Technical Difficulties. Polls. Technical Difficulties. Ask Presenters Questions. Welcome. Download Materials 10/8/2010

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1 G2E Webinar Series NEW! SPOTLIGHT ON TRIBAL GAMING (Dis)Order in the Court? Decisions that Impact Indian Gaming Technical Difficulties Opening Remarks Frank Fahrenkopf, Jr. president & CEO American Gaming Association (AGA) Organized by: Technical Difficulties Ask Presenters Questions Opening Remarks Frank Fahrenkopf, Jr. president & CEO American Gaming Association (AGA) Polls Opening Remarks Frank Fahrenkopf, Jr. president & CEO American Gaming Association (AGA) Download Materials Welcome Opening Remarks Frank Fahrenkopf, Jr. president & CEO American Gaming Association (AGA) 1

2 Presenters Moderator Tom Foley, president, Foley Law Group Question for the Audience What court case are you most familiar with? Panelists Scott Crowell, attorney, Crowell Law Offices Jason Giles, deputy director & general counsel, National Indian Gaming Association (NIGA) Kevin Quigley, Indian Gaming Business Counsel, Hamilton Quigley & Twait PLC Scott Van Voorhis, journalist, Gambling Compliance Ltd. OVERVIEW 1. Indian Trust Land Related Decisions Carcieri Fix Legislative vs. Administrative 2. Bad Faith & Revenue Sharing Provisions CA Slot License Litigation 3. Wells Fargo v. Lakes of the Torches Carcieri v. Salazar, 129 S.Ct (Feb. 24, 2009) Supreme Court held (8-1) that, under authority of Section 5 of the Indian Reorganization Act ( IRA ), the Secretary of the Interior may not take land into trust for Indian tribes that t were not under federal jurisdiction at the time of the Act s passage in Because the term now under federal jurisdiction in 479 of the IRA unambiguously refers to those tribes that were under federal jurisdiction when the IRA was enacted in 1934, and because the Narragansett Tribe was not under federal jurisdiction in 1934, the Secretary does not have the authority to take the 31- acre parcel into trust. Court s decision calls into question the status of lands taken into trust by the Secretary for tribes that were not recognized by the federal government and arguably not under federal jurisdiction in

3 The IRA was an important law in the history of federal- Indian relations. It put an end to the allotment policy of the late nineteenth and early twentieth centuries, during which Indian reservations were divided into farm-sized tracts of land and the so-called surplus lands were sold to homesteaders. Since the IRA s passage in 1934, the Secretary of the Interior has restored 5 million acres of land in trust for Indian tribes (over 100 million acres were wrongly taken from Indians). However, some of these tribes were not recognized by the federal government until after Carcieri "fix'' Slow in Coming Carcieri Fix - Legislative Not just Republicans, but key Democrats, including Harry Reid, wary about fix Midterm elections likely to strengthen Indian gaming opponents in Congress Tribes with hopes of pursuing a range of economic development ventures, from casinos to housing, left in limbo Legislation introduced in the House and Senate to address the Supreme Court s decision. S.1703 (Sen. Dorgan-D-ND) and H.R (Cole-R-OK), and H.R (Kildee-D-MI). Carcieri Fix - Legislative Under Department of Interior s current regulations and policies (25 C.F.R. Part 151), state and local governments are consulted at every stage of the tribal land into trust process. They have ample opportunity to address impacts on property taxes, special assessments, and regulatory jurisdiction. Carcieri Fix - Legislative The Carcieri decision is not an Indian gaming specific decision. Indian lands for Indian Gaming is regulated solely by the Indian Gaming Regulatory Act. The concerns presented by the Carcieri decision are much more about fairness and restoring tribal lands that were wrongly taken. 3

4 Carcieri Fix - Legislative Addressing the Carcieri decision through legislation is about restoring the status quo that existed between 1934 and 2008 which affirmed that all Indian Tribes are eligible to take land into trust for housing, schools, and cultural development. Administrative Fix If Congress won't act, Department of Justice has said it would consider pursuing an "administrative fix.'' This would allow some tribes to move and take land into trust, arguing gthese Indian nations were under "federal jurisdiction'' in 1934 Could benefit a range of tribes whose attempts to establish sovereign territory have been put on hold for nearly two years Regulatory Fix The Carcieri decision radically redefined which tribes are able to take land into trust - a crucial step for tribes interested in economic development ranging from casinos to housing. Tribes must now show they were "recognized" and "under federal jurisdiction" in 1934 when the Indian Reorganization Act was passed in order to take advantage of the land into trust process, the Supreme Court found in its 2009 ruling. But recognized, as it relates to Indian tribes, had a much different meaning in 1934 than it goes today. In fact, no list of recognized tribes existed until decades later Regulatory Fix That, in turn, has left the door open to a "regulatory fix'' by the Department of Interior, one that would hinge on broadening and further defining what it meant to be "under federal jurisdiction'' in the 1930s. Under this broader definition, several tribes now stuck in limbo by Carcieri would be able to move forward with their land applications Obstacles to Regulatory Fix Likely to be challenged immediately by opponents of various tribal land in trust applications Could cause backlash in Congress and embolden Indian gaming foes Governmental inertia - Department of Interior, while it floated the idea a year ago, has been reluctant to act on it Prove Federal Jurisdiction Many newly recognized tribes compiled extensive evidence proving their continuous existence in order to receive federal recognition. Much of this evidence could be used to back up claims they were "under federal recognition'' back in the 1930s. Possible evidence that could be used to back up federal jurisdiction claims range from federal money paid to send Native American students to college to correspondence between tribal leaders and federal officials. 4

