Northwest Indian Law & Business Advisor : Northwest Indian & Tribal Lawyer & Attorney : Williams Kastner Law Firm : Tacoma, Seattle, Portland

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Connecticut State Attorney General Richard Blumenthal has waged a war against the doctrine of tribal sovereign immunity, and he has chosen politically convenient drunk driving dramshop liability case against the Mohegan Tribe as his battle ground. He has filed an amicus curiae brief with a Connecticut state appeals court, arguing that tribal governments do not stand immune from liquor-related liability claims. If possible, tribes must avoid giving politicians like Blumenthal or money-driven plaintiffs’ lawyers such a chance to attack tribal immunity, especially on facts that make groups like Mothers Against Drunk Driving (MADD), well, mad.

Plaintiffs’ lawyers increasingly argue that a federal statute, 18 U.S.C. 1161, somehow operates to waive sovereign immunity – a common law doctrine that exists in order to protect tribal treasuries from litigation attack so tribal governments can use, e.g., net gaming revenues to provide essential governmental services as required by federal law. Section 1161 authorizes states to control the sale and distribution of alcoholic beverages within their borders, including Indian Country thanks to the Supreme Court in Rice v. Rehner, 463 U.S. 713 (1983). Given the natural provision of alcohol in tribal governmental casinos, as in Las Vegas or other non-tribal gaming establishments, many tribal-state gaming compacts recognize Rice’s holding that states can regulate liquor sales in Indian casinos. But no compacts that I am aware of expressly and unequivocally waive tribal sovereign immunity from third-party dramshop lawsuits.

State appellate courts in Arizona, Washington and Texas have all rejected arguments that Section 1161 and/or gaming compacts somehow operate to waive tribal immunity from citizen dramshop claims. Only the Oklahoma Supreme Court has ruled otherwise. But that is because Oklahoma state courts are the most anti-Indian judiciary any where; as there is undying political and judicial will to vitiate tribal immunity in Oklahoma, the courts there routinely find ways to do so. See Tribes & Insurance Defense Lawyers Should Avoid Asserting Sovereign Immunity.

Nevertheless, tribal governments within all states must be more vigilant in disallowing private plaintiffs, state politicians, citizen groups and state and federal court judges any opportunity to abrogate sovereign immunity. In the dramshop context, here are a few preventative measures tribes and tribal casinos should implement:

 Ensure all tribal employees who serve or oversee the service of liquor are fully state and tribally trained to prevent problems associated with patrons’ misuse of alcohol.
 Maintain video surveillance of the activities within tribal casinos relating to the sale and consumption of alcohol.
 Offer free shuttle or cab rides home to patrons who appear under the influence of alcohol when they attempt to leave a tribal establishment.
 Pass tribal tort claims ordinances that will set forth the time, place and manner by which the tribe might administratively consider and resolve alcohol-related liability claims.
 Maintain liability insurance to help insulate the tribal treasury from attack; such policies should include, among other things, clear defense and indemnity rights and tribal choice of defense counsel. See Tribal Insurance Policies: Buyers Beware.
 When sued, consider alternatives to asserting sovereign immunity, such as settling claims with merit before active litigation; consenting to a court’s jurisdiction up to available liability insurance policy limits; or defending the matter on the merits, possibly with a view towards obtaining summary judgment dismissal of a plaintiff’s claims.

With regard to the assertion of tribal sovereign immunity – whether in dramshop or other tort actions – tribes must “know when to say when.”
 

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In February 2009, the U.S. Supreme Court handed down a decision that sent shock waves throughout Indian country, which continue to reverberate. The Court’s Carcieri v. Salazar decision prohibits the Secretary of the Interior from taking land into trust on behalf of tribes who were not “under federal jurisdiction” when the Indian Reorganization Act was passed in 1934.

Before the IRA and in the wake of the Allotment/Dawes Act, Indian lands were pillaged by non-Indian homesteaders. Poor and desperate Indian landowners were cajoled if not coerced into selling their lands for pennies on the dollar. The IRA was enacted to prevent further unscrupulous alienation of Indian lands. To that end, Congress provided the Secretary of Interior with the authority to, among other things, restore reacquired Indian lands to federal trust status.

