Harrah's Rincon Hotel and Casino is a glittering, 21-story tower on the Rincon Indian Reservation 50 miles northeast of San Diego. Home to 1,600 slot machines, 660 guest rooms, a spa, and a theater, the casino rakes in about $59 million in revenue each year from gaming. Under a deal that the Schwarzenegger administration tried to broker with the Rincon Band of Luiseno Mission Indians, the state would have allowed the casino to add 900 new slot machines in exchange for a 10 percent cut of all gaming revenue generated.
California stood to put as much as $38 million per year in state coffers if the deal went through. But the Ninth Circuit dashed those hopes when it found that the terms the state proposed amounted to an illegal tax on the tribe, in violation of the federal Indian Gaming Regulatory Act (IGRA). The state appealed, but in June the U.S. Supreme Court denied certiorari. Now the state will go to mediation with the tribe to negotiate a compact consistent with the Ninth Circuit's decision. (See
Rincon Band of Luiseno Mission Indians v. Schwarzenegger, 602 F.3d 1019 (9th Cir. 2010) cert. denied, 131 S.Ct. 3055 (2011).)
"We are pleased, but not surprised, that the Supreme Court did not find the case worthy of cert," says Scott Crowell, who represented the tribe in the litigation. "The decision reaffirms that if states attempt to overreach, tribes can and will pursue their remedies."
Since the appeal was turned down, at least three tribes that had previously agreed to make revenue contributions to California's general fund have reportedly sought to renegotiate their compacts.
California stands to lose millions in annual contributions to its cash-strapped general fund if those tribes succeed. But any significant changes are a long way off. In a footnote to the opinion, the Ninth Circuit explicitly reserved judgment on the validity of the state's existing compacts with other tribes (606 F.3d at 1037 & n. 17).
The state presently has 67 compacts with Native American tribes, which operate 59 casinos in the state. Fifteen tribes have compacts that call for them to make contributions to the state's general fund.
Rincon calls into question the validity of some of those provisions.
According to Daniel M. Kolkey, a partner at Gibson, Dunn & Crutcher who previously represented the Wilson and Schwarzenegger administrations in tribal gaming negotiations, there are several ways the state can try to protect the revenue it receives under existing compacts.
"If the state says that as a matter of policy going forward it will not authorize more machines, that will make tribes' existing compacts more attractive," Kolkey says.
Although the state is required by IGRA to negotiate in good faith with the tribes and barred from taxing tribal gambling revenues, the act explicitly allows states to take financial contributions from tribes for "special funds" used to defray the impact of gambling - such as infrastructure improvements near casinos, environmental mitigation, and programs that address gambling addiction.
"Creative negotiation on the part of the state can avoid application of
Rincon to new compacts," Kolkey says.
The decision will likely generate a new round of legal wrangling over the future of tribal gaming compacts nationwide.
"We expect this decision to impact all 29 states with tribal gaming compacts to some degree," Crowell says. "Several other states have revenue-sharing agreements that are suspect."
The California attorney general's office declined to comment on the decision.
Kari Santos
Daily Journal Staff Writer
