602 F.3d 1019 (9th Cir. 2010), 08-55809, Rincon Band of Luiseno Mission Indians of Rincon Reservation v. Schwarzenegger

Docket Nº:08-55809, 08-55914.
Citation:602 F.3d 1019
Opinion Judge:MILAN D. SMITH, JR., Circuit Judge:
Party Name:RINCON BAND OF LUISENO MISSION INDIANS OF THE RINCON RESERVATION, aka Rincon San Luiseno Band of Mission Indians, aka Rincon Band of Luiseno Indians, Plaintiff-Appellee, v. Arnold SCHWARZENEGGER, Governor of California; State of California, Defendants-Appellants. Rincon Band of Luiseno Mission Indians of the Rincon Reservation, aka Rincon San Luise
Attorney:Peter H. Kaufman, Deputy Attorney General of the State of California, San Diego, CA; Marc Le Forestier, Deputy Attorney General of the State of California, Sacramento, CA, for the defendants-appellants/cross-appellees. Kimberly A. Demarchi, Lewis & Roca LLP, Phoenix, AZ; Scott D. Crowell, Crowell...
Judge Panel:Before: T.G. NELSON, JAY S. BYBEE and MILAN D. SMITH, JR., Circuit Judges. BYBEE, Circuit Judge, dissenting:
Case Date:April 20, 2010
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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602 F.3d 1019 (9th Cir. 2010)

RINCON BAND OF LUISENO MISSION INDIANS OF THE RINCON RESERVATION, aka Rincon San Luiseno Band of Mission Indians, aka Rincon Band of Luiseno Indians, Plaintiff-Appellee,

v.

Arnold SCHWARZENEGGER, Governor of California; State of California, Defendants-Appellants.

Rincon Band of Luiseno Mission Indians of the Rincon Reservation, aka Rincon San Luiseno Band of Mission Indians, aka Rincon Band of Luiseno Indians, Plaintiff-Appellee-Cross-Appellant,

v.

Arnold Schwarzenegger, Governor of California; State of California, Defendants-Appellants-Cross-Appellees.

Nos. 08-55809, 08-55914.

United States Court of Appeals, Ninth Circuit.

April 20, 2010

Argued and Submitted Nov. 4, 2009.

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Peter H. Kaufman, Deputy Attorney General of the State of California, San Diego, CA; Marc Le Forestier, Deputy Attorney General of the State of California, Sacramento, CA, for the defendants-appellants/cross-appellees.

Kimberly A. Demarchi, Lewis & Roca LLP, Phoenix, AZ; Scott D. Crowell, Crowell Law Offices, Kirkland, WA, for the plaintiffs-appellees/cross-appellants.

Steven J. Bloxham, Fredericks Peebles & Morgan LLP, Sacramento, CA, for the amicus.

Appeal from the United States District Court for the Southern District of California, William McCurine, Magistrate Judge, Presiding. D.C. No. 3:04-cv-01151-WMC.

Before: T.G. NELSON, JAY S. BYBEE and MILAN D. SMITH, JR., Circuit Judges.

MILAN D. SMITH, JR., Circuit Judge:

The Indian Gaming Regulatory Act (IGRA), 25 U.S.C. § 2701 et seq., provides that a state must negotiate in good faith with its resident Native American tribes to reach compacts concerning casino-style gaming on Native American lands. Defendants-Appellants/Cross-Appellees the State of California (the State) and Governor Arnold Schwarzenegger (Governor Schwarzenegger) (collectively as parties to this litigation, the State) appeal the district court's finding that, in violation of IGRA, 25 U.S.C. § 2710(d)(3)(A), the State negotiated in bad faith with Plaintiff-Appellee/Cross-Appellant the Rincon Band of Luiseno Mission Indians (Rincon) concerning amendments to the parties' existing tribal-state gaming compact.

The district court based its bad faith finding on the State's repeated insistence that Rincon pay a portion of its net revenues into the State's general fund, which the district court determined to be an attempt by the State to impose a tax on the tribe in violation of 25 U.S.C. § 2710(d)(4).

The State challenges the district court's characterization of its requests as an attempt to impose a tax, and argues that even if it was attempting to impose a tax, that alone is insufficient to support the finding of bad faith. We affirm.1

FACTUAL AND PROCEDURAL BACKGROUND

The 1999 Compacts

In the fall of 1999, the State (through then-governor Gray Davis) and Rincon negotiated a compact granting Rincon the right to operate casino-style (class III 2) gaming on its lands located near San Diego, California, subject to certain limitations.3 Simultaneously, the State's negotiations also resulted in similar compacts

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with dozens of other tribes across California. Although some of the 1999 compacts have since been renegotiated, the 1999 compact between Rincon and the State remains operative.

While negotiations over the 1999 compacts were pending, the California Supreme Court handed down its decision in Hotel Employees & Restaurant Employees International Union v. Davis, 21 Cal.4th 585, 88 Cal.Rptr.2d 56, 981 P.2d 990 (1999). In that case, the California Supreme Court determined that the California constitution prohibited everyone in the state, including Indian tribes, from operating Las Vegas-style casinos. As a major consideration, and in order to make the proposed 1999 compacts legally enforceable, the State sponsored a constitutional amendment-Proposition 1A-that would authorize tribal gaming in California.4

In March 2000, California voters approved Proposition 1A, thereby vivifying the 1999 compacts. Not only did Proposition 1A permit tribes to conduct class III gaming lawfully, it effectively gave tribes a state constitutional monopoly over casino gaming in California. In re Indian Gaming Related Cases ( Coyote Valley II, 331 F.3d 1094, 1103 (9th Cir.2003)).

Revenue Sharing Under the 1999 Compacts

In consideration for the State's efforts in securing the passage of Proposition 1A (without which the tribes would have been barred from conducting class III gaming in the State of California), the tribes agreed to share a portion of their expected revenues. Flynt v. Cal. Gambling Control Comm'n, 104 Cal.App.4th 1125, 129 Cal.Rptr.2d 167, 175-77 (2002). The State originally took the position that the revenue should be for general use, but abandoned that position during the negotiations in favor of tribal proposals. See Coyote Valley II, 331 F.3d at 1102-03, 1113. The tribes agreed to pay a portion of their revenues into two funds: the Revenue Sharing Trust Fund (RSTF) and the Special Distribution Fund (SDF). See id. at 1104-05. Monies paid into the RSTF are redistributed to tribes who choose not to, or are unable to, conduct their own gaming activities. Id. at 1105. Monies paid into the SDF, on the other hand, are used to fund:

(a) grants for programs designed to address gambling addiction; (b) grants for the support of state and local government agencies impacted by tribal gaming; (c) compensation for regulatory costs incurred by the State Gaming Agency and the state Department of Justice in connection with the implementation and administration of the compact; (d) payment of shortfalls that may occur in the RSTF; and (e) " any other purposes specified by the legislature." 5

Id. at 1106.

In Coyote Valley II, appellants questioned whether the RSTF and SDF provisions of the 1999 compacts were lawful since IGRA, 25 U.S.C. § 2710(d)(4), precludes states from imposing taxes on Indian gaming. 331 F.3d 1094. We held

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that the RSTF and SDF were permissible notwithstanding § 2710(d)(4) because, as more fully explained infra, the nature of the revenue sharing and the constitutional exclusivity obtained in consideration for it were primarily motivated by a desire to promote tribal interests. 351 F.3d at 1110-15. We further concluded that by virtue of the 1999 compacts and Proposition 1A, the State gave all tribes in California significant opportunities to benefit from gaming without taking anything significant for itself, beyond what was required to protect its citizens from the adverse consequences of gaming, and to fulfill other regulatory and police functions contemplated by IGRA. Id.

The 2003-2006 Compact Renegotiations

Operating under its 1999 compact, Rincon began to generate significant revenue that enabled it to improve tribal governmental functions and become economically self-sufficient. By 2003, Rincon desired to expand its operations beyond what the 1999 compact permitted. Accordingly, in March of that year, Rincon notified the State of its interest in renegotiating certain provisions of the 1999 compact.

Negotiations began in 2003 in response to Rincon's request, but in October of that year, California voters recalled Governor Davis and elected Governor Schwarzenegger in his stead. Although negotiations eventually reconvened, they quickly assumed a decidedly different tone. Instead of requesting funds to help defray the costs of gaming, or to benefit Indian tribes, the State demanded that Rincon pay a significant portion of its gaming revenues into the State's general fund.

The State made its first offer to Rincon on November 10, 2005.6 The State offered Rincon the opportunity to operate 900 additional devices plus the 1600 devices Rincon already operated, but only if Rincon would agree to pay the State 15% of the net win on the new devices, along with an additional 15% annual fee based on Rincon's total 2004 net revenue. In exchange for the 15% revenue share demanded, the State offered Rincon an " exclusivity provision." 7

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Rincon countered that, in order to obtain additional devices, it would agree to some per device fees. Rincon emphasized, however, that the use of any fees it paid had to be limited to paying for the costs of regulating gaming, building infrastructure needed to support gaming operations, and mitigating adverse impacts caused by gaming operations. Rincon further stated that " with all due respect, we are not asking for exclusivity and the State's analysis does not hold water as it relates to Rincon in its current circumstance."

Rincon also noted that Proposition 1A already provided for tribal gaming exclusivity, so it was not seeking whatever further exclusivity might provide. Rincon's lands are located in the middle of a saturated tribal gaming market. Accordingly, no form of tribal exclusivity could shelter Rincon from substantial competition. As long as the proposed exclusivity provision related only to freedom from non -tribal competition, " exclusivity" would not provide Rincon with any meaningful economic advantages that would warrant the tribe making the requested payments.

The State interpreted Rincon's counterproposal for limited-use, per device fees and its rejection of exclusivity to be a request that the State agree to allow Rincon to operate additional devices beyond the 1999 compact limits " without offering the State anything meaningful in return." The State held firm in its demand that a portion of tribal gaming revenues be paid into the State's general fund, rather than into an earmarked fund.

Rincon re-countered with an...

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