Abstract
Indian gaming in Oklahoma has been roiled by a dispute between the state's governor, who has aggressively pressed the tribes for more revenues, and the tribes themselves, which seem to win each legal battle. As other states deal with budget crises and look to gaming as a potential revenue source, the lesson from Oklahoma is that state leadership should be wary of short-term thinking and proceed very cautiously in seeking to wring more revenues from successful tribal gaming operations.
Oklahoma is not among the largest states geographically or in population, 1 but it has become the second largest Indian gaming market in the United States, 2 topped only by California, a state ten times larger with nearly 40 million people. 3 With 31 tribal nations in Oklahoma operating more than 130 tribal gaming operations, annual Indian gaming revenues exceed $5 billion in Oklahoma. 4 As a result, in fiscal year 2019, Oklahoma tribes contributed nearly $150 million to the Oklahoma State Treasury, a record high for the fifth consecutive year, 5 and constituting roughly two percent of the state's $7.5 billion budget that year. The indirect contribution to the state's coffers is even more substantial, with Oklahoma tribes contributing an estimated $12.9 billion in annual economic impact in the state. 6
As Indian gaming has grown steadily in Oklahoma, the State of Oklahoma has faced growing revenue shortfalls due to depressed oil and gas prices and, most recently, the impact of the COVID-19 pandemic. 7 In February of 2020, Oklahoma Governor Kevin Stitt projected a $1.4 billion shortfall for fiscal year 2021 8 and state finance officials declared a revenue failure for fiscal year 2020, allowing the legislature to access rainy day funds. 9 Even before the state's revenue picture became dire, the governor seems to have made a strategic decision to demand more gaming revenue from tribes. In 2019, he began using aggressive tactics that caused significant disruption, resulting in costly litigation in federal and state forums, all of which was resolved against the governor unusually quickly. This article will briefly explain these fast-moving litigation developments in the nation's second largest Indian gaming jurisdiction.
I. Historical Context for the Recent Dispute
Gaming began in Oklahoma with high stakes bingo in the 1970s. 10 In 1988, Congress enacted the Indian Gaming Regulatory Act (IGRA). 11 IGRA authorized tribes to engage in Class III casino-style gaming as long as they obtained compacts with the state in which they were located. As numerous other states signed gaming compacts, Oklahoma moved slowly. Throughout the 1990s, the state refused to negotiate Class III gaming compacts. In response, the tribes focused on developing Class II high-stakes bingo operations, which eventually included games played involving free-standing cabinets akin to slot machines under provisions allowing the use of technological aids to bingo, pull-tabs, and other games.
The tensions over Class II gaming came to a head in the early 2000s. Federal officials accused tribes in Oklahoma of operating what amounted to illegal slot machines. In some circles, the games were called the “crack cocaine of gaming.” 12 In part at the behest of states, the Department of Justice was litigating a series of cases opposing high-tech Class II gaming. Justice ultimately failed to win a single case, losing in four different circuits, including two different cases arising out of Oklahoma in the Tenth Circuit. 13
After prevailing in all of the litigation, the tribes had significant leverage to conduct what became known colloquially as “Class 2.9” gaming. Yet Oklahoma refused to negotiate Class III gaming compacts. The tribes decided to bypass state officials and go directly to voters with a ballot referendum. 14
In 2004, Oklahoma voters approved Class III gaming as set forth in the State-Tribal Gaming Act (STGA). 15 The STGA allowed all federally recognized Indian tribes within Oklahoma to enter into model tribal gaming compacts, authorizing the tribes, and only tribes, to conduct otherwise prohibited Class III gaming on tribal lands. 16 In return, the compacts provided that the tribes would pay the state fees for this “exclusivity” and the fees would be taken as a percentage of gaming revenues.
The compacts, which were signed in very late 2004 and throughout 2005, produced calm in Oklahoma. All 31 tribes operating gaming facilities in Oklahoma eventually signed model tribal gaming compacts with the state, creating a stable environment in which tribal gaming—and payments to the state—grew steadily. Annual exclusivity fees, paid by tribes to the state as a percentage of gaming revenue, grew from $2.3 million in fiscal year 2005 to more than $148 million in fiscal year 2019, 17 a steady and reliable source of revenue for the state.
The model compacts signed in 2004 and 2005 had initial terms that expired as of 2020, or roughly 15 years, unless terminated earlier by mutual consent. 18 During the initial 15-year terms, Oklahoma tribes cumulatively paid more than $1.5 billion to the state under the model compacts. 19 Though the initial term ended effective January 1, 2020, the compacts also had a provision for automatic renewal if certain conditions occurred.