On September 24th, Senator Byron Dorgan introduced S.1703 to clarify Congress’s intent regarding the IRA; the bill has been called the “Carcieri fix.” Representative Tom Cole introduced companion legislation, H.R. 3697, on October 1st. Tribes and tribal members must review the legislation and request that their members of Congress support immediate passage of Senator Dorgan and Congressman Cole’s legislation. State, county and local government and anti-Indian gaming groups will certainly oppose the bills.

Tribal economic development, tribal land stewardship and tribal sovereignty at large all weigh in the balance of the Carcieri fix.
 

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As a means of protecting tribes, the Indian Gaming Regulatory Act requires, among other things, the National Indian Gaming Commission (“NIGC”) Chairman’s approval of management contracts for the operation and management of Indian gaming operations. The NIGC defines a “management contract” as “any contract, subcontract, or collateral agreement between an Indian tribe and a contractor or between a contractor and a subcontractor if such contract or agreement provides for the management of all or part of the gaming operation.” Even if a consulting, development, lease or financing agreement says it is not a management contract, yet contains terms which provide the contracting entity with management of the tribe’s gaming operations, the NIGC might consider it a management contract subject to the Chairman’s approval.

Management encompasses many activities, such as planning, organizing, directing, coordinating, and controlling. In some cases, the NIGC has found that certain consulting, development, lease and financing documents confer management authority to the consultant, developer, landlord or lender, as the case may be, thereby constituting a management contract that is void unless approved by the NIGC. These agreements provided that if the tribe defaults, the contracting party will control the use of pledged security, usually future gross gaming revenues.

The current NIGC takes the position that an agreement containing a security interest in a gaming facility’s future gross revenues, without further limitation, authorizes management of the gaming facility. Why? Because in the event of a default, a party with a security interest in a gaming facility’s gross revenues has the authority to decide how and when operating expenses at the gaming facility are paid, which is itself a management function. Further, a party that controls gross revenue potentially can control everything about the gaming facility by allocating or putting conditions on the payment of operating expenses. Therefore, agreements with such a security interest might, in the eyes of the NIGC, constitute management contracts that are void unless and until they are approved by the Chairman.

Several limitations can be drafted into any consulting, development, lease or financing agreement to provide comfort to the NIGC, and the parties to the deal, that the agreement is not a management contract. One such limitation is to designate net—not gross—gaming revenues as security. The designation of net revenues ensures that the tribe maintains control of operating expenses, while providing the contracting party with a source of revenue to secure its interest. The agreement should also be carefully drafted such that it does not provide the contracting party with considerable authority to plan, direct, organize, coordinate or control the gaming operation, including: making personnel decisions, establishing policies and procedures of the casino, controlling the placement of gaming machines on the casino floor, and determining payment of operating expenses of the gaming facility, to name a few. Tribes should make sure such protections are drafted into any agreement whereby the tribe pledges its gaming revenues as security to the contracting party. In turn, the NIGC should stay out of the tribe’s business.

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The National Indian Gaming Association (NIGA) has asked its members to contact the White House in response to the National Indian Gaming Commission’s (NIGC) proposed changes to the gaming machine section of the Minimum Internal Controls Standards. 

The changes would affect standards for “gaming associated” equipment such as accounting systems and player tracking systems.  The revisions would expand the NIGC’s authority over Tribal gaming in this area, including the required use of computer management systems that would cost $5 to 50 million to implement, according to the NIGA’s Regulatory Alert.

NIGA credits these revisions to NIGC Chairman, Phil Hogen, who has held his position for nearly five years past the end of his term.  NIGA has urged the President to appoint a new chairman of the NIGC and to ask Secretary Salazar to appoint a new commissioner. 

This week, Hogen responded, telling GamblingCompliance that the proposed regulation would not require tribes to buy expensive new accounting systems.  He explained that the rule would only require tribes to keep track of certain transactions, suggesting they could do so without having to implement computer management systems.  Hogen added, “I am eagerly awaiting the president’s appointment of my replacement . . . I sure hope I am long gone by the time these regulations ever become either proposed regulations or final regulations – and we are a long way from that.’’

