New Gaming Systems Inc v. National Indian Gaming Commission, The et al
Filing
88
ORDER affirming the NIGC final decision...see order for specifics. Signed by Honorable Joe Heaton on 09/13/2012. (lam)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
NEW GAMING SYSTEMS, INC.,
Plaintiff,
vs.
NATIONAL INDIAN GAMING
COMMISSION, ET AL.,
Defendants.
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NO. CIV-08-0698-HE
ORDER
Plaintiff New Gaming Systems, Inc. (“NGS”) filed this action against the National
Indian Gaming Commission (“NIGC”), its chairman and vice chairman, the Sac and Fox
Nation (“Nation”) and the Sac & Fox Business Enterprise (“ Enterprise”), seeking judicial
review of a final decision of the NIGC under the Administrative Procedure Act (“APA”), 5
U.S.C. §§ 701-706. The dispute arises out of an equipment lease and promissory note NGS,
the Nation and the Enterprise executed in conjunction with the construction and operation
of a casino. The controversy over the validity of the lease and note has resulted in
proceedings in three different forums. After considering the Administrative Record and the
parties’ briefs, the court concludes the agency’s decision should be affirmed.
Background1
The Indian Gaming Regulatory Act (“IGRA” or “Act”), 25 U.S.C. §§ 2701-2721,
1
The background is taken principally from the Administrative Record (“Admin.R. at
___”).
establishes a comprehensive regulatory framework for gaming activities on Indian lands to
“promot[e] tribal economic development, self-sufficiency, and strong tribal governments,”
while simultaneously “shield[ing tribes] from organized crime and other corrupting
influences [and] ensur[ing] that ... Indian tribe[s are] the primary beneficiar[ies] of ... gaming
operations.” 25 U.S.C. § 2702; First American Kickapoo Operations, L.L.C. v. Multimedia
Games, Inc., 412 F.3d 1166, 1167 (10th Cir. 2005). The Act “effects these goals in part by
providing for federal oversight of contracts between tribes and non-tribal entities for the
management of tribal gaming operations.” Id. at 1167-68; Casino Res. Corp. v. Harrah’s
Entertainment, Inc., 243 F.3d 435, 438 n.3 (8th Cir. 2001) (“IGRA recognizes a tribe's
authority to enter into contracts for the management and operation of an Indian gaming
facility by an entity other than the tribe or its employees, so long as certain requirements are
satisfied and subject to approval by the Chairman of the National Indian Gaming
Commission.”). Approval of the NIGC Chairman is required if a tribe enters into a
management contract for a gaming operation. 25 U.S.C. § 2711(a)(1); First American, 412
F.3d at 1168. An unapproved management contract is void, 25 C.F.R. § 533.7, and a gaming
operation that violates any provision of the IGRA may be closed and fined. 25 U.S.C. §2713.
The Nation decided in 2003 to build a new casino in Oklahoma and selected NGS to
provide financing and equipment for the project. Admin. R. at 2. The dispute in this action
arises out of a gaming machine equipment lease and promissory note2 NGS, the Nation and
2
The Nation signed a second promissory note on April 28, 2004, which was identical to
the first, excepting the amount and date. Admin.R. at 2.
2
Enterprise executed on August 8, 2003, in conjunction with the construction and operation
of the casino, which is owned and operated by the Enterprise for the Nation. On August 14,
2003, the Nation sent the lease and note to the NIGC for review,3 seeking an opinion on
whether the two documents constituted a management agreement within the meaning of the
IGRA, 25 U.S.C. § 2711, which required the NIGC Chairman’s approval.4 Admin.R. at 2-3,
961,992-93. The Nation resubmitted the lease and note for review on or about May 6, 2004.
Admin.R. 180.
The Sac & Fox Casino opened approximately August 1, 2004, with NGS supplying
the gaming machines. On August 11, 2004, NIGC’s acting general counsel, Penny J.
Coleman, responded to the Nation’s request of a year earlier for an opinion regarding the
lease and note the parties had executed. She concluded the agreements constituted a
management contract that, under IGRA, required the approval of the Chairman of the NIGC.
She asked the Nation to submit the information and documents that, pursuant to 25 C.F.R.
§533.3, must accompany a request for approval of a management contract within twenty
3
The documents were sent to Marcelin Pate, a Field Investigator with the NIGC. She
forwarded them to Penny Coleman, Deputy General Counsel. Admin.R. 992-93.