As the model compacts neared the end of their initial 15-year term on January 1, 2020, Governor Stitt sought renegotiation of the compacts. 20 Stitt proclaimed his desire to renegotiate in an op-ed in the Tulsa World newspaper in early July of 2019. 21 The announcement in the newspaper, prior to any discussion with tribes, was not well-received by the tribes 22 and may have doomed the chance to engage in productive negotiations with tribes. The tribes responded by explaining their position that the compacts were set to automatically renew; they refused to negotiate with the governor. In the months leading up to January 1, 2020, tribal representatives continued to argue that the conditions for automatic renewal had been met, while the governor contended the compacts would expire.
Eventually, Governor Stitt claimed that the tribes would be conducting Class III gaming illegally after January 1, 2020. The governor's legal claim threatened significant destabilization of the industry. Class III gaming conducted in the absence of a compact is illegal. If the state's threats were correct, patrons were gaming illegally, and even non-Indian vendors in Oklahoma casinos might face legal or regulatory action in Oklahoma or in other gaming jurisdictions for involvement in illegal gambling. The playbook was familiar; the State of New Mexico had taken similar action against the Pueblo in 2015 and began enforcement actions against gaming machine vendors to the Pueblo and withholding gaming licenses from others. 23
Facing significant economic disruption, the Oklahoma tribes went to federal court. On December 31, 2019, tribes filed suit in the U.S. District Court for the Western District of Oklahoma. 24 The Cherokee, Chickasaw, and Choctaw Nations brought the case initially and were later joined by several other tribal nations, including the Comanche Nation and Otoe-Missouria Tribe, in seeking a declaratory judgment as to the legal effect of the “shall automatically renew” clause. 25 Stitt soon filed a counterclaim against the tribes.
II. The Legal Dispute
The narrow dispute was whether the compacts expired on January 1, 2020, or automatically renewed, and the question was governed by a single provision contained in each of the model compacts known as Part 15(B). 26 Part 15(B) indicates the compacts expire on January 1, 2020, but may also renew on the same date if certain conditions for automatic renewal are met. Conditions are met for automatic renewal if “organization licensees or others … [are] authorized to conduct electronic gaming in any form other than pari-mutuel wagering on live horse racing pursuant to any governmental action of the state … following the effective date of this Compact.” 27
Among the tribes' arguments, they claimed that the 15(B) conditions for automatic renewal were met when the Oklahoma Horse Racing Commission (OHRC), operating under the authority created by the enactment of the STGA in 2004, authorized horse racetracks to conduct electronic gaming each year since 2005. The tribes claimed the conditions were met, further, when the OHRC issued new electronic gaming licenses for two horse racetracks in 2019 and 2020. 28 In response, the governor claimed that these actions did not constitute “governmental actions” under Part 15(B), and that no qualifying “governmental action” occurred after the legislature passed the STGA in 2004. 29 The governor took the litigation position that “governmental action” required action by the legislature, not by a state administrative agency.
III. A Surprising Turn: New Compacts Signed with two Tribes
As the litigation continued in federal court, Stitt continued to ask the tribes to come to the table for compact renegotiation. In the midst of the litigation, the governor surprised most of the tribes by entering secret negotiations with two of the tribes and reaching a public settlement. Acting under the premise that the model compacts had expired without renewal, Stitt offered new compacts to the Comanche Nation and Otoe-Missouria Tribe, 30 and these tribes accepted the compacts and were released from the suit. 31 The terms of the new compacts differed significantly from the model compacts that had been approved by voters in the STGA.
In contrast to the 2004 model compacts, which are nearly identical among all 31 tribal nations, the renegotiated compacts included terms specific to the individual tribes. A significant carrot for the tribes was the governor's inclusion of sportsbook betting—with 1.1% of each transaction paid to the state. 32 Wagering on sports has been an issue across the country since the Supreme Court issued a decision in 2018 reinterpreting the federal Wire Act to lift a federal moratorium on sports betting. 33
The compacts with Comanche and Otoe-Missouria also had other new terms. While exclusivity fees at existing casinos would see only minor adjustments, the tribes promised that any new casinos authorized and constructed under the new compacts would pay higher annual exclusivity fees of between 8% and 13%. 34 The new compacts also established higher annual oversight fees and required that casino floor space consist of at least 45% Class III gaming. 35 This last provision is troubling because it effectively served as a limit on Class II Indian gaming, a subject for which the state has no legal right to negotiate for, or regulate, in a gaming compact. 36 It would seem to surrender tribal sovereign authority in a manner not intended by Congress. 37
Though most of the remaining tribes were likely upset by the decision by the two tribes to negotiate new compacts, 38 the governor's action opened a new battlefront for him in Indian gaming: several state officials from his own party challenged his authority to bind the state to terms that differed from the provisions authorized by state law in the STGA.
