Casino Enterprise Management

In 2010, the Indian gaming sector finally surpassed its non-Indian U.S. counterpart in terms of total revenue. Indian gaming in Oklahoma remains one of the hottest markets. Reliable data predicts revenue growth of $3.5 billion in 2011.¹ Oklahoma is home to 39 federally recognized tribes, 32 of which engage in Class III gaming. More than 90 percent of gaming in Oklahoma is tribal; the remainder is pari-mutuel horse racing, limited electronic gaming in off-track betting facilities, and a lottery. Even this “non-Indian gaming,” however, has a strong tribal presence. A Chickasaw Nation company owns Remington Park and operates the race track outside Indian country under state law. Tribal governments operate more than 111 casinos in Oklahoma. Dr. Alan Meister, an economist with Nathan and Associates Inc.,² has calculated that, as of 2009, tribes had nearly 60,000 gaming devices, with two-thirds categorized as Class III under the Indian Gaming Regulatory Act of 1988 (IGRA) and the remaining one-third being non-compacted Class II electronic games producing revenue exclusively for tribal governments.

Oklahoma has a long history of Indian gaming, which thrived there long before Congress passed the IGRA to regulate Indian gaming (and limit tribal sovereign powers). Oklahoma has long been the proving ground for Class II electronic device innovation. Modern server-based network gaming spawned by Class II developments now surpasses stand-alone slot machine technology as the leading platform for most electronic gaming. In recent years, the market has matured, while a number of legal and political issues remain unsettled. Lately, despite tribal gaming success, tribal-state relations have become more tense.

Oklahoma Indian gaming experienced strong growth in 2010, which is continuing into 2011. The Oklahoma Office of State Finance – Gaming Compliance Unit reports steady year-over-year growth of tribal gaming “exclusivity” fees paid by tribes under compacts for Class III gaming,³ the only increasing source of state revenue. The use of these fees is restricted to funding education. From 2006 until May 2011, tribes have paid the state more than $478 million in “exclusivity fee” payments.⁴

Compact Tensions

While revenues are increasing, some aspects of the tribal-state relations have become more tense. One tension, which arbitrators and federal courts have resolved, involves jurisdiction over tort claims involving Class III gaming compact patrons. Previously, injured tribal casino patrons sued certain tribes and their casinos in state courts over tribal objections, and the Oklahoma Supreme Court held that state courts could decide such disputes.⁵ In response to those decisions and mounting tort lawsuits, multiple tribes, including the Choctaw Nation, Chickasaw Nation and the Eastern Shawnee Tribe of Oklahoma,⁶ invoked the model compact’s arbitration provisions against Oklahoma and enforced the arbitration awards in federal court.⁷

Another area of conflict is Class II gaming, which does not require a state compact. These devices remain extremely important to Oklahoma tribes. While the current model compact will last at least until Jan. 1, 2020, the parties are already thinking about future negotiations. The state would like to see a greater share of revenue, while the tribes believe the current payments are more than fair and many would like expanded forms of gaming in any new compacts.

While Indian tribes are “not taxed” under the United States Constitution and the IGRA specifically prohibits taxation of Indian gaming, states increasingly have sought to extract greater “fees” from tribes in exchange for entering into compacts. The process remains highly political and emotionally charged. In The Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996), the U. S. Supreme Court held that tribes could not sue states under the IGRA for failing to negotiate in good faith. This upset the balance Congress envisioned and emboldened states to demand money from tribes. As a result, the use of Class II gaming devices remains extremely powerful and a strong form of leverage for future compact negotiations, given the tribes’ lack of legal recourse when compact negotiations fail.

