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Bettor Racing, Inc. v. National Indian Gaming Comm'n

United States District Court, D. South Dakota, Southern Division

September 19, 2014

BETTOR RACING, INC., and J. RANDY GALLO, Plaintiffs,
v.
NATIONAL INDIAN GAMING COMMISSION, Defendant, and FLANDREAU SANTEE SIOUX TRIBE, Intervenor

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[Copyrighted Material Omitted]

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For Bettor Racing, Inc., J. Randy Gallo, Plaintiffs, Counter Defendants: Meredith A. Moore, Onna B. Houck, Cutler & Donahoe, LLP, Sioux Falls, SD.

For National Indian Gaming Commission, Defendant: Ty Bair, LEAD ATTORNEY, U.S. Department of Justice, ENRD, Natural Resources Section, Washington, DC.

For Flandreau Santee Sioux Tribe, Intervenor Defendant, Counter Claimant: John M. Peebles, Patrick R. Bergin, LEAD ATTORNEYS, PRO HAC VICE, Fredericks Peebles & Morgan, LLP, Sacramento, CA; Tracey Zephier, Fredericks Peebles & Morgan LLC, Rapid City, SD.

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MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S AND INTERVENOR'S MOTIONS FOR SUMMARY JUDGMENT AND DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

KAREN E. SCHREIER, UNITED STATES DISTRICT JUDGE.

Plaintiffs, Bettor Racing, Inc., and J. Randy Gallo, brought this suit under the Administrative Procedure Act (APA), 5 U.S.C. § § 701-06, and the United States Constitution, against defendant, National Indian Gaming Commission (NIGC). Plaintiffs ask this court to set aside the NIGC's final decision and order in its entirety or, alternatively, to set aside the portion of the final decision and order that assessed a civil fine against plaintiffs. The Flandreau Santee Sioux Tribe has intervened. Docket 35. The parties have filed cross motions for summary judgment.[1] For the following reasons, the NIGC's and Tribe's motions for summary judgment are granted, and plaintiffs' motion for summary judgment is denied.

BACKGROUND

The undisputed facts are:

J. Randy Gallo is a resident of Jupiter, Florida, and the president of Bettor Racing, Inc., a corporation organized under the laws of the state of South Dakota. Bettor Racing is a parimutuel betting business.[2] The NIGC is an independent federal agency established by the Indian Gaming Regulatory Act of 1988 (IGRA).[3] The NIGC is charged with enforcing the IGRA and regulating tribal gaming. The Tribe is a federally recognized tribe that operates the Royal River Casino near Flandreau, South Dakota. The casino, which is located on tribal lands, is subject to the IGRA.

In 2003, Gallo and the Tribe met to discuss relocating Bettor Racing from its Sioux Falls, South Dakota, location to Royal River Casino, in part to avoid a state tax on parimutuel betting. In March 2004, Bettor Racing and the Tribe reached an agreement in the form of a management contract, which was submitted to the NIGC for approval. Following submission of the proposed agreement, the NIGC requested several changes, which the parties subsequently incorporated. The NIGC approved the management contract on March 17, 2005.

On September 20, 2004, during the pendency of the management contract's approval, Bettor Racing and the Tribe entered into what was styled a " consulting agreement" under which Bettor Racing

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would assist the Tribe in running a parimutuel betting operation at Royal River Casino. A.R. 2009-10. On September 24, 2004, Bettor Racing began operation of the parimutuel betting business at Royal River Casino (under the name Royal River Racing) until the management contract was approved on March 17, 2005. Following approval of the management contract, Bettor Racing and the Tribe operated under its terms.

In 2005, the state of South Dakota reduced its tax on parimutuel gaming revenue. SDCL 42-7-102. Bettor Racing and the Tribe discussed the effect of the changes in South Dakota's tax structure as well as a possible relocation of Bettor Racing's business away from Royal River Casino. Bettor Racing and the Tribe subsequently agreed to modify the terms of the management contract in 2006 (first modification). This agreement was executed by Bettor Racing and the Tribe on February 15, 2007. A.R. 1558-1561.

