TwoTribes Win $20 Million Victory

8 March 2000

By David Waddell

Two Native American tribes' obligation to share approximately $20 million with the State of Michigan ceased upon approval of four new Indian-gaming compacts with four additional tribes, according to a federal court decision this past week. As a practical matter, this means that the revenue-sharing obligation ceased in February of 1999, rather than July (when MGM Grand Detroit opened), saving the two tribes literally millions of dollars.

In 1993, seven Michigan tribes (the Sault Ste. Marie Tribe of Chippewa Indians, the Grand Traverse Band of Ottawa and Chippewa Indians, the Keweenaw Bay Indian Community, the Hannahville Indian Community, the Bay Mills Indian Community, the Lac Vieux Desert Band of Lake Superior Chippewa Indians and the Saginaw Chippewa Tribe) entered into a Consent Judgment with Governor John Engler contingent upon the state and the tribes entering into Class III gaming 1993 Compacts and getting concurrence from the Legislature and approval by the U.S. Secretary of Interior.

The Consent Judgment provided for the state to receive eight percent of the "net win" from all Class III electronic games of chance. "Net win" was defined as the amount wagered at each machine minus the payout to the players. The Consent Judgment contained a provision stating that payments equal to two percent of the "net win" on electronic games of chance would be given to local units of government.

The Consent Judgment also stated that the tribes' obligation to make payments to the state shall continue "only so long as the tribes collectively enjoy the exclusive right to operate electronic games of chance in the State of Michigan." After the Legislature approved the four new compacts, negotiations between the Governor and the seven tribes was initiated. Five of the seven tribes settled with the state on a date that the revenue payments would cease (July 1, 1999). Relying on the original consent decree language, the two remaining tribes (the LacVieux Desert Bank of Lake Superior Chippewa and the Saginaw Chippewa Tribe) refused to turn over the revenue from the second quarter of 1999. The two tribes involved took the position that the obligation to make the payments to the state ceased as of the date that the four compacts with additional tribes were filed with the Federal Register (February 18th). The Governor filed a motion seeking to have the payments enforced by the federal court that had issued the Consent Judgment arguing that, since the new compacts only granted rights to additional tribes to license casinos, the obligation continued until the new tribes actually issued licenses or until the Detroit casinos received licenses (whichever occurred first).

The Governor relied heavily on a prior decision involving the Detroit casinos in which the Sixth Circuit held that the tribes' obligations continued until the Detroit casinos were "licensed."

Noting that the term "license" in the context of the Detroit casinos has a different meaning than in the tribal compact context, the Court disagreed with the Governor's position, referring to the argument as "linguistic sleight of hand." The Court noted that, as written, the new compacts expressly state that the new tribes are permitted to conduct casino operations on tribal lands. Thus, the right to operate a casino was created for the tribes by the tribal-state compact itself. The Court also noted that the compact calls for the tribes to license "gaming operations," referring to the manner in which the facilities and operations are conducted rather than who actually has the right to conduct casino gaming.

The practical effect of the Judge's decision is that two of the seven tribes involved will get to keep the revenue share of eight percent from February 18, 1999 through July 1, 1999 (approximately $20 million). With all of the stiff new competition from the Detroit casinos and from the new tribal properties, these two tribes have to be pleased.

On the other hand, the decision is not likely to sit well with the Governor. Governor Engler's spokesman, John Truscott, has already gone on record stating that the Governor will appeal.

Thus, the final chapter is yet to come.