Bettor Racing, Inc. v. National Indian Gaming Commission et al
Filing
71
ORDER denying 52 Motion for Summary Judgment; granting 57 Motion for Summary Judgment; granting 60 Motion for Summary Judgment. Signed by U.S. District Judge Karen E. Schreier on 9/19/2014. (KC)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
BETTOR RACING, INC., and J. RANDY
GALLO,
Plaintiffs,
vs.
NATIONAL INDIAN GAMING
COMMISSION,
CIV. 13-4051-KES
MEMORANDUM OPINION AND
ORDER GRANTING DEFENDANT’S
AND INTERVENOR’S MOTIONS FOR
SUMMARY JUDGMENT AND
DENYING PLAINTIFFS’ MOTION FOR
SUMMARY JUDGMENT
Defendant,
and
FLANDREAU SANTEE SIOUX TRIBE,
Intervenor.
Plaintiffs, Bettor Racing, Inc., and J. Randy Gallo, brought this suit
under the Administrative Procedure Act (APA), 5 U.S.C. §§ 701-06, and the
United States Constitution, against defendant, National Indian Gaming
Commission (NIGC). Plaintiffs ask this court to set aside the NIGC’s final
decision and order in its entirety or, alternatively, to set aside the portion of the
final decision and order that assessed a civil fine against plaintiffs. The
Flandreau Santee Sioux Tribe has intervened. Docket 35. The parties have filed
cross motions for summary judgment.1 For the following reasons, the NIGC’s
1
Plaintiffs also requested oral argument pursuant to D.S.D. Civ. LR 7.1.
Docket 62 at 22; Docket 64 at 22. Because the court can resolve the pending
motions for summary judgment without oral argument, plaintiffs’ request is
denied.
and Tribe’s motions for summary judgment are granted, and plaintiffs’ motion
for summary judgment is denied.
BACKGROUND
The undisputed facts are:
J. Randy Gallo is a resident of Jupiter, Florida, and the president of
Bettor Racing, Inc., a corporation organized under the laws of the state of
South Dakota. Bettor Racing is a parimutuel betting business.2 The NIGC is an
independent federal agency established by the Indian Gaming Regulatory Act of
1988 (IGRA).3 The NIGC is charged with enforcing the IGRA and regulating
tribal gaming. The Tribe is a federally recognized tribe that operates the Royal
River Casino near Flandreau, South Dakota. The casino, which is located on
tribal lands, is subject to the IGRA.
In 2003, Gallo and the Tribe met to discuss relocating Bettor Racing from
its Sioux Falls, South Dakota, location to Royal River Casino, in part to avoid a
state tax on parimutuel betting. In March 2004, Bettor Racing and the Tribe
reached an agreement in the form of a management contract, which was
submitted to the NIGC for approval. Following submission of the proposed
agreement, the NIGC requested several changes, which the parties
Parimutuel betting is “a form of betting and of handling the betting on
horse races at racetracks, in which those holding winning tickets divide the
total amount bet in proportion to their wagers, less a percentage for the
management, taxes, etc.” Dictionary.com, http://dictionary.reference.com/
browse/parimutuel (last visited Aug. 19, 2014).
2
3
25 U.S.C. §§ 2701-2721.
2
subsequently incorporated. The NIGC approved the management contract on
March 17, 2005.
On September 20, 2004, during the pendency of the management
contract’s approval, Bettor Racing and the Tribe entered into what was styled a
“consulting agreement” under which Bettor Racing would assist the Tribe in
running a parimutuel betting operation at Royal River Casino. A.R. 2009-10.
On September 24, 2004, Bettor Racing began operation of the parimutuel
betting business at Royal River Casino (under the name Royal River Racing)
until the management contract was approved on March 17, 2005. Following
approval of the management contract, Bettor Racing and the Tribe operated
under its terms.
In 2005, the state of South Dakota reduced its tax on parimutuel
gaming revenue. SDCL 42-7-102. Bettor Racing and the Tribe discussed the
effect of the changes in South Dakota’s tax structure as well as a possible
relocation of Bettor Racing’s business away from Royal River Casino. Bettor
Racing and the Tribe subsequently agreed to modify the terms of the
management contract in 2006 (first modification). This agreement was executed
by Bettor Racing and the Tribe on February 15, 2007. A.R. 1558-1561.
On January 25, 2007, the first modification was submitted for approval
to the NIGC. On April 13, 2007, the Tribe requested the NIGC to hold its review
of the first modification in abeyance pending litigation between the Tribe and
state of South Dakota. Consequently, the first modification was never approved
by the NIGC.
3
In 2008, following increases in fees charged by racetracks to off-track
betting operations, Bettor Racing and the Tribe discussed further modifications
of the management contract (second modification). The second modification
was executed by the parties on August 1, 2008. The second modification was
not submitted to the NIGC, however, and was never approved.
In August 2009, the NIGC conducted a management contract compliance
review. On August 27, 2009, the NIGC issued a notice of noncompliance to
Bettor Racing. The notice of noncompliance stated that Bettor Racing had
failed to pay to the Tribe the required percentage of gaming revenue as required
by the terms of the original management contract and federal law. A.R. 31-33.
Additionally, from August 2009 until May 2011, the NIGC conducted an
investigation. This investigation culminated in the issuance of a Notice of
Violation (NOV) to both the Tribe and Bettor Racing on May 19, 2011. The
NIGC determined that Bettor Racing committed three violations of the IGRA,
and the Tribe had committed four violations of the IGRA.
As part of the NOV, the NIGC ordered Bettor Racing to pay the Tribe
$4,544,755. This amount represented what the NIGC determined the Tribe
should have received during the years 2005, 2006, 2007, and 2008. During the
summer of 2011, the Tribe reached a settlement with the NIGC. A.R. 2611-16.
On June 20, 2011, Bettor Racing appealed the NOV. The Tribe
intervened in the administrative appeal. On February 10, 2012, the NIGC
issued a Notice of Proposed Civil Fine Assessment (CFA) against Bettor Racing.
A.R. 2665-73. The total amount of the proposed fine was $5 million. This
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amount was independent of the assessment that Bettor Racing was ordered to
pay the Tribe pursuant to the NOV. On March 9, 2012, Bettor Racing appealed
the CFA. The Tribe also intervened in this administrative appeal. The original
NOV and the CFA proceedings were consolidated into one appeal.
The chair for the NIGC and the Tribe each moved for summary judgment
in the administrative appeal, which Bettor Racing opposed. On August 13,
2012, the presiding official issued her recommended decision granting the
motions for summary judgment on the NOV and CFA in favor of the NIGC and
Tribe. The Commission affirmed the presiding official’s recommended decision
in its final decision and order on September 12, 2012. The Commission
determined, however, that the CFA of $5 million had “supplanted” the
monetary remedy in the NOV. A.R. 3049.
In January 2013, the Tribe filed suit against plaintiffs in Flandreau
Santee Sioux Tribal Court, alleging breach of contract and unjust enrichment.
Docket 9-1, 9-2. Plaintiffs have counterclaimed in that action alleging fraud.
On May 10, 2013, plaintiffs filed this suit against the NIGC seeking relief from
the Commission’s final decision and order. Docket 1. The Tribe moved to
intervene on June 17, 2013. Docket 7. The Tribe’s motion was granted on
November 11, 2013. Docket 35.4 Pending before the court are cross motions for
summary judgment from all parties regarding the Commission’s final decision
and order.
The Tribe’s request for judicial notice was also granted in part, and the
court took judicial notice of the fact that an action is pending in tribal court.
4
5
I.
LEGAL STANDARD
Generally a motion for summary judgment may be granted when “the
movant shows that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see
also Clark v. Kellogg Co., 205 F.3d 1079, 1082 (8th Cir. 2000). A factual
dispute that does not rise to the level of materiality will not preclude summary
judgment. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986);
Mosley v. City of Northwoods, Mo., 415 F.3d 908, 910-11 (8th Cir. 2005).
Rather, “ ‘the dispute must be outcome determinative under prevailing law.’ ”
Mosely, 415 F.3d at 911 (quoting Get Away Club, Inc. v. Coleman, 969 F.2d
664, 666 (8th Cir. 1992)).
The general standard set forth in Rule 56 does not apply where, as here,
the parties are seeking this court’s review of an administrative decision. Thus,
this court is guided by the standards provided in the APA. Voyageurs Nat’l Park
Ass’n v. Norton, 381 F.3d 759, 763 (8th Cir. 2004); 5 U.S.C. § 706.
Specifically, a motion for summary judgment . . . makes no
procedural sense when a district court is asked to undertake
judicial review of administrative action. Such a motion is designed
to isolate factual issues on which there is no genuine dispute, so
that the court can determine what part of the case must be tried to
the court or a jury. Agency action, however, is reviewed, not tried.
Factual issues have been presented, disputed, and resolved; and
the issue is not whether the material facts are disputed, but
whether the agency properly dealt with the facts.
Lodge Tower Condominium Ass’n v. Lodge Properties, Inc. 880 F. Supp. 1370,
1374 (D. Colo. 1995) (internal citations omitted); see also North Carolina
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Fisheries Ass’n v. Gutierrez, 518 F. Supp. 2d 62, 79 (D.D.C. 2007).
Consequently, a motion for summary judgment at this stage requires this court
to determine “whether the agency action is supported by the administrative
record and otherwise consistent with the APA standard of review” as a matter
of law. Brodie v. U.S. Dep’t of Health & Human Servs., 796 F. Supp. 2d 145, 150
(D.D.C. 2011).
Pursuant to the relevant standards set by the APA, this court will set
aside an agency’s action only if its decision was “arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law.” Sierra Club v.
E.P.A., 252 F.3d 943, 947 (8th Cir. 2001) (quoting 5 U.S.C. § 706(2)(A)). An
agency decision fails the “arbitrary and capricious” standard if
[T]he agency has relied on factors which Congress has not
intended it to consider, entirely failed to consider an important
aspect of the problem, offered an explanation for its decision that
runs counter to the evidence before the agency, or is so
implausible that it could not be ascribed to a difference in view or
the product of agency expertise.
Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S.
29, 43 (1983). While this court’s review of the facts before the agency is
“searching and careful,” the “standard of review is a narrow one. The court is
not empowered to substitute its judgment for that of the agency.” Citizens to
Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971), overruled on
other grounds by Califano v. Sanders, 430 U.S. 99 (1977). If the agency’s
decision “is supportable on any rational basis,” it must be upheld. Voyageurs,
381 F.3d at 763 (citing Friends of Richards-Gebaur Airport v. FAA, 251 F.3d
7
1178, 1184 (8th Cir. 2001)). Deference is provided when an agency interprets
a statute it administers. Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837, 842-43 (1984). Further deference is required when an agency
interprets its own regulations. South Dakota v. U.S. Dep’t of Interior, 423 F.3d
790, 799 (8th Cir. 2005).