4
The lease and note were submitted to the NIGC for a determination of whether “the
agreement require[d] the approval of the NIGC,” not for its approval as a management
contract. See www.nigc.gov/Reading_Room/Bulletins/Bulletin_No._1993-3.aspx. (“In order to
provide timely and uniform advice to tribes and their contractors, the NIGC and the BIA have
determined that certain gaming-related agreements, such as consulting agreements or leases or
sales of gaming equipment, should be submitted to the NIGC for review. In addition, if a tribe or
contractor is uncertain whether a gaming-related agreement requires the approval of either the
NIGC or the BIA, they should submit those agreements to the NIGC.”). If the agency determined
approval was required, it would notify the tribe to formally submit the agreement. Id., see 25
C.F.R. § 533.3.
3
days. She advised the Nation that “an unapproved gaming management contract is void and
no action should be taken under it,” and also noted that the NIGC had “serious concerns”
regarding the classification of the gaming devices leased by NGS. Admin.R. at 964. She
“reminded” the Nation “that operation of Class III gaming without benefit of a Tribal-State
compact is a violation of the IGRA and grounds for closure of the operation.” Id. Upon
receipt of the letter, the Nation – by this time under different tribal leadership than was in
place in 2003 – terminated the agreements with NGS and demanded that it remove its gaming
machines from the casino.5 Neither party provided the requested documents to the NIGC or,
at that time, requested a formal ruling from the NIGC.
In 2005, NGS sued the Nation and Business Enterprise in the Sac and Fox tribal court
for breach of the lease and note.6 A key issue in that litigation was the validity of the
agreements. Two years later, while that action was pending, the Nation requested a final
agency determination as to whether the lease and note comprised a management agreement
under IGRA. Admin.R. at 666. The Nation asked the NIGC to”[p]lease note” that it was
“not requesting that [the NIGC] approve such Contracts as a management contract . . . .”
Admin.R. at 285. The NIGC told the Nation to “submit the Agreements, together with all
5
The Administrative Record reflects that the Enterprise board contacted the Nation,
stating that it was “imperative” that it commence negotiations with the NIGC and obtain written
permission that “would allow the Casino to remain open while the deficiencies of the Equipment
Lease Agreement and Promissory Note are resolved.” Admin.R. at 185. By letter dated August
20, 2004, NGS also sent the Nation proposed amendments to the lease addressing issues raised
by the Coleman opinion. Id. at 186-88.
6
While that action was pending the Nation paid the promissory notes in full and NGS
amended its complaint to sue for breach of the equipment lease.
4
submission requirements set forth in 25 C.F.R. § 533.3” and “invite[d] NGS to submit any
information it wish[ed].” Admin.R. at 416. The Nation submitted the lease and note, but did
not submit the documents required by 25 C.F.R. § 533.3. Id. at 84. NGS submitted an expert
report and the deposition testimony of its president, two members of the Board of Directors
for the Business Enterprise and Chief Rhoads, and requested a hearing on the issue of
whether the lease constituted a management contract.
The Chairman of the NIGC issued an opinion dated March 26, 2008. He denied
NGS’s request for a hearing, concluding there is no right to a hearing prior to a decision by
the Commission approving or disapproving a management contract. See 25 C.F.R. § 539.
The Chairman concurred with, and adopted, the Office of General Counsel’s opinion that the
lease and note were a management contract. He then disapproved the contract, finding the
lease and note did not “satisfy the standards of 25 C.F.R. Part 531 and § 533.3.” Admin.R.
at 85.
NGS appealed the Chairman’s decision and, on May 22, 2008, the agency issued its
final decision and order, concluding that the Chairman had properly determined that the
equipment lease and promissory note constituted a management contract7 and had properly
disapproved the contract because the agreements did not “include all of the provisions
7
The court does not agree with plaintiff that the NIGC Decision is “based directly upon
the Coleman Letter.” Plaintiff’s reply, p 3. The Chairman did “concur with, and adopt, the
OGC opinion that the Agreements are a management contract.” Admin.R. at 84. However, the
Commission, while agreeing with the decision reached by the Chairman, and finding that he
“properly determined that the equipment lease and promissory note constitute a management
contract for the reasons stated in his March 26, 2008 disapproval letter,” id. at 2, conducted its
own analysis of the issue. See Admin.R. at 9-12.
