TRIBES, SLOT MANUFACTURERS WIN IN COMPACT BATTLES
By Heidi McNeil Staudenmaier

Slot machine manufacturers, expect a call.

This announcement, made by a prominent California tribal chair in February, pretty much summed up the recent successful efforts by tribes on both the West and East Coasts to expand their existing casinos with Class III gaming machines. Five large California tribes saw their amended compacts approved, permitting each to add as many as 5,500 slot machines. Meanwhile, the Seminole Tribe of Florida obtained an approved Class III compact that could ultimately see the tribe operate as many as 15,000 slot machines at its seven Florida casinos.

These compact victories did not come easy for the tribes. The Seminole’s road to Class III slots was long and tortured. The state of Florida and the Seminole ended 16 years of legal wrangling when a Class III compact was finally executed on Nov. 14, 2007. Pursuant to the compact, the tribe has the right to operate Class III slot machines, Blackjack, Baccarat, and electronic Craps and Roulette. In return, the state receives a certain percentage of the gaming revenues. Gov. Charlie Crist claimed that he had no choice but to enter into the compact, as the secretary of the interior appeared poised to issue Class III gaming procedures in which the state would receive no revenue sharing.

But the tribe’ victory is not yet secure. No sooner had the ink dried on the compact signatures, when Florida House Speaker Marco Rubio filed suit seeking to undo the deal. Rubio contends that the governor had exceeded his authority by unilaterally executing the compact. Arguments on the governor’ authority have been briefed and heard in the Florida Supreme Court, but there was no ruling as of CL’ press time.

Notwithstanding the pending Florida Supreme Court proceedings, the Seminole wasted little time in commencing the operation of approximately 1,000 Las Vegas-style slot machines at the Seminole Hard Rock Casino in late January. The Seminole compact was "deemed approved" by the secretary of the interior on Dec. 31, 2007, and thereafter published in the Federal Register on Jan. 7, 2008. As such, the compact is considered to be "in effect," and therefore the tribe is permitted by the Federal Indian Gaming Regulatory Act (IGRA) to legally conduct Class III gaming activities on its lands.

The legal issues in the Seminole compact lawsuit are interesting in terms of whether state law can trump action by a federal agency where the compact is deemed in effect for federal law purposes. In other words, if the Florida Supreme Court determines that the governor did not have the authority to enter into the compact without the Legislature’ ratification, can a state court ruling "undo" the compact that is now legal and binding under federal law? Moreover, the Seminole may be able to argue in response to an adverse state court ruling that the "genie was out of the bottle" upon publication of the compact in the Federal Register, and therefore they relied to their detriment when installing gaming devices and the state court has no power to require them to remove the devices.

A somewhat similar situation occurred in California with the five compacts at issue, albeit with a different twist. In 2006, the Agua Caliente Band, Pechanga Band, Morongo Band, Sycuan Band and San Manuel Band negotiated compact amendments with Gov. Arnold Schwarzenegger that would have greatly increased the number of slot machines they were permitted to operate under existing compacts. For various reasons, the California Legislature did not ratify the compact amendments.

Unwilling to give up, the tribes again sought legislative ratification in 2007. This time, they were successful. But opponents to the compacts, including unions, race tracks and several other tribes, quickly gathered sufficient signatures to force public referenda votes on the compacts (with the exception of the San Manuel compact). As a result, the effective date of the four compacts under state law (Jan. 1, 2008) was suspended until the February public ballot.

Before the public vote could take place, the compact plot took an unexpected twist. The four compacts apparently had been submitted to the secretary of the interior in September by the secretary of state. The secretary of the interior had 45 days to either approve or disapprove a compact upon submission. Since the secretary did not take any action during that timeframe, the compact was "deemed approved." In late November, someone in the secretary’ office realized that the compacts had, in fact, been submitted in September but that they had been "misplaced." In any case, the 45-day review timeframe had expired and the secretary concluded that he had no choice but to deem these four compacts as approved.

Because of the pending referenda on the four compacts, the secretary then mulled over whether to delay publication in the Federal Register. Ultimately, the secretary went forward with publication, which occurred Dec. 19, 2007. At that point in time, like the situation in Florida, the four compacts were deemed to be in effect and permissible under federal law.

With the vote on the compact referenda looming in February, the unanswered question was, "What happens if the compact referenda fail?" As in Florida, would state law or federal law prevail? The potential legal quagmire was averted when California voters overwhelmingly approved the referenda. After losing what was an extremely costly referenda battle for all sides, the opponents stated that they would cease their efforts. The four California tribes promptly moved forward with making room on their gaming floors for the additional slot machines. It is unknown whether other California tribes will now seek to amend their compacts to increase their slot machine allocations. Both the tribes and the state project that the amended compacts could bring the state more than $10 billion in new revenue by the time they expire in 2030.

The San Manuel Band had quietly stayed out of the compact fray, as its compact was not targeted for a referendum vote. That compact was deemed effective under state law as of Jan. 1 and thereafter secured federal approval and publication.

From a big picture standpoint, the secretary of interior’ staff has drafted a proposed regulation to designate specific procedures for submitting compacts for approval. In short, those folks involved in "misplacing" the four California compacts are taking steps to assure that "we don’t ever have a repeat of this."

The California compacts are a done deal, with no turning back. Indeed, California has the potential of becoming the largest gaming market in the country. The story isn’t quite over yet for the Florida Seminole, but the odds certainly seem to be in favor of the tribe.

Heidi McNeil Staudenmaier is a Senior Partner with Snell & Wilmer LLP
She can be reached at (602) 382-6366 or
hstaudenmaier@swlaw.com.