Indian Gaming in Arizona

The Great Casino Controversy Continues

by Heidi L. McNeil

Among many Native Americans, the "white buffalo" is viewed as a spiritual symbol, a sign of good fortune. Today, it has become a metaphor for Indian gaming. In terms of its positive contribution to economic development on the reservation, nothing compares to Indian gaming.

With the passage of the Indian Gaming Regulatory Act of 1988 (IGRA),¹ tribal gaming has flourished and continues to expand around the country, including in Arizona. At present, there are 16 tribal casinos in Arizona and 16 tribes with gaming compacts.² This expansion, however, has not come without controversy. And, the controversy continues yet today. To say that Indian gaming in Arizona has been on a roller-coaster ride, would be an understatement.

IGRA Is Borne From Controversy

Controversy is nothing new to Indian gaming, nor is it unique to Arizona. The controversy began in the 1970s when Wisconsin’s Oneida Tribe and Florida’s Seminole Tribe sought to operate high stakes bingo. Laws in both states imposed limitations on jackpots and frequency of games. The tribes asserted that, as sovereign nations, they were not bound by such limitations. They argued since the state permitted bingo, the tribes, too, were entitled to operate the same games and regulate them under tribal law.³

Other tribes sued on the same issue.⁴ Ultimately, the United States Supreme Court ruled that tribes could operate high stakes bingo on the reservations.⁵

In response, Congress enacted IGRA. It gave tribes the "exclusive right to regulate gaming activity on Indian lands if the gaming activity is not specifically prohibited by federal law and is conducted within a state which does not as a matter of criminal law and public policy, prohibit such gaming activity."⁶

IGRA established three "classes" of gaming, each subject to varying degrees of tribal, state and federal regulation.⁷ Casino-style games, such as slot machines and blackjack, constitute Class III gaming.⁸ Under IGRA, such games are permitted only if the tribe enters into a "compact" with the state. A tribe can negotiate a compact for any Class III games that are already played in the state.⁹ The IGRA establishes a process if the state refuses to negotiate a compact with a tribe.¹⁰ That process, however, has been the subject of extensive litigation.¹¹

Additionally, since its inception, the tribes have claimed that the scope of gaming under IGRA should be broadly interpreted. Opponents have argued the opposite. That issue also has been the subject of much debate in the courts and Congress.

Initial Struggle to Obtain Compacts in Arizona

It was through this complicated IGRA maze that certain Arizona tribes traveled in the early 1990s, leading up to what has been referred to as the "Great Compromise" between the State of Arizona and the tribes involved. With more than 20 Arizona tribes, State officials at first refused to negotiate any gaming compacts, contending that casino gambling, on reservations would attract organized crime. Several tribes sued in Federal Court, arguing that the State had to negotiate compacts permitting casino-style gambling since the Arizona Lottery, charitable casino nights and racetrack betting were legal in the State. On this basis, the tribes refused to close down their slot-machine casinos.

Subsequently, the United States Attorney for Arizona raided several tribal casinos in May of 1992. The raids attracted national attention when the Fort McDowell Tribe erected a barricade and stopped the FBI from leaving with the slot machines.

Soon after, the Arizona Federal Court ordered the State and the tribes to negotiate, with former Arizona Supreme Court Chief Justice Frank X. Gordon as mediator.¹² In February of 1993, Gordon ruled that the tribes were entitled to operate gaming activities like slot machines and poker. He based his decision on the fact that legalized gambling already existed in the State and on tribal needs to generate revenues for governmental purposes.

The State wasted little time in reacting to Gordon’s decision. A special legislative session was called to prohibit slot machines and other "casino gambling."¹³ The tribes’ reaction was equally swift. They gathered enough signatures to put the issue on a statewide ballot. Eventually, with the assistance of Secretary of the Interior Bruce Babbitt, a compromise was reached in June of 1993 and compacts for 10-year terms were executed.