Commissions and Cultural Centers

On May 18, 2011, the Oklahoma legislature abolished the Oklahoma Indian Affairs Commission. The commission had served as the primary institutional conduit for state-tribal relations, and previous commissioners included many tribal chiefs, presidents and chairmen and women. But in May, the legislature folded the commission’s paltry $175,000 annual budget into the governor’s budget and killed a $40 million bond issue for completion of the American Indian Cultural Center and Museum in Oklahoma City. The half-finished building, sitting on 300 acres at the prominent interstate junction near downtown Oklahoma City, will remain an eyesore and embarrassment if not completed, with delays estimated to increase completion costs by 50 to 100 percent. Originally planned in 1994 to cost $100 million to construct, the latest estimates are $170 million to complete the facility.⁸

Resolution of Recent Disputes

The use of tribal forums to resolve gaming disputes has increased. Several decisions or settlements in either arbitration or tribal or federal courts are of particular note:

• New Gaming Systems Inc. (NGS) v. Sac and Fox Nation and Sac and Fox Nation Business Enterprise.⁹ NGS sued the Sac and Fox Nation, claiming more than $6 million in lost revenue under an equipment lease and loans. The tribal courts and the NIGC rendered separate decisions, each holding that the purported lease was void, as a management contract not approved by the NIGC as required under the IGRA and that the waiver of sovereign immunity within the contract was also void. The case lasted over six years in tribal courts, including several appeals. NGS also litigated before the NIGC and then sued the NIGC, its commissioners and the Sac and Fox Nation in federal court. The federal court stayed its proceedings pending the outcome of the nation’s Supreme Court’s adjudication. That court issued its order on June 16, 2011.

• Epic Gaming LLC v. Kickapoo Tribe of Oklahoma.¹⁰ Epic Gaming had a gaming management contract approved by the NIGC with the Kickapoo Tribe. A dispute arose and the parties settled their claims, resulting in a settlement agreement requiring the tribe to pay approximately $1.5 million to Epic Gaming. After an election, the tribe’s new leaders sought to dishonor the agreement. Epic sued the tribe in Kickapoo Tribal Court. The Kickapoo District Court granted judgment to Epic, and the tribe appealed. The parties then amicably settled their claims, with the tribe paying Epic $1.15 million.

• Gaughan Gaming v. Tonkawa Tribe of Oklahoma.¹¹ Gaughan Gaming had two NIGC-approved gaming management agreements with the Tonkawa Tribe of Oklahoma. After Gaughan invoked arbitration in a dispute with the tribe, the tribe removed Gaughan from the casinos, and the tribe’s gaming commission suspended and sought to revoke the gaming licenses of Gaughan (and several key employees) without advance notice or a hearing. In arbitration, the tribe sought more than $10 million against Gaughan.

Gaughan went to court to enforce contract terms allowing it to maintain possession and control of the casinos during any dispute. In May 2011, Gaughan and the tribe amicably settled their claims. The tribe paid Gaughan $2 million, reinstated all the gaming licenses, and dismissed all other claims and proceedings.

Organized Labor

With the success of tribal gaming in Oklahoma, tribal casinos have become the target of organized labor. This is not surprising, given the decline and outsourcing of typical Rust Belt manufacturing facilities. After failed legislative proposals, the Wall Street Journal recently reported that the Obama administration-controlled National Labor Relations Board has proposed to speed up union organizing votes—the most sweeping changes since 1947.¹² The changes would shorten the time between when a union files a petition until a vote from approximately 38 days to 20 days.¹³ The journal noted the decades-long decline of membership: In 1983, unions represented 20.1 percent of all workers. In 2010, that number has fallen to only 6.9 percent of private sector workers and just 11.9 percent of all workers.¹⁴ Similarly, a recent Associated Press article reported that the International Brotherhood of Teamsters had lost 75,000 dues-paying members since 2001, but while growing its assets by $96 million to $197 million since 2001.¹⁵

In San Manuel Indian Bingo and Casino v. National Labor Relations Board,¹⁶ the court held that the National Labor Relations Act applies to tribal casinos who do not share the exemptions enjoyed by state and municipal governments. The National Indian Gaming Association estimates that 75 percent of tribal casino employees are non-Indians. The San Manuel case sent shock waves through Indian country. Commentators, including this author, have roundly criticized the decision as conflicting with laws promoting tribal self-government and infringing on tribes’ treaty rights, as well as departing from canons of construction that favor tribes.¹⁷