Nonetheless, “[t]he agency must articulate a ‘rational connection between
the facts found and the choice made.’ ” Bowman Transp., Inc. v. Arkansas-Best
Freight Sys., Inc., 419 U.S. 281, 285 (1974) (quoting Burlington Truck Lines, Inc.
v. United States, 371 U.S. 156, 168 (1962)). A reviewing court cannot “supply a
reasoned basis for the agency’s action that the agency itself has not given,” but
may “uphold a decision of less than ideal clarity if the agency’s path may
reasonably be discerned.” Id. at 285-86 (internal citations omitted). This court
must confine its review to the administrative record as it existed at the time of
the agency’s decision, rather than a new record made for the first time before
this court. Camp v. Pitts, 411 U.S. 138, 142 (1973). Finally, an agency’s
imposition of sanctions is reviewed under the abuse of discretion standard.
Syverson v. U.S. Dep’t of Agric., 601 F.3d 793, 800 (8th Cir. 2010).
DISCUSSION
Plaintiffs’ primary contention is that the Commission acted arbitrarily
and capriciously by failing to consider disputed, material facts that should
have precluded summary judgment in favor of the NIGC chair and Tribe
regarding the NOV as well as the CFA. Plaintiffs also contend they were denied
certain procedural rights during the agency proceeding. The NIGC and Tribe
8
assert that summary judgment was appropriate and plaintiffs have not met
their burden to overturn the Commission’s decision.
A.
IGRA Violations
Congress enacted the IGRA to provide “the statutory basis for operating
and regulating Indian Gaming.” Colombe v. Rosebud Sioux Tribe, 918 F. Supp.
2d 952, 956 (D.S.D. 2013) (citing Turn Key Gaming, Inc. v. Oglala Sioux Tribe,
164 F.3d 1092, 1094 (8th Cir. 1999). The IGRA is designed to promote “tribal
economic development, self-sufficiency, and strong tribal governments.” 25
U.S.C. § 2702(1). Additionally, Congress sought to ensure that Indian tribes
would be the primary beneficiaries of Indian gaming operations. § 2702(2); see
also Wells Fargo Bank, Nat’l Ass’n v. Lake of the Torches Econ. Dev. Corp., 658
F.3d 684, 700 (7th Cir. 2011) (“One of IGRA’s principal purposes is to ensure
that the tribes retain control of gaming facilities set up under the protection of
IGRA and of the revenue from these facilities.”); Crosby Lodge, Inc. v. Nat’l
Indian Gaming Comm’n, 803 F. Supp. 2d 1198, 1205 (D. Nev. 2011) (explaining
IGRA was meant to shield tribes “from organized crime and other corrupting
influences.”). The NIGC was established to develop regulations that promote
Congress’s goals, and, as an administrative body, to enforce the IGRA. 25
U.S.C. § 2702(3); United States v. Seminole Nation of Oklahoma, 321 F.3d 939,
941 (10th Cir. 2002).
The IGRA and NIGC regulations permit tribes to enter management
contracts for gaming operations, but only if such contracts have been approved
by the chair of the NIGC. 25 U.S.C. § 2711(a)(1); 25 § C.F.R. 533.1; see also
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Bruce H. Lien Co. v. Three Affiliated Tribes, 93 F.3d 1412, 1420 (8th Cir. 1996)
(explaining “the NIGC has exclusive authority to determine a contract’s
compliance with IGRA and its regulations[.]”). The phrase “management
contract” includes “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.
Before a management contract can be approved, it must meet certain
criteria. For example, management contracts typically are limited in duration to
five years, and the IGRA restricts management fees to no more than 30 percent
of net revenues, unless certain conditions are present. 25 U.S.C.
§§ 2711(b)(5),(c). Even if those conditions are present, however, management
fees cannot exceed 40 percent of net revenues. Id. § 2711(c)(2). “Net revenues”
are further defined as “gross revenues of an Indian gaming activity less
amounts paid out as, or paid for, prizes and total operating expenses,
excluding management fees.” 25 U.S.C. § 2703(9).
Management contracts that have not been approved by the NIGC are
void. 25 C.F.R. § 533.7; Missouri River Servs., Inc. v. Omaha Tribe of Nebraska,
267 F.3d 848, 853 (8th Cir. 2001); Turn Key Gaming, 164 F.3d at 1094.
Subject to NIGC approval, a tribe may amend an approved management
contract. 25 C.F.R. § 535.1(a). Any attempted amendment that does not comply
with the IGRA or NIGC requirements, or that is not approved by the NIGC, is
also void. 25 C.F.R. § 535.1(f); Missouri River Servs., 267 F.3d at 853; Turn Key
10
Gaming, 164 F.3d at 1094. A proposed amendment must be submitted to the
NIGC within 30 days of execution. 25 C.F.R. § 535.1(b).
The NIGC is empowered to levy and collect civil fines against tribal
operators or management contractors who violate IGRA, NIGC regulations, or
approved tribal ordinances, regulations, or resolutions. 25 U.S.C. § 2713(a)(1);
United States v. Santee Sioux Tribe of Nebraska, 135 F.3d 558, 563 (8th Cir.
1998). The NIGC may impose such fines up to $25,000 per violation. 25 U.S.C.
§ 2713(a)(1); 25 C.F.R. § 575.4. NIGC regulations further specify which factors
to consider in assessing whether a fine is imposed, as well as if “each daily
illegal act or omission will be deemed a separate violation[.]” 25 C.F.R. § 575.3;
25 C.F.R. § 575.4. Tribes or individuals subject to notices of violations or civil
fine assessments may appeal. 25 C.F.R. §§ 584.2(a); 585.2(a). A party may
request a hearing or elect to have the NIGC dispose of the appeal by written
submissions. 25 C.F.R. §§ 584.3; 585.3. The NIGC’s final decision is subject to
judicial review. 25 U.S.C. § 2714.
i.
First Violation–Managing an Indian Gaming Operation Without
an Approved Management Contract
In its final decision and order, the Commission agreed with the presiding
official’s conclusion that plaintiffs “violated IGRA and NIGC regulations by
managing Royal River Racing without an approved management contract from
September 24, 2004 to March 17, 2005.” A.R. 3051. The Commission
concluded Gallo had been operating Royal River Racing without an approved
management contract at that time, and that Gallo was the manager of Royal
River Racing. Id. The Commission agreed that there were no disputes of
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material fact and awarded summary judgment in favor of the NIGC and Tribe.
Id.
Plaintiffs do not take issue with the Commission’s conclusion that it was
acting without an approved management contract during this time frame.
Docket 53 at 12 (acknowledging “it is true that the dates on which Bettor
Racing began to operate at the Casino are uncontroverted[.]”). Rather, plaintiffs
contend that “the inquiry does and cannot end there.” Id. Specifically, plaintiffs
argue that the Commission’s failure to consider the states of mind of the
parties to determine if the IGRA or NIGC regulations were violated was
arbitrary and capricious. See, e.g., id. at 13-17; Docket 62 at 5-7; Docket 64 at
5-6. The NIGC and Tribe submit that the Commission was correct to conclude
that any evidence related to a party’s mental state is immaterial. See, e.g.,
Docket 57-1, at 15-18; Docket 59 at 22-26.
In support of their assertion, plaintiffs cite several cases involving
criminal offenses that require some showing of scienter. For example, Carter v.
United States, 530 U.S. 255, 268-70 (2000), is cited for the proposition that
criminal statutes presumptively favor some mens rea requirement.5 Likewise,
Bryan v. United States 524 U.S. 184, 191 (1998), and Ratzlaf v. United States,
510 U.S. 135, 137 (1994), explain what must be shown to establish a
defendant acted “willfully” in violation of a statute. Several circuit court
Plaintiffs indicate that the Carter Court held “intent to do the things
that constitute elements of the offense is required[.]” Docket 53 at 13 (quoting
530 U.S. at 268-70). This court is unable to locate this quoted language in the
Supreme Court’s opinion.
5
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opinions are cited to show a defendant’s good faith may negate the specific
intent requisite to commit certain crimes. United States v. McNair, 605 F.3d
1152, 1201 n.65 (11th Cir. 2010) (mail fraud); United States v. Kay, 513 F.3d
432, 454 (5th Cir. 2007) (obstruction); United States v. Hansen, 772 F.2d 940,
947 (D.C. Cir. 1985) (filing false statements).
While it is true that a conviction of most criminal prohibitions requires
an inquiry into a defendant’s mental state, plaintiffs have not been charged
with violating a criminal offense. Reference to Carter in this context is therefore
inapposite. Moreover, in a section aptly titled “Civil penalties,” the NIGC has
been given the authority to “levy and collect appropriate civil fines” against a
tribal operator or management contractor “engaged in gaming for any violation
of any provision of this chapter[.]” 25 U.S.C. § 2713(a)(1). Unlike the criminal
statutes at issue in Bryan and Ratzlaf, the civil sanctions authorized by the
IGRA do not require the showing of a “willful” violation. Ratzlaf also
acknowledges that Congress may provide for civil forfeitures without a showing
of “willfulness” if it so chooses. 510 U.S. at 146 n.16. The other criminal cases
cited by plaintiffs do not address whether a showing of good faith is relevant in
the context of an IGRA violation. As the Commission’s final decision and order
explained, plaintiffs have “cited no statutory or regulatory provision, no
legislative history, no provision in the Tribe’s gaming ordinance, and no agency
or judicial case law interpreting IGRA” that necessitates a finding of “intent to
deceive or violate the law to establish the violations.” A.R. 3050. Here, too,
plaintiffs have not shown that anything in the IGRA or NIGC regulations
13
undermine the Commission’s conclusion, and plaintiffs have not provided any
judicial authority to the contrary.
Additionally, as the NIGC contends, even if the IGRA or NIGC regulations
were ambiguous regarding whether scienter needed to be shown, the agency’s
interpretation of the IGRA or its own regulations are entitled to deference. See
Chevron, 467 U.S. at 842-43. As the Supreme Court has instructed, this court
must ask two questions when reviewing an agency’s construction of a statute it
administers–namely, “whether Congress has directly spoken to the precise
question at issue,” and, if not, “whether the agency’s answer is based on a
permissible construction of the statute.” Id. Regarding the first inquiry, none of
the parties contend that Congress has directly spoken on the scienter question.