On January 25, 2007, the first modification was submitted for approval to the NIGC. On April 13, 2007, the Tribe requested the NIGC to hold its review of the first modification in abeyance pending litigation between the Tribe and state of South Dakota. Consequently, the first modification was never approved by the NIGC.

In 2008, following increases in fees charged by racetracks to off-track betting operations, Bettor Racing and the Tribe discussed further modifications of the management contract (second modification). The second modification was executed by the parties on August 1, 2008. The second modification was not submitted to the NIGC, however, and was never approved.

In August 2009, the NIGC conducted a management contract compliance review. On August 27, 2009, the NIGC issued a notice of noncompliance to Bettor Racing. The notice of noncompliance stated that Bettor Racing had failed to pay to the Tribe the required percentage of gaming revenue as required by the terms of the original management contract and federal law. A.R. 31-33. Additionally, from August 2009 until May 2011, the NIGC conducted an investigation. This investigation culminated in the issuance of a Notice of Violation (NOV) to both the Tribe and Bettor Racing on May 19, 2011. The NIGC determined that Bettor Racing committed three violations of the IGRA, and the Tribe had committed four violations of the IGRA.

As part of the NOV, the NIGC ordered Bettor Racing to pay the Tribe $4,544,755. This amount represented what the NIGC determined the Tribe should have received during the years 2005, 2006, 2007, and 2008. During the summer of 2011, the Tribe reached a settlement with the NIGC. A.R. 2611-16.

On June 20, 2011, Bettor Racing appealed the NOV. The Tribe intervened in the administrative appeal. On February 10, 2012, the NIGC issued a Notice of Proposed Civil Fine Assessment (CFA) against Bettor Racing. A.R. 2665-73. The total amount of the proposed fine was $5 million. This amount was independent of the assessment that Bettor Racing was ordered to pay the Tribe pursuant to the NOV. On March 9, 2012, Bettor Racing appealed the CFA. The Tribe also intervened in this administrative appeal. The original NOV and the CFA proceedings were consolidated into one appeal.

The chair for the NIGC and the Tribe each moved for summary judgment in the administrative appeal, which Bettor Racing opposed. On August 13, 2012, the presiding official issued her recommended decision granting the motions for summary judgment on the NOV and CFA in favor of

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the NIGC and Tribe. The Commission affirmed the presiding official's recommended decision in its final decision and order on September 12, 2012. The Commission determined, however, that the CFA of $5 million had " supplanted" the monetary remedy in the NOV. A.R. 3049.

In January 2013, the Tribe filed suit against plaintiffs in Flandreau Santee Sioux Tribal Court, alleging breach of contract and unjust enrichment. Docket 9-1, 9-2. Plaintiffs have counterclaimed in that action alleging fraud. On May 10, 2013, plaintiffs filed this suit against the NIGC seeking relief from the Commission's final decision and order. Docket 1. The Tribe moved to intervene on June 17, 2013. Docket 7. The Tribe's motion was granted on November 11, 2013. Docket 35.[4] Pending before the court are cross motions for summary judgment from all parties regarding the Commission's final decision and order.

I.

LEGAL STANDARD

Generally a motion for summary judgment may be granted when " the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Clark v. Kellogg Co., 205 F.3d 1079, 1082 (8th Cir. 2000). A factual dispute that does not rise to the level of materiality will not preclude summary judgment. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Mosley v. City of Northwoods, Mo., 415 F.3d 908, 910-11 (8th Cir. 2005). Rather, " 'the dispute must be outcome determinative under prevailing law.'" Mosley, 415 F.3d at 911 (quoting Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992)).

The general standard set forth in Rule 56 does not apply where, as here, the parties are seeking this court's review of an administrative decision. Thus, this court is guided by the standards provided in the APA. Voyageurs Nat'l Park Ass'n v. Norton, 381 F.3d 759, 763 (8th Cir. 2004); 5 U.S.C. § 706.

