Tuesday, December 16, 2014

Amendments to British Columbia Gaming Control Act – Suspension and Cancellation of Gaming Registrations

By Michael D. Lipton, Q.C. and Kevin J. Weber

In October, the Government of British Columbia introduced Bill 4, Miscellaneous Statutes Amendment Act (No. 2), 2014 (“Bill 4”). Bill 4 amends a number of statutes, including section 69 of the Gaming Control Act of that province (the “Act”).

In 2010, amendments to the Act were enacted which created some confusion as to the authority of the gaming regulatory authorities to cancel, suspend, impose conditions upon, or vary the conditions upon the registration of a gaming services provider or gaming worker. As section 69(1) of the Act presently reads, it appears that the regulator may cancel or suspend a registration, or impose conditions upon or vary the conditions on such a registration, only “in relation to one or more gaming premises of a registrant.” Not every gaming services provider has a “gaming premises” in the province of British Columbia, making the section confusing as to the authority of the regulator. Prior to 2010, section 69(1) of the Act contained no reference to “premises.”

Bill 4 proposes that section 69(1) of the Act be struck out and in its place, the following would be enacted:

“…the general manager may do any of the following:

(a) issue a warning to a registrant;

(b) cancel a registrant’s registration;

(c) suspend a registant’s registration for a period of time;

(d) impose new conditions on a registrant’s registration, either generally or for a period of time;

(e) vary existing conditions of a registrant’s registration, either generally or for a period of time.”

As well, Bill 4 proposes that a new section 69(3) be added to the Act. This new section would make clear that the conditions that may be imposed or varied upon the registration of a gaming services provider may be applied specifically with reference to the premises at which the registrant carries on business, as follows:

“In the case of a registrant that is a gaming services provider, conditions may be imposed or varied under subsection (1) (d) or (e) in relation to one or more premises at which the registrant carries on the business of providing gaming services and, without limiting this, the conditions imposed or varied may do any of the following:

(a) prohibit the registrant from selling lottery tickets at a premises and require the registrant to ensure that no lottery tickets are sold, by any person, at the premises;

(b) prohibit the registrant from providing one or more other gaming services at a premises and require the registrant to ensure that the prohibited gaming services are not provided, by any person, at the premises;

(c) require the registrant to post the conditions in public view at the premises to which the conditions relate.”

As Bill 4 is currently only at First Reading stage, its provisions are still subject to amendment during the Second Reading process before being given Royal Assent and enacted into law. At present, the amendments appear to simply write into the statute the interpretation which the British Columbia regulators have placed on the Act since 2010. Should any amendments be suggested at further readings which add controversial provisions to the Act, we will report them to our readers at the earliest opportunity.

Tuesday, December 2, 2014

The Recommendations of Québec’s “Working Group on Online Gambling”

By Michael D. Lipton, Q.C. and Kevin J. Weber

Last month, the Government of Québec released its long-awaited report on online gaming (“iGaming”). The Working Group on Online Gambling was struck in February 2010 to analyze the social impact of iGaming in Québec, and measures that might be used to block “allegedly illegal” iGaming. The particular focus of the Working Group was the lawful iGaming carried out in Québec through Espacejeux.com (“Espacejeux”), whose operations are conducted and managed by the Government of Québec through its wholly owned Crown corporation, Loto-Québec.

The report of the Working Group criticized the ability of Loto-Québec to provide measurably effective measures to ensure Espacejeux is operated consistent with social responsibility, security, and integrity. The conflict or appearance of a conflict between its two mandates, profitability on the one hand and social responsibility on the other, was cited. The final recommendations of the report accordingly focused upon the creation of an independent authority to oversee the activities of Loto-Québec, rather than allowing Loto-Québec to self-regulate on these matters.

The report of the Working Group goes on to note that the availability of Espacejeux has not curtailed Québecers’ use of “allegedly illegal” iGaming websites. The Working Group was not critical of the lack of concrete measures implemented by the Government of Québec to crack down on such websites. Rather, it noted the obstacles to such a crackdown, citing (i) police action, (ii) the ambiguity of legislation governing gaming, (iii) the fact that many “allegedly illegal” websites hosted outside Canada are legal in their home jurisdictions, and (iv) the presence of private iGaming operators offering their iGaming services to the world from Québec territory, specifically from the Territory of Kahnawà:ke near Montreal.