Under the compromise, the bill banning casino gambling was repealed and a "tier" system for slot machines was established. The greater the membership of the tribe, the more slot machines it could operate. For example, a tribe with 16,000 members or more is permitted up to 1,400 devices at as many as four locations.¹⁴ Limitations were also placed on the type of gaming permitted. For example, slot machines and non-banking card games are allowed. "Banked" card games, such as blackjack, are not.¹⁵ In constructing these negotiated compacts, the State sought to create a standard form of compact. On that basis, any future tribes seeking a compact would be offered the standard form.

Additionally, the compromise did not include a revenue-sharing arrangement. Regulatory costs aside, Arizona would not receive revenues from tribal casinos. In contrast, the Mashantucket Pequot Tribe pays Connecticut a percentage of its casino profits which have in the past totaled more than $100 million annually.

Controversy Continues; Salt River Tribe Pursues Compact

Controversy re-emerged in May of 1995 when the Salt River Pima-Maricopa Indian Community ("Salt River Tribe") formally requested that the State enter into a standard form of compact. In response to this request, then-Governor Fife Symington announced that he would no longer negotiate new compacts or renegotiate existing ones when they expire in 2003. Based on a court decision pending in the Ninth Circuit Court of Appeals (which has since been denied review by the United States Supreme Court), the Governor claimed he had no duty to negotiate with any tribe on casino-style gaming.¹⁶

Notwithstanding the Governor’s pronouncement, the Salt River Tribe, located on the edge of Scottsdale, forged ahead in pursuing a standard form of compact. When the Governor remained adamant and refused to enter into the standard form compact, the Tribe filed suit in Federal Court. The Tribe contended that the State had violated the 14th Amendment by denying the Tribe equal protection of law through the State’s refusal to give the Tribe exactly what the State had given to the other 16 tribes in a standard form of compact. The Federal Court action, however, was dismissed in November of 1996.¹⁷ The Tribe’s appeal is now pending in the Ninth Circuit Court of Appeals.¹⁸

Simultaneously with pursuing its claims in court, the Salt River Tribe backed a public referendum in the Fall of 1996 called the "Fairness Initiative." The Fairness Initiative stood for the basic proposition that all federally recognized tribes in Arizona be permitted to enter into gaming compacts identical to those already in place between other Arizona tribes and the State.

Although there was significant opposition from horse and dog track owners/operators as well as certain members of the hospitality industry concerned about lost revenues to Indian gaming, the Fairness Initiative was overwhelmingly passed by Arizona voters. Nevertheless, Governor Symington still refused to enter into a compact identical to the other compacts in place. He wanted to make several substantive changes in the compact, including regulatory authority and site selection of the tribal casinos.

Seeing no other option, the Tribe filed a special action in the nature of mandamus in the Arizona Supreme Court ("Mandamus Action"). Specifically, the Tribe sought an Order requiring the Governor to sign a standard-form compact.¹⁹

In addition to the Mandamus Action, the Tribe became embroiled on another litigation front. The Sears family (private citizens residing in North Phoenix) tried to block the Tribe’s compact efforts by filing a suit with the Arizona Supreme Court and contending the Fairness Initiative was unconstitutional. The Supreme Court declined to accept jurisdiction and also declined to permit the Sears to intervene in the Mandamus Action.

Undaunted by the Supreme Court’s actions, the Sears then filed a lawsuit in Arizona Superior Court, Maricopa County. The Superior Court proved to be a much friendlier forum for the Sears.

The Superior Court Judge initially denied the Tribe’s Motion to Dismiss on jurisdictional grounds and proceeded to have the parties address the merits of case. In August of 1997, the Judge ruled that Governor Symington did not have the authority to enter a compact permitting keno games and slot machines on the reservation. The Judge opined: "Since Arizona does not permit gambling by slot machines or keno games by any of its residents who live off Indian lands, it cannot by compact permit it on Indian lands. To do so violates the [IGRA]."²⁰

Indian gaming proponents believe that the Superior Court ruling ignores that IGRA authorizes Indian tribes to enter into compacts for forms of Class III gaming if the State "permits such gaming for any purpose by any person, organization or entity."²¹ The Senate Report that accompanied the passage of IGRA states that the phrase "for any purpose by any person, organization or entity" makes no distinction between State laws that allow Class III gaming for charitable, commercial or governmental purposes.²² Notwithstanding that charitable groups in Arizona regularly conduct events involving casino-style gaming, the Superior Court Judge held that such charitable gaming did not authorize compacts for tribal gaming.