With respect to the second inquiry, however, the Commission observed that
management contracts not approved by the NIGC are void under the IGRA,
thus the Commission agreed with the presiding officer that “[f]ailure to obtain
the Chair’s approval of a management contract prior to operation under such a
contract is a per se violation of IGRA.” A.R. 3051(citing 25 U.S.C. § 2713). The
court is not convinced that the Commission’s interpretation of the IGRA is
impermissible. Therefore, its interpretation is entitled to deference.
Plaintiffs argue that by relying on representations from tribal officials
who drafted and presented the management contract and allegedly indicated
that nothing prohibited them from beginning operations, plaintiffs had no
reason to believe they were in violation of the law during the period of
September 24, 2004, to March 17, 2005. Docket 53 at 14-15. Additionally,
14
plaintiffs argue that payments were made to the Tribe as required under the
management contract while approval was pending. Docket 53 at 3. Assuming
these facts are true, however, would not change the Commission’s analysis
because plaintiffs have not presented any evidence to show that a party’s
reliance is relevant in the context of operating without an approved
management contract. Further, even if plaintiffs complied with the unapproved
contract’s terms, the contract had no legal effect without the NIGC’s approval.
25 U.S.C. § 2711(a)(1).
In conclusion, the court agrees with the NIGC and Tribe that the IGRA
and NIGC regulations do not require a showing of scienter in order to establish
a violation. Further, plaintiffs have not presented relevant evidence to show
that good faith may be an affirmative defense to avoid sanctions for violating
the IGRA. While plaintiffs’ state of mind and representations of the Tribe may
be questions of fact, they were not questions of material fact regarding whether
plaintiffs operated Royal River Racing without an approved management
contract. Instead, as the Commission concluded, the only relevant inquiry was
whether in fact plaintiffs had so operated Royal River Racing. The record
indicates plaintiffs operated Royal River Racing from September 24, 2004, to
March 17, 2005, without an approved management contract. Therefore, the
court finds that the Commission did not act arbitrarily or capriciously with
respect to the first violation.
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ii.
Second Violation–Operating Under Two Unapproved
Modifications to an Approved Management Contract
The presiding official concluded, and the Commission agreed, that
plaintiffs operated Royal River Racing pursuant to two unapproved
modifications to the management contract from February 15, 2007, to
December 31, 2009, in violation of IGRA and NIGC regulations. A.R. 3052. As
detailed above, the original management contract was approved by the NIGC on
March 17, 2005. Bettor Racing and the Tribe executed the first modification to
the management contract on February 15, 2007. A second modification was
executed on August 1, 2008. Neither modification was approved by the NIGC.
The Commission agreed with the presiding official that there were no genuine
disputes of material fact regarding this violation and awarded summary
judgment in favor of the NIGC and Tribe. Id.
Plaintiffs argue that the Commission acted arbitrarily and capriciously by
ignoring disputed, material facts related to this issue–namely, plaintiffs’
knowledge and intent to violate the law. See Docket 53 at 17. The NIGC and
Tribe similarly oppose plaintiffs’ argument, contending this factual issue was
not material to the Commission’s determination of whether a violation
occurred. See Docket 57-1 at 18-19; Docket 59 at 15.
According to plaintiffs, the Tribe proposed and prepared both
modifications and assumed the responsibility to submit the modifications to
the NIGC for approval, and it bears responsibility for the ultimate lack of NIGC
approval with respect to both modifications. Docket 53 at 17-20. Further,
plaintiffs argue that it was reasonable for Bettor Racing to believe it was
16
compliant with all applicable laws and regulations, and that the Tribe received
everything it was guaranteed under the modifications and federal law. Docket
64 at 9; Docket 53 at 18, 19. Plaintiffs also assert the Tribe had spoken with
former NIGC chair Phil Hogen who took no issue with the proposed
modifications. Docket 62 at 7-8. Plaintiffs conclude the Commission erred
because it “fail[ed] to consider an important aspect of this problem.” Docket 62
at 10-11 (citations omitted).
First, as above, plaintiffs have not provided any legal authority
supporting their contention that a party’s state of mind, intent, good faith, or
reliance is a relevant inquiry into the question of whether a party has managed
a gaming operation pursuant to an unapproved amendment to a management
contract. The chair must approve all contracts for the management of Indian
gaming operations. 25 U.S.C. § 2711(a)(1); 25 C.F.R. § 533.1; Turn Key Gaming
Inc. v. Oglala Sioux Tribe, 164 F.3d 1092, 1094 (8th Cir. 1999). Additionally,
amendments to approved management contracts must also be submitted and
approved by the chair. 25 C.F.R. § 535.1; Turn Key Gaming, 164 F.3d at 1094.
Any attempted modification of an approved management contract without chair
approval is void. C.F.R. §§ 533.7; 535.1(f)); United States ex rel Bernard v.
Casino Magic Corp, 293 F.3d 419, 424 (8th Cir. 2002). Consistent with the first
violation, the Commission concluded that failure to obtain approval from the
chair prior to operation is a per se violation of IGRA. A.R. 3051. Because
unapproved contracts are void and because no scienter requirement must be
shown to establish a violation of the IGRA, the Commission concluded that
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plaintiffs’ reliance was not a defense to the violation. Id. (finding “no reasonable
basis for an expectation that anything but the NIGC’s formal written approval
could authorize the operation[.]”). As with the first violation, the court finds
that the Commission’s interpretation of IGRA or NIGC regulations is
permissible.
Second, a large portion of the parties’ briefs discusses the propriety of a
so-called “bonus” payment between the Tribe and Bettor Racing, which was a
focal point of the modifications, and whether the former NIGC chair Phil Hogen
verbally approved the arrangement. See, e.g., Docket 53 at 18; Docket 59 at 13;
Docket 62 at 7-8; Docket 64 at 7-8. Under the “bonus” arrangement, plaintiffs
and the Tribe would exchange checks–the first check from the plaintiffs to the
Tribe for the full amount due under the approved management contract, and
the second from the Tribe to plaintiffs to make up the difference under the
unapproved modifications. A.R. 3047. Even if the court concludes that the
conversation between Hogen and Tribal counsel Terry Pechota is true and
admissible,6 it would not change the outcome. According to Pechota’s
deposition, he met with Hogen in Arizona during an NIGC “trade show.” A.R.
727. Although it is unclear whether Pechota provided the specifics of the
As the Eighth Circuit has explained, “The district court must base its
determination regarding the presence or absence of a material issue of factual
dispute on evidence that will be admissible at trial.” Firemen’s Fund Ins. Co. v.
Thien, 8 F.3d 1307, 1310 (8th Cir. 1993). Additionally, “[a] party may object
that the material cited to support or dispute a fact cannot be presented in a
form that would be admissible in evidence.” Fed. R. Civ. P. 56(c)(2). The court
notes that the NIGC and Tribe have objected to this evidence as inadmissible
hearsay, but reserves ruling on this objection. See e.g., Docket 59 at 27;
Docket 68 at 8, n.1.
6
18
proposed arrangement to Hogen, Pechota asked if a bonus could be paid by the
tribe. A.R. 728. Hogen is said to have responded affirmatively, but also that it
was only “[his] opinion[,]” that “it shouldn’t be kept a secret,” and that “the
National Indian Gaming Commission should be kept aware.” Id. At best, this
appears to be the informal opinion of Hogen that, in the abstract, a bonus
arrangement could be permissible. Pursuant to NIGC regulations, however, the
parties were required to follow submission guidelines of all proposed
amendments, and approval could only be evidenced by a signed and dated
document from the chair. C.F.R. §§ 535.1(c); 533.1(b). The court agrees with
the Commission’s conclusion that “oral representations cannot relieve a party
of its obligation to comply with statutes and regulations.” A.R. 3051.
Finally, the Commission did not fail to consider the arguments raised by
plaintiffs, but instead agreed with the presiding official that those facts, even if
true, were not material. A.R. 3051 (“The Commission is also not aware of any
source of law that would relieve [plaintiffs] of responsibility even if what they
allege were true.”). Like the first violation, the second violation does not turn on
whether plaintiffs knew or intended to violate the IGRA, but whether in fact
plaintiffs managed Royal River Racing pursuant to two unapproved
amendments to an approved management contract from February 15, 2007, to
December 31, 2009. The record supports the Commission’s conclusion that
plaintiffs did so operate Royal River Racing. Plaintiffs do not dispute this
finding; rather, plaintiffs contend they did not intend to violate the law or that
the Tribe was more blameworthy. These assertions, however, are not material
19
to this issue. Therefore, the court finds that the Commission did not act
arbitrarily or capriciously with respect to the second violation.
iii.
Third Violation–Possessing a Proprietary Interest in a Tribal
Gaming Operation
The Commission agreed with the presiding official that plaintiffs had a
proprietary interest in Royal River Racing in violation of the IGRA. A.R. 3054.
Pursuant to the IGRA, Indian tribes must possess the “ ‘sole proprietary
interest’ in any Indian gaming activity authorized by the act, as well as the
exclusive control and responsibility for it.” City of Duluth v. Fond du Lac Band
of Lake Superior Chippewa, 702 F.3d 1147, 1150 (8th Cir. 2013) (citing 25
U.S.C. § 2710(b)(2)(A)); see also 25 U.S.C. § 2702(2); 25 C.F.R. §§ 522.4(b)(1);
522.6(c). The IGRA caps management fees at 30 percent of net revenues,
unless certain conditions are met in which case the management fees are not
to exceed 40 percent of net revenues. 25 U.S.C. § 2711(c). The Tribe has passed
two gaming ordinances, one specifically aimed at parimutuel betting, which
reiterate the “sole proprietary interest” requirement. A.R. 2384 (Flandreau
Gaming Ordinance § 17-6-1); A.R. 2402 (Flandreau Pari-mutuel Betting
Ordinance).
The Commission explained that the NIGC uses a three-factor approach
to determine whether a tribe has the sole proprietary interest in an Indian
gaming operation: “1) the term of the relationship; 2) the amount of revenue
paid to the third party; and 3) the right of control provided to the third party
over the gaming activity.” A.R. 3052; City of Duluth v. Fond du Lac Band of Lake
Superior Chippewa, 830 F. Supp. 2d 712, 723 (D. Minn. 2011), aff’d in part,
20
rev’d in part, 702 F.3d 1147 (8th Cir. 2013). As the Commission observed, only
the factors concerning revenue and control were of consequence here. A.R.
3052.
a.
