Dickinson Wright Attorneys Ranked by Chambers Global for International Gaming & Gambling Practice
Dickinson Wright gaming attorneys Robert W. Stocker II and Michael D. Lipton QC have been ranked as Band 1 attorneys by Chambers and Partners in the Gaming & Gambling Global Practice Area. Chambers, publisher of the world's leading guides to the legal profession, researches the strengths and reputations of international law firms and attorneys through in-depth interviews with peer and competing-firm attorneys, in-house counsel and significant purchasers of legal services.
Mr. Stocker's international practice focuses on gaming, regulatory, corporate and alternative insurance programs law. He is the head of Dickinson Wright's 30-member gaming practice group; immediate past President of the International Masters of Gaming Law; an editorial board member of Gaming Law Review and Economics; Chair-Elect of the American Bar Association Gaming Law Committee; Chair of the American Bar Association's annual Gaming Law Minefield Conference held in Las Vegas; and an adjunct professor at the Thomas M. Cooley Law School, where he teaches Gaming Law, Business Planning and Business Organizations. Mr. Stocker is recognized by Chambers Global as a "Leader in the Field" of gaming law. He also is recognized by Best Lawyers in America for his expertise in gaming, administrative and government relations law, and is recognized in Michigan Super Lawyers for gaming, business/corporate and insurance coverage expertise.
In addition to editing and co-authoring The Michigan Gaming Law Legal Resource Book and the soon-to-be published "Regulation of Gaming in Michigan: A Practice Guide," Mr. Stocker has authored numerous articles on gaming laws and regulations for gaming publications and law school law reviews. He is a frequent speaker on gaming, business and alternative insurance issues at national and international conferences and education programs. Mr. Stocker graduated with honors from Denison University and received his J.D. from the University of Michigan Law School. He practices in Dickinson Wright's Lansing office.
Practicing in Dickinson Wright's Toronto office, Mr. Lipton has served as senior counsel on numerous gaming law matters for the past 20 years. He advises governments, regulators, advertisers, online gaming enterprises, gaming equipment suppliers, racetracks, casinos, software manufacturers and pari-mutuel operators on all aspects of gaming law. He also acts as senior counsel in advising gaming license holders throughout North America on gaming compliance and policy issues, as well as advising provincial governments, lottery corporations, charitable organizations, and public and private corporations in respect to the gaming provisions of the Canadian Criminal Code.
Mr. Lipton has authored many articles on gaming law and anti-money laundering as it relates to the gaming industry, which have been published in leading international and national publications, and he has delivered papers at numerous gaming law conferences throughout the world. He is a member of the editorial board of Gaming Law Review and Economics and the World Online Gambling Law Report. He also has served as editor of the Canadian Gaming Lawyer Magazine since its inception in 2008.
Mr. Lipton is a founding member and past President of the International Masters of Gaming Law, and has served as Chair of the Canadian Institute's annual conference on gaming law since its inception in 2007. He was recognized by his peers for inclusion in Best Lawyers in Canada in 2008, 2009 and 2010, and in Chambers Global for expertise in gaming law.
Mr. Lipton has prepared compliance programs to ensure clients' adherence to gaming regulations and counsels clients in their dealings with gaming regulators; advises clients internationally with respect to online gaming issues; negotiates advertising agreements for gaming websites; advises on the impact of aboriginal law on gaming in Canada; and represents clients' interests before government when legislative changes are under consideration. Mr. Lipton graduated with honors from the bar in 1967 and served as law clerk of the Chief Justice of Ontario. He was honored with his Queen's Counsel in 1979.
The Rincon Decision: What Does It Mean?
by Dennis J. Whittlesey
At a time when gaming in Wisconsin, Alabama, and Florida has been dominating Indian gaming news, California's problems suddenly are back on everyone's mind. To paraphrase the immortal words of the little girl in the 1986 movie Poltergeist II: The Other Side: "California's back!"
What Happened? On April 20, a three-judge panel for the United States Court of Appeals for the Ninth Circuit ruled that California's Governor Arnold Schwarzenegger had illegally demanded in Compact negotiations that a tribal casino pay a substantial percentage of slot machine revenue directly into the state's general fund. The court found that the demands constituted "bad faith" negotiations and that any resulting payments would constitute a "state tax" on tribal casino revenue in direct violation of the Indian Gaming Regulatory Act.
The Parties Involved in the Negotiations. On one hand was the Governor and his Compact negotiation team. On the other was the Rincon Band of Luiseno Mission Indians and a team of private attorneys well-versed in the federal gaming law.