5
required of management contracts by 25 U.S.C. § 2711(b) or 25 C.F.R. § 531.1.” Admin.R.
at 2.8 NGS then filed this action on July 10, 2008, seeking review of the NIGC’s final
decision under the APA.9 The Tribe and Enterprise immediately moved to stay these
proceedings pending a final resolution of the tribal court action.
On October 16, 2008, the tribal district court dismissed NGS’s lawsuit, finding that
the equipment lease and promissory note, when considered together, met the definition of a
management contract under IGRA requiring the approval of the NIGC Chairman. As the
Chairman had not approved the lease and note, the tribal court concluded they were void.
Because the agreements were void, the tribal court held that the Tribe’s limited waiver of
sovereign immunity contained in the agreements was ineffective, requiring dismissal of the
case for lack of jurisdiction. The Sac & Fox Supreme Court affirmed the dismissal on appeal
on June 16, 2011.
The Nation then moved to dismiss this action on the basis of sovereign immunity and
8
The Commission also concluded the Chairman had properly disapproved the
management contract. As the present appeal goes only to the question of whether the
arrangement constituted a management contract – not whether any management contract should
be approved – the court has no reason to pass on the approval question. It does note, however,
its considerable skepticism that the agency could properly disapprove a management contract on
the basis of a desire to avoid “impos[ing] upon the Nation any agreement that it no longer
wanted.” Admin.R. at 2. Protecting the interests referenced in the IGRA is one thing. Turning a
contract into a deal binding only on one party is something decidedly different.
9
After determining that the lease and note constituted a management agreement, the
NIGC Chairman disapproved the agreement. On appeal, the NIGC affirmed both decisions.
Plaintiff has appealed the determination that the lease and note fall within IGRA. It has not
challenged the NIGC’s decision that the Chairman properly disapproved the parties’ agreement
under both 25 U.S.C. § 2711(b) and (e)(4).
6
issue preclusion. The court denied the motion following a hearing on December 2, 2011.
It concluded it had jurisdiction under the APA to hear NGS’s appeal from the final agency
decision and, after that ruling, would consider issues relating to the preclusive effect of the
tribal court’s decision, if necessary.
The court also deferred ruling on plaintiff’s objection to the administrative record filed
by the NIGC. NGS argued the record was incomplete and that the agency had improperly
withheld materials designated as privileged. It claimed the withheld materials might
demonstrate that the NIGC “improperly took action in order to support the new Principal
Chief, Kay Rhoads, from avoiding valid obligations of the Nation and Enterprise to New
Gaming.” Plaintiff’s Objection, Doc.# 63, p. 2. Plaintiff asserted that the NIGC “did not
act in a fair and impartial manner in applying the law to determine whether the Equipment
Lease and Promissory Note constituted a management contract,” and that certain documents
plaintiff had not seen “may directly relate to the NIGC’s motivation in reviewing the
Equipment Lease and Promissory Note.” Id. at p.4.
As both parties appeared to agree that the appeal issue – whether the lease and note
constituted a management contract – is an objective determination that can be made as a
matter of law,10 the court concluded that its resolution of that threshold question might
10
In its objection to the record, NGC argued that “[t]he determination of whether the
Equipment Lease and Promissory Notes together constitute a management contract is a legal
question that does not involve an exercise of discretion or a determination of what is in the best
interests of the Nation.” Plaintiff’s Objection, Doc.# 63, p. 6. In its July 23, 2007, letter to the
NIGC requesting final agency action, the Nation stated: “We believe that determinations about
whether the agreements are management agreements or not can be made by simply looking at
the ‘four corners’ of the agreements with no need to delve into extensive factual issues such as
7
eliminate the need to determine whether the withheld documents, which might bear on the
agency’s subjective motivation, should be produced. See plaintiff’s reply, p. 2. It decided
to defer its ruling on plaintiff’s objection to the record until it had considered the parties’
briefs on the merits.
Standard of Review
Under the APA the court decides relevant questions of law and interprets statutory
provisions. 5 U.S.C. § 706. The court “review[s] matters of law de novo and will defer to
the agency's construction of the [statute] if Congress has not clearly spoken on the issue
before [the court] and has delegated authority over the subject at issue to the agency, unless
the agency’s ‘construction is unreasonable or impermissible.’” Forest Guardians v. U.S. Fish
&Wildlife Serv., 611 F.3d 692, 704 (10th Cir. 2010) (quoting Wyo. Farm Bureau Fed'n v.