5 Prove Federal Jurisdiction Justice Breyer's concurring opinion in Carcieri appears to bolster the notion of a regulatory fix, noting that some tribes that were truly "under federal jurisdiction'' in 1934 were mistakenly left off a list compiled at the time by the federal government Historical Context Seminole Tribe v. Florida, 517 U.S. 44 (1996) Held that Congress cannot abrogate a State s Eleventh Amendment immunity in an action brought by a Tribe against a State under IGRA for bad faith compact negotiations. States have often used decision as a basis for over-reaching, changing dialogue from one of effective regulation to one of taxation and jurisdiction intrusions. Bad Faith Negotiations Rincon Band v. Schwarzenegger, 602 F.3d 1019 (9 th Cir. 2010) District Court did not err in finding Schwarzenegger Administration acted illegally and in bad faith in tribal-state compact negotiations by demanding a percentage of tribe s gaming revenues be paid into the State general fund. Bad Faith Negotiations Rincon decision rationale: IGRA prohibits State s use of compact negotiations to extract tax on tribal gaming revenues. State s demands do not provide any meaningful value to Tribe beyond matters to which it is entitled, under IGRA, pursuant to compact negotiations. MYTH Rincon decision means that State cannot require Tribes to pay for impacts directly related to the gaming facility. FACT Both District and Appeals Courts contrasted the State s bad faith offer to the Tribe s good faith offer, which includes: (1) increase in amount paid per device/per year to be paid into fund; (2) fund s disbursement to be directed d by agreement between Rincon, San Diego County and other impacted local governments; (3) fund must be used to offset costs of impacts directly related to Tribe s gaming facility or improve infrastructure impacted by Tribe s gaming facility. 5

6 Rincon majority opinion by Judge Milan D. Smith: The State insisted that Rincon pay at least 10% of its net profits into the State s general fund. According to California Government Code 16300, [t]he General Fund consists of money received into the treasury and not required by law to be credited to any other fund. No amount of semantic sophistry can undermine the obvious: a non-negotiable, mandatory payment of 10% of net profits into the State treasury for unrestricted use yields public revenue, and is a tax. Rincon majority opinion by Judge Milan D. Smith: It is one thing to ask the tribes to contribute funds so the State is not left bearing the costs for gaming-related expenses; it is quite another to ask the tribes to help fix the State s budget crisis. In short, we approved exclusivity as a meaningful concession in Coyote Valley II because it was exceptionally valuable and bargained for. By contrast, in the current legal landscape, exclusivity is not a new consideration the State can offer in negotiations because the tribe already fully enjoys that right as a matter of state constitutional law. Rincon scathing dissent by Judge Jay S. Bybee: [The majority decision] does not just upset the apple cart it derails the whole train. If the majority is correct, then there is nothing for California to do but to authorize whatever devices the Band wants. The Band wins. Everything. Rincon scathing dissent by Judge Jay S. Bybee: Moreover, the damage is not confined to the Rincon Band. The revenue sharing provision that the majority strikes from the negotiations is found in fifteen other compacts that California has recently negotiated or renegotiated with tribes. All of those compacts were approved by the Secretary of the Interior. Those tribes now have a powerful argument that their compacts must be renegotiated (again) in light of the majority s decision. Rincon scathing dissent by Judge Jay S. Bybee: The damage, moreover, is not confined to our circuit. Every state that has negotiated a compact in recent years including Connecticut, Florida, Michigan, New York, New Mexico, Oklahoma, and Wisconsin has negotiated a similar revenue sharing provision, one that was also approved by the Secretary. The result is going to be chaos as tribe after tribe seeks to reopen negotiations concluded and duly approved. Nothing in IGRA compels our intervention in these negotiations. Next steps for Rincon: State of California has filed Petition for Certiorari with Supreme Court currently pending. 6