Revenue
Regarding the revenue factor, the Commission concluded that from 2004
to 2007, plaintiffs received an amount of revenue in excess of the 40 percent
cap by way of the “bonus” (or “check-swap”) scheme discussed above. A.R.
3053. The Commission calculated that, under this arrangement, plaintiffs had
received from 65 percent to 78 percent of revenues during the 2004 to 2007
period. Id. This, the Commission determined, was a share of the revenues “far
beyond what is permissible under IGRA.” Id.
Plaintiffs do not dispute the ultimate calculations regarding revenue
sharing found by the Commission, but instead argue that the IGRA does not
prohibit the “bonus” arrangement which led to those figures. See, e.g., Docket
53 at 23 (“There is nothing in the NIGC or IGRA regulations that precludes the
giving of a bonus.”). Additionally, plaintiffs argue that the Tribe exercised its
own discretion to issue the “bonus” payments, and that it received all the
revenue due to it under the approved management contract, the unapproved
modifications, and the IGRA. Id. Plaintiffs further argue that IGRA and NIGC
regulations permit Tribes to use their revenue for certain purposes, such as “to
promote tribal economic development.” Id. at 24; Docket 64 at 12 n. 3 (citing
25 U.S.C. § 2710(b)(2)(B)). Moreover, plaintiffs again argue that former NIGC
chair Phil Hogen verbally consented to the arrangement. Docket 53 at 24.
21
First, the IGRA explicitly forbids anyone other than the Tribe from having
a proprietary interest in the gaming operation. 25 U.S.C. § 2710(b)(2)(A).7 The
IGRA further restricts the amount of net revenue that can be paid to the
managing operator to no more than 30 percent or, if certain circumstances are
met, no more than 40 percent. 25 U.S.C. § 2711(c). The Commission concluded
that, by way of the “bonus” payment, plaintiffs had received an amount of
revenue in excess of that permitted under the IGRA. A.R. 3053.
According to the Commission’s interpretation of the statutes, plaintiffs
could not use the “bonus” arrangement “to increase the flow of money to
[plaintiffs] beyond the 40% permitted by IGRA.” Id. As discussed above, the
agency’s interpretation of the statute is entitled to deference. See Chevron, 467
U.S. at 842-43. This court must ask two questions when reviewing an agency’s
construction of a statute it administers–specifically, “whether Congress has
directly spoken to the precise question at issue,” and, if not, “whether the
agency’s answer is based on a permissible construction of the statute.” Id.
Here, it appears Congress has directly spoken to this issue, that is, whether a
management contractor can receive a percentage of revenue beyond the cap set
by the IGRA. Congress specifically mandated that a management contractor
cannot receive more than a 40 percent share of net revenue. See 25 U.S.C.
§ 2711(c)(2). The congressional history of the IGRA also supports this
conclusion. S. Rep. No. 100-446, at 15 (1988) (“The Committee . . . insist[s]
The IGRA does provide an exception to this rule regarding certain Class
II gaming activities. 25 U.S.C.§ 2710(b)(4). This exception, and the restrictions
that accompany the exception, are not before the court.
7
22
that certain minimum standards be met by non-Indians when dealing with
Indians. . . . the members of the Committee believe that term of years and fee
percentages set forth in the bill are adequate to protect any legitimate potential
investor.”). Alternatively, even if Congress has not directly spoken to this issue,
this court would defer to the agency’s construction of the statute, as it appears
to be rational. See Chevron, 467 U.S. at 843. Therefore, although the IGRA
does not explicitly forbid Tribes from issuing a “bonus” payment to a managing
operator, the court agrees with the Commission that the IGRA’s cap on
managing operator fees cannot be exceeded by way of a “check-swap” or
“bonus” arrangement.
Second, regarding whether the payment by the Tribe was discretionary,
the Commission found “[Plaintiffs] made the check-swap scheme a mandatory
prerequisite to maintaining Royal River Racing at the Tribe’s Casino,
eliminating the Tribe’s discretion to determine the payment amount.” A.R. at
3053 (citing the administrative record). Plaintiffs dispute the Commission’s
factual findings that the “bonus” payment was discretionary, predominantly
through citations to statements made by tribal counsel Terry Pechota regarding
his view that the Tribe had the ability to do what it wanted with its money. See,
e.g., Docket 64 at 12 (citing A.R. 726-27, 727 (Deposition of Terry Pechota);
A.R. 170 (Fax from Terry Pechota); A.R. 976 (same); A.R. 1513 (same); A.R.
2051 (same); A.R. 2227 (email from Terry Pechota); A.R. 2644-45 (notice of
23
docketing);8 A.R. 1927-29 (Deposition of Randy Gallo)). According to Gallo’s
own testimony, however, these payments were not viewed as discretionary. A.R.
1893-94 (“[The check swap] wasn’t discretionary as far as the amendments go.
. . . if they’re not going to swap checks I’ll be leaving.”). The agency’s
determination that the check-swap was not discretionary is supported by the
record and by “a ‘rational connection between the facts found and the choice
made.’ ” Bowman Transp. Inc., v. Arkansas-Best Freight Sys., Inc., 419 U.S.
281, 285-86 (1974). Therefore, the court finds that the Commission was not
arbitrary or capricious in making this determination.
Third, plaintiffs contend that the IGRA would permit the “bonus”
arrangement as a means of “promot[ing] tribal economic development.” Docket
53 at 24 (citing 25 U.S.C. § 2710(b)(2)(B)(iii)). 9 In a section entitled “The
Remedial Measure,” wherein plaintiffs were to reimburse the Tribe for diverted
revenue under the “bonus” arrangement, the presiding official agreed with the
NIGC chair’s contention that, even assuming the bonus was discretionary, that
“does not change the unchallenged fact that [Plaintiffs] profited more than the
Tribe, or change the equally unchallenged fact that unapproved modifications
are null and void ab initio.” A.R. 3032. The presiding official also agreed with
Plaintiffs cite to this portion of the administrative record several times
in support of their argument that Pechota believed the check-swap was
permissible. See Docket 53 at 22; Docket 62 at 12; Docket 64 at 12. This
portion of the record, however, appears to be an order from the presiding
official to appoint a mediator regarding a possible a settlement between
plaintiffs and the Tribe. It is unclear what this order has to do with any
statements made by Pechota.
8
Plaintiffs also argue that the issue was never analyzed by the NIGC.
Docket 64 at 11-12. For the reasons that follow, this court disagrees.
9
24
the Tribe’s argument that the effect of the agreement would undermine the
IGRA’s statutory cap on management fees that “protects tribes’ right to be the
primary beneficiaries of their gaming operations.” A.R. 3033. Because the
remedial measure had been “supplanted” by the civil fine assessment, the
Commission appears to have considered this issue in its discussion regarding
the propriety of the civil fine assessment itself and agreed with the presiding
official. A.R. 3056.
As discussed, the record supports the Commission’s determination that
the “bonus” payment was not done at the discretion of the Tribe, but rather
was a mandatory condition of the contract modifications. Additionally, the
unapproved modifications to the management contract that were the genesis of
the “bonus” agreement were void without NIGC approval. But even ignoring
these deficiencies, the court finds that the agency’s decision that the checkswap arrangement was improper is not arbitrary and capricious. While this
court cannot “supply a reasoned basis for the agency’s action that the agency
itself has not given,” it may still “uphold a decision of less than ideal clarity if
the agency’s path may reasonably be discerned.” Bowman Transp., Inc., v.
Arkansas-Best Freight Sys. Inc., 419 U.S. 281, 285-86 (1974) (internal citations
omitted). The Commission’s decision that this arrangement was improper is
premised on the provisions of the IGRA which are designed to protect tribes
from outsiders, to ensure that tribes would be the primary beneficiaries of
tribal gaming operations, to require NIGC approval of all management
contracts and modifications, and to cap management fees at a certain level. See
25
25 U.S.C. §§ 2702; 2711. To allow the check-swap arrangement–which the
Commission found not to be discretionary and not approved by the NIGC–to
bypass those provisions in the name of “economic development” would
undermine the purpose of the IGRA. The court concludes that this
interpretation of the IGRA is permissible.
Finally, for reasons already discussed, plaintiff’s argument that former
NIGC chair Phil Hogen verbally approved the agreement is without merit. At
best, Pechota’s testimony recalling his conversation with the former chair
indicates Hogen’s opinion that, in the abstract, a bonus could be paid. It does
not provide approval for an arrangement that could eliminate the Tribe’s
minimum share of revenue mandated by the IGRA, nor does it eliminate with
the formal approval process needed to amend a management contract. For this
reason and the reasons stated above, the court therefore agrees with the
Commission that plaintiffs received an improper amount of revenue under the
IGRA.
b.
Control
With respect to the control factor, the Commission concluded plaintiffs
had “controlled Royal River Racing, running it as a business separate from the
Casino.” Id. The Commission found plaintiffs admitted to owning Royal River
Racing apart from the casino, held the simulcast license in Bettor Racing’s
name, had sole access to Royal River Racing’s betting information provided by
United Tote,10 had audited Royal River Racing independently from the casino
10
Described as “a pari-mutuel betting service provider.” A.R. 3053.
26
by a firm plaintiffs hired, employed their own accountants, considered their
employees separate and distinct from other casino employees and provided
discretionary bonuses to them, and had reimbursed the casino for providing
Royal River Racing employees food and drink discounts that were otherwise
only given to casino employees. Id. (citing the administrative record). The
Commission acknowledged plaintiffs’ contentions that the IGRA did not forbid
the management contracts, that the Tribe was aware of the arrangement, and
that the Tribe had access to parts of Royal River Racing. Id. at 3054.
Nonetheless, the Commission agreed with the presiding official that these
arguments were either without merit or did not raise a genuine dispute of
material fact, and it granted summary judgment in favor of the NIGC and Tribe.
Id.
Countering the Commission’s findings, plaintiffs argue that the
Commission ignored other facts in the record. For example, plaintiffs contend it
was error for the Commission to equate ownership with a proprietary interest.
Docket 53 at 22. Further, plaintiffs argue that the IGRA does not preclude
management agreements between tribes and operators, and that the IGRA does
not define what is meant by “management.” Id. According to plaintiffs, the
Tribe’s counsel prepared and drafted the agreement, and the Tribe was aware
of the agreement and had access “to Royal River Racing’s facilities, its books,
its safe and its general operations at any time it desired.” Id. at 23.
Additionally, the Tribe interacted frequently with Bettor Racing personnel. Id.