Babbitt, 199 F.3d 1224, 1231 (10th Cir.2000)).
The court understood the parties to essentially agree that, in the circumstances of this
case, the question of whether the note and lease constituted a management agreement was
a legal issue subject to de novo review.11 As the NIGC makes clear in its surreply, its
position now is that the court should review its final decision under the arbitrary and
capricious standard. That is the usual standard of review under the APA and one that would
have been applied here, had the parties not agreed, or seemed to agree, that the court could
performance, termination or alleged bad faith as NGS seeks to do in the tribal litigation.”
Admin.R. at 430.
11
See supra note 10.
8
make “a four corners determination based upon what’s in the terms of the contract.” Doc.
#87, Exhibit 1, p. 24.
The court has conducted a de novo review of the lease and note. As it concludes the
agency determination was proper even under this more exacting standard, it is unnecessary
to consider the potential application of the arbitrary and capricious standard.
Analysis
Plaintiff claims that IGRA’s implementing regulations are both void-for-vagueness
and arbitrarily enforced, and that the NIGC failed to follow proper procedures.12 It also
contends the NIGC erred in determining that the equipment lease and promissory note
(collectively the “Agreement”) constituted a management contract under IGRA.
Validity of 25 C.F.R. § 502.15
A regulation is void for vagueness if it (1) “fails to provide people of ordinary
intelligence a reasonable opportunity to understand what conduct it prohibits,” or (2)
“authorizes or even encourages arbitrary and discriminatory enforcement.” Hill v. Colorado,
530 U.S. 703, 732 (2000).
While neither the statute nor the regulations define
“management,” the regulations define a management contract as “any contract, subcontract,
or collateral agreement between an Indian tribe and a contractor or between a contractor and
a subcontractor if such contract or agreement provides for the management of all or part of
a gaming operation.” 25 C.F.R. § 502.15. Plaintiff claims the definition relies upon two
12
Although the plaintiff refers to invalid regulations, plural, it discusses only § 502.15 in
its brief.
9
critical undefined terms: “management” and “all or part of a gaming operation,” which are
so vague they are void and lack valid enforcement standards. Plaintiff’s brief, p. 26.
Plaintiff argues that because the term “management” is not defined, a person of
common intelligence must guess “as to whether having the right to participate in the selection
of the auditor “ or “supply[ing] [a casino with] 20%, 40%, 60%, 80% or 100% of the games
constitutes management” under IGRA.” Plaintiff’s brief, pp. 27,28. It asserts a similar
problems exists with the term “part of a gaming operation.” Due to the lack of guidance in
the regulation, plaintiff claims it is unclear whether “a person who repairs a broken machine
[is] engaged in ‘management’ of ‘part of a gaming operation.’” Plaintiff’s brief, 28.
Because the term “management” can cover a broad range of activities, the regulation
cannot, as plaintiff appears to suggest, enumerate them all. However, that does not mean
that the term is vague. The Seventh Circuit has concluded that “[t]here is no solid indication,
in either the language or the structure of the statute, that Congress intended to limit its
regulation of third-party contractual participation in Indian enterprises to a particular kind
of activity.” Wells Fargo Bank, Nat’l Ass’n v. Lake of the Torches Econ.Dev.Corp., 658
F.3d 684, 695 (7th Cir. 2011). Citing 25 C.F.R. § 502.12, the court found the NIGC had
taken the “same broad approach to regulation.” Id.
Here, as in Hill, plaintiff is “proffer[ing] hypertechnical theories as to what the statute
covers.” Hill, 530 U.S. at 733. The Commission did not conclude the lease was a
management contract on the basis of a single provision. It did not find the authority to help
choose an auditor, by itself, turned the lease into a management agreement. It did not
10
mention the repair provision in the lease in its Final Decision and also did not focus on the
percentage of machines that NGS was going to supply to the casino. Its concern was NGS’s
right to determine the type or mix of the gaming machines on the casino floor.13
“[S]peculation about possible vagueness in hypothetical situations not before the
Court will not support a facial attack on a statute when it is surely valid in the vast majority
of its intended applications.” Id. (internal quotations omitted). As “[t]he likelihood that
anyone would not understand ...[the] common word[s] [management and “part of a gaming
operation”] seems quite remote, id. at 732, the court rejects plaintiff’s attack on 25 C.F.R.
