REDACTED FOR PUBLIC RELEASE
MEMORANDUM
To: Philip Hogen, Chairman
From: Penny Coleman, Acting General Counsel
Date: October 27, 2005
Re: “Grandfathered” Status of Card Games at the Double Eagle Casino,
Spokane Reservation
The purpose of this memorandum is to analyze whether certain house-banked card games offered by the individually-owned Double Eagle Casino on the Spokane Indian Reservation qualify as Class II games under the Indian Gaming Regulatory Act (“IGRA”) grandfathered card games provision, 25 U.S.C. § 2703(7)(C). As explained below, our legal opinion is that these card games are not grandfathered card games, because the individually-owned card games were not operated by an Indian tribe prior to the grandfathering date in IGRA.
Background
During a comprehensive Minimum Internal Control Standards (“MICS”) audit undertaken in February 2004, the National Indian Gaming Commission (“NIGC”) audit team documented that blackjack and pai-gow card games were being offered at the Two Rivers and Chewelah Casinos, owned and operated by the Spokane Tribe, and at the Double Eagle Casino, an individually-owned facility on the Spokane Reservation. The Double Eagle Casino is owned by [redacted], a member of the Spokane Tribe.
Recently, the Tribe and the State of Washington have shown substantial progress in negotiating a Class III Compact which will permit the play of blackjack and pai-gow card games at tribally-owned facilities, but not at individually-owned facilities. Assuming, for purposes of this memorandum, that the Tribe will soon operate the subject card games under an approved Tribal-State Compact, the NIGC must still determine whether the play of these games at the individually-owned Double Eagle Casino falls within IGRA’s “grandfathered card games” exception that authorizes otherwise-Class III card games to be played as Class II games.
In a letter dated September 1, 2004, Chairman Hogen requested that [redacted] provide the NIGC with any evidence supporting the position that these games qualified for the grandfathered card games exception in section 2703(7)(C) of IGRA. The Tribe received a similar request regarding the card games offered at its facilities, and the Tribe responded on behalf of both parties on September 20, 2004. The combined response included a Declaration provided by [redacted]. In developing this legal opinion, we have carefully considered [redacted]’s declaration and the other material submitted on [redacted]’s behalf.
Analysis
IGRA requires that the operation of Class III games be conducted in conformance with a Tribal-State Compact or Class III procedures prescribed by the Secretary of the Interior. 25 U.S.C. § 2710(d)(1)(C), (d)(7)(B)(vii). The general rule is that house-banked card games such as blackjack and pai-gow are Class III games. 25 U.S.C. § 2703(7)-(8); 25 C.F.R. § 502.4(a)(1). However, the Chairman of the NIGC may determine that tribes can offer such card games without a Tribal-State Compact or Secretarial Procedures if the games qualify for IGRA’s grandfathered card games provision, which states:
Notwithstanding any other provision of this paragraph, the term “class II gaming” includes those card games played in the State of Michigan, the State of North Dakota, the State of South Dakota, or the State of Washington, that were actually operated in such State by an Indian tribe on or before May 1, 1988, but only to the extent of the nature and scope of the card games that were actually operated by an Indian tribe in such State on or before such date, as determined by the Chairman.
25 U.S.C. § 2703(7)(C).
In interpreting the language of IGRA’s grandfathered card games provision, the starting point must be the language employed by Congress. United States v. Sisseton-Wahpeton Sioux Tribe, 987 F.2d 358, 361 (8th Cir. 1990). As quoted above, the plain language of the grandfathered card games provision creates three statutory requirements that must be satisfied for a house-banked card game to qualify as a Class II game: (1) the card game operation must be within the exterior boundaries of one of the four subject states; (2) the card game must have been “actually operated . . . by an Indian tribe” on or before May 1, 1988; and (3) the post-1988 operation must be limited to the “extent of the nature and scope” of the tribe’s prior operation. Each of these requirements will be addressed below.
A. Four-State Application
The grandfathered card games provision applies only to tribal operations within the exterior boundaries of four specified states: Michigan, North Dakota, South Dakota, and Washington. 25 U.S.C. § 2703(7)(C). In this case, the Double Eagle Casino is located on the Spokane Indian Reservation within the State of Washington. Therefore, the first statutory requirement is satisfied.