27
First, while the Commission did consider plaintiffs’ admission of
ownership in its determination, the Commission did not equate plaintiffs’
statement of ownership alone with a sole proprietary interest. Instead, as the
NIGC and Tribe argue, plaintiffs’ ownership was only one of a number of factors
the Commission took into consideration. See e.g., Docket 57-1 at 23; Docket 67
at 8. The Commission itself noted that plaintiffs’ “statements of ownership do
bear on the analysis of sole proprietary interest, as it speaks to the level of
control.” A.R. 3054. Only after considering the Commission’s numerous
findings of control did it conclude plaintiffs “admittedly exercised near total
control of Royal River Racing, such as an owner would, and such control is
impermissible under IGRA.” Id.
On this point, plaintiffs contend that their ownership of Royal River
Racing was necessary. Docket 64 at 14. Plaintiffs argue that the Tribe was
ineligible for the licenses required to operate a parimutuel business. Id. (citing
A.R. 1836:9-12 (Deposition of Randy Gallo)). This part of Gallo’s testimony,
however, observes that “[the Tribe] couldn’t own it . . . they had no license with
racing associations.” A.R. 1836. While it may be true that the Tribe could not
own Royal River Racing for present lack of a license, this does not mean the
Tribe was ineligible to obtain such a license. Additionally, as the NIGC argues,
“Plaintiffs do not identify any ‘necessity’ exception to this factor.” Docket 68 at
8-9.
Second, plaintiffs are correct that the IGRA allows for tribes to enter into
management agreements with non-Indians. See 25 U.S.C. § 2711. But, as
28
already discussed, there are numerous limitations to those contracts, such as
the amount of compensation the management operator can be paid as well as
the level of control they may exert. While the IGRA does not define the terms
“management” or “manager” with particularity,11 the NIGC’s interpretation of
that term would be entitled to deference. Chevron, 467 U.S. at 842-43; see also
Casino Magic Corp., 293 F.3d at 425; Three Affiliated Tribes, 93 F.3d at 1418
n. 10 (noting “that a permissible agency interpretation [of IGRA’s terms] would
merit considerable deference.”). While the agency may permissibly conclude
plaintiffs were managing Royal River Racing, it is not simultaneously precluded
from also determining whether a managing operator holds a proprietary
interest in the operation by exerting excessive control over the operation.
Finally, plaintiffs cite testimony from Gallo stating that the Tribe had
some access to parts of Royal River Racing, as well as interaction with Bettor
Racing personnel. Docket 53 at 23 (citing A.R. 1858; 2168-69 (Deposition of
Randy Gallo)). The presiding official concluded that “the Tribe’s access to
information or interactions between OTB personnel and Casino personnel,
without more, does not establish a genuine issue of material fact regarding
ownership and control” of the operation. A.R. 3032. In its final decision and
order, the Commission agreed. A.R. at 3054. The Commission concluded
plaintiffs’ allegations, if true, would not “change the admission he owned,
controlled, managed, and operated Royal River Racing.” Id. The court agrees,
NIGC regulations define a “Person having management responsibility
for a management contract” as “the person designated by the management
contract as having management responsibility for the gaming operation, or a
portion thereof.” 25 C.F.R. § 502.18.
11
29
and finds the Commission did not act arbitrarily or capriciously with respect to
its determination.
By considering the two relevant factors–revenue and control–the
Commission concluded plaintiffs held a proprietary interest in Royal River
Racing in violation of IGRA. A.R. 3054. Reviewing the record, the court
concludes the agency has made a rational connection between the facts found
and the choice made. Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc.,
419 U.S. 281, 285 (1974) (citation omitted). Therefore, the court cannot agree
that the Commission acted arbitrarily or capriciously with regards to the third
violation.
iv.
Civil Fine Assessment
As discussed, the NIGC is empowered to levy and collect civil fines up to
$25,000 against a managing operator for each violation of the IGRA, NIGC
regulations, or Tribal ordinances, regulations, or resolutions approved by the
NIGC. 25 U.S.C. § 2713(a)(1). NIGC regulations provide a set of factors the
agency follows in order to assess whether a fine will be imposed and the
amount of the fine itself. 25 C.F.R. § 575.4. The factors are: (1) the economic
benefit of noncompliance; (2) the seriousness of the violation; (3) whether there
has been a history of violations; (4) negligence or willfulness; and (5) good faith
compliance following notification of the violation. Id. The agency may consider
whether ongoing violations are to be deemed separate violations when
determining the total amount of the fine. 25 C.F.R. § 575.3. With regard to the
third factor–a history of violations–the Commission found there was no prior
30
history of violations by plaintiffs, and this was considered by the Commission
and the presiding official. A.R. 3057.
The NIGC weighed the four applicable factors to determine the
appropriate fine for each of the violations discussed above, and assessed a total
fine of $5 million. Plaintiffs contend that the agency improperly evaluated each
of factors and ignored additional facts. Docket 53 at 27. This court must afford
the NIGC substantial deference to the interpretation of the agency’s own
regulations. South Dakota v. U.S. Dep’t of Interior, 423 F.3d 790, 799 (8th Cir.
2005).
a.
Economic Benefit of Noncompliance
The first factor asks whether “the respondent obtained an economic
benefit from the noncompliance that gave rise to a notice of violation, as well as
the likelihood of escaping detection.” 25 C.F.R. § 575.4(a). The Commission
agreed with the presiding official’s calculation that, as a result of the violations
discussed above, plaintiffs received an economic benefit of at least $4,544,755
during its period of noncompliance. A.R. 3055.12 This amount represented
what the Tribe should have received under the terms of the approved
management contract. A.R. 3032.
Plaintiffs do not deny receiving an economic benefit from its
noncompliance or contest this calculation. Rather, plaintiffs argue the
Plaintiffs did remit $1,081,578 to the Tribe, which would bring the
total balance outstanding to $3,463,177. A.R. 3032. At the time the NOV was
issued, however, the agency did not have the records necessary to calculate
any additional economic benefit plaintiffs’ may have received between fiscal
year 2009 and April 5, 2010. A.R. 3055 n.2.
12
31
Commission failed to consider plaintiffs’ lack of intent to violate the law, the
fault of the Tribe in failing to submit the modifications for approval, that the
Tribe received what it had contracted for, and that there is no law precluding
the “bonus” payments. Docket 53 at 27. Plaintiffs also assert that both they
and the Tribe received an economic benefit. Id. at 28.
The agency concluded these factual assertions were irrelevant to either
the inquiry of whether plaintiffs received an economic benefit from
noncompliance or the amount of that benefit. A.R. 3056. The court agrees with
the agency’s conclusion with respect to these factors, although it notes that
some of plaintiffs’ assertions may be relevant to the factor pertaining to
plaintiffs’ negligence or willfulness and will consider them in that context.
b.
Seriousness of the Violation
The second factor allows the NIGC to adjust the amount of the fine “to
reflect the seriousness of the violation,” and mandates that the chair “consider
the extent to which the violation threatens the integrity of Indian gaming.” 25
C.F.R. § 575.4(b). The presiding official noted the NIGC regulations provide that
the operation of an Indian gaming establishment without an approved
management agreement is deemed a “substantial violation.” A.R. 3036.13
Additionally, because the NIGC chair was directed to consider “the extent to
which the violation threatens the integrity of Indian gaming,” the presiding
official agreed with the chair’s determination that violation of the IGRA’s sole
At the time of the presiding official’s review, the regulation was
designated as 25 C.F.R. § 573.6(a)(7). Since that time, the regulation has been
renumbered to 25 C.F.R. § 573.4(a)(7).
13
32
proprietary interest requirement was also serious. Id. (quoting 25 C.F.R
§ 575.4(b)). Though not explicitly cited as such, the first consideration appears
to be based upon the IGRA’s mandate that all management contracts be
approved by the NIGC chair prior to operation, and the second on IGRA’s
purpose that tribes remain the primary beneficiaries of Indian gaming. 25
U.S.C. §§ 2711; 2702(2). The Commission nonetheless adopted the presiding
official’s conclusions. A.R. 3056.
Plaintiffs counter that the agency ignored the Tribe’s role in drafting and
presenting the agreements between the parties, that the Tribe approved each
agreement between the parties, and that Gallo was unaware that he was
violating any IGRA or NIGC regulation. Docket 53 at 27-28. The Commission
concluded these assertions did not address the seriousness of plaintiffs’ own
violations. A.R. 3056. The court agrees and, as with the previous factor, notes
that these assertions may more properly be considered regarding plaintiffs’
negligence or willfulness and will be addressed below.
Plaintiffs also contend that while operation of an Indian gaming
establishment without an approved management agreement is “substantial,”
the term is not a corollary of the word “serious.” Docket 62 at 17; Docket 64 at
16. In support of this argument, plaintiffs cite BMW of North America, Inc. v.
Gore, 517 U.S. 559, 575 (1996), for the proposition that “some wrongs are more
blameworthy than others.” Docket 62 at 17. Gore, however, was describing the
relationship between a jury award of punitive damages and the “degree of
reprehensibility of the defendant’s conduct.” Gore, 517 U.S. at 575. The
33
imposition of punitive damages is not before the court. Moreover, the court
gives deference to the agency’s interpretation of its own regulations, and
plaintiffs have not presented any evidence that the agency’s equivalence of
“substantial” and “serious” is “ ‘plainly erroneous or inconsistent with the
regulation.’ ” South Dakota v. U.S. Dep’t of Interior, 423 F.3d 790, 799 (8th Cir.
2005) (quoting Coalition for Fair & Equitable Reg. of Docks on Lake of the Ozarks
v. F.E.R.C., 297 F.3d 771, 778 (8th Cir. 2002)). For these reasons, the court
finds that the agency did not act arbitrarily or capriciously with respect to this
factor.
c.
Negligence or Willfulness
The third factor allows the NIGC to adjust the amount of the fine “based
on the degree of fault of the respondent in causing or failing to correct the
violation, either through act or omission.” 25 C.F.R. § 575.4(d). The
Commission adopted the presiding official’s conclusion that “[t]he facts of
record negate the possibility a reasonable trier of fact could find [plaintiffs’]
violations were not negligent (i.e., a result of a lack of ordinary care) or willful
(i.e., purposeful and intentional, or reckless).” A.R. 3057. The agency
determined that the record precluded a finding that plaintiffs had no role or
only an insignificant role regarding the violations. Id. The presiding official
acknowledged that the Tribe did bear some responsibility for its part in the
matter. A.R. 3037. Because of the role of the Tribe, plaintiffs’ fine was reduced.
Id.