§ 502.15. The terms in the challenged regulation, 25 C.F.R. § 502.15, are sufficiently
explicit to give notice and prevent arbitrary enforcement. See generally Scherer v. U.S.
Forest Serv., 653 F.3d 1241, 1243 (10th Cir. 2011) (“To prevail in this and any facial
challenge to an agency's regulation, the plaintiffs must show that there is ‘no set of
circumstances’ in which the challenged regulation might be applied consistent with the
agency's statutory authority.”). NGS also has not shown sufficiently similarity between its
lease and other agreements, to demonstrate that the Commission has arbitrarily and
capriciously “enforce[d] the management contract regulation against [it],” and not enforced
the regulation “against vendors with similar contract provisions.” Plaintiff’s brief, p. 29.
13
The lease provided that:
The machines will be a mix of approximately eighty percent (80%) of machines,
which are NGS design and approximately twenty percent (20%) of machines from
other manufacturers which are agreed upon by the parties so that Enterprise will
have a proper mix of gaming equipment at its casino. The exact mix of the
machines that NGS will make available will be agreed upon by the parties.
Admin. R. at 299, ¶ 1.1.
11
Plaintiff also contends that the NIGC violated the language of the IGRA when it
issued § 502.15. It claims “[t]he legislative history of the IGRA makes it clear that only
contracts ‘governing the overall management and operation’ of a gaming facility are
covered.” Plaintiff’s brief, p. 11 (emphasis added). Citing a Senate Report, S.Rep.No. 100466, U.S.Code Cong. & Admin. News 1988 at 3071, plaintiff asserts that the term
“management contract” was not meant to apply to “contracts ‘for the procurement of
particular services, materials or supplies.’”14 Plaintiff’s brief, p. 12. However, plaintiff has
not shown that the agency’s construction of the statute – that it applies to an agreement
providing for the management of “all or part of a gaming operation,” 25 U.S.C. § 502.15
(emphasis added), is contrary to clear congressional intent. See generally Chevron , U.S.A.,
Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843 n. 9 (1984) (“The judiciary is the
final authority on issues of statutory construction and must reject administrative constructions
which are contrary to clear congressional intent.”). The IGRA expressly delegates to the
Commission the task of “promulgat[ing] such regulations and guidelines as it deems
appropriate to implement the provisions of [IGRA].” 25 U.S.C. § 2706(b)(10). “If Congress
has explicitly left a gap for the agency to fill, there is an express delegation of authority to
the agency to elucidate a specific provision of the statute by regulation. Such legislative
regulations are given controlling weight unless they are arbitrary, capricious, or manifestly
contrary to the statute.” Chevron, 467 U.S. at 843-44.
14
The lease the parties executed was more that just a procurement contract.
12
The Seventh Circuit has recognized that, while “[a]n examination of the statutory
provisions simply yields no definitive answer with respect to the breadth of the term
‘management contract,’ ... [i]t does, however, make clear that Congress wrote in broad
strokes in crafting this legislation. Wells Fargo Bank, 658 F.3d at 695. The court noted that,
in enacting IGRA, Congress intended “to provide a comprehensive regulatory framework for
gaming operations by Indian tribes that would promote tribal economic self-sufficiency and
strong tribal governments while shielding them from organized crime and other corrupting
influences.” Id. at 694. In light of the legislative delegation and Congress’s stated goals in
enacting IGRA, see 25 U.S.C. § 2702, the court concludes the regulation is based on a
permissible construction of the statute.
Right to a Hearing
Plaintiff contends the NIGC failed to afford it a hearing prior to issuing its Final
Decision. It claims it requested a hearing pursuant to 25 U.S.C. § 2711(f), “to present
evidence concerning the technical terms and terms of art specific to the gaming industry
contained in the Equipment Lease ... [and] evidence on what activities constitute
management of a gaming operation.” Plaintiff’s brief, pp. 23-24.
