Ninth Circuit Holds California Negotiated State-Tribal Gaming Compacts in Bad Faith

By Heidi McNeil Staudenmaier and Marsha Cotton

On July 28, the Ninth Circuit Court of Appeals (“Court” or “Ninth Circuit”) issued a significant decision addressing the Class III gaming compact negotiation process between a state and a tribe as required by the Federal Indian Gaming Regulatory Act (“IGRA”). In a 2-1 decision, the majority opined that California’s attempt to negotiate topics outside of those listed in the IGRA amounts to “bad faith." The opinion was written by Judge Bress. Judge Wardlaw wrote a detailed concurrence, and Judge Bumatay authored a dissent.

The case arose from state-tribal gaming compact negotiations involving the State of California (the “State”) and several Indian tribes located within the State. In 1999, the State and the tribes entered a gaming compact that gave the tribes the exclusive right to offer Class III gaming on their tribal lands. In return, the tribes agreed to accept various regulations and duties relating to their gaming activities. The 1999 compacts were set to expire on December 31, 2020, but the State and the tribes began negotiations over successor compacts prior to that time. The tribes formed a Compact Tribes Steering Committee (the “Committee”) to represent the collective interests of tribes while negotiating with the State.

Between 2015 and 2019, California and the Committee held several days of in-person negotiation sessions. During that time, over 20 drafts of proposed compacts were exchanged between the State and the Committee. Among other things, California first sought a provision that would require the Tribes to recognize and enforce state spousal and child support judgments against tribal gaming facility employees. Second, California requested that the Tribes agree to extensive environmental regulations—devoting nearly 30 pages of detailed draft compact provisions to this topic alone. Third, California wanted the tribes to adopt California tort law as tribal law, which would have applied in various situations related and unrelated to gaming. Relatedly, the State wanted the tribes to waive sovereign immunity for tort claims and establish a tort claims commission.

The tribes maintained that these requests were insufficiently related to any of their gaming operations, and that the State therefore could not negotiate for these particular items under IGRA. However, California refused to accept any compact that did not include these three topics of negotiation. By the end of 2019, and after nearly five years of formal negotiations with the State, many of the tribes withdrew from the Committee and declined the State’s existing compact offers.

Also in 2019, the Plaintiff Tribes¹ sued the State, alleging that California violated the IGRA’s mandate to negotiate tribal-state compacts in good faith. On cross-motions for summary judgment, the District Court agreed with the Plaintiff Tribes. The District Court concluded that California’s demands “pulled negotiations into a field wholly collateral to the operation of gaming facilities,” and thus constituted “per se evidence of bad faith.” The District Court also interpreted Ninth Circuit precedent as requiring the State to provide “meaningful concessions” to the Plaintiff Tribes in exchange for demanding these ancillary provisions.

The District Court ultimately found that California had failed to offer such concessions and therefore failed to negotiate with the Plaintiff Tribes in good faith. The District Court granted summary judgment for the Tribes. California appealed the District Court’s decision. On appeal, the Ninth Circuit agreed with the District Court and affirmed its ruling in part.

The Ninth Circuit first described the statutory background and purpose of the IGRA. The Court noted that the purpose of the IGRA was to “seek to balance the competing sovereign interests of the federal government, state governments, and Indian tribes, by giving each a role in the regulatory scheme.” The tribal-state compacts are one method of achieving this goal as it “prescribes rules for operating gaming, allocates law enforcement authority between the tribe and State, and provides remedies for breach of the agreement’s terms.”

The Court recognized the risks inherent in the IGRA’s state compact approval requirement because Indian tribes, who rely on gaming for economic revenue, are potentially at the mercy of the states, which could withhold approval of Class III gaming rights or insist upon onerous compact conditions that would give states greater power to regulate tribes. As a result, Congress set boundaries in the IGRA to restrain undue influence by the states, including a good-faith negotiation requirement and a limited list of seven topics that were acceptable negotiation topics for a compact.

Specifically, Congress provided that a tribal-state compact “may include:"

1. the application of the criminal and civil laws and regulations of the Indian tribe or the State that are directly related to, and necessary for, the licensing and regulation of such activity;
2. the allocation of criminal and civil jurisdiction between the State and the Indian tribe necessary for the enforcement of such laws and regulations;
3. the assessment by the State of such activities in specific amounts as are necessary to defray the costs of regulating said activities;
4. taxation by the Indian tribe of such activities in amounts comparable to amounts assessed by the State for comparable activities;
5. remedies for breach of contract;
6. standards for the operation of such activities and maintenance of the gaming facility, including licensing; and
7. any other subjects that are directly related to the operation of gaming activities.²

Applying principles of statutory interpretation and the previous holding in Rincon Band of Luiseno Mission Indians v. Schwarzenegger, 602 F.3d 1019, 1027 (9th Cir. 2010), the Ninth Circuit determined that these seven topics are an exhaustive list. The Court reasoned that the term “may” in the relevant IGRA provision should be interpreted as restrictive because the list includes six specific topics followed by one catch-all provision.

The Court then analyzed the disputed topics within the parties’ compact negotiations: those relating to family, environmental, and tort law. The Court concluded that the three topics did not fit within any of the IGRA’s permissible topics, including the list’s catch-all provision. The Court made clear that topics had to “directly relate” to the operation of gaming activities to fit within the catch all provision, and the State’s arguments relating to family, environmental, and tort law were too attenuated to fit this requirement.  

Finally, separate to the particular facts of the case, the Court answered the more global question on whether a state can ever negotiate outside the enumerated topics listed in the IGRA and also act in good faith. The Court concluded that IGRA does not supply a “direct” answer to this question, but its text, structure, and court precedents confirm the answer to be “no.”

Ultimately, the Ninth Circuit reversed the District Court’s finding that the State had to provide “meaningful concessions” to the Plaintiff Tribes. The Court explained that a state’s offer to provide “meaningful concessions” to a tribe is inapposite when the state impermissibly asserts topics outside the IGRA’s list. The Court further explained that a state cannot negotiate well outside the bounds of the IGRA’s list and then attempt to excuse this by arguing that it provided “extra goodies” in the negotiation package. The Court added that a state can still fail to act in good faith even when it is negotiating within IGRA’s seven permissible topics.

The concurrence agreed and further explained that the IGRA is ambiguous as to whether a state conducts Tribal-State Compact negotiations in bad faith when it insists on negotiating topics beyond the exclusive list set forth in IGRA. Because of this ambiguity, Judge Wardlaw maintained that the U.S. Supreme Court’s “Indian canons of construction” required the Court to construe any ambiguity liberally in favor of the Plaintiff Tribes.

The dissent agreed that the IGRA’s seven topics of permissible negotiation are exhaustive, and that California exceeded those topics through negotiating topics on family, environmental, and tort law. However, the dissent concluded that it was possible for the State to show that it had negotiated in good faith, even while negotiating topics outside of those enumerated in the IGRA. In Judge Bumatay’s view, a State’s negotiation of off-list topics is not a per se act of bad faith. Instead, it is only some evidence of bad faith, and the State should be given an opportunity to set forth additional evidence to show that it had in fact negotiated in good faith. Both the majority opinion and concurrence disagreed with this burden-shifting scheme.

In sum, the Ninth Circuit ruled that states cannot negotiate topics unrelated to the operation of gaming activities during the statutorily required state-tribal gaming compact negotiating process, and any state’s attempt to do so will likely amount to per se bad faith under the IGRA.