34
The court acknowledges plaintiffs’ earlier contentions that the NIGC
should have considered their claims that the Tribe drafted and presented the
parties’ agreements, that the Tribe agreed to the modifications, that the Tribe
did not inform Gallo the modifications had not been approved, and that the
Tribe represented the agreements and arrangements were permissible. See e.g.,
Docket 53 at 27-29; id. at 30-31. While not responsive to the first two factors,
these contentions would be relevant here. The record demonstrates, however,
that the NIGC did consider the Tribe’s role in the matter. A.R. 3037 (“The
Chairwoman acknowledges that [plaintiffs] ‘were not alone in their actions,’ a
fact that caused her to reduce the amount of the fine that otherwise could be
imposed.”) (citation omitted). The Tribe was also cited for four violations of the
IGRA and NIGC regulations. A.R. 2511 (Notice of Violation). Because the record
indicates that the Tribe’s conduct was considered and plaintiffs’ fine was
reduced in recognition of the Tribe’s role, the court finds that the NIGC did not
act arbitrarily or capriciously regarding the Tribe’s part in the matter.
The remainder of plaintiffs’ arguments with respect to this factor are
largely based on plaintiffs’ lack of intent to violate the law. See e.g., Docket 53
at 27 (“. . . Bettor Racing did not engage in any intentional or deceptive conduct
in its dealings with the Tribe[.]”). The record indicates that Gallo admitted to
“operat[ing] for six months at Flandreau without a contract.” A.R. 1772:13-14.
The record further demonstrates that Gallo was aware that the NIGC needed to
approve management contracts. A.R. 1765:22-24 (“I knew that they had to
okay it before I got the license.”). As discussed above, plaintiffs admitted to the
35
dates of the unapproved modifications, and the record supports the
Commission’s conclusion that the “bonus” payment was not viewed as
discretionary. Additionally, Gallo was aware that the “bonus” payment would
reduce the revenue split due to the Tribe below the level required by the IGRA.
A.R. 1895:5 (responding to a question about his understanding of the revenue
split that “[The check swap] would wipe it out.”). These facts support the
Commission’s conclusion that plaintiffs were at least negligent with respect to
the violations, and there appears to be “a ‘rational connection between the facts
found and the choice made.’ ” Bowman Transp. Inc., 419 U.S. at 285-86.
Further, as discussed, the Tribe’s conduct was taken into consideration, which
led to a reduction in the fine imposed. For these reasons, the court finds that
the Commission did not act arbitrarily or capriciously regarding this factor.
d.
Good Faith
The fourth factor enables the chair to reduce the amount of the fine
“based on the degree of good faith of the respondent in attempting to achieve
rapid compliance after notification of the violation.” 25 C.F.R. § 575.4(e). Unlike
the other factors that allow the chair to “adjust” the amount of the fine
imposed, this factor speaks only to a possible reduction. The Commission
agreed with the presiding official that “[t]here is no dispute that [Plaintiffs] did
not reimburse the Tribe the sum [which] was due under the management
contract.” A.R. 3057.
Plaintiffs do not contest that the amount due to the Tribe was not paid,
but they argue that the assessment of this factor amounted to a denial of due
36
process, effectively punishing them for exercising their right to appeal the
violation. Docket 53 at 31. Additionally, plaintiffs contend that they have been
“exceptionally candid” throughout the NIGC’s investigation, and that they are
only attempting to “defend itself rather than pay any amount which it did not
believe it owed[.]”. Docket 62 at 18.
The presiding official responded to plaintiffs’ first argument, noting that
they could pay the amount at issue in order to avoid additional consequences
such as interest accrual or “to engender favorable consideration of a potential
civil fine or penalty.” A.R. 3038-39 n.13. If plaintiffs had prevailed, they would
have been given a refund. Id. Additionally, plaintiffs’ request for a hearing was
dependent on the outcome of the summary judgment motions, and it did not
weigh against them “because they have exercised their appellate rights.” Id.
Though not cited at length by the Commission, it ultimately adopted the
conclusions of the presiding official. A.R. 3057. The court agrees that this
factor does not punish plaintiffs for exercising their rights to appeal or contest
the fine itself, but only asks whether the fine ultimately imposed should be
reduced because plaintiffs complied with the remedial measures set out in the
NOV.
Plaintiffs’ second argument was also rejected by the presiding official and
Commission, both noting that this factor does not consider if plaintiffs acted
with good faith in general, but only whether plaintiffs exercised good faith to
“comply with the NOV’s corrective measure” of reimbursing the Tribe. A.R.
3057. The plain language of the regulation limits the consideration of a party’s
37
good faith to “after” the NOV is issued. See C.F.R. § 575.4(e); Thomas Jefferson
Univ. v. Shalala, 512 U.S. 504, 512 (1994) (deferring to the agency’s
interpretation of a regulation unless “an ‘alternative reading is compelled by
the regulation’s plain language[.]’ ”) (citation omitted). The court agrees with the
presiding official and Commission that only plaintiffs’ good faith effort to
comply with the NOV’s remedial measure would be considered in this factor’s
application. Therefore, the agency was correct to limit its inquiry to that
particular time frame, and the record supports the conclusion that it did so.
For these reasons, the court finds that the Commission did not act arbitrarily
or capriciously with respect to this factor. Further, the record supports the
agency’s assessment of the factors and that the Commission’s conclusions were
consistent with the facts before it.
v.
Due Process
Throughout its briefs, plaintiffs intermittently allege they were prohibited
from receiving a hearing or otherwise denied various aspects of due process
during the agency proceeding. See, e.g., Docket 53 at 6-7, 31, 35 n.17, 37.14
For example, plaintiffs contend they were not given an opportunity to engage in
In a footnote, plaintiffs allude to “a question as to whether Bettor
Racing in fact possesses a substantive due process claim.” Docket 53 at 35,
n.17 (emphasis added). Plaintiffs then cite to a Fourth Circuit district court
opinion that applied the rational basis standard of review to the federal AntiKickback statute. Id. (citing United States v. Kruse, 101 F. Supp. 2d. 410, 415
(E.D. Va. 2000)). Plaintiffs do not provide any additional analysis, however, and
it is unclear what plaintiffs’ substantive (rather than procedural) due process
claim is or how plaintiffs meet their burden to overcome the rational basis
standard of review. Without support of an essential element of plaintiffs’
substantive due process claim, there is nothing for the court to address. See
Everett v. St. Ansgar Hosp., 974 F.2d 77, 80 (8th Cir. 1992).
14
38
discovery or participate in the NIGC’s investigation. Docket 62 at 11, 15-16.
These arguments are not presented with a great deal of clarity, but the court
will address the procedures followed at the agency level.
The fundamental requirement of due process is the opportunity to be
heard. See, e.g., Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314
(1950); Schmidt v. Des Moines Pub. Schs., 655 F.3d 811, 817-18 (8th Cir. 2011).
The NIGC is given subpoena and deposition power “in any proceeding or
investigation pending before the Commission at any stage of such proceeding
or investigation.” 25 U.S.C. § 2715(d). Any party may request to depose a
witness by filing a request with the NIGC or, if a presiding official has been
appointed, with the presiding official. 25 C.F.R. § 571.11(a). Commission
officials may be served with interrogatories, and NIGC regulations and the
Freedom of Information Act govern the inspection of NIGC records. Id.; 25
C.F.R. § 571.3; 5 U.S.C § 552.
The IGRA directs the NIGC to set regulations by which opportunities for
hearings and appeals may be pursued regarding fines levied by the
Commission. 25 U.S.C. § 2713(2). NIGC regulations provide that a party may
appeal a notice of violation or proposed civil fine assessment and request a
hearing. 25 C.F.R. § 584.3(a). Parties may present relevant written evidence
and give an oral argument at the hearing, but the presiding official retains the
discretion to allow oral and documentary evidence, as well as crossexamination. 25 C.F.R. § 584.8(a). Alternatively, parties may waive the right to
an oral hearing and elect to have the matter determined by the Commission on
39
the basis of written submissions. 25 C.F.R. § 584.3(c). Parties may also move to
submit additional, relevant evidence to supplement the record prior to the
Commission’s final decision, provided “reasonable grounds” explain the
absence of the evidence. 25 C.F.R. § 581.5.
The record shows plaintiffs originally requested an appeal and hearing
regarding the notice of violation in June 2011. A.R. 2542; 2558. Following
unsuccessful mediation, the parties subsequently submitted a joint motion
requesting a deferral of the hearing until after motions have been ruled upon
by the presiding official. A.R. 2658. The parties also requested the presiding
official to enter a proposed scheduling order attached to the joint motion, with
the effect that the hearing date be set “if necessary” after the motions were
ruled upon. A.R. 2661. The presiding official adopted the scheduling order on
January 27, 2012. A.R. 2662.
Following the civil fine assessment, plaintiffs again appealed and
requested a hearing. A.R. 2941; 2944. In the order consolidating the notice of
violation and civil fine assessment appeals, the presiding official noted
plaintiffs had submitted a request to defer a hearing with respect to the CFA
until after summary judgment motions had been considered. A.R. 2992. The
order referenced that the hearing would be held “as provided in my order dated
January 27, 2012.” Id. As discussed, the January 27, 2012, scheduling order
contemplated the hearing would be held “if necessary.” As the presiding official
later explained, whether a hearing would be held “is strictly a matter of the
outcome on the parties’ motions for summary judgment[.]” A.R. 3039 n.13. The
40
lack of a subsequent hearing appears to be based on the agency’s
determination, following its grant of summary judgment to the NIGC chair and
Tribe, that the hearing would not be necessary as per the scheduling order
submitted by the parties.
The preceding discussion and examination of the IGRA and NIGC
regulations reveals that plaintiffs were allowed to have subpoenas issued, take
depositions, and request information. Plaintiffs could also supplement the
record by motion before the Commission reached its final decision.
Additionally, plaintiffs were not foreclosed from requesting a hearing, but they
agreed to defer the hearing until after the presiding official ruled on the
motions for summary judgment, and then only if the hearing was still
necessary would it be held. Thus, it appears from the record that plaintiffs were
afforded the opportunity to be heard and otherwise afforded due process of law.
Plaintiffs’ bare allegations to the contrary do not establish that a violation of
their rights has occurred.15
In sum, the administrative record supports the Commission’s
conclusions that plaintiffs committed three violations of the IGRA. The same
can be said for the Commission’s review of the relevant factors the NIGC used
to determine the amount of the civil fine assessed against plaintiffs. The court
concludes that the agency has given “a ‘rational connection between the facts
found and the choice[s] made’ ” throughout the administrative proceeding.