What Comes Next? The State will petition for rehearing by the full Ninth Circuit, a request frequently made but infrequently granted. However, given the significance of this case, it is generally considered likely that the full court will accept the matter. After that, the losing parties could petition for certiorari to the United States Supreme Court.
What Is the Likely Outcome? The Indian gaming industry will be living with Rincon for some time to come. Judicial reversal is uncertain and Congressional action will not happen.
The dispute arose in 2003 when the Rincon Band decided that its existing Compact (negotiated by former Governor Gray Davis in 1999) was too restrictive to permit expansion of gaming operations to accommodate what had become a very successful tribal casino. With that, the Tribe formally requested negotiations for a new Compact. Those talks commenced, but in October of 2003 the voters recalled Davis and elected Schwarzenegger, whose campaign was premised on his promise to make the gaming tribes "pay their fair share" of gaming revenues to help the State address its growing budget deficits.
During the subsequent protracted negotiations, the State proposed to extend the term of the Compact, but demanded 10-15 percent of the casino's net win. Ultimately, the negotiations included a variety of proposals including that the Tribe increase its payments to the existing Revenue Sharing Trust Fund (which distributes cash payments to non-gaming tribes within the state) and pay to the State's general fund 25 percent of the net win on 400 new slot machines, as well as other elements of financial significance. Ultimately, the State's demand was that Rincon pay into the general fund 10-15 percent of its total net win and up to 25 percent of the revenue from all additional gaming devices. Although similar deals had already been accepted by a handful of California tribes, Rincon refused the deal and litigation ensued.
Tribal gaming in California was the product of a Constitutional Amendment on the ballot through the kind of "Sagebrush Rebellion" initiative which has over the years both cut state revenues by slashing taxes and mandated funding for various programs. The result is that the Governor and state legislature currently have
control over very little of the state's budget and are in a continuing search for new sources of revenue. Out of this situation was born the Governor's successful rallying cry that he would pry the dollars out of tribal casinos which would help alleviate the state's fiscal problems. It is important to know that financial concessions were made in the 1999 Compacts, but they were in return for the tribes having statewide exclusivity for all casino gaming. Of additional significance is that 1999 payments were dedicated to two specific funds created for the benefit of tribes; that money was not available for diversion to the general fund.
The problem with the Schwarzenegger approach is that he demanded money from expanded tribal gaming earmarked for the general fund but did not have any "exclusivity" of gaming opportunity to "sell" in return for the payments. This fact was the foundation for the District Court's ruling against the State, as well as the Ninth Circuit's affirmation on April 20 in the form of a major decision based on extensive analysis. (The appellate panel split 2-1, and dissenting judge Jay Bybee wrote a 55-page dissent which is sure to be a focal point of the State's petition for rehearing en banc.)
That the court found the prescribed payments would constitute an unlawful tax on tribal casino revenues opens the door for tribes which accepted the Schwarzenegger Compacts to cease making the newly condemned payments and demand new negotiations to deal with the unlawful provisions only adds to the ever-deepening fiscal sinkhole in Sacramento. The legal truth is that the Governor's "Fair Share" Program is in shambles and unlikely to be salvaged by the courts.
The Broad Impact of Rincon
For casinos in California, the financial community likely will experience a positive impact, since there is the prospect that tribes will find it feasible to pursue previously unrealistic gaming expansion which now becomes economically viable in the absence of financial concessions to the State. To this point, the Ninth Circuit ruling seems to suggest that Schwarzenegger probably has no choice but to agree to additional gaming devices upon tribal request, and without additional compensation since the State has nothing to offer in return. Such projects will require financing, and the "money men/women" have made it clear that they are ready, willing, and able to consider sound casino proposals.
Other states are on notice that they need to identify truly exclusive benefits for gaming tribes for which payments would be lawful. This issue was a significant element in the long-running saga between the Seminole Tribe and the State of Florida, which only recently was resolved on terms much closer to those sought by the Tribe and Governor Charlie Crist than the demands of leaders in the state legislature.
Gaming tribes are likely to discover that the "Rincon Rule" is a mixed bag because their interest in negotiating Compacts could become more complicated if the Governors decide that there is little reason to be generous in making concessions for which they can generate only limited financial concessions to apply to the states' universal budget woes. There is a judicial remedy in the federal law which tribes can pursue in the absence of "good faith" negotiations, but litigation is expensive and time-consuming, and even futile if a state pleads its sovereign immunity to defeat a lawsuit.