The federal Criminal Code (the “Code”) prohibits any entity other than the provincial government from acting as the “operating mind” of iGaming made available to Québecers. Without explicitly saying so, the Working Group concluded that enforcement of the Code in this respect is practically impossible. Accordingly, it recommends a solution best described using the old maxim: “if you can’t beat ‘em, join ‘em”: petitioning the federal government to amend the Code to allow the provincial governments to license private sector iGaming operators to legally offer their services within Canada.

We will continue to monitor developments, most importantly whether the Government of Québec will explicitly adopt and endorse in part or all of the report and recommendations of the Working Group. To read more about the report, please click here.

Tuesday, July 8, 2014

Pojoaque’s Plan to Seek an Imposed Contract: Is Interior’s Process Consistent with IGRA?

By Dennis J. Whittlesey

The Pueblo of Pojoaque needs a new Class III gaming compact by June 2015 in order to continue operating its casinos which are located north of Santa Fe. However, the Pueblo objected to the financial concessions being demanded by New Mexico’s Governor Susana Martinez, concessions similar to those previously accepted by a number of other Pueblos in the state that also were facing the June 2015 expiration date for their compacts.

Pojoaque’s refusal to make financial concessions beyond those in its current compact led to a collapse of the negotiations, with each side accusing the other of failure to negotiate in good faith. With that, Pojoaque filed suit in federal court alleging that the Governor had failed to negotiate in good faith in what appeared to be the initial step in a statutory process through which a compact could be imposed on the State. The statutory process is established by the Indian Gaming Regulatory Act at 25 U.S.C. §2710(d)(7) (“IGRA”).

New Mexico responded to the federal action by moving to dismiss due to the state’s 11th Amendment sovereign immunity that was not waived for the purposes of that action. Following well-established law, the federal court granted New Mexico’s motion to dismiss.

The Pojoaque complaint in the federal suit strongly suggests that the tribe knew full well that the action would be dismissed for the reasons cited by the State. However, it also makes clear that Pojoaque already was invoking administrative procedures created through an Interior regulation that would impose a compact on the Tribe and State when negotiations failed. That regulation was promulgated in 1999 and is published at 25 CFR Part 291 – “Class III Gaming Procedures.” While some states may not oppose the administrative process, it is significant that Texas did oppose the process and won the legal challenge. That decision was rendered in 2007 by the 5th Circuit Court of Appeals and concluded that Interior did not have legal authority to administratively impose a compact on Texas. See Texas v. United States, 497 F.3d 491 (5th Cir. 2007).

The Pojoaque dispute may soon be coming to a head. The Pueblo’s Governor announced only a few days ago that the Department of the Interior has determined that his tribe is eligible for the administrative process under which the Pueblo will submit its draft compact to which the State has 60 days in which to respond. If the State proposes an alternative draft, then a mediator would select one of the two submitted drafts, with the mediator’s decision subject to final Secretary approval.

Without regard to the Texas litigation in 2007, the question will certainly arise as to whether the Interior Department’s “solution” to an impasse in compact negotiations is lawful. The matter almost certainly will be decided by carefully following the specific language in IGRA, just as Supreme Court Justice Elena Kagan did in the recent Bay Mills Indian Community case involving a tribal gaming facility in Michigan. And special attention will be paid to the statute’s apparent requirement that no process for imposing a compact can proceed until a “[federal] court finds that the State has failed to negotiate in good faith with the Indian tribe,” according to express factors specified in the law.

That states can cite sovereignty to defeat legal challenges to their failure to negotiate is settled law. See Seminole Tribe of Florida v. Florida, 517 U.S. 44 (1996). While the regulation in large part follows the IGRA process, it problematically ignores IGRA’s predicate for invoking the subsequent administrative process that a federal court must first have adjudicated the State’s failure to negotiate in good faith. Moreover, the Secretary’s regulations did not resolve the potentially fatal barrier identified by the Supreme Court in Seminole Tribe that the 11th Amendment precludes any adjudication as to “good faith” by the State without consent by the State.

When Interior was drafting the regulation, there was a great deal of debate within Indian Country and the federal government about this matter. In light of this, it must be accepted that attorneys at Interior, Justice, and the National Indian Gaming Commission carefully assessed how best to confront the problem when states simply refuse to deal and then invoke state sovereign immunity to defeat the federal courts’ jurisdiction to hear any legal challenge and, consequently, to render any decision as to whether the state’s actions were not in good faith.

Despite the ruling in Texas v. United States, there almost certainly are good legal arguments in favor of the regulations. How the issues are resolved will be closely watched. In the meantime, the Pojoaque have about 12 months in which to secure a new compact through some process. Litigation can be time consuming, and the Pojoaque clock is ticking.