Recently, the Teamsters have sought to organize the Chickasaw Nation’s WinStar World Casino. After the Teamsters claimed that the tribe engaged in unfair labor practices, the NLRB set the matter for hearing.¹⁸ The Chickasaw Nation sued the NLRB and its commissioners for declaratory and injunctive relief in federal court on May 10, 2011.¹⁹ In essence, the Chickasaw Nation claims that applying the NLRA and imposing the NLRB’s jurisdiction upon the nation and its casinos will deprive it of important self-governmental interests.

Applying the NLRA to Chickasaw Indian country also interferes with the nation’s treaty right to exclude others and its inherent sovereign authority to engage and regulate economic activity funding its essential governmental purposes. Allowing a non-tribal party to use the “collective bargaining” process to determine what laws will apply to the nation’s gaming operations, under the pain of strike, threatens the Chickasaw sovereign interests. While union organization activities have proceeded in other tribal jurisdictions, such as Connecticut, California and Michigan, the Chickasaw Nation case is potentially an important national “test case.” The U. S. Court of Appeals for the 10th Circuit (which includes Oklahoma) has favorable precedent, holding that tribal right-to-work laws deprive the NLRB of jurisdiction on-reservation contractors.²⁰ Stay tuned for important developments in this precedent-setting litigation.

For now, with the application of the NLRA and the claim of jurisdiction by the NLRB, tribes must be cognizant of unique, and counter-intuitive, federal labor laws and rules. If tribes fail to comply with certain federal labor laws and regulations, they could be charged with a presumed “anti-union animus.” The NLRB may force tribes to choose to submit to federal standards or end up in difficult lawsuits out of their control.

The only way that a union can succeed is if union organizers can convince a core group of employees that unions are superior to the status quo. If tribes undertake good employment relations and practices, engage in training and compensate their employees well, their organizations will remain healthy and not subject to union organizing. Discontent breeds union organization efforts. Of course, the choice to allow unions within tribal jurisdictions is a sovereign choice and some tribes, including the San Manuel and the Mashantucket Pequot Tribe, have chosen to embrace some forms of union activity. Union organizing in Indian country raises important federalism versus tribal sovereignty issues. Oftentimes, by the time tribal managers are aware of union organizing activities, it is too late—20 to 38 days is a very short time to mount a counter-campaign when faced with a union organizing petition. Tribes should consult with labor experts well before receiving a notice from the NLRB with allegations of unfair labor practices or an NLRA-sanctioned union vote of tribal casino employees.

Footnotes
1 For example, a Tulsa World article reported that Cherokee Nation gaming operations provided $455 million in government revenue in 2010. Wayne Greene, Cherokee Leadership Important to State (July 3, 2011) at A-1, citing an online tribal report “Where the Casino Money Goes.”

2 Meister publishes an annual report called “Casino City’s Indian Gaming Industry Report.” In 2009, the latest estimate available, Meister determined that 237 Native American tribes operated 446 gaming facilities in 28 states, generating approximately $26.4 billion in gaming revenue and $3.2 billion in non-gaming revenue.

3 Oklahoma voters authorized a model gaming compact in 2004, which was codified by the legislature. The governor and individual tribes cannot vary the terms of the model gaming compact.

4 Pursuant to the Tribal State Model Gaming Compact, compacted tribes pay a monthly “exclusivity fee” to the state of Oklahoma for the exclusive right to operate compacted gaming for two categories of games. The two categories are “electronic covered games” and “table games.” The model compact payment formula for “electronic covered games” is 4 percent of the first $10 million of annual Adjusted Gross Revenues (AGR), 5 percent of the next $10 million of AGR, and 6 percent of AGR over $20 million. For table games, tribes pay 10 percent of the “monthly net win.” Because of incomplete compact data reporting and no reporting of Class II gaming revenue, it is impossible to “back end” the exact total revenue of all tribal gaming facilities in Oklahoma; total gaming revenue figures are just estimates.

