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Duran: 9th Circuit revives slot suits

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In a win for California gaming tribes, the 9th Circuit Court of Appeals on Aug. 9 revived two gaming device licensing suits brought by the Cachil DeHe Band of Wintun Indians of the Colusa Indian Community and the Rincon Band of Luiseño Mission Indians of the Rincon Reservation.

The suits challenged the state of California’s bizarre and complicated method of allotting gaming device licenses under the 1999 tribal-state compacts. In both cases, the tribes claim that the state obstructed their opportunity to receive their full entitlement of 2,000 gaming device licenses, provided for under their respective compacts, when former Gov. Gray Davis’ administration issued an executive order providing the California Gambling Control Commission unilateral, and seemingly unfettered, authority to issue and administer gaming device licenses covered under the compacts.

Upon receiving authority to issue gaming device licenses, the CGCC set up a tiered licen

The suits challenged the state of California’s bizarre and complicated method of allotting gaming device licenses under the 1999 tribal-state compacts.

sing scheme whereby licenses were issued by lottery draw based on the number of gaming devices already being operated by the tribes. Under this convoluted scheme, tribes participating in the license draws were required to submit a nonrefundable one-time deposit for licenses for the purpose of offsetting future payments, if any, required by the state’s Revenue Sharing Trust Fund. Both Colusa and Rincon received an initial set of licenses under a non-CGCC license draw, held prior to the issuance of the executive order.

Unfortunately, neither Colusa nor Rincon received licenses under subsequent CGCC supervised draws, nor did they receive a refund of their pre-payment licensing fees. Additionally, both tribes believe they were not placed in the appropriate licensing tier.

While the CGCC was engaging in its lottery licensing debacle, several large gaming tribes renegotiated their compacts for an additional 22,500 unlicensed gaming devices. When Colusa and Rincon attempted to renegotiate their compacts to receive the full number of licenses promised under the compact, the Schwarzenegger administration either refused to meet with them or told them a percentage of gaming device net revenues would be required. Both tribes then filed suit in federal district court under various legal theories.

Interestingly, the suits were initially derailed at the district court level when a judge accepted the state’s procedural argument that “any suit” challenging a 1999 compact required the participation of all 61 tribes that are signatories of similar compacts, under the federal rule of Civil Procedure 19(a), which requires all indispensible parties to join in a lawsuit. In rebuking the district court and reviving the lawsuits, the 9th Circuit stated that it could not find “a legally protected interest in the 1999 compacts requiring the participation of the all compact signatories.”

Moreover, the state’s licensing scheme was not, as argued by the Schwarzenegger administration, an allocation of a “limited resource.” Rather, the 1999 compacts did not completely constrain the number of gaming device licenses available to tribes in California. In short, the 9th Circuit held that Colusa and Rincon can make the argument that the state’s executive order and licensing scheme are de facto breaches of the 1999 compact.

The court also held the tribes may challenge the authority of the CGCC to administer the licensing process, the interpretation of the priority-tier license draw scheme, and the issue of whether pre-payment license fees may be refunded if no licenses are available.

In finding for Colusa and Rincon, the 9th Circuit remanded the cases back to the district courts for further proceedings. The cases may be viewed as a victory for 1999 compact tribes who won the right to enforce their compacts in federal court against the state and will be closely watched by those tribes operating less than 2,000 slots who desire to acquire new licenses that may become available through the lawsuits.

Jack Duran is an associate attorney with Rosette & Associates, PC, in their Folsom, Calif., office.