Tuesday, July 1, 2014

Indian Country Awaits 9th Circuit’s En Banc Rehearing in Big Lagoon Case

By Patrick Sullivan

In January, a split 9th Circuit panel shocked Indian Country with its holding in Big Lagoon Rancheria v. California that the State’s failure to negotiate in good faith for a tribal-state gaming compact with the Big Lagoon Rancheria of California did not violate the Indian Gaming Regulatory Act of 1988 (“IGRA”) because the lands at issue were not “Indian lands” under Carcieri. The Court held that the proposed gaming parcel was improperly accepted into trust due to the Supreme Court precedent of Carcieri v. Salazar, which held that the Indian Reorganization Act of 1934 only authorizes the Government to take land into trust status for those tribes “under federal jurisdiction” as of June 18, 1934. Because IGRA only requires good-faith negotiations for gaming on Indian lands, the Ninth Circuit dismissed the good-faith suit.

The panel decision threatens a Pandora’s box of litigation by opening the door to collateral Carcieri attacks on agency fee-to-trust decisions. But Big Lagoon is only the latest in a litany of decisions which threaten Indian tribes’ ability to restore land.

First, the 2009 Carcieri decision placed hard limits on the ability of the Bureau of Indian Affairs (“BIA”) to restore land to tribes that could not prove they were “under federal jurisdiction” as of the date upon which the Indian Regulatory Act became law in 1934. Then, the 2012 Patchak v. Salazar decision subjected BIA fee-to-trust decisions to review under the Administrative Procedure Act, expanding the litigation exposure of every new trust acceptance from the previous 30-day challenge period to the 6-year APA statute of limitations.

And now, Big Lagoon threatens to roll back all of the rights associated with trust status for post-1934 tribes – even those that have held land in trust status for decades. This threat to the Indian land restoration process set off alarm bells throughout Indian Country. Big Lagoon Rancheria responded with a motion for en banc rehearing, and a flurry of amicus briefs supporting rehearing and reversal were filed. Those submitting briefs as amici included the United States Department of Justice, the National Congress of American Indians, the Navajo Nation, California Indian Legal Services, and the United South and Eastern Tribes, a coalition of 26 federally recognized Indian tribes in 12 states.

The 2-1 majority opinion was written by a visiting Judge Block from the Eastern District of New York. The panel decision is widely seen as overreaching and poorly executed, with one Native American legal writer calling Block’s analysis “stunningly and thoroughly poor.” The dissenting judge noted that the decision contradicted 9th Circuit precedent holding that the State could not collaterally attack the BIA’s designation of trust lands years after the expiration of administrative and legal remedies.

On June 11, the Court granted the Tribe’s petition for en banc review. The order granting rehearing ordered that the panel opinion should not be cited as precedent by or to any court in the 9th Circuit. In most federal appeals courts, en banc rehearing involves rehearing by the entire bench. But, because the Court is by far the largest with 29 active judges, en banc review will be performed by a randomly selected 11-judge panel.

Interestingly, IGRA’s cause of action allowing Indian tribes to sue states failing to negotiate in good faith for Class III gaming compacts had been struck down by the Supreme Court in Seminole Tribe v. Florida, 517 U.S. 44 (1996), which held that the Constitution’s 11th Amendment rendered states immune from federal lawsuits under IGRA. Accordingly, a state may only be subject to an IGRA action to compel it to negotiate in good faith if it has consented to such suit. However, in 1998 the voters of California passed Proposition 5, a ballot initiative which (1) required the California Governor to enter into a standard Class III compact with any tribe that was willing to accept the agreement, (2) required the California Governor to negotiate a different tribal-state compact with any tribe that wanted one, and (3) contained a waiver of 11th Amendment immunity that effectively reinstated IGRA’s good-faith cause of action in California.

The resolution of Big Lagoon will have major repercussions in Indian Country and beyond, as the precedent of the panel decision subjects the final decisions of the BIA, and every other federal agency, to collateral attack in litigation for years or even decades – an outcome that the federal government cannot countenance.

Tuesday, June 17, 2014

Internet Gaming: Has the Train Left the Station?

By Dennis J. Whittlesey
 
While he is in the process of negotiating a new gaming compact with the Seminole Tribe, Florida Governor Rick Scott has jumped into the contentious debate on whether Internet gaming should be legal. In this, the Governor has lined up with casino mogul Sheldon Adelson in outright opposition to a component of the gaming industry that has wide support and already is being legalized within several states.
 