First, when Governor Stitt submitted the new compacts to the U.S. Department of the Interior for approval, several parties joined together to voice their opposition to Governor Stitt's actions, including Oklahoma Attorney General Mike Hunter, a Republican. 39 Interior took no formal action as to the renegotiated compacts, with the result that they were theoretically deemed to be approved, but only to the extent consistent with law. 40
Meanwhile, in a reprise of similar separation of powers litigation that has occurred in numerous other states, 41 and while the governor was seeking approval at Interior in Washington, state lawmakers argued that Stitt had sought to arrogate legislative authority to himself, violating separation of powers concerns under the state constitution. Oklahoma Senate President Pro Tem Greg Treat and Speaker of the House Charles McCall, both also Republicans, brought an extraordinary original action in the state supreme court, seeking a declaration that Governor Stitt lacked authority to enter into the new gaming compacts and that the agreements do not bind the state. Citing numerous state law defects in the governor's agreements, these legislators made specific allegations that the renegotiated compacts were invalid because they allowed for certain Class III gaming prohibited by Oklahoma's STGA, and argued that the governor lacked authority to authorize gaming that is illegal under Oklahoma law. 42
In relatively swift action, the Oklahoma Supreme Court acted, publishing a memorandum opinion rejecting the governor's assertion of authority in this area and finding the renegotiated compacts invalid under Oklahoma law. 43 Several tribes have recently filed suit in federal court seeking a declaration that the U.S. Department of the Interior's apparent “deemed approval” is therefore invalid under federal law. 44 The debate continues at the state level as well; Stitt has continued negotiating new compacts with other tribes, including the United Keetoowah Band and the Kialegee Tribal Town. 45 He has also moved for reconsideration in the Oklahoma Supreme Court to establish greater clarity in the authority of future compacts. 46
IV. Conclusion of the Federal Litigation and Implications for the Future
Shortly after the Oklahoma Supreme Court declared the two renegotiated compacts invalid, the federal court published a decision concluding that the model gaming compacts between the remaining tribes 47 and the State of Oklahoma “automatically renewed for an additional 15-year term on January 1, 2020, by operation of the unambiguous terms of Part 15(B).” 48
The federal court held that “Part 15(B) is not ambiguous and its effect must be determined from the language of the Compacts.” 49 Because the state did not dispute that several horse racetracks in Oklahoma are authorized to conduct the type of electronic gaming described in 15(B), the sole question was whether the authorization of such gaming was “‘pursuant to any governmental action of the State’ taken after the effective dates of the Compacts.” 50
The federal court found the issue easy to decide and issued a fairly short opinion. The court noted that the Oklahoma voters approved the STGA in 2004, which created the model compact and expanded the authority of the Oklahoma Horse Racing Commission to regulate gaming by horse racetracks under certain conditions. When those conditions were met, the OHRC began to act upon the authority, granted by STGA, to regulate horse racetracks. From 2005 to 2019, the “OHRC has annually issued licenses to horse racetracks to conduct the same electronic gaming that the Tribes conduct under their Compacts.” 51 The OHRC also approved two new gaming licenses for horse tracks at Remington Park and Will Rogers Downs in 2019 and 2020, respectively.
The federal court rejected the governor's narrow view that only a legislative enactment (such as the STGA), and not an administrative action (such as the OHRC's actions under STGA authority), could constitute a “governmental action” authorizing electronic gaming under 15(B). 52 The court concluded that the OHRC, an executive agency receiving authority from the STGA, fulfilled the requisite “governmental action” to trigger the automatic renewal provision in 15(B). 53
In addition to the arguments addressed above, the court expressly rejected an additional argument by the governor that the governor “may request to renegotiate” and that such a request “triggers an opposing party's obligation to engage in negotiations as a condition precedent to renewal.” 54 The court reasoned that the automatic renewal conditions are separate from the renegotiation language, which referred specifically to a different part of the compact, and were not implicated in Part 15(B). Second, the court disregarded an argument by the governor concerning inevitable and perpetual renewal, 55 finding that the renewal terms and conditions are clear and avoidable if the state wishes to prevent renewal.
The natural implication of the court's opinion is that the model compact will continue to renew automatically every 15 years. Stated differently, in order for the state to avoid “perpetual renewal,” the compact must terminate by mutual consent, which would require meaningful and good faith negotiations within the framework established by the Indian Gaming Regulatory Act and Oklahoma's constitutional law respecting separation of powers.
The decision would seem to resolve the issue of the existing compacts. The whole incident, though quickly resolved, weakened the governor, at least according to editorial commentary by the local media. 56 The governor was left damaged by his losing battle with the tribes and members of his own party. Local reporting focused on the litigation cost to the state to fight the losing battle. 57
Given the clear limits on the governor's authority, the most promising course for the governor would seem to be to offer the tribes an agreement that is attractive to the tribes and compelling enough to be authorized by the legislature or the voters. 58 The new federal interpretation of the Wire Act would seem to offer some possibilities to create incentives for tribes to negotiate, but absent tribes voluntarily engaging in negotiations, it appears that the tribes have the right to continue gaming in accord with the existing compact. After a brief disruption, Class III Indian gaming in Oklahoma seems to be on firm footing with stability in the compacted legal regime for several years to come.