Plaintiffs also contend the NIGC was in some way biased because it “is
tasked with protecting the Tribe[.]” Docket 53 at 37. This assertion is equally
unsubstantiated.
15
41
Bowman Transp. Inc., 419 U.S. at 285-86; see also South Dakota v. United
States Dep’t of Interior, 423 F.3d 790, 801 (8th Cir. 2005). Plaintiffs have not
demonstrated that the agency acted arbitrarily or capriciously with respect to
any of the violations or with respect to the factors used to determine the
amount of the fine. Additionally, plaintiffs have not shown they were denied
due process of law. Accordingly, the NIGC’s and Tribe’s motions for summary
judgment are granted.
II.
On June 1, 2012, plaintiffs submitted a memorandum in opposition to
the CFA. A.R. 2999. Plaintiffs argued, inter alia, that the CFA of $5 million
violated the excessive fines clause of the Eighth Amendment. A.R. 3008-13.16
In its final decision and order, however, the NIGC agreed with the presiding
official’s recommendation that it lacked jurisdiction to entertain constitutional
claims. A.R. 3058 (observing that the parties “did not address the question of
whether IGRA or any other statute confers” such authority). The parties have
not contested the NIGC’s decision to forego adjudication on this issue; instead,
each party has sought summary judgment from this court. Consequently, the
merits of plaintiffs’ Eighth Amendment claim were not addressed by the
agency.
Although uncontested by the parties, this court must first determine
whether it has subject matter jurisdiction to address the Eighth Amendment
claim which the agency considered but declined to reach. As a general rule,
The NIGC has confirmed that collection proceedings against the
amount sought by the fine have begun. Docket 44 at 8.
16
42
parties may seek judicial review following an agency proceeding only after
exhausting their administrative remedies. See e.g., Rowden v. Warden, 89 F.3d
536, 536 (8th Cir. 1996). The exhaustion doctrine serves several purposes,
such as promoting judicial economy, aiding judicial review by developing a
factual record, protecting agency autonomy, and discouraging deliberate
avoidance of administrative procedures. Peters v. Union Pac. R.R. Co., 80 F.3d
257, 263 n.3 (8th Cir. 1996). There are several exceptions to the doctrine,
however, and it is “not a rule to be applied woodenly[.]” West v. Bergland, 611
F.2d 710, 715 (8th Cir. 1979); see also Krempel v. Prairie Island Indian Cmty,
125 F.3d 621, 623 (8th Cir. 1997) (explaining “the application of the
exhaustion doctrine depends on the purposes of exhaustion being served.”).
The parties have not provided–and the court is not aware of–any
authority that would have required the NIGC to rule on plaintiffs’ Eighth
Amendment claim. Additionally, even if the NIGC could have addressed this
claim during the administrative proceeding and chose not to, this court
concludes it can nonetheless reach the merits of the issue for several reasons.
First, judicial economy would be undermined, rather than promoted, if this
court were to require the agency to revisit the issue. See Riggin v. Office of
Senate Fair Emp’t Practices, 61 F.3d 1563, 1571 (Fed. Cir. 1995) (concluding
that remand of a “straightforward” constitutional issue “would not justify the
time and effort involved . . .”). Second, judicial review would not be aided by
any additional development of the factual record, as the question presented is
primarily a legal one that can be answered by the record already developed.
43
State of Mo. v. Bowen, 813 F.2d 864, 871 (8th Cir. 1987). Third, because
plaintiffs are alleging a constitutional violation, resolution of such an issue may
be more appropriately had in a judicial forum than at the agency level.
Plaquemines Port, Harbor, & Terminal Dist. v. Fed. Mar. Comm’n, 838 F.2d 536,
544 (D.C. Cir. 1988). Finally, because plaintiffs originally presented the issue
to the NIGC for resolution, this is not a case where it appears a party is
attempting to deliberately avoid administrative procedures. Because the
purposes underpinning the exhaustion doctrine are not being threatened, this
court will reach the merits of the Eighth Amendment issue in the absence of a
specific ruling by the NIGC below.
LEGAL STANDARD
Because the court is not being asked to review an administrative
decision, the standard for summary judgment set forth in Rule 56 applies. As
previously discussed, summary judgment may be awarded when “the movant
shows that there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); see also Clark
v. Kellogg Co., 205 F.3d 1079, 1082 (8th Cir. 2000). The court views the
evidence in the light most favorable to the nonmoving party. Ludwig v.
Anderson, 54 F.3d 465, 470 (8th Cir. 1995). As the Eighth Circuit has
explained, “Where the unresolved issues are primarily legal rather than factual,
summary judgment is particularly appropriate.” United States v. Premises
Known as 6040 Wentworth Ave. S., Minneapolis, Hennepin Cnty. Minn., 123
44
F.3d 685, 687-88 (8th Cir. 1997) (citing Crain v. Bd. of Police Comm’rs, 920
F.2d 1402, 1405-06 (8th Cir. 1990).
The Eighth Amendment provides, “Excessive bail shall not be required,
nor excessive fines imposed, nor cruel and unusual punishments inflicted.”
U.S. Const. amend. VIII. The Supreme Court has held that the Excessive Fines
Clause of the Eighth Amendment applies not only to criminal sanctions, but to
civil assessments that are punitive in nature. Austin v. United States, 509 U.S.
602, 610 (1993) (explaining the relevant inquiry is not whether the assessment
is criminal or civil, “but whether it is punishment.”). For the purposes of its
forthcoming analysis, this court will assume, as plaintiffs suggest, that a civil
fine imposed under 25 U.S.C. § 2713(a)(1) is equivalent to “punishment” and
therefore subject to the Eighth Amendment’s limitations. See Docket 53 at 3334.
To determine whether a fine runs afoul of the Eighth Amendment, the
Supreme Court has explained that, “The amount of the forfeiture must bear
some relationship to the gravity of the offense that it is designed to punish.”
United States v. Bajakajian, 524 U.S. 321, 334 (1998). After concluding that
neither the text nor history of the Eighth Amendment illuminates the contours
of the Excessive Fines Clause, the Court adopted “the standard of gross
disproportionality articulated in [its] Cruel and Unusual Punishment Clause
precedents.” Id. at 336. From these precedents, the Court established two
prudential considerations: first, “that judgments about the appropriate
punishment for an offense belong in the first instance to the legislature,” and
45
second, “that any judicial determination regarding the gravity of a particular
[offense] will be inherently imprecise.” Id. Because there is no bright line to
determine whether a particular fine may be grossly disproportionate, the Court
left that task to the lower courts. Austin, 509 U.S. at 622-23.
Responding to the Supreme Court’s guidance, the Eighth Circuit has
adopted a two-pronged test to determine whether an assessment is
constitutionally infirm. The first prong requires the challenger to “mak[e] a
prima facie showing of ‘gross disproportionality.’ ” Wentworth Ave., 123 F.3d at
688 (quoting United States v. Bieri, 68 F.3d 232, 236 (8th Cir. 1995)). If the
challenger meets its initial burden, the court then considers whether the
disproportionality “reach[es] such a level of excessiveness that in justice the
punishment is more criminal than the [offense].” Id. A number of factors are
considered to aid the court’s determination of whether a fine is “grossly
disproportional,” such as the duration of the conduct that led to the fine, the
gravity of the offense versus the severity of the sanction, and the value of what
was forfeited. United States v. Dodge Caravan, 387 F.3d 758, 763 (8th Cir.
2004) (citing Bieri, 68 F.3d at 236). Additionally, a court should consider the
benefit gained by the offending party, that party’s motive and culpability, and
the extent to which that party’s “interest and the enterprise itself are tainted”
by the unlawful conduct. Id. There may be other factors to consider, and not all
factors may apply to a given case, thus the Eighth Circuit has acknowledged
that this inquiry is dependent on the facts before the court. Id. Nonetheless, if
a fine is near or within the permissible statutory range, it “almost certainly is
46
not excessive.” United States v. Moyer, 313 F.3d 1082, 1086 (8th Cir. 2002)
(citing United States v. Sherman, 262 F.3d 784 (8th Cir. 2001) vacated but
reinstated by United States v. Diaz, 296 F.3d 680 (8th Cir 2002) (en banc)).
Before applying the standards set forth, however, the court will address
plaintiffs’ use of the Fourteenth Amendment Due Process Clause analysis
regarding awards of punitive damages, rather than the Eighth Amendment
Excessive Fines Clause analysis. See, e.g., Docket 53 at 34 (citing Cooper
Indus. Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424 (2001); Gore, 517 U.S. at
574; State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003)).
These cases establish three criteria to assess in order to determine whether a
jury award of punitive damages violates Due Process: (1) the degree of
reprehensibility of the defendant’s conduct; (2) the difference between the
actual harm caused and the punitive damages awarded; and (3) the difference
between the punitive damages awarded and civil penalties awarded in similar
cases. Gore, 517 U.S. at 575. These three “guideposts” are meant to ensure
that proper notice of the penalty is associated with the conduct. Id. at 574.
The Supreme Court has observed that the nature of punitive damages
awards amounts to a “private fine” issued by a jury designed to punish the
offender. Cooper, 532 U.S. at 432. In the present case, however, there is not a
state law at issue that would make the Fourteenth Amendment’s Due Process
Clause the appropriate vehicle to examine the claim. See, e.g., Cooper, 532 U.S.
at 433 (discussing the Fourteenth Amendment’s limits on the ability of states
to impose penalties and punitive damages). Additionally, there is no jury award
47
of punitive damages before the court, much less an award several times in
excess of the actual damage inflicted by a tortfeasor. See State Farm., 538 U.S.
at 425 (noting with disapproval an award ratio of 145-to-1). Whatever analogy
may be drawn between the two concepts, the Eighth Amendment’s “gross
disproportionality” standard must be applied. See Albright v. Oliver, 510 U.S.
266, 273 (1994) (explaining “Where a particular Amendment ‘provides an
explicit textual source of constitutional protection’ against a particular sort of
government behavior, ‘that Amendment, not the more generalized notion of
‘[due process],’ must be the guide[.]’ ”). The court will nonetheless construe the
due process arguments as if they were made in the Eighth Amendment context,
as several of the factors from the latter appear to overlap with the “guideposts”
from the former.
DISCUSSION
Because cross motions for summary judgment are before the court, it
will first consider the motions of the NIGC and Tribe. Thus, the evidence will be
viewed in the light most favorable to plaintiffs.
For the first violation, operating without an approved management
contract from September 24, 2004, to March 16, 2005, the NIGC assessed a
fine of $1 million ($5,747 per day). A.R. 3057. For the second violation,
operating under two unapproved management contract modifications from
February 1, 2007, to April 4, 2010, the NIGC assessed a fine of $2 million
($1,747 per day). A.R. 3058. For the third violation, holding a proprietary
interest in Royal River Racing from August 31, 2006, to April 4, 2010, the NIGC
48
assessed a fine of $2 million ($1,523 per day). Id. The civil fine ultimately
leveled against plaintiffs totaled $5 million. A.R. 3044. As discussed above, the
NIGC determined plaintiffs had incurred a financial benefit of $4,544,755 as a
result of these violations.
Plaintiffs ground their argument that the fine is prima facie grossly
disproportionate on several assertions. With respect to the gravity of the offense
versus the severity of the sanction, plaintiffs insist that the NIGC’s equivalence
of a “substantial” violation with a “serious” violation was improper. Docket 53
at 34-35. Further, plaintiffs argue they had no intention of violating the law,
but that the Tribe was largely to blame for any violations that did occur; thus,
plaintiffs’ lack of culpability cannot justify the fine. Docket 53 at 35-36.
Although more appropriate to due process analysis, plaintiffs note the relatively
low fine of $750,000 facing the Tribe if it violates the terms of the settlement
agreement in comparison to the $5 million fine imposed against plaintiffs.
Docket 53 at 36. Plaintiffs also contend that “although a fine may be within the
maximum penalty prescribed by federal regulation, it may still be deemed
excessive.” Docket 53 at 34 (citing United States v. Am. Elec. Power Serv. Corp.,
218 F. Supp. 2d 931, 941-42 (S.D. Ohio 2002); United States v. Valley Steel
Prods. Co., 765 F. Supp. 752 (C.I.T. 1991)).
Although the evidence is viewed in plaintiffs’ favor, their arguments do
not make a prima facie showing that the fine is grossly disproportionate. First,
with respect to the Supreme Court’s observation in United States v. Bajakajian,
424 U.S. 321, 336 (1998), that “judgments about the appropriate punishment
49
for an offense belong in the first instance to the legislature,” Congress has
provided just such a judgment here. Pursuant to its statutory authority, the
chair of the NIGC may impose a civil fine “not to exceed $25,000 per violation”
against “a management contractor engaged in gaming for any violation of any
provision” of the IGRA, regulations promulgated by the NIGC, or approved
tribal regulations, ordinances, or resolutions. 25 U.S.C. § 2713(a)(1). The IGRA
gives the NIGC additional authority to enact its own regulations for the
assessment and collection of civil fines. Id.; 25 U.S.C. § 2706(a)(2). Under its
regulations, the NIGC may treat ongoing, daily violations as separate violations
for purposes of assessing the total fine. 25 C.F.R. § 575.3. Thus, Congress has
established a statutory framework for the enforcement of the IGRA to be
administered by the NIGC, and the NIGC has been entrusted to promulgate
rules to achieve that end.
Second, with respect to the fine itself, the Commission concluded
plaintiffs had been in violation of various parts of the IGRA and NIGC
regulations for a period of time totaling 2,632 days. A.R. 3057-58. Although
there is overlap during the days when plaintiffs operated Royal River Racing
under two unapproved contract modifications and the days plaintiffs held a
proprietary interest in the operation, each constitutes an ongoing, separate
violation that the NIGC is permitted to assess individually. See 25 U.S.C.
§§ 2713(a)(1); 2710(b)(2)(A)); 2702(2); 2711; 25 C.F.R. § 575.3.17 These
Even if the court were to consider only the period of time during which
plaintiffs operated without an approved management contract and under the
17
50
statutory and regulatory provisions do not carry a scienter requirement before
a violation can be sanctioned, and plaintiffs have provided no authority to the
contrary.
The NIGC also determined plaintiffs were able to retain approximately
$4,544,755 in revenue that should have gone to the Tribe as a result of their
violations during this time. A.R. 3055. Plaintiffs do not dispute this amount,
but rather who is to blame for the Tribe’s loss. See, e.g., Docket 62 at 20
(“There is an even greater dispute as to whether Bettor Racing caused the harm
of which the Tribe complains.”). The $5 million fine itself does not appear
disproportionate to the duration of the offending conduct or what plaintiffs
received as a result of the offending conduct. See United States v. Alexander,
108 F.3d 853, 857 (8th Cir. 1997) (approving the comparison between the
extent of the offense and the amount of the forfeiture assessed).
Regarding the gravity of the offenses, plaintiffs’ primary contention is
that they did not intend to violate the law and that the Tribe bears its own
responsibility for the violations that occurred. See Docket 53 at 35. Accepting
that plaintiffs did not intend to violate the law would lessen their culpability for
purposes of assessing the total amount of an appropriate fine. It would not,
however, mean that the IGRA or NIGC regulations were not violated, or that
those violations did not continue to occur over a period of several years, which
allowed plaintiffs to receive over $4 million dollars owed to the Tribe. Accepting
that plaintiffs acted with the cooperation of the Tribe would also reduce
unapproved modifications, it would amount to a duration of 1,319 days (a
period of over three and a half years).
51
plaintiffs’ own culpability to the same extent described above, which appears to
be why the NIGC reduced the amount of the fine it ultimately imposed.
Although discussed more fully below, the NIGC did not assess the maximum
amount permissible under the IGRA and NIGC regulations for plaintiffs’
violations. That the agency chose not to do so reflects its determination that
plaintiffs did not deserve as harsh of a penalty as the agency may impose on
worse offenders. To this end, plaintiffs’ argument that “some wrongs are more
blameworthy than others” is correct. Docket 53 at 36 (quoting Gore, 517 U.S.
at 575). But it does not follow that plaintiffs are therefore blameless or that the
ongoing violations themselves were not grave. Plaintiffs’ collateral assertion, for
which they provide no authority, that it was impermissible for the NIGC to
equate a “substantial” violation for a “serious” violation during the assessment
phase, is without merit for reasons already discussed.18
Although, as plaintiffs contend, the Tribe faces a relatively smaller fee if
it violates the terms of its settlement agreement, the key consideration is not
the size of that fine but the fact that the Tribe accepted its responsibility and
did, in fact, settle with the NIGC. Had the Tribe not done so, it faced the same
The court would not consider the agency’s interpretation of its own
regulation if that regulation violated the Constitution. South Dakota v. United
States Dep’t of the Interior, 423 F.3d 790, 799 (8th Cir. 2005). While plaintiffs
may believe that is the case, they have not provided any authority beyond
conclusory statements to support such a result. Moreover, the plain meaning of
the two words indicates they are similar. Compare Dictionary.com,
http://dictionary.reference.com/browse/substantial (last visited Sept. 3,
2014)(defining “substantial” as “of ample or considerable amount, quantity,
etc.”) with Dictionary.com, http://dictionary.reference.com/browse/serious
(last visited Sept. 3, 2014) (defining “serious” as “weighty or important.”).
18
52
$25,000 per violation per day penalty. A.R. 2531. To compare the Tribe’s
potential fine for violating the settlement agreement with the fine assessed
against plaintiffs under these circumstances is inapposite.
Additionally, because each daily violation could have been assessed as a
separate violation carrying its own fine of up to $25,000, the maximum fine
plaintiffs faced was over $65 million. A.R. 3040.19 The $5 million assessment
against plaintiffs represents roughly one-thirteenth of the maximum, a fine
that is “almost certainly is not excessive.” United States v. Moyer, 313 F.3d
1082, 1086 (8th Cir. 2002) (citing United States v. Sherman, 262 F.3d 784 (8th
Cir. 2001) vacated but reinstated by United States v. Diaz, 296 F.3d 680 (8th
Cir 2002) (en banc)). The two nonbinding cases plaintiffs cite to refute this
presumption are not persuasive. 20 In the first, United States v. Am. Elec. Power
Serv. Corp., 218 F. Supp. 2d 931, 942 (S.D. Ohio. 2002), the court merely
restates the defendant’s argument that a fine within the statutory maximum
may yet be excessive. No authority for the statement is provided, nor does it
appear that the court adopts the statement as its holding. The court then cites
The presiding official noted the maximum fine that could have been
assessed totaled $65,755,000. A.R. 3040. The Commission’s final decision and
order, however, appears to set the number of days plaintiffs were in violation,
and thus subject to separate fines, at 2,632 days. A.R. 3057. At $25,000 per
day, this would constitute a maximum fine of $65,800,000.
19
Plaintiffs later cite to the block of punitive damages and due process
cases, which were discussed above, in support of this same assertion. Docket
64 at 19 (citing Cooper Indus., Inc. v. Leatherman Tool Grp., Inc., 532 U.S. 424
(2001); BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574 (1996); State Farm Mut.
Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418 (2003)). For the reasons already
stated, these cases do not provide the applicable legal standard to be used by
the court.
20
53
the second case for the proposition that whether a fine is excessive cannot be
determined before the penalty is actually assessed. Id. (citing United States v.
Valley Steel Prod. Co., 765 F. Supp. 752 (C.I.T. 1991). That is not the case
where, as here, the fine has not only been assessed but the NIGC has begun
collection proceedings.
As the Supreme Court has directed, “The amount of the forfeiture must
bear some relationship to the gravity of the offense that it is designed to
punish.” Bajakajian, 524 U.S. at 334. Viewing the evidence in the light most
favorable to plaintiffs does not show an absence of a relationship between the
$5 million fine and the ongoing violations of the IGRA and NIGC regulations.
The court concludes plaintiffs have not met their burden of establishing a
prima facie showing of gross disproportionality, or that the agency abused its
discretion to assess the penalty as it did. Because plaintiffs have failed to meet
their burden, summary judgment in favor of the NIGC and Tribe is granted.
CONCLUSION
Plaintiffs have failed to show the Commission acted arbitrarily or
capriciously with respect to its determination that plaintiff violated several
provisions of the IGRA and NIGC regulations. Plaintiffs have also failed to show
the Commission acted arbitrarily or capriciously regarding the factors used to
assess an appropriate civil fine for those violations. Additionally, plaintiffs were
not denied due process of law during the agency proceeding. Finally, plaintiffs
have failed to make a prima facie showing of gross disproportionality with
respect to the amount of the civil fine. Accordingly, it is
54
ORDERED that the motions for summary judgment by the NIGC (Docket
57) and by the Tribe (Docket 60) are granted.
IT IS FURTHER ORDERED that the motion for summary judgment by
Bettor Racing, Inc., and J. Randy Gallo (Docket 52), is denied.
Dated September 19, 2014.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
55
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