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The Ninth Circuit held last month that IGRA does not require the National Indian Gaming Commission (NIGC) to determine whether a gaming ordinance contemplates a gaming operation on “Indian lands” prior to (1) approving an ordinance that does not specify a site for the casino or (2) the tribe’s licensure and construction of a casino. North County Community Alliance v. Salazar (No. 07-36048). In essence, the Ninth Circuit determined that enforcement of the Indian lands requirement of IGRA may only be undertaken by the NIGC and states – not private citizens like the North County Community Alliance (“Alliance”).

In North County, the Nooksack Indian Tribe submitted an ordinance to the National Indian Gaming Commission (NIGC) in 1993 that did not identify any specific site where its casino would be built. In 2006, the tribe licensed and began constructing their casino pursuant to the ordinance. The casino was eventually built on a twenty-acre parcel owned by the Nooksacks near their reservation.

A group of local residents living near the Nooksack casino formed the Alliance and filed suit against the NIGC and the Department of Interior based on the agencies’ failure to make an Indian lands determination prior to approving the Nooksacks’ ordinance in 1993. That is, the Alliance believed the NIGC violated IGRA by approving an ordinance that did not indicate that the casino would be constructed on specific Indian land. The Alliance argued that it was “implicit in IGRA” that the NIGC make such a determination before construction.

Judge William Fletcher, writing for the majority, held that the NIGC does not have to make a determination as to the character of “Indian lands” because IGRA does not require a tribe to specify on which site it will build a casino in its gaming ordinance. Requiring the NIGC to make an Indian lands determination as part of its approval of an ordinance would be “absurdly impractical” since in “effect, the NIGC would be required to make an Indian lands determination for all lands that are owned, or could be owned in the future, by the tribe and on which the tribe might wish to conduct gaming.”  Practically, if the NIGC or a state determines that a tribe’s casino is not on Indian lands, they may take enforcement actions; IGRA authorizes tribal gaming on Indian lands only.

On a related point, the Alliance further claimed that the NIGC’s failure to make an Indian lands determination constituted a “major Federal action” under the National Environment Policy Act (“NEPA”), and thus required preparation of an Environmental Impact Statement (EIS). The Ninth Circuit addressed and disposed of this argument, noting that there “has been no major federal action in this case” and therefore NEPA EIS requirements do not apply.
 

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Three decisions by the Oklahoma Supreme Court this summer are troubling but not just because they each allow casino patrons to sue tribal governments or casinos in state court. The trilogy of losing Indian cases are equally, if not more, troubling because they each appear to have been catapulted into state appellate courts by ill-conceived assertions of tribal sovereign immunity.

The Oklahoma Supreme Court started by handing down its opinion in Cossey v. Cherokee Nation Enterprises, LLC, 2009 OK 6 (mandate issued June 11, 2009), holding that the state district court is a court of competent jurisdiction as that phrase is used in the Cherokee Nation’s tribal gaming compact. Then, on June 30, 2009, in separate opinions in Griffith v. Choctaw Casino of Pocola, Oklahoma, 2009 OK 51, and in the related case of Dye v. Choctaw Casino of Pocola, Oklahoma, 2009 OK 52, the Court ruled that Oklahoma district courts are courts of competent jurisdiction as that phrase is used in Oklahoma’s statutory model tribal gaming compact and therefore the state courts may exercise jurisdiction over the tort claims against the Choctaw Nation and its casino in Pocola, Oklahoma.

In short, none of the three cases should have reached the Oklahoma Supreme Court. None of the three cases should have involved a tribal assertion of sovereign immunity.

Consider the facts of Griffith: Plaintiff “went to the casino on February 11, 2005. According to Griffith, as she and other patrons approached an entrance to the casino, she heard a casino guard directing patrons to the north entrance. As Griffith followed the others toward the north entrance, she stepped into a flowerbed and fell on her face and head.” 2009 OK 51. It is hard to imagine a more frivolous claim than, “I stepped into a flowerbed and fell on my face and head.”

Given what appears to be a very defensible claim, and the renown anti-Indian sentiment of the Oklahoma Supreme Court, Choctaw’s insurance defense lawyers should not have moved to dismiss Griffith’s claim on sovereign immunity grounds. If a nominal settlement with Griffith was not possible, defense counsel should have litigated the matter on the merits. Perhaps her tort claim was procedurally or substantively invalid. More likely, Griffith could not likely prove a prima facie case of negligence against the casino. Based on the silly nature of her claim, the casino’s defense team could have (and can still) likely beaten Griffith on summary judgment or at trial. Invoking tribal immunity in Oklahoma was risky and unnecessary.