Arizona Supreme Court Rules in Favor of Tribe

In October of 1997, the Salt River Tribe finally heard from the Arizona Supreme Court on the Mandamus Action. This ruling was much more favorable to the Tribe’s struggle for a gaming compact than the Superior Court decision issued just two months earlier. Ruling unanimously, the Supreme Court held that the Fairness Initiative, passed by the people of Arizona, required the Governor to agree, at a minimum, to a standard form compact with any tribes lacking a compact.²³ In so holding, the Court concluded:

The fundamental issue in this case is not the question of whether the state should or should not negotiate gaming compacts with Indian tribes or whether the state should or should not have veto power over a tribe’s selection of location. The issue, rather, is whether this court has the obligation to implement and enforce a law adopted by the people by initiative that in clear, unambiguous text requires the governor to agree to identified terms and enter into compacts with Indian tribes. We answer that question affirmatively.

Proposition 201, codified as A.R.S. § 5-601.01, does not repeal its predecessor, § 5-601, and does not deprive a governor of the ability to negotiate. Read together, the statutes simply and unambiguously permit negotiations and set the minimum terms to which a governor must agree if negotiations prove unsuccessful. In so doing, the statute does not violate the requirements of IGRA or the separation of powers doctrine because the state’s initiative process gives the people the ultimate authority to decide on the terms of the state’s gaming compacts with the Indian tribes. Nor does the Indian Gaming Regulatory Act give a governor the unfettered discretion to act on behalf of the state. The act only requires that the state negotiate in good faith. Using their initiative power, the people have the authority to act for the state and dictate to the Legislature and the governor a good faith bargaining position, including the minimum terms of any compact.

We therefore conclude that a governor, if unsuccessful in any negotiations and if requested by a tribe, must sign the standard form of compact defined in § 5-601.01. In reaching that conclusion we do not discourage Governor Hull from re-opening negotiations. Nothing in IGRA or the initiative measure requires the parties to remain at impasse.

Although viewed as a significant victory and a major step towards finally obtaining the elusive compact, the Tribe’s battle is far from over. At or about the same time the Mandamus Action ruling was issued, the Superior Court entered final judgment in the Sears case. The Tribe’s appeal of that judgment is now pending before the Arizona Supreme Court. Based on the Court’s ruling in the Mandamus Action, it is difficult to predict the ultimate outcome.

Indeed, in a specially concurring opinion, Arizona Supreme Court Vice Chief Justice Charles Jones expressed a "cautionary note" with respect to what he perceived as a "substantial federal-state conflict" between the IGRA and the Fairness Initiative. Justice Jones opined that the issues raised in the Mandamus Action were narrow and did not "acknowledge or implicate any federal restriction on the authority of a tribe to engage in Class II gaming" in Arizona. He further stated that the Court’s conclusion failed to answer the "more dispositive federal question — whether in Arizona, a tribe is authorized under IGRA to engage in Class III gaming." In setting the stage for the ultimate showdown in the Sears case, Justice Jones concluded:

Under Rumsey, the question must ultimately be posed whether the State of Arizona, which prohibits Class III gaming generally, has a federally imposed duty to negotiate, and, more importantly, whether any tribe in Arizona, in the face of Rumsey’s interpretation of IGRA’s congressional mandate, has the right to engage in such gaming. Rumsey held that the state had no duty and that the tribe was without authority. Because the parties before this court have neither raised nor argued the Rumsey issue, the court, correctly, does not address it. One must nevertheless wonder, in the post-Rumsey era, whether under the current application of federal law the Salt River Pima-Maricopa compact anticipated as the result of this decision, as well as the sixteen existing tribal compacts governing class III gaming in Arizona, can remain viable.