The emergence of the Governor in this debate comes at a time when he is working to develop expanded gaming for the Seminoles, as well as preside over a major review and potential overhaul of his state’s gaming industry by the State Legislature. That the Governor does not envision state adoption of iGaming is clearly evidenced by his April 22 letter to the Chairmen and Ranking Members of the House and Senate Judiciary Committees on Capitol Hill urging legislation that would reverse a Department of Justice ruling that the Federal Wire Act does not prohibit intrastate Internet gaming. This ruling reversed official federal policy on the subject, and several states are now allowing Internet gaming within their borders.
 
Governor Scott’s letter warned that iGaming will allow the “invasion” of gaming into “the homes of every American family, and be piped into our dens, our living rooms, our workplaces, and even our kids’ bedrooms and dorm rooms,” and called for Congressional “clarification” of the Wire Act to prohibit all iGaming within the United States. Copies of the letter were sent to the Senate and House leadership of both political parties.
 
While there is other public opposition to Internet gaming, development of this segment of the industry continues. Internet gaming is available throughout Europe and has been authorized in New Jersey, Delaware, and Nevada. Authorizing legislation is currently being considered in a number of other states. In a recent assessment, GamblingCompliance.com estimates that 10 states may legalize online wagering this year.
 
It is not surprising that the Indian gaming industry wants to pursue iGaming given its successful development of land-based casinos. To this point, the growth of tribal gaming has far surpassed anything envisioned when the Indian Gaming Regulatory Act became law in 1988. At this time, recognized tribes operate 450 casinos in 28 states, and they generate in excess of $28 billion annually. The scope of Indian gaming compares favorably to commercial gaming, which generates some $34 billion. Forty-four states have state lotteries, and they generate revenues of more than $17 billion. Rightly or wrongly, tribes feel that they already have the casino management experience and available funds to pursue and operate iGaming.
 
In short, many tribes are actively exploring online options, although it appears that the most sophisticated effort is being made by the politically powerful California tribal gaming industry. Although there have been setbacks in this effort due to the early departure of several powerful members of the state legislature, the matter is being actively debated in Sacramento, and pressure is building to enact legislation before the 2014 session is over. Effectively, this means by the end of August.
 
At least two California tribes – Santa Ysabel and Alturas – are indicating that they are prepared to begin online gaming immediately rather than await legislation. Both are proposing gaming websites that would take wagers from off-reservation players, claiming that they already have the legal authority to do so. Alturas has entered into a partnership with Great Luck, LLC and seems poised to commence operations and contest any legal challenges that arise. The only obstacle remaining to the Alturas project is a lack of a firm to process wagers. Another element that tribes are discussing would sidestep the question of whether off-reservation players could play by using on-reservation “proxy” players.
 
While the states are moving forward, there is activity on the federal level in the form of a bill that would ban interstate iGaming. Known as the “Restoration of America’s Wire Act,” the legislation has generated gaming industry efforts to block it. However, the powerful billionaire gaming mogul Sheldon Adelson is strongly supporting the bill and has persuaded a number of prominent members of Congress to join his cause. This legislation does present a serious threat to iGaming and should be of concern to the iGaming industry and the states that have enacted intrastate iGaming laws or will do so this year. Governor Scott’s April 22 letter should serve as something of a clarion call to all entities and parties with a stake in iGaming.
 
The growing interest in, and state legislation allowing, intrastate iGaming is gaining momentum, and tribes are now actively seeking to participate. While the iGaming “train” has left the station in several states, the fact remains that the iGaming industry needs to be ever vigilant to efforts such as the “Restoration of America’s Wire Act” bill or the train could be slowed or stopped.

Tuesday, June 10, 2014

Detroit Casinos’ April Revenues Decrease from Same Month Last Year

By Ryan M. Shannon
 
The Michigan Gaming Control Board (“MGCB”) released the revenue and wagering tax data for April 2014 for the three Detroit, Michigan commercial casinos. The three Detroit commercial casinos posted a collective 6.5% decrease in gaming revenues compared to the same month in 2013. Aggregate gross gaming revenue for the Detroit commercial casinos in April also decreased by 10.1% compared to March, continuing a trend of decrease between March and April in prior years.
 
MGM Grand Detroit posted decreased gaming revenue results for April 2014 as compared to the same month in 2013, with gaming revenue decreasing by 4.1%. MGM Grand Detroit continued to maintain the largest market share among the three Detroit commercial casinos and had total gaming revenue in April 2014 of approximately $47 million.
 
MotorCity Casino had monthly gaming revenue exceeding $38.2 million, with revenues decreasing by 3.8% in April 2014 compared to April 2013. Greektown Casino had monthly gaming revenue of nearly $27.1 million, showing a 13.6% decrease in revenues for April 2014 compared to the same month in 2013.

