In February, a ruling by the 10th U.S. Circuit Court of Appeals struck down the arbitration agreement in the Oklahoma Model Tribal Gaming Compact, calling it unenforceable. It’s a verdict that leaves both Native American tribes and the State of Oklahoma unclear how to enforce an aspect of the compact that enables tribes to operate gaming facilities.
In Citizen Potawatomi Nation v. Oklahoma, the state prevailed as a panel of three judges invalidated the arbitration agreement language. De novo review of any arbitration award in federal court is prohibited under the U.S. Supreme Court decision in Hall Street Associates, LLC v. Mattel, Inc.
De novo review is a legal term that means the court decides the matter for itself, without any deference to the lower court’s decisions.
“Because Hall Street Associates clearly indicates the Compact’s de novo review provision is legally invalid, and because the obligation to arbitrate is contingent on the availability of de novo review, we conclude the obligation to arbitrate set out in Compact 12 is unenforceable,” wrote the justices in the court’s opinion.
“The ruling creates uncertainty about the means by which both the state and tribes can enforce their gaming compacts,” George Wright, Citizen Potawatomi Nation’s tribal attorney, wrote in an email to Oklahoma Gazette.
In 2004, Oklahoma voters approved gaming compacts with tribes and racetrack gaming. Under the compact, tribes were authorized to operate casino-style gaming in return for making exclusivity payments to the state. According to the state’s Office of Management and Enterprise Services, Oklahoma collected nearly $134 million in exclusivity fees in 2017.
Under the compact, when a dispute arises between a tribe and the state, the parties must initially attempt voluntary dispute resolutions. If unsuccessful, the dispute is to be submitted to arbitration. It also states that either party may “bring an action against the other in a federal district court for the de novo review of any arbitration award.”
Fourteen days after the court’s decision, Wright filed a petition for a rehearing, or a rehearing en banc, asking the court to reconsider the decision to strike the compact’s arbitration clause.
“The panel decision acknowledges that the effect of the decision will extend to all compacting tribes,” Wright wrote in the petition for a rehearing. “Any enforcement problems would not be confined to the Nation but would extend to other tribes who have compacted with the State, as well as to the State itself. Amending the State’s voter-approved take-it-or-leave-it model compact is not a simple proposition.”
The federal appeals court denied the tribe’s motion for a rehearing. The tribe is preparing to file a petition, a writ of certiorari, requesting a review by the U.S. Supreme Court.
“At this time, the Nation intends to appeal to the U.S. Supreme Court,” Wright wrote to Oklahoma Gazette.
DisputeThe dispute between the state and Citizen Potawatomi Nation began in 2014 when state tax collectors sent a $27 million bill to the tribe for unmerited sales tax from sales made on its trust lands to non-members. The tribe maintains grocery stores, gas stations, casinos, a mini-golf complex and cultural activities centers. The tribe did not pay the bill, and Oklahoma Tax Commission filed an administrative complaint to revoke the tribe’s alcohol license, including those issued for Grand Casino.
An administrative law judge agreed with the complaint issued by the state. The tribe challenged and appealed, invoking the arbitration clause of the Oklahoma Model Tribal Gaming Compact. The state argued that under the gaming compact, the tribe was obligated to collect, report and pay state sales taxes from all tribal businesses. The tribe disputed that claim, arguing that the tribe was exempt from collecting and remitting sales tax on tribe’s trust lands. Retired Oklahoma Supreme Court Justice Dan Boudreau, the sole arbitrator, ruled in the tribe’s favor.
The tribe sought to certify the arbitration award in federal court while Oklahoma asked the court conduct a de novo review. U.S. District Judge Robin J. Cauthron upheld the arbitration award. The state appealed to the 10th U.S. Circuit Court of Appeals arguing the arbitration clause was invalid. The state prevailed.
Compact quandaryThere are worries, however, that the outcome could make it harder for tribes and the state to settle disputes.
“It doesn’t mean that the compacts are invalid; it just means there is a potential question of enforceability of the arbitration provision,” said Mike McBride III, who chairs Crowe & Dunlevy’s Indian Law and Gaming Practice Group and represented Citizen Potawatomi Nation in its arbitration. “Arbitration is still a method that could be valid as a method to resolve the disputes.”
The current 15-year compact expires on Jan. 1, 2020. The model compacts automatically renew unless either side renegotiates. Media reports indicate that some tribes wish to renegotiate with the governor for possible expansion of the type of gaming that could be offered at gaming facilities. Given the current ruling, the arbitration clause could be re-worked to remove the de novo review language.
When it comes to Citizen Potawatomi Nation’s petition to the highest court in the land, four justices are needed to grant a petition for a writ of certiorari. Whether the U.S. Supreme Court will agree to take up the case is an open question.
McBride explained the justices could potentially take it if they think that the 10th U.S. Circuit Court of Appeals didn’t follow the Hall Street decision.
Then there is the issue that the tribe raised. Thirty-two tribes currently hold compact agreements with the state, operating gaming facilities and sending the state its cut of the profits.
“It involved many sovereign nations, and [the decision] could upset an agreement that has been in place for 13 years,” McBride said.