5 See e.g., a trilogy of cases including Cossey v. Cherokee Nation Enterprises LLC, 2009 OK 6, 212 P.3d. 447; Griffith v. Choctaw Casino of Pocola, 2009 OK 51; and Dye v. Choctaw Casino of Pocola, 2009 OK 52. Those cases involved personal injury claims against tribes and their casinos. The claimants filed suit in state court. The court held in fractured,complex and divisive decisions that states courts are “courts of competent jurisdiction.” Therefore, state courts could adjudicate these types of claims against tribes under the terms of the compact.

6 This author and Crowe & Dunlevy successfully represented the Eastern Shawnee Tribe of Oklahoma in arbitration and litigation against the State of Oklahoma. The litigation resulted in a declaratory judgment against Oklahoma and all of its courts that they had no jurisdiction over tort and prize claim disputes under the tribal-state compact. See e.g., Eastern Shawnee Tribe of Oklahoma v. Oklahoma, No. 5:00-CV-00459-W (June 28, 2010, and July 1, 2010) (granting declaratory judgment against Oklahoma and exercising continuing jurisdiction for enforcement).

7 See e.g., Choctaw Nation, et al. v. Oklahoma, 724 F.Supp.2d 1182 (W.D. Okla. June 29, 2010) (Judgment Certifying Arbitration Award and Granting Permanent Injunction).

8 Brandon Goodwin, “Indian Museum Needs Money to Finish Building,” Tulsa World (June 11, 2011) at A-19.

9 No. CIV-05-1, and on appeal APL-08-01 (Sac & Fox Nation) and New Gaming Systems Inc. v. NIGC, et. al., No. 5:08-cv-698-HE (W.D. Okla.). This author and Crowe & Dunlevy represent the Sac and Fox Nation and the Sac and Fox Business Enterprise in the tribal courts and in federal court.

10 Case No. CIV-09-17 (Kickapoo Tribal Courts). This author and Crowe & Dunlevy represented Epic Gaming in the dispute in the tribal courts.

11 American Arbitration Association, No. AAA No. 71-517-Y-00764-10; CIV-330-HE (W.D. Okla.) and various proceedings before the Tonkawa Tribal Gaming Commission and the NIGC. This author and Crowe & Dunlevy represented Gaughan Gaming in all the disputes.

12 Melanie Trottman & Kris Maher, “Plan to Ease Way for Unions,” Wall Street Journal (June 22, 2011) at A1, A4. Union agendas have had better success in the executive branch than in Congress. The Employee Free Choice Act, a proposal to ease union organizing failed in the Senate.

13 Id.

14 Id.

15 Cristina Silva, “Woman Vying to Head Teamsters,” Tulsa World (July 1, 2011).

16 475 F.3d. 1306 (D.C. Cir. 2007).

17 D. Michael McBride III and H. Leonard Court, Labor regulation, union avoidance, and organized labor relation strategies on tribal lands: new Indian gaming strategies in the wake of San Manuel Band of Indians v. National Labor Relations Board, 40 J. Marshall L. rev. 1259 (2007) and D. Michael McBride III and Susan E. Huntsman, Organized Labor Strategies for Indian Gaming Enterprises, 55 Federal Lawyer 49 (April 2008).

18 Chickasaw Nation d/b/a Winstar World Casino and International Brotherhood of Teamsters Local 886 et.al., Nos. 17-CA-25031 & 17-CA-25121 (NLRB 17th Reg., consolidated cases). Crowe & Dunlevy represents the Chickasaw Nation on NLRB issues.

19 See e.g., Chickasaw Nation v. NLRB et. al., 5:11-CV-00506-W (W.D. Okla.)

20 See NLRB v. San Juan Pueblo, 276 F.3d. 1186 (10th Cir. 2002).



D. Michael McBride III chairs Crowe & Dunlevy’s Indian Law & Gaming Practice Group in Tulsa, Okla. He also chairs the membership committee for the International Masters of Gaming Law.