Tuesday, June 3, 2014

Auditor General Calls OLG’s Modernization Plan “Overly Ambitious” and “Overly Optimistic”

By Michael D. Lipton, Q.C., Kevin J. Weber, and Jack I.Tadman
 
In April, the office of the Auditor General of Ontario released a special report criticizing the Ontario Lottery and Gaming Corporation’s Modernization Plan as “overly ambitious” and “overly optimistic”.
 
The Modernization Plan was released to the public in March 2012 and projected significant additional financial gains ($4.6 billion in net profit to Ontario), capital investment ($3 billion in private-sector capital investment), and employment gains (2,300 gaming jobs and 4,000 new jobs in the hospitality, entertainment, and retail sectors) to the Ontario gaming industry. According to the Modernization Plan, these gains would be achieved by March 31, 2018.
 
OLG’s planned changes included:

  • reconfiguring the casino landscape to become more customer focused (improve access to gaming);
  • expanding private-sector delivery of lotteries and gaming;
  • cancelling the slots at racetracks program;
  • expanding the sale of lottery tickets;
  • enhancing responsible gambling programming; and
  • continuing the implementation of Internet gaming.
 
In April 2013, the Legislature’s Standing Committee on Public Accounts passed a motion requesting that the Auditor General of Ontario review certain actions of the Ontario Lottery and Gaming Corporation related to the Modernization Plan.
 
The Auditor General, following an investigation into OLG’s Modernization Plan, made the following highly critical observations:
 
1. The Modernization Plan had an overly ambitious timeline. The Modernization Plan included a number of changes that needed to occur within eighteen months of the release of the Modernization Plan in order to achieve net profit projections, including obtaining municipal approvals and the downsizing, restructuring, and privatization of OLG.
 
2. The Modernization Plan depended on and assumed municipal stakeholder agreement. The Modernization Plan assumed stakeholder agreement from municipalities with respect to the construction of casinos. However, Toronto and Ottawa, two major metropolitan areas, rejected OLG’s proposals.
 
3. The Modernization Plan’s financial projections were overly optimistic. As of March 2014, OLG had lowered its original $4.6 billion projection to $2.4 billion. The Auditor General estimates the actual revenue projection could be as low as $1.84 billion.
 
4. The Modernization Plan’s job and private sector capital investment projections were overstated. The Auditor General concluded that it is more likely that there will be a net loss of provincial gaming jobs instead of a net gain in jobs. The Auditor General also estimated that private-sector capital investment will be around $938 million, which is 71% lower than what was initially projected.
 
5. The cancellation of the Slots at Racetracks Program was considered in the Modernization Plan but was unexpected by the horse-racing industry. The OLG was aware that the cancellation of the Slots at Racetracks Program would have a significant impact on Ontario’s horse-racing industry. Prior to the cancellation of the Slots at Racetracks Program, the horse-racing industry was not given any indication that the program would be cancelled. Further, upon cancellation, there was no plan to provide transition and support funding for the industry despite the government’s knowledge that certain racetracks would no longer be viable once the Slots at Racetracks Program was cancelled.
 
6. Some stakeholders have been disproportionately impacted by the cancellation of the Slots at Racetracks Program. On the positive side, the Auditor General found that “procurement processes to date have been fair, open, and transparent,” “the revised municipal hosting fee is consistent from one municipality to the next, with no secret ‘one-off’ deals,” and “the province and OLG took steps prior to the release of the Modernization Plan to prevent and mitigate problem gambling and continue to do so.”
 
While OLG’s Modernization Plan may have been overly optimistic, potential issues with the implementation of the Modernization Plan were exacerbated by the mid-term resignation of former Ontario Premier Dalton McGuinty and the selection of his replacement, current Premier Kathleen Wynne.
 
Wynne’s vision for OLG differed from McGuinty’s. Within a few months of Wynne becoming premier, Wynne announced she would be reviewing “all the issues” around OLG’s Modernization Plan. Shortly thereafter, OLG’s Chair, Paul Godfrey (a strong advocate of a downtown Toronto casino) was fired, and OLG’s entire board of directors resigned. Wynne also ensured that there would be no special hosting deal for Toronto if a Toronto casino was built. This eliminated any chance of a Toronto casino being built in the foreseeable future.
 
The future of OLG’s Modernization Plan is unclear. However, some positive steps have been made, as OLG will be launching Internet gaming this year and appear to be going ahead with a number of requests for proposals relating to the operation of various land-based gaming sites.