The statute plaintiff relies on is inapplicable. It provides that “[t]he Chairman, after
notice and hearing, shall have the authority to require appropriate contract modifications or
may void any contract if he subsequently determines that any of the provisions of this section
have been violated.” 25 U.S.C. § 2711(f). As explained by the Commission, § 2711(f), by
its terms, “applies only in those situations where the Chairman reaches out and voids or
13
modifies a contract he already approved. IGRA requires a notice and hearing before he does
so.” Admin.R. at 13. As plaintiff was not entitled to a hearing, the Commission did not
commit procedural error by failing to conduct one. 15
Management Contract
Determining whether the Agreement is a management contract for the operation of
a gaming facility within the meaning of IGRA is a matter of statutory interpretation. IGRA
allows an Indian tribe to “enter into a management contract for the operation and
management of a class II gaming activity,” if the contract has been approved by the
Chairman of the Commission. 25 U.S.C. § 2711(a)(1).16 The Act does not define
“management contract,” but the term is defined in the regulations as “any contract,
subcontract, or collateral agreement between an Indian tribe and a contractor ... [that]
provides for the management of all or part of a [tribal] gaming operation.’” First American,
412 F.3d at 1172 (quoting 25 C.F.R. § 502.15).17 The regulations also define a primary
management official as “[a]ny person who has authority ... [t]o set up working policy for the
gaming operation.” 25 C.F.R. § 502.19.
15
The Chairman also noted that because the contract language was unambiguous, resort
to extrinsic evidence was unnecessary. Admin.R. at 12-13.
16
Approval of management contracts by the Chairman is also required in connection with
Class III, rather than II, gaming operations. 25 U.S.C. § 2710(d)(9). There appears to have
been at least a question as to the types of games provided by NGS. Coleman letter of August 11,
2004, p. 4; Admin.R. at 964.
17
“In contrast, contracts for supplies, services, or concessions involving amounts in
excess of $25,000 annually are merely subject to audits by the Commission.” Casino Res., 243
F.3d at 438 n.3, citing 25 U.S.C. § 2710(b)(2)(D).
14
Key to this case is the phrase “all or part of a gaming operation” in the regulation’s
definition of a management contract. 25 C.F.R. § 502.15 (emphasis added). While the lease
relates principally to just one aspect of the casino’s operation, its gaming machines, that is
sufficient under both the regulations and case law for the Agreement to be governed by the
IGRA. See Wells Fargo Bank, 658 F.3d at 694-99; First American, 412 F.3d at 1175.
Under the terms of the lease, NGS had control over the type of gaming equipment that
would be available at the casino. It was to provide 80% of the gaming machines, with the
remaining 20% to be provided by “other manufacturers which [were] agreed upon by the
parties.” Admin.R. at 299. “The exact mix of the machines that NGS [was to] make available
[was to] be agreed upon by the parties.” Id.18 See First American, 412 F.3d at 1175 (court
rejected argument that “a contract is only a management contract if it confers rights rather
than opportunities to manage,” noting that “neither the statute nor the regulations contain a
definition of manager or management that would suggest that management is only
management when the manager's decisions are not subject to tribal oversight”). As the
Commission concluded, “[c]hoosing the mix of machines on the casino floor is an essential
18
Plaintiff asserts in its reply that “[p]aragraph 1.1 does not specify who will select the
leased machines,” that “[p]aragraph 1.1 does not state that NGS will select the machines, and
NGS did not in fact select the machines, only supply them.” Plaintiff’s reply, p. 5. Plaintiff
ignores the lease language, which provides that the “exact mix of the machines that NGS will
make available will be agreed upon by the parties.” Admin.R. at 299. Plaintiff asserts that the
NIGC “has never stated how the powers purportedly granted to NGS under paragraph 1.1 differ
from a standard lease. Plaintiff’s reply, p. 5. In a standard lease, the lessor/vendor would
provide the machines or equipment the lessee selected, rather than the machines which it
determined the lessee should use or which it played a significant role in selecting. That control
is what distinguishes this lease from a “standard lease.”
15
management function.” Admin. R. at 10. The right to participate in game selection altered
NGS’s role from that of equipment supplier to manager of at least one aspect of the Nation’s
gaming operation.
The lease, which was a percentage lease, also obligated NGS to provide “a complete
computerized cash accounting system”19 and train casino employees on its operation. The
Enterprise was barred from using a different system without NGS’s prior consent. Admin.R.
at 302, ¶ 6. Plaintiff discounts the significance of NGS’ control over the system used,
describing it as “nothing more than an integrated software program to track all bets and
payouts.” Plaintiff’s brief, p. 20.