Specifically, a motion for summary judgment . . . makes no procedural sense when a district court is asked to undertake judicial review of administrative action. Such a motion is designed to isolate factual issues on which there is no genuine dispute, so that the court can determine what part of the case must be tried to the court or a jury. Agency action, however, is reviewed, not tried. Factual issues have been presented, disputed, and resolved; and the issue is not whether the material facts are disputed, but whether the agency properly dealt with the facts.

Lodge Tower Condominium Ass'n v. Lodge Properties, Inc. 880 F.Supp. 1370, 1374 (D. Colo. 1995) (internal citations omitted); see also North Carolina Fisheries Ass'n v. Gutierrez, 518 F.Supp.2d 62, 79 (D.D.C. 2007). Consequently, a motion for summary judgment at this stage requires this court to determine " whether the agency action is supported by the administrative record and otherwise consistent with the APA standard of review" as a matter of law. Brodie v. U.S. Dep't of Health & Human Servs., 796 F.Supp.2d 145, 150 (D.D.C. 2011).

Pursuant to the relevant standards set by the APA, this court will set aside an agency's action only if its decision was " arbitrary, capricious, an abuse of discretion,

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or otherwise not in accordance with law." Sierra Club v. E.P.A., 252 F.3d 943, 947 (8th Cir. 2001) (quoting 5 U.S.C. § 706(2)(A)). An agency decision fails the " arbitrary and capricious" standard if

[T]he agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.

Motor Vehicle Mfrs. Ass'n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983). While this court's review of the facts before the agency is " searching and careful," the " standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency." Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), overruled on other grounds by Califano v. Sanders, 430 U.S. 99, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977). If the agency's decision " is supportable on any rational basis," it must be upheld. Voyageurs, 381 F.3d at 763 (citing Friends of Richards-Gebaur Airport v. FAA, 251 F.3d 1178, 1184 (8th Cir. 2001)). Deference is provided when an agency interprets a statute it administers. Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Further deference is required when an agency interprets its own regulations. South Dakota v. U.S. Dep't of Interior, 423 F.3d 790, 799 (8th Cir. 2005).

Nonetheless, " [t]he agency must articulate a 'rational connection between the facts found and the choice made.'" Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285, 95 S.Ct. 438, 42 L.Ed.2d 447 (1974) (quoting Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168, 83 S.Ct. 239, 9 L.Ed.2d 207 (1962)). A reviewing court cannot " supply a reasoned basis for the agency's action that the agency itself has not given," but may " uphold a decision of less than ideal clarity if the agency's path may reasonably be discerned." Id. at 285-86 (internal citations omitted). This court must confine its review to the administrative record as it existed at the time of the agency's decision, rather than a new record made for the first time before this court. Camp v. Pitts, 411 U.S. 138, 142, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973). Finally, an agency's imposition of sanctions is reviewed under the abuse of discretion standard. Syverson v. U.S. Dep't of Agric., 601 F.3d 793, 800 (8th Cir. 2010).

DISCUSSION

Plaintiffs' primary contention is that the Commission acted arbitrarily and capriciously by failing to consider disputed, material facts that should have precluded summary judgment in favor of the NIGC chair and Tribe regarding the NOV as well as the CFA. Plaintiffs also contend they were denied certain procedural rights during the agency proceeding. The NIGC and Tribe assert that summary judgment was appropriate and plaintiffs have not met their burden to overturn the Commission's decision.

