City Of Duluth v. Fond Du Lac Band Of Lake Superior Chippewa

• Decision Date: 21 April 2010
• Docket Number: Civil No. 09-2668 ADM/RLE.
• Citation: 708 F.Supp.2d 890
• Parties: CITY OF DULUTH, Plaintiff,v.FOND DU LAC BAND OF LAKE SUPERIOR CHIPPEWA, Defendant.
• Court: U.S. District Court — District of Minnesota

708 F.Supp.2d 890

CITY OF DULUTH, Plaintiff,v.FOND DU LAC BAND OF LAKE SUPERIOR CHIPPEWA, Defendant.

Civil No. 09-2668 ADM/RLE.

United States District Court,

D. Minnesota.

April 21, 2010.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

David P. Sullivan, Esq., Madeira Beach, FL; and Robert C. Maki, Esq., and Shawn B. Reed, Esq., Maki & Overom Chartered, Duluth, MN, on behalf of the Plaintiff.

Dennis J. Peterson, Esq., Fond du Lac Band of Lake Superior Chippewa Legal Affairs Office, Cloquet, MN; and Henry M. Buffalo, Jr., Esq., Mark A. Anderson, Esq., Vanya S. Hogen, Esq., and Sara K. Van Norman, Esq., Jacobson, Buffalo, Magnuson, Anderson & Hogen, PC, St. Paul, MN, on behalf of Defendant.

MEMORANDUM OPINION AND ORDER

ANN D. MONTGOMERY, District Judge.

I. INTRODUCTION

On February 4, 2010, the undersigned United States District Judge heard oral argument on Plaintiff City of Duluth's (“the City”) Motion for Summary Judgment [Docket No. 7]. In its Complaint [Docket No. 1], the City alleges that Defendant Fond du Lac Band of Lake Superior Chippewa (“the Band”) breached contractual obligations created when the City and the Band agreed to establish a casino in downtown Duluth. Upon a finding of the Band's breach of contract, the City seeks a declaration that the contracts are valid and enforceable, damages, and an injunction ordering the Band to comply with its obligations under the contracts or, in the alternative, accelerated damages for the estimated amounts that will be owed to the City for the remainder of the contractual relationship, which extends to March 31, 2036. The Band's Answer [Docket No. 3] asserts counterclaims alleging that the contracts are unenforceable because they are illegal under federal law, unconscionable, lacking in consideration, and the product of mutual mistake. For the reasons set forth below, the City's Motion is granted in part and denied in part.

II. BACKGROUND ¹

This dispute arises out of a business relationship between the City and the Band that began in the 1980s. Representatives of the City and the Band first met in 1984 to discuss entering a joint venture. Compl. ¶ 12. By 1986, the parties had executed a series of agreements (“the 1986 Agreements”) relating to the creation and operation of a casino in downtown Duluth. Id. ¶¶ 15-22. The 1986 Agreements, approved by the United States Secretary of the Interior, provided that the Band purchase land in downtown Duluth and, with the City's approval, transfer the land to the United States, which would hold the land in trust for the Band, declare it a reservation, and authorize the operation of gaming activities on the land. Id. ¶¶ 15-19; Pl.'s Exs. in Supp. of Mot. for Summ. J. [Docket Nos. 10-13], Pl.'s Ex. 7A (“Commission Agreement”) § 10.a.

The 1986 Agreements also created the Duluth-Fond du Lac Economic Development Commission (“the Commission”), comprised of four appointees by the Band and three appointees by the City, to manage gaming operations at the casino, named the Fond du Luth Casino. Compl. ¶¶ 17, 19, 22; Commission Agreement §§ 4, 5, 11.a. The revenue from the Commission's activities was to be split between the Band, the City, and the Commission, which were to receive 25.5%, 24.5%, and 50%, respectively. Compl. ¶ 20. “The revenues retained by the Commission were to be used for economic development both on the Band's reservation southwest of [Duluth] and that within the downtown area....” Id. ¶ 21

On October 17, 1988, President Ronald Reagan signed the Indian Gaming Regulatory Act (“IGRA” or “the Act”), Pub.L. 100-497, 102 Stat. 2467 (1988) (codified as amended at 25 U.S.C. §§ 2701-2721). The Band filed suit in federal court (case number 5-89-163) the following year, seeking a declaration that the 1986 Agreements with the City violated a provision of the IGRA, 25 U.S.C. § 2710(b)(2)(A), which requires that an Indian tribe “have the sole proprietary interest and responsibility for the conduct of any gaming activity” on Indian lands. Pl.'s Ex. 9 (“1989 Compl.”) ¶¶ 32-33. The City and the Band requested the Associate Solicitor of Indian Affairs review the arrangement between the City and the Band, which resulted in a November 1990 opinion letter that the City's share of net profits under the Commission Agreement amounted to a violation of the sole proprietary interest and responsibility requirement of § 2710(b)(2)(A). Van Norman Aff., Jan. 14, 2010 [Docket No. 45], Ex. F at 2-4. In December 1990, United States District Judge Paul A. Magnuson dismissed the Band's action without prejudice on the ground that “the public interest is best served by allowing the Federal regulatory authority established by the IGRA,” the National Indian Gaming Commission (“NIGC”), to review the arrangement regarding the Fond du Luth Casino and give its recommendations. Pl.'s Ex. 10 (“Dec. 26, 1990 Order”) at 6-7.