There is extensive discussion in Griffith of the Choctaw Casino’s liability insurance, which is mandated by the model Oklahoma tribal gaming compact. That general insurance policy, by design, should cover the casino’s defense costs associated with defeating Griffith on summary judgment or at trial. That policy should also indemnify the casino in the event Griffith can somehow prove it was the casino’s fault that she fell on her face and head in the flowerbed.

The same goes for Cossey and Dye. Tribal sovereign immunity should not have been asserted in those cases either. Instead, alternative defense and/or settlement strategies, which would not have placed Oklahoma tribal immunity in harm’s way, should have been pursued.

Unfortunately, these cases may have been lost before the plaintiffs even filed suit. Consider just two of many morals to this story: First, the Choctaw Casino should have acted on Griffith and Dye’s administrative tort claims rather than “fail[ing] to act” and causing them to be “deemed denied.” 2009 OK 51. Not only is it best practices to process and in turn affirmatively accept or deny such claims, but heightened care must be given to even the most frivolous of tort claims filed by non-Indians. If not, bad case law like Cossey, Griffith and Dye will inevitably be made.

Second, a quick Google search of the three law firms involved in the trilogy reveals that they are all insurance defense lawyers who do not possess Indian law expertise. What business do they have defending the Cherokee Nation and Choctaw Casino? Those lawyers were likely hired by Cherokee and Choctaw’s liability insurer(s), not the tribes, because their hourly rates are much cheaper than that of defense counsel who specialize in representing and defending tribal interests. As the old adage goes, you get what you pay for. Here, the tribal defendant-insureds appear to have gotten a short-sighted defense strategy.

But that didn’t need to be the case. I would bet money that both Cherokee and Choctaw liability policies do not allow them, as tribal government-insureds, which pay six-figure annual insurance premiums, to select tribal defense counsel of the tribes’ choice. Both tribes should have negotiated into their insurance policies the right to select defense counsel: any of the highly skilled tribal defense counsel on Oklahoma who understand the significant legal, political and social implications of even the silliest of tort claims against tribes or Indian casinos in this day and age. Those Indian lawyers would certainly pause before asserting sovereign immunity, especially before a hostile Oklahoma state judiciary. Those Indian lawyers would likely recommend that the tribal defendants pursue a strategy of settlement, or defense on the merits, instead of jeopardizing the immunity defense for all tribes in and beyond Oklahoma.

Tribes, it’s time to take a much harder look at those two-inch thick liability insurance policies to ensure tribal sovereign rights are not being breached or jeopardized. Insurance defense counsel, it’s no longer time to recklessly assert tribal immunity to attack otherwise defensible claims.

See also “Waiving Goodbye to Tribal Sovereign Immunity.” and “Are We in Good Hands?” in Indian Country Today, Parts 1, 2 and 3.

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The Oregon Supreme Court decided yesterday to allow a citizen group called People Against a Casino Town, or PACT, to proceed with its challenge of the Confederated Tribes of Coos, Lower Umpqua and Siuslaw Indians’ Class III gaming compact with the State of Oregon. See State ex. rel Dewberry v. Kulongoski (Order of June 18, 2009).

PACT brought suit in 2003 challenging the Oregon Governor’s authority to enter into a gaming compact with the Confederated Tribes. The compact allows the Tribe to open a Class III casino near Florence, Oregon. But the group argues that the Governor acted unconstitutionally in two ways. First, the group claims the Oregon Constitution prohibits the operation of casinos in the State of Oregon. Second, the group asserts that the Governor violated the state constitution’s separation of powers provisions. People Against a Casino Town, true to its name, seeks to void the compact between the Tribe and the state.

The Oregon Supreme Court affirmed the Oregon Appellate Court’s decision and remanded the case to the trial court for further proceedings to consider the citizen group’s mandamus action to void the compact. This decision, beyond generating protracted litigation, could give traction to similar suits in other states wherein state constitutions arguably prohibit state legislative or executive authorization of casino-style gambling as PACT argues Oregon’s Article XV, Section 4(12) does. Of course if People Against a Casino Town, or PACT, eventually succeeds, the case would curtail or terminate state-tribal gaming compacts in Oregon.