The Commission viewed NGS’s contractual right
differently. “Like the choice of machine mix, the choice of slot accounting system is an
essential management function because such systems enable player reward programs and,
in some instances, ticket redemption.” Admin.R. at 11. Whether or not the accounting
system is of “fundamental importance to the casino’s management,” defendants’ brief, p. 14,
the court concludes that, by choosing the system, NGS was exercising a management
function.
Other lease provisions required Enterprise to prepare and supply NGS with daily,
weekly, monthly and annual reports generated by an electronic data tracking system that was
“developed in cooperation and with the agreement of NGS.” Admin.R. at 307, ¶ 16.1.
Enterprise was to maintain books and records pertaining to all use of the gaming equipment
19
The Commission refers to this as the “slot accounting system.” Admin. R. at 11.
16
NGS provided and they were to be accessible to NGS “at all times during the [lease] Term
and for a period of three (3) years thereafter.” Id. at ¶16.3. The parties also were to share
responsibility for the selection of the accounting firm which would perform the annual audit
required by IGRA. See 25 U.S.C. § 2710(b)(2)(C).20
NGS was not authorized or obligated by the equipment lease to be involved in the
“overall” management of the casino. However, that is not required for IGRA to apply.
Pursuant to its agreement with the Nation, NGS given the right to manage, or the opportunity
to manage, significant parts of the gaming operation. Its role was more than that of a mere
supplier. See First American, 412 F.3d at 1172-75; NIGC Bulletin 94-5 (“A requirement for
including within the scope of audit of the gaming operation other contracts, including supply
contracts, is similarly a means of protecting the gaming operations and ultimately the tribes
from those deemed unsuitable for Indian gaming or on terms at variance with IGRA's
requirements.).21
NIGC Bulletin 94-5,which discusses the distinction between management contracts
and consulting agreements, supports this conclusion. While the Bulletin, as an informal
20
NGS asserts that reliance on ¶ 16.4 of the lease as a basis for concluding the contract
is a management agree is “misplaced” in part because “the scope of the independent audit
subject to that requirement is limited to matters ‘applicable to the use of the Equipment.’”
Plaintiff’s reply, p. 6 (quoting Admin.R. at 308). However IGRA specifically requires that an
Indian tribe engaged in Class II gaming provide “annual outside audits of the gaming,” 25
U.S.C. §2710(b)(3)(C), which includes proceeds from the equipment provided pursuant to the
terms of the lease.
21
NIGC Bulletin 94-5 is available at www. nigc. gov/ Reading_ Room/ Bulletins/
Bulletin_ No._ 1994– 5. aspx.
17
agency pronouncement, is not entitled to deference under Chevron, the Tenth Circuit
observed in First American “that the NIGC’s apparent position coincides with [the court’s]
holding.” Id. at 1174. The court noted that the Bulletin “defines management broadly to
include ‘planning, organizing, directing, coordinating, and controlling ... all or part of a
gaming operation.’” Id. (quoting NIGC Bulletin 94-5 at 2). It considered the seven
management activities the Bulletin “singles out ... as especially probative of the question
whether an agreement is a management contract.” Id.
The equipment lease contains five of those seven provisions: provisions for
maintenance of adequate accounting procedures and preparation of verifiable financial
reports on a monthly basis; development and construction costs incurred or financed by a
party other than the tribe; term of contract that establishes an ongoing relationship;
compensation based on percentage fee (performance); and a provision for assignment or
subcontracting of responsibilities. An agreement does not have to include all seven activities
to be a management contract. First American. 412 F.3d at 1174. Rather, the “‘presence of
all or part of these activities in a contract with a tribe strongly suggests that the contract or
agreement is a management contract requiring [NIGC] approval.’” Id. (quoting Bulletin 94-5
at 2).
The conclusion that the lease and note constitute a management contract is “reinforced
by the fact that [they] do[] not much resemble a consulting agreement.” Id. “A contract that
identifies a finite task, specifies a date for its completion, and provides recompense based on
an hourly or daily rate or fixed fee ‘may very well be determined to be a consulting
18
agreement’ rather than a management contract.” Id. (quoting Bulletin 94–5 at 3). The
agreement here was essentially open-ended with machine rentals based on a percentage of
the income stream from the machines -- the “net win or drop from each and every machine.”