The NIGC reviewed the 1986 Agreements and, in September 1993, concluded that “the current operation of the [Fond du Luth Casino] violates the Indian Gaming Regulatory Act” because “the Band does not have the sole ownership or control of the ... Casino.” Pl.'s Ex. 11 at 1-2. The NIGC Chairman advised the parties that “unless the Band and the City are able to settle the pending dispute, [the NIGC] will be initiating an enforcement action to bring the Fond du Luth [Casino] into compliance with IGRA.” Id. at 1.

The parties' settlement negotiations produced an agreement in June 1994. Pl.'s Ex. 13 at 1. The NIGC reviewed the settlement agreement, concluded that it “returns full ownership and control of the Fond du Luth Casino to the Band and is consistent with the requirements of IGRA,” and issued a report and recommendation to Judge Magnuson that the settlement agreement be approved. Id.; Pl.'s Ex. 14. Accordingly, seven new agreements were executed on June 20, 1994 (“the 1994 Agreements”), which, among other things, (1) abrogated two of the 1986 agreements; (2) modified the Commission Agreement to restructure the Commission as being comprised of two people, the Mayor of the City and the Chair of the Band; (3) provided that the Band would sublease the Fond du Luth Casino from the Commission; and (4) provided that through March 30, 2011, the rent paid by the Band would equal 19% of the gross revenue from “Video Games of Chance” and would be permanently assigned to the City (the parties were to meet by January 1, 2010, to negotiate in good faith regarding the percentage of revenue owed to the City for the 25 year term beginning on April 1, 2011). See Pl.'s Exs. 18-18F; Compl. ¶¶ 34-40. The parties returned to federal court on a new civil action (case number 5-94-82) filed by the Band for injunctive relief and a declaration that the 1986 Agreements are invalid as contravening § 2710(b)(2)(A). Pl.'s Ex. 16 (“1994 Complaint”). Guided by the new arrangement set forth in the 1994 Agreements, the parties entered into a stipulation, agreeing that (1) dismissal of the Band's action with prejudice was warranted; (2) the 1994 Agreements complied with the sole proprietary interest requirement of § 2710(b)(2)(A); (3) the NIGC reviewed the 1994 Agreements and concluded that they are in conformance with the IGRA; and (4) the 1994 Agreements and all of its attachments “are in their entirety expressly incorporated into this Stipulation and Consent Order, and are hereby expressly made a part of it.” Pl.'s Ex. 17 ¶¶ 7-10. The parties also informed Judge Magnuson that they “jointly desire the Court's approval in order to ensure binding implementation of the settlement agreement.” Pl.'s Ex. 19 at 12. Judge Magnuson issued a consent decree approving the parties' stipulation, dismissing the Band's complaint with prejudice, and ordering that the court retain jurisdiction over the matter for purposes of ensuring the parties' compliance with the 1994 Agreements. Id. at 7.

On January 28, 2009, the Band informed the City that its auditors had advised the Band that the Fond du Luth Casino had been incorrectly treating certain promotional expenditures as operating expenses rather than as “contra-revenues,” i.e., offsets against revenue. Pl.'s Ex. 21. As a result, the Band declared, the Fond du Luth Casino's gross revenue since the execution of the sublease through the third quarter of 2008 was lower than originally calculated and, consequently, the calculation of the quarterly payments due to the City also should have been lower. Id. The Band concluded that the City had been overpaid by $561,047.59 and stated that it intended to apply this amount as an offset against future payments to the City. Id. The City responded on May 12, 2009, disagreeing with the Band's position that accounting adjustments were warranted. See Pl.'s Ex. 22.

On August 6, 2009, the Band sent the City a letter and a resolution that had been passed by the Band's Business Committee, announcing that the Band was ceasing all payments to the City under the 1994 Agreements. The Band asserted the City has no legally assertable proprietary interest in the Fond du Luth Casino, the parties' agreements were premised on the erroneous assumption that the City's approval in 1986 of the creation of the reservation had legal effect, and the City has received more than $80 million under the arrangement but has provided no valuable consideration in return. Pl.'s Exs. 23, 24. The City responded on August 12, 2009, declaring that the Band's August 6 letter and resolution constituted a default or breach of the 1994 Agreements and requesting that the Band cure its default or breach within thirty days. Pl.'s Ex. 25. The Band did not respond, and the City filed this action on September 29, 2009.

III. DISCUSSION

A. Summary Judgment Standard

Federal Rule of Civil Procedure 56(c) provides that summary judgment shall issue “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving pa...