Court Finds that California Negotiated in Bad Faith

In the “so significant it merits a two-part post” file….

A federal district court has held that California's revenue sharing demands in its negotiations with the Rincon Band of Luiseno Mission Indians amounted to an illegal tax, and therefore were evidence of the state's bad faith.

IGRA specifically prohibits states from using tribal-state compacts to tax tribes or to charge tribes a fee to conduct Class III gaming. IGRA also provides that state demands for taxes or fees are evidence of bad faith in compact negotiations. The Interior Secretary has adopted a practice of approving revenue sharing provisions if the state gives up meaningful concessions in exchange for the tribe's revenue sharing payments. Typically, the state concessions are some form of exclusivity -- a promise not to legalize gambling, or to allow tribes to operate games others may not, such as slot machines.

Due to the U.S. Supreme Court's 1996 decision in Seminole Tribe holding that tribes could not sue states under IGRA without state consent, the federal courts rarely examine whether state demands during compact negotiations violate IGRA. In California, however, the state has consented to suit. In 2003, the Ninth Circuit decided one of the very few cases examining state demands for revenue sharing. In that case, In re Indian Gaming Related Cases, which concerned the revenue sharing provisions in the compacts negotiated under Gov. Gray Davis, the Ninth Circuit adopted the Interior Secretary's general approach. The court upheld the revenue sharing provisions in light of the meaningful concessions on the part of the state as well as the provisions' consistency with IGRA's goals.

In Rincon Band v. Schwarzenegger (S.D. Cal. Apr. 29, 2008), the district court applied In re Indian Gaming Related Cases to hold that California was negotiating in bad faith with the Rincon Band over an amended compact. In our next post, we’ll take a look at what the Band sought to do, and how the court held what it did.