex. Admin.

Code § 319.362(b); see also id. § 319.338 (2003) (“split specimen shall be stored in a manner that

ensures the safety and integrity” of the specimen). The Commission’s guidelines construing these10

rules require that “[s]plit samples must be locked in the freezer” befor e the head test technician

leaves for the day, and the freezer must also be locked. Undoubtedly, the Commission followed

these rules before the first shipment of the split sample to LSU. Granted, before the second shipment

the sample was in an unlocked, unrefrigerated file room from April 13 to April 16. However, Barker

found the cooler with the sample undisturbed on the 16th: it was in the same place, with the metal

seal locked and chain of custody form intact. Although Barker could have “done some things

differently” on the 13th, in the words of the PFD, she immediately notified Neely when she learned

that the cooler contained a sample and followed his instructions to place the cooler in the freezer.

Barker acted reasonably under the unique circumstances, and there is no evidence of tampering with

the sample while it was in an unsecured room.

Appellants further contend that the Commission should have notified Keeton when

the sample was returned, allowed him to witness th e reshipping of the sample, and reshipped the

sample within the ten-day deadline instead of waiting to reship on April 17. As with the rules for

freezing the samples, the Commission’s rules do not set forth any procedures for handling a returned

sample. The Commission undoubtedly complied with notifying Keeton of the positive test, allowing

him to request testing of the split sample at a laboratory of his choice, id. § 319.362(c), and allowing

him to witness the packing and first shipment. I d. § 319.362(d). Nothing about the p acking of the

container changed between the time that Keeton witnessed it and the time of the reshipment. The

cooler contained the metal seal, intact and locked, and chain of custody form throughout the shipping

and reshipping. The record does not show that the cooler had been opened. The Commission’s rules

simply do not address whether a trainer should be notified of a returned sample or be allowed to11

witness the reshipping of the sample. What is clear is that the Commission officials reshipped the

sample just one day after learning of its return, which was reasonable under the circumstances.

Appellants then contest the integrity of the split sample because it was frozen, thawed,

then refrozen before LSU tested it. Appellants point to the discrepancy between the two tests. The

Texas A & M laboratory found Clenbuterol in the first sample but did not quantify the am ount

because of the Commission’s zero-tolerance policy: any presence of Clenbuterol constitutes a

violation. The head of the Texas A & M laboratory averred in his affidavit that if he had to make

a “ballpark” estimate, the concentration of Clenbuterol wa s one to ten nanograms per milliliter of

urine and administration of drug was twelve to forty-eight hours before testing. The head of the LSU

laboratory testified that the split sample contained an estimated sixty-six nanograms per milliliter.

The LSU labo ratory received the sample in good order and was able to detect the

presence of Clenbuterol in the sample. When questioned if the freeze-thaw cycle might impair

t esting, the head of the LSU laboratory responded, “That’s not been my experience. Clenbuterol

appears to be a very stable drug. We’ve had a number of samples that were involved in research . .

.

t hat had not been stored properly, but we were still able to detect and confirm the drug in those

samples.” He went on to say that although the usual result after freezing and thawing would be a

lower concentration of Clenbuterol, finding a higher concentration would not be out of the question.

The important point is that the LSU laboratory confirmed the presence of Clenbuterol, which is

prima facie evidence of a violation. I d. § 319.361(e). Had the LSU laboratory not been able to test

the split sample because of “accident

. . . or any other event, beyond the control of the commission,”

such as a lost shipping label in this case, the original findings would have been “prima facie evidence12

of the condition of the horse at the time of the race.” I d. § 319.362(g). We agree with the ALJ that

as a matter of theory the sample may have been compromised but as a matter of fact it was not, as

evidenced by the LSU test confirming that the sample contained Clenbuterol.

Having concluded that the Commission acted reasonably in storing and resending the

split sample and that the integrity of the split sample was not compromised to render the LSU test

results unreliable, we further conclude that the finding of fact holding Keeton responsible as absolute

insurer of the horse is supported by the record. This conclusion is not based on “findings tainted by

[the Commission’s] own failure to follow its rules and procedures” but on the Commission’s rules

for trainers and evidence that Keeton was responsible for the horse on race day. A trainer is licensed

by the Commission to train racehorses. Tex. Rev. Civ. Stat. Ann. art. 179e, § 1.03(36) (West Supp.

2003). As “absolute insurer” of the horse, a trainer “shall ensure the health and safety” of a horse

and “shall ensure that a horse

. . . that runs a race while in the care and custody of the trainer

. . . is

free from all prohibited d rugs, chemicals, or other substances.” 16 Tex. Admin. Code

§ 311.104(b)(1), (2) (2003). The record contains no evidence demonstrating that the horse was in

the care and custody of anyone other than Keeton before the race. Therefore, he was the absolute

insurer of the horse on the day of the race, March 25, 2001.

I n light of the fact that the return of the sample was a unique occurrence that the

Commission did not cause, the Commission acted reasonably in storing and resending the sample.

Moreover, we find nothing in the record to demonstrate—or even suggest—that any compromise to

the integrity of the sample rendered the LSU test results unreliable. A reasonable basis exists in the

record for the Commission’s action in upholding the stewards’ ruling. P end Oreille Oil & Gas Co.

,13

817 S.W.2d at 41; Charter Med.–Dal las, Inc. , 665 S.W.2d at 452. Accordingly, we hold that the

Commission’s order is su pported by substantial evidence. Furthermore, nothing in the record

demonstrates that the Commission’s actions were arbitrary or capricious. We overrule appellants’

second issue.

Unconstitutional Shifting of Burden of Proof

Appellants contend in their third issue that under the Commission’s rule placing the

burden of proof on appellants in the appeal of a stewards’ ruling, “the accused is unjustly saddled

with the obligation to disprove an allegat ion made against him,” in violation of appellants’ due

process righ ts. The rule states that “[i]n an appeal, the appellant has the burden to prove that the

stewards’ or racing judges’ decision was clearly in error.” 16 Tex. Admin. Code § 307.67(c) (2003).

In its drug testing procedures, the Commission collects specimens from every horse

finishing first in a race to test for the presence of prohibited substances. S ee id. § 319.361(b). The

sample is then split, with part tested for the Commission. S ee id. § 319.362(a). A positive finding

in the first test is “prima facie evidence that the prohibited drug, chemical, or other substance was

administered to the animal and was carried in the body of the animal while participating in a race.”

Id. § 319.3(f). The owner or trainer then may request testing of the split sample. I d. § 319.362(c).

“If the test on the split specimen confirms the findings of the original laboratory, it is considered to

be a prima facie violation of the applicable provisions of the chapter.” Id. § 319.361(e).

We do not perceive any violation of due proces s in the Commission’s rule placing

the burden on appellants to show error. As proponent of the charges, the Commission has the burden

of establishing appellants’ culpability throughout the proceedings. Here, the parties stipulated that14

the first test dete cted the presence of Clenbuterol. The second test confirmed the presence of

Clenbuterol, which is p rima facie evidence of a violation. I d. Prima facie m eans “[s]ufficient to

establish a fact or raise a presumption unless disproved or rebutted.” B lack’s Law Dictionary 1209

(7th ed. 1999). Once the Commission presents p rima facie proof, the burden of going forward

properly shi fts to appellants to rebut that proof. Appellants’ constitutional challenge is without

merit. Accordingly, we overrule appellants’ third issue.

CONCLUSION

Having overruled appellants’ issues, we affirm the judg ment of the district court

upholding the Commission’s order.

Jan P. Patterson, Justice

Before Justices Kidd, B. A. Smith and Patterson

Affirmed

Filed: August 14, 2003