A. IGRA Violations

Congress enacted the IGRA to provide " the statutory basis for operating and regulating Indian Gaming." Colombe v. Rosebud Sioux Tribe, 918 F.Supp.2d 952, 956 (D.S.D. 2013) (citing Turn Key Gaming, Inc. v. Oglala Sioux Tribe, 164 F.3d 1092, 1094 (8th Cir. 1999). The IGRA is designed to promote " tribal economic development,

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self-sufficiency, and strong tribal governments." 25 U.S.C. § 2702(1). Additionally, Congress sought to ensure that Indian tribes would be the primary beneficiaries of Indian gaming operations. § 2702(2); see also Wells Fargo Bank, Nat'l Ass'n v. Lake of the Torches Econ. Dev. Corp., 658 F.3d 684, 700 (7th Cir. 2011) (" One of IGRA's principal purposes is to ensure that the tribes retain control of gaming facilities set up under the protection of IGRA and of the revenue from these facilities." ); Crosby Lodge, Inc. v. Nat'l Indian Gaming Comm'n, 803 F.Supp.2d 1198, 1205 (D. Nev. 2011) (explaining IGRA was meant to shield tribes " from organized crime and other corrupting influences." ). The NIGC was established to develop regulations that promote Congress's goals, and, as an administrative body, to enforce the IGRA. 25 U.S.C. § 2702(3); United States v. Seminole Nation of Oklahoma, 321 F.3d 939, 941 (10th Cir. 2002).

The IGRA and NIGC regulations permit tribes to enter management contracts for gaming operations, but only if such contracts have been approved by the chair of the NIGC. 25 U.S.C. § 2711(a)(1); 25 § C.F.R. 533.1; see also Bruce H. Lien Co. v. Three Affiliated Tribes, 93 F.3d 1412, 1420 (8th Cir. 1996) (explaining " the NIGC has exclusive authority to determine a contract's compliance with IGRA and its regulations[.]" ). The phrase " management contract" includes " any contract, subcontract, or collateral agreement between an Indian tribe and a contractor or between a contractor and a subcontractor if such contract or agreement provides for the management of all or part of a gaming operation." 25 C.F.R. § 502.15.

Before a management contract can be approved, it must meet certain criteria. For example, management contracts typically are limited in duration to five years, and the IGRA restricts management fees to no more than 30 percent of net revenues, unless certain conditions are present. 25 U.S.C. § § 2711(b)(5),(c). Even if those conditions are present, however, management fees cannot exceed 40 percent of net revenues. Id. § 2711(c)(2). " Net revenues" are further defined as " gross revenues of an Indian gaming activity less amounts paid out as, or paid for, prizes and total operating expenses, excluding management fees." 25 U.S.C. § 2703(9).

Management contracts that have not been approved by the NIGC are void. 25 C.F.R. § 533.7; Missouri River Servs., Inc. v. Omaha Tribe of Nebraska, 267 F.3d 848, 853 (8th Cir. 2001); Turn Key Gaming, 164 F.3d at 1094. Subject to NIGC approval, a tribe may amend an approved management contract. 25 C.F.R. § 535.1(a). Any attempted amendment that does not comply with the IGRA or NIGC requirements, or that is not approved by the NIGC, is also void. 25 C.F.R. § 535.1(f); Missouri River Servs., 267 F.3d at 853; Turn Key Gaming, 164 F.3d at 1094. A proposed amendment must be submitted to the NIGC within 30 days of execution. 25 C.F.R. § 535.1(b).

The NIGC is empowered to levy and collect civil fines against tribal operators or management contractors who violate IGRA, NIGC regulations, or approved tribal ordinances, regulations, or resolutions. 25 U.S.C. § 2713(a)(1); United States v. Santee Sioux Tribe of Nebraska, 135 F.3d 558, 563 (8th Cir. 1998). The NIGC may impose such fines up to $25,000 per violation. 25 U.S.C. § 2713(a)(1); 25 C.F.R. § 575.4. NIGC regulations further specify which factors to consider in assessing whether a fine is imposed, as well as if " each daily illegal act or omission will be deemed a separate violation[.]" 25 C.F.R. § 575.3; 25 C.F.R. § 575.4. Tribes or individuals subject to notices of violations or

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civil fine assessments may appeal. 25 C.F.R. § § 584.2(a); 585.2(a). A party may request a hearing or elect to have the NIGC dispose of the appeal by written submissions. 25 C.F.R. § § 584.3; 585.3. The NIGC's final ...


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