Admin. R. at 306, ¶ 15.
NGS offers multiple reasons why the note and equipment lease are not a management
contract. Initially it argues that, in her opinion letter, Ms. Coleman significantly relied on
the promissory note and that was improper as the note was a separate contract,
but not a “collateral agreement.”22 However, as the lease, by itself, is a management
contract, the court does not have to characterize or even consider the impact of the note on
the analysis.23 It then contends that, as reflected in the recitals in the agreement, the parties
did not intend for the lease to constitute a management agreement. However, the parties’
expressed intent is not controlling when the agreement they executed, due to the rights and
obligations it created is a management contract. An agreement’s status as a “management
contract,” or not, is determined by the substance of the agreement, not the label the parties
attach to it.24
NGS downplayed the significance of its right to determine, jointly with the Nation,
22
The Administrative Record does not reflect that either the parties or the NIGC ever
considered the note and lease separately, rather than as components of a single agreement.
23
The court does not agree, though, that the note played a significant role in Ms.
Coleman’s analysis. The Commission did not rely on it to reach its conclusion.
24
Similarly, the fact that the lease was negotiated with the advice of counsel does not
preclude a determination that the agreement is governed by IGRA.
19
the exact mix of the machines it will make available. It asserts that the “true management
decisions concerning the choice of games are decisions regarding game theme, floor
placement, part percentage, game displays and promotions, all of which are retained
exclusively to the Enterprise management.” Plaintiff’s brief, p. 18. However, as the
Commission noted in its Final Decision, the “Nation’s ability to make decisions regarding
theme, placement, displays, and promotions is limited when the Nation cannot freely choose
any of the games on its floor.” Admin. Record at 10.25
NGS’s also argues that the rights to participate in the selection of the accounting firm
that will perform the annual “independent certified audit,” to control the cash accounting
system and to inspect, have access to books and records and audit are not management
functions. Singly, these provisions might not be enough to render the lease a management
agreement. However, when combined with the other provisions discussed above, they
transfer sufficient management responsibility to NGS to”require the Chairman’s scrutiny.”
Wells Fargo Bank, 658 F.3d at 697.
The court agrees with plaintiff that there are distinctions between the equipment lease
in this case and other agreements that courts have found to be management contracts. The
Operating Lease reviewed by the Tenth Circuit in First American and the Indenture
Agreement analyzed by the Seventh Circuit in Wells Fargo Bank placed significantly more
25
As the court’s discussion is based on its view of the substance of the contractual
arrangements, it is unnecessary to address the “Help” email mentioned by plaintiff in its brief.
The court also has not discussed other lease provisions that it did not rely upon, but which were
cited by Ms. Coleman in her Opinion Letter. See plaintiff’s brief, pp. 21-22.
20
management authority in the hands of third parties. However, management contracts are not
“only those agreements that strip a tribe of decision-making authority entirely.” First
American, 412 F.3d at 1175. “[T]he regulations' definition of a management contract as an
agreement that provides for the management of ‘all or part’ of a gaming operation suggests
a definition of management that is partial rather than absolute, contingent rather than
comprehensive.” Id. at 1176. Recognizing that “Congress wrote in broad strokes in crafting
this legislation,” to “ensure that the tribes retain control of gaming facilities set up under the
protection of IGRA and of the revenue from these facilities,” Wells Fargo Bank, 658 F.3d
at 695, 700, the court concludes that definition is satisfied here.
The NIGC’s Final Decision determined both that the equipment lease and promissory
note constituted a management contract and that the Commissioner properly disapproved the
agreements. However, plaintiff has challenged only the first determination in its appeal and
the court has therefore restricted its review to the question of whether the parties’ agreement
was a management contract under IGRA. Having concluded that it was, it is unnecessary to
consider whether the agency should be required to produce documents that might reflect any
subjective motivation for its actions.
The Tenth Circuit noted in First American that “[n]on-tribal parties who enter into
contracts relating to tribal gaming undertake, in addition to ordinary business risks, certain
regulatory risks as well.” First American, 412 F.3d at 1178-79. This case no doubt illustrates
the accuracy of that observation. To that listing of risks might also be added the uncertainties
introduced by tribal politics. Nonetheless, for the reasons indicated, the Final Decision of
21
the NIGC is AFFIRMED.
IT IS SO ORDERED.
Dated this 13th day of September, 2012.
22
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