A decision in the Sears case is expected in 1998. The Supreme Court has set oral argument for late February. If the Sears decision is upheld by the Supreme Court, there is some potential that it could result in attacks on Indian gaming already ongoing in the State. The decision also could impact other tribes in the State without a compact.

State Department of Gaming Rules Poker as Illegal

The month of August was not a good one for Indian gaming in Arizona. Based upon an Arizona Attorney General’s Opinion issued in August, Gary Husk, Executive Director of the State Department of Gaming, concluded that all card games, including poker, conducted at the tribal casinos were illegal under Arizona law. In reaching this conclusion, Husk held that card games, even if deemed to be non-banking card games (which are generally viewed as Class II games), were Class III activities and therefore not authorized by the current Tribal-State compacts.²⁴ Husk issued cease and desist letters to all of the tribes, seeking the immediate shutdown of the poker games. After Husk’s order, the Attorney General issued a press release advising that he only summarized state law for the State Department of Gaming and that he did not rule on the legality of the card games.

Husk initially advised that he planned to ask the National Indian Gaming Commission (NIGC)²⁵ and the United States Attorney’s office (District of Arizona) to take enforcement actions against the defiant tribes. Both the NIGC and the United States Attorney’s office are aware of the situation, but have taken no action.

To date, the tribes have defied Husk’s directive and have continued to operate their poker games. The Tribes contend that poker is a Class II game and, therefore, the State has no regulatory power, since only Class III games are covered by the compacts. Of the 16 tribal casinos, all but two offer poker to patrons. The ultimate outcome of this dispute could have a financial impact on certain casinos. Tribal officials have reported that card games account for up to a third of some tribes’ gaming revenues.

Notwithstanding their inability to obtain a Class III compact to date, the Salt River Tribe commenced construction in October on a 20,000-square-foot bingo hall dubbed "Casino Arizona," which has plans to include poker tables. If the Tribe is ultimately successful in its compact efforts, the temporary casino facility will be replaced by a permanent casino for Class III gaming, including slot machines. The Tribe hopes to open the casino in 1998. Based on the State’s stance taken on poker in August, the Tribe’s decision to include poker games will likely lead to further disputes unless that issue is resolved prior to the casino’s opening.

Other Gaming Disputes Pending

The Salt River Tribe is not alone in its battles with the State over tribal gaming issues. Several other tribes are involved in various disputes with the State Department of Gaming.

Late in 1996, the Department of Gaming sought an injunction to shut down the Tohono O’odham Tribe’s Desert Diamond Casino near Tucson over numerous alleged compact violations. The alleged violations include the use of uncertified vendors, the hiring of known felons to work in the casino, and exceptions to internal controls. The Arizona Federal Court refused to grant an injunction and discovery has ensued in preparation for a preliminary injunction hearing.²⁶

The State has refused to certify the opening of the Tribe’s second casino due to these allegations of compact violations regarding the Tribe’s first casino. The State also has taken issue with the Tribe over its failure, in the State’s opinion, to hire employees deemed "suitable" by the State’s standards.

Meanwhile, the Ak-Chin and Gila River Tribes, with casinos near Phoenix, have sued the State over its decision to change a prior stance taken on multiplayer machines.²⁷ Previously, the State counted these machines as one gaming device. Under its new position, the machines now count as several devices, depending on how many players can use them at one time. Obviously, how machines are counted is important to the tribes due to the limit on total machines under the tiered system of the compacts.

Like the Tohono O’odham lawsuit, the multiplayer machine lawsuit is still in the discovery stages. There is some likelihood that both suits will be resolved in 1998.

New Governor Assumes Control

Based on a change in State leadership, there is some hope that a "new era" of tribal gaming in Arizona will commence. As a result of being convicted on several counts of criminal fraud in early September, Governor Symington resigned his position and Secretary of State Jane Hull assumed the gubernatorial reins of control.