Tribal gaming regulators and the Secretary of the Interior are almost certain to encounter new creative notions of what can be negotiated in Compacts. Financial concessions in return for some form of gaming "exclusivity" was invented in Connecticut so that the Foxwoods Casino could offer slots (since expanded to include the Mohegan Sun Casino). Since then, there has been a never-ending search by states for ways to tap into the tribal casino revenue stream. The Rincon case may have arisen out of an extreme set of demands in California, but it is a wake-up call for the entire industry. Scrutiny of revenue-sharing proposals almost certainly will become more intense. The Ninth Circuit noted that the Schwarzenegger Compact approvals at the Department of the Interior were done "reluctantly" and only after the "tribes themselves confirmed the desirability of the amendments." Further, the court observed that the Secretary simply permits compacts with revenue-sharing provisions "to go into effect 'only to the extent they are consistent with [the Indian Gaming Regulatory Act],' thus leaving open the precise question at issue." That past "soft" practices of review and approval are now publicized could make future approvals more difficult to secure.
Tribes were willing to compromise in return for what they desperately needed on the gaming floor, and the Interior accepted what it conceded might not be consistent with the law. Those days may be nearing an end, and we have the Californians to thank. They're back!
Judge Denies Bank's Motion to Alter or Amend Judgment and Motion for Leave to Amend Complaint in Wells Fargo Litigation
by Sarah Harris
Another chapter in the case of Wells Fargo Bank, N.A. v. Lake of the Torches Economic Development Corp. has come to an end and, with that, Wells Fargo (or "the Bank") may be wondering when it can move on to a whole new book. No. 09-CV-768 (W.D. WI Jan. 11, 2010).
The Wells Fargo litigation has been the subject of a great deal of attention throughout Indian Country. Indeed, the Indian gaming industry has carefully followed the story since the U.S. District Court for the Western District of Wisconsin ruled that a $50 million Trust Indenture agreement was not enforceable against the Lake of the Torches Economic Development Corporation ("EDC") despite its default thereunder.1 In its January 6, 2010 ruling, the Court held that the EDC (a corporation chartered by the Lac du Flambeau Band of Lake Superior Chippewa Indians) was immune from a suit to enforce the Indenture notwithstanding the EDC's waiver of sovereign immunity incorporated within that agreement. The Court found that the Trust Indenture constituted a management contract which was executed without approval from the National Indian Gaming Commission ("NIGC") – as such the entire Indenture (including the waiver) was null and void.
Eager to turn the page on that decision, on February 8, 2010, Wells Fargo filed a motion to alter or amend the Court's January 6 Order and for leave to file an amended complaint.2 On April 23, 2010, the Court issued an Order and Decision denying the Bank's motions and thereby reaffirming its earlier determination that the Trust Indenture constitutes an illegal management contract. Wells Fargo, No. 09-CV-768 (W.D. WI April 23, 2010) (Order and Decision). The following discussion provides a synopsis of the Court's April 23 Order and Decision.
Motion to Alter or Amend Judgment – Denied
In its Motions, Wells Fargo argued that the Court committed clear error when it found that the Trust Indenture was a management contract and therefore null and void for want of NIGC approval. Id. at 5.
At the outset, the Court flatly refused to revisit the substance of its management contract analysis, noting that the Bank failed to cite any controlling precedent demonstrating that the Court committed clear error. Id. at 5. However, the Court did assess the Bank's arguments with respect to the severability (or lack thereof) of the Indenture provisions that implicated "management." Id. at 6. The Bank asserted that the primary purpose of the Indenture was to secure repayment of the Bonds – not the management of the Tribe's gaming establishment – and therefore severance of the offensive "management provisions" would be proper. Id. But the Court rejected the Bank's contention, reasoning that, even if the management provisions could be severed, the remainder of the Indenture would nevertheless be null and void because the entire document constituted an unapproved management contract, leaving nothing left to enforce. Id. at 5.
Furthermore, the provisions that the Bank sought to enforce – those governing "Event of Default" which included the appointment of a receiver – were among the provisions that the Court found to be management provisions. Id. at 6. Consequently, if the Court were to sever those illegal management provisions, the primary purpose of the Trust Indenture would be defeated. Id. Such a result, the Court implied, would be contrary to the traditional principles governing severance of offensive contract provisions. Id. at 5.
Finally, Wells Fargo asserted that the Court's ruling was premature in that the jurisdictional issue (i.e. whether the EDC was protected by sovereign immunity) was inextricably tied to the factual issue of whether the Trust Indenture constituted a management contract. Id. at 6-7. Under those circumstances, the Bank argued that the Court's dismissal of its Motion to Appoint a Receiver was akin to granting the EDC's "unfilled motion for summary judgment." The Bank further contended that it should have been permitted to respond to the EDC's brief in opposition to the Motion before the Court ruled on the issue. Id. In particular, Wells Fargo took issue with the Court's consideration of the affidavit of Kevin Washburn.3
While the Court recognized that its ruling was unconventional, it found that it committed no clear legal error and noted that the Washburn Affidavit was "merely persuasive legal authority" that the Indenture was a management contract – as a matter of law (not fact). Id. at 7. The Court found that the management contract issue was the primary issue before the Court and that issue was raised as a defense in the EDC's first set of motion papers. Id. Indeed, the Court concluded "the management issue was brought squarely and immediately before the Court" thus the Bank had ample opportunity to be heard.
Leave to File Amended Complaint – Denied
In addition to its motion to alter or amend the judgment, Wells Fargo also sought to file an Amended Complaint, proposing to expand the scope of the allegations to include claims brought pursuant to all the documents generated during the bond transaction – including the Bonds themselves. Apparently, the Bonds (like the Trust Indenture) contained a provision that ostensibly waived the EDC's sovereign immunity. Id. at 10, n. 4. The Bank argued that the Bonds and related transaction documents were not void, even if the Indenture was, because they were merely "collateral agreements" to the Trust Indenture.
The Court rejected the Bank's contentions, finding that its determination that the Trust Indenture is a management contract meant that the entire transaction (including those documents the Bank identified as "collateral agreements") was subject to the NIGC management contract approval process. Id. at 12. As such, the parties should have submitted all the documents to the NIGC for review and their "failure to procure NIGC approval in the first instance renders all the collateral agreements void ab initio." Id. at 13.
In any event, the Court found Wells Fargo's attempt to distinguish the Bonds from the Trust Indenture unpersuasive. The Court explained that the two documents, the Bonds and the Trust Indenture, were so highly interconnected that it was "hard to imagine" one existing without the other. In fact, the Court noted that the Bond incorporated the terms of the Trust Indenture by reference. Accordingly, the Bonds and the Trust
Indenture together reflected the parties' intention for the trustee to exert managerial control over the gaming operation in the event that the EDC defaulted. Id.
As to Wells Fargo's remaining claims, which sounded in tort and equity, the Court found that those arguments were dependant on the legality and validity of the bond transaction. Id. at 14-15. As result of the Court's finding that the bond transaction was null and void, any waiver of sovereign immunity contained in a collateral document thereto is also null and void. Id.
Moving Forward
In a press release following the Order, Lac Du Flambeau Tribal President Jerome "Brooks" Big John stated, "this significant victory confirms the strength of the Tribe's legal position and provides the [Tribe] with further confidence in the Tribe's ability to manage Tribal operations in support of the Tribal membership."4 As of this writing, the author has been unable to locate any public response to the decision on behalf of Wells Fargo.
There is little doubt as to where the parties to the Wells Fargo litigation stand. But questions remain as to how this decision will ultimately affect the financing of Indian gaming projects. Of course, the credit crunch and the state of the economy have taken their toll on the Indian gaming industry, and it seems obvious that this decision could only serve to make cautious investors even more so.
Could the Wells Fargo litigation have a more concrete impact on the evaluation of management contracts? The Court's discussion of the relationship between NIGC review and approval of management contracts and collateral agreements thereto certainly implies that it may. Although the Court's discussion on this point is not entirely clear, the Court suggests that the failure to submit a collateral agreement to the NIGC for review may, by that fact alone, render the collateral agreement void.
Footnotes
1 Dennis J. Whittlesey, The $50 Million Problem at Lac du Flambeau, Gaming Legal News (Jan. 26, 2010), available at http://www.dickinson-wright.com/upload_files/Gaming%20Newsletter%201.26.10.pdf .
2 Dennis Whittlesey, The $50 Million Problem at Lac du Flambeau: Part 2, Gaming Legal News (Feb. 23, 2010), available at http://www.dickinson-wright.com/upload_files/Gaming%20Newsletter%202.23.10.pdf .
3 In the initial suit, EDC asserted that the Indenture was a management contract never approved by the NIGC, an argument buttressed by two briefs filed only a few days apart and an Affidavit by the dean of the University of New Mexico School of Law (and former NIGC General Counsel), Kevin Washburn, opining that the Indenture likely would be deemed a management contract under NIGC review.
4 Press Release, Tribal President Jerome "Brooks" Big John, The Lac Du Flambeau Band of Lake Superior Chippewa (April 23, 2010), available at http://turtletalk.files.wordpress.com/2010/04/vacate-decision-press-release.pdf .
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