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Cabazon Band of Mission Indians v. Wilson

 

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Four bands of Indians who operate simulcast wagering facilities on their tribal lands sued the Governor of California, the California Horse Racing Board, and the State of California (State), demanding that the defendants turn over to the bands the license fees that the State collects from California’s horse racing associations based on revenue generated at the wagering facilities. Compacts between the bands and the State had left open the issues of licensing fees collected from racing associations until such time as a federal district court declared the fees illegal. The Ninth Circuit, recognizing that such fees had previously been held to be impermissible under the Indian Gaming Regulatory Act (IGRA),[1] affirmed the district court’s order that the State turn over the fees.

The litigation began with four Tribal-State compacts between the State and each band of Indians pursuant to IGRA. The compacts governed the bands’ operation of simulcast wagering facilities and the State’s collection of fees from these activities. The State agreed to pay the license fees collected from the racing associations to the bands if a federal district court declared the fees impermissible under the IGRA. Indeed, the Ninth Circuit had previously held that the collection of license fees was impermissible under IGRA because the bands had a “right” to the unpaid license fees.[2]

The State, however, refused to pay the fees, declared the compacts invalid, and threatened to cut off the simulcast signal unless the bands agreed to enter into negotiations for new compacts. The bands moved for an injunction to prevent the cessation of the signal. The State opposed enforcement by arguing the following: (1) the district court lacked subject matter jurisdiction to enforce the compacts, (2) the State was immune under the Eleventh Amendment, (3) the court decision holding the fees impermissible was so unexpected it invalidated the compacts; and (4) the bands breached the compacts by operating illegal gaming operations. The district court entered a preliminary injunction but ordered the bands to amend their complaints to seek relief for breach of the compacts under IGRA.

The complaints were amended and once again, the State countered with similar arguments but added that the compacts were invalid for the following two reasons: (1) the State never promised to pay license fees to the bands if the court determined those fees fell on the racing association rather than the bands, and (2) the bands were not the primary beneficiaries of revenue from simulcast wagering. The district court rejected these contentions and ordered the State to pay. The State appealed to the Ninth Circuit.

The Ninth Circuit evaluated the State’s four arguments. First, the State had argued that it was immune from the bands’ action to enforce the obligations under the compacts. The Ninth Circuit held that the State had waived its immunity by consenting to suit in federal court. Specifically, the compacts stated that the bands “shall seek a declaratory judgment against the State from a United States District Court of competent jurisdiction as to whether the deduction and distribution of the state license fee . . . are permissible under the Act.”[3] This provision showed consent not only to the suit but also to the remedy. Furthermore, the compacts provided for judicial review of any action taken by either party under the compacts.

Next, the State argued that it never intended to surrender to the bands the license fees it collected from the racing industry. Instead, the State argued that based on extrinsic evidence, it agreed to pay license fees only if the court determined that these fees constituted a tax on the bands themselves. The Ninth Circuit rejected the extrinsic evidence and the State’s argument as contrary to the plain and unambiguous language of the compacts. The language in the compacts broadly framed the question as to “whether the deductions and distributions of the state license fee under [California law] are permissible under the Act.”[4]

The State’s third argument was that the bands were not the primary beneficiaries from class III gaming on tribal lands, and thus, the compacts were invalid. The Ninth Circuit held that the primary beneficiary analysis is only used to consider whether IGRA preempts the State’s regulatory scheme as to the disputed license fees. In that context, IGRA does not preempt the State’s scheme, even though others receive greater revenues from the bands’ simulcast wagering facilities than the bands receive. Furthermore, the Ninth Circuit held that the compacts were not invalidated by use of the primary beneficiary analysis.

The State’s final argument was that the bands were conducting illegal gambling not authorized by a Tribal-State compact. However, the court held that the State had no jurisdiction over gaming activities that are not the subject of a Tribal-State compact. IGRA limits the State’s regulatory authority to that expressly agreed upon in a compact. Outside such provisions, the enforcement remains the exclusive province of the federal government. Therefore, the bands had not breached the compacts, and the State had no jurisdiction to enjoin those gaming activities.

In conclusion, the Ninth Circuit held the State to the agreement in the compacts. Both the State and the bands expressly agreed that a federal district court would resolve the question of whether license fees were permissible under IGRA. Because a court had indeed resolved this issue, the Ninth Circuit affirmed the district court’s order that the State pay the bands all fees, past and present, that were collected from California’s horse racing associations based on revenue generated by wagering facilities.


[1]Indian Gaming Regulatory Act of 1988, 25 U.S.C. §§ 2701-2721 (1994).

[2]Cabazon Band of Mission Indians v. Wilson, 37 F.3d 430 (9th Cir. 1994).

[3]Cabazon Band of Mission Indians v. Wilson, 124 .3d 1050, 1054 (9th Cir. 1997).

[4]Id. at 1057.

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