Dept. of Interior to Review $470 Million Judgment Based on Law That Does Not Exist

written by I. Nelson Rose

Here’s a little nugget buried in the news:  “US Interior Department calls to review Compact payments between Senecas and NY State,” LINK


The fight is over whether the Seneca Nation must pay a $470 million judgment won by the State of New York.  With any lawsuit of this size there are going to be endless technicalities and procedural questions.  Laymen, especially clients, may hate the fact that big cases drag on for years.  But in any claim for a half-billion dollars, there had better be all sorts of complications, or the lawyers are not doing their jobs.


The case started in 2002, when the Senecas entered into a Compact with the State allowing the Tribe to open casinos.  New York only agreed because it would get a share of the gaming revenue.  Everyone agrees that the rate increased over time, reaching 25% of the slot machine winnings by the end of the first 14-year term of the Compact.


The fight is over a provision in the Tribal-State Compact creating an automatic seven-year renewal.  The Compact is silent about whether the 25% revenue sharing continues for that renewal.


The casinos involved are so profitable that the revenue sharing for just that additional seven years would be hundreds of millions of dollars.


You will hear commentators, and even lawyers, judges, and Department of Interior officials, say that revenue sharing such as this is only legal when the State gives a Tribe a unique economic benefit, usually called “exclusivity.”  In this case, New York promised the Senecas they would have a monopoly in the western part of the state on both slot machines and video lottery terminals (“VLTs”).  Two years later, the State introduced its own VLTs, so it agreed that it would only get a share of the Tribe’s slot machine revenue.


The legal questions now are mostly procedural.  The question of whether the 25% revenue sharing continues during the seven-year renewal period, starting in 2016, was given to a three-person arbitration panel.  An arbitration panel cannot approve a Tribal-State Compact; only the Secretary of the Department of Interior (“DOI”) has that power.  But the panel decided that the DOI had, in fact, approved the renewal back in 2002 because it was automatic, and the DOI had also approved the 25% revenue sharing because that, too, was included in the original Compact.


What everyone seems to be missing is that federal law does not allow any revenue sharing at all.  The revenue sharing, whether in the original Compact or, if it exists, in the seven-year extension, is illegal.  


Nobody wants to raise the issue, but all Tribal-State Compacts which contain provisions for the State to get a share of a Tribe’s casino revenue, beyond the cost of the State’s co-regulation, violate the express language of the Indian Gaming Regulatory Act (“IGRA”).


One of the major weaknesses of IGRA is that it failed to provide for States to share in the enormous money made by the largest Tribal casinos near major cities.  The only money a State can request is to help defray the costs of gaming regulation.


It is well-known that a State cannot demand any revenue sharing from a Tribe.  Many Tribes have sued and won. alleging bad faith.  IGRA declares “any demand by the State for direct taxation of the Indian Tribe or of any Indian lands [is] evidence that the State has not negotiated in good faith.”


In fact, it is not just demands which are prohibited.  There is nothing in the law allowing a Tribal-State Compact to include revenue sharing, even if the State gives the Tribe exclusivity.


There is nothing vague about it.  Here’s just some of the language of IGRA:


Compacts “may include provisions relating to—

. . . .


the assessment by the State of such activities in such amounts as are necessary to defray the costs of regulating such activity.


. . . nothing . . . shall be interpreted as conferring upon a State or any of its political subdivisions authority to impose any tax, fee, charge, or other assessment upon an Indian tribe or upon any other person or entity authorized by an Indian tribe to engage in a class III [casino] activity.”


The DOI created “revenue sharing in exchange for exclusivity” out of whole cloth.  In fact, the DOI has approved many Compacts giving the states billions of dollars of tribal casino profits, without any statutory authority.  


It is fundamental that no federal administrative agency, including the DOI, can take any action beyond the power given it in a statute passed by Congress.


The DOI actually recognizes its limits.  In its formal, published approval of the Tribal-State Compact, required by IGRA, the DOI said the Compact was approved, “but only to the extent the Compact is consistent with the provisions of [IGRA].”


Arbitrators also cannot interpret an agreement to require something expressly prohibited by law or statute.


Why has everyone, including Tribes, States, arbitrators, courts and the DOI, openly ignored the express requirements of the law?  Because Congress made a mistake in not allowing revenue sharing.  Without it, States and Tribes would still be fighting in courts.  In fact, the courts themselves are split on what happens if a State and Tribe cannot reach an agreement.


Even more worrisome, what happens to the Compacts which include revenue sharing, which have been approved by the DOI? 


One possibility is the rest of the Compact survives, but all the provisions related to revenue sharing are void.  Do the Tribes then get those billions of dollars back?


Another possibility is the entire Compact is void.  In which case the tribes are conducting gambling illegally, committing major federal felonies.


The easy fix should be to get Congress to amend IGRA to include revenue sharing for exclusivity.  But no one trusts Congress.  Opening up IGRA for one amendment would allow every member of the House and Senate to introduce their own ideas, no matter how crazy.


My guess is that everyone will continue to pretend that the DOI has the power to approve revenue sharing provisions in Tribal-State Compacts.  Because obeying the law would create utter chaos.


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Prof. Rose is recognized as one of the world’s leading experts on gambling law, and is a consultant and expert witness for governments and industry. His latest books, INTERNET GAMING LAW (1st and 2nd editions), BLACKJACK AND THE LAW and GAMING LAW: CASES AND MATERIALS, are available through his website,

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