Symington’s long-time opposition to Indian gaming in the State has been far from a well-kept secret; quite the contrary, Symington has been a vocal opponent of tribal casinos. Governor Hull has given conflicting signals on her stance. Some close to the new Governor believe she offers the possibility of ushering in a new, more cooperative relationship between the State, the State Department of Gaming, and the gaming tribes. Governor Hull, who taught in the Chinle Public School on the Navajo Reservation in the early 1960s, is viewed as being supportive of economic development on the reservation and having a general understanding of tribal issues.

Publicly, Governor Hull has hinted that she shares former Governor Symington’s antipathy to tribal gaming. Hull has been quoted in media reports: "My complaint with [tribal gaming] has always been not so much the Indian gaming but rather the fact that I think we’re going to have statewide gaming five years down the line. I just can see it coming, a high-speed train down the tracks."²⁸

After the issuance of the Supreme Court decision requiring the Governor to enter into a standard form of compact with the Salt River Tribe and other tribes without compacts, Hull was guarded in her comments concerning what action she would take.²⁹ While noting that she respected the Court’s decision, Governor Hull stopped short of saying she would sign a compact with the Tribe. Hull cited the pending Sears case, implying that she will await a final decision in that matter before taking any action one way or another.

Presumably recognizing the political nature of the situation, the Salt River Tribe does not intend to press the Governor for a standard-form compact or otherwise until the Supreme Court decides the Sears case.

In late October, certain tribal leaders met with Governor Hull to discuss various issues, including health care, water rights, sovereignty and, of course, gaming. Although Governor Hull was noncommittal concerning her stance about these issues, the fact that the Governor entertained such a face-to-face session in the first instance was viewed as a positive step toward a better relationship between the tribes and the state.

Will the Controversy Ever End?

How Hull’s administration takes shape and the impact it has on tribal gaming in Arizona, either positive or negative, remains to be seen. A final, non-appealable decision in the Sears case certainly will have an effect. There also may be changes at the Federal level. Since IGRA was passed in 1988, numerous amendments — both favorable and unfavorable to Indian gaming — have been introduced in Congress. None of the amendments have passed due to extensive opposition from all sides.³⁰ Further, there have been attempts to impose a Federal tax on the tribal gaming operations. Additionally, the recently-approved National Gambling Impact Study Commission and its resulting studies may have some impact on the future of tribal gaming. The Commission was established by Congress for a two-year term to study the social and economic impact of all types of gambling in the United States.

Notwithstanding arguments made to the contrary by tribal gaming opponents, substantial evidence exists to support the benefits of tribal gaming to the economy, both on and off the reservation. For instance, the Tonto Apache Tribe’s casino in Payson is the largest employer in town and has greatly assisted in boosting that area’s economy.

The gaming revenues also are being used to bolster tribes’ efforts in becoming self sufficient. The White Mountain Apache Tribe’s Hon-Dah Casino has approximately 350 employees, about 70 percent of whom are tribal members. Thanks to the casino revenues, the Tribe has completed numerous projects, including a state-of-the-art alcohol and drug treatment facility; construction of a tribal museum; construction of a tribal youth center and family park; renovation of an abandoned Bureau of Indian Affairs school into an office building; the purchase of 18 new police vehicles; a $1 million contribution to the local school district and formation of an extremely well-funded continuing education scholarship program for White Mountain Apache students.³¹

The White Mountain Apache Tribe is not alone in transferring the benefits of gaming to the improvement of tribal members’ quality of life and standard of living. The Gila River Tribe has a new dialysis center and housing. The Fort McDowell Tribe, which has publicly acknowledged grossing $200 million a year in gaming revenues, has funded health insurance for tribal members. Virtually all of the tribes have scholarship funds.³²

Whatever happens in this gaming saga, one thing is certain: The Great Casino Controversy will continue, whether initiated by tribal gaming proponents or opponents. Where the roller-coaster ride will end (if it ever does) is anyone’s guess.

Heidi L. McNeil is a senior partner with Snell & Wilmer L.L.P., practicing in the areas of Indian law, gaming law and business litigation. She is the Chair of the State Bar of Arizona’s Indian Law Section.