B. Actual Operation by an Indian Tribe On or Before May 1, 1988
Additionally, in order to be eligible for IGRA’s grandfathered card games provision, the card games must have been operated by an Indian tribe on or before May 1, 1988. 25 U.S.C. § 2703(7)(C). The plain language of the statute is conclusive that the games must have been actually operated by a tribe on or before the grandfathering date. The plain-language reading does not support the position that house-banked card games can qualify for the grandfathered card games provision if they were actually operated by any entity other than a tribe, even if a tribe licensed and/or otherwise regulated the individually-owned card games.
Nothing in IGRA’s legislative history contradicts this plain-language reading. The Senate’s Select Committee on Indian Affairs’ Report for S. 555, which became IGRA, contains the following paragraph regarding the grandfathered card games provision:
Subparagraph 4(8)(C) [25 U.S.C. § 2703(7)(C)] provides that card games actually operated by tribes in certain states on or before May 1, 1988, will continue to operate under tribal/Commission jurisdiction as class II games with the caveat that the games may not change their character, i.e., new or different kinds of games may not be substituted for the games that are grandfathered and the games must be played with the same pot and wager limits as currently operated. It is not the Committee’s intention, however, to restrict these grandfathered games to a specific number of chairs, tables, or other similar conditions of operation. These are factors that are determined by the marketplace; games may contract or expand. All class II games are subject to the provisions of section 11(b) and (c) [25 U.S.C. § 2710(b) and (c)]. The Committee is cognizant of the fact that many of these games have been operating under tribal regulation free of Federal control for many years and are, in fact, crime free. While the Committee recognizes that this situation could be repeated on Indian lands in many states where such gaming is allowed, it also recognizes the State interest in participating in the regulation of such gaming. To come within the grandfather clause, the Committee intends to include all games in which an investment was made and the games were actually operated on or before May 1, 1988. Games are often closed temporarily for a variety of reasons, such as contract disputes, renovations, and collateral legal disputes, among others. Such closures are not meant to preclude a tribe's game from being included in this section. For this reason, the Committee specifically intends that the card room operated by the Lummi tribe in Washington State be included in this grandfather provision.
S. Rep. No. 466, 100th Cong. 2d Sess. 10 (1988) (emphasis added). As demonstrated by the language underlined above, Congress specifically intended the words that it used in the statute—grandfathered card games must have been operated by the subject tribe.
A discussion on the Senate floor between Senator Reid and then-Committee Chairman Inouye provides further evidence of the requirement of actual operation by the Indian tribe:
Mr. REID. Mr. President, I would like to engage the chairman in a colloquy regarding the meaning of the “grandfather clause” provided in the bill which permits the continued operation of certain “banking” card games in operation as of May 1, 1988. Specifically, this provision would permit the continued operation, as class II gaming activities, of certain games played in the States of Washington, North Dakota, South Dakota, and Michigan which ordinarily would fall within the definition of class III gaming.
It has been this Senator’s understanding that this provision was adopted to protect tribes with existing investments in such games from hardships associated with changes in the law brought about by this legislation. This Senator also understands that the committee intended that the grandfather clause should not serve as the basis for expansion of existing gaming operations to new locations not in operation as of May 1, 1988. Would the chairman confirm that this provision does not provide authority for the establishment of new banking card game operations or the institution of new games in existing operations?
Mr. INOUYE. The Senator is correct. The grandfather clause is intended merely to protect tribes with existing operations from hardship due to this change in the law. While the bill may permit the expansion of particular operations which were in existence as of May 1, 1988, for example, by the addition of gaming tables or seats in an existing establishment, it does not authorize the expansion of such operations to new locations, the establishment of new operations, or the institution of new games at existing operations. In other words, both the gambling operation and the particular games played in that operation must have been in place on or before May 1, 1988, in order to have the benefit of this provision.
134 Cong. Rec. S12,651 (daily ed. Sept. 15, 1988) (emphasis added). As evidenced by the legislative history, the grandfathered card games provision was intended to protect tribes—not non-tribally owned facilities—that owned and operated house-banked card games as of May 1, 1988.
A separate provision of IGRA protected existing individually-owned class II gaming operations from the application of State-law limitations, as otherwise were made applicable to all new individually-owned facilities on Indian land. 25 U.S.C. § 2710(b)(4)(B). This “individually-owned grandfather” provision states, in part:
The provisions of subparagraph (A) of this paragraph [25 U.S.C. § 2710(b)(4)(A)] and the provisions of subparagraphs (A) and (B) of paragraph (2) [25 U.S.C. § 2710(b)(2)(A) & (B)] shall not bar the continued operation of an individually owned class II gaming operation that was operating on September 1, 1986, if –
(I) such gaming operation is licensed and regulated by an Indian tribe pursuant to an ordinance reviewed and approved by the Commission in accordance with section 2712 of this title,
(II) income to the Indian tribe from such gaming is used only for the purposes described in paragraph (2)(B) of this subsection [25 U.S.C. § 2710(b)(2)(B)],
(III) not less than 60 percent of the net revenues is income to the Indian tribe, and
(IV) the owner of such gaming operation pays an appropriate assessment to the National Indian Gaming Commission under section 2717(a)(1) of this title for regulation of such gaming.
25 U.S.C. § 2710(b)(4)(B)(i).
Near the beginning of the Senate Report, the Select Committee on Indian Affairs included a short “Highlights” section. Id. at 7-8. This Highlights section includes the following very short summary of the two separate grandfathering provisions discussed above:
Grandfather of existing banking card games.—(1) All card games operated by tribes on or before May 1, 1988 that would otherwise be considered as Class III game under the bill will be treated as Class II games; (2) individually owned class II games licensed by tribes will also be grandfathered. No new class III banking card games will be permitted to be regulated as class II games.
S. Rep. No. 466, 100th Cong. 2d Sess. 7 (1988). This cursory summary does not mention every element of either grandfathering provision, and the combined discussion of both grandfathering provisions could lead to confusion. But the two grandfathering provisions mentioned above are separate provisions in IGRA—clause (2) of this summary does not signal Congress’ intent to include individually-owned Class III card games under IGRA’s grandfathered card games provision. Rather, clause (2) refers specifically to grandfathering individually owned class II games, thus distinguishing it from the subject of clause (1), and showing Congress’ intent to refer here only to the individually-owned grandfathering provision at 25 U.S.C. § 2710(b)(4)(B). Therefore, nothing in the legislative history conflicts with the plain-language reading of IGRA’s grandfathered card games provision, which requires the card games to have been actually operated by an Indian tribe as of the grandfathering date of May 1, 1988.
In this case, the evidence provided by and on behalf of [redacted], even if assumed to be true, does not establish that the Spokane Tribe actually operated blackjack and pai-gow card games on or before May 1, 1988. At most, the evidence seems to support the proposition that [redacted] operated the games at the Double Eagle Casino prior to May 1, 1988, under a tribal license. Declaration of [redacted] (Jan. 31, 2005). [redacted]’s declaration does not indicate how much profit the house-banked card games made, or how the profits were distributed during the normal course of business. Instead, the declaration states: “On several occasions, and on behalf of the Spokane Tribe, I conducted for the Tribe, charitable gaming events, offering the same games, under the same rules. Proceeds for the evening were paid to the Tribe.” Id. The submission includes Double Eagle advertisements for three different three-day weekend events in June, July and August 1986, promoted as “Fund Raising for Higher Education & Child Welfare [or Cultural Preservation and Senor Citizens]; Sponsored by Spokane Tribe of Indians.”
Assuming that the proceeds from these three pre-1988 events were provided to the Tribe, this would still not constitute “actual operation” by the Tribe. In contrast, the evidence shows that even these gaming events were operated by [redacted] and the Double Eagle Casino, not the Tribe. For instance, [redacted]’s declaration states: “I conducted” the charitable gaming events. Furthermore, this type of charity event, conducted with little or no investment from the Tribe, does not constitute the type of pre-1988 tribal investments that Congress intended to protect with the grandfathered card games provision. See 134 Cong. Rec. S12,651 (daily ed. Sept. 15, 1988). Because there is no current evidence to support a finding that the Spokane Tribe “actually operated” the house-banked card games at issue as of May 1, 1988, the second statutory requirement is not satisfied, and the house-banked card games are not subject to IGRA’s grandfathered card games provision.
C. Nature and Scope Limitation
Under the third statutory requirement for grandfathered status, the post-1988 card games must be shown to be limited to the “extent of the nature and scope” of the tribe’s pre-1988 operation. 25 U.S.C. § 2703(7)(C). In this case, it is not necessary to analyze this third statutory factor. Each of the statutory factors must be satisfied in order to grant grandfathered card game status, and as explained above, the second factor is not satisfied.
Conclusion
As discussed in detail above, the individually-owned and operated card games at the Double Eagle Casino have no legal basis to bring them within the ambit of the grandfathered card games provision of IGRA, because the Tribe did not “actually operate” such games on or before May 1, 1988. Therefore, in the absence of a Tribal-State Compact that specifically allows them, these house-banked card games may not be offered at the Double Eagle Casino.
Jeffrey Nelson is assigned to this matter. Please contact us if you have any questions.