7 IGRA remedy is for: 1) Court to Appoint Mediator 2) Provide 60 days for State and Tribe to reach agreement 3) If no agreement, each side submits last best offer 4) Baseball Arbitration : Mediator must choose one, or the other no discretion to fashion a compact in the middle 5) DOI promulgates regulations if State does not consent to Mediator s decision. Revenue Sharing Provisions 1. 08/17/2010 DOI Pomo of Upper Lake compact decision 2. Pauma Band revenue sharing payment temporary injunction decision Gaming Device License Decisions 1. 03/24/2010 Rincon Band district court decision 2. 03/29/2010 San Pasqual Band district court decision Both decisions increased the number of gaming devices in statewide pool available for license draw under California compacts. Rincon Case Troubling Questions for States, Tribes Gov. Arnold Schwarzenegger was found to have negotiated in bad faith - demanding payments for the state's general fund in return for allowing the Rincon Band of Luiseno Indians to expand their casino The ruling by the 9th Circuit Court of Appeals casts a spotlight on a key question never fully addressed in the Indian Gaming Regulatory Act - what if anything should tribes have to pay states as they exercise their federal gaming rights? In seeking tens of millions from the tribe in exchange for letting an expansion of its slow operations move forward, the Schwarzenegger Administration had extended an offer of exclusivity. But the offer was judged to be hollow since the Rincon tribe already enjoys exclusivity under the California Constitution as amended in March 2000 by Proposition 1A. Implications of Rincon Ruling Draws limits to compensation states can seek from tribal casinos Highlights a key vulnerability of many tribal/state compacts - Indian Gaming Regulatory Act bars states from seeking taxes from tribes in exchange for opening or expanding a casino Could financially benefit some California tribes in the shortterm, but over the longer run could make Indian gaming a less attractive option for states seeking new ways to raise revenue More Challenges to Tribal Compacts Judge Bybee, in a 55-page dissenting opinion, warns of nationwide implications of the Rincon case. In fact, Rincon decision comes amid increasing tensions between tribes and state governments. As cash-strapped states scramble to close huge budget gaps, that is already creating more friction with tribes that are exercising their gaming rights 7

8 More Challenges to Tribal Compacts Mohegan Sun and Foxwoods have threatened to go to court to stop state officials from putting Keno machines in bars and taverns across Connecticut. And the Seneca Nation, as part of a wider battle with New York State over an effort to tax cigarettes sold on the tribe's reservation, has voted to withhold its casino payments from the state. The Seneca contend New York has violated the terms of its compact by allowing racino operators to do business in the tribe's market territory. Court invalidates trust indenture on grounds that instrument gave to much control over tribal casino management to bond holders upon default and as unapproved management contract it was void under IGRA. In reaching its conclusion, the court focused on the fact that the trust indenture agreement included management function provisions (i.e. bondholders consent authority over capital expenditures budget, appointment of management consultant at direction of bondholders if debt service ratios are not satisfied, and bondholders veto powers over replacement of senior casino management). In addition, the court felt that certain default provisions gave managerial control to the trustee and bondholders if triggered (i.e. right of bondholders to consent to new management of casino upon default, and trustee s right to appointment of receiver over casino revenues and equipment upon default). Highlights IGRA rule that in order to right ship, creditor may not take over management functions (i.e. determining slot floor mix, marketing plan, department budgets) for a period of time. Unless willing to first undergo scrutiny of suitability investigation by NIGC Few creditors will want or be willing to undergo the time and expense of NIGC suitability investigation. Best option may for tib tribal operator and creditor to agree to work-out management company for a limited time (6 to 36 months). Selected by tribal operator pursuant to defined set of objective criteria (i.e. manager is currently found suitable by NIGC, has 15+ years Indian gaming management experience, has adequate financial resources, etc.). 8

9 NIGC pre-screenings recommended PRACTICE ALERT watch for rise of derivative actions re legal opinions for tribal debt financings Well Fargo s purported reliance upon the Tribe s initial failure to pursue an NIGC opinion was completely unreasonable...giventhesizeofthetransaction and the complicated nature of the regulatory scheme, it is a bit surprising that Wells Fargo did not insist upon NIGC review and approval. Because the regulatory landscape appears uncertain to the untrained observer and because transactional attorneys seek to minimize risk and uncertainty, it is common for parties to obtain NIGC review of transactional documents for the finance of Indian gaming operations, even when the parties assert that the financing arrangement does not constitute a management contract. (emphasis added) See also In re SRC Holding Corp., 352 B.R. 103, 176 (Bkrtcy. D. Minn. 2006) Questions G2E Indian Gaming Sessions Takeaways Land Into Trust: Implications of the Carcieri Decision The Big Downturn: Understanding and Managing Your Tribal Finances in a Difficult Economy Charity Begins at Home: Tribal Philanthropy and Getting the Message Out Economic Diversification: Gaming & Beyond First Line: Tribal Commissioners Roundtable Native American Legislative Update: Obama's Impact on Tribal Gaming Policy A New View: NIGC Roundtable Indian Country & Wall Street: The Changing Environment Tribal Financing: Lending in Indian Country igaming in Indian Country: Opportunity or Threat? 9