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City of Duluth v. National Indian Gaming Commission

United States District Court, D. Columbia.

December 18, 2013

CITY OF DULUTH, Plaintiff,
v.
NATIONAL INDIAN GAMING COMMISSION, et al., Defendants

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[Copyrighted Material Omitted]

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For CITY OF DULUTH, Plaintiff: M. Alison Lutterman, PRO HAC VICE, Duluth, MN; Frederick D. Cooke, Jr., RUBIN, WINSTON, DIERCKS, HARRIS & COOKE, LLP, Washington, DC.

For NATIONAL INDIAN GAMING COMMISSION, TRACIE STEVENS, Defendants: Laura Louise Maul, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Environment and Natural Resources Division, Washington, DC.

OPINION

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COLLEEN KOLLAR-KOTELLY, United States District Judge.

MEMORANDUM OPINION

Plaintiff City of Duluth (" the City" or " Plaintiff" ) brings this action against Defendants the National Indian Gaming Commission and Jonodev Chaudhuri, in his official capacity as the Acting Chairman of the National Indian Gaming Commission [1] (collectively " Defendants" ), asserting claims under the Administrative Procedure Act. Currently before the Court is Defendants' [8] Motion to Dismiss. Upon consideration of the pleadings [2], the relevant legal authorities, and the record as a whole, the Court DENIES Defendants' [8] Motion to Dismiss.

I. BACKGROUND

A. Factual Background

The following facts are taken from the Plaintiff's Complaint and must be accepted as true for purposes of a motion to dismiss. See Atherton v. D.C. Office of the Mayor, 567 F.3d 672, 681, 386 U.S.App. D.C. 144 (D.C. Cir. 2009). In 1984, representatives of the City and the Fond du Lac Band of Lake Superior Chippewa (" the Band" ) began negotiations to explore the creation of a gaming facility within the boundaries of the City of Duluth. Compl. ¶ 9. At this time, the Band did not have reservation lands within the City, but did operate a bingo parlor on its reservation located west of Cloquet, Minnesota. Id. With the City's assistance, the Band acquired land in downtown Duluth, had it placed into trust for the tribe, and had it declared part of the Band's reservation by the Secretary of the Interior. Id. ¶ 10.

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In 1986, the City and the Band entered into a series of agreements (" the 1986 Contracts" ), to, among other things, create an economic development entity known as the Duluth-Fond du Lac Economic Development Commission, and to develop a casino gaming facility on the Band's property in downtown Duluth (" the Casino" ). Id. ¶ 12. Under the 1986 Agreements, the Commission was given the authority to operate gaming within the Band's Casino, with the revenues from the Casino to be split among the Band, the City, and the Commission. Id. ¶ 13. The Secretary of the Interior approved the 1986 Contracts, and in September 1986 the Casino opened for business.

In 1988, Congress passed the Indian Gaming Regulatory Act (" IGRA" ), 25 U.S.C. § 2701 et seq. Upon the passage of IGRA, the Band sued the City in federal court arguing that the 1986 Contracts violated IGRA. Compl. ¶ 15; see Fond du Lac Band v. City of Duluth, et al., No. 5:89-cv-163, (D.Minn. July 31, 1989). On December 26, 1990, the United States District Court for the District of Minnesota dismissed the case without prejudice and referred the parties to the National Indian Gaming Commission (" NIGC" ) for a report and recommendation. Compl. ¶ 16. Following this Order, the Band filed a petition with the NIGC seeking review of the legality of the 1986 Contracts in light of the subsequent enactment of IGRA. Id. ¶ 17. On September 24, 1993, the NIGC issued a determination that the operation of the Casino under the 1986 Agreements violated IGRA, but deferred commencement of any enforcement action in order to allow for mediation. Id. ¶ 18.

With the assistance of the NIGC, the City and the Band ultimately reached a revised agreement (the " 1994 Contracts" ) that restructured the ownership and control of the gaming operation of the Casino. Id. ¶ 19-20. The 1994 Contracts created a sublease and assignment of gaming rights agreement, under which the Band sublet the Casino from the Commission, took control of the operation and regulation of all gaming at the Casino, and allegedly obtained sole proprietary interest in the Casino gaming operations as well as all ancillary businesses conducted in the Casino. Id. ¶ 21-22. Under this sublease, the Band agreed to pay rent to the City of 19% of the gross revenues from video games of chance at the Casino until the initial expiration date of the sublease. Id. ¶ 22. The sublease had an initial expiration date of March 31, 2011, with an extension term running through March 31, 2036. Id. The amount of rent for the extension term was left undetermined, with the sublease requiring that the City and the Band meet and negotiate the rent for the extension term on or before January 1, 2010, and in the absence of an agreement, submit the issue to arbitration. Id.

The City and the Band submitted the 1994 Contracts to the NIGC for review and approval and the NIGC determined that the 1994 Contracts fully complied with IGRA. Id. ¶ 23. Following this NIGC approval, the City and the Band entered into and filed with the United States District Court for the District of Minnesota a Stipulation and Consent Order. Under this Stipulation, the parties filed a Consent Decree with the court seeking approval of a Settlement Agreement consisting of the 1994 Contracts. Id. ¶ 24; see Fond du Lac Band of Lake Superior Chippewa Indians v. City of Duluth, No. 5:94-cv-82 (D.Minn. June 22, 1994). In this Stipulation, the Band and the City agreed that the 1994 Contracts gave the Band sole proprietary interest in the gaming operations. Compl. ¶ 25. In a separate Report and Recommendation to the Minnesota District Court dated June 20, 1994, the NIGC Chairman advised the court of its

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approval of the 1994 Contracts and informed the court that the agreements were " fully consistent with the IGRA." Id. ¶ 27. The 1994 Contracts have not been subsequently modified. Id. ¶ 28.

Fourteen years later, in January 2009, the Band notified the City that it believed that it had overpaid rent under the terms of the sublease, and advised the City that the overpayment included the entire period of the sublease from its execution in 1994 through the third quarter of 2008. Id. ¶ 29. The Band further informed the City that the Band would be withholding all future rent payments under the sublease due to this alleged past overpayment of rent. Id. The City disagreed with this assessment and demanded payment of the withheld rent. Id. ¶ 30. On or about August 6, 2009, the Band, through its Reservation Business Committee, passed Resolution No. 1316/09 under which it immediately ceased all payments to the City pursuant to the 1994 Contracts. Id. ¶ 31.

In response to the Band's actions, the City brought suit seeking to enforce the Consent Decree incorporating the 1994 Contracts in the United States District Court for the District of Minnesota. Id. ¶ 32; see City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 708 F.Supp.2d 890 (D.Minn. 2009). On April 21, 2010, the District Court granted the City's motion for summary judgment as to liability, concluding that the Band had failed to demonstrate a change in the law justifying the Band's action. See City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 708 F.Supp.2d 890 (D.Minn. 2010). The court ruled that the Band's argument about the legality of the consent decree was barred by res judicata because the decree had been approved by the court and formalized in a judgment. Id. at 898. The court denied dispositive relief as to the amount of damages and held that the issue of the appropriate accounting method for the rent determination under the sublease was to be tried. Id. at 902-03.

Subsequently, in an August 16, 2010 letter to the NIGC, the Band requested that the NIGC reexamine the 1994 Contracts and make a limited order prohibiting the Band from making further payments to the City, but otherwise allowing for the continued operation of the Casino. Compl. ¶ 34. Via letter dated October 20, 2010, NIGC Chairwoman Tracie L. Stevens notified the Band and the City that it was reviewing the 1994 Contracts as requested by the Band. Id. ¶ 35. Both the City and the Band participated in and submitted briefs to the NIGC's Enforcement Division. Id. On May 13, 2011, the Minnesota District Court denied the Band's motion for a continuance pending the completion of the NIGC's review, and ordered the Band and the City to submit to binding arbitration on the issue of the amount of rent for the twenty-five year extension term of the 1994 Contracts. See City of Duluth v. Fond du Lac Band of Lake Superior Chippewa, 09-cv-2668, (D.Minn. May 31, 2011), ECF No. 179. An arbitration hearing between the Band and the City commenced and the City completed presentation of its case-in-chief on July 12, 2011. Compl. ¶ 38.

On July 12, 2011, the NIGC issued NOV-11-02 (" Notice of Violation" or " NOV" ). In this Notice of Violation, the NIGC concluded that the 1994 Contracts violated IGRA's mandate that the Band retain " sole proprietary interest" in and " responsibility for" its gaming activity. Compl. ΒΆ 38. The Band was ordered to cease performance under the 1994 Contracts " of those provisions identified